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Entities electing to do business with the federal government will find a customer who behaves, in some significant ways, very differently from commercial customers. This unique behavior results from the customer being a sovereign power that conducts its procurement activities under specific laws and implementing regulations. These procurement statutes and regulations govern the process the federal government must follow in its business dealings with private industry. They cover such critical matters as how the federal government selects, monitors, and pays its contractors.

While most industries include entities that are government contractors, certain industries are more heavily involved in providing goods and services to the government. These industries include manufacturing, architect-engineering, professional services, construction, aerospace, shipbuilding, and technology.

Entities engaged in government contracting are subject to the risks associated with their respective industries, as well as additional risks that generally are not encountered by other business entities in the commercial sector. These additional risks are caused principally by the highly regulated environment in which government contractors operate. Such risks include, but are not necessarily limited to, all of the following:

1. Contractors are subject to extensive and complex cost accounting and other regulations, and in some circumstances, significant penalties even for violations of relatively immaterial dollar amounts (such as penalties under the False Claims Act).
2. Business and accounting practices are subject to frequent scrutiny by the government.
3. The government has unilateral rights not found in commercial relationships.
4. If contracts or contract changes are negotiated based on cost, cost accounting considerations play a vital role in pricing and administering government contracts and, consequently, determining the contractor's reported financial position and results of operations.