Government Organizations Buying

In most countries, government organizations are a major buyer of goods and services. Government organizations typically require suppliers to submit bids, and normally they award the contract to the lowest bidder. In some cases, the government unit will make allowance for the supplier’s superior quality or reputation for completing contracts on time. Governments will also buy on a negotiated contract basis, primarily in the case of complex projects involving major R&D costs and risks in case where there is little competition. Government organizations tend to favor domestic suppliers. A major complaint of multinational operating in Europe was that each country showed favoritism toward its nationals in spite of superior offer available from foreign firms. The European Union is removing this bias.

Because their spending decisions are subject to public review, government organizations require considerable paperwork from suppliers, who often complain about excessive paperwork, bureaucracy, regulation, decision-making delays, and frequent shifts in procurement personnel. Given all the red tape, why would any firm want to do business with the government? Here is how Paul E Goulding, a Washington, DC-based consultant who has helped clients obtain more than $30 billion in government contracts, answers that questions:

Hear is a story of a businessman who buys a hardware store after moving to a small town. He asks his new employees who the biggest hardware customer in town is. He is surprised to learn that the customer isn’t doing business with his store. When the owner asks why not, his employees say the customer is difficult to do business with and requires that a lot of forms be filled out. It was thought that the same customer is probably very wealthy, doesn’t bounce his checks, and usually does repeat business when satisfied. That’s the type of customer the federal government can be.

The US government buys goods and services valued at $200 billion. That makes it the largest customer in the world. It is not just the dollar figure that is large, but the number of individual acquisitions. According to the General Sources Administration Procurement data center, over 20 million individual contract actions are processed every year. Although most items purchased are between $2,500 and $25,000 the government also makes purchases in billions, many of them in technology. But government decision makers often think that technology vendors have not done their homework. In addition, vendors do not pay enough attention to cost justification, which is a major activity for government procurement professionals. Companies hoping to be government contractors need to help government agencies see the bottom-line of products.

Just as companies provide government agencies with guidelines on how best to purchase and use their products, governments provide would-be suppliers with detailed guidelines describing how to sell to the government. Not following the guidelines properly and filling out forms and contracts incorrectly can create a legal nightmare. Suppliers have to master the system and try to find ways to cut though red tapes. It requires an investment of time, money, and resources not unlike what is required for entering a new market overseas.

Fortunately for businesses of all sizes, the federal government has been trying to simplify the contracting procedure and make bidding more attractive. Some reforms place more emphasis on buying commercial off-the-shelf items instead of items built to the government’s specs; online communication with vendors to eliminate the massive paperwork; and a “debriefing” from the appropriate government agency for vendors who lose a bid, enabling them to increase their chance of winning the next time around. The government’s goal is to get all purchases online. To do this, the government is likely to bet on Web-based forms, digital signatures, and electronic procurement cards (P-cards).

Several federal agencies that act as purchasing agents for the rest of the government have launched Web-based catalogue that allows authorized defense and civilian agencies to buy everything from medical and office supplies to clothing online. The General Services Administration, for example, not only sells stocked merchandise through its Web site but also creates direct links between buyers and contract suppliers.

In spite of these reforms for a number of reasons many companies that sell to the government have not used a marketing orientation. The government’s procurement policies have traditionally emphasized price, leading suppliers to invest considerable effort in bringing costs down. Here product characteristics are carefully specified, product differentiation is not marketing factor; advertising and personal selling is also not of much consequence in winning bids. Some companies have pursued government business by establishing separate government marketing departments.

Companies such as Gateway, Rockwell, Kodak, and Goodyear anticipate government needs and projects participate in the product specification phase, gather competitive intelligence, prepare bids, carefully, and produce strong communications to describe and enhance their companies’ reputations.