THE US GOVERNMENT - A VIABLE CUSTOMER FOR FOREIGN COMPANIES
Presented By: JENNIFER SCHAUS, Washington, DC March 2009
The United States Federal Government is the largest purchaser of goods and services in the WORLD, spending over $400 Billion annually (pre-2009 stimulus package). The Federal Government buys products and services. The products range from toothpaste to office supplies and artillery. They also need the services of nurses, priests, hairdressers and IT professionals. For standard “business-to-business” companies, selling to the government is a way to diversify the customer portfolio and mitigate risk with fluctuations in the economy. Additionally, once you are an established vendor and have performed satisfactory within contract terms and conditions, fulfilling the governments ‘the statement of work” - increases your likelihood for steady repeat business. Although your profit margins may not be the highest in this sector, the somewhat predictable budgets and buying patterns (once you are “in”) can be a motivating factor for many businesses to establish government contracts. Another motivating factor is knowing that you are guaranteed payment from the government. Sometimes, however there may be a hurdle upon the time frames in collecting. This can usually be circumvented by ensuring that you delivered precisely on the terms and conditions and that your invoice exactly matches the Purchase Order issued by the Government.
The “WHO” of the US Government
The US government is comprised of multiple agencies and thousands of buyers of wide ranging products and services. Most US government agencies are headquartered in the Washington DC area, but also have offices across the country and the world where purchases are also made. For example, the US military has bases in many foreign countries. While you can sell to virtually anyone by utilizing technology, it is beneficial to have a physical presence in the Washington DC metropolitan area as this is where the majority of the decision makers are located. This can be accomplished by employing a full-time sales team, retained consultant, lobbyist, a partner company or some combination thereof.
There are large government offices all over the country and if you have a service or product for a niche market such as a military bases or one of the national laboratories or other specialized institution, then you can easily situate your sales team closer to the end-user.
WHEN THE GOVERNMENT BUYS:
The US government fiscal year runs on an October 1 to September 31 cycle, with the peaks typically occurring at the end of the fourth quarter due to a “use it or lose it” system. If there are unallocated dollars as the year closes, there is a high probability that the buyers, known as Contracting Officers will purchase your items/services during these final months of July, August and September. There are other factors besides the ‘end of year dollars’ that plays a role in government’s decision to award a contract to your organization. Relationship building, as in regular business-to-business transactions and some mid to high dollar consumer-to-business transactions, is also significant and crucial part of the sales process.
Selling to the government does not happen overnight. There is a large time investment on the sales cycle, as the government is a risk-adverse client. This time span can range from 6 to 24 months – sometimes shorter or sometimes longer. You may make 10 or more phone calls before you reach the appropriate government contact. (There are organizations that sell government related marketing lists and other supplemental information.) Once you reach the right contact person, you may have many meetings with your potential client before you make it to the true decision maker who decides if and when your product/service is needed and will be funded.
From those meetings, presentations and demonstrations you can assess if there is a need for your product/service in that agency or department or if you are creating that need. Some salesmen and women may disagree and feel that the sales rep is responsible for creating the need, but sometimes when interfacing with the government you may be in a reactive mode and responding to request – formal or not. Both scenarios will provide some intelligence on your chances for award and estimated time frames.
If you are responding to a request, it is important to know (or ask) where the government is in the decision making process. If there is a formal call for information or a Sources Sought (SS) or Request for Information (RFI) for products/services that you provide, then the government is conducting a search to determine what products/services are available that meet their specific need. They may also be interested in determining if a specific type of business can fulfill the terms and conditions, such as a small business, one located in a Historically Underutilized Business area (HUBzone), minority owned, disadvantaged, veteran owned, and/or women owned business. (More information on what qualifies as a small business or HUB zone, etc can be found on the US Small Business Administration website at wwww.SBA.gov) Therefore, these SS or RFI’s are great opportunities to provide information about your area of expertise, highlight past performance with other government agencies, provide pricing information or estimates, and assist in helping the issuing agency determine there is a need to contract with your organization and demonstrating any value-added components you possess.
If your products/services are listed on the General Services Administration (GSA) Schedule, this is a clear advantage and should be included in your response. The GSA Schedule is a “hunting license” or “ticket to the government dance” and allows the government to accelerate their purchase from you. More information can be found at www.GSA.gov
Formal request from the government also come in the form of Request for Proposals (RFP), Invitation to Bid (ITB) and Request for Quote (RFQ). These formal solicitations (or RFP’s and RFQ’s) for purchases of $25,000 are required to be published on www.FedBizOpps.gov This website allows you to search for opportunities by many criteria, including agency and also product/service. Many of these opportunities are not simply “put out to bid” without having an intended awardee. Companies that have been continually networking, attending trade shows & presenting their capabilities to the government for 6-24 months, are most likely the key players in creating the need for their solution which brought about the RFP. The Statement of Work (SOW) in the RFP many times are written with language tailored for a specific company, an elite group of contractors or for specially designated companies including GSA Schedule holders, small businesses, etc. These solicitations are a simple reminder that relationship building is the key component to winning the business.
Because government cannot accept gifts or be taken to lunch or dinner, basic sales skills and knowing your product/service inside and out are absolutely pertinent to your success in this vertical market. An educated and determined sales force with a strong management team is important. The sales force must be relentless and creative in breaking through the government walls and finding champions for their solutions. They must be well connected at various levels – top, middle and bottom – and present their solution as a way to make things “easier” for the government, without threatening their job security.
There are a variety of sources for the sales rep to obtain contacts. Networking ‘inside the beltway’ is important and there are an abundance of venues for one to attend to, as some are industry based. Additionally, www.FedBizOpps.gov provides an abundance of information in the solicitations, and a phone call to the contracting officer is a good start. This is a way ‘in’, even if you are not going to win the business for that particular RFP. As previously mentioned, there are commercial companies who sell government marketing lists – including names and contact information for buyers within government.
There are various levels of sales reps that a company may pursue. The ideal candidate and may be an individual previously employed by the government in an agency where there is a great need for your services. There are limits and laws surrounding hiring individuals in this capacity who may have the contacts to help your organization. Sometimes, depending upon the size of your organization, these individuals may sit on the Board of Directors or be your main government sales guru. These folks typically understand government, (hopefully your product) and they have been the customer and understand the processes by which the government purchases.
Again, depending upon your company size, budget and objectives for the government market, you may want a full sales team or just want to tread lightly into this arena. There are many flavors and degrees of sales representation in Washington, DC. There are agents who will sell for you, be your US presence and ask for a high percentage commission without a monthly retainer. The most common structure in sales would structure a contract to include a monthly retainer and commission. Still others may only charge a retainer and be confined to certain areas of their expertise such as proposal writing. Most of the individuals will have a certain area of expertise or connections in specific agencies.
Trade shows are abundant as well and some are government specific (The General Services Administration Expo, Small Business Administration Conferences), others are industry specific (ie. FOSE and GovSec and F-Ped). These become an opportune venue to meet the government buyers and spend time with them, since they are prohibited to accept gifts, lunch, dinner/golf outings, etc. These trade shows can be an expensive undertaking but there are creative ways to reduce your cost. Some of the conferences are looking for industry and subject matter experts as speakers for the breakout sessions. By becoming one of the speakers, you gain more exposure, a live audience, free press on the conference brochures and more attention and traction at your booth. With more traction, this becomes basic sales and is a numbers game.
It is a given that in the sales process roadblocks are met and it is the job of the sales team to overcome these obstacles. An effective business-to-government (B2G) sales representative will penetrate the government at a variety of levels – the end-user, the program manager(s) and the individuals who have purchasing or influential authority. Sometimes there are higher issues which could help or hamper a product/service from coming to market or perhaps escorting it out. Lobbyist within the Washington DC area can also play a role in assisting with generating funding for your solution. Lobbyist work at the levels in government – primarily on Capitol Hill where they can help influence bills and appropriations for specific services and products. Lobbyist fees may be higher than a seasoned government sales rep, but will also be able to deliver for you at a different (more political) level. These individuals may have previously worked for or with senators, representatives and other elected officials. Most successful lobbying firms will have connections on both sides of the political landscape which keeps them strong at times when there is a change in power at any level within the government. Although these firms can be powerful sources to leverage, they are not a silver bullet. All of these tools lobbyist, sales team, consultants, agents and proposal writers, must be used in collectively to get the most out of your ‘hunting expedition’.
The 80/20 rule applies in government contracts as well. Eighty percent of the contracts are awarded to the top 20 contractors. These prime contractors are large businesses and are well-known, such as Lockheed Martin, Northrop Grumman, Raytheon, SAIC, BAE, etc. These organizations usually maintain a small business liaison office. It can be beneficial to meet with these offices, register in their vendor database and provide a synopsis on your products/services. Many times, when the government is working to meet their small business set-aside contracting goals these organizations will be forced to outsource some of their work to small businesses.
You can employ resources to determine if there is a market in the US government for your product/service. Commercial companies can be hired to do this for you and searches can be conducted to determine how much of your product/service has been bought over the fiscal years, which can be segmented by quarter and company name. It is also useful to search for competitors and understand their position in the marketplace to determine your potential share. Government budgets are not secret and this information is pertinent (and available) when focusing on your target client.
With this information, you may determine that certain agencies may be better suited and equipped to purchase your solutions than others. By narrowing your target client to the top 3 agencies best aligned for your product/service based on their budget, your budget and your contacts within the agency, you can strategically positioning yourself for success. Creating a capabilities statement and supporting literature geared toward the government, will help the buyer in understanding how your solution will assist them.
Each administration, Republican or Democrat has specific goals and focus areas. Some of these are determined by world events (wars and economic crisis, etc.) and others are simply areas that they deem important (ie. green and environmental products). By being cognizant of these issues, reading trade journals and government specific publications, you can gain a clearer understanding of your clients’ mentality and challenges, thus being better able to provide a solution.
For foreign companies, establishing a US presence is not absolutely necessary, but can be beneficial. Most US Government contracts have been awarded to companies who are physically located within the DC metropolitan area. Basic sales skills tell us that business is earned and awarded to the company/individual where there is a relationship. In order to build those relationships, the sales rep, the lobbyist, the consultant for your company should be located close to the client – primarily Washington, DC. Modern day technology has allowed us to video-conference, email and communicate in ways where we do not have to physically be present. When dealing with a risk-adverse client, it is a best practice to physically be there. Additionally, foreign companies may also consider establishing a US subsidiary to have a legal entity and stronger presence in the US.
Government purchases can – and are also be based on a variety of factors including price and quality. For many years, most contracts were awarded based on lowest price regardless of quality or value. This evaluation and award method was not well received and did not work well for both buyers and sellers – for obvious reasons. Vendors were caught in a bidding war on price, losing great margins and government did not always receive the best solution for the need. Best value became part of the decision making process for the government buyers. This is important to remember, as government is not mandated to select the lowest bidder, however it is important to know when they be making such a purchase.
One strategic advantage many government contractors have is the GSA Schedule. GSA is the General Services Administration, one of the many government agencies. The GSA Schedule is a contract between a commercial company/business and the US Government establishing products and services for a set price. The GSA Schedule does NOT guarantee any sales, as it is simply a “ticket to the dance”, with no guarantee of sales. More information is also available at www.GSA.go
When the government is interested in purchasing a product or service, it is required that they first look for this item on the GSA Schedule rather than seeking it in the “open market” (non-government contract). This is stated in the FAR – Federal Acquisition Regulation, http://acquisition.gov/far/ which acts as the “Bible” establishing purchasing rules for the government. The FAR is administered jointly by GSA, Department of Defense (DOD) and National Aeronautics and Space Administration (NASA). GSA Schedules allow government buyers to purchase direct from you thus accelerating the purchasing process. This helps streamline the procurement process, as the government knows they are obtaining the best rate for the product/service.
The GSA Schedule is actually an open and rolling solicitation, meaning that it acts as an RFP with no close date. There are various amendments that are made to the solicitation that require vendor compliance. However, as mentioned above, upon award of the Schedule or contract, there is no guarantee of sale – only a “hunting license” to sell to the government.
There is extensive paperwork involved in obtaining this GSA Schedule contract. This is a 5 year contract with 3 renewable 5 year options, (potentially a 20 year total contract). Many companies (mostly located within the Washington DC metropolitan area) are available to assist you in this process and some many specialize in various sectors, some providing ancillary services such as business development and sales efforts on your behalf. Your investment if you choose to outsource this can range from $8,ooo to $25,ooo depending upon the organization and the services you select.
There are some “fine print” details about GSA Schedules. GSA is a non-appropriated agency, meaning that they do not receive federal funding and therefore must self-fund. This funding is generated by assessing an Industrial Funding Fee (IFF) of less than 1 percent on all GSA Schedule sales. The fee is .75%, enough to cause administrative and accounting/ financial work for the vendor. These fees must be reported and paid quarterly (calendar year) to GSA. There are commercial firms who provide accounting software to help companies manage this process.
Additionally, there is a sales quota of $25,000.00 USD for the first 24 months of your GSA contract and $25,000.00 for each year thereafter. If these thresholds are not met, GSA can (and will) revoke your contract.
GSA contracts ensure that the government is obtaining the best price for the product/service offering. This is done through “price negotiations”. As you prepare your GSA proposal, GSA requests a dated copy of your commercial sales price list. Along with this, GSA requires details on any price deviations from that commercial price list – or your CSP – Commercial Sales Practice. They will compare your MFC, or Most Favored Customer pricing to your proposed GSA Pricing. For each item you are providing to the government, they expect to receive the same or a comparable price. These issues are resolved through formal negotiations with your GSA Contracting Officer. Many companies shy away from government contracting, but the GSA Schedule can be another tool to accelerate your sales process.
Because the GSA Schedule is a contract, there are certain terms and conditions that apply. There are limitations on price increases per 12 months. These vary by schedule. These changes are contract modifications and must be formally approved by the Contracting officer. These tasks can be completed in-house by someone familiar with the process, or it can be outsourced to an organization that specializes in GSA Schedules.
The GSA Schedules are segmented by industry. For example, Schedule 84 is for Law Enforcement and Security products, while Schedule 70 is reserved for Information Technology services. Each schedule has similar basic terms and conditions, but they will vary differently and must be read closely.
Foreign companies as well as US companies must comply with the basic requirements. This can include but is not limited to: possessing a Dun & Bradstreet number www.DnB.com and maintaining 2 years in business; having an acceptable Past Performance rating is also required, which is a formal process conducted by the Open Ratings organization; offering commercial items at fair and reasonable prices, that fall within the generic descriptions in the GSA Schedule Solicitation; submit offers in English and accept payment in U.S. Dollars; ensure that all items offered are compliant with the Trade Agreements Act; accept U.S. Government Purchase Card for orders at least up to the micro-purchase threshold ($3,000.00); and completing applicable GSA training, which is an on-line course entitled Pathway To Success.
Completing the GSA Schedule paperwork process can range from about 3-10 months. There is a 30 Day Express Program – offered only for specific schedules that meet specific criteria including financial ratios and sales volumes. Please note, there is approximately a 4-5 weeks of preparatory work involved prior to submitting the proposal for the 30-Day Express Program once it is determined you have met the strict criteria.
Some schedules allow state and local government purchases. (Schedule 70 and Schedule 84) This means that state governments who wish to procure your products directly can do so through the GSA Schedule. Again, this simplifies and speeds the acquisition process for the client. The State of California has a CMAS program – California Multiple Award Service. CA will grandfather your GSA Schedule pricing once you have met their additional requirements and add you to an approved vendor list for state purchases. The District Of Columbia government also purchases directly from the GSA Schedule.
Regarding the 50 United States, it is also beneficial to register in their vendor database. Most states have an on-line form and a nominal fee (approximately $15 USD) to register. Registering involves input of basic company information, including your industry codes and in most cases a Tax ID Number (TIN). Foreign companies can work with a Registered Agent in the US, establish a US subsidiary or explore other alternatives for obtaining a TIN. Once you are registered you will receive RFP notifications and such designated to your area of expertise and industry. Again, these come down to relationship building and leveraging sales representation, etc. Some states also have formed consortiums whereby they purchase collaboratively.
GSA Advantage is a on-line tool for the federal government to purchase products/services. GSA requires that within 6 months of a GSA Schedule award, your product/services must be uploaded onto this web portal. www.GSAadvantage.gov It can be leveraged as a great resource for obtaining contact information and responding to RFP’s, etc. Depending upon your sector, you may receive multiple emails per day requesting a quote or proposal. You can choose to respond or not. Keep in mind, the buyer may be shopping for a low price or something specific, so it’s best to know the buyer – and if you don’t – make it a point to know him/her. B2G still involves basic sales, and relationship building. Government is a huge entity and you can’t know everyone, so focus on the agencies that work best with your solutions and where your solutions compliment their needs. Sometimes you will get lucky with a quick buy. If you do, get to know that person and understand why they bought from you so that you can replicate your process.
Foreign businesses will have to pay close attention to the Trade Agreement Act and Buy American Act. The TAA focuses more on country of origin relating to manufacturing and products – how and where the end product is composed. The BAA primarily gives preference to US companies over foreign entities on contracts. Certain exceptions apply including some construction materials. Other BAA exceptions relate to the US government procuring non-US goods that are not reasonably available commercially in the US. *Please consult Section 25 of the Federal Acquisition Regulation and also the General Services Administration website for current information and language regarding The Buy America Act and Trade Agreement Act for foreign companies, as these regulations are undergoing changes at the time of this publication. http://acquisition.gov/far/
In conclusion, The US Government is the world’s largest purchaser of goods and services. It is an elaborate and competitive market, but not impossible to be successful in. Establishing your business as a government vendor and winning business is similar in some ways to Business-to-Business dealings and also very different in some of the ground rules. Knowing those rules and identifying government savvy experts to guide you through the government puzzle - can be the differential in being another government vendor and being the successful and preferred government solution provider.
Jennifer Schaus is a government consultant living and working in Washington, DC. She is the founder and principal of Jennifer Schaus and Associates. Ms. Schaus has domestic and international clients who provide both services and products to the US Government. Her expertise is in representing clients to complete the GSA Schedule process and advising on best sales practices for the US Government marketplace. She also provides Venture Capital for various industries. For more information and to contact Jennifer Schaus & Associates, please visit: www.JenniferSchaus.com or call + 1 - 2 0 2 – 3 6 5 – 0 5 9 8.