Practical answers to the most common questions from business owners entering or scaling in federal contracting. No acronym soup — every term explained where it appears.
Government contracting is the process by which federal, state, and local agencies purchase goods and services from private companies. Federal contracting is governed by the Federal Acquisition Regulation (FAR), which sets rules for how agencies solicit proposals, evaluate bids, and award contracts. For small businesses, federal contracting represents a $700+ billion annual market with set-aside programs specifically designed to increase small business participation.
To receive federal contracts, you must register in SAM.gov (System for Award Management). The process takes 1–3 business days for initial registration and requires your company's Unique Entity ID (UEI), NAICS codes, bank account information for direct deposit, and a notarized letter if you are an Entity Administrator. Registration must be renewed annually. SAM.gov is free — avoid paid "registration assistance" services.
A NAICS (North American Industry Classification System) code identifies your industry for federal contracting purposes. You select your primary NAICS code during SAM.gov registration — it determines which contracts you are eligible to bid and whether your business qualifies as "small" under SBA size standards (which vary by NAICS code). You can have multiple NAICS codes. Choose codes that match your actual capabilities, not aspirational ones — misrepresentation is a serious violation.
Set-asides are federal contracts reserved exclusively for small businesses or specific small business categories. The most common: Small Business Set-Aside (any small business), 8(a) Business Development Program (socially and economically disadvantaged business owners), HUBZone (businesses in historically underutilized geographic zones), WOSB/EDWOSB (women-owned small businesses), and SDVOSB (service-disabled veteran-owned small businesses). Set-asides reduce competition and increase your win probability — getting certified should be a priority if you qualify.
The SBA 8(a) program is a 9-year business development program for small businesses owned and controlled by socially and economically disadvantaged individuals (generally defined as those with personal net worth under $750,000). 8(a) firms can receive sole-source contracts up to $4.5M (services) and $7M (manufacturing), and are eligible for 8(a) set-aside competitions. Applying requires SBA approval and supporting documentation of disadvantaged status.
HUBZone (Historically Underutilized Business Zone) certification is available to small businesses that maintain a principal office in a designated HUBZone area and employ at least 35% of their staff who are HUBZone residents. The SBA maintains the HUBZone map. Certified firms are eligible for set-aside competitions and receive a 10% price evaluation preference on full-and-open contracts. The SBA verifies HUBZone compliance annually.
SDVOSB (Service-Disabled Veteran-Owned Small Business) certification is for small businesses at least 51% owned and controlled by one or more service-disabled veterans. The VA manages its own SDVOSB database (VIP) for VA contracts; SBA manages SDVOSB certification for non-VA federal contracts. VA set-asides are some of the most favorable in federal contracting — SDVOSB-verified businesses compete only against each other for VA work.
DCAA (Defense Contract Audit Agency) is the U.S. government agency that audits contractors doing business with the Department of Defense. Its job is to verify that costs charged to cost-reimbursable and T&M contracts are allowable, allocable, and reasonable under FAR Part 31. Small contractors with cost-reimbursable contracts are subject to DCAA oversight from day one. A failed audit can result in withheld payments, required cost repayments, and in serious cases, suspension or debarment.
The Federal Acquisition Regulation (FAR) is the primary set of rules governing how federal agencies purchase goods and services. It covers everything from how solicitations are issued to contract types, allowable costs, contractor ethics requirements, and closeout procedures. Most government contracts include FAR clauses by reference (e.g., FAR 52.212-4 for commercial items). Contractors are expected to know and comply with all applicable FAR clauses in their contracts.
DFARS (Defense Federal Acquisition Regulation Supplement) is the DoD supplement to the FAR. It adds requirements specific to defense contracting, including cybersecurity standards (CMMC/DFARS 252.204-7012), export control compliance, and specific contract clauses for defense work. If you have DoD contracts, you must comply with both FAR and DFARS.
DCAA requires that employees record time daily — not reconstructed from memory at week-end. Time must be charged to the correct cost objective (contract number or indirect pool), supervisors must review and approve timesheets at least weekly, and corrections must be documented with the original value visible. A written timekeeping policy and employee training are also required. Reconstructed timesheets are one of the most common DCAA findings.
Indirect cost rates (fringe benefits, overhead, and G&A) are the mechanism for recovering costs that cannot be charged directly to a specific contract — office rent, HR, accounting, management. Rates are expressed as a percentage (e.g., 35% fringe on direct labor) and applied to a base. Provisional (estimated) rates are used during the year; final rates are settled annually via an Incurred Cost Submission. DCAA audits indirect rate calculations to ensure they are consistent, well-documented, and exclude unallowable costs.
FAR Part 31 identifies costs that cannot be billed to the government. Key unallowable costs include: entertainment and alcohol, goodwill amortization, advertising (with some exceptions), interest on borrowings, contributions and donations, fines and penalties, and certain legal fees. Unallowable costs must be identified in your accounting system and excluded from indirect rate calculations and billings. Billing unallowable costs — even accidentally — can result in disallowances and penalties.
An Incurred Cost Submission (ICS) is an annual report filed with DCAA within 6 months of your fiscal year end for contractors with cost-reimbursable contracts. It reconciles your actual indirect cost rates against the provisional rates used for billing during the year, and settles the difference (either you owe the government a refund or you receive additional payment). Many small contractors don't realize ICS is required — DCAA can audit years of unsubmitted ICS filings simultaneously.
The three primary contract types are: Fixed-Price (FFP) — the contractor delivers a defined deliverable for a set price, absorbing cost overruns; Time & Materials (T&M) — the government pays for actual labor hours at negotiated rates plus materials, used when scope is uncertain; Cost-Plus (CPFF, CPAF, CPIF) — the government reimburses actual costs plus a fee, used for research and development work. Fixed-price contracts carry the most risk for the contractor; cost-plus carry the most risk for the government and the most DCAA scrutiny.
A CLIN (Contract Line Item Number) is a distinct line item in a government contract that specifies a deliverable, service, or data item and its associated funding. Most government contracts have multiple CLINs, each with its own period of performance, funded amount, and deliverable requirements. Tracking costs per CLIN — not just per contract — is important for billing accuracy and burn rate monitoring.
A CDRL (Contract Data Requirements List) is the government's formal mechanism for ordering deliverables (documents, reports, data) under a contract. CDRLs specify the deliverable title, frequency, format, and submission deadline. Missing a CDRL deadline is a performance issue — and in defense contracts, CDRLs are typically contractually binding with cure notice provisions for non-delivery.
A teaming arrangement is an agreement between two or more companies to jointly pursue a government contract. The prime contractor holds the contract with the government; subcontractors perform work under the prime's direction. Teaming is common when no single company has all required capabilities, or when a large prime wants to use a small business's set-aside status. Teaming agreements should be in writing and address work-share, IP rights, and non-compete provisions before proposal submission.
A sole-source contract is awarded without competition to a single contractor. FAR authorizes sole-source awards in specific circumstances: only one source exists, urgent need precludes competition, a follow-on to an existing contract, or under certain set-aside programs (e.g., 8(a) sole-source up to $4.5M). Sole-source awards above certain thresholds require a Justification and Approval (J&A) document from the agency. They are significantly faster than competed contracts.
The most effective proposal improvements: (1) Answer every evaluation criterion explicitly — evaluators cannot give credit for capabilities you don't explicitly state; (2) Lead with understanding of the government's problem, not your company capabilities; (3) Quantify past performance — "reduced processing time by 40%" beats "improved efficiency"; (4) Show your management approach — the government wants to know what happens when things go wrong; (5) Follow instructions exactly — non-compliant proposals are often rejected without evaluation. The RFP instructions section is not optional reading.
A CLM (Contract Lifecycle Management) system is software designed to track contracts from pursuit through closeout — managing deadlines, deliverables, funded amounts, modifications, and audit trails. In government contracting, a CLM helps ensure you're meeting CDRL deadlines, tracking burn against funded ceilings, and maintaining the documentation trail required for DCAA compliance. Se7en Solutions is a CLM purpose-built for small GovCon teams at $199/mo flat.
Spreadsheets fail at scale for four reasons: (1) No audit trail — a cell value can change without any record of who changed it or when; (2) No automated alerts — tracking 20+ contracts with deliverable deadlines and expiration dates in Excel requires manual monitoring that gets missed; (3) Collaboration breaks down — version control on shared spreadsheets is manual and error-prone; (4) DCAA documentation risk — when an auditor asks for cost accumulation records, a spreadsheet is hard to defend as a systematic accounting of charges. Most contractors outgrow spreadsheets around 3–5 active contracts.
The trigger points: (1) You have more than 3 active contracts with different deliverable schedules; (2) You've missed a deliverable or almost missed one due to tracking failure; (3) You're preparing for your first DCAA audit and realize your records are hard to produce; (4) You have multiple team members who need visibility into contract status; (5) You're winning new awards faster than your manual process can keep up. Most small contractors wait too long — the time to implement a CLM is before a compliance issue, not after.
For small GovCon teams (1–50 people), the criteria that matter most: flat pricing (not per-user), quick setup without implementation consultants, deliverable tracking with automated alerts, burn rate visibility against funded ceilings, DCAA-compliant audit trail, CSV/PDF export for billing support, and month-to-month contracts without lock-in. Enterprise systems like Deltek Costpoint, Unanet, and Vantagepoint are built for 100+ person firms with $1,000–2,000+/mo pricing and months of implementation — overkill for most small contractors.
Deltek and Costpoint are enterprise ERP systems designed for 100+ person GovCon firms at $800–2,000+/mo with 3–6 months of implementation. Se7en Solutions is a CLM built specifically for 1–50 person teams at $199/mo flat, live in 15 minutes. The tradeoff: enterprise systems have broader accounting and ERP functionality; Se7en is purpose-built for contract and deliverable tracking with DCAA compliance. If your primary need is contract tracking, burn rate visibility, and deliverable management — not full project accounting — Se7en is the better fit at a fraction of the cost. See the full comparison: Se7en vs Costpoint, Se7en vs Deltek.
Se7en Solutions is a contract lifecycle management tool built for small GovCon teams. Track deliverables, monitor burn rate, stay DCAA-compliant. $199/mo flat, live in 15 minutes.