Jumping Through Hoops

The government has its own special kind of initiation for would-be technology contractors, though it's not quite so colorful. For the past 10 years or so, giant and tiny firms alike have found it nearly impossible to sell in the federal market without first having a special contract with the government called a schedule. To get that contract, companies must undergo a very particular rite of passage, namely a full inspection by the General Services Administration, which deems the corporation fit or unfit to do business with federal agencies. If the company passes muster, it's locked into offering rock-bottom prices to its future customers, and it agrees to pay GSA an amount equivalent to 1 percent of all its government sales.

There are dozens of types of schedules. The one developed exclusively for technology goods and services, known as Schedule 70, has had at least $9.7 billion in sales this fiscal year. Since this single contract is critical to the success of more than 3,000 technology firms that do business with the government, it might be wise to consider the case of one company in the hunt for its own schedule-a contract that could give it wider access to a government technology market valued, when all contracts are considered, at more than $50 billion. Newark Electronics, based in Chicago, sells electronic components through a widely circulated catalog. The most recent edition is about 2,000 pages long and offers all kinds of items, from connectors to switches. The dense tome is regular reading for corporate and individual buyers of electronics goods, whose purchases average $250 each.

The federal government is one of Newark's biggest customers. The average agency order is $350. Federal purchases from Newark total about $15 million each year. But most of that revenue is made up of small purchases under $2,500, for which federal employees can use agency-issued charge cards. In the 68 years it's been selling to the government, Newark hasn't had a GSA schedule, and that has hurt sales.

Many goods the government wants-sophisticated laboratory equipment, for example-exceed the $2,500 cap, says Doug DiVenere, Newark's government business director. A schedule would let customers quickly buy big-ticket goods from Newark's catalog.

DiVenere knew his firm was missing opportunities. Sales people told Newark's executives they had to walk away from business because they couldn't offer the schedule as an option.

DiVenere didn't have to convince Newark's executives that the firm needed to get on board with GSA. His government customers made the case for him. "Because they've been limited and restricted," DiVenere says, "they've been asking us for years to participate in the schedules program."

Newark took action, and one year ago the company trekked into the GSA wilderness in pursuit of the government's "stamp of approval," as DiVenere calls it.

Newark's adventure started with an odd twist. The company's products are used in or with a huge range of IT equipment, but when Newark expressed interest in getting into the schedules program, GSA advised executives to sign up with the Hardware Superstore, a schedule that covers such items as garden hoses and socket wrenches. That was an odd choice, Newark's executives thought, but not one that would keep it out of competition with other resellers or manufacturers that hold Schedule 70 contracts. In fact, nearly every product Newark sells can be found on some other company's schedule.

Next, GSA asked Newark to fill out a 92-page questionnaire. GSA wanted information about the company's size, whether it was registered as a federal contractor, how many of its suppliers qualified as small or minority or women-owned businesses, and a litany of other questions.

GSA was also particularly concerned with whether Newark could account for its total federal sales. The 1 percent fee GSA collects is based on those sales. DiVenere says that if the company hadn't been able to provide the data, it would have had no hope of getting a schedule.

The application process took about five months from start to finish, DiVenere says. Much of that time was spent coding federal accounts to track which suppliers' goods the government was buying. Just filling out the paperwork took several weeks. On Dec. 1, Newark submitted its offer to GSA. Five months later-to the day-it was awarded the contract.

DiVenere and his team had little time to savor their success. The arduous process of winning the contract was just the first step. Now, Newark would have to tell people it had a schedule that was open for business.

Thus begins the ever-present, ever-pressing need for federal contractors to market. The concept was totally foreign to them just 10 years ago, before sweeping reforms unchained agencies from restrictive purchasing regulations and turned the federal technology market on its head. DiVenere says Newark began putting out the word eight months ago that its schedule was coming. The company set up a special, toll-free number just for federal buyers, and agency shoppers can now order the catalog free of charge or use it online.

Jackie Schatz, Newark's federal marketing manager, says the schedule is a major part of creating "brand awareness" for the firm. Traditionally, commercial firms build such "stickiness" in the minds of the masses through months, if not years, of repetitive advertising, product testing and teasing, and crafting the perfect slogan and name. The same rules now apply in the federal sector, but as Schatz and thousands of other marketers would attest, a company without a schedule is seldom taken seriously.

The future health of the schedules program concerns many schedule holders. The program has come under attack from lawmakers who fear agencies are too freewheeling in their use of these flexible agreements and aren't abiding by the rules of fair and open competition. Schedules make it easy for agency contracting officers to buy from the vendors they prefer, for example, without having to solicit competitive bids.

While the debate about the schedules plays out, small companies like Newark must stay focused on winning more business. Only then will they know whether the government's rite of passage was worth the effort.