What Contracting and Accounting Rules Govern Federal Government Contracts?


The federal government utilizes a variety of different contract types depending on what it is buying, what funding is available, what the needs are and other factors. The trend is towards longer commitments and increased flexibility. Anyone considering selling to the Federal Government MUST register in the System for Award Management (sam.gov). One one end, small procurements are completed through the use of a credit card and at the other end, large complex procurements are completed through the use of proposals with multi-year contracts being awarded.

A significant difference between how business is done in the government sector versus commercial sector is the set of rules and regulations which govern the contract and associated accounting and financial obligations and processes.

The United States government procurement process is a complex undertaking. Procurement is accomplished and contracts are awarded, administered, and enforced by a variety of military and civilian agencies subject to a multitude of rules and regulations. Government procurement is essentially procurement by regulation. The basic set of regulations relating to federal procurement is the Federal Acquisition Regulation (FAR).  Agency Supplements provide additional regulations necessary to implement FAR policies and procedures within that agency.

While all federal procurement regulations are important, some that are of specific interest to new federal contractors include cybersecurity requirements, Department of Labor wage rates for employees working on federal contracts, federal contractor minimum wage (the 2020 minimum wage is $10.80), buy American laws, and the non-manufacturer rule.

The federal government uses various types of contracts to meet their requirements. Contract types vary according to the degree and timing of the responsibility assumed by the contractor for the cost of performance and the amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals.

Fixed-price types of contracts provide for a firm price or, in appropriate cases, an adjustable price. This type of contract places the most risk onto the contractor, as the contractor is fully responsible for all costs and resulting profit or loss. It is generally used for commercial off the shelf type of goods and services.

Cost-reimbursement types of contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract. This type of contract places less risk on the contractor as payment will be made for all allowable incurred costs. Cost-reimbursement contracts are not generally used for commercial items.

The government may also use Incentive Contracts, Indefinite Delivery Contracts, Time and Material (T&M) Contracts, Labor Hour Contracts, Letter Contracts, and Agreements.

Small requirements called micro-purchases may be met through the use of the Government Purchase Card (credit card).