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3 risks related to bidding on government contracts

On Behalf of | Apr 15, 2024 | Government Contracts |

A government contract can be a source of revenue for a business. Such contracts often all but guarantee appropriate payment for the business, which isn’t necessarily the case when doing business with individual consumers or other organizations.

A single successful government contract can pave the way for more projects in the future. However, bidding on government contracts comes with a degree of risk for an organization. Companies sometimes rush through the process in their eagerness to secure a contract and then face a variety of serious challenges when fulfilling the contract later. The following are some of the most notable risks associated with the pursuit of a government contract.

Under-bidding based on current prices

The total cost for a project is one of the main considerations when the government awards contracts for projects to businesses. Therefore, those trying to obtain a new government contract often focus on keeping the cost as low as possible while promising optimal results. Major fluctuations in the price of building materials and other components crucial for the fulfillment of contracts might turn a potentially profitable government contract a source of financial hardship. It can be very difficult to accurately estimate the costs of a project years in advance.

Difficulty scaling up for a big project

A company that has successfully completed similar but smaller projects in the past may over-promise when bidding on a government project. The proposed timeline and budget may require substantially expanding the workers employed by the company or the equipment it must have on hand. Even temporary solutions, like independent contractors and equipment rentals, can be difficult to navigate when substantially scaling up for a bigger project than a company has handled in the past.

Issues related to long-term timelines

Bidding on government contracts usually occurs well before the potential commencement of a project. A business owner or executive might commit a company to a project that begins three years or more in the future. It is very difficult to know what might transpire in the interim, and the company is effectively locked into those arrangements after a successful bid. They could become unable to perform the contract due to a loss of crucial talent or major shifts in the economy. It can be hard to predict what might occur between when a company makes a bid and when it actually begins work on a project.

Those preparing to bid on government contracts may need to plan carefully to minimize the risk involved while optimizing the chances of success. Identifying unique risk factors based on the type of business and project may benefit those concerned about the viability of expanding into government work.