The Disadvantages of Government Contracting

Selling to the Federal Government
Marketing and selling to the federal government requires a highly unique and customized set of processes, systems and contract management strategies compared to selling to private industry. The advantages and disadvantages of selling to the federal government and a recommendation of whether this is a sustainable and profitable strategy is discussed.
Comparing the Advantages and Disadvantages of Government Contracting
The advantages of selling to the federal government include the opportunity to expand into an entirely new market and generate incremental sales, gain the opportunity to have multi-year contractual purchasing agreements with federal government agencies, and gain valuable insights into how the government contract management process works. The disadvantages of selling to the federal government are first the reality that the government has often awarded contracts with little or no competitive bidding (Berrios, 2006). This makes the entire bidding process unethical and nearly impossible to win. Second, the government favors cost-plus contracts which are also difficult to accurately predict at the time bids are due (Berrios, 2006). As a result many government contractors struggle to remain profitable over the life of their contracts. Third, the federal government requires contractors to create a Project Management Office (PMO) that acts as the coordination point of all activities. The PMO is a requirement in larger government contracting projects including the building of aerospace and defense vehicles and systems.
Recommendation
Despite the costs and challenges of selling to the federal government, the annuity-oriented contract renewals and the potential of becoming a prime contractor make the investment an attractive one. Many companies initially begin pilot programs that concentrate on selling a specific set of products or services that can be tailored and customized to the governments’ needs. By taking a pilot-based approach, a company can minimize risk but also gain insight into how to better work with the federal government.
References
Ruben Berrios (2006). Government Contracts and Contractor Behavior. Journal of Business Ethics, 63(2), 119-130. Retrieved October 9, 2008, from ABI/INFORM Global database. (Document ID: 964489041).