How is Selling to the Government Different from Selling to Commercial?

A company looking to do business with the government has to be aware that there are some considerable differences between government purchasing practices and the purchasing practices of commercial businesses. The government has a certain authority and rights that commercial enterprises do not have. That’s why contractors should be aware of what to expect when doing business with the government.

Commercial purchasing is governed by the Uniform Commercial Code (UCC), whereas federal government purchasing is governed by the Federal Acquisition Regulation (FAR) and pertinent agency supplements, which seek to make procurement decisions fair, transparent, and a good value for taxpayers. In doing business with a commercial entity, the terms of the contract are determined by mutual agreement between the parties. If a contractor is not agreeable to a certain provision of the contract, he or she could negotiate with the entity to make changes. A company may wish to negotiate their company terms and conditions that they have developed over the years. The government sets up the terms of its purchases and the contractor may decide whether to take the contract such as it is or leave it.

The government also has the right to make changes to its purchase orders, delivery orders, and contracts during the course of contract performance. Even as a contractor is working on fulfilling the terms of the contract, and has invested time and finances in the work, he may find that the government is making changes to the contract provisions. In these cases though, the government does make provisions for price and delivery schedule changes by way of a modification. Initial direction (if time doesn’t allow) may come by way of a unilateral change order, but later followed by a supplemental agreement signed by both parties. In dealing with a commercial enterprise, such changes can only be made on mutual agreement, rather than unilaterally imposed.

Contractors doing business with the government are open to audits by the government any time during the course of the contract. Government contractors will have to maintain certain records and produce them if the government requires them. In a commercial contract, however, satisfactory completion of the contract is required and there is no mandate for the contractor to be audited. The contract agreement between a contractor and a commercial purchaser determines what is required of the contractor.

Before a business can be eligible to receive a contract award, they must register in a mandatory federal government owned and operated free database called the System for Award Management (SAM). Registering allows a company to receive electronic payment from the government. The SAM website is at www.SAM.gov.

The government normally doesn’t pay until it receives something. Payments are made within 30 days after receipt of a proper invoice from the contractor and receiving report from the customer. In addition, certain types of contracts limit the amount of profit you can earn and the amounts and types of costs you may recover.

The federal government also has a performance rating system. A report of contractor performance is normally issued at the end of the performance period or contract completion. The contractor will be able to respond to the rating. The performance rating will be used to evaluate a contractor’s past performance if he or she decides to submit an offer on a “Best Value” federal procurement.

The federal government has small business goals that agencies strive to meet. Procurements under the simplified acquisition threshold ($250,000) are generally reserved for qualified small businesses. Some procurements may be set-aside for various types of businesses, such as Small Business, Women-Owned Small Business, HUBZone Small Business, and Service-Disabled Veteran-Owned Small Business. Large businesses may be subject to preparing and negotiating subcontracting plans with small business goals. Failure to meet the goals may result in an unfavorable performance rating and monetary loss.

The federal government has the absolute right to terminate a contract – either for convenience (the government has determined that it is in their best interests to terminate) or for default (contractor not performing).