How Federal Contracts Are Awarded

The Federal Procurement Process

When a federal agency needs goods or services, it cannot simply call up a vendor and write a check. The process is governed by the Federal Acquisition Regulation (FAR) and generally follows these steps:

1. Requirements Definition: The agency defines what it needs, specifications, quantities, timeline, and performance requirements. Poor requirements are a leading cause of contract problems downstream.
2. Market Research: Contracting officers research available vendors, industry pricing, and whether small businesses can perform the work. This shapes the solicitation strategy.
3. Solicitation: The agency publishes a solicitation on SAM.gov (System for Award Management). For competitive acquisitions above $25,000, this is required. The solicitation describes the work, evaluation criteria, and how proposals should be submitted.
4. Proposal Evaluation: Vendors submit proposals. A source selection board evaluates them against stated criteria, typically technical approach, past performance, and price. Best value doesn't always mean lowest price.
5. Award: The agency awards the contract. Unsuccessful offerors can request a debrief and, if they believe the award was improper, file a protest with the Government Accountability Office (GAO) or the Court of Federal Claims.
6. Contract Administration: A Contracting Officer's Representative (COR) monitors performance. The agency pays only when deliverables are accepted. Final payment closes the contract.

Types of Federal Contracts

Not all contracts work the same way. The type determines how risk is shared between the government and the contractor:

• Fixed-Price Contracts: The vendor agrees to deliver for a set price. If costs run over, the contractor absorbs the loss; if under budget, the contractor profits. Government risk is low; vendor risk is high. Most appropriate when requirements are well-defined.
• Cost-Reimbursement Contracts: The government pays the contractor's allowable costs plus a fee. Used when requirements are uncertain or the work involves significant research and development. Government absorbs most cost risk.
• Time and Materials (T&M): Payment for direct labor hours at fixed rates plus materials at cost. Common for IT services and maintenance. No incentive for the contractor to work efficiently, agencies must monitor closely.
• Indefinite Delivery / Indefinite Quantity (IDIQ): An umbrella contract with a ceiling value; specific task orders are issued over time. Popular for IT, professional services, and logistics. Enables faster ordering without re-competing each requirement.

Competitive vs. Sole-Source Awards

Full and open competition is the default. The FAR allows sole-source (non-competitive) awards only under specific, documented circumstances:

• Only one responsible source and no other supplies or services will satisfy the agency's requirements
• Unusual and compelling urgency that would result in serious injury to the government if competition were required
• Industrial mobilization or engineering, developmental, or research capability requirements
• International agreement that specifies a particular source
• Authorized by statute (e.g., certain 8(a) program awards)

Agencies must publish a "justification and approval" document for sole-source awards above $350,000 (the Simplified Acquisition Threshold, raised from $250,000 effective October 1, 2025). These are publicly available and searchable on SAM.gov. While sole-source awards are sometimes necessary, they reduce competition and tend to result in higher prices.

Small Business Set-Asides

Congress mandates that federal agencies direct a share of contracting dollars to small businesses. The current government-wide goal is 23% of prime contract dollars. Key set-aside categories:

• Small Business Set-Aside: Restricts competition to all small businesses (size standard varies by NAICS code, typically revenue or employee count).
• 8(a) Business Development: Reserved for firms owned by socially and economically disadvantaged individuals. The SBA certifies eligibility. Contracts can be awarded without full competition.
• HUBZone: Firms in Historically Underutilized Business Zones, economically distressed areas, receive price preferences and set-aside opportunities.
• Service-Disabled Veteran-Owned (SDVOSB): Set-asides for businesses majority-owned by service-disabled veterans.
• Women-Owned Small Business (WOSB): Set-asides for women-owned firms in industries where they are underrepresented.

Set-asides are powerful levers for directing federal spending toward specific communities. You can see how contract spending flows to each state and county on PlainSpending.

How to Find Contract Data on PlainSpending

PlainSpending aggregates USASpending.gov contract data to show spending patterns at multiple geographic levels:

• Browse agencies - see which federal agencies spend the most on contracts and where their dollars go
• Browse states - view contract spending relative to grants and direct payments by state
• County-level data - find which counties receive the most contract dollars (often correlated with military installations and federal facilities)
• State rankings - compare states by total spending volume

For individual contract records, solicitations, and vendor details, visit USASpending.gov or SAM.gov directly.

Frequently Asked Questions

Related Guides

• Understanding Federal Spending
• Why Federal Spending Varies by State