Pros & Cons of being a Government Contractor

I talked the other day to a company that was considering the pursuit of a government contract.  The company had a fairly successful business in the commercial market but wanted to expand and pursue a government contract.  As we discussed this I thought some of the thought process would be beneficial to all small businesses that were considering a venture into the world of government contracts. 

First let's look at the positives.  The US Federal Government is the single largest purchaser of goods and services in the world.  The US government spends nearly $400 Billion in goods and services each year.  In other words, they are the world's biggest customer.  They also pay their bills so they are a low credit risk.  Here is a list (not necessarily all inclusive) of the benefits of becoming a government contractor:

Certainly this is not an exhaustive list but I tend to think there are benefits here that most companies overlook, like information on the market and on your competitors (how much the government paid the last time they purchased your goods/services).  Also, the fact that the government has a quota for the number of dollars going to small businesses is a plus. 

This all sounds good and most small businesses are ready to submit at this point.  I think it is prudent to evaluate the "costs" of doing business with the world's largest customer first.  It is important to know what you are signing up for and to see if you are willing to "pay the price".  For instance, the Federal Government has a complex set of rules and regulations for guiding their transactions and they follow them relentlessly.  These rules include specifying how a company does their accounting for instance (depending on the type of award).  If a company is not familiar with these regulations, they can be costly to comply and confusing to the uninitiated.  I always recommend that a company evaluate the compliance issues, the costs that will be incurred to comply and then compare this to the increase in business opportunity to evaluate if this is a lucrative deal or not.  Many times this is a lucrative deal but there are instances where it just doesn't make sense for a small business to contract with the Federal Government.  Only you can evaluate that.  Here is a brief list of some of the "cons" of doing business with the Federal Government:

Some of these demands can be shocking to a company only familiar with the commercial market.  Some of the demands come with large overhead (like a compliant accounting system, a compliant project management system or a compliant purchasing system).  Not all of these con's apply all of the time but is a good idea to know which ones apply to you.  If you have difficulty with this evaluation, give me a call and I can help you line things out so you can make an informed decision.