GovEd VARs Fear State Contract Consolidation


That was one concern raised by solution providers attending a focus group with CMP during Ingram Micro's GovEd Alliance Invitational Tuesday in Austin.

In a keynote address Bob Laclede, Ingram Micro's vice president and general manager, GovEd sales said the distributor's public sector business was on track to hit $2.3 billion in 2007, a jump of close to 9 percent over 2006. He noted that K-12 business was up 29 percent for the year, state and local grew 9 percent, medical and healthcare 30 percent, non-profit 4 percent and federal business increased 1 percent during 2007.

But solution providers at the focus group said state contract consolidation might cloud 2008. Russ Johnson, director of technical services at Hewitt, Tex.-based TFE, a solution provider specializing in the K-12 market, said he is being squeezed out of contracts because of the new Texas Department of Information Resources (DIR) contract, which consolidates dozens of different purchasing contracts down to one centralized contract for IT hardware and software. "Only big, multi-billion companies can play on that contract," he said. "We're not a small company; were not a big company and I feel as if we're caught in the middle."

He said that when the centralized buying contract went into effect earlier this year he had customers send him a PO and then call him back and tell him they'd made a mistake because he wasn't listed on the DIR contract. As a result, he said his company might be forced to focus more on commercial business rather than the public sector.

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Jamie Vost, vice president of sales at Novanis, a Springfield Ill. solution provider agreed that the trend toward large state contracts limits small VARs opportunities.

"We subcontract with vendors like Hewlett-Packard, but we tend to get just bits and pieces," he said. "It's hard to add value as a small solution provider."

But Stephen Goodwin, chairman and CEO of Cartwright and Goodwin, a New York City solution provider said both the City and State of New York have toughened up enforcement of small business and minority contract goals.

"There is an agency that enforces the goals and assists small businesses to help them get paid within 30 days," Goodwin said.

He said increased enforcement, which took effect in the past six months, creates new opportunities for him. "The phone has been ringing off the hook," he said.

But solution providers, who attended GovernmentVAR's recent state and local roadshows in Texas, Calif., said their states do little to enforce minority and small business contracting requirements.

Other solution providers say that a wave of IT worker retirements expected to hit state and local government in the next few years should create opportunities for solution providers. The State of California, for example, says 50 percent of its current IT workers will become eligible to retire over the next five years.

Bill Julka, president of Smart Solutions, a Canton, Ohio solution provider, says he's been trying to work with the State of Ohio on initiatives to head off the projected IT worker shortage. He says he's trying to get funding to rertain displaced autoworkers, veterans, disabled people and inner city workers to man virtual call centers to support the state's IT infrasturcture "States that don't take action are going to face a shortage of IT workers," he said.

Solution providers too said they were seeking more alliances with alternative and emerging vendors as a way to go after niche solutions instead of competing head to head with major vendors on commodity products.

Philip Ardire, president of Western DataCom, an IP security products vendor, pitched solution providers attending the CMP focus group on wireless security cameras for police, schools and public transportation. "Our partners don't discount," he said of product margins, noting that the security solution creates opportunities for VARs in storage and archiving video data.

"We can't be too generic; we have to find different ways to add value," Vost said of adding new solutions from smaller vendors such as Western DataCom.

But Johnson noted, "We still have to sell the commodity products." He said that VARs who stray too far from commodity desktops, servers and other bread and butter products risk loosing their accounts to larger vendors who use commodities as an inroad to value-added services and solutions.