The Best-Value Challenge

Awarding strictly on price used to be easy--anyone with a calculator could do it. Managing tens of thousands of purchasing agents for thousands of different products, however, and spending trillions of dollars to ensure "best value" are daunting tasks. This best-value idea came on the scene a couple of years ago, and was intended to allow the government to purchase based on criteria other than initial purchase price. The idea is to take into account other factors like service and total cost of ownership.

In an interesting confluence of events, at about the same time best value appeared, the Internet began to revolutionize the bidding process. All of the major contractors built Web storefronts, e-Buy and the like began to publish procurement opportunities for open bids, and reverse-auction sites like FedBid discovered effective ways to drive down acquisition costs essentially to the vendor's purchase or production costs.

This dichotomy has created some interesting quandaries for government purchasers and VARs alike. Any successful reseller has their secret sauce that differentiates them competitively, yet they have to find paths through bidding requirements and still protect their presales investments.

As a result, there are several recent developments the reseller community needs to react to:

1. The growth of substitute contract vehicles that allow agents to fulfill their bid requirements, but have more flexible pricing requirements.

2. The explosion of gray-market vendors selling gear through sites designed to commoditize purchasing.

3. The growth of vendors and manufacturers pushing the gray area in contracting, as seen recently with the Trade Agreements Act crackdown by the Office of the Inspector General.

4. Manufacturer deal-registration programs that pay the reseller even if the actual product purchase order for a developed deal goes to another reseller.

5. The acceleration of mergers and acquisitions in the vendor and reseller communities.

The first practical offshoot is clearly the most palatable for resellers and purchasing agents looking to preserve a reseller's ability to add value to a deal. Here, a thorough knowledge of the available acquisition vehicles and their associated nuances can be very helpful. Examples include the Electronic Commodity Store III (ECS III) as an alternative to GSA, as ECS III will satisfy many federal bid requirements but is a relatively flexible vehicle.

Another often overlooked option is partnering either with manufacturers or other resellers to leverage contract vehicles. Scientific and Engineering Workstation Procurement (SEWP) is a manufacturer-held contract that is fairly simple to piggyback onto, affording exceptional pricing, while providing reasonable margins.

Finally, many contracts have small or minority-business clauses that allow complete circumvention of even the three-bid requirements. The gray market is a tougher area to combat. Government requirements for "or equal" bidding, designed to open up competition to other manufacturers and increase distance between purchasers and technical teams, has made it easier for gray marketers to fit their wares into the procurement process. If an open bid is inevitable, resellers need to be intimately involved in its authoring.

Contracting gray areas, and more detailed manufacturer registration programs, requires a careful eye to details. With increased ambiguity, it is critical to get written verification of interpretations of these codes either from a manufacturer Channel Account Manager or a Federal Contracting Officer.

The value-price pendulum is currently swinging toward price, and within a few years the frustration will build, and it will swing back. In the meantime, the government channel needs to build its strategies accordingly and pick manufacturer partners carefully. Successful manufacturers are addressing partner profitability and channel conflict as much as product innovation. The resellers who read the signs best, find exclusive rights and unique capabilities, and have the most tools will find the most success.

Adam Robinson is the CEO of Irvine, Calif.-based Govplace. Robinson is also a member of the GovernmentVAR Solution Provider Advisory Board.