So, you want to be a government contractor?

Considering an entrance into the federal marketplace? Intrigued by the opportunity but intimidated by the unknowns? Sometimes it helps to start with (or return to) the basics. Through our collective years of experience helping both established and emerging contractors find their way in the federal marketplace, we’ve broken down some of the most common myths surrounding government contracting through a quick round of ‘fact or fiction.’

FACT: The U.S. government is the largest buyer of goods and services in the world.

In fiscal year 2022, the federal government spent roughly $1.1 trillion on contractual services and supplies. And while the Department of Defense (DOD) accounts for roughly half of that spending any given year, it’s not just planes, submarines and ammunition the government is purchasing. The U.S. government purchases virtually anything you can think of— medical equipment and personal protective equipment (especially post-pandemic), research and development services, information technology and related services, plus goods and services surrounding transportation, agriculture, energy and beyond. Simply put, the federal government is and continues to be the largest buyer of goods and services in the world. [1]

FICTION / FACT (it depends!): Working with the government means making sweeping changes to a company’s accounting practices.

This simple bit of wisdom reigns supreme: read your contract. Depending on your type of contract, you won’t necessarily have to upend your entire accounting structure or system. For instance, if you have a commercial item contract or a competitively awarded firm-fixed-price contract, the requirements and government audit oversight are more limited. Accounting requirements can get complicated if you have a change order issue that affects cost/price, when dealing with non-commercial or sole-source awards, or when dealing with flexibly priced contracts including cost reimbursable or time and materials arrangements. In each of those cases, you would need to consider your accounting system for things like separating direct and indirect costs, establishing an indirect rate structure to ensure that all indirect costs are allocable and so on. It’s easy to get lost in the weeds on the “what ifs” here, but the bottom line remains: just because you’re doing business with the federal government does not mean everything has to change.  

There will always be compliance requirements to consider that could relate to pricing, contract management and performance, labor, reporting, cybersecurity, vendor management and other areas, but in many cases an accounting system overhaul will not be necessary. It is always necessary to read and understand your contract(s). As a federal prime contractor or subcontractor, understanding your contract is very important. Further, it’s simply good hygiene (no matter the contract type) to implement a compliance program.