9 Common Mistakes Entrepreneurs Make in U.S. Government Contracting — and How to Avoid Them

For entrepreneurs, contracting with the U.S. government offers enormous potential but also comes with unique challenges.

With billions spent each year on goods and services, government contracts provide steady work, opportunities for growth, and the chance to make a real impact. But missteps can result in lost contracts, financial setbacks, or even exclusion from future bids.

Below are nine common mistakes entrepreneurs make when pursuing U.S. government contracts— and tips for avoiding them.

1. Underestimating Procurement Complexity

Government contracting differs significantly from private-sector work. Federal procurement is governed by the Federal Acquisition Regulation (FAR), which sets strict rules around everything from pricing to performance standards.

Compliance is crucial: for example, a small IT company in Virginia lost a contract due to non- compliance with FAR-mandated cybersecurity requirements.

Similarly, a company I worked with was barred from bidding because their accounting system didn’t meet FAR standards. Investing time and resources into understanding FAR guidelines and ensuring compliance is essential to prevent costly mistakes and blacklisting.

2. Failing to Understand Agency-Specific Needs

A “one-size-fits-all” approach can lead to failure. Different government agencies have unique missions and needs. In 2019, a medical supply startup attempted to sell standard first-aid kits to the Department of Defense (DoD), only to find that the DoD required specialized trauma kits for combat scenarios. Entrepreneurs should attend industry days, engage in market research, and consult resources like SAM.gov and GSA eLibrary to gain insight into each agency’s specific needs.

3. Misjudging the Lengthy Sales Cycle

Government contracting is often a long game. Contracts can take months or even years to finalize, which many startups underestimate.

A consulting firm I worked with invested heavily in a federal opportunity, expecting a quick close. A year later, the contract was still pending, and the delay forced them to redirect resources to stay afloat. It’s critical to plan for long sales cycles—especially for contracts exceeding $1 million—and ensure your business has the capital to sustain these efforts.

4. Underestimating the Importance of Relationships

In government contracting, trust is key. Agencies often prefer to work with contractors they know and trust. One strategy is to start as a subcontractor to a larger contractor with existing agency relationships.

For example, a Maryland tech startup won a major contract by teaming up with a prime contractor already trusted by the IRS. Building relationships through networking events and establishing a reputation with agency contacts can pave the way for future contracts.

5. Overlooking Small Business Set-Asides and Socioeconomic Programs

The federal government allocates a portion of its budget for small, minority-owned, and veteran-owned businesses through programs like 8(a) and HUBZone.

In 2018, a minority-owned manufacturing startup in West Virginia missed out on opportunities until they realized they qualified for 8(a) designation.

Entrepreneurs should explore the Small Business Administration (SBA) resources and determine if they qualify for these programs, which can give them a competitive edge.

6. Not Leveraging Partnerships and Teaming Agreements

Teaming up with established contractors can open doors for small businesses. For instance, a clean energy startup successfully landed an EPA contract by partnering with a more experienced contractor.

SBA’s Mentor-Protégé Program offers smaller companies resources and support from established firms. Strategic alliances can boost credibility and enhance the likelihood of winning federal bids. Don’t feel like you have to go it alone—teaming can be a smart strategy.

7. Misjudging Pricing and Bidding Strategy

Setting the right price is key. New contractors often either overbid due to compliance costs or underbid, compromising profitability.

Many companies win contracts by underbidding, only to struggle later when costs exceed their estimates. Conduct a thorough cost analysis and aim for a sustainable pricing strategy that balances competitiveness with profitability for the long haul.

8. Overlooking Capture and Proposal Management

Federal contracts require detailed, compliant proposals. Hiring a dedicated capture manager or proposal writer can make all the difference.

For example, an AI startup saw consistent bid losses until they brought on a proposal expert who helped secure a $10 million contract. Investing in proposal management or hiring an experienced writer can greatly improve bid quality and compliance, enhancing your chance of winning.

9. Neglecting Planning for Contract Modifications and Audits

Government contracts often come with audits, amendments, and budget changes. Being prepared for these adjustments is crucial. A logistics company I know struggled when an agency reduced its budget mid-project, forcing them to pivot operations.

Develop a risk management plan that includes flexibility to handle contract changes without disrupting project delivery.

Conclusion: Take the Long View on Government Contracting Success

Navigating U.S. government contracting is challenging but rewarding. By understanding procurement regulations, fostering relationships, leveraging partnerships, and planning strategically, entrepreneurs can avoid common mistakes and improve their chances of securing contracts. Preparation, persistence, and adaptability are key.

To maximize success, consider joining industry groups, attending government contracting events, and seeking mentorship through the SBA or other resources.