Is the Bidding Process the Same for Private and Government Contracts?
There are key differences in the bidding process between private and government contracts. Competitive bidding for procurement aims for the best value in both cases, but federal contracting is more formal and regulated.
The bidding process for business enterprises has two types of contracts:
- Public contracts: The party requesting bids is a government agency
- Private contracts: None of the parties to the bidding process are a government agency
This article gives an overview of how these bidding processes differ. It also explains set-aside and sole-source contracts.
See FindLaw's Contract Law section to learn more.
Bidding on Construction Contracts: Basics
Construction projects often involve contractors proposing bids to a state or federal government. Construction contracts can also include bids to a client such as a homeowner or a developer.
The bidding process for public contracts is very formal. Bidders must strictly follow a raft of existing rules and regulations to get the contract. Whether it's a federal government, state government, or local government contract, you must familiarize yourself with the laws of that jurisdiction.
For example, some bids:
- Require your workforce to have a certain number of residents from the state/city where the bid is being provided, or
- Require that your workforce have a certain number of minorities working for the company.
If it's a federal contract, you must learn the rules established by the U.S. General Services Administration (GSA). Federal agencies offer technical help to help with the public contract bidding process.
The projects also involve several liability considerations. For example, primary contractors must choose subcontractors carefully. This is because prime contractors are liable for their subs' actions, such as:
- Illegal labor practices
- Illegal toxic waste disposal
Building contractors must be sufficiently bonded. They must also follow strict regulations and requirements set by federal agencies. This is particularly true if it's a solicitation for a government contract such as for the Department of Defense.
Business owners may also need to develop a capability statement. A capability statement explains to potential clients what your business can do for them and what sets it apart from other businesses. This is particularly true for information technology projects. Such projects are often subject to rigorous technical assessment.
The private bidding process doesn't require as much “red tape."
The Public Bid Process
The public project bidding process, supervised by contracting officers, generally follows these steps:
- The government agency publishes a request for proposal (RFP) or solicitation for bids.
- Qualified contractors receive and review the procurement documents. This sometimes requires a deposit or a non-refundable fee.
- If interested, business owners attend a meeting and tour the construction site.
- Contractors solicit bids from subcontractors and suppliers.
- After market research and estimating costs, contractors submit sealed bids.
- The agency announces or privately reads bids at a specified time.
- Government agencies choose winning bids based on the lowest responsible bid.
A responsible bid has all the factors involved in the project adequately accounted for. In other words, the lowest bid will only win the contract if it's a realistic one.
There are contract opportunities designated for small businesses and disadvantaged businesses during each fiscal year. This is especially true for state and federal government contracts. These contracts are “set-asides."
The Small Business Administration(SBA) operates several federal contract programs. Competition for certain contracts is limited to businesses participating in the programs. The initiatives try to create a “level playing field" for disadvantaged business owners.
Eligibility for the initiatives includes companies that qualify as:
- Minority-owned businesses,
- Women-owned businesses, and
- Service-disabled veteran-owned businesses.
Business size standards also determine eligibility.
The SBA's Women-Owned Small Business (WOSB) Federal Contract program is one such program. WOSB-certified firms can also compete for contract awards under other programs, such as the HUBZone and the 8(a) Business Development program. WOSB certification benefits only apply to federal contracting opportunities.
Another is the “HUBZone" program. HUBZone stands for Historically Underutilized Business Zone. The program gives preferences to small businesses run and owned by specific communities. HUBZones often have low household incomes or high unemployment rates.
You can bid on set-aside contracts through the Small Business Administration's (SBA's) contracting assistance programs. Some of the programs are:
- 8(a) Business Development. The U.S. government awards some of its contracting money to certain small businesses each year. As of July 2023, this program has been suspended pending court decisions. Please check the current status if you feel your business may be eligible.
- HUBZone. The federal government annually awards part of federal prime contracting dollars to certain small businesses.
- Women-Owned Small Business. The federal government awards a percentage of its federal contracting dollars each year to women-owned small businesses.
- Service-Disabled Veteran-Owned. Every year, the federal government gives at least 3% of contracting funds to small businesses owned by veterans. To qualify, veterans must have service-related disabilities.
Sole Source Contracts
Most state and U.S. government contracts are given out through a procurement process where several businesses compete for them. This is an open competition. There are also some opportunities known as sole-source contracts. These contracts are unique because they're not given out through a competitive method. Instead, they're awarded when only one business can fulfill the contract's requirements.
If you want a sole-source contract, you'll need to register your business with the System for Award Management (SAM) at sam.gov. Make sure to look for contracting programs that your business is eligible for.
Some sole-source contract bids are public. The government agency tags them as "intent to sole source." Even though they're tagged this way, vendors can still see and bid on these contracts. The agency can remove the intent to sole-source tag if the bidding process starts.
Bidding on Construction Contracts: Private
The bidding process for private contracts is less formal. It is not subject to detailed rules like the Federal Acquisition Regulation (FAR).
In the private sector, the owner or prime contractor requesting bids has wide latitude in setting their own rules for soliciting bids. Still, they must consider state and local laws and customs.
Bidding on a Construction Contract? Increase Your Odds of Success With a Lawyer's Help
Public and private contracts provide business opportunities for small businesses and large businesses. Expanding into government contracts can present significant subcontracting opportunities, but procurement can be difficult. Government contractors must meet a lot of requirements. Understanding the differences between these types of contracts is vital. Contact a local business attorney if your business needs professional legal advice.
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