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Governmental market opportunities for Montana small business.

Government procurement is big business, even in Montana. For instance, is fiscal year 1989 the federal government purchased more than $153 million in goods and services from Montana businesses. Of the total amount purchased in Montana, $99 million went to small businesses and $13.6 million to minority and women-owned businesses.

Montana's state government also is a large consumer. The central purchasing office in Helena represents more than forty agencies and departments which purchase many types of goods and services. For the recent fiscal year (1991) Montana's state government purchased more than $45.7 million worth of goods and services from private vendors. In addition, "privatization" has become an increasingly important trend in state government. Montana's Department of Administration, for example, has contracted out data processing services, and private firms now provide janitorial and security services for state agencies in Helena.

High volumes and increasing privatization aren't the only reasons to consider doing business in this market. For one thing, governmental customers always pay their bills. For another, they offer small businesses an opportunity to expand access to regional and national markets. Moreover, firms which establish themselves as reliable, competent contractors have an excellent chance for repeat business and may be able to reduce the impact of cycles and seasons on their bottom line.

Given these benefits, why are many businesses reluctant to get involved in the governmental market? Because it's complex. Doing business with the governmental requires an investment in new skills and expertise. The market itself is both decentralized and highly regulated. Purchasing policies are complicated, rigid, and generally require that contracts be awarded to the low competitive bidder.

Though it can be somewhat intimidating to the newcomer, doing business with federal and state government isn't impossible, and it can be lucrative. This article describes the basics of governmental purchasing and offers small Montana businesses some advice on how to proceed.

An Overview of the Purchasing Process

Expect red tape, and lots of it. Therefore, it pays to become as familiar as you can with a given agency's purchasing operations before you begin a business relationship with it. Nevertheless, the more complex a given purchasing process, the more it will cost - in time, money, and energy - to win the bid. This correlation holds true generally in the governmental market, and can be especially onerous for firms new to it.

Many firms get their feet wet by utilizing "small purchase" opportunities at the state level. While Montana's state and local purchasing procedures are adopted from federal government policies, they're often simpler. In addition, Montana offers several bid preference or advantage programs for in-state firms and goods. Vendors incorporated in Montana can qualify for a 3 percent preference, for instances, and a 5 percent preference is available for Montana-made goods.

Most of what follows in the next section explicitly refers to federal purchasing systems. But state and local procedures are characterized by the same basic bid types.

Types of Bids

In general, federal government purchasers utilize three different types of bids: "simplified" bids; sealed bids; and negotiated competitive proposals. These are discussed in some detail below.

"Simplified" Bids: Almost 85 percent of all governmental purchase are awarded on the basis of what the Federal government calls "simplified" bidding. simplified bidding has two variants, one for purchases of less than $1,000, the other for purchases of between $1,000 and $25,000. If the bid involves more than $25,000, simplified procedures do not apply.

Purchases of less than $1,000 generally require only one quotation from a selected vendor. Contracting officers normally solicit these bids by telephone, using their list of known,7 reliable vendors.

Contracts of between %+$1,000 and $25,000 are called "small purchase" contracts. These require competitive quotes from at least two, but normally three suppliers. Usually, the previous supplier and two other vendors on the bidder's list are contacted. Contracting officers may seek bid quotes over the telephone or through the mail on Request for Quotation (RFQ) forms. Usually, the low bidder receives the award.

It is crucial to note that most "small purchase" contracts are rarely advertised. The catch here - and remember, this category comprises the bulk of federal government purchases - is getting on the bidder's list in the firs place. More on that later.

Sealed Bids: Sealed bidding procedures are used for more complex contracts and are advertised by invitations to Bid (ITB). These follow very rigid, formal guidelines. Normally, sealed bidding is used for technical products where specific standards have been established. The lowest bidder who is also technically qualified to perform the work is most always awarded the contract. Figure 1 illustrates the steps a business would take in the sealed bid process.

Most federal agencies solicit sealed bids vi advertisement in the Commerce Business Daily. This unique publication announces all procurement of $10,000 or more proposed by federal agencies. In addition, it lists all federal contract award of $25,000 or more, so that potential bidders have some idea of who's purchasing what in government agencies. (See end notes for subscription information.)

Negotiated Competitive Proposals: When formal public advertising is not suitable or possible due to the nature of the product or service sought, the government will take purchases through negotiated competitive proposals. This process often involves complex high technology projects that require the coordination of many vendors.

Negotiated contract proposals follow the same essential process as sealed bids. But extensive evaluation is usually involved, and time can be lengthy between bid submittal and contract award. The lowest price bidder that is also technically qualified is awarded the contract.

Applying to Lists

Before you can do business with the state or federal government, you first need to get on their respective bidder lists. Each requires a business new to the market to file an application.

Montana state government has one general application for all agencies within the state. It can be obtained from the Procurement and Printing Division in Helena. Individual agencies also can do some of their own purchasing, so long as the purchase amount is below their delegated authority.

Naturally, the federal process is more complex. However, a good place to start is with the General Services Administration (GSA), which has regional offices in Denver, Colorado and Auburn, Washington. Ask for Form SF129, the Solicitation Mailing List application. Companies wishing to pursue defense work should contact the Department of the Army at Fort Lewis, Washington. Business exploring Canadian opportunities can obtain a publication much like The Commerce Business Daily from the Canadian Government Publishing Center.

Other important resources for Montana businesses pursuing federal contracts include local business incubators (in Billings, Missoula, Glendive, Great Falls, Kalispell, Bozeman, Butte, Helena) and the Montana Department of Commerce's Small Business Development Centers.

Before you send for an application, make sure that product you want to supply meets government specifications. The MSU government documents collection in Bozeman has Montana's only microfiche collection of federal product (or "mill") specifications. If you can't meet the government's specifications, it doesn't make sense of file a bidder list application.
Table 1
Federal Contract Awards of $25,000 or More to
Small and Disadvantaged Businesses
Montana, FY 1989
Purchase Office Amount Purchased ($)
Billings, Dept. Interior
& Admin. Services $28,426,000
Bozeman, Dept. of Agriculture 5,627,000
Fort Harrison VA Medical Center 2,050,000
Helena, Various Agencies 933,000
Kalispell, Dept. of Agriculture 1,233,000
Libby, Department of Agriculture 811,000
Malmstrom Air Force Base 15,416,000
Miles City, Va Center 1,480,000
Missoula, Dept. of Agriculture 10,560,000
West Glacier, Glacier
National Park 327,000
STATE TOTAL $67,647,000
Source: 1989 Fiscal Year Region 8 Report (Montana), Federal Data
Procurement System.


Reviews and More Reviews

Your place on a bidder list isn't automatic - even if you meet the milling specifications, carefully fill out the correct forms, and return them to the correct agency. Almost always, governmental agencies prequalify vendors. They want to ensure that if a new firm is awarded a bid, it can fulfill the contract. Prequalification can include fairly straightforward criteria such as firm size and past experience. But the process also may delve into a firm's bondability, its financial health, management capabilities, past record in meeting governmental and environmental regulations, work capacity, and product service record.

Although state and local agencies also may want to prequalify a firm new to their bidder lists, Their criteria re usually less stringent than those of federal agencies. Keep these general differences in mind when deciding which governmental markets to target.

Prior to a contract award, governmental agencies often protect themselves with a further, through investigation of vendors who are the actual low bidders. These "pre-award reviews," normally conducted by the Defense Contract Administration Services Management Area (DCASMA), help agencies determine if the potential contractor is a "responsible vendor."

DCASMA acts as an independent review agency for all federal agencies. If a small firm has never done business with the federal government before and is participating in a sealed bid process, it can be virtually certain that a DCASMA review will be performed prior to any contract award. "Small purchase" contracts under $25,000 normally are exempt from DCASMA reviews. (Montana state government also may perform a pre-award review, depending on contract size and perceived necessity for it.)

If a DCASMA review is negative, all is not lost. Your case can be referred to the Small Business Administration (SBA), which performs a second independent review. If weaknesses noted by DCASMA are corrected and SBA's review is positive, it issues a "Certificate of Competency." Then the contract can be awarded under the SBA Contract Officer's supervision. Contact DCASMA or SBA to learn more about these reviews.

Establishing Target Markets

Before you make an all-out push, decide A) what level of the government market to target; B) how big a contract you'll pursue; and C) which specific agencies would be likely customers.

A) Small firms new to governmental marketing should

consider targeting a state or local agency first, give

themselves time to gain experience, then move on to

federal contracting. Subcontracting is another

excellent first step; firms can exploit the market

without the inherent hassle of dealing directly with

government agencies.

B) As contract size increases, so does complexity of the

purchasing process. A firm's investment in time and

resources to secure an award go up accordingly, To

minimize your contract investment, avoid sealed bids

and stick with the "simplifies" procedures which apply

to contracts under $25,000.

For small firms that qualify, the federal government

also offers "set aside" contracts of under $1000,000.

"Set aside" contracts involve simplified purchasing

procedures with quotations from at least two reasonable

bidders. For fiscal year 1989, 23 percent of all

federal contracts awarded in Montana were "set

asides." Federal agencies also target certain contract

awards for minority and women-owned businesses.

All these "small purchase" contracts provide

excellent opportunities for Montana small businesses

and are a good first step toward a governmental

customer base. C) Once the above market parameters have been

determined, a firm can investigate which agencies

actually purchase its products and/or services. This

information can be obtained in various ways.

Federal, state and local agencies all publish

purchasing directories or commodity listings. The

SBA's U.S. Government Purchasing and Sales

Directory contains a lengthy list of products and

services and the Federal agencies that buy them.

Another useful directory is the GSA Product and

Services Directory. Through its Federal Procurement

Data System, the government also publishes the

Standard Report, a free quarterly with a wealth of

information on buying activity; supplies of this

report go fast. And don't forget the Commerce

Business Daily, which not only identifies the current

needs of particular agencies and their contracting

officers, but also highlights buying trends and major

contract awards.

Stay in touch with the Montana Purchasing Bureau, Montana Department of Commerce, and Montana Small Business Development Centers. Personnel in these agencies often receive inquiries from federal contract officers regarding potential suppliers.

Interviewing Agency Contacts

Although the sources discussed above help identify potential target agencies, a company also must conduct its own basic market research to define the real need for its products or services. Such research takes time, but it's not necessarily expensive, and it can be generally helpful for a firm to go through the process. Locate a contact person for each target agency. Ask the following questions:

* What person in the agency is actually responsible for

making contract awards?

* Who has knowledge of upcoming Invitations to Bid?

* What is the current demand for you firm's product/service?

* What companies currently supply the agency with that

product/service? Who is the competition? Why have

they won contracts in the past?

* Are there any products or services in demand for

which the agency has difficulty finding suppliers?

* What opportunities exist to supply, broker, or

manufacture items as a subcontractor?

* Are there any market areas or "niches" that the

competition has not recognized or exploited?

* What percentage of the purchases awarded are "small

purchases" or "set asides?" Does your business

qualify?

* What requirements does the agency have for its

vendors?

* What selling and marketing techniques does the agency

allow?

* If you're talking with a Montana state agency, ask what

products/services are purchased from out-of-state

suppliers.

* It is possible to compete with these companies?
Table 2
Montana State Government Purchasing by Department
The Top Ten
FY 1991
1 Department of Social Rehabilitative Services $7,970,261
2 Montana State University 6,945,479
3 Department of Highways 5,778,941
4 Department of Commerce 4,690,865
5 University of Montana 2,663,317
6 Dept. of Admin. - Information Services Div. 2,196,225
7 Department of Commerce - Montana Lottery 2,108,768
8 Dept. of Admin. - General Services Div. 1,438,180
9 Department of Justice 1,276,145
10 Dept. of Fish, Wildlife & Parks 1,275,159
Source: 1991 Year Report, Procurement and Printing Division, State of Montana.


Ranking Prospects

Once you've identified target markets and interviewed a few agency contacts, it's time to organize the information so it can be used strategically. So-called prospect identification sheets are a good tool for this process.

Basically, a prospect identification sheet lists products or services you wish to sell, links them to candidate customers, and ranks the prospects according to sales potential. Informed by this very specific analysis, your efforts can be aimed where they have the greatest likelihood of producing results.

Selling Effectively

Selling to government customers is different from selling to the consumer market. Government regulations - which are designed to protect the integrity of the procurement process - limit advertising, selling, and promotion techniques. Ask each agency you contact for its specific regulations, but most likely you'll need to become familiar with "Officials Not to Benefit" and "Gratuities" clauses in government contracts, and with "Anti-Kickback" provisions.

Given the restrictions, how does a business, especially if it's new to the government market, attract the attention of a purchasing agent or contract officer? Based upon interviews with contract officers, the following process is recommended:

1. Prepare a one or two page product/service data sheet,

This should be included with your initial request to be

put on a bid list. In a concise format, include the

following: important organizational, historic, and

business information about the company; a list of all

products/services offered, with emphasis on value and

capability; distribution and geographical market data;

customer references; any government agencies and

contract officers previously worked with; and terms

for goods sold, with emphasis on competitiveness and

fairness, rather than specific prices.

2. Follow up by telephone within ten days. Make sure all

materials arrived and were complete.

3. Schedule a personal visit so you can demonstrate the

firm's product or service. Make sure you understand the

agency's guidelines for sales calls. Stress you familiarity

with (or willingness to learn) the agency's particular

purchasing requirements. Emphasize as well you public

accountability. Show examples of prior work; offer

customer references.

4. Follow up the sales call with regular telephone calls and/or

or memos that indicate your firm's ongoing interest in the

agency as a potential customer.

Managing Sales Costs

Your first tool for managing sales costs is the product identification sheet referred to above. It helps rank potential customers, and therefore suggests where sales expenses are best concentrated.

Another useful tool is a sales account plan. Develop one for every prospect with medium to high potential for a sale. The plans should include:

* date of sales call

* names of decision makers called on

* objective of the sales call

* results of the sales call

* estimate of account potential

* Salesperson responsible for managing the account

* budgeted costs of the sales, actual expenses, and any

variances.

With this information at hand, you can make sensible decisions about where to invest your sales budget, and whether the investment is paying off as it should.

Conclusion

Government markets represent a fruitful growth area for Montana businesses and for the future economic development of the state. While they are both complex, dencentralized, and confusing, they can be penetrated by new small business. Especially if firms new to the market manage the process in a thoughtful, logical way.

Literature Cited

- Doing Business With the Government Workshop and Seminar by Dough Brown, Center for Business Enterprise, Eastern Montana College, Billings, Montana, 1989. - 1989 Fiscal Year Region 8 Report (Montana), United States Government Printing Office, Federal Data Procurement System. - Women Business Owners, Selling to the Federal Government, United States Government Printing Office, 1987. - 1991 Fiscal Year Report, State of Montana, Procurement & Printing Division, Helena, Montana. - "Firms Take Over Public Services," Mitchell Landsberg, The Associated Press, 1991. - Percentage of Government Services Contracted Out to Private Companies, Reason Foundation, 1991

Certain material or ideas for "Effective Selling Techniques" were adapted from:

* "The Modular Marketing Process" by Charles W. Stryker, Marketing

Handbook, Vo. 1, Dow Jones-Irwin publishers, 1985.

* "Marketing Value Versus Marketing Product/Services" by Howard

Berrian, Marketing Handbook, Vol. 1, Dow Jones-Irwin publishers, 1985.

* "Marketing Without Advertising," Creative Strategies for

Small Business Success by Michael Phillips and Salli Rasberry, Nolo

Press, 1987.

The Commerce Business Daily is available at most libraries. A subscription can be obtained from the U.S. Government Printing Office, Washington, D.C. 20402, (202 783-3238. Current rates for a daily subscription (non-priority mail) are $208 / year.

Helpful Sources

Small Business Development Center, Business Assistance Division, Montana Department of Commerce, 1424 9th Avenue, Helena, MT 59620, (406) 444-2750.

Deputy for Small Business Representatives, Building 145, Malmstrom Air Force Base, Great Falls, MT 49402-5320, (406) 731-3744.

U.S. Small Business Administration, Region VIII, 999 18th Street, Suite 701, North Tower, Denver, CO 80202, (303) 294-7186.

Program for Small and Disadvantaged Business, Small Business Administration, 301 South Park, Room 528, Room 528, Federal Office Building, Drawer 10054, Helena, MT 59626, (406) 449-5381.

Business Service Center, Region VIII, General Services Administration, Denver Federal Center, Building 41, Denver, CO 80225, (303) 236-7408.

Business Service Center, Region X, General Services Administration, 400 15th Street, SW, Room 2413, Auburn, WA 98001, (206) 931-7956.

Department of the Army Contracting Office, Bld. 99504, FLLC, Fort Lewis, WA 98433, (206) 967-2151.

State of Montana, Procurement & Printing Division, Sam W. Mitchell Building, Room 165, Helena, MT 59620-0135, (406) 444-2575.

Montana Entrepreneurship Center, Eastern Montana College, 1500 N 30th Street, Billings, MT 59101-0298, (406) 657-2813. Also offices at UM & MSU.

University Technical Assistance Program, 402 Roberts Hall, Montana State University, Bozeman, MT 59717, (406) 994-3812

Supply and Services Canada, Canadian Government Publishing Center, Ottawa, Canada, KIA 059.

Mr. Ralph Stechman, Procurement Technical Assistance Officer, Billings Area Business Incubator and Montana Small Business Development Center, P.O. Box 7213, Billings, MT 59103, (406) 245-9989.

Assistant Professor Doug S. Brown, 204 Cisel Hall, Eastern Montana College, 1500 N 30th Street, Billings, MT 59101-0298, (406) 657-2135.

Doug S. Brown, CPA, is an assistant professor of accounting at Eastern Montana College in Billings, Montana.
COPYRIGHT 1991 University of Montana
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Economic Development
Author:Brown, Doug S.
Publication:Montana Business Quarterly
Date:Dec 22, 1991
Words:3313
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