Government contracts vs. private contracting
Projects for the government are covered by strict statutes and regulations to protect the public and reassure taxpayers that their money is being spent properly.
Government contracts are different from private contracting in several ways. To begin with, most public works jobs require that you pay the prevailing wage rate. Public works as opposed to private work is very highly competitive. For example, contractors are on a much bigger margin than public works, while public works typically involves a greater volume. So markup is less. But you’re working with a higher price in labor.
You also have more outside agency inspection, which is often extremely critical. And it’s much more paperwork-intensive: tech submittals, payroll, and legal (lien) documentation, just to name a few areas.
Since the government typically requires more paperwork, many businesses never enter the market. So what’s in it for those who do? Is it worth it?
Good opportunity for stable businesses
Doing business with the government won’t make you instantly wealthy. But it can certainly work to your financial advantage. For one thing, it can help you to level out the economic peaks and valleys during the business year. If you can apply the profits from government revenue to paying for your business overhead, you can be more selective with other contracts that involve a higher margin.
One of the good things about contracting with the government is that when the economy is tough, Congress pours dollars into public agencies to help jumpstart the economy. When the work is properly done, you know you’ll get paid.
Is Your Business Ready For Government Contracts?
To succeed with government contracts, first make sure that your business is solid enough to complete the job term. If your business is in financial trouble, a government contract isn’t going to save you.
In fact, if you can’t fulfill its requirements (which include sustaining your business throughout the contract term), it could put you out of business. Be sure that you have enough capital and the right people and resources to do the job before committing to it.
Also, the government does not typically finance contracts before the work is performed. You may be able to receive incremental payments if the contract’s value and duration are substantial enough. But there must be a good reason, not just the fact that you need money to stay in business.
Since public projects involve paying the current prevailing wage, labor costs are considerably higher than the industry average. The norm is usually based on the highest union pay scales. A business bidding a public works job has to be able to carry those costs for several weeks prior to receiving payment from the government.
The importance of proper capitalization and paperwork filing can’t be stressed enough. You have to consider your payment schedule: the labor dollars you’ll have to front during the project and your materials cost. To get paid, you’ll have to make sure that you’ve correctly filled out all of the paperwork, submitted it on time, and gone through proper channels.
Make sure that you get all of the information in advance so that you won’t be caught flat-footed after starting the job. Make sure to read all of it thoroughly, and then read it again.
Once you’re armed with that, and are sure that your business is strong enough to sustain itself through the initial phases of government contract work, get ready to enjoy some great profits and business relationships with government agencies who will seek out your services for years to come.