Saturday, May 11, 2013

Service to Government-Owned Vehicles – Avoiding Risk While Preserving Opportunity

In the search for new revenue streams, why not go straight to the greatest source of wealth – the government? Local, state, and federal governments own over one million vehicles, which presents a huge opportunity for whoever services them. Unfortunately, doing business with government at any level isn’t as simple as firing up a great marketing campaign. For one thing, governments perform a great deal of fleet maintenance in-house or outsource it to fleet services providers; for what business remains, competition is high. Weigh the pros and cons of competing for government work—then decide if it is right for your organization.

To prevent fraud and favoritism, governments must ensure fair competition for products and services. Complex oversight rules often mean lengthy competitions – understandable if a billion-dollar missile system is on the line, but not if the service is an oil change or brake job. To speed up small purchases and avoid the long contracting process, governments often create “preferred vendor lists” of preapproved service providers.

Preferred vendor lists may sound like miracle water to a service provider looking for more business, but these lists are not a cure-all. The federal government does so much business through large fleet maintenance contracts that little revenue flows to the five pre-approved service providers. Moreover, a $15,000 minimum investment is required to gain placement on the federal preferred list (GSA Schedule 23 V). In the end, the potential gain hardly seems worth the effort.

Getting on state and local preferred vendor lists presents more opportunities for business and requires just a few days of paperwork. In exchange for a new source of revenue and a great marketing tool (“The township trusts us with their vehicles…trust us with yours”) expect to provide some concessions. As you fill out the price lists and forms, be aware of a few factors that may not be clearly stated:
  • The rates you provide will be expected to apply to all vehicle types.
    • Very few preferred lists differentiate between vehicles or vehicle types. This means that the $80 A/C service on your price list must apply when the government brings in a vehicle requiring two hours of labor.
  • The government will expect a discount over your current rates – and then another discount on top of that.
    • The government always expects to be the “most favored customer” and, as a result, expects better rates than your regular customers. You’re also competing with others on the list, so don’t give up your entire margin when you create your price list. You may need to provide another discount further down the line.
  • You may be forced to guarantee a service turnaround time.
    • Service turnaround guarantees can be especially risky if the government drops off multiple vehicles at one time. Don’t expect them to give you any leeway.
  • You may be paid late.
    • The government always pays, but it frequently pays late. Keep close track of payments due to ensure you get paid.
Bottom Line: Becoming a preferred vendor for the federal government may not be worth the investment. On the other hand, the potential profit from state and local governments can justify up-front costs—if you’re mindful of those unwritten rules.

No comments: