$14 billion in federal contracting occurs outside of the Washington D.C. area

LYME COMPUTER SYSTEMS, A 16-PERSON FIRM LOCATED IN NEW HAMPSHIRE, COUNTS ON FEDERAL GOVERNMENT INFORMATION TECHNOLOGY SALES FOR 65 PERCENT OF ITS REVENUE. Primarily using telesales, the reseller offers traditional name-brand products -- Compaq, Toshiba, Apple and others -- at competitive prices to government customers around the nation.

Cincinnati-based Government Acquisitions Inc. specializes in custom-configured Gateway PCs sold through its GSA schedule contract. The company derives three-quarters of its annual revenue from federal government sales, and until last year was the only reseller to hold a GSA contract for Gateway products.

McBride and Associates began aiming its support and service offerings at the federal IT market in the 1980s, a move born of necessity due to the lack of large corporate accounts near its Albuquerque, N.M., headquarters. Today, the federal government accounts for 90 percent of McBride's $180 million in annual revenue.

What do these companies have in common? Each takes a different approach to the market, but all rely on federal sales for the bulk of their business. And all are based well beyond the Washington D.C. area. Together they offer ample proof that VARs and resellers headquartered outside of the Beltway can win their share of federal government orders.

SIZABLE OPPORTUNITY

Eagle Eye Publishers, a Virginia-based market research firm, estimates that prime IT contracts performed outside of Washington D.C., Maryland and Virginia accounted for roughly $14 billion in federal spending during fiscal 1999. That's nearly half of the federal government's $30 billion in total IT spending for last year.

Although the share of outside-the-beltway spending has declined slightly over the past several years, it still represents a significant opportunity for resellers, according to Eagle Eye President Paul Murphy. "The trend is flat, but the amount is substantial," he said.

According to Eagle Eye, the value of overall federal IT prime contracts grew from $26.4 billion in fiscal 1997 to $30 billion in fiscal 1999, while spending outside of the Washington D.C. area remained at approximately $14 billion over the same period.

A list of the top federal IT contracting sites compiled by the company indicates that outside-the-beltway spending is concentrated in Texas, California, Florida, Massachusetts and Colorado. In California alone, Eagle Eye's data shows that prime federal IT contracts were performed at nearly 600 sites over the last three years, at locations scattered from one end of the state to the other.

Murphy said the Department of Defense, Department of Energy and NASA account for about 70 percent of total federal IT contracting dollars, regardless of where they are spent. However defense orders may claim an even larger slice of beyond-the-beltway business.

"I would suspect that outside of [the Washington D.C.] area, you would see more military base spending and large government installation spending because so much of the Treasury, Federal Aviation Administration and Department of Agriculture spending happens in Washington D.C., Virginia and Maryland," he said.

Indeed, military sales represent a key focus for resellers like Lyme Computer Systems and Government Acquisitions.

"We work all around the country, and the military is one of our largest pieces," said Curt Vinson, president of Lyme Computer.

Similarly, much of Government Acquisitions' federal business comes from military bases throughout the United States. "Contrary to popular belief, the federal government is not all based in the Washington D.C. area," said Dennis Obial, president and founder of the company.

EMPOWERED BUYERS

Popularity of GSA schedule contracts and an ongoing trend toward decentralized purchasing have combined to give local government buyers greater leeway in deciding what to buy and whom to buy from. These developments also may hand nearby resellers an advantage over far-flung competitors.

"The emphasis in procurement has shifted over the last couple of years toward selling task and delivery orders on [GSA] schedule contracts," said Murphy, who notes that GSA schedule IT sales grew 216 percent between fiscal 1997 and fiscal 1999.

"To the extent that local buying offices have gained more control over buying decisions, companies need to be there talking to them," he said.

Pat Gallagher, director of business development for Compaq Federal, agreed that federal buyers may prefer to purchase from local resellers. "All agencies have some degree of latitude," he said. "There's tremendous value if you can talk to someone who is 20 minutes away from your office, rather than someone who's not only in a different area code, but a different time zone."

On the other hand, popularity of the Internet and growth in electronic commerce also has made it easier for smaller resellers to do business with government customers anywhere in the world.

"It's not as difficult as it used to be for local facilities to buy from someone who is hundreds or thousands of miles away, particularly when they are buying well-known commodities," said Murphy. "When you're talking about customized systems and the delivery of complex services, it certainly helps to have an understanding of the local facility and the local market. But e-commerce initiatives are opening up local buying decisions to contractors throughout the country."

VEHICLE OF CHOICE

Experts agree that GSA schedule contracts hold the key to capturing many federal opportunities both inside the Beltway and beyond, particularly for small to mid-size VARs and resellers.

"The first thing someone's going to ask is, 'Do you have a GSA schedule?'" said Frederick Rauch, owner of Folsom, Calif.-based Government Contract Consultants. "You need that license to hunt first. That's the best way to get the business."

Because processing a GSA schedule contract can take anywhere from several months to nearly a year, depending on the complexity of the offering, resellers shouldn't wait until their contract is approved to begin looking for buyers, said Julie Ackers, vice president of Federal Schedules Inc., a Virginia-based GSA contracting firm.

"You can start telling the government that you have a proposal pending at GSA as soon as it is submitted," she said, adding that many of the companies that come to Federal Schedules for help in securing GSA contracts are located outside of the Washington D.C. area.

HELP IS AVAILABLE

Ackers and others said the task of acquiring and maintaining a GSA contract has gotten significantly easier over the past several years, thanks largely to procurement streamlining by the federal government. For example, she said GSA lightened the administrative burden on contractors by extending the term of most schedules from one year to five years.

"Before, you had to go back to GSA [for a contract renewal] every year," said Ackers. "Now you get a five-year contract with the option for three five-year add-ons. So you're looking at a 20-year contract."

What's more, there is plenty of support available for resellers interested in GSA schedule sales. Government reseller programs run by a number of major distributors offer help in updating and maintaining GSA contracts. And a growing number of manufacturers -- as well as a few distributors -- offer programs designed to open GSA schedule opportunities to resellers that don't hold a contract.

For instance, Compaq's GSA schedule is open to any of the manufacturer's authorized resellers, said Paul Richards, manager of federal partners for the Houston-based PC-maker. And GSA schedule programs from Gates/Arrow Distributing and Comstor.net allow resellers to act as sales agents against GSA contracts held by those distributors.

RECEPTIVE AUDIENCE

Regardless of their location or approach to securing GSA schedule sales, Gallagher cautioned resellers against being intimidated by the government's reputation as a demanding client.

"The federal customer is just like any other customer out there in the world. Yes, they have slightly more rules, but if you sell them quality products and services they will come back and buy from you again," he said. "They're very reasonable people, and they have a mission to accomplish, and automation is one of the things they need."

In fact, he said government buyers usually are quite interested in expanding their pool of suppliers, and they want to hear about innovative solutions to their IT requirements. Contracting officers also may be particularly interested in talking with small or disadvantaged businesses, given the federal government's goals for buying from these organizations.

At least 23 percent of federal prime contracts should be awarded to small businesses under procurement goals established by the Office of Federal Procurement Policy (OFPP). Within that amount, no less than 5 percent should go to small disadvantaged businesses and at least another 5 percent should go to women-owned businesses according to OFPP.

"[Agencies] have to do business with these firms, and they do," Gallagher said. "Believe me, they get pinged on if they aren't buying from small businesses."

The Big Picture

This list shows the top 75 locations in the United States where federal government IT contracts were performed in fiscal 1999. It also includes IT spending for fiscal 1997 and 1998 at each site.

Source: This list, as well as other data in the accompanying article, was provided by Eagle Eye Publishers Inc., a Virginia-based company that tracks federal contract and grant information. More information is online at www.eagleeyeinc.com.