Keywords: government, contracts, US, annual, review, FSSI

Government contracts

Extending the runway

With 2010 generally being accepted as a historical year for the US independent dealer channel following the award of the US Communities contract to Independent Stationers (IS), how would 2011 pan out now that dealers have had the chance to go after more government business?

Certainly, no-one believed that it was just a question of turning on the tap and allowing business to gush in; dealers would have to go out and win contracts and the big boxes – and Office Depot in particular – would put up a strong fight to hold on to what they had.

Let’s not forget that Office Depot held the US Communities contract for 14 years and in that time was able to develop relationships with its customers. After deciding not to rebid on the contract in 2010, Depot put together two other cooperative contract deals last year – National IPA and TCPN – allowing it to potentially hold on to its customer base. 

It also offered agencies aggressive pricing incentives, especially under TCPN, to switch to another Depot cooperative contract. Add to the mix the notorious reluctance of government purchasing agents to change suppliers and it’s obvious that dealers were not being offered a free lunch. 

So how well are both sides doing?

To recap, in its heyday a few years ago Depot was generating around $600 million a year in sales through the US Communities office supplies contract. A chunk of that was spun off into a separate school supplies contract awarded jointly to Depot and School Specialty in April 2010 (although School Specialty pulled out of the contract a year later), and Depot is also a contractor on another US Communities contract via Tech Depot. The rebid office supplies contract which went to IS was estimated at $500 million a year.

A numbers game

Over the last year, Depot has consistently been claiming that it has retained between 85-86% of its US Communities business. CEO Neil Austrian told OPI (see ‘Austrian on audits’) that this refers to the company’s total business with US Communities, including the school supplies and Tech Depot contracts, estimated at an overall figure of around $600 million.

Using this figure, Depot’s loss of business would be between $84-90 million per year.

Back in March, IS CEO Mike Gentile told OPI that committed US Communities business was tracking at a run-rate of around $110 million.

At the same time, Staples also reported strong gains in its government business, in particular stating that it had gained over 1,000 former US Communities customers at an annual run-rate of around $50 million.

Clearly, the figures don’t add up somewhere.

Speaking to OPI for this article, Mike Gentile declined to provide exact sales revenues that IS is generating from US Communities, but stated that he didn’t give much credibility to Office Depot’s public statements.

Nevertheless, the IS CEO did admit to being “disappointed” at the overall revenue from US Communities.

“I’m a sales guy – I always want more, better, faster – so I’m not going to sugar-coat things and say I’m not disappointed, of course I am,” he said. 

“We see the runway as longer than we originally anticipated, but the good news is that we’re making progress every month,” he added.

Gentile said that a number of public school systems had been added to the contract at the start of the new school year and that talks were ongoing with about half a dozen states.

“We have had a significant learning curve and have done something that had never been done before in the independent dealer channel.”

The announcement of the US Communities award – in conjunction with other national accounts and federal awards – has certainly been a factor in IS’s membership growth as it added over 120 new members in 12 months.

Almost 200 dealers are now part of IS’s US Communities programme and Gentile argues that there is something for everyone, regardless of the size of the dealership.

While leading dealers such as Guernsey Office Products (not an IS member, but able to participate in the US Communities programme as part of the Pinnacle group) have the operational expertise and sales-force depth to tackle major contracts such as the $11 million Fairfax County contract, Gentile says that there are plenty of other contracts, such as smaller school systems and counties, that are suitable for small to mid-sized resellers.

However, he is realistic when it comes to the question of whether doing business with public sector agencies is suitable for all dealers. “We have more and more dealers getting involved and some are recognising that this is not their cup of tea.”

More than US Communities

Gentile was also at pains to highlight that there is much more to IS’s national accounts programme than US Communities. Earlier this year it was awarded the CHAMPS healthcare contract and there are a number of other national accounts awards that have not been publicly announced.

Importantly, IS was also one of the 15 contractors to be awarded a new Federal Strategic Sourcing Initiative (FSSI) blanket purchase agreement (BPA) which came into effect at the beginning of this year. FSSI is part of the current US Administration’s programme to reduce federal procurement spending by $40 billion annually, and 18 federal agencies employing almost two million staff have been mandated to use the new office supplies BPAs. Furthermore, the total federal market opportunity for office supplies is estimated to exceed $1.6 billion annually.

The uptake of FSSI has hit the federal agency sales of hundreds of smaller resellers that hold what is known as a Schedule 75 award enabling them to do business with the federal government. New Schedule 75 awards and renewals have been frozen, meaning that while it is still possible to use current awards, it is becoming more difficult to do business in the federal arena without an FSSI award.

“We had our biggest month ever in October and our federal sales have quadrupled in the last 12 months,” enthused Gentile.

Pointing in the right direction?

With IS grabbing the headlines for its US Communities and FSSI wins, the pressure has been on rival dealer group TriMega to get up to speed with its Point Nationwide national accounts programme which was officially launched in June 2010, especially after 40 TriMega members switched to IS following the US Communities announcement.

Representing a major investment by TriMega and wholesaler partner SP Richards, Point Nationwide has not been able to secure a major national local government cooperative contract or federal FSSI BPA in its own right.

It has therefore taken the route of piggybacking onto two existing contracts held by TriMega members.

The first of these was announced in April with Texas dealer Gonzalez Office Products. This agreement allows TriMega members to use Gonzalez’s TCPN contract to compete in the state and local government arena.

After a short pilot phase with a number of key Point Nationwide members, a full roll-out was implemented across the TriMega membership in July.

TriMega’s VP of National Accounts Tom VanHootegem told OPI that there have been a number of early contract wins, including in California, Texas and New York.

“We currently have approximately 100 Point Nationwide members ramping up under TCPN, alongside many TriMega members who are not part of our Point Nationwide programme, but who also have access to the system,” he said.

“We anticipate close to 200 total dealers up and running with our TCPN programme by early 2012,” VanHootegem added.

More recently, Point Nationwide received another boost with the announcement that it had piggybacked onto an FSSI BPA held by California dealer EZ Print.

It was actually TriMega that approached EZ Print with a view to setting up the new agreement, a move that resulted in the California reseller joining the dealer group earlier this year.

TriMega members on their new FSSI programme don’t necessarily have to belong to Point Nationwide, but it helps – they get better support and a lower fee structure.

Dealers have to play by a strict set of requirements to be eligible for the FSSI business. Officially they are ‘authorised participating dealers’ and, as such, have to represent themselves as EZ Print and incorporate EZ Print branding into all FSSI contract communications, marketing documentation, websites, and so on. SP Richards must also be used as the first call wholesaler for all of the FSSI business.

“There has been a tremendous amount of FSSI activity since we last updated members [at the Emerge conference] in September,” VanHootegem told OPI.

“We have 60 dealers up on GSA Advantage via our FSSI contract with EZ Print and we should see that number grow to 100 in the months to come.

“GSA has implemented some new rules such as a single order entry portal and we are the only piggyback player which is meeting and exceeding GSA requirements at this time. We are taking orders from California to Florida and have almost 9,000 users already set up with ordering credentials – with many more to come.”

The FSSI agreement is an important one for TriMega after seeing volume on its Schedule 75 GoverNet programme fall by around a third so far this year.

Now the onus is on VanHootegem and his team to drive volume through the Point Nationwide system. There has been some speculation as to how long TriMega and SP Richards will keep bankrolling the initiative – the addition of some former power channel sales reps is being seen by some as a last roll of the dice before a difficult decision may have to be taken. Whether that’s true or not, there is certainly pressure on Point Nationwide to ramp up its sales, whether it be with local/state, federal or private sector customers. TriMega believes it has the best technology, but it now needs the sales figures to do the talking.

48 new contracts

One person who has not been overly troubled by the changes in federal purchasing is AOPD Executive Director Bud Mundt.

True, AOPD’s federal sales have taken a hit due to FSSI, but so far this year the group’s overall sales are up 15% as it enjoys success with new programmes such as the America’s Choice cooperative contract and its healthcare sector agreement with Premier, which both rolled out earlier this year.

AOPD members are not locked out of FSSI altogether. A number of its members have joined the GSA programme of Virginia-based AOPD dealer Sita which is said to be driving good sales with a number of local hospitals.

Mundt has by no means given up on Schedule 75 either.

“We’re still doing millions of dollars on Schedule 75,” he told OPI. 

“We feel that at some point in time GSA will go back out to bid on FSSI, and when they do ramp up, we want to maintain our GSA contract so that we’re eligible to bid on that,” although he added that this may not happen until 2013.

Mundt revealed that AOPD had signed 48 new contracts in 2011 through to the end of October and said that there is a growing desire from regional and national organisations, both in the private and public sector, to work with local dealers.

“Independent dealers have scared the big boxes,” he stated.

However, he warned that independents should choose their battles carefully, as the big boxes themselves hit back with pricing which can be “pretty scary”.

A point echoed by IS’s Mike Gentile who said that OfficeMax in particular was coming in with pricing on certain products that he described as “irresponsible”.

For its part, TriMega noted the continued strong presence of Office Depot in the market with its TCPN contract. 

“While this is certainly unfortunate from an independent dealer channel perspective, we also believe this presents a powerful opportunity for TriMega dealers – and all independent dealers – to emphasise the value of being local, and the benefits of flexibility and personal service […] with competitive, flexible pricing,” said VanHootegem.