Hypothetical scenario
Scenario: Breaking the Barrier to Federal Contracts
Short answer
In this invented example, a small electrical contractor wants to bid on a $900,000 federal construction job. Before money even comes up, it registers in SAM.gov, lines up bonding, and plans for about $150,000 of working capital to carry payroll and materials between monthly invoices and payment. A bank line sized to the contract is far cheaper than factoring, but takes longer to arrange.
Key points
- Federal work starts with SAM.gov registration and a Unique Entity ID, which replaced the D-U-N-S Number in federal systems in April 2022.
- Federal construction contracts above a threshold set in federal rules generally require performance and payment bonds; SBA's Surety Bond Guarantee program helps small contractors qualify.
- Contract work needs working capital before the first payment arrives; size it from the monthly cost and payment lag.
- Payments on federal contracts can only be assigned to a lender or factor under specific federal rules, so ask any lender about this early.
The situation
A five-year-old electrical contractor with 14 employees has done well on private commercial work. A nearby federal facility is soliciting bids for a $900,000 electrical upgrade, expected to run nine months. The owner has never worked on a federal contract and wants to know what stands between the company and a credible bid.
Step 1: Registration
To be paid on a federal contract a business registers in SAM.gov. Since April 4, 2022, federal systems identify businesses by the Unique Entity ID assigned in SAM.gov rather than by the D-U-N-S Number. The owner registers, which is free, and checks that the company's legal name, address and EIN match its IRS and state records, because mismatches are a common cause of delay.
Step 2: Bonding
Federal construction contracts above a threshold set in the Federal Acquisition Regulation generally require performance and payment bonds. The company has bonded small private jobs, but a $900,000 bond is a step up. Its surety wants current CPA-prepared financial statements, a work-in-progress schedule and evidence of working capital. SBA's Surety Bond Guarantee program, which backs bonds issued by participating sureties for eligible small contractors, is an option if the surety hesitates.
Step 3: Working capital
The arithmetic, using assumed figures:
| Item | Figure |
|---|---|
| Contract value | $900,000 over 9 months |
| Monthly cost (labor, materials, equipment) | about $90,000 |
| Billing | Monthly, after inspection and approval |
| Typical wait from invoice to payment | about 30 to 45 days |
| Cash out before the first payment arrives | up to about $150,000 |
Two ways to carry it, priced on assumptions:
| Bank line of credit | Factoring the federal invoices | |
|---|---|---|
| Assumed price | 10% on an average drawn balance of about $110,000, plus a $750 fee | 3% of each invoice for about 45 days outstanding |
| Cost over the 9-month job | about $9,000 | about $27,000 |
| Time to arrange | Several weeks; needs statements and a guarantee | Days, but federal assignment rules apply |
The line is roughly a third of the cost. A contract-specific line, such as an SBA CAPLines contract line, is another route designed for this pattern.
What the owner decides to check
- Whether the bank will lend against federal receivables, and how it handles assignment of contract payments.
- Whether the company's existing private jobs can keep running while this one ties up crews and cash.
- That the bid price includes the cost of financing and bonding, not just labor and materials.
The reasoning to take away
The barrier to federal work wasn't one big obstacle; it was registration, bonding and working capital, in that order. Each can be prepared before the bid goes in. This is a teaching example; none of these steps makes winning or financing a contract certain.
Sources
- GSA: Systems switch to the Unique Entity ID (SAM) on April 4, 2022
- SBA: Surety bonds
- SBA: Types of 7(a) loans (CAPLines contract lines)
Checked November 9, 2026. Program rules and scoring models change; the source is the authority.