When federal, state and local government offices want to purchase something, they usually use bids or proposals. This document sets out the specifications, delivery requirements and contract terms. Businesses interested in bidding prepare their own proposals, including descriptions of materials and techniques to be used. A proposal is intended to demonstrate how a company can provide exactly what the buyer wants. The terms are open for negotiation.
Contracts usually reimburse contractors for project costs up to a specified limit.
Contractors must inform the government when they reach 75 percent of this limit, although the government bears most of the risk if costs exceed estimates. Profit can be handled in a number of ways. Often it is linked to performance. Contracts may be for a specific quantity of a product or service, or for an indefinite quantity within specified limits as the agency places its orders. When the government solicits bids, the purchasing offices normally send bid invitations to firms listed on their mailing lists.