One of the biggest customers of American business is America itself–the federal, state, and local governments that are buying everything from chain saws to file cabinets from various private vendors all over the world.
For many companies, the opportunity to close a deal on a government contract is a dream come true. And many firms have definitely seen their fortunes built atop a foundation laid by a deal to supply something to the government.
But there are some things that companies need to understand before they pursue contracts with the government. As long as they educate themselves, the process is very lucrative.
Pro: They Will Pay
The government doesn’t skip out on its bills. Sure, it may require a bond issue or a little bit of robbing Peter to pay Paul, but the government has enough working capital to pay you while they figure out how to ultimately settle the books.
Con: It may Take a While to Get Paid
Government financing is incredibly complex. Whereas many companies can simply issue a check and get on with things, government agencies have a series of processes that must be followed strictly for payment to be made.
The time lag between delivery and payment can be long enough to create a financial burden, so any company doing business with any level of government should consider government contract financing as a means of getting paid more rapidly.
Pro: You Will Know Exactly What to Make
The process of developing specifications for the products that the government will use is complex. A wide variety of personnel are involved in the decisions, and the outcome will be no surprise to any of those stakeholders.
The benefit for you is that you will know, chapter and verse, exactly what to make, and there will be no rejection of your product at delivery, provided it meets the agreed upon specs.
Con: You Have to Know how to Make It
On the flip side, there is an assumption that you will know the proper steps. You will have to know how to maneuver through standards from UL to OSHA to USP, and any failure to meet those standards had better be addressed before delivery is attempted.
As a result, many government contracts are impractical for inexperienced companies. The widgets you effortlessly crank out for private customers will never make muster for the government, so you must be at a high level of competence and training before you should even try.
Pro: It Could be Great Advertising
How many products have you seen advertised as “Government Grade” or “Military Spec”? Probably quite a few, and for those that actually do meet those benchmarks, the resulting consumer impact can be very profitable.
If you are successfully producing something that meets government standards, the average citizen will be very pleased with what they get from you, because they know the stringent requirements of your biggest buyer and they’ll like the results.
Con: It’s the Squeaky Wheel
Conversely, your burgeoning business with John Q. Public could suffer if Uncle Sam comes calling. A great (albeit extreme) example is the Fire Department of New York. On September 11, 2001, FDNY lost over 90 vehicles, including highly customized fire engines, ladder trucks, and rescue rigs. The massive effort to repair and replace them involved not only the department’s own mechanics but also manufacturers, who had to find a way to stay on schedule with committed contracts while contributing to FDNY’s recovery.
If you’re banking on your reputation as a government supplier to build your customer base elsewhere, you better have a plan in case a similar situation arises.
Every customer is valuable, but when it’s one as big as a government, it can be a big boost to any company. Getting a government contract is great, but it’s very different from any other customer arrangement. Understand it before you proceed!