My biggest problem was the law that said I couldn't sell to the government at a higher price than I sold to non-government entities, so it was necessary to differentiate the product wherever possible.

What we did was to include a separate line item on the contract for "paperwork", another line item for "mil-spec packaging" and finally, a line item for DoD "inspection". These were all demonstratable costs, based on our shop rate and G&A expense. That way I could sell the part to the feds at the same price I would sell it to the OEM (quantity discounts and price increases over time notwithstanding), retain the margin, and not take a bath on the cost of doing the other stuff.

The mil-spec packaging was the best. Take a coupler made out of aluminun that's about an inch and half diameter and about an inch long. This part would have to be sealed in a plastic bag with the proper DoD part numbering information on it. It would have to then be individually boxed with more identification information, then those boxes would be put in larger boxes. Every piece of that packaging has to meet military standards and be certified from its manufacturer, right down to the ink used to print the information on the bags and boxes. Oh, and the the bags..the heat seal on the bags had to be tested (per government issue statistical sampling plans, of course) for strength and water tightness (some of the planes were on aircraft carriers). Same thing with the tape on the boxes.

I had costs for all of that, and a squeaky clean audit trail to prove it.

Finally, we weren't out to screw the government, our direct sales to the feds were mainly spares for aircraft already in service. The orginal part was sold to the OEM as commercial (FAA compliant) hardware, the same parts as used on commercial and private aircraft. We wanted (needed) to at least break even.

Glad I'm not in that biz anymore, but I am working on a side project that falls under FDA requirements...which is starting to make the DoD look like a cakewalk.