Why Sell to the Government? Exploring GSA Contract Benefits and Drawbacks

Selling to the federal government can be a game-changer for many businesses, providing access to a vast and stable market. One of the key ways to enter this lucrative space is through the General Services Administration (GSA) Schedules program. GSA Schedules, also known as Multiple Award Schedules (MAS), are long-term government-wide contracts with commercial firms that provide federal, state, and local government agencies access to millions of commercial products and services at pre-negotiated prices. These contracts are a primary vehicle used by federal agencies to procure goods and services in a streamlined and cost-effective manner.

• What is GSA?
• Can My Company Sell to the Government?
• Benefits of Selling to the Government Through GSA
• Drawbacks of GSA Contracts
• How to Get Started: Steps to Secure a GSA Contract
• Conclusion
• FAQ: GSA Benefits and Drawbacks of Selling to the Government

The size and scope of the government contracting market are immense. In fiscal year 2023, the U.S. federal government spent over $649 billion on contracts, making it the largest buyer in the world. Of this, more than $30 billion was spent annually through GSA Schedules, demonstrating the importance of this procurement vehicle. This substantial market covers a broad range of industries, from information technology to facilities management, offering businesses diverse opportunities to serve federal needs.

For small and medium-sized enterprises (SMEs), the GSA Schedules program can be particularly beneficial. Unlike the highly competitive commercial market, GSA offers a more structured, predictable environment. By becoming a GSA Schedule holder, businesses can reduce the competition they face, as only pre-approved vendors are eligible to bid on contracts. Moreover, the federal government has specific goals to award a certain percentage of contracts to small businesses, making it an attractive option for those looking to expand their reach.

In a time when economic fluctuations can disrupt traditional markets, selling to the government offers a stable, reliable revenue stream. GSA contracts provide businesses with the opportunity to grow steadily, build long-term relationships with federal agencies, and diversify their client base. For businesses ready to make the investment, GSA contracting offers not just a sales opportunity but a pathway to sustained growth in a highly lucrative market.

What is GSA?

The General Services Administration (GSA) is a federal agency established in 1949 with the primary goal of supporting other federal agencies by providing centralized procurement solutions and managing federal properties. Its mission is to deliver value and efficiency to the government and, in turn, to American taxpayers, by offering a range of products, services, and workspaces. Through its initiatives, GSA ensures that government agencies can function effectively, with access to everything from office supplies to complex IT systems.

GSA plays a critical role in federal procurement, facilitating the purchase of goods and services needed by federal, state, and local agencies. This helps ensure that the government can fulfill its obligations without having to manage its own supply chains for every procurement need. By streamlining the procurement process, GSA significantly reduces both the administrative burden and procurement costs for federal buyers.

To achieve its broad objectives, GSA operates through two key divisions:

• Federal Acquisition Service (FAS): The FAS is the acquisition arm of GSA, responsible for connecting federal agencies with commercial businesses that can meet their needs. FAS provides procurement services for products and services across a wide range of categories, including technology, professional services, transportation, and facilities management. Its focus is on helping agencies acquire goods and services more efficiently, ensuring competitive pricing, and maintaining a high standard of quality.
• Public Buildings Service (PBS): PBS is responsible for managing the federal government’s real estate portfolio, which includes over 370 million square feet of office space. This service provides federal agencies with safe, high-quality workspaces through leasing, construction, and property management. PBS not only manages day-to-day operations but also ensures long-term sustainability and energy efficiency of federal facilities.

At the heart of GSA’s procurement process is the GSA Schedules Program, also known as Multiple Award Schedules (MAS). GSA Schedules are long-term, government-wide contracts that allow commercial companies to sell goods and services directly to government agencies. These schedules cover a broad range of products and services, such as IT solutions, professional services, security equipment, and office supplies. GSA Schedules simplify the buying process by pre-negotiating contract terms and prices, giving federal buyers access to trusted vendors without having to go through lengthy procurement procedures each time they need to make a purchase.

By using GSA Schedules, federal agencies can save time and money, while vendors benefit from predictable contract terms and a streamlined sales process. For businesses, being awarded a GSA Schedule means they can offer their products or services to the government through a trusted and recognized contract vehicle, which can lead to long-term and stable revenue.

Can My Company Sell to the Government?

Many businesses, from small startups to large corporations, wonder if they are eligible to sell to the U.S. government through GSA Schedules. The good news is that thousands of companies, including many small businesses, have successfully secured GSA contracts and are now selling to federal, state, and local agencies. However, there are specific eligibility requirements that companies must meet before they can engage in government contracting.

The first and most critical step is ensuring that your business meets the eligibility criteria set by the General Services Administration (GSA) and the broader federal procurement rules. Here are some of the key requirements:

• U.S. Business Registration: Your company must be registered as a legitimate business entity in the United States. This includes having an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
• SAM Registration: Every business interested in selling to the federal government must register in the System for Award Management (SAM) database. SAM is the official government-wide system where businesses provide essential information about their company, which is then used for contracting purposes. Registration in SAM is free and is a mandatory step to be eligible for federal contracts. You can register your business and find more information about the process at SAM.gov.
• NAICS Codes: Your business must identify the specific industries it operates in by selecting North American Industry Classification System (NAICS) codes. These codes help government buyers understand the types of products or services your company provides. You’ll need to include these codes in your SAM registration.
• Financial Stability: GSA requires companies to demonstrate financial stability. This is because the government needs to ensure that businesses it contracts with have the financial capacity to deliver on their obligations. Companies may need to submit financial statements and demonstrate that they are in good standing.
• Past Performance and Experience: While not always a strict requirement, it’s highly advantageous for businesses to demonstrate a record of successful performance on contracts of a similar size and scope, whether in the private or public sector. Some government contracts, particularly larger ones, may require evidence of past performance as part of the application process.
• Compliance with Federal Regulations: Companies must be willing to comply with the rules and regulations set forth in the Federal Acquisition Regulation (FAR), which governs federal procurement. This includes understanding requirements related to pricing, ethics, and contract management. Non-compliance with these regulations can lead to disqualification from federal contracting opportunities.

Once you have verified that your company meets these basic eligibility requirements, the next step is to apply for a GSA Schedule, a process that involves submitting detailed documentation about your business, products, pricing, and compliance measures. Companies often work with consultants to navigate this complex process, but it can be done independently as well.

Securing a GSA Schedule opens the door to selling products and services to federal agencies, but it’s important to note that the competition for government contracts can still be fierce. That’s why it’s essential to ensure your business is fully prepared and positioned to meet the needs of government buyers.

By completing the necessary registrations and meeting the eligibility criteria, your company can join the thousands of other businesses successfully selling to the government through GSA. For more information and to start the process, visit the official SAM.gov website.

Benefits of Selling to the Government Through GSA

Selling to the U.S. government through the GSA Schedules program provides numerous advantages, particularly for businesses looking for long-term stability, access to a massive market, and reduced competition. Below are the primary benefits companies can expect when engaging in GSA contracts.

Access to a Massive Market

The U.S. government is the largest buyer in the world, and through the GSA Schedules program alone, it spends over $30 billion annually on products and services. This makes the GSA Schedules one of the most significant procurement vehicles for federal contracts. The overall federal government procurement market, which exceeds $649 billion, provides opportunities in nearly every sector.

GSA Spending Trends by Year and Sector

The top sectors receiving GSA contract awards include information technology (IT), which accounts for more than 40% of GSA spending, followed by construction services, professional services, and facilities maintenance.

These statistics illustrate that the demand for services in areas like IT, cybersecurity, facilities management, and even janitorial services continues to grow, presenting diverse opportunities for businesses across industries.

Industry Opportunities

Limited Competition

One of the most compelling advantages of selling through GSA is the limited competition. The GSA certification process acts as a bottleneck, meaning that only approved vendors are eligible to sell through GSA. This significantly narrows the field, allowing certified businesses to compete in a less crowded marketplace compared to the highly competitive commercial sector. For instance, where a commercial contract might attract thousands of bidders, GSA contracts limit competition to a smaller pool of approved contractors.

Recent Updates to GSA Certification

In recent years, GSA has streamlined its Multiple Award Schedule (MAS) program to reduce redundancies and simplify the application process for new vendors. This has made it easier for businesses to become certified while maintaining the integrity of the program. However, the bottleneck effect remains, providing vendors a competitive edge once approved.

Long-Term Contracts and Minimal Paperwork

GSA contracts are known for their long-term stability. The typical GSA Schedule contract is awarded for a five-year period, with the option to renew for three additional five-year terms, resulting in a potential contract length of up to 20 years. For businesses, this means stability and predictability in their revenue streams, allowing for long-term planning and growth.

Another significant advantage is the reduction in paperwork. Once a business is approved and awarded a GSA Schedule, it can respond to multiple requests for proposals (RFPs) without having to repeatedly submit the same documentation. This minimizes administrative effort and shortens the time to secure new contracts, resulting in faster payments and less bureaucracy.

Stable and Predictable Pricing

One of the key features of selling through GSA is the stability of pricing. When a company secures a GSA contract, it agrees to offer its products or services at a pre-negotiated price. This fixed pricing structure is particularly beneficial in industries where prices fluctuate due to market conditions. For example, during periods of inflation or supply chain disruptions, GSA contractors continue to sell their products at the agreed-upon prices, ensuring they are insulated from market volatility.

Data on Pricing Benefits

• 88% of GSA vendors report that fixed pricing has allowed them to better plan their finances and maintain profitability during economic downturns.
• Vendors benefit from long-term contracts that eliminate the need for constant price renegotiation, saving time and resources.

Federal Buyers’ Trust

Another major benefit of holding a GSA Schedule is the trust and credibility that come with being an approved vendor. All GSA Schedule holders are listed in GSA Advantage! and GSA eBuy, two widely used procurement platforms by federal buyers. Government agencies trust that GSA-approved vendors have already been vetted, which makes it easier for businesses to secure contracts without undergoing additional checks.

• GSA Advantage! acts as an online catalog for federal buyers to browse and purchase from approved vendors. You can view GSA Advantage! here.
• GSA eBuy is an online platform where government buyers post requests for quotations (RFQs) and businesses respond with proposals, giving them direct access to contract opportunities.

Opportunities for Small Businesses

The U.S. government has a longstanding commitment to supporting small businesses. One of the key goals of the federal government is to allocate 23% of all federal contract dollars to small businesses. In practice, this has created substantial opportunities for small businesses to grow and thrive by securing contracts with government agencies.

Statistics on Small Business Benefits

• In 2022, over $154 billion in federal contract dollars were awarded to small businesses.
• Nearly 50% of GSA Schedule holders are small businesses, illustrating the government’s efforts to meet and exceed its small business contracting goals.

The GSA Schedules program is particularly advantageous for small businesses because it provides access to a massive market with reduced competition. Additionally, small businesses can qualify for set-aside contracts, which are contracts specifically reserved for small, minority-owned, women-owned, or veteran-owned businesses.

By leveraging these benefits, businesses of all sizes can use GSA contracts as a pathway to long-term success and profitability in the federal marketplace. Whether you’re an IT company, construction firm, or professional services provider, selling through GSA offers a unique opportunity to grow and stabilize your business in a highly lucrative environment.

Drawbacks of GSA Contracts

While selling to the government through GSA offers many benefits, it’s not without challenges. Below are the key drawbacks that businesses should consider before embarking on the GSA certification process.

High Entry Costs

Becoming GSA certified is not as simple as filling out a form and waiting for approval. It involves a significant upfront investment in terms of both time and money. The process of preparing the necessary paperwork, compiling pricing information, and ensuring compliance with GSA’s strict regulations can take months to complete. Additionally, many businesses choose to hire consultants who specialize in GSA contracts to navigate the complex process, and this can add a considerable expense.

The costs associated with obtaining a GSA Schedule vary widely. Some companies may spend as little as $5,000, while others might invest upwards of $25,000 or more, depending on the complexity of the contract and the need for outside assistance. This investment can be a major barrier for small businesses or startups, especially if the return on investment is uncertain in the early years of the contract.

Typical Costs for GSA Certification

For businesses considering GSA certification, these costs should be carefully weighed against potential future revenue.

Lower Profit Margins

A significant challenge of selling through GSA is the “Most Favored Customer” (MFC) clause, which requires businesses to offer their best prices to the government. Essentially, GSA contract holders must provide the lowest price they offer to any customer, even if they typically charge higher rates in the commercial marketplace. This can lead to lower profit margins, as businesses are required to match or beat their lowest commercial price for government contracts.

For example, if a company sells a product to a commercial client at a discounted rate during a promotion, they are required to offer the same or lower price to the government, regardless of the circumstances. This can be particularly challenging for businesses that rely on dynamic pricing strategies in the commercial market.

Price Differences Between Government and Commercial Contracts

These pricing constraints can limit a company’s flexibility, making it harder to maintain healthy profit margins on government sales.

GSA Fee Structure

Another cost to consider when selling through GSA is the Industrial Funding Fee (IFF), which is a 0.75% fee applied to all sales made through the GSA Schedule. While this may seem like a small percentage, it can add up quickly, particularly for businesses securing large contracts.

For example, if a company secures a GSA contract worth $1 million, the IFF would amount to $7,500. This fee is typically passed on to the business, reducing overall profits. Companies need to factor this into their pricing strategy when bidding on government contracts to ensure they maintain profitability.

Example of IFF Impact on a Large Contract

While the fee is relatively low, it’s another cost that vendors must manage, particularly on larger contracts.

Importance of Networking

Securing a GSA Schedule does not guarantee sales. In fact, many businesses are surprised to learn that they still need to actively market their products and services to government buyers. Building relationships with federal contracting officers and decision-makers is critical to success in government contracting.

Networking plays a crucial role in establishing these relationships. Vendors must attend government procurement events, respond to requests for proposals (RFPs), and, in many cases, engage directly with buyers to showcase their offerings. Without these personal connections, it can be difficult to stand out from other vendors on GSA Advantage! or GSA eBuy.

Establishing and maintaining these relationships can be time-consuming and requires a proactive approach. Businesses that rely solely on their GSA Schedule listing without building relationships are unlikely to see consistent sales.

Uncertainty in Sales Volumes

Despite the potential benefits of GSA contracts, there is no guarantee of sales. In fact, over 60% of GSA Schedule holders fail to generate any revenue from their contracts. This is a significant risk for businesses that invest heavily in securing a GSA Schedule, only to find that they are unable to meet the minimum sales requirement of $25,000 within the first two years. Failure to meet this threshold can result in the cancellation of the contract.

GSA Sales Statistics

For businesses considering GSA certification, it’s important to develop a comprehensive marketing strategy to ensure they can meet sales requirements and avoid contract termination.

How to Get Started: Steps to Secure a GSA Contract

Securing a GSA Schedule can open up a world of opportunities for businesses to sell products and services to the U.S. government. However, the process of obtaining a GSA Schedule requires careful preparation and attention to detail. Below is a step-by-step guide to help businesses navigate the process and increase their chances of success.

Step 1: Determine Eligibility

Before applying for a GSA Schedule, businesses need to ensure they meet the eligibility requirements. This includes registering as a legitimate business entity in the U.S. and being in good standing financially. Companies must also have at least two years of experience and a proven record of past performance in the commercial or government market.

Check Your Eligibility: Review the eligibility criteria on the GSA’s Getting Started Page.

Step 2: Register on SAM.gov

Every business interested in government contracting must register in the System for Award Management (SAM). SAM is a government-wide system that collects and stores information about contractors. Registration in SAM is free and is mandatory for all businesses seeking federal contracts.

1. Visit SAM.gov and create an account.
2. Complete the registration form, providing details about your business, including its Unique Entity Identifier (UEI) (which replaces the old DUNS number).
3. Ensure all information is accurate, as errors or inconsistencies can delay the approval process.

Step 3: Identify Your NAICS Codes

The North American Industry Classification System (NAICS) codes are used to classify businesses by the types of products or services they provide. GSA contracts are categorized by these codes, so identifying the correct NAICS code for your business is essential.

1. Visit the NAICS website to find the codes that apply to your industry.
2. Include these codes in your SAM registration, as they will be required for your GSA Schedule application.

Step 4: Prepare Financial and Legal Documentation

To ensure your business is financially stable, GSA requires businesses to submit a variety of documentation. This includes financial statements, tax returns, and evidence of past performance. You may also need to submit legal documents, such as commercial sales practices and pricing information.

• Collect 2-3 years of financial records (balance sheets, income statements, etc.).
• Gather client references or testimonials to demonstrate successful past performance.

Step 5: Review and Select the Right GSA Schedule

GSA Schedules cover a wide range of industries, from IT services to office supplies. It’s important to review the available schedules and select the one that best fits your business. The Multiple Award Schedule (MAS) program has consolidated the different schedules into a single program, but businesses still need to choose specific categories.

• Visit GSA’s MAS Program Page to explore the available categories.
• Determine which category aligns with your products or services.

Step 6: Submit Your Offer through eOffer

Once you have all the required documents and have selected the appropriate schedule, you will need to submit your proposal through GSA’s eOffer system. This is an electronic platform where businesses can submit and track their applications.

1. Visit eOffer and create an account.
2. Complete the offer submission process, including uploading your financials, pricing information, and legal documentation.
3. Submit your offer for review and approval.

GSA will review your offer and may request additional information or clarifications. Be prepared to negotiate pricing, terms, and conditions as part of the review process.

Step 7: Negotiate and Finalize Your GSA Contract

After your offer is submitted, a GSA Contracting Officer will review your submission and may negotiate pricing and other terms. This negotiation process ensures that the prices you offer are fair and competitive for government buyers. Once the terms are finalized, you will be awarded a GSA Schedule contract.

• Respond promptly to any requests for additional information or negotiations.
• Finalize pricing and agree to contract terms with the GSA Contracting Officer.

Step 8: Maintain Compliance and Market Your GSA Schedule

Once you’ve secured your GSA Schedule, the work doesn’t stop there. You must actively market your products and services to federal agencies through platforms like GSA Advantage! and eBuy. Additionally, it’s crucial to maintain compliance with GSA regulations and continue to meet sales requirements.

• Regularly update your company’s profile on GSA Advantage! to keep your products and services visible to government buyers.
• Ensure you meet the minimum sales requirement of $25,000 within the first two years to avoid contract cancellation.

For more details on maintaining compliance and marketing your GSA Schedule, visit GSA Advantage!.

Conclusion

In summary, securing a GSA contract can provide businesses with access to a massive and stable market, reduced competition, and long-term contracts with predictable pricing. These benefits, combined with the government’s commitment to small business opportunities, make GSA contracting a highly attractive option for companies looking to diversify and grow their revenue. However, the process is not without its challenges, such as high entry costs, lower profit margins due to pricing constraints, and the need for effective networking to secure sales. Understanding both the benefits and potential drawbacks is key to making an informed decision about entering the government marketplace.

While the GSA application process can be demanding, the long-term rewards, particularly during times of economic uncertainty, make it a valuable investment for businesses that are prepared. If your company is unsure about navigating the complexities of GSA contracts, consulting with experts can greatly improve your chances of success. Price Reporter, with over 17 years of experience and over 1,000 GSA contracts awarded and managed, is well-positioned to guide your business through the entire process. Our team of seasoned professionals is ready to help you secure and maintain your GSA Schedule, allowing you to focus on growing your business. For a free consultation, contact us at 201.567.6646 or via salesteam@pricereporter.com.

FAQ: GSA Benefits and Drawbacks of Selling to the Government

What is a GSA Schedule?

A GSA Schedule, also known as a Multiple Award Schedule (MAS), is a long-term, government-wide contract that allows commercial companies to sell goods and services directly to federal, state, and local government agencies at pre-negotiated prices.

How much does it cost to obtain a GSA Schedule?

The costs of obtaining a GSA Schedule vary depending on the complexity of your business and the assistance you need. Typically, costs range from $5,000 to $25,000 for hiring consultants, preparing documentation, and ensuring compliance.

How long does a GSA Schedule contract last?

GSA Schedule contracts are typically awarded for an initial period of five years, with the option to renew for three additional five-year terms, giving businesses up to 20 years of contract stability.

What is the “Most Favored Customer” (MFC) clause?

The MFC clause requires businesses to offer the government the lowest price they offer to any commercial customer, which can reduce profit margins but ensures competitive pricing for government contracts.

Are GSA contracts guaranteed to generate sales?

No, obtaining a GSA Schedule does not guarantee sales. Businesses need to actively market their products, build relationships with federal buyers, and meet the minimum sales requirement of $25,000 within the first two years to avoid contract cancellation.

How can I get help with the GSA contract process?

If you’re unsure about the complexities of obtaining a GSA Schedule, working with experts like Price Reporter can streamline the process. With over 17 years of experience and 1,000+ GSA contracts awarded, Price Reporter offers consultation services to help businesses secure and manage their GSA contracts.