Market Watch - Government
How To Win Local, State And Federal Contracts
Matt Davidson knows a good government deal when he sees it. Over the last 15 years, he’s built up 13 Army contacts at New Jersey’s Fort Lee, winning orders from several departments. But Davidson has also learned that not every bid is worth making. Some, in fact, “are a waste of my time,” says Davidson, owner of LOGO Dynamics Inc. (asi/255454), based in Richmond, VA.
The truth is the bureaucracy of government orders can be burdensome and the margins can be tight. Even when a bid seems strong, another firm might go lower. Davidson once offered a government prospect 4,000 woven bags for $7,200 – just $700 above his $6,500 cost. He was stunned to find that a competitor had quoted the same bags for $5,400, while another set his bid as low as $4,800. “How can somebody do that?” Davidson asks.
Examples like this might scare some companies away from targeting government agencies, but not as many as you might think. An American Express OPEN survey found that, in 2012, small-business owners invested an average of $128,638 in both time and resources to win government deals. That was a 49% increase when compared to 2010. Clearly, despite the hurdles to landing a government contract, plenty of firms are willing to play the bidding game.
Why It’s Worth It
Every year, government deals put “$90 billion to $100 billion worth of business” in the hands of small firms, according to John Shoraka, an administrator with the Small Business Administration. And while government entities’ yearly spend might be flat, decreasing activity hasn’t had any negative impact on small firm contracting success rates, says Dona Storey, the American Express OPEN advisor on procurement. Current contracting success rates stand at 55%, up from 41% three years ago, according to OPEN’s survey. “Business contractors appear to be bidding smarter,” Storey says.
Among the successful bidders is Shelby Goldblatt, president of Indianapolis-based Goldleaf Promotional Products (asi/209675). Why does he target government agencies? “The government sector is good business, it’s solid business, and you know you’re going to get paid on it,” he says. Indeed, the government tends to pay within 60 days, unlike private contracts where payment windows can span upwards of three months.
The Way In
While government agencies can be a lucrative source of steady business, getting in can be tricky. OPEN’s statistics show an average 24-month waiting period and as many as 4.7 rejections before a company’s first successful bid. But experts insist persistence pays off, and there are some strategies that work better than others.
One of the easiest routes to winning these types of contracts might be to piggyback your way in, says Steven Ostrowski, director of corporate communications for CompTIA, a technology trade association, and an expert on doing business with the government. Subcontracting with a prime government vendor or forming a consortium among current vendors is often an effective approach when making a first pass at federal agencies, Ostrowski says.
Quoting rock-bottom pricing, as much as distributors loathe paper-thin margins, is also a key to getting government business for the first time, says Brandon Kennedy, owner of Proforma Progressive Marketing (asi/300094). “It’s always going to come down to the lowest price,” says Kennedy, who admits many times his company has bid on a government job with only a 25% margin and still been almost twice as high as the next bidder.
Goldblatt understands government agencies are looking for low prices, but he says they also want good quality. Not long ago, Goldblatt received a call from the Indiana Department of Environmental Management, a state program involved in the creation, enforcement and protection of environmental laws. The department wanted 500 hats with an embroidered logo – and it wanted them cheap as well.
For Goldblatt, whose government business accounts for about 2% of his company’s overall sales, it was a welcome bidding opportunity, and he landed the deal. Agreeing to lower margins may be the cost of doing government business, Goldblatt says, but it’s a great way to supplement private sector revenue.
Experts say looking for the right types of bids can also help you win contracts. For Barb Burcham, owner and president of Norman, OK-based Ad Specialties & More (asi/113357), sometimes bidding on smaller orders is a better option. That’s because state and local government agencies are often not required to seek multiple bids on deals less than a certain dollar amount, like $2,500 and under. That makes these contracts less competitive – ideal for first-time bidders.
All strategies aside, though, small businesses do have some advantages in the government bidding process. First, the federal government mandates that 23% of all procurement goes to U.S. small businesses. Secondly, there’s the so-called 5/5/3/3 requirement, says Shoraka, where the government works to purchase 5% of goods and services from female-owned businesses, 5% from small, socially and economically-disadvantaged companies, 3% from service-disabled veterans, and 3% from HUB (historically underutilized business) zones. Distributors who can prove that they fall into one of these categories have an instant edge over competitors who don’t.
The Value of Research
Even with one or more of those designations working in your favor, however, it’s necessary to do your homework and bid smarter, experts say, since competition for government business can be fierce. “You really need to do your due diligence on how your city and state is buying,” says Storey. Once you know that, “take a look at the stability of those budgets.”
If they’re contracting, maybe it’s time to move on and target another government sector. Likewise, she adds, look at past procurements within a particular government office, including the exact products they’ve purchased previously. “Research what they’re buying,” Storey says. “If, based upon what you’re selling, you don’t have a feeling that you have a 75% chance of winning the bid, move on to the next procurement.”
Here’s Storey’s point: Selling to the government, as in the private sector, is often a numbers game. And while a government sales cycle can be double or triple that of one in the corporate world, it doesn’t mean you have to wait around for months to close. If a deal looks like a reach for your company, it probably is. Better to hedge your bets and move on to the next one.