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The “No Free Lunch” Rule of Subcontracting
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(Thanks for this story to Kathy Kastner, CEO, The Health Television System, Toronto, Ontario.)
“One of our early US government opportunities was with the US Food and Drug Administration Department of Health and Human Services (FDA HHS), for a marketing and awareness strategy for an HHS publication called “Patient Safety News,” and subsequent evaluation of the strategy’s effectiveness.
“My FDA contact said, ‘We know we want to do it, we just have to find the money.’ It turned out that the fastest and simplest route was as a subcontract, and he told me, ‘We (FDA) have an existing contract with a company called CODA. You’ll send them invoices, they will issue you the cheque.’
Kathy was excited. HealthTV had won the business, it was a done deal; the fine points of where the money was coming from and how the contracting worked were minor details that she didn’t need to worry about. Right? Wrong.
“Just before
the CODA person called to get the deliverables, my contact at the FDA called up
and told me, ‘Listen, I’m really sorry about this, but in getting this contract
off the ground, I forget that CODA...there’s some contractual arrangement with
CODA I didn’t take into account. It’s going to affect the overall price of the
contract, not by much’.
“In the end, it cost us over 27%, by value!
A $25,000 contract became an $18,000 contract. We were furious.”
Now what?
Kathy immediately decided that they weren’t going to offer the same package of services for less money, and began to negotiate.
“That percentage revenue change meant that we had to alter the terms of the contract. We gave them a choice of fewer sites to be surveyed, fewer questions, or a more limited report. They chose both fewer questions and a more limited report.”
The Health Television System’s clients now include the Department of Veteran’s Affairs as well as the Department of Health and Human Services, and their marketing to the US federal government continues to expand.
Lesson One: Expect that access may cost you margin. Price and negotiate accordingly.
Make sure your pricing strategy considers the cost of access to your customer if you don’t have a contract vehicle – even if the buyer directs a prime contractor with whom he or she is currently doing business to subcontract to you.
Lesson Two: there’s no free lunch.
Vendors must understand the buyer’s acquisition options, and, ideally, can suggest a contract vehicle that maximizes convenience for the buyer AND benefit for the contractor. HealthTV had a nasty surprise because they were unaware that the details of the acquisition strategy can have a big effect on your bottom line, whether you’re a prime contractor or a subcontractor.
Judy Bradt, Principal & CEO of Summit Insight LLC of Alexandria VA, has been quoted by Entrepreneur Magazine, Fortune Small Business and FrontLine Security
Company description:
Judy Bradt provides business strategies, connections and advice on US government contracts, through consulting services, presentations and reports.
Company Contact Information:
Judy Bradt, Principal & CEO
Summit Insight LLC
Alexandria, VA
Tel: 703.627.1074
Blog: www.sell2usgov.com
