By Patrick D. Kennedy and Maeve E. Cannon
needs of federal, state, and municipal agencies have increased,
and as privatization has expanded—to include inmate
health care, school management, motor vehicle services, wastewater
treatment, road maintenance and toll operations, prison and
halfway house supervision—a greater number of businesses
of all sizes are seeking assistance with the mechanics of
how large is the world of government procurement? Reliable
estimates from various sources show that federal, state,
and local governments combined spend $600 to $800 billion
annually, with the largest portion of that amount generated
at the state level (nearly $300 billion). What size company
receives the lion’s share of contract awards? Not
General Electric, IBM, Microsoft, or other large companies.
In fiscal year 2001, the federal government wrote 11.4 million
contracts for goods and services, 95% with values ranging
from $2,500 to $100,000. According to the U.S. Chamber of
Commerce, those 10.8 million federal contracts were awarded
to small- and medium-sized business vendors with fewer than
500 employees. Despite this deep pool of potential work,
less than 5% of all U.S. companies do business with government
Do Business with the Government?
companies view government contracts as financial windfalls.
Because contracts are awarded on a competitive basis, profit
margins are typically narrow and specifications are usually
demanding. On the other hand, the benefits of government
work can include:
Reliable revenue. Government
clients don’t move away, file for bankruptcy protection,
or pose collections problems.
Overhead coverage. Many businesses
use government work to cover operating expenses, allowing
them to be more selective with other, higher-margin contracts
in the commercial sector.
Marketplace credibility. Offsetting
the low margins is the high degree of credibility companies
achieve by winning government contracts. In terms of marketplace
confidence, there is no better form of advertising.
of misconceptions exist regarding the risks of government
work. One concern is the fear of costly documentation and
reporting requirements, and the potential for significantly
higher levels of government scrutiny of financial information.
Fears that the government will conduct unusual or frequent
audits, or will have any voice in management of the business,
however, are unfounded.
taxpayer dollars are being spent, the government can impose
audit and surveillance requirements under the terms of a
contract. Extensive and stringent requirements are usually
imposed, however, only on higher-priced contracts. In fact,
governments often exempt contracts under a certain dollar
limit from some of the documentation and reporting requirements,
and the trend is toward raising those dollar cutoffs.
a Company’s Worthiness as a Contractor
every company is an appropriate candidate for government
contracts. Regardless of the type or size of assignment,
companies with the potential to win government awards must
possess a number of cultural and operational characteristics,
High motivation level. Half-hearted
attempts to win a government contract are unlikely to
succeed. Given the complexity of the process, the competition
involved, and the patience required, companies that do
not have a total commitment to win—supported by
senior management—should not compete.
Financial stability. Potential
vendors must be financially capable of performing a contract
prior to receiving the award. If cash flow problems or
other significant financial weaknesses exist, winning
a government award is more likely to put a company out
of business than it is to save it. To ensure financial
stability, some government procurements may require financial
statements, or even the posting of surety bonds.
Operational efficiency. In some
cases, potential vendors must conform with the specified
standards of a Request for Proposal (RFP) regarding quality
assurance, such as compliance with ISO industry standards.
Additionally, a company must maintain good records and
have the ability to locate information quickly.
Computer sophistication. Government
vendors must have up-to-date computer capabilities, as
well as the sophistication to conduct e-commerce with
ease, including the necessary safeguards against internal
and external cyber-crime.
Financial discipline. Aspiring
vendors must be adept at dealing with industry specifications
and standards, and must have a thorough knowledge of competitive
pricing. But most important, they must possess the organizational
fortitude required to accurately calculate the costs involved
in meeting contract specifications and anticipated profit
are many factors that can influence the awarding of government
contracts. It is not simply a matter of submitting the lowest
bid. Selling to government agencies requires the same principles
and strategies as selling similar products or services to
commercial buyers. Both are looking for an assurance that
they will receive quality goods and services, a reasonable
price, and on-time delivery.
some government agencies, the registration process requires
an extensive background questionnaire about the business,
its owners, and its finances. A background check, including
the criminal and taxpaying history of the company and its
principals, may be conducted before a vendor is permitted
to compete for a government contract.
agencies at all levels of government require prospective
suppliers to register before they are allowed to participate
in contract bidding. This process solicits basic information
that will be used to determine and validate a vendor’s
qualifications, and for that reason registration information
must be concise and accurate. Very often, registration must
be renewed annually, and companies should ensure that information
is kept up to date.
to submitting any contract proposal, companies are always
well served to conduct the upfront research necessary to
understand a government agency’s most important requirements,
which are not always readily apparent in an RFP. Although
price is not always the most important requirement, companies
should review published budgets, and consult with reliable
sources to understand acceptable price ranges for the contract.
important aspect of planning involves determining the real
decision-makers, which can sometimes be difficult, especially
for companies going through the procurement process for
the first time. In some cases, the agency that specifies
or funds a contract may not be the agency that actually
makes the procurement decision. Occasionally, procurements
are conducted jointly by several agencies. Or they can involve
elected officials of different political affiliations, which
might influence the selection process.
contract award winners ask many questions, and invest whatever
time is necessary to understand the decision-making protocol.
While knowing the key players and being respected by them
is beneficial, government practices are designed to ensure
that governments get the best value in terms of quality
and price, not overly influenced by personal relationships.
In fact, very strict conflict of interest rules are often
in place that bar certain actions and communications for
government employees, vendors, and potential vendors. Before
any contact with a government procurement agency, potential
suppliers should ascertain with whom and in what manner
they may have questions addressed or receive additional
information (contact information and guidance will usually
be in an RFP).
vendors are always well advised to look for any possible
advantages. Government procurement policies are often structured
to provide some competitive edge to businesses owned by
women, underrepresented minority groups, and even small
or local vendors. Businesses that fit into any special categories
like these will find it worthwhile to research and take
advantage of any special opportunities.
general, successful government contractors view procurement
as a full-time business development discipline. They keep
abreast of political issues and government requirements,
and seek relationships with opinion leaders and officials
who can provide them with insights that might allow them
to gain a competitive advantage. (This is not to be confused
with the “pay-to-play” practices currently under
scrutiny in many states, including New Jersey.) It is a
simple, time-tested principle of business development that
people like to do business with people whom they know and
are several ways to keep abreast of potential government
contracts. In addition to registering for qualification
lists and solicitation mailing lists, companies should monitor
agency bid boards and regularly check appropriate electronic
bulletin boards. Some of the most sophisticated government
contractors create their own opportunities by submitting
unsolicited proposals based on a proprietary or innovative
concept of likely interest to a particular agency.
completeness and quality of a company’s proposal is
a primary consideration. In fact, government procurement
officials make no secret of the fact that a potential vendor’s
ability to follow a proposal’s instructions is considered
to be the most telling indication of that company’s
ability to adhere to contract specifications. Ironically,
going beyond an RFP’s requirements in hopes of gaining
competitive advantage can often backfire. And regardless
of quality, proposals submitted beyond the posted deadline
are usually not considered.
procurement officials will rarely make exceptions for vendors
that make what might be viewed as simple errors in the application
process. These can range from obvious arithmetic mistakes
to submitting an incorrect number of required copies to
missing signatures or pieces of information. Some proposals
never reach their destination on time as a result of insufficient
postage, and others are discarded because the supplier failed
to use the requested method of delivery. Therefore, before
submitting a proposal a company should allow sufficient
time for several sets of eyes to review every aspect of
it, similar to the level of scrutiny applied to a regulatory
or legal filing.
Recourse for a Failed Proposal
more businesses bidding on public contracts, there has been
a corresponding rise in the number of challenges to contract
awards, as well as increased public awareness of the government
procurement process. At many purchasing agencies, contract
awards are based on a “price and other factors considered”
standard, which provides extraordinary authority and autonomy
rarely seen in other sectors of the government. Because
this discretionary decision-making platform generates controversy,
most government agencies have established processes that
allow bidders to protest a defective bid or the award of
a contract to another bidder, and to disagree with the contracting
agency on an issue that arises after a contract has been
a vendor has the right to formal notice that its bid was
bypassed for a higher bid or that its proposal was materially
defective, and has the right (usually for a specific period
of time) to protest the award and request an informal conference
regarding the rejection. At this stage, if a vendor rejection
has been based purely on material defects in the proposal
(such as missing information or signatures), the agency
is likely to dispose of the protest and issue a final decision.
If a protest involves issues regarding the successful vendor’s
proposal or their ability to perform the contract, however,
it will likely require additional fact finding, and may
result in a formal hearing.
hearings may take a variety of forms, and government agencies
are granted considerable discretion regarding the ground
rules and formalities. Some hearings allow protestors and
successful vendors to present their case and offer rebuttals
directly to the agency director in an open, informal setting.
In other hearings, the agency might engage lawyers or other
third parties to act as hearing officers, consider only
written comments, and not allow direct or cross-examination.
the protest hearing process, if the agency still stands
by its award decision, an unsuccessful vendor remains entitled
to pursue recourse in a court of law or by other means,
such as alternative dispute resolution. These efforts can
be worthwhile if there is sufficient legitimate evidence
for further appeal, and if the contract’s anticipated
profit margin can adequately absorb the legal costs involved
in challenging the award. In addition, vendors that challenge
awards must weigh the inherent risks of establishing an
adversarial relationship with a government agency that will
continue to exercise discretionary authority in awarding
and the Procurement Process
government contract proposals fail largely as a result of
faulty cost estimates or unrealistic financial projections
that have been prepared by nonfinancial personnel more concerned
with winning the contract than with the accuracy of the
proposal’s calculations, or with the long-term financial
impact the assignment will have on the company’s balance
seeking government contracts should make certain that cost
estimates and financial projections have been prepared or
reviewed by financial experts when establishing internal
protocols for proper adherence to agency submission requirements.
Companies that win government contracts must also ensure
that their cost and financial accounting records adequately
address the requirements of the contract. Perhaps most important,
strategic guidance on the economic merits of specific contracts
should be sought from finance experts as well as marketing
and operational personnel.
states and municipalities award professional services contracts
to individuals that are negotiated rather than awarded through
the traditional bidding process. The benefits of these assignments
as government consultants are identical to those achieved
by other types of businesses in terms of reliable revenue
and marketplace credibility.
D. Kennedy, JD, and Maeve E. Cannon, JD,
are attorneys specializing in administrative law and government
procurement, associated with Hill Wallack, Princeton, N.J.