A government contractor is someone who outsources jobs to subcontractors. For instance, if the government is repaving a street, the contractor will find a company to perform the work. This is usually done by collecting bids from various businesses and choosing the one with the lowest price. In some cases the contractor may hire a company based on experience or turnaround rate, even if the price is higher.
The government contractor may or may not work directly for the government. Sometimes, a specific government office will have someone who is hired in order to find subcontractors. Many times, though, a separate company will gain access to upcoming government bids and hire salespeople to research and find subcontractors to do the work or provide the services. These contractors generally learn to negotiate with companies in order to talk down the prices, and then they mark them up slightly in order to gain a profit. The sales staff usually earns a commission on the profits.
Often, a government contractor will also find providers of goods rather than services. For example, the government must purchase various items throughout the year. These can include medical supplies for hospitals and clinics, uniforms for the armed forces, and office supplies for various offices within the government. The contractor will call around to various manufacturers and find not only the best price, but also a company that can supply the quantity needed.