Governmental market opportunities for Montana small business.

• Author: Brown, Doug S.
• Position: Economic Development

Government procurement is big business, even in Montana. For instance, is fiscal year 1989 the federal government purchased more than $153 million in goods and services from Montana businesses. Of the total amount purchased in Montana, $99 million went to small businesses and $13.6 million to minority and women-owned businesses.

Montana's state government also is a large consumer. The central purchasing office in Helena represents more than forty agencies and departments which purchase many types of goods and services. For the recent fiscal year (1991) Montana's state government purchased more than $45.7 million worth of goods and services from private vendors. In addition, "privatization" has become an increasingly important trend in state government. Montana's Department of Administration, for example, has contracted out data processing services, and private firms now provide janitorial and security services for state agencies in Helena.

High volumes and increasing privatization aren't the only reasons to consider doing business in this market. For one thing, governmental customers always pay their bills. For another, they offer small businesses an opportunity to expand access to regional and national markets. Moreover, firms which establish themselves as reliable, competent contractors have an excellent chance for repeat business and may be able to reduce the impact of cycles and seasons on their bottom line.

Given these benefits, why are many businesses reluctant to get involved in the governmental market? Because it's complex. Doing business with the governmental requires an investment in new skills and expertise. The market itself is both decentralized and highly regulated. Purchasing policies are complicated, rigid, and generally require that contracts be awarded to the low competitive bidder.

Though it can be somewhat intimidating to the newcomer, doing business with federal and state government isn't impossible, and it can be lucrative. This article describes the basics of governmental purchasing and offers small Montana businesses some advice on how to proceed.

An Overview of the Purchasing Process

Expect red tape, and lots of it. Therefore, it pays to become as familiar as you can with a given agency's purchasing operations before you begin a business relationship with it. Nevertheless, the more complex a given purchasing process, the more it will cost - in time, money, and energy - to win the bid. This correlation holds true generally in the governmental market, and can be especially onerous for firms new to it.

Many firms get their feet wet by utilizing "small purchase" opportunities at the state level. While Montana's state and local purchasing procedures are adopted from federal government policies, they're often simpler. In addition, Montana offers several bid preference or advantage programs for in-state firms and goods. Vendors incorporated in Montana can qualify for a 3 percent preference, for instances, and a 5 percent preference is available for Montana-made goods.

Most of what follows in the next section explicitly refers to federal purchasing systems. But state and local procedures are characterized by the same basic bid types.

Types of Bids

In general, federal government purchasers utilize three different types of bids: "simplified" bids; sealed bids; and negotiated competitive proposals. These are discussed in some detail below.

"Simplified" Bids: Almost 85 percent of all governmental purchase are awarded on the basis of what the Federal government calls "simplified" bidding. simplified bidding has two variants, one for purchases of less than $1,000, the other for purchases of between $1,000 and $25,000. If the bid involves more than $25,000, simplified procedures do not apply.

Purchases of less than $1,000 generally require only one quotation from a selected vendor. Contracting officers normally solicit these bids by telephone, using their list of known,7 reliable vendors.

Contracts of between %+$1,000 and $25,000 are called "small purchase" contracts. These require competitive quotes from at least two, but normally three suppliers. Usually, the previous supplier and two other vendors on the bidder's list are contacted. Contracting officers may seek bid quotes over the telephone or through the mail on Request for Quotation (RFQ) forms. Usually, the low bidder receives the award.

It is crucial to note that most "small purchase" contracts are rarely advertised. The catch here - and remember, this category comprises the bulk of federal government purchases - is getting on the bidder's list in the firs place. More on that later.

Sealed Bids: Sealed bidding procedures are used for more complex contracts and are advertised by invitations to Bid (ITB). These follow very rigid, formal guidelines. Normally, sealed bidding is used for technical products where specific standards have been established. The lowest bidder who is also technically qualified to perform the work is most always awarded the contract. Figure 1 illustrates the steps a business would take in the sealed bid process.

Most federal agencies solicit sealed bids vi advertisement in the Commerce...