Federal Contracts are legally binding agreements between a government agency and a contractor, obligating the government agency to pay for goods or services. When an agency awards a contract, the business must fulfill its part of the deal according to the terms of the agreement.

The two types of government contracts are prime and subcontracts.

  • A prime contract is entered into between the government and a prime contractor. This is where the government’s goods or services will be delivered and where it directs most of its oversight efforts.
  • A subcontract is an agreement between a prime contractor and one or more subcontractors who provide goods or services to fulfill their obligations under the prime contract.

There are those that say that a Government Contract is easy to accomplish, but the acquisition stage is harder. Some say that all the phases of a Government Contract are equally hard. Let’s have you decide. Here are some pros and cons of getting into your first government contract.


  1. Great Pay. Government contracting can be very rewarding financially. The Federal government has allotted billions to DoD projects alone.
  2. Highly obtainable. It’s a matter of paperwork and you’re good to go. Fill it up and bid with the rest of the government contracting world, there are tons of opportunities out there. 
  3. Flexible working environment. Even before the pandemic, a lot of contracts allowed telecommuting. Work at home if you need to.
  4. Opportunities abound. Federal Contracts come in every field, from the numerous GSA contracts to DoD, to medical, among others. If you have a field of expertise, you may have a contract out there waiting for you. Some agencies even choose to work with small companies, for widgets or small gadgets.
  1. Transparency. Federal contracting is full of laws, regulations, and rules. This is to ensure that everything done is honest and transparent. Transparency is a benefit for both sides. The agencies practice disclosure and accountability, and you know where your product and services go.
  1. Payments are prompt. You get paid really quickly. Construction contracts get paid 2 weeks after issuing an invoice and some retaining payments are received after a month.
  2. Stability. Backed by US Government agencies, you will get consistent work as long as you are under contract. You won’t be a slave to cost cutting or employee lay-offs.


  1. Agencies can cut ties. There will be times, that you are relying on a government contract too much, that you forget that it’s a contract and it tends to end. Then everything goes through a bidding war and you may lose out. 
  2. Competing with the big guys. Your business is doing well with a contract, not realizing that your contract can become desirable for large corporations who will try to outbid you next time the contract is up for grabs. 
  3. No government benefits. You are working for the government, but not directly under it. This means that, although you may have higher compensation than your government employee counterpart, you don’t have their benefits– pensions, retirement packages, health insurance, or paid time off.
  4. Unforgiving rules and regulations. To say that federal contracts have many rules and regulations is an understatement. You need to have your company ready before bidding while doing the contract, and even after the contract has ended.
  5. Dealing with government officials and workers. The reality of government contracting is that there is friction between some officials and contractors. Some officials look down on contractors and do not appreciate their work. 

This is true for some government workers as well, as they may be a bit jealous about getting to do nearly the same job they do, but your people get paid more. This sometimes makes it harder for federal contractors to communicate with their government counterparts.

So do you or do you not? The decision is up to you. We’ve laid down the significant pros and cons. Whichever avenue you choose, whether to get into the world of contracting and earn what you want in nearly half the time, or stay in the private sector. 

What I can suggest, if you choose to get your feet wet, is to aim for some help. Peter Witts CPA PC has been doing government contract accounting for more than 20 plus years and we want to give you all the advantages you need.