Self-Funded Government Contracting refers to a financial model in which a federal acquisition program or contracting vehicle is funded not by annual congressional appropriations, but instead through internally generated revenue, often collected from participating vendors or agencies. This approach allows government contracting programs to sustain their operations through user fees, transaction-based charges, or percentage-based remittances—rather than relying on taxpayer-funded budgets.
A prime example of this model is the GSA Multiple Award Schedule (MAS) program, which is self-funded through the Industrial Funding Fee (IFF) collected on each sale made through the Schedule. Self-funding mechanisms are used to cover the costs of program administration, system maintenance, compliance oversight, and continuous improvement of acquisition infrastructure.
Understanding self-funded contracting is essential for both contractors and agency buyers, as it affects program governance, pricing structures, and long-term sustainability.
How Self-Funding Works in Government Contracting
In traditional government programs, operational expenses are covered by budget allocations authorized by Congress. In a self-funded model, however, the agency charges participants or beneficiaries of the program a fee-for-service or access-based fee to recover operational costs.
In contracting programs, this often takes the form of:
- Vendor remittances, based on total sales or contract usage
- Administrative service fees, charged to federal agencies that use the vehicle
- Subscription or participation fees, in some niche programs
- Surcharges or percentage fees, built into contract pricing
These funds are deposited into a revolving fund or working capital fund, from which the agency draws operating revenue. Because the program is generating its own funding, it gains budgetary independence, which can support faster innovation and scalability—but also comes with strict financial stewardship responsibilities.
The GSA MAS Program as a Self-Funded Model
The most well-known example of self-funded contracting is the GSA Multiple Award Schedule (MAS) program. GSA does not receive direct appropriated funds to operate MAS. Instead, it funds the program through the collection of the Industrial Funding Fee (IFF).
The IFF in Detail:
- The IFF is a fixed percentage (currently 0.75%) added to the price of all products and services sold through a GSA Schedule contract.
- Vendors collect the IFF from customer agencies as part of their invoiced price, then remit it quarterly to GSA via the 72A Sales Reporting Portal (now part of FAS Sales Reporting System).
- The IFF covers the cost of GSA’s acquisition workforce, contract management, systems like GSA Advantage!, eBuy, eLibrary, and MAS program improvements.
In this structure, the more the MAS program is used, the more revenue GSA generates to support its operations—creating a built-in incentive to grow and modernize the program while maintaining service quality.
Advantages of the Self-Funded Model
The self-funded model offers several benefits to both government agencies and vendors:
- Operational flexibility – Agencies are not tied to the constraints of annual appropriations cycles and continuing resolutions.
- Sustainability – Programs that generate sufficient usage can scale effectively without competing for congressional funding.
- Transparency – Fee structures like the IFF are published and predictable.
- Responsiveness – Agencies can reinvest in systems, staff, and technology faster to improve performance.
- Cost recovery – Those who benefit from the program (i.e., vendors and federal customers) share the cost of sustaining it.
In many cases, self-funding helps create a performance-based culture within acquisition programs—where the quality, speed, and utility of the contract vehicle directly impact usage and therefore funding levels.
Challenges and Risks
Despite its benefits, self-funded contracting models also introduce certain challenges:
- Revenue volatility – If usage drops (e.g., due to budget cuts or market shifts), revenue declines and may affect program staffing or upgrades.
- Pricing perceptions – Vendors may pass fees (like the IFF) onto the government, potentially raising overall procurement costs.
- Complex fee tracking – Both contractors and GSA must maintain robust reporting and auditing systems to track and reconcile fee collection.
- Oversight requirements – Even though self-funded, these programs remain subject to OMB, GAO, and IG audits to ensure proper fund usage.
- Burden on small businesses – For smaller firms, understanding and managing fee payments can be administratively demanding.
To mitigate these risks, self-funded programs typically invest in strong compliance structures, automated reporting tools, and user education.
Other Examples of Self-Funded Contracting Programs
Beyond GSA MAS, several other federal acquisition programs use self-funding models, including:
- NASA SEWP (Solutions for Enterprise-Wide Procurement) – Funded through a minimal fee added to each transaction.
- NIH CIO-CS and NITAAC contract vehicles – Funded via a contract access fee charged to customer agencies.
- FedMall (run by DLA) – Includes built-in transaction fees for certain types of acquisitions.
- USPS Supply Management programs, which operate under revenue from postage and package services rather than appropriated funds.
Each of these programs uses self-funding to balance operational independence with accountability.
Implications for Contractors
Contractors participating in self-funded government contracts must:
- Understand and accurately calculate program fees, such as the IFF
- Track, report, and remit sales in accordance with the program’s rules (typically quarterly)
- Maintain internal controls for IFF compliance and documentation
- Factor fees into their pricing strategies and GSA pricelists
- Monitor communications from the administering agency about changes to fee structures or reporting platforms
Failure to report or pay required fees can result in:
- Contract suspension or termination
- Financial penalties or interest
- Audit findings or legal liability under the False Claims Act (in cases of misrepresentation)
- Negative past performance impacting future awards
To avoid such risks, contractors should establish a contract compliance process dedicated to tracking self-funded fee obligations.
Strategic Importance for Agencies
For federal agencies, self-funded contracting vehicles like MAS provide:
- Turnkey acquisition platforms without the need for program funding or development
- Access to pre-vetted vendors, ceiling rates, and streamlined ordering
- Incentives for the managing agency (like GSA or NASA) to improve program utility
- Assurance that the program is financially sustainable and less vulnerable to budget cuts
This model enables agencies to procure faster and more efficiently — while the administering agency maintains and enhances the vehicle using fee-based revenue.
Conclusion
Self-Funded Government Contracting represents a powerful alternative to traditional appropriated funding models. By generating revenue through vendor fees or usage-based charges, programs like GSA MAS can remain operationally agile, financially sustainable, and customer-focused — even in times of fiscal uncertainty.
For vendors, understanding the implications of self-funding mechanisms like the Industrial Funding Fee is essential to staying compliant, pricing competitively, and succeeding within the federal marketplace. For agencies, self-funded contract vehicles offer flexibility and reliability — provided they are well-managed and used responsibly.
As federal acquisition continues to evolve, the self-funded model is likely to remain a cornerstone of how government buys — and how vendors grow.
