In comes tax Another difference with monetary consequences is tax liability. Contractors must pay various taxes, including federal income tax on their profits. Because the payment of income tax amounts to a refund of the price paid, contractors should receive a credit in the evaluation process. Some differences, however, do not necessarily create an unfair economic impact or are counterbalanced by other considerations. For instance, vendors must pay for their capital by providing a return to their lenders and investors.
Government agencies funded by appropriations have no such problem.
I would argue not, as long as the federal government is constrained by the civil service laws in its personnel practices. This private sector advantage should more than compensate for the disadvantage posed by the need to raise capital. When agencies can hire and fire as freely as their private-sector counterparts, then the cost of capital becomes an unfair discriminator. Even so, there are many gray areas. Prison guards who are government employees enjoy qualified immunity.