Government Contracting Q&A
100 direct answers to common questions about federal contracting, organized by what you need to know.
Money Questions
Contract values, pricing, costs, bonding and insurance
Money Questions
How are option years valued in federal contracts?
Option years are priced in the original proposal but only exercised and funded at the government's discretion. Total contract value typically includes option year pricing, though options aren't guaranteed to be exercised.
What is the micro-purchase threshold?
The micro-purchase threshold is $10,000 for most purchases ($2,000 for construction). Purchases below this threshold can be made without competition, often via government purchase cards.
What does "estimated value" mean on a federal solicitation?
The estimated value represents the government's projection of what the contract will cost based on their requirements analysis, market research, and budget planning. It helps contractors assess opportunity size.
Are the contract values shown on SAM.gov accurate?
Contract values on SAM.gov represent obligated amounts and estimated ceilings, which may differ from final contract values due to modifications, option exercises, and funding changes.
Do you need insurance for federal contracts?
Yes, most federal contracts require minimum insurance coverage. Common requirements include general liability, auto liability, workers' compensation, and sometimes professional liability depending on contract type.
What happens if the government doesn't pay an invoice?
The Prompt Payment Act requires agencies to pay interest on late payments. Contractors can submit inquiries through the contracting officer. Unpaid invoices are rare but can be pursued through the Contract Disputes Act process.
Do federal contracts pay upfront or in advance?
Generally no. Federal contracts pay after delivery/performance through invoice submission. Limited advance payments are available in special circumstances. Progress payments provide interim financing for some contracts.
What is the average federal contract size?
Average contract sizes vary enormously by category. The median is around $150,000, but averages are skewed by billion-dollar contracts. Over 90% of contract actions are under $250,000.
How do I find the ceiling value of existing federal contracts?
Contract ceiling values are available through SAM.gov award data, FPDS, and USASpending.gov. Search by contractor name, agency, or contract number to find total potential contract values.
How is award fee calculated on federal contracts?
Award fee is calculated based on periodic performance evaluations against stated criteria. An Award Fee Determination Official rates performance and determines the percentage of available fee pool to pay.
What is the difference between funded value and ceiling value?
Funded value is money actually obligated and available to spend. Ceiling value is the maximum potential contract worth. A contract may have a $10M ceiling but only $1M funded at award.
Do you need bonding for federal contracts?
Bonding requirements depend on contract type and value. Construction contracts over $150,000 require performance and payment bonds. Supply and service contracts generally don't require bonds.
What is the Simplified Acquisition Threshold (SAT)?
The Simplified Acquisition Threshold is currently $250,000 for most procurements. Contracts below this threshold can use streamlined procedures with reduced competition requirements.
How is contract ceiling value calculated?
Contract ceiling value is the maximum amount that can be obligated under the contract, calculated from base value plus all potential options, CLINs, and task order maximums for IDIQ vehicles.
What are typical profit margins on federal contracts?
Profit margins typically range from 5-15% depending on contract type, risk, and competition. Fixed-price contracts generally allow higher margins than cost-reimbursement due to risk transfer.
How much does it cost to get on a GSA Schedule?
There are no GSA fees to obtain a Schedule contract. However, contractors invest $10,000-$50,000 or more in internal costs for proposal preparation, or $15,000-$30,000 for consultants. Ongoing costs include the 0.75% Industrial Funding Fee.
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