Industry Insights

The U.S. government is the leading acquirer of goods and services in the world. Many contractors are expanding into the federal marketplace as economic conditions have caused them to find alternative revenue sources. While federal contracts may seem lucrative and a substitute for the lack of work, there are additional risks and regulations.

Procurement Regulations

The Federal Acquisition Regulations (FAR) are a complex set of standards—drawing similarities to the IRS tax code—that govern the purchasing process for the federal government. FAR covers concepts requiring contractors to promote an organizational culture that encourages ethical conduct, including having codes of ethics and whistle-blower hotlines. FAR is incredibly detailed; it even contains cost provisions that govern how to charge the government for overhead costs.

You may have to comply with certain FAR provisions even if you don’t have a contract that specifies such compliance.

Cost Accounting Standards

The main purpose of Cost Accounting Standards (CAS) is consistency in measurement, assignment and allocation of costs to government contracts. Not all government contracts are subject to CAS provisions, so not only are the standards convoluted, but there is sometimes confusion about whether compliance is even required.

Federal Laws & Regulations

Entering the federal contract marketplace brings a whole new set of laws and regulations. These include compliance with federal employment regulations, such as nondiscrimination and affirmative action, and the “Buy American” provision of the American Recovery and Reinvestment Act of 2009 as well as the False Claims Act and Truth in Negotiations Act. These requirements bring a new set of rules that require an in-depth understanding and due diligence.

Failure to comply with these laws can result in substantial federal penalties.

Obviously, entering into the federal contracting marketplace is a big decision. There are various layers of complexity, and complying with the different standards could prove costly. The benefits of being a U.S. government contractor should be weighed against the costs and risks. Please contact your BKD advisor if you are considering this change.