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Case Study: Overcoming the Pitfalls of Federal ContractsWritten by Diana Rowe Martinez, September 2001
Radiometer America Corporation (RAME) obtained a government contract through a small-company acquisition, and quickly realized their knowledge of government contracts was limited. Yet, the job still needed to be completed.
According to Martin Miller, director of HealthCare Integration at RAME, "Additions and editing of past government contracts were never a strength of RAME, and the process always took numerous months and up to one year in some cases." This, of course, was unacceptable and unprofitable.
On the recommendation of a former associate, RAME contacted RDG Consulting Inc. to streamline and manage this process. "Dealing with the government's Group Purchasing Organization (GPO) seems to be well understood by a limited group," Miller notes. "RDG's Bob Grimm is among that elite group."
RDG's president Bob Grimm sees these obstacles all the time in the industry. "It seems that the smaller the business the greater the confusion on how to approach the government. Symptoms of this problem include difficulty selling to the government on an open market basis, a lengthy and cumbersome sales process, and competing with contracted suppliers, i.e., suppliers who already possess a FSS contract."
Case in point. When an uncontracted (i.e., open market) supplier competes against a contracted supplier, its challenge is an uphill battle because the government is faced with more "red tape" to purchase through the open market mechanism than to use the FSS program. Utilizing a contracted supplier streamlines the government's purchasing process and timeframe without having to go through the long and tedious processes of publicizing the procurement, soliciting and reviewing responses, then negotiating a contract. These tasks are avoided when similar or competing products are available through the FSS program.
In light of the cuts recently made throughout the government procurement ranks, "ease of use" becomes more than a buzzword it is a reality because there are fewer buyers to perform the same amount of work! Therefore, it follows logically that the government buyers will take the path of least resistance that of the FSS program. An independent study commissioned by the GSA to determine the average time to place an order through a contracted (FSS) supplier vs. open market confirmed the preference for use of FSS contracts. With an average of 15 days to order from a contracted supplier vs. 268 days on the open market, you can bet the government will be contacting their FSS contract holders before attempting the open market route.
RAME's inability and lack of knowledge in dealing with the government resulted in insignificant and sporadic federal sales. In part, this was due to the following:
However, by utilizing RDG's industry knowledge and Grimm's reputation in the business, RAME and other companies can quickly overcome any of these obstacles and turn them into advantages.
RDG's initial solutions to streamline this process were:
The project presented RDG with a unique opportunity to formulate a "novation" agreement for RAME, a task it had not previously undertaken, but a task that RDG conquered with its usual professionalism and thoroughness.
Miller reports, "RDG's Grimm accomplished completion and submission of this contract with remarkable speed. When GSA's Senior Counsel returned our submission, the counselor noted that Grimm's submission was the best she had ever seen in terms of complete and timely submission, adding that she'd been doing this for years!"
"RAME was always willing to accept and agree with my recommendations," Grimm states, and that made his job easier. "I was able to justify the desired comparison customer, and the company's commercial pricing strategy was maintained intact. The government approved the modification requests very quickly. Needless to say, RAME was very pleased about that."
The key steps in implementing a strategic solution for RAME were:
"The disclosure process is critical," explains Grimm, "because it forms the baseline for strategy and profitability as well as ongoing contract compliance with the Price Reduction Clause. Disclosure must be current, complete and accurate when it is presented to the government contracting officer to avoid potential financial liability downstream. This is an area where training and expertise can pay big dividends áŽ¤ avoid huge pitfalls!"
According to Miller, "RAME has taken a major market share position in government sales compared to our competition, many of whom have had federal contracts for a number of years."
Grimm agrees and initial studies have confirmed RAME's progress. "Even though it may be a bit early to determine long term effects, the market study I conducted for RAME about one year into the contract (after the addition of their entire product line) showed that RAME had rocketed to the leadership position in terms of providing blood gas analyzers, supplies and accessories to the federal government market segment. Their market share averaged in excess of 73% over the four most recent fiscal quarters (July 2000 - June 2001)." Click Here to see a graph depicting market share for Radiometer and its competitors as a result of obtaining a FSS contract.
The FSS contract is a valuable tool when coupled with a carefully developed price strategy and a thorough contract implementation program. The FSS contract is the preferred method for the government to procure commercial products from the private sector because of the many advantages the government has built into the program for its users. In addition, a number of federal agencies have mandated that the FSS program is to be used whenever a commercial product is available through the program.
"Most companies believe they must give the government the lowest prices offered to any customer. That is a myth!" Grimm refutes. "Allowing the government to provide the assistance and guidance to the contractor who is preparing its own proposal is like asking the fox to watch the henhouse."
According to RAME's Miller, "A high-quality product that costs more than the competition can be sold to the government on its merits versus the lowest price expenditure. These contracts can be structured with an eye on profitability that is valued based and can be done rapidly with a highly professional approach. Thoroughly researched and recommended consultants like RDG's Bob Grimm offer a major advantage in areas of weak sales or processes in daily operation and negotiation and implementation of government contracts. The intimate knowledge that Grimm possesses and can bring to the table will allow a client to recoup his fee many times over in terms of higher margins and profitability, instead of attempting to manage and communicate with the federal government yourself."
Federal contracts are full of potential pitfalls that the unwary contractor does not learn about until it's too late. Few companies, even the largest, possess the in-house expertise to properly and effectively negotiate and manage a federal contract. Outsourcing the management of a federal contract to experts, such as RDG Consulting Inc., is money wisely spent, which in turn allows the company to focus on what made it successful in the first place.
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