Patriotic Thoughts: 9/11 Considered - FEDERAL SECTOR REPORT

FEDERAL SECTOR REPORT

October 2001
(c) P2C2 Group, Inc.

PATRIOTIC THOUGHTS: 9/11 CONSIDERED

The strength of the United States depends on the entire Federal Sector working together toward common goals. Efficiency and effectiveness are based on the joint efforts of government personnel, contractors, and grantees. Doing an outstanding job is our common cause and a patriotic duty.

This idea is nothing new. World War II was a classic example of the mobilization of all sectors to fight fascist aggression. That war involved industry and universities as well as the military and civilian agencies.

Patriotism is not limited to those directly involved in anti-terrorism missions. Educating our kids, keeping our adults healthy, and strengthening our transportation systems are among the many things required for the U.S. to be strong.

Patriotism means working together with a passion for excellence and results.

THE CHANGING PROCUREMENT LANDSCAPE

Procurement reform is real, and federal contracting is a new ball game. Once upon a time, the game was to deliver items ... labor hours, equipment, and supplies ... with the sales goal being to provide huge quantities at low profit margins. Now the government wants to buy solutions and results. In many cases, the contractor is asked to assume all or part of the risk.

For contractors, winning millions of dollars of federal revenues is now a matter of selling through GSA supply schedules, marketing government-wide acquisition contracts (GWACs), participating successfully in mega-contract competitions, and offering unconventional solutions.

GSA Supply Schedules

The GSA Supply Service Schedules have been a roaring success because of their ease of use. In just the first half of Fiscal Year 2001 (ending March 31), companies sold $8.5 billion to the public sector through GSA including $5 billion for services and the remainder for equipment and supplies. Services available through GSA are quite diverse: IT professional services, engineering support, management consulting and training, and temporary office personnel. Service firms on schedules range from EDS and KPMG Consulting to tiny companies.

Getting a GSA schedule is a tedious paperwork drill, but essentially a no-brainer. All legitimate businesses that are serious about federal markets can enter into a contract with GSA (after some serious price negotiations).

The real trick is marketing a GSA schedule since you generate revenues only if federal customers place orders against your schedule. Generally this involves marketing to specific agencies that have a need for your product or services .... getting on a short list of competitors ... providing a brief proposal or price quotation ... and winning the competition. In some cases, the government may award the order to a company which offers "best value," which isn't always the lowest offered price. Past performance may also be a factor.

Unlike the old days, you cannot assume that you will find out about opportunities by reading announcements in the Commerce Business Daily. With procurement streamlining, the government in some situations may ask for bids from a limited number of qualified contractors to satisfy requirements for competition. A company that is relatively invisible may not be invited to participate.

The advantages of the GSA route for federal agencies are shortened turnaround time for procurements, less expense in running a competition, and some discretion in avoiding bids from turkeys (i.e., firms with bad reputations that enjoy bid protests).

Dell Computer has been spectacularly successful on GSA schedules and may top $1 billion for FY 2001. Other big players are IBM, EDS, SAIC, Oracle, Accenture, Micron Government Computer Systems, and CSC.

GWACs

Government Wide Acquisition Contracts are another popular venue for federal acquisition. Typically, an agency sponsoring a GWAC program will make just a few awards to contractor teams who have competed on price, past performance, and technical capability. Most GWAC awardees include a prime contractor plus a bevy of subcontractors with specialized skills and/or brand-name products.

Marketing through GWACs is a little different from being on the GSA schedule. First, you have to be on a team that wins a GWAC ... unlike GSA where most blokes can be on a schedule or two. But after award, you still have to do plenty of marketing and sales ... or the contract vehicle will gather cobwebs.

Some GWAC programs have a good reputation for filling specialized requirements. For example, the NIH Information Technology Acquisition and Assessment Center (NITAAC) is known for hardware, software, and services that support research laboratories, imaging, and specialized electronics. For a contractor, holding a GWAC increases credibility during marketing and sales efforts ... and provides a framework for market segmentation and targeted marketing.

In some cases, a contractor may get a bit of a marketing boost from the sponsoring agency, who has an incentive to see that GWAC contractors succeed: Sponsoring agencies are entrepreneurial and receive money from all sales (typically a 1% slice). NIH went so far as to offer Army's Small Computer Program a piece of the action for steering Army customers to the NITAAC web pages (according to Federal Computer Week, 8/27/01, p. 18).

Mega-Contract Competitions

Several decades ago, there were scads of RFPs for small- and medium-sized projects that sustained smaller companies and niche players. Today most of these requirements are either funneled to GSA and GWAC buys ... or are rolled up as sub-tasks under mega-contracts.

Mega contracts offer a lot of advantages to the government: Accountability is more focused, and there is a greater possibility that acquired products and services will fit together into an enterprise-wide plan. Moreover, there is only one prime contractor's behind to kick if results are unsatisfactory.

The problem for businesses is that mega-contracts are a rags-or-riches story. Usually there are only a few prime contractors who have a credible shot at winning such a contract. For teaming partners, you need a crystal ball about who will be the winner.

Generally the proposal is a huge effort. Several years ago, I was involved in a $10 billion bid that directly involved a team of 68 people working long, long hours.

However, the sales effort continues after mega-award. Take the $6.9 billion Navy Marine Corps Internet (NMCI) contract for example. Fireworks between DoD, Navy, and Congress has repeatedly threatened to torpedo the project. Mega-contracts have a lot of visibility, and they are vulnerable to squabbles, envy, power plays, and gargantuan mess-ups.

Short of being the prime contractor, there are several ways to play the mega-game. The first game is to be part of the team. PEC Solutions, for example, is a small business with a big subcontract on the EDS team for NMCI. The subcontract is valued in the multiple millions annually for up to five years.

The second game is to pick up work after contract award. Under the NMCI contract for example, EDS is signing up many of the incumbent service providers at the affected military installations. The downside of post-award work is that the prices are often stingy, and there will usually be some serious changes in work requirements and/or procedures.

For niche players, the most profitable angle will usually be to look for an "ouch factor" in the prime contractor. This is actually an opportunistic approach that is not unlike commercial work: Match your capabilities with the areas where the prime contractor is facing performance problems, prove that you have the best technical and price solution for solving the problem, sign a deal, and go do it. Usually your profits will go up if you agree to share some of the risk. Of course, you'd better know what you are doing, or you will loose your ....

Unconventional Solutions

At one time, gaining cash flow from a government contract was as easy as turning a water faucet. Not anymore.

Accenture, for example, signed a share-in-savings contract with the Office of Student Financial Assistance (Department of Education) to improve the antiquated loan systems that manage $52 billion yearly. Accenture bankrolled the 8-digit (over $10 million) front-end costs of modernization in hopes of recovering its investment from future cost savings. The payoff may be a much bigger profit than the traditional 5 to 8 percent fee garnered from old-fashioned cost-plus contracts. The risk, of course, is that Accenture could also lose money on the deal.

SBC Communications has guaranteed to cut the U.S. Postal Service's nationwide phone bill by $15 million ... for the period ending December 2002. The telecommunications giant will earn a share of any savings over $15 million ... but still has to fork over $15 million to USPS even if the project flops.

The government has also been playing with auctions. Last year, the Army tested a reverse auction for fax machines and laptop computers, and military representatives claimed that the auction cut prices nearly in half. State governments are making even larger uses of reverse auctions.

Gateway is now offering personal computers to the government "by the seat" from about $100 a month per seat--bundling hardware, network connectivity, basic software, technical support, and updates.

Even more conventional contracts have stiffer performance clauses these days. Failure to achieve defined performance results can lead to cash penalties and major reductions in payments. So proposal writers beware: BS is out and performance is in.

What about small business?

There are other venues such as the SBA 8(a) program, though these are declining in market share. The federal government is finding other ways to credit their small business goals. For example, GSA tracks and reports an agency's purchases from small disadvantaged businesses when purchases are made from such firms who have GSA schedules.

Subcontracting to large companies is the other approach, and this is certainly a normal commercial solution in the normal food chain: Mom and Pop Associates probably won't sell giga-dollars of products to AT&T or Department of Defense, but they may become a successful third-tier contractor on a mega-contract ... or peddle a million dollars worth of stuff under the GSA schedule.

Bottom Line

Procurement reform works, and it is beginning to change the procurement landscape. Federal marketing, sales and proposals are gradually becoming much more similar to their commercial cousins.

LINK OF THE MONTH

Information Security is a timely topic, because cyber terrorism is a very real threat to the U.S. economy and government operations. The attack on the World Trade Center indicated that terrorists are interested in disrupting the financial and economic infrastructure of our country, in addition to physical destruction. Our Internet and telecommunications inter-networks are all too vulnerable to disruptions that could affect government operations and many other dimensions of everyday life.

In the federal government, the Computer Security Division of the IT Laboratory is a key resource for technical information and recommended standards. It is part of the National Institute of Standards and Technology (Department of Commerce), and the Office of Management and Budget relies heavily on NIST documents and frameworks for federal technology planning, budgeting, and management. Considerable information is available at http://csrc.nist.gov/.