Term Contract Strategies and the Value of Partnerships

Rebecca Collinsenterprise account manager

Aubriana Ardproduct manager

written by:

Term Contract Strategiesand the Value of Partnerships

2© Onvia, Inc. All rights reserved.

Term Contract Strategies and the Value of Partnerships

Whether you are selling vehicles, insurance, light bulbs or cleaning services, there are term contracts in your market. However, companies that bid on government term contracts need to assess potential risks and rewards through a thorough evaluation process that determines whether the contract represents a winning business opportunity. Every contract is different. This paper will discuss the variability in the types of term contracts and how companies can identify the best opportunities to pursue.

When evaluating term contracts, vendors typically look for historical information on previous awards such as what criteria an agency used to award the current contract, the term and the fixed price. This information can help a vendor begin to determine if an opportunity is right for it.

Businesses with a history of successful term contracts with government agencies recognize the importance of leveraging three interconnecting fundamentals: people, agencies and opportunities. That is especially true for the state and local contract arena, where opportunities are plentiful for vendors that have developed a holistic strategy — one that involves business and market intelligence for understanding agencies, establishing contacts, learning about competitors and their agency relationships, and contract expiration dates. Many vendors, particularly those interested in state and municipal agency term contracts, have found success through partnerships with providers that offer a thorough and comprehensive analysis of the agencies and their markets.

profitable

cost over time

Term contracts vary in their restrictions, price sensitivity and profitability, which is why one size does not fit all. Taking time to analyze the contract, its cost over time, the risks and how a business’s values and delivery systems line up with expectations can help ensure that an organization enjoys a lucrative, long-term relationship with the government agency.



OPPORTUNITIES AS AGENCIES TURN TO TERM CONTRACTSAs the largest consumer in the world, the US government spends nearly $500 billion on contracts in the private sector 1. In late 2011, the government opened up many new contracts to small businesses, especially Woman- Owned Small Businesses (WOSB) and Economically Disadvantaged Woman-Owned Small Businesses (ED/WOSB). Despite this apparent effort at outreach, 10 percent of government contracts still receive only one bid, meaning there is plenty of room for competition.

With a few exceptions, term contracts are generally categorized in one of three groups:• Sole Source: This category involves a rather elite relationship in which vendors

have established the unique position of agency recognition as the sole source of a product or service. Those vendors that achieve this designation have usually spent a lot of time in building relationships and positioning themselves as market differentiators with unique offerings. Their contracts tend to be long-term, perhaps as much as 10 years, but there are still opportunities in this category.

• RFPs (Request for Proposals): RFPs are the primary form of contracting for applicable business. RFPs and RFQs (Request for Quotes) are highly competitive arenas requiring focused relationship management along with the quality of service or product demanded by the agency. Services can include everything from maintenance to internet service provider to staffing. Successful RFP responses are not developed reactively; they require all of those elements of business intelligence cited previously: good contacts, knowledge of contract availability and competitive awareness. Contract awards are not based solely on price.

• Bid Process: This is the most price-sensitive and competitive of the three categories because it deals with commodity products, and awards are most often determined by the lowest price. Sometimes the commodities may be purchased on call, commonly referred to as IDIQ (indefinite delivery/indefinite quality), in which a specific delivery or schedule is not required. Bids require vendors to lock in their prices and, at the same time, maintain high visibility with the agency.

1 http://www.govcontractors.org/

BILLIONDOLLARS

US Goverment Spends



There are some common underlying themes for all of the above categories. One of them is the importance of relationship management, which is critical for opening doors and keeping them open regardless of the nature of the term contract. Another is recognizing and accessing extensive, accurate and comprehensive business intelligence well in advance of announcements of RFPs or bids, rather than waiting for postings and reacting. The good news for vendors is that tools are available and accessible for establishing a proactive term contract process.

INTELLIGENCE FOR A SUCCESSFUL TERM CONTRACT STRATEGYWhile there is no debate about the extensive amount of intelligence required to be successful in the term contract process, today’s advanced and sophisticated technology is a gateway for resolving a number of concerns, among them:

1. Regulations: Bylaws and restrictions can have wide variations throughout the country. At times, particularly at the state and local levels, regulations may seem labyrinthine and a vendor can easily lose sight of the benefits of the opportunity. This situation illustrates the importance of the proactive approach in which the vendor, through a provider partnership, can receive an accurate and thorough listing and explanation of the applicable regulations and their requirements.

2. Proposal formats: Formats tend to vary with each state or municipality and that includes the process for obtaining information about publication outlets and such sensitive issues as transparency. Such information is readily available without having to endure such time-consuming and reactive methods as searches on agency websites or phone calls for information.

3. Incumbents: This is the classic example of the need for comprehensive competitor intelligence. It’s important to understand the history of the current contract agreement, the relationship with the existing vendor, the contract’s expiration and, especially important, whether the agency is pleased with the delivery of the product or service. Intelligence that uncovers current pain points or areas of agency dissatisfaction opens the door to unseating an incumbent contract holder.

4. Contacts and geography: Contacts, relationship management and knowledge of the local market—all three are essential for process success. None of the three can be developed quickly, but understanding who the contacts are, their relationship to the existing contract holder and an analysis of the current contract situation through a local partnership can keep the vendor locally focused while providing the building blocks for a successful relationship.



5. Pricing and volume urgency: Vendors can learn about different pricing structures and plan for such variables that may be industry-specific. A historical perspective on these issues can be accessed and applied to the strategy.

Leveraging Local Term Contract Opportunities: Term contracts occur with much greater frequency at the state and local levels, which is why they offer a greater number of vendor opportunities. However, as has been the theme throughout this paper, vendors that simply wait for opportunities to be posted have placed themselves at a disadvantage. Advance intelligence and analysis are essential, as are establishing contacts and building relationships. Local intelligence is every bit as valuable as being locally situated. The vendor does not

necessarily have to be locally based to be successful, but there has to be a thorough understanding of local market trends and the agency’s history with term contract awards. Here is where strategic partnerships can offer benefits for local and non-local vendors. Partners with local-specific data and expertise are a valuable source. They can continuously monitor the agency and supply vendors with the appropriate data well before the RFQ or bid process begins. Vendors can also find value in local

Incumbents

Regulations Geography

Delivery

Challenges

Formats

Advance intelligence and analysis are essential as is establishing contacts and building relationships.



partnerships. For example, a supplier or manufacturer for a supplier can leverage local vendors as a work source or the vendor may find a partner who is experienced in working with the agency offering the term contract. Clearly, these are resources that can educate the vendor on how to increase the chances of winning the contract.

TERM CONTRACT TOOLSVendors new to bidding on term contracts have a number of tools to assist in strategy development well before they enter the process. Here are several:

1. Multiple approaches and go-to-market strategies: Because nuances of term contracts vary so broadly and a vendor’s time and experience with proposals may be limited, it may seem efficient to narrow the market strategy to just one tactic. However, a number of fluid factors require scrutiny including bylaws, agency preferences, market demand and regulations by department and geography. Analyzing this information, which is available through partnerships, can facilitate the decision.

2. Market research: Critical research provides important information on market supply and demand. This information can also help the vendor assess contract profitability.

3. Agency research: Agencies tend to establish trends with their contract awards, and research can detect the existence of vendor preference and on the criteria the agency uses to make its decisions. In addition, research can provide contract expiration dates not easily accessible well in advance, giving the vendor adequate time to prepare a proposal or bid.

4. Analysis of competitor’s offerings, including strengths and weaknesses: One of the key components of this analysis is establishing contacts and asking pertinent questions to the agency such as whether it is pleased with the delivery or service provided by a competitor. Researching competitor pricing and bidding history can help the vendor develop the right “go” or “no-go” decision when examining an RFQ/RFP or bid.

5. Analysis of the entire term contract picture: Evaluation of the profitability of the contract involves a number of factors besides the vendor’s price; however, there are times when an agency’s decision is price-sensitive. This is particularly true if the contract to be awarded is for supplying commodities, as is often the case with bids. In these situations it’s very important for vendors to be aware of the competition and its strategy. They should closely examine competitor pricing and compare it with their own business model and pricing structure to determine whether a commodity bid will be profitable. RFPs/RFQs, on the other hand, are generally less price-sensitive as agencies tend to devote more scrutiny



to the quality of product or service and the vendor’s qualifications. However, there are some variables to be weighed, particularly if the vendor decides to seek an IDIQ contract—a move that should not be taken without extensive research. Most IDIQ contracts require fixed costs, and vendors will have to decide whether profitability can be achieved long-range in that scenario.

Another major consideration, particularly with IDIQs, is cost-plus. Cost-plus, also referred to as cost-reimbursement, is a contract where a contractor is paid for all allowed expenses up to a set limit plus additional payment to allow for a profit. The challenge for the vendor is that the item purchased often cannot be explicitly defined or there is inadequate information to accurately estimate the final cost. This is common at the federal level, but also can occur with state and municipal agencies. The occasional uncertainty explains the need for statistical research to enable the vendor to evaluate whether to proceed.

STRATEGIES FOR SUCCESSSuccessful organizations have a go-to-market strategy for each contract they pursue. It includes the following key elements:

1. Establish and nurture long-term relationships: One-to-one communication with an important agency contact provides immediate and long-term benefits, and should be established as soon as possible in the evaluation cycle. This contact can help clarify requirements, expectations and regulations and can explain the inevitable nuances of the project. Carefully nurtured, this relationship can serve both the vendor and the agency for many years and many bid cycles.

2. Investigate local markets first: Vendors understand the number of opportunities in local markets, but it takes local intelligence to secure them. As an example, the City of Baltimore frequently purchases under Maryland’s term contracts related to commodity goods. Smaller agencies have leveraged contract management with larger agencies for commodity goods—a common approach that has generated successful results, as was the case in Baltimore as the relationship with its agencies became an inroad for pursuing state contracts. It’s a model that can be lucrative for vendors in other communities as well.

3. Time advantage: Companies with time on their side have a distinct advantage. Data indicate that the likelihood of a successful contract process profitably increases in proportion to the amount of time a vendor spends researching. Research should begin at least 12 months in advance. Waiting until an opportunity is published will leave the vendor only three to five weeks to gather information and respond, lessening the opportunity for a successful relationship.



4. Pricing variable awareness: The projection of business risks is a vital part of determining if a contract opportunity is an appropriate fit for a vendor, and it applies to all term and cost-plus contracts. Successful vendors have learned through research that sometimes the best strategy is to forego an opportunity and seek another with more profitability for the organization.

5. Understanding the competition: To achieve success, vendors track their competitors, learn about their agency contracts and fully comprehend the market in which they operate. This is the point of competitive intelligence, relationships and research. For those vendors that may not be aware of their competitors’ contracts, they’ll need to adopt this approach to begin gaining a foothold and establishing a presence in the agency’s market.

6. Knowing how to unseat incumbents: Vendors should not be too quick to rule out pursuing a contract simply because they believe the incumbent has a profitable arrangement with the agency. There is no shortage of examples in which a seemingly successful incumbent turned out to be at-risk due to questionable ethics, a difficult working relationship or failing to deliver on its contract. Vendors that leverage these and other vulnerabilities are likely to be viewed as a welcome relief from a floundering incumbent. Vendors should ask about weaknesses by phrasing questions professionally — e.g., asking the agency if a competitor’s customer service has failed to meet expectations and standards because it has been outsourced. At that point, it is fair and proper to ask whether the agency is amenable to switching vendors.

USING TECHNOLOGY AS AN ADVANTAGEVendors that attempt to take on research on their own are likely to find themselves trapped in a cumbersome and insufficient process because they will be unaware of current contracts and, even more important, renewals. Contract renewals typically are not made public. Without a resource to track them, vendors have no way of knowing about their existence and expiration dates. There is a more efficient, effective way to find and win term contracts, even contracts that aren’t published.

Online databases have been developed that allow organizations to generate lists of upcoming term-contract renewals specific to their line of business and, for those interested in local contracts, specific to their geography. A comprehensive search tool can provide a ready-made pipeline of actionable sales leads, as well as a window on the market and competitors. Other features to look for:

• One source for all research: There are tens of thousands of government agencies, and a comprehensive search tool should provide that information on-demand in a searchable, customizable, continuously updated online database.



• Focus on local opportunities: The source should be an instructive guide for beginning and developing local relationships. Vendors should be able to get contact information for agency buyers. The technology should also provide location maps, project descriptions and links to download any available bid and RFP or RFQ documents. It should also include long- and short-term planning with a history of agency contract pricing, spending and capital improvement plans, and current and projected budgets (many have five-year projections).

• Lifecycle awareness: From advance notice to bid to contract award, vendors should be able to follow every stage of the procurement lifecycle.

• Daily updates: Daily email notifications on the latest bids and RFPs are a must for any search tool.

• Competitive intelligence and pricing information: Solid competitive analysis requires vendors to keep tabs on incumbents and on competitors’ bids, and then compare pricing to the prevailing contract rates.

• Data aggregation, custom reports and queries: Customized searches and reports by agency, keyword, geographical location, industry, time frame or level of government reduce research time and improve accuracy. Data aggregation is fundamental to developing strategic relationships prior to responding to bids and RFPs. The technology should provide access to purchasing histories so vendors can see who’s buying specific products and services.

• Access to live support: Partners with the best plans offer on-call access to a support team with solid experience and expertise.

CONCLUSIONTechnological advances offered by vendor partners allow vendors to access comprehensive, regularly updated market, business and competitive data: the most powerful tool that can be deployed in the term contract arena. This vital information can help the vendor identify whether a specific term contract is the right one for its business, transform the data into business and competitive intelligence, and produce a strategic and workable plan to win contracts. It’s a technology that at its core delivers what vendors need most: the right information to the right people at the right time.



ABOUT ONVIA:Onvia delivers the research, analytics, and tools companies rely on to succeed in government sector. Onvia tracks, analyzes and reports the spending of tens of thousands of federal, state and local government agencies, giving companies a single source for conducting open, intelligent and efficient business with government. Along with providing an exclusive suite of integrated business tools for a wide variety of industries, Onvia offers DemandStar, the automated system that streamlines agency procurement processes.

Onvia (NASDAQ: ONVI) was founded in 1996 and is headquartered in Seattle, Washington.

Contact Onvia at www.onvia.com or: 509 Olive Way, Suite 400 Seattle, Washington 98101 206-282-5170