What Is Government Contracting? A Beginner's Guide for Small Businesses

Government contracting is the business of selling products or services to government agencies under a formal contract. For a small business, government contracts usually mean federal work you find and bid on through SAM.gov, often in competitions that only small businesses can enter. The government aims to award at least 23% of its contract dollars to small businesses each year, and in fiscal year 2025 (FY2025) agencies beat that goal, awarding small businesses about $179 billion, nearly 28% of the contract dollars SBA counts toward the goal. Getting started is free: you register on SAM.gov, find opportunities that match what you do, and submit bids.

What is government contracting?

A government contract is a legally binding agreement in which a federal agency pays a business to deliver products or services. Agencies buy an enormous range of things: grounds maintenance at national cemeteries, cleaning for federal buildings, IT support, construction and repairs, catered meals, and millions of spare parts. In FY2025, federal agencies obligated about $793 billion through contracts, according to the Government Accountability Office.

Three distinctions help the rest of this guide make sense:

• Contracts vs. grants. A contract pays you to deliver something the government needs. A grant funds a project for the public good. This guide is about contracts.
• Prime contractor vs. subcontractor. A prime contractor holds the contract with the agency. A subcontractor does part of the work for the prime. Both are good ways in.
• Federal vs. state and local. This guide covers federal contracting, which runs through SAM.gov. States, counties, and cities have their own buying systems.

The central website for all of this is SAM.gov, the government's free System for Award Management. It's where you register your business and where agencies post opportunities. Read what SAM.gov is for a tour, and keep the government contracting glossary open for the jargon.

How does government contracting work?

Here's the whole path in seven steps. The rest of this guide covers each one, with links to detailed guides when you're ready to go deeper.

1. Register your business on SAM.gov (free; plan on at least 10 business days).
2. Know your NAICS codes and your size, which decide what you can bid on.
3. Understand set-asides, the contracts reserved for small businesses.
4. Find opportunities on SAM.gov and in agency forecasts.
5. Read the solicitation and decide whether to bid.
6. Get noticed with a capability statement and agency outreach.
7. Bid, win, and deliver, then use that performance to win the next one.

Why small businesses should consider it

The government is a big, steady customer, and the rules are designed to send work to small businesses.

• The government sets a goal for you. By law, the government-wide goal is to award at least 23% of prime contract dollars to small businesses. In FY2025, agencies awarded about $179 billion to small businesses, nearly 28% of the dollars SBA counts toward that goal.
• Set-asides limit the competition. Many contracts are open only to small businesses, so you aren't bidding against the largest companies in your field.
• Payment is predictable. Under the Prompt Payment Act, payment is generally due 30 days after the government receives a proper invoice, and agencies aim to pay small businesses within 15 days.
• Contracts can run for years. Many service contracts have a base year plus option years.
• Past performance compounds. Each contract you deliver well makes the next one easier to win.

There are real trade-offs. Bidding takes time, there's paperwork, and you'll often compete on price. For the full picture, read 9 benefits of government contracting, see real examples of government contracts for small businesses, and clear up the myths that keep businesses out.

Can your business sell to the government?

Probably. Any legal business entity can register on SAM.gov, including sole proprietors, partnerships, corporations, and nonprofits. You need a taxpayer ID (an EIN, or your Social Security number if you're a sole proprietor), a physical address, and a bank account for electronic payments.

You don't need prior government experience. Federal rules say an agency can't find a business unqualified solely because it lacks a record of past performance, and a business with no relevant past performance can't be rated favorably or unfavorably on it.

To compete for small business set-asides, your business also has to be small. The Small Business Administration (SBA) sets a size standard for every industry, based either on average annual receipts or on number of employees. For example, a janitorial company is small under the current table if its average annual receipts are $22 million or less.

The only businesses shut out entirely are those the government has excluded, such as debarred or suspended contractors. Read who can get government contracts for the details.

Step 1: Register on SAM.gov

Registration is the first step, and it's free. You'll create a Login.gov account, confirm your business's legal name and address, get a 12-character Unique Entity ID, and fill in your business details, bank account, NAICS codes, and points of contact.

Two things to know up front:

• It takes time. Plan on at least 10 business days after you submit, and longer if SAM.gov needs documents to confirm your business. Start early, because you must be registered when you submit a bid.
• It never costs money. Anyone charging you to register or renew is a paid third party or a scam.

Our step-by-step guide covers every screen: how to register on SAM.gov. If you get an email demanding a fee, read how to spot SAM.gov registration scams.

Step 2: Know your NAICS codes and your size

NAICS codes are six-digit industry codes, and they drive almost everything in federal contracting:

• Each solicitation usually lists one NAICS code, and that code decides which size standard applies.
• Your codes in SAM.gov decide which searches and market research you show up in.
• Agencies track their spending by code, so the codes also show you where the money is.

Pick a primary code for your main line of work and add the others you want to be considered for. Our guide explains how to choose NAICS codes and how to check the size standard for each one.

Step 3: Understand set-asides and certifications

A set-aside is a contract that only certain small businesses can bid on. For most purchases above the micro-purchase threshold (usually $15,000), contracting officers must set the work aside for small businesses when they expect at least two capable small businesses to bid. This is called the rule of two.

The most common kind, a total small business set-aside, needs no certification. You only need to qualify as small and say so in SAM.gov. Other set-asides are reserved for businesses in specific SBA programs:

SBA's certifications are free through MySBA Certifications. Read set-aside contracts explained for eligibility rules and current program changes.

Step 4: Find the right opportunities

Agencies post most opportunities over $25,000 on SAM.gov's Contract Opportunities section. Each posting is a notice, and notices come in several types that follow a buy from start to finish:

1. Sources sought and requests for information: the agency is doing market research and wants to hear from capable businesses.
2. Presolicitation: the agency announces that a solicitation is coming.
3. Solicitation or combined synopsis/solicitation: the actual request for bids, with a deadline.
4. Award notice: who won, and often for how much.

Sources sought notices are the best starting point for beginners. Responding costs nothing but time, and it can persuade an agency to set a contract aside for small businesses.

Beyond SAM.gov, check agency procurement forecasts (collected at acquisition.gov) to see what's coming, and search past awards on USAspending.gov to learn who buys what you sell and who won before. Small purchases matter too. Most purchases up to $15,000 are micro-purchases, often paid by government purchase card. The limit is lower for service contracts covered by the Service Contract Act ($2,500) and for construction ($2,000). Purchases up to $350,000 can use simplified procedures that are faster and lighter on paperwork.

Our full guide covers searching, alerts, and a weekly routine: how to find government contracts.

Step 5: Read the solicitation and decide whether to bid

Solicitations can run to dozens of pages plus attachments. You don't read them front to back. Start with the parts that decide whether you should bid at all:

• The work (usually Section C, the statement of work or performance work statement): can you actually do it?
• The instructions (Section L): what must you submit, in what format, and by when?
• The evaluation criteria (Section M): how will bids be scored? Lowest price, or best value?
• Amendments: changes to the solicitation that you must acknowledge.
• Wage determinations: minimum wages you'll have to pay on most service and construction contracts.

Our guide to reading a government solicitation gives you a reading order and a go/no-go checklist.

Step 6: Get noticed before the solicitation

The businesses that win often start talking with agencies before a solicitation is posted. Three tools help:

• A capability statement. This is a one-page summary of what you do, your past performance, and your company data (UEI, CAGE code, NAICS codes, certifications). Use it for sources sought responses, meetings, and outreach to primes. Our guide includes a free capability statement template.
• Small business offices. Every agency with buying power has an Office of Small and Disadvantaged Business Utilization (OSDBU) that helps small businesses understand what it buys.
• Your SBA profile. Your SAM.gov registration feeds the SBA's Small Business Search, which contracting officers use to find small businesses. Fill in your profile completely.

Step 7: Bid, win, and deliver

When you find the right opportunity, follow the instructions exactly, price the work carefully, and submit on time. Late bids are generally rejected. If you lose, ask right away for a debriefing (in writing, within 3 days of the award notice on negotiated contracts) or, on smaller buys, a brief explanation. It's free feedback you can use on your next bid.

When you win, deliver well. Agencies rate contractor performance on many contracts, and those ratings become the past performance that helps you win the next contract. Invoices usually go through a government system like Treasury's Invoice Processing Platform or, for Defense Department contracts, Wide Area WorkFlow.

For a step-by-step schedule, follow our 90-day plan to win your first federal contract.

Types of government contracts

You'll see a few contract types again and again. Knowing them helps you understand what a solicitation is asking for and how you'll be paid.

Firm-fixed-price is the default and preferred contract type, so most small contracts you'll see use it. For definitions of the rest, see the glossary.

How long does it take?

Every business is different, but here's a realistic timeline:

Businesses that start with smaller, simpler purchases and bid consistently tend to win sooner than those that wait for one perfect contract.

Where to get free help

You don't need to pay anyone to get started. These resources are free or low cost:

• APEX Accelerators: no-cost counseling on registration, finding opportunities, and bidding, with locations across the country. Find one at apexaccelerators.us.
• Small Business Development Centers: free business counseling and low-cost training.
• SCORE: free mentoring from experienced business owners.
• Women's Business Centers and Veterans Business Outreach Centers: free or low-cost help for women and veteran entrepreneurs.
• The Federal Service Desk at fsd.gov: the official help desk for SAM.gov.

Where to start

If you're ready to begin, start with these three steps this week:

1. Start your SAM.gov registration, since it takes the longest.
2. Pick your NAICS codes and check that you're small for each one.
3. Search open opportunities in your field to see what agencies are buying.

Then follow the 90-day plan from there. FedReady's search is free, and a free FedReady account lets you save opportunities and track their deadlines as you bid.

This guide is general information, not legal or financial advice. Rules and thresholds change, so confirm details on SAM.gov and the official agency sites linked above before you act. FedReady is an independent company and is not affiliated with any government agency.