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Federal contracting can be an excellent niche for small businesses in many areas, including manufacturing, IT, professional services, construction and more. With the federal government rewarding $13 billion more in small business contracts this fiscal year over last, it’s time to understand the risks and rewards.

The U.S. Small Business Administration (SBA) recently announced that the federal government exceeded its small business federal contracting goal, awarding 26% or $145.7 billion in federal contract dollars to small businesses (a $13 billion increase from the previous fiscal year). Federal agencies don’t necessarily pit small businesses against large ones in their bids for contracts. Contracts called “small business set-asides” are specifically earmarked for that purpose. Most often, when it’s determined that at least two small businesses could perform the work or provide the products being purchased, the opportunity is opened up to small businesses only.

Then there are set-asides for specific socioeconomic categories, including HUBZone, women-owned, or service-disabled veteran-owned businesses. Being a minority-owned small business can be advantageous when competing for federal contracts, but it’s not a silver bullet. Some have accused the federal government of a “set it and forget it” process of holding on to tried-and-true contractors that puts others at a disadvantage. This past year, while the federal government exceeded its service-disabled veteran-owned small business and small disadvantaged business goals, it fell short of meeting the goals established by Congress for women-owned small businesses and HUBZone small businesses. While women own 38% of American’s small businesses, they win 5% or less of federal contracts annually.

But for those wanting to dip their toes in the pool, opportunities abound. The Biden Administration is renewing focus not only on rewarding contracts to socioeconomically affected small businesses but on American businesses in general. Take manufacturers, for instance. As the world’s largest purchaser of consumer goods globally, the federal government is determined to strengthen domestic supply chains through federal procurement, which is terrific news for American manufacturers of all sizes. With a new SBA manufacturing office in its federal contracting division, the administration wants to ensure that products bought with taxpayer money include more U.S.-made components, as one example. Other proposals can be found here.

To start competing for small business federal contracts:

Federal contracts can be reliable and lucrative for small businesses, but winning them can seem like a feat of pure magic. For questions about the tax and accounting considerations, contact us anytime.

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