Public Sector Contracting versus Private Sector Contracting
Here’s an outline of the key differences in dealing with contracts between the federal government or the public sector and the private sector.
Meanwhile in the private sector, some larger companies centralize procurement, but most deal with it in a decentralized way at a regional or departmental level.
GETTING THE CONTRACT
To ensure fairness, maintain high standards, and deliver value to the US taxpayers, the federal government has a strict procurement process in place.
Contractors need to send a proposal in response to a Request for Proposal (RFP) posted on a procurement site. Then, the Contracting Officer is typically delegated the full buying authority necessary to make the purchase in federal government buying decisions.
Federal government services are less sensitive to the economy simply because taxes are collected regardless of economic conditions, however, businesses need to qualify, even annually, in order to maintain a position of “good standing” as a government service provider.
On the other hand, private sector contracting varies dramatically and can often be accomplished through personal connections rather than sales effort because the contracts are highly sensitive to shareholder influence.
Private sector contracting might be sold through any number of sales techniques from cold-calling to sales presentations. Contractors may even frequently require the sign-off of higher levels of authority, each who need to be “sold” on the product or service.
Hence, in the private sector, a business’ track record and contract may be enough to acquire business, but in doing business with the government, qualification differs, depending on the agency served and the products or services delivered.
ENGAGING ON THE CONTRACT
Federal government agencies are often highly bureaucratic, so each agency carefully manages its own “jurisdiction”. As a result, private sector contractors transitioning in the public sector are sometimes surprised to discover just how “political” and “pigeon-holed” their works were.
Then, in terms of the successful completion of a project, in the private sector, contracts are considered complete based on performance-enhancing or bottom-line-enhancing Key Performance Indicators (KPIs).
On the other hand, the federal government may be occasionally cost sensitive during the selection of their service provider, but their KPIs are typically not tied to performance or the bottom line. Rather, they are tied to time, budget, measurable completion of the project, or some other indicator.
Margins are usually higher in the private sector since the federal government rewards work to the lowest bidder. However, change orders and longer-term contracts make federal government work lucrative to companies that are able to work within the margins.
Payment is also different between these two sectors. Due to bureaucracy and pre-established systems, businesses can expect longer timelines on payment (1-6 months) from the government compared to the private sector where a 30-day payment schedule is typical.
Breaking into the federal contracting marketplace isn’t always easy to do as it requires careful adherence to the pre-established process as well as creative navigation of the bureaucracy. However, companies that can establish connections as government contractors usually enjoy long-lasting opportunities.
With this in mind, if you want to learn more about doing business with the government or anything about doing government contracting, then join us here at GovCon Giants.
Just visit our website and other social media platforms or check the new GovCon Edu where you learn everything about government contracting!