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Will That Be VISA or MasterCard?

Especially for acquisitions totaling less than $2500, GSA SmartPay and Micropurchases can be a dynamic duo for Microbusiness and Small Business companies pursuing federal business.

Guy Timberlake

August 03, 2007

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Access to Information and Relationships will always be trump cards for success in Federal Contracting, but often overlooked is a basic understanding of the acquisition methods employed by government agencies and how your business can participate in those procurement actions. In this article, we’ll help build a base of knowledge regarding micropurchases and the GSA SmartPay program.

A major concern to many newcomers and even some experienced companies pursuing business opportunities with government agencies, is the risk factor of a lengthy payment cycle. Although there are cases where vendor payments are delayed, there is a substantial amount of business to be done where remittance occurs in as little as 48 hours of the payment request.

Welcome to the GSA SmartPay Program

In a March 2004 report by the General Accounting Office (now the Government Accountability Office as of July 2004) the opening states, “The introduction of government purchase cards fundamentally changed the way agencies make small, routine purchases of goods and services. The vast majority of purchase card transactions are micropurchases, purchases in amounts not greater than $2,500. Purchase card use has increased significantly over the past decade—from less than $1 billion in fiscal year 1994 to more than $16 billion in fiscal year 2003.”

Statements like this are everywhere in the industry, as well as other supporting tidbits to whet your appetite, as it should. In 1997, while in the early days of owning my government reseller business, most of my customers either had government purchase cards or had access to someone in their group that could pay for the orders they placed. In its first five months, I processed more than $400k in orders with the Navy, Air Force, Marine Corps, GSA and other agencies around the country. It was easy, for them and for me. Many of the orders were micropurchases and all but one was paid by government purchase card. That “paper” order was valued at just under $100k and was paid within fifteen days of submitting the invoice. During those first few months my average time to receive payment from the government was NET 2.2 Days. Not too shabby, right? Did also I mention that I already had established relationships in place and a pretty good working knowledge of the system? I’m not saying it can’t happen like that for you, but there is some preparation that needs to happen first.

Launched in 1989, the government purchase card program was designed to expedite the acquisition of supplies and services, streamline payment procedures and to reduce administrative costs associated with traditional paper-based payment methods. The General Services Administration consolidated the government purchase, fleet and travel charge card programs into the SmartPay Program in 1998. Today, there are more than 395,000 cards issued to federal employees purchasing more than $24B in goods and services through the program.

These opportunities exist and are available to you if you’re willing to engage in some basic market research. It’s important to understand whom you need to market to, but it’s just as important to understand what they buy and how your product or service offering fulfills a need or solves a problem for them. A great resource for learning the basics is a book written by Mark Amtower called Government Marketing Best Practices (www.governmentmarketingbestpractices.com).Here are some historical numbers; the Federal Procurement Data System (www.fpds.gov) reports the Department of Health and Human Services (DHHS) using the government purchase card to pay for over 29,000 procurement actions totaling more than $7.8B during FY2004. Of those purchases, the National Institutes of Health (NIH) alone did more than 12,000 transactions valued at more than $4B. On the other side of the program is the benefit realized by the government. GSA reported over 26.5 million purchase transactions in FY2004 with an estimated administrative savings of $53.77 per transaction over traditional paper-based purchasing. The estimated annual administrative savings with the card totaled over $1.4 billion.

Here are some current numbers; according to the GSA FY2006 Purchase Card Sales Transactions and Cardholder Data report, federal agencies have already procured more than $5B in goods and services since October 2005.

So, what does it take to become a business that accepts the GSA SmartPay Purchase Card?

Find a company or financial institution that provides for Level 3 processing and specifically has a program for the GSA SmartPay program and get started.

About Micropurchases

I don’t currently have the data available to articulate how much government spending is done at the micropurchase level annually, but it is substantial. Not all micropurchases will be readily available to you, however, many of them are purchased from the GSA Federal Supply Schedule, agency-specific Blanket Purchase Agreements, current Government-Wide Acquisition Contract vehicles and other sources based on the policies of the individual agencies. This is part of the research I referred to earlier. You’ll need to position yourself in a way that allows you to participate in the different procurement methods used by the government based on your goals and objectives and how those methods play into achieving your goals.

Micropurchase means an acquisition of supplies or services in which the aggregate amount does not exceed $2,500 ($7,500 for the Department of Homeland Security). Another purchasing method you’ll want to be aware of is the simplified acquisition threshold, which is for purchases that do not exceed $100,000, but that’s for another article.

Now that I’ve given you some of the background, here’s some icing for your cake. The Federal Acquisition Regulation (FAR) has designated the government purchase card as the preferred method of making micropurchases. In doing this, the government has shifted authority for small purchases from procurement offices to individual cardholders allowing federal agencies to dramatically improve their ability to acquire items needed for day-to-day operations quickly and easily and reduce associated administrative costs.

For many agencies, micropurchases represent more than half of their annual purchase card spending. Although the FAR does not require agencies to set-aside micropurchases for small businesses, they often represent low-risk opportunities for agencies to diversify their vendor base. This doesn’t mean that the government is handing out micropurchase orders to whomever comes along, but if you consider the risk associated with a prospective or newer customer awarding a micropurchase requirement to you versus a larger one, it’s more likely that you’ll have a better shot of getting your “first opportunity” in the form of a micropurchase. This won’t be the case for companies pursuing program business, but then if you understand program business, you likely have a reasonable understanding of the environment in which you operate.

Finding the Opportunity

As is the case in every other aspect of doing business with the government, there are tricks of the trade and nuances of the industry that you need to learn. Participating in relevant industry groups and associations and educational seminars can facilitate some of that learning while the rest is acquired experience. Market intelligence is plentiful in this business; you just have to be able to extrapolate what is relevant to you and what is not.

Related information about procedures, contacts and statistics is available from resources such as the GSA website, the Federal Procurement Data System and the other government agency websites. Procurement Technical Assistance Centers (PTAC) and Small Business Development Centers (SBDC) are additional information sources.

The ASBC offers an ongoing, free source of related information called Micro-Mondaysä, a forum for companies new to doing business with the Federal Government as well as those already involved. It’s designed to help them learn how to capture business opportunities in the government Micropurchase, Simplified Acquisition and SmartPay programs.

About The American Small Business Coalition
   
The American Small Business Coalition facilitates relationship development and information access for small companies doing business in the government sector. Through the unique and innovative Business-Select Membership program, companies receive industry-specific advisory and technical support as they pursue business opportunities wth government agencies and other government contractors. Agency officials can participate with The ASBC for outreach activities and to identify industry partners in support of mission requirements. The ASBC Community consists of small, medium, and large companies located around the United States and the globe, and U.S. Government agencies at the local, state and federal levels.

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