The Pros and Cons of Government Sales

A guest post from Bob McKee.

 

Dick has posted about the Pros and Cons of Direct, Indirect, and On-line sales channels here, here and here.  Bob McKee talked to us about selling to the Government; asking why hadn’t that been included.  This is a good question and we asked Bob to share his thoughts and experiences.

Federal Government Sales – Right for Your Company?

Federal government agencies spend over $500 Billion through open contracts awarded by the General Services Administration.  About $200 billion of that total is earmarked for businesses with fewer than 500 employees.  GSA contracts cover almost every type of non-perishable product or service, but the contracts work better for some types of companies than others.

For example, contracts tend to be for finished products rather than for components.  They also work best for companies that have a sales force or a dealer network.  The contract is a license to hunt; it doesn’t put the deer in your pickup.  Sales people have to develop relationships, just like with regular customers.  Another issue is that price changes are usually limited, which may not be attractive to companies with volatile costs.

There are surprisingly few companies on contract in most product categories.  You can see which competitors have contracts by going to www.gsaelibrary.gsa.gov , finding your product and clicking on the Category Number.  This will link to a list of the companies that have contracts.  I selected “air compressors” at random and found that there are only 13 contractors, of which half are distributors.

The small number of companies is a good reason to get on contract.  So why haven’t more companies done it?  Naturally, there are some good reasons.

1.  Place of Manufacture.  All products must be made in countries with which the United States has trade agreements.             These include North America, and many European, Caribbean Basin, African and Asian nations.  But it leaves out                         some big Asian manufacturing countries, most notably China.

2.  AbilityOne, a government agency that assists participation of handicapped Americans in industry, lists several                      thousand products, mainly commodities.  If your product is essentially the same as something they offer, either become              associated with AbilityOne or forget Federal sales.

3.  Paperwork. Contracts are lengthy, difficult to follow, and full of requirements that are incorporated by hard-to-find               references.  A contract response package runs 200 – 300 pages with requirements that involve several agencies.                           Companies usually estimate that it took 9 – 12 months to put their packages together.

4. The Review Process. Although the GSA wants to attract more companies, their review is directed by bureaucratic             rules unlike anything in civilian business.  Everything in the contract response has to conform exactly with the                                 sometimes unclear requirements of the Solicitation or the entire proposal is disqualified.  The contracting officers will                   explain whathas to be changed, then the entire proposal has to be resubmitted.

On a recent proposal, a contracting officer emailed to ask why I listed some floor mats under a small business set aside, but not others.  He stressed that he was not challenging me, but as a new group member he wanted to understand the distinction.  I responded that it was based on the type of material and cited the contract reference.  The proposal was subsequently rejected for not including a list of the very products he had asked about. I resubmitted exactly the same files and the proposal sailed through.

For all the reasons listed above, an industry has sprung up to help companies prepare their contract proposals.  For many companies the cost of these services is more than covered by their first sale.

Going back to the positives of government contracts:

  1. This is a large market with limited competition.  Many companies increase their market potential by 10 -15%.
  2. Once you are in the door, you can also sell products that are not on contract.  These are called open market sales.  For example, suppose a product is not on contract because of a conflict with AbilityOne offerings.  AbilityOne only guarantees 45 day delivery on most products.  If the contracting officer needs the product sooner, he is allowed to buy it on the open market.  That happens a lot.
  3. The market is practically recession proof.  In fact, some sectors are awash in money right now.
  4. There are no slow pays.  The government pays every invoice in 30 days or less.
  5. Contracts run for 5 years, with 5 year extensions.  So the effort of getting on contract is rewarded by 10 to 20 years of opportunities.

Bob is a principal at Resolute Marketing, which helps companies submit contract proposals a fraction of the time normally required.  Contact him at [email protected] or (508) 361-5626.

 

© Robert L. McKee 2010

 

3/19/2010

2 comments to The Pros and Cons of Government Sales

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