6 Common Contract Mistakes
Vendors who wish to successfully take advantage of term contracts need to avoid several common errors. Selling to the government via renewable, recurring term contracts is a proven approach for development of a stable, long-term revenue stream. However, developing the best strategy for selecting and competing for term contracts is critical to process success. At times, the world of term contracts seems like a paradox.
On the one hand, vendors face a labyrinth of regulations along with potential contacts who may never respond to voice messages or emails. On the other, term contracts may seem like vendor heaven with the promise of a stable profit source in an unstable economy. Done right, term contracts can provide a long-term revenue stream. Done wrong, they can cost extensive amounts and plenty of frustration.
Companies considering term contracts should begin by understanding exactly what they are, what they aren't and how to avoid mistakes when evaluating opportunities. Term contracts are a type of procurement contract awarded to one or more vendors for a specified period of time. They can be awarded fixed price or fixed price plus expenses.
Time is generally the defining boundary of the contract, often fostering an on-call or continuous service until contracted time is completed. On-call contracts are preferred by an agency when a service need is predicted in the future but a quantity of service, exact time of service, or even type of specialty service isn’t initially specified.
Government agencies are increasing their use of term contracts to improve the efficiency and of purchasing to reduce costs, and to establish secure expenditures. However, vendors who rush to take advantage of this opportunity may make these common mistakes if they do not fully understand the intricacies associated with term contracts:
1. Failure to develop multiple approaches and strategies – Term contracts vary in their restrictions, price sensitivity and profitability. If a vendor focuses on only one approach, it can lower their probability of winning. Specifically, vendors may need to evaluate how successful vendors have communicated with this agency? How receptive has this agency been to our marketing, and our product/service? Do we need to re-evaluate our message or our medium?
2. Failure to conduct local market research – Without local market research, a vendor or contractor will not be well positioned with the agency issuing to bid for a term contract. Understanding a local agency’s preferences, regulations and recent purchasing behavior is crucial. Vendors who can demonstrate they are helping contribute to the local economy where the contract is being awarded will improve their odds of winning.
3. Failure to conduct research on the specific agency awarding the contract – Each agency has its own unique requirements for term contracts. Some may focus solely on the ability to deliver over the long term while others may look only at price or at the ability to partner with other agency contractors. Without agency research, vendors limit their ability to address underlying needs that may not be included in the request for proposal.
4. Failure to conduct a review of the competition – Lacking a competitive analysis is like shooting in the dark without a night scope. Before a term contract can be awarded, it is important for the vendor to know the pricing, delivery requirements, any special regulation under which the incumbent won the initial award, and whether the competitor has the potential to retain the contract when it is up for renewal.
5. Failure to create unique selling propositions beyond price – While price can determine whether a vendor wins a contract, it is not the only criterion. A deep understanding of the needs of the agency, superior credentials, value-added services, and rapport and trust can outweigh price and contribute to a higher probability of winning the award.
6. Failure to admit that a contract opportunity may not be a good fit – Not finding the right contract opportunity that fits your company can put the business at risk. If contract delivery costs the company more that it makes, the end result is a loss and a negative impact on profitability.
Tips and Suggestions
Government agencies are always looking for business partners with whom they can establish long-term relationships. A strategy that avoids the pitfalls and mistakes that hamper agency-business partnerships takes planning. Organizations interested in term contracts need a go-to-market strategy for contracts they pursue. Here are some vital tips:
- Establish and nurture long-term relationships – It’s key to establish communications with someone in the agency as soon as possible. This contact can help clarify requirements, expectations and regulations and can explain the inevitable nuances of the project.
- Put time on your side – The likelihood of winning a bid and seeing it through successfully increases in proportion to the amount of time a vendor spends researching.
- Consider pricing variables – Evaluating agency pricing expectations, the potential demand for a product or service and the projected risks to the business are critical elements for determining if a contract opportunity is a right fit.
- Understand the competition – It is just as important to evaluate the competition as it is to gauge your own profit potential in a contract. On the other hand, if the competition is underbidding just to win a contract, it’s not advisable to bid lower.
- Pick your battles – An incumbent who has a profitable arrangement with an agency can be nearly impossible to unseat. However, unseating an incumbent can also be very simple if the competitor has acted unethically, been difficult to work with or has failed to provide the deliverables.
- Look close to home – Evaluate contracts at the state and local levels. They’ll be your best opportunities to work directly with agencies, avoid many of the above listed risks and get in early once a new or renewal opportunity has been identified.
Finding the right term contract can include extensive time and resources that many companies do not have. If lack of resources or know-how is holding your company back, consider working with a business partner who has the technology to access research about past awards, competitive information on incumbents, agency buying behavior, pricing and renewal activity. Such relationships are invaluable for implementing a winning term-contract strategy.