For small companies, contracting is huge business for the Government. Even though the revenue margin is strongly controlled via competitive bidding process, federal government contract could be more profitable at some point, as a result of the availability of steady or consistent work once a contract agreement is granted.
Types of Government Contracts – When planning to bid on a federal government contract, we need to consider many things, but here we only give some information about the kinds of different contracts that available, as well showing how they could impact your business company. The Types of Government Contracts that you select needs to be focused on excellent financial performance, either for you as a contractor and the federal government.
You’ll see many different kind or of Types of Government Contracts that are allowed by FAR while using offered financial arrangement. The standard categories such as cost-reimbursement, fixed-price, letter contracts and also T&M (time-and-materials).
If the situation needs it, and there’s no one type of business contract meets the requirements of both 2 parties, so that types of federal government contracts could be mixed. However the business contract is selected, distribution of potential risk is one of the main things to consider. The closer we could get to distribution of risk, when saving the federal govt funds and generating your profit , so the better chance you’re to be granted the business contract. Here are some of basic Types of Government Contracts you need to be familiar with before you get involve in government business.
Fixed Price Contract
Fixed-price contract is an attempt separating cost from income as much as possible. For this type of contract the invoice is typically delivered upon distribution of services or products, meaning not it’s not sent on a routine or periodic basis. This kind of contract does not necessarily indicate that the business contract must be totally completed. It may be on the accomplishment of a certain milestone inside the business contract.
When you are using this kind of contract agreement, you as contractor have the majority of the risk. But the good side of this kind of contract is that you as a contractor have special control gained on product materials as well as time management, that could make extra profit.
Cost Reimbursement Contract
Not like fixed-price contract, cost-reimbursement contract doesn’t separate revenue and cost. In fact, revenue and cost are directly connected or linked. Invoicing for this type of contract is completed on a regular or periodic basis, as an example of this, month to month based on expenses or costs received throughout the time period. If expenses or costs happen to be reduced, then revenue follows. And lost revenue is recoverable by putting additional task through business contract modification.
Time and Materials Contract
T&M contract are different than the 2 other type of contracts, in that contract the govt is paying for the contractors direct work or labor rather than a particular outcome. in this situation the deliverable is the direct hrs. For this kind of contract agreement Invoicing could be performed in regular basis.
What about the risk of this type of government contract (T&M contract)? The answer is low risk. normally the risk is about the contractor’s capability to deliver the desired expertise at negotiated rate. The possibility of unexpected distractions in the projects is one the risk that very often ignored by the contractors. During this time, the contractor is unable to bill against the contract, resulting in a loss of revenue.
There are lots of Types of Government Contracts that haven’t been described, like letter contract and mixed-contract. Those types of contracts that are already mentioned earlier are definitely the most popular type of government contracts, and should provide a good basis to start complete analysis on kinds of federal government contracts. For more information regarding Government Contract visit FedBizOpps.Gov website.