Not all government contracts are created equal.
Some are straightforward — deliver a product and get paid. Others involve variable pricing, complex timelines, or long-term commitments. To win successfully and stay profitable, you need to understand what kind of contract you’re bidding on.
In this article, we’ll explore:
- The main types of government contracts
- Why it’s important to know the difference
- Which contract types are best for small businesses
Why Contract Types Matter
Each contract type comes with different rules, payment structures, and levels of risk. Some reward you for speed and efficiency. Others require detailed cost tracking and compliance.
Understanding these differences will:
- Help you price your bids correctly
- Set clear expectations for deliverables
- Avoid cash flow problems or legal pitfalls
1. Fixed-Price Contracts
💼 You get paid a set amount regardless of your actual costs.
- Most common type for small businesses
- Great for products, construction, or well-defined services
- You carry the risk: If your costs go up, you can’t bill extra
Example:
A $50,000 contract to deliver 1,000 printed training manuals within 30 days.
✅ Pros: Simple, predictable
⚠️ Risks: Cost overruns eat into your profit
2. Cost-Reimbursement Contracts
📋 The government reimburses your actual costs + a profit margin.
- Used for complex or research-heavy projects
- Requires detailed accounting and regular reporting
- Better suited for experienced contractors
Example:
A cost-plus contract to develop a new software tool with unclear requirements.
✅ Pros: Lower risk of losing money
⚠️ Risks: Requires strict compliance and tracking
3. Time-and-Materials (T&M) Contracts
⏱️ You’re paid for labor hours and materials used, based on agreed rates.
- Common for consulting, tech services, or repair work
- Flexible scope — useful when deliverables aren’t fixed
- Government may cap total hours or costs
Example:
A $75/hour contract for IT support services, up to 500 hours.
✅ Pros: Good for open-ended tasks
⚠️ Risks: Must justify every hour and cost
4. Indefinite Delivery, Indefinite Quantity (IDIQ)
🔄 An umbrella contract for repeated or future orders over time.
- Often used for ongoing services or recurring products
- You win the contract once, then receive task orders as needs arise
- Government sets minimum and maximum quantities or values
Example:
A 3-year IDIQ to supply office chairs as needed, up to $500,000 total.
✅ Pros: Long-term revenue potential
⚠️ Risks: No guarantee of actual orders
5. GSA Schedule Contracts (Federal Supply Schedules)
🛒 You become an approved vendor for federal buyers through the GSA.
- You pre-negotiate pricing, then government agencies can buy directly
- Competitive to get on the schedule — but opens doors
- Often used for IT, office supplies, logistics, etc.
✅ Pros: Easier repeat sales
⚠️ Risks: Complex application process
Which Contract Type Is Best for You?
| You Are… | Best Contract Type(s) |
|---|---|
| A product supplier | Fixed-price, IDIQ |
| A consultant or freelancer | T&M, fixed-price |
| A tech or research company | Cost-reimbursement, GSA, IDIQ |
| A new small business | Fixed-price, set-aside contracts |
Start with simple, short-term fixed-price contracts. As you grow, explore more complex options.
How GovTenders Helps You Bid Smarter
Each listing on GovTenders includes contract type info so you know exactly what you’re bidding on.
We also flag high-fit contracts based on:
- Your preferred pricing models
- Industry trends
- Agency buying behavior
With GovTenders, you waste less time and bid more confidently.