federal dealings

While NOPA is doing a sterling job in breaking down the barriers, selling OP to the US federal government is not as easy as it sounds, particularly if you run a small business

The US federal government is a large and important customer to the office products industry, but for small business in particular, it can be a tough market to break into.

And while government publicly encourages independent dealers to tender for more of its business and it has its own quotas to fulfil, historically many agencies have favoured the large power players and continue to do so.

And on top of that, there are certain product areas that are totally closed shops for resellers of all sizes, be you an Office Depot, or a small family-run dealership out of Austin, Texas.

In the first place, to compete for government business, while it is not technically necessary to have a Government Services Administration (GSA) schedule, it might as well be. A GSA provides you with an approval to call on all federal accounts. The government tries to include everything it purchases under approved GSA schedules from bullets to broomsticks.

Blanket Purchase Agreements (BPA) differ slightly inasmuch as they operate like a traditional bid situation and generally include some level of exclusivity. The premise is that an individual agency – eg the US Postal Service (USPS) or the Department of Army (DoA) – puts out a bid to authorised resellers within the category, in exchange for value greater than a GSA schedule. Again, though, it is essentially necessary to have GSA approval.

Traditionally, small business has been shut out from the lucrative BPAs in preference to the power players, but thanks to the years of tireless work of NOPA and its director of government affairs Paul Miller, the process is opening up.

And at times, it must have seemed like it was banging its head up against a brick wall. Government offices and officers have not always helped themselves of course. Remember the time some four years ago when the USPS branded independent dealers "irrelevant and extinct" and awarded sole source status to Boise Cascade?

Eventually however, NOPA was able to persuade USPS that such a deal was not in its best interest and within two years the bidding process was opened up, allowing post offices to buy from independent dealers if they proved competitive to Boise Cascade, which had previously enjoyed a mandatory status.

Miller explains: "The idea was that by dealing with just one vendor, the post offices could save $30 million, but it turned out to be close to just $1 million."

Another major victory for independents and NOPA was won last year when the DoA awarded its BPA for office supplies to 15 independent dealers and two consortia.

"It demonstrates what we always knew," says Miller, "that independents could compete against the power channel if given the chance. For far too long the deck has been stacked in their favour, but we proved that we can compete and win when the deck isn’t stacked against us."

Currently NOPA is railing against a $30 million Department of Health solicitation to Office Depot and Staples, which effectively ruled out all other bids by using Depot and Staples part numbers, opposed to generic part numbers from the manufacturer.

"Our dealers that did submit bids," says Miller, "were rejected because they could not meet the 80 per cent threshold of the products listed. And our argument to that is of course they couldn’t, because they could not identify the actual products in the first place." According to Miller, this is becoming increasingly common practice.

torturous

Obtaining GSA status is not as straight forward as perhaps it should be. Shoplet.com has two – one for general office supplies and one for technology products.

CEO Tony Ellison explains the procedure. "You have one of two options," he says. "One, hiring a consulting firm and be prepared to pay. Second, do it yourself and be prepared to spend enormous amounts of your precious time navigating through the maze of bureaucracy. With either two options, the time from start to finish could be as much as 24 months."

But while it may be a painstaking and tortuous procedure, they are obtainable. Al Lynden, VP and co-owner of Chuckals Office Products, one of the ‘winners’ in the DoA BPA, adds: "GSA schedules are always available and not really limited to a particular number of vendors for any product categories. In fact, there is lots of encouragement for small business to acquire these contracts.

"However, it can be a very intimidating process to the novice and it really requires a consultant to help you wade through the process. Where the power channel has its own government sales departments, small businesses do not, and the costs are not cheap. To address this, the government encourages small business to work together in teaming arrangements, much like the ones with is.group and AOPD on the DoA contract.

"In this instance, the government issues a GSA schedule to the primary contract holder (is.group/AOPD) which in turn teams with small business to fulfil the contract."

But battle through the red tape and protocol, and it is definitely worthwhile. In fiscal 2004, the US government spent in excess of $519 million under its general office supplies contract, and not surprisingly the big boys got the most business. Boise Cascade, no doubt boosted by its existing arrangement with USPS, received $113.9 million; Office Depot $100.1 million; Corporate Express $48.5 million and Staples $22.7 million. But, encouragingly, there was still plenty of business for the independent sector. Indeed, 55 per cent of the government spend – worth more than $286 million – was shared by 364 resellers.

And federal government notoriously drives a hard bargain. Ellison says: "The GSA has become a very competitive arena. There are quite a few office supplies dealers that are competing for business on a daily basis. The GSA has implemented many procedures that encourage environments and consequently margins have been coming down."

But price is often not everything, particularly in the BPA sector, as the DoA contract illustrates. The power channel actually came in with a slightly lower offer, but the independents won due to a technical evaluation factor, including socio-economic support of small business.

little big guys

And while conditions are more favourable to independents than they have ever been, there is still some way to go before all things are equal across the entire board. Critics say that each government agency has its own prejudices against small business, and this constantly needs to be addressed.

For instance, Scorecard V, an annual report by Democrats on the House Small Business Committee, shows the federal government missing its small business contracting goal for the fourth year in a row.

And according to a report released by the Small Business Administration last month, more than $2 billion of federal contract money awarded in 2002 and intended for small businesses was actually awarded to large corporations.

The report analysed 1,000 businesses labelled as "small business" and found that 44 of them did not even qualify as small businesses. Several of them in fact were some of the largest of the government contractors.

Federal government is required by law to award at least 23 per cent of all contracts to small business, but GSA statistics show that in 2002 only 20.5 per cent went to small business, and after accounting for this ‘misplaced’ $2 billion, it drops to 19.7 per cent. Of the firms that received small business contracts in 2002, Corporate Express picked up $98.8 million worth of orders. Hardly a small business!

Says Lynden: "Just as in the large contract world, big business thinks big and mistakenly believes it can only get the best service and best prices from big corporations. As we win more contracts, fulfil our contractual obligations and demonstrate that small businesses can provide outstanding service and value, we will change some minds. But overall, it will still be a constant uphill battle. That’s nothing we aren’t used to, though.

"Let’s face it. It’s easier for someone to make a decision to go with the perceived price leader, than to choose an independent no one has heard of. Plus, the power players have been there a lot longer and there are loyalty factors and good old-fashioned experience that we all need to gain.

"Familiarity is always an asset and there’s certainly nothing wrong with a customer being loyal. Hopefully, when we convert them, they will be equally loyal to us unless we fail them."

Independents can also find themselves losing out to the Depots and OfficeMax’s of the world through what is termed as ‘contract bundling’. "This has been an area where the independent dealers stand most to lose," says Ellison. "Contract bundling occurs when federal agencies combine contracts that become too large for small businesses to bid on or participate in as prime contractors. This process translates into millions of dollars of lost revenue for small business."

And a whole industry, irrespective of size, loses out when faced with such competition as the Federal Prison Industries (FPI – see box). Thankfully, the office furniture industry can now compete on an equal footing, but even taking away any prerogative status, the FPI is still a formidable operator with its various operations in 2004 raking in some $803 million in revenues and $63 million in net income.

It has an infrastructure many Fortune 500 companies would be enviable of – 102 factories across the county and 19,337 "employees" (inmates). And what Fortune 500 company could get away with paying its workers hourly rates as low as 23 cents!

Despite this, FPI prices have not been as cheap as you might expect – due to its monopoly, it could charge what it wanted. And the standard of the products themselves have not always been that high, but again due to its monopoly this has not been an issue. Miller says the new ruling will force it not only to offer competitive prices, but also better quality products.

"We are not asking for any favours or preferential treatment," says Miller, "just the ability to compete on an equal footing."

It has taken five long years to get a change in the law, during which time, according to Miller, the OP furniture industry has suffered. At long last, it would appear that Congress has recognised this.

"It is apparent that reforming FPI was a priority for this Congress," says Miller. "The office furniture industry has had to sit back and watch for far too long as FPI has continued to grow and expand at a time when the office furniture industry has cut some 30,000 jobs."

In OP terms, FPI has been expanding beyond furniture, dipping its toes into selling remanufactured ink cartridges as well.

According to Miller, FPI’s sole source status has taken potential sales worth $200 million from the US office furniture industry – from vendors and dealers alike.

"This provision does not impair the ability of FPI to operate as some would have you believe," adds Miller. "It merely levels the playing field and gives the private sector a chance to compete at a time when some 2.5 million manufacturing jobs have been lost in this country."

sensitive

While it appears the battle to compete with FPI on equal terms has been won, preferential treatment to some organisations still exists. Miller would also like to see a more level playing field at FPI’s sister organisation, JWOD (federal procurement initiative that generates employment and training opportunities for people who are blind or have other severe disabilities), which enjoys a mandatory source of supply status over a range of office supplies.

Miller remarks: "The problem we have with the JWOD programme is that it has free reign over what products it takes from the commercial market. For instance, if there’s a popular pen that’s very profitable and that one of our dealers has spent years and years trying to get into the federal market and done so successfully, JWOD can take that pen from the manufacturer and dealer and produce a knock-off of this pen and force the government to buy it."

Previously JWOD would occasionally take a product every six months or so, but now, says Miller, it is happening on an almost weekly basis and it’s having a major impact. He says that the JWOD issue could dwarf the former FPI concerns.

Miller concedes it is a sensitive subject. There does not tend to be much sympathy complaining about products produced by the blind and disabled.

"That is the challenge," he says. "If you do bring these issues to light, people don’t want to touch it. It is too sensitive, but we put it on a scale as an escalating problem bigger than the FPI could ever. The FPI to us is a $700 million-a-year organisation while JWOD is a $1.3 billion-a-year corporation, and its major focus is on office supplies."

It has very much been a case of chipping away, but the dividends are clearly being seen. Lynden remarks: "Thanks to the efforts of many people in the industry, led by Paul Miller, we are getting a chance as independent small businesses to be on the list.

"Q1 numbers for 2005 are due next month and it will be interesting to see the effect the Army contract has had on the overall numbers. Our own penetration continues to grow every month."