Winning Public Sector Business Using State Term Contracts
In our last digest, we discussed the pros and cons of the bid-by-bid approach as one alternative to win public sector business. This week, let’s turn our attention to winning public sector business by establishing and leveraging state term contracts.
State term contracts are agreements between a state government and a supplier allowing that supplier to sell products and services to state agencies without the state agency having to conduct a bid, and without the supplier having to respond to that bid. These contracts may be awarded through a formal state agency procurement process or established through a registration process.
A critical feature of state term contracts is that each state’s laws allow for political subdivisions or public sector entities within that state to legally and appropriately purchase products and services through state term contracts without having to conduct their own bid or RFP process.
What are the advantages of state term contracts?
- Familiarity – most state agencies and public sector entities are familiar with their legal authority to purchase through state term contracts without conducting a formal procurement process. The benefit for suppliers with state term contracts is they do not have to educate state agencies or public sector entities about how state contracts work…they are a known commodity.
- Compliance – selling through state term contracts meets the compliance requirement for public sector entities. Therefore, you do not have to go through an individual bid process to win each customer’s business in that state.
- No Revenue Share – states do not typically charge suppliers selling through state term contracts any administrative fee or percentage of sales.
What are the disadvantages of state term contracts?
- Expensive – the process to establish a state term contract typically takes 12 to 24 months and often requires the use of outside legal counsel and/or consultants.
- The Hassle Factor – in order to be eligible to sell to public sector entities in all 50 states through state term contracts, you have to establish a contract in each of the 50 states one contract at a time.
- Limited Cross-Selling – it’s difficult to get all of your products and services onto a single state term contract. The net effect is that you either i) have to go through the process of establishing state term contracts multiple times within each state to be able to sell your entire portfolio of products or services, or ii) you cannot cross-sell the other products and services you offer that are not on a state term contract to public sector entities already buying certain products and services from you through a state term contract. In other words, you cannot fully leverage your customer relationship to maximize sales.
- One-size-fits-all Pricing Model – state term contracts typically require a one-size-fits-all pricing model. If you establish pricing that is aggressive enough to win business from large public sector entities within the state, you will likely lose money selling to small public sector entities to whom you’ll have to offer the same aggressive pricing. On the other hand, if your pricing is less aggressive and enables you to protect your margins selling to small accounts, your state term pricing will not be aggressive enough to win the large accounts. What’s a supplier to do?
- Customer Fees – state government often charge a fee to public sector entities to be able to access and purchase through state term contracts. For some public sector entities, this fee makes buying through state term contracts an unattractive option.
Keep watch for the next part of our series which will discuss our third and final complaint sales option for pursuing public sector business: establishing a piggybackable agreement.