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 user 2005-03-01 at 10:12:00 am Views: 89
  • #10591

    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

    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.

    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

    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.


    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

    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

    “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

    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,

    “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

    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.”


    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.”