Government Contracting for SaaS Companies

Government Contracting for SaaS Companies

The federal government is the largest purchaser of goods and services in the United States. This includes software development services, and software solutions that can be utilized by government entities. If you’re a Software as a Service company and new to the government contracting (GovCon) space, this article will give you a high level overview.

1. Registration

Your company should register on the System for Award Management (SAM) database with all the appropriate information – including your industry classification, bank account information, and representations and certifications. This serves as a pre-vetting process for companies looking to do business with the government, and gives you the opportunity to submit your proposal.

Once you have registered, you can browse through the Contract Opportunities on SAM and submit your bids and proposal to be in consideration. Note that not all opportunities may be on the SAM, and may not follow this process.

2. Understand The Federal Acquisition Regulation (FAR)

The formation and administration of U.S. government contracts is governed by the Federal Acquisition Regulation, or FAR, along with the 20 agency specific supplements within the FAR. If you plan to work with the government, make sure you and your legal team get familiar with the FAR and how it applies to you.

The purpose of the FAR is to, essentially, oversee the government contracting process in a systematic matter while maintaining the public’s trust – because government contracting generally uses taxpayer dollars.

You should understand that your standard sales contract will likely not be enough for federal governments. Since they are using taxpayer money to purchase services, there are certain provisions that cannot be negotiated.

3. Understand Federal Risk and Authorization Management Program (FedRAMP) Certification

Cloud hosted software carries a large risk of security incidents. As such, companies must understand the requirements set forth by FedRAMP, and go through the appropriate certification processes. If your company can show FedRAMP compliance, you’ve passed a significant hurdle of information security requirements.

To become FedRAMP certified, your company must go through a third-party assessment by a FedRAMP–recognized auditor, who will ensure you are compliant with the guidelines set forth by the National Institute of Standards and Technology (NIST).

4. Know The Different Types of Federal Government Contracts

There are two main types of federal government contracts, along with several sub-types under them.

They are:

  • Fixed-Price Contracts – where the government agrees to pay a fixed price for a product or service at the time of award, and the contractor will bear the risk of excess performance costs. There are two sub-types of fixed price contracts:
    • Fixed-price with economic price adjustment contracts – where the price can be increased or decreased for specific contingencies.
    • Fixed-price incentive contracts – where the contracts adjust the contractor’s profit and establish the final contract price by using a formula based on the relationship of final negotiated total cost to total target cost.
  • Cost-Reimbursement Contracts – where the government will pay the contractor’s allowable costs incurred during contract performance up to a specified ‘cost ceiling’ that’s written in the contract. There are five sub-types of cost-reimbursement contracts:
    • Cost-plus-fixed-fee – A negotiated fee fixed at inception will be paid, and does not vary with actual cost. Fee can be adjusted if government changes the work to be performed under the contract.
    • Cost-plus-incentive-fee – An initial negotiated fee is later adjusted based on a formula calculating the total allowable costs to the total target costs.
    • Cost-plus-award-fee – A fee that consists of a base amount at the start of the contract and an award amount based on the government’s determination that the contractor has satisfied specific criteria in the contract. Think of it as an incentive for great performance.
    • Time and Materials – permits the government to acquire supplies or services on the basis of direct labor hours at specified hourly rates and actual costs for material.
    • Labor hour – Like time and materials, except materials are not supplied by the contractor.

If you’re selling a subscription SaaS solution, you’ll have to bill and price accordingly.

5. Understand that Specific Requirements Apply

Since Federal government contracting is a political process with applicable laws and regulations, you must be aware of, and meet, specific requirements when it comes to working with the government – including but not limited to:

  • Labor requirements
  • Protection of Intellectual Property
  • Truthful cost and pricing
  • Cost accounting standards
  • Foreign acquisition
  • U.S. export controls and sanctions
  • Contract changes
  • Contract terminatinos
  • Bid protests
  • Contract disputes
  • Fraud enforcement

Having internal checks and balances in place to ensure your understanding of the above is important.

6. Understand that Compliance is Important

Since you’re working with the Federal Government, your company should have an effective compliance plan in place in addition to your FedRAMP certification. This includes, but is not limited to:

  • Data Privacy
  • Internal Policies and Procedures
  • HR Policies
  • Internal Training
  • Internal Compliance Tracking

This means that it is in your best interest to have an internal compliance team in place to ensure that you are following all the necessary rules and regulations.

Let us Help

This post is just a high level overview of Government Contracting.

There are more nuances and specifics around regulations and contracts that you should understand if you plan on bidding for a government contract. Kader Law can help you navigate government contracting.

If you need legal assistance, feel free to contact us.

This post is not legal advice, and does not establish any attorney client privilege between Law Office of K.S. Kader, PLLC and you, the reader.