US Public Procurement Markets

Thursday, June 30, 2011

US Public Procurement Markets

Jennifer Schaus, Jennifer Schaus & Associates (Federal Sector)

Bruce Gruenewald, NSI (State and Local Sector)

This summary provides an overview of public procurement markets in the United States (US). It is divided into two sections: one section addresses procurement by the federal government and the other addresses procurement by state and local governments. In 2010, total public procurement expenditures in the US exceeded $1.1 trillion (US) and were larger than the Gross Domestic Product (GDP) of all but 13 countries.

Federal Government

Who

The US federal government is the largest purchaser of goods and services in the world. In fiscal year 2010, it spent $535 billion on contracts and an additional $500 billion on grants. Like any government, there is ample red tape to navigate, a long sales cycle, and purchasing decisions that sometimes defy explanation. Notwithstanding these challenges, a company that secures its first contract and establishes relationships with decision-makers, end-users, and contracting officers is well-positioned for additional federal government business.

There are 15 cabinet-level executive branch departments in the US federal government. Each department has its own functional responsibility ranging from Agriculture to Commerce to Health and Human Services. Organizational structure varies significantly from department to department. For example, the Department of Defense is organized into three sub-departments: one for each of the three service branches (i.e., Army, Navy, and Air Force). The Department of Commerce, on the other hand, is organized into service bureaus with different functional responsibilities. For example, the Census Bureau and National Oceanic and Atmospheric Administration (NOAA) are two service bureaus within the Department of Commerce. Departmental websites provide information about organizational structures, generally in the form of an organization chart. The departments with the largest budgets are the Department of Defense, the Department of Treasury, and the Department of Transportation.

In addition to the 15 cabinet-level departments, some budget analysts have counted as many as 300 additional agencies, commissions, and boards that are funded through the federal budget. As a federal contractor or potential federal contractor, it is not important to understand the entire structure of the federal government, but rather to focus on the agencies that have budgets and needs matched to your products and services.

What

The US federal government spends its budget dollars like any consumer by purchasing both products and services. In recent years, the largest product and service expenditure categories have included information technology (IT) and security products and services. IT products include hardware, software, and telecommunications equipment as well as related consulting services. IT products and services can be provided both in a government facility (i.e., on-site) and at a contractor’s facilities (i.e., off-site). Some on-site contracts require government security clearances while many do not. IT solutions can be implemented across all departments, both on an enterprise-wide and functional basis. The same can be said for many other services and products outside of the IT sector.

Where

Although the US federal government is headquartered in Washington, DC there are hundreds of government offices with sizeable contracting budgets distributed across the country and around the world. In the US, major government installations outside of Washington, DC include military bases, regional field offices of federal agencies, laboratories, processing departments, and call centers. Outside of the US, major government installations include military bases, embassies, consulate offices, and foreign trade offices. Policies and decisions on how, where, and when to spend federal money may be made in Washington, DC, but most of the actual spending takes place at the field office level. This is evidenced by the fact that 80 percent of federal government employees live outside of the Washington, DC area.

Any successful federal government contractor will have a presence in Washington, DC to maintain relationships with key decision-makers, elected officials, and other organizations and individuals that effect federal policy. This presence can include trade organizations and associations that advocate on behalf of your industry, or lobbying firms who work specifically on your behalf. Brazilian firms who are interested in the US federal market should determine what type of presence makes the most sense for their business interests.

Additionally, Brazilian companies should consider a Washington, DC-based sales or business development representative if their target market is headquarters organizations. There are many businesses and individuals in Washington, DC who can perform this function. When evaluating these types of service providers, look for firms or individuals with expertise in your sector, strong relationships with decision-makers at your target agencies, and a specialty in your product or service (e.g., John Smith is well connected at the Air Force, has an IT background, and only represents IT product firms).

When

Since 1974, the US federal government’s fiscal year has started on October 1 and ended on September 30. There are standard buying cycles and predictable patterns within the fiscal year. In recent years, the first quarter tends to start slowly due to congressional delays in enacting a federal budget. Often temporary budget measures, know as Continuing Resolutions, are used to keep the federal government operating until a final budget is approved.

The second and third quarters of a fiscal year tend to see moderate or standard purchasing levels and July and the first half of August are always very slow due to summer holidays. Contracting activity increases dramatically in mid-August and September. This is due to the “use it or lose it” federal budget regulations. Under these regulations, any money not spent by September 30 must be returned to the US Treasury. As a result, federal departments and agencies are highly incentivized to spend their full budgets. The big winners in this end-of-year contracting “Gold Rush” are those firms that have built solid relationships with agency decision-makers and shown consistent value for their product or service to government buyers.

How

Government purchases are not vastly different from commercial purchases or individual purchases. A typical purchase is based on price, perceived value or quality, and strength of relationship. For many years, the federal government awarded competitively bid contracts primarily on the basis of price. In recent years, the federal government has moved away from lowest price toward best value (i.e., a combination of price and quality or value) as the basis for contract award. Many requests for proposals (RFPs) now list not only the criteria that will be used to evaluate offers but the weight that is assigned by the government to each criterion when a proposal is being evaluated (e.g., 40 percent past performance, 30 percent price, and 30 percent quality).

Federal contracting is a highly regulated process and all contracting activity must comply with the Federal Acquisition Regulation (FAR), the federal government’s collection of regulations that apply to procurement actions. In addition to the FAR, other regulations and statues govern how buying decision are made. The Buy America Act (BAA) and Trade Agreement Acts (TAA) are two examples of such statues. While the US government may tend to favor a US company over a foreign company if competing products or services are comparable in price and value, there are many examples of foreign (non-US) firms that routinely win sizable federal contracts.

Purchasing within the US federal government can take many forms. Sometimes the government leverages contract vehicles with pre-negotiated government rates for products or services. These types of contracts are often referred to as acquisition schedules. In addition to pre-negotiated prices, acquisition schedules serve as a pre-screening mechanism for other important areas, such as corporate experience, quality control, and past performance. The most common type of acquisition schedule is a General Services Administration (GSA) schedule. While having an acquisition schedule does not guarantee government business, it does demonstrate a serious level of commitment to the federal government market. In addition, under certain conditions federal business can be set aside exclusively for GSA schedule holders.

Sole sourcing is another mechanism by which the federal government can purchase goods or services. Under sole source procurement, the government has determined that only one company is capable of providing the required product or service and it directs the award to that firm without having to solicit proposals under normal competitive conditions. Sole source procurements tend to occur in the IT arena where the government is buying a patented or trade-marked item. For example, DUNS numbers and data sets can only be purchased from Dun & Bradstreet.

The federal government typically buys goods and services through competitive bidding procedures. There are several different types of competitive bidding procedures: Requests for Proposals (RFP), Requests for Quotes (RFQ), Requests for Information (RFI), Sources Sought (SS), and Invitations to Bid (ITB). Competitively bid solicitations generally include evaluation factors and the weighted percentages that the government will apply to them when they evaluate a proposal. Competitive bidding procedures are also used for contract set asides and only those firms that fall within the set-aside class (e.g., small businesses) may bid on the work. Using small business set asides to enter the federal market is an excellent business development strategy. Brazilian firms that qualify for contract set asides will find themselves competing against smaller, less-established firms rather than large industry players.

One of the ways the federal government ensures transparency in the procurement process is to require that all solicitations over $25,000 be disclosed to the public in a conspicuous location. To this end, the federal government created Federal Business Opportunities, a free public website on which all solicitations above the $25,000 threshold are posted ( Referred to in the contracting industry as “FedBizOpps”, this site allows a user to perform both basic and advanced searches to locate currently open opportunities and conduct historical research. Keep in mind that an opportunity announcement is posted on FedBizOpps near the end of the procurement cycle. Waiting for an announcement to appear on FedBizOpps is not going to be a successful business development strategy as some other firm has already spent months or years positioning itself for the work. Building relationships with buyers during the procurement process while the scope of work and evaluation criteria for the solicitation are being developed will greatly increase your chances of success.

Paths to the Federal Market for Brazilian Firms

Direct

Brazilian firms interested in selling their solutions to the US federal government have several options. For example, they can pursue direct contracts with the government. Selling directly to the US government typically requires a presence in the US in order to participate in trade shows, conferences, and one-on-one meetings with end-users and decision-makers.

Indirect

Another option is for an Brazilian firm to partner with a US firm that has established relationships within the federal government. A US partner should have complementary product or service offerings and have contracts and relationships with an Brazilian firm’s target agencies.

Brazilian firms that do not have a large US presence will be attractive to large businesses as potential small business partners. Large business contractors who do not meet small business size standards (based on NAICS – the North American Industry Classification System) are required to have a small business subcontracting plan to meet their small business subcontracting requirements. Most of these large firms have a small business liaison officer coupled with a small business vendor registration web-site to recruit small business partners.

US-based system integrators (SI) are a good fit for Brazilian IT firms wishing to penetrate the federal market as they usually purchase products and services through their small business vendor registration web-site portals. Large system integrators typically have multiple agencies as clients and can be a productive distribution channel to sell technology across several federal agencies.

Local Resources

US companies focused on federal sales and business development can be found throughout Washington, DC. These companies typically specialize in a particular agency or industry and may have former government employees (both political appointees and end-users) on staff or serving on their boards of directors. There are also many sole practitioners in this sector. These firms and individuals can be helpful because of their specialized knowledge and contacts. They are particularly useful in a match-making role where they can be of enormous assistance in finding good partners with complementary product and service offerings.

Sales and Marketing

Market Research and the Freedom of Information Act (FOIA)

Market research is an important first step in determining whether a particular federal government vertical is worth a company’s time and effort. Understanding which federal departments and agencies buy your product or service is the foundation on which a successful Business-to-Government (B2G) sales strategy is based. In addition, a competitive analysis of the firms that have already won business with these departments or agencies will provide you with a sense of the competitive landscape and how your firm can be positioned relative to its competitors. The federal government provides most of the data you will need to conduct market research on publically available (i.e., no-cost) websites.

The federal government provides access to solicitation data and contracting information on the Federal Business Opportunities website ( and the Federal Procurement Data System website ( respectively. Even relatively simple searches on these systems can yield powerful insights into agency purchasing trends and contract award patterns. Information about GSA schedule holders, including their product and service offerings and pricing, can be found on the GSA’s website.

The bias in the United States is toward full disclosure of government information. This bias toward release also applies to federal government contracts and grants. As previously discussed, contract awards, government budget data, and agency expenditure patterns are all publicly available. Companies can use authority provided by the Freedom of Information Act (FOIA) to request information that is not already in the public domain. This mechanism is particularly useful for requesting contract documents.

Events

Sales to the federal government are no different than any other sector; they are based on relationships and trust. Establishing relationships with customers in the federal government can be challenging as the market is extremely competitive and there are often incumbent contractors that may have long-standing relationships with potential clients. Nevertheless, the market is large and there are trade shows, associations, and industry-related networking events throughout the year where industry can meet with government decision-makers. Many of these events tend to be industry-specific while others are geared toward government contractors in general. Government funded PTAC, Procurement Technical Assistance Centers ( are a starting point for both education and networking. GovEvents ( is a national firm providing a comprehensive list of both educational seminars and networking events for contractors.

Social Media

Social media plays an increasingly important role in both business and personal life. Marketing through social media is an effective way to target and reach specific audiences and the federal government uses these media to promote awareness of their programs and successes. Most major departments and agencies have established a Facebook page and these pages provide another avenue for Brazilian companies to connect with government agencies and begin the sales process. In addition, there are LinkedIn groups focused on federal contracting as well as social media sites designed around government and government-related business, including GovWin.com, TFCN.us, and GovLoop.com. Maintaining a strong presence on these sites can lead to partnering opportunities and direct sales leads.

Considerations for Brazilian Firms

Brazilian firms entering the US market (federal or commercial) for the first time need to consider various logistical, financial, and legal issues as part of their market entry strategy. Some of these issues may make or break the case for pursuing business in the United States.

Buy America Act (BAA) and the Trade Agreements Act (TAA)

The Buy America Act (BAA) and the Trade Agreements Act (TAA) play a significant role in federal contracting and Brazilian firms need to be mindful of what policy concerns these statutes are intended to address. The BAA requires that federal purchasing favor US-made products and services. There are certain waivers and exceptions to this preference, including unfavorable rates for domestic products or services, a lack of available domestic products or services, and public interest. The TAA is intended to ensure that products and services procured under federal contracts are compliant with international trade agreements where the US is a signatory and that products are manufactured in a TAA approved or compliant country. There are limited exceptions to this requirement, including waivers for small business, ammunitions, and national security.