America’s Biggest Customer

State governments will spend $250 billion on goods and services from the private sector in 1997, according to DRI/McGraw-Hill. That makes state governments America’s largest customer. How can your company cash in on this buying bonanza? It may not be easy. It demands a thorough knowledge of the bidding procedures and other regulations concerning procurement in each of the 50 states. And you must follow the rules precisely.

“It looks similar from state to state, but each state has unique ways to purchase,” says Don Buffum, who heads the state purchasing office in Mississippi and is also the president of the National Association of State Purchasing Officials (NASPO).

So, for starters, get to know people like Buffum, who can provide information about purchasing regulations and bidding procedures in their states. “The key is to find the central purchasing office, which is usually the NASPO member or staff,” Buffum says. “Let them know what you sell and ask how you go about selling it in their state.”

Buffum says that in some states the central purchasing offices make purchasing decisions but in others purchasing is decentralized with individual state agencies making their own purchases. “In Mississippi, we delegate purchasing authorities to various agencies, like transportation, corrections and human services,” Buffum says. “But the central purchasing office buys some commodities, like office supplies.”

Whether the central office or smaller agencies make the purchases, the bidding process is the same and companies must get on bidding lists that the central office oversees. Once on the bidders list, you are guaranteed to be notified of upcoming bids in Mississippi. But in larger states, this isn’t the case, Buffum says, since bidders lists are so large the states can’t afford to notify every company. “The vendor needs to know that,” Buffum says, and must stay on top of the procedure in every state to be aware of upcoming bids. Buffum suggests using a clipping service that clips newspaper notices of upcoming bids, which must be published according to law in most states. With electronic notification gaining in popularity, some states are posting bid information on the Internet.

Look for state home pages to see if the information is listed (Mississippi’s is www.dfa. state.ms.us). Some states also have vendor guides that list upcoming bids. The state of New York publishes the Contract Reporter, which announces upcoming bids that exceed $5,000. (To get it, call 315/797-2331.)

Once you are on a bidders list, you receive invitations to bid by mail. Buffum suggests you read the invitation carefully, because it will describe the specifications, terms and conditions that must be complied with to win a contract. “Vendors must be able to meet the specs or it wastes their time and ours,” Buffum says.

Selling companies must send in bids on time with all the required documents, such as bid bonds (a surety that guarantees a vendor will enter into a contract). While states usually require bids by mail, sometimes salespeople can drop them off at a purchasing office in a sealed envelope.

The number of bids a state accepts is usually based on the price of the contract. States can make small purchases without taking any bids, but for purchases from $1,500 to $5,000, in Mississippi at least, two bids are required. For purchases over $5,000, the formal bid process kicks in, and the state must take bids from many vendors. Some states can spend up to $50,000 without taking bids, Buffum says, so it is essential to know how each state operates.

States hold public bid openings after they receive the bids and invite vendors to attend. “We encourage it, so they know how close they were,” Buffum says. After the bids are open, they are taken under advisement. Purchasing decisions are made within a few days or possibly as much as six to eight months later, depending on the size of the project.

In many cases, more than one company can win a bid, as states award contracts to different companies to provide the same product or service. When the state of New York bought rock salt last year, it divided the state into 10 regions and took bids for each region, according to Paula Moskowitz, the state director of standards and purchase group, with several companies eventually getting contracts. The decision to take regional bids and award more than one contract benefited the state, because it promoted competition, which guaranteed good rates. “If you fashion a bid in a way that competition is reduced, it decreases the incentive for companies to give you their best price,” she says. The process also benefits small companies that may only be able to bid for a small part of the state. “It’s a balance between a contract that best serves the needs of the state and encourages competition,” she notes.

Tom Ryan, manager of government marketing operations for Xerox Corp. in McLean, Virginia, says there are actually four different ways state governments can award contracts. These include single awards, limited multiple awards, full multiple awards and GSA benchmark awards. States give single awards to one company and these are usually based on price, although the state also considers a company’s reputation, financial stability and past performance, according to Ryan. States give limited multiple awards to as many as six companies, which might mean that independent dealers and distributors can get the business that was awarded to Xerox, the manufacturer. States give full multiple awards to any company that can match a reference price. Ryan says that few states operate this way, although Texas offers a system contract that works on the full multiple award system. Finally, states base GSA benchmark awards on contracts signed by the GSA, the General Services Administration, which establish national pricing standards. States award contracts to companies that match the prices they agreed on with the GSA. California has an award schedule based on GSA prices, Ryan notes.

Ryan says the full multiple award system is best because it promotes “daily competition.” Under the system, companies can make their products available at all times and governments can change vendors rapidly to get the best price. The system also enables companies to introduce new technology faster. With single or limited multiple awards, companies must wait for the next bidding cycle, which could be two or three years down the road. Full multiple awards also benefit small companies that only want part of a contract.

With the complexity of state bidding and procurement procedures, most companies now have specialized sales forces that deal only with state governments, Ryan says. Xerox has account managers in most states who are well-versed on state regulations. They advise the sales force on a variety of issues, from contract strategies to relationship management, Ryan notes.

Though it is difficult to sell to states, the good news is almost any company can do it, because states buy so many different products and services. Buffum says that states purchase everything from clothing to cars and tires to food and fertilizer. Moskowitz says the state of New York “buys anything a state agency needs,” which includes all kinds of products used in prisons, hospitals, offices and universities. State spending now exceeds federal government spending, which is largely concerned with military hardware, according to Elder Witt, deputy publisher of Governing magazine.

Selling to states also promotes other sales to more localized government offices and schools. “When I sell to state governments, it gives me access to the local market,” Ryan says, “cities, counties, k-12 schools and higher education.” So, selling to the states isn’t just valuable in itself, it is an entry point into a variety of markets that cover almost all of America, except for the private sector, of course.