Government Work Can Be An Income Stream For Your Commercial Business
November 19, 2009
During this economic downturn, wouldn’t it be nice if you had an annuity that provided a steady income stream for your business? One way to build this income stream is through commercial and government term purchase agreements that may be available in your geographic area.
Whether you decide to pursue sales to local, state, or federal government agencies, you’re faced with the same thing: Understanding the rules and knowing how to evaluate opportunities. Here are some tips, suggestions, and questions that will help make you successful.
What should I be looking for in an opportunity? A multi-year term purchase agreement (or blanket purchase agreement) is ideal. The idea behind this is for a government entity (or commercial client) to put a lot of effort into selecting just the right flooring contractor that can fulfill their requirements over a long period of time. They don’t have the expense and problems associated with frequent bidding; and because of the higher expected volume, they will usually get a better price.
For you, the payoff is you are locked in for a nice stream of sales and profits for several years without having to resell this particular client. Your costs are lower in terms of sales personnel effort and you will find that your suppliers are usually eager to give you a better price. The selling then becomes more of a performance and customer service issue rather than price.
Do I have what they want to buy? Do your research to find out how much they use the products you wish to sell. You might have some terrific new solid vinyl tile that has been successful in a variety of commercial settings; however, you may find this government agency only has a budget for vinyl composition tile and is unwilling to consider some of the long-term advantages of your product. Likewise, the finest tufted (or woven) carpet with an upscale pattern may not find favor with a facilities manager on a limited budget with no desire to “tell the world I just bought new carpet with taxpayer dollars.”
Is specifying and purchasing centralized? There appeared to be a lot of potential within a government agency, “Yes, we bought 22,000 yards of carpet last year according to our records.” However, this was not nearly so appealing when you found out this volume was with 47 separate purchase orders from19 different departments and locations. Within most counties and cities, the largest purchaser of flooring is the school system; while government purchasing is more centralized, it is also the most competitive, has a lower profit margin, and can be highly disruptive to your installation department because of the typical clustering of purchases.
Do they purchase a package of product and installation? Separate product purchases may be used where large quantities of flooring are bought. A lower price for the purchaser is likely when a large, definite quantity product purchase is made on a single bid. This type of order may result in a bid directly by the manufacturer. This is one of the most difficult orders for the dealer to get with a decent profit margin.
When flooring and installation are purchased together, a dealer must be willing to accept more responsibility, but should expect to make a higher profit. In many areas, government entities are getting away from “install only” contracts since they have found there is a real savings in making one vendor responsible for both product and installation. Agencies have grown tired of “lowball” basic installation rates and getting hammered on extras.
What are the purchasing rules and what procedures are used to accomplish this? You may have an excellent product and a willing specifier; however, you need to know the rules for purchasing. In many situations, informal (sole source) purchasing may be done on amounts under $5,000. Generally, the Request for Proposal (RFP) is less formal and forgiving of mistakes and missteps by the vendor than the Invitation for Bid (IFB).
One may propose a particular product and type of service to be provided in an RFP; however, one must respond specifically and exactly to an IFB or run the risk of the bid being eliminated as non-responsive. An IFB is typically used in higher expected dollar purchase amounts and where the government has put together a comprehensive set of specifications that culminate in a series of line items that result in a specific, fixed price, whether single or multiple purchase options.
Do they use term purchase agreements? A popular way to purchase flooring and installation is through a blanket purchase or term agreement. The government agency puts out an RFP or an IFB (if a higher dollar amount or longer term) and specifies the product(s) and type of installation to be performed in great detail.
In some cases, only unit prices are requested. Generally, the agency has some idea of volume, usually based on previous purchases, and may indicate estimated quantities. There is usually a statement to the effect that, “No purchase quantities are guaranteed during the term,” although in some cases a minimal amount is guaranteed during the contract term. Contract awards are typically made based on unit prices quoted, either the aggregate low unit prices or on a weighted unit price using factors based on expected usage.
For a specific bid or solicitation, you should be able to get a copy of the previous award under the FOIA (Freedom of Information Act). This will provide invaluable insight into what is currently being paid and the specific terms and conditions in effect at the time the previous bid was awarded.
How quickly can I expect to be paid? This is in the first group of questions one should always ask a buyer: “If I were selected for a job, and I did exactly what you expected, how soon could I expect to receive your check?” The usual standard is that the government pays within 30 days from receipt of invoice or signed delivery receipt, whichever occurs later.
You should figure about 45 days if you do the job as specified, have it signed off as complete, and send an invoice to the right administrative area. If there are questions or missing information, then 90-180 days is not unusual.
One of the most frustrating things to hear is, “Yes, we now have all the information to process your payment; however, you understand that the 30 day schedule for payment did not start until we received your corrected invoice.”
The top reasons for not being paid in a timely way are: Failure to detail your billing in accordance with the purchase order, invoicing for an amount greater than the purchase order amount, sending the invoice to the wrong department or address, and failure to have delivery of product and/or completed installation accepted, received, or certified by the proper government office.
When a payment is late, ask for help, starting with the office in charge of issuing a check. They are required to tell you what they need from you or another department in order to process your payment when there is a valid purchase order for goods or services outstanding.
If you have more questions on doing commercial business and are looking for specifics, why not join me in my Surfaces 2010 workshop, “Expanding Into Commercial Business. What is Your Next Step?” MO01 – Monday, February 1, 2010, 9 a.m. to noon.