Most government contracts take time to process, but some situations require businesses to start work immediately—even before the final contract is ready. That’s where letter contracts come in. These preliminary agreements authorize contractors to begin working while the full terms are still being negotiated.
For small businesses, letter contracts offer a fast entry point into government contracting. However, they also come with risks, especially if the final contract terms shift or the agency cancels the project.
Letter contracts allow federal agencies to issue a work authorization before all the details are finalized. While that speeds up the process, it also means starting a project without knowing exactly what you'll be paid or what conditions will apply.
This creates uncertainty around scope, pricing, and timeline. For small businesses that operate on thin margins, that kind of risk needs to be managed carefully.
A letter contract is a written preliminary agreement that allows a contractor to begin delivering goods or services before a full contract is signed. The goal is to support urgent government needs while the agency works out the final details.
Key elements typically include:
A description of the work to be performed
A not-to-exceed limit on the amount that can be obligated before finalization
A deadline for negotiating the full contract
A construction company is hired to repair storm damage at a federal facility. Because the situation is urgent, the agency issues a letter contract allowing the work to begin immediately while pricing and scope are still being finalized.
Agencies issue them when they need work to begin quickly
They allow companies to demonstrate value early and build credibility
They can lead to larger or longer-term contracts once the full agreement is finalized
A cybersecurity firm receives a letter contract to help contain a network breach. They act fast, deliver results, and end up negotiating a full contract for long-term security support.
Clarify the scope of work upfront so there’s no confusion later
Track all costs in real time since reimbursement terms may change
Set up communication with the agency's contracting officer to stay aligned
Push to finalize the full contract quickly to protect your interests
A logistics company is awarded a letter contract to support emergency medical supply distribution. By keeping detailed records and working closely with the agency, they finalize the full contract within weeks and secure additional work.
Uncertain terms can lead to disputes or unpaid work
The final contract may include changes in price, schedule, or scope
If negotiations break down, the contract may be canceled entirely
Identify urgent needs through SAM.gov or USFCR’s Advanced Procurement Portal
Review the preliminary agreement carefully before accepting
Keep detailed cost records and written communication throughout the project
Engage with the agency to speed up the negotiation of the final contract
Prepare documentation to support your work in case of a dispute
Letter contracts provide a path to fast government work, but they require smart planning and strong communication. If your business is positioned to respond quickly to urgent needs, these contracts can open the door to long-term federal relationships.
USFCR helps small businesses prepare for, negotiate, and manage government contracts of all types, including letter contracts.
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