How government contracts impact risk, M&A, and business strategy

Government contracting is a unique commercial market where success depends on much more than delivering products or services. Unlike traditional commercial contracts, federal work is governed by mandatory regulations, compliance obligations, and enforcement mechanisms that shape how companies operate.

Businesses often enter the market indirectly—through subcontracts, suppliers, or commercial services supporting a federal customer—only to discover that government requirements flow throughout the supply chain and can significantly impact risk, governance, and business strategy.

Once federal contract revenue becomes part of a company's business, compliance becomes an operational discipline rather than a one-time legal review. FAR and DFARS clauses, cybersecurity standards, audit requirements, and small business eligibility rules influence how organizations structure their ownership, manage employees, protect sensitive information, maintain accounting systems, and negotiate contracts. These requirements affect not only day-to-day performance but also a company's ability to compete for future work, retain valuable contracts, and avoid investigations or enforcement actions.  There is also a wide variety of compliance among actors in the marketplace, and enforcement actions are on the rise.  As a result, companies looking for potential teaming partners should also consider the compliance culture of those partners to evaluate potential risks and likelihood of success long-term.

A multidisciplinary challenge

Because government contracting touches nearly every aspect of a business, it frequently intersects with a wide range of legal disciplines.

• Corporate & M&A: Structuring transactions to preserve eligibility, address SBA affiliation issues, and navigate contract transfers.
• Labor & Employment: Advising on prevailing wage rules and workforce compliance.
• Cybersecurity & Data Privacy: Meeting evolving standards such as NIST 800-171 and CMMC.
• Regulatory, Tax & IP: Managing disputes, audits, investigations, and proprietary rights.

Impact on M&A

The intersection becomes especially important during mergers, acquisitions, and other corporate transactions. Government contracts may require agency approvals, recertifications, or novation, while changes in ownership or governance can affect small business status or contract eligibility. Buyers and investors must evaluate not only a company's contract portfolio but also the strength of its compliance program, internal controls, cybersecurity posture, and regulatory history. These issues can directly influence valuation, deal structure, and post-closing risk.

Companies that succeed in the federal marketplace recognize that government contracting is not simply a procurement function—it is a strategic business discipline. Integrating compliance, corporate governance, cybersecurity, and operational planning early allows businesses to pursue growth opportunities with confidence while minimizing regulatory risk. By taking a multidisciplinary approach, organizations can strengthen their competitive position, protect enterprise value, and maximize the long-term benefits of doing business with the federal government.