What is Business-to-Government (B2G)?
– Business-to-government (B2G) describes companies selling goods or providing services to government entities at any level: federal, state, or local. It sits alongside the more familiar business-to-consumer (B2C) and business-to-business (B2B) models.
Key definitions
– Request for proposal (RFP): a formal solicitation issued by a government agency asking firms to submit bids or proposals for a defined scope of work.
– Set‑aside: a contracting practice that reserves some procurement opportunities for certain groups (for example, small businesses). (The U.S. federal government has programs that direct portions of spending to designated supplier groups.)
– B2A (business-to-administration): another label for the same activity — commerce between private firms and government administrative bodies.
Why B2G matters
– Governments are very large buyers. For example, U.S. federal spending in recent years reached multiple trillions of dollars. That scale creates opportunities across many industries: infrastructure construction, defense systems, IT support for municipal governments, food services for schools, and more.
– Government contracts are often larger and can be more stable than comparable private-sector work. Winning one contract can make it easier to win follow-on contracts.
How businesses win government work — the typical path
1. Register and qualify: federal contracting generally requires a business to register in official supplier systems and, when relevant, to demonstrate any small‑business or other special status.
2. Monitor solicitations: agencies post RFPs and other solicitations on portals and procurement websites.
3. Prepare and submit a compliant proposal: government RFPs usually demand extensive documentation, technical descriptions, and pricing details.
4. Vetting and award: agencies evaluate proposals against technical, legal, and cost criteria; awards can take longer than private contracts.
5. Compliance and performance: after award, contractors must meet reporting, auditing, and regulatory requirements for the contract term.
Advantages and disadvantages — practical tradeoffs
Advantages
– Larger, longer-duration contracts are possible.
– Predictable payment streams when contracts are funded and structured properly.
– Certain programs favor small businesses or disadvantaged groups, which can improve access for qualifying firms.
Disadvantages / special considerations
– The procurement process is often slower and more bureaucratic than private-sector sales.
– Proposals require more paperwork and formal compliance (e.g., audits, reporting).
– Competitive landscape: established large contractors can have advantages in scale and past performance.
– Agencies may require specialized registrations or certifications and adherence to strict contract terms.
The small-business edge
– Governments frequently have programs intended to channel some purchasing toward small businesses, veteran-owned firms, women-owned firms, or businesses owned by members of certain racial/ethnic groups. To benefit, a company must meet the eligibility rules and complete required registrations and certifications.
Short checklist for firms exploring B2G opportunities
– Register on required procurement systems (federal, state, or local portals).
– Confirm business class/status (small business, veteran-owned, etc.) and obtain any certifications.
– Learn the RFP process: how bids are submitted and how proposals are evaluated.
– Monitor agency procurement sites and match solicitations to your capabilities.
– Build a standard proposal package (technical approach, past performance summaries, compliance documents).
– Budget time and resources for proposal
preparation and follow‑up. Allow time for drafting, internal reviews, pricing runs, compliance checks, and any required certifications or signatures.
– Track deadlines and submission formats carefully (electronic portal, paper, sealed bid, etc.).
– Keep a versioned library of standard proposal components (capability statement, past performance summaries, key personnel resumes).
– Assign roles: capture lead (business development), proposal manager, pricing analyst, compliance reviewer.
– Plan money and staff for the contract performance period (mobilization, bonding/insurance, any required security clearances).
– Maintain a timeline for post‑award activities: kickoff, deliverables, invoicing, and audits.
Common B2G contract types (brief)
– Fixed‑price: The contractor agrees to a firm price for the deliverable. The contractor bears cost overrun risk but keeps savings if costs are lower.
– Cost‑reimbursement: The government reimburses allowable costs and pays a fee/profit. Useful when scope is uncertain; government bears more cost risk.
– Time‑and‑materials (T&M): Government pays for labor at agreed rates plus materials. Often used for maintenance/ad hoc work.
– Indefinite delivery/indefinite quantity (IDIQ): A vehicle for multiple orders over a period, used when quantities or timing are unknown.
– Grants/cooperative agreements: Financial assistance rather than procurement; rules and oversight differ from contracts.
Quick worked pricing example (fixed‑price)
Assumptions:
– Direct labor = $200,000
– Materials = $50,000
– Overhead = 25% of direct labor = $50,000
– G&A = 10% of (direct costs + overhead) = 10% of $300,000 = $30,000
– Desired profit (fee) = 8% of total cost
– Contingency = 5% of total cost
Step calculations:
– Direct costs = labor + materials = $250,000
– Indirect costs = overhead + G&A = $50,000 + $30,000 = $80,000
– Total estimated cost = $250,000 + $80,000 = $330,000
– Profit = 8% × $330,000 = $26,400
– Contingency = 5% × $330,000 = $16,500
– Suggested bid price = $330,000 + $26,400 + $16,500 = $372,900
Contrast (cost‑reimbursement example): the government would reimburse the $330,000 of allowable costs and pay an agreed fixed fee (say $10,000), so payment ≈ $340,000 (plus allowable adjustments).
Practical compliance and administrative checklist
– Register and maintain an active Unique Entity ID and registration on SAM.gov (System for Award Management).
– Identify appropriate NAICS codes (industry classification) for solicitations.
– Obtain small business certifications if eligible (SBA 8(a), HUBZone, Service‑Disabled Veteran‑Owned (SDVOSB), Women‑Owned Small Business (WOSB), etc.).
– Ensure accounting system can segregate direct/indirect costs
– Implement compliant timekeeping and labor‑charging controls. Track employee hours to specific contracts, tasks, and funding sources; require supervisor approvals and audit trails. This supports billing, labor distribution, and DCAA (Defense Contract Audit Agency) reviews.
– Maintain and document indirect cost pools and bases. Prepare periodic indirect‑rate proposals (or seek a forward‑pricing rate agreement) and keep supporting ledgers for fringe, overhead, and G&A allocations.
– Map and flow down applicable contract clauses. Identify FAR (Federal Acquisition Regulation) and agency‑specific clauses in each solicitation/award; use a clause matrix so subcontract terms mirror prime requirements where needed.
– Build a basic proposal/capture process. Assign capture responsibility, parse the solicitation (RFP/RFQ) for evaluation criteria, prepare a compliant technical/management approach, and perform a cost/price analysis. Keep a versioned file of assumptions and rate worksheets.
– Meet cybersecurity and data protection requirements. For many federal contracts, compliance with NIST SP 800‑171 (Controlled Unclassified Information) or CMMC (Cybersecurity Maturity Model Certification) is required. Assess gaps, budget remediation, and document policies.
– Secure bonds and insurance required by the solicitation. Typical examples: performance bonds, payment bonds, and required liability insurance limits. Factor premiums and bond fees into indirect or direct cost estimates.
– Prepare subcontracting plans and small‑business reporting, if applicable. Large primes must often submit subcontracting plans and periodic SF‑295 or agency equivalents; maintain supplier qualification records and small business utilization tracking.
– Establish ethics, lobbyist, and conflicts‑of‑interest controls. Train staff on procurement integrity rules, gift/entertainment limits, and required disclosures. Maintain documentation of any organizational conflicts and mitigation plans.
– Maintain a contract administration and compliance calendar. Track milestones: deliverables, invoices, progress reports, audits, required certifications, and contract end/renewal dates.
– Prepare for audits and contract closeout. Retain records for the required retention period, respond promptly to audit requests, reconcile final bills, obtain releases of claims, and complete closeout checklists.
Quick pre‑solicitation checklist (actionable steps)
1. Confirm active SAM.gov registration and NAICS codes.
2. Determine required small‑business certifications and apply early.
3. Run a cost model: estimate direct costs, apply fringe and indirect rates, add fee/contingency.
4. Assess cybersecurity requirements and budget remediation costs.
5. Identify required bonds/insurance and obtain quotes.
6. Draft a compliance matrix matching solicitation clauses to internal controls.
7. Assign a proposal lead and schedule internal reviews with signoffs.
Worked numeric example — burdening a labor line
Assumptions:
– Direct labor = $100,000
– Fringe = 30% of direct labor
– Overhead = 50% applied to (direct labor + fringe)
– G&A = 15% applied to (direct labor + fringe + overhead)
Calculations:
– Fringe = 0.30 × $100,000 = $30,000
– Base for overhead = $100,000 + $30,000 = $130,000
– Overhead = 0.50 × $130,000 = $65,000
– Base for G&A = $130,000 + $65,000 = $195,000
– G&A = 0.15 × $195,000 = $29,250
Total loaded cost = $100,000 + $30,000 + $65,000 + $29,250 = $224,250
Note: Actual allocation bases vary by accounting system and contract terms. This example is illustrative; always document your chosen bases and assumptions.
Common pitfalls to avoid
– Underestimating compliance costs (cybersecurity, audits, reporting).
– Using informal timekeeping or failing to assign hours correctly to contracts.
– Missing clause flow‑downs to subcontractors.
– Not maintaining contemporaneous supporting documentation for indirect rates.
Further reading and official references
– System for Award Management (SAM.gov) — https://sam.gov
– Federal Acquisition Regulation (FAR) at Acquisition.gov — https://www acquisition.gov/content/regulations (search “FAR”)
– U.S. Small Business Administration (SBA) government contracting — https://www.sba.gov/federal-contracting
– Defense Contract Audit Agency (DCAA) — https://www.dcaa.mil
– NIST Special Publication 800‑171 (Protecting Controlled Unclassified Information) — https://csrc.nist.gov/publications/detail/sp/800-171
Educational disclaimer
This content is for educational purposes only and is not individualized legal, accounting, or investment advice. Consult appropriate professionals for decisions about specific contracts or business arrangements.