002 What is the 80/20 Rule in government contracts?

Listen and Learn… One often-overlooked difference between the federal market and the commercial market is that federal market sales are won more by process than by relationships. Contracting Officers (COs) cannot buy based on relationships alone. Relationships matter (see FAR Parts 3 and 9), but relationships are usually not the most important factor. The relationship is 20% of the decision. The other 80% is the competitive process.

Transcript

Paul Schauer: 0:14

Hello and welcome to The Contracting Officer Podcast. This is the podcast for people who want to learn about the government market from the contracting officer's perspective. Today, Kevin and I w ill t alk about the differences between how the government buys and how you b uy i n your personal life or for your company. The end goal is the same and some of the steps, are the same but the reasons why are often different. We'll discuss the 80 2 0 r ule and how it applies to the buying process regarding your relationships with the sellers and the processes you use to buy. But the 80 and the 20 actually get flipped w hen the government is the buyer. Finally, we'll cover why the government is required to openly compete their requirements. With that, let's get started. Okay, Kevin, let's talk about the difference between how the government buys and how you buy.

Kevin Jans: 0:59

Okay. In simple terms, the government buys in some of the same ways we do, but the big differences, they required to compete. Lots of things. They're required to set aside certain amounts of contracts for companies such as small businesses. They required to recompete contracts they've already awarded and if you think how different this is to how we buy services. When I buy a car or I buy a customer relationship management software or I buy a higher end accounting firm for my, for my company, all of those things, there's no strict set of rules. I can go down and talk to my friend who happens to own the dealership and just buy the car on the spot without checking any prices or any other relationships. Or I can go hire a CRM system based on how cool their website is. It's that simple.

Paul Schauer: 1:42

So you don't have to buy your car from a small business, a dealer this time just be cut because you bought from the largest dealer in the city last time.

Kevin Jans: 1:51

Good question because I actually don't have to like a contracting officer has to go out and determine can a small business. Even do this? Can a certain group of companies who may not even be in my local area do this work. And how different is that than what you and I do when we buy everything from our computer to we don't compare apples require them. I happen to have a Mac, right? So you compare what I needed and I decided, you know what, I like Mac software better technically speaking, it does a lot of the same things as a PC, but I just happen to like it better. And you don't shop on price with a Mac because they set their prices. It's a very different,

Paul Schauer: 2:27

So the end goal is ultimately the same. But how you get to the end goal might have to be different if you're a government contracting officer?

Kevin Jans: 2:35

Correct. The the end goal is to acquire goods and services at a combination of the best price, best service, and the best solution as it may be, which is a technical solution. So depending on what you're buying, it could be, the process is going to be different. But the reality is whether or not you have to compete it. Yes is more often than not the answer. And then if you don't, there's a specific set of rules you have to go through. So the end goal is to get a great product or service and to support your user. So if you're a buyer for a large company, who was not a government contractor, your process to buy software is going to be very different. Things like, here's one. As a contracting officer, you're only allowed to take, last time I checked, it's a$25 value gift from a company who may actually sell you something at some point in the future. Right? We'll compare that to the commercial market where wining and dining, and maybe I'm over simplifying, but spending time networking with, with potential customers. It's a completely different environment. There are no rules, there's no, no said no. There are a few rules. There are a lot fewer rules about how that relationship works. So the reality is the end game is the same is you want to get a a great product and great service, but to get there it's a different processes, different mindset. You have things like the competition and Contracting Act, it says you have to compete everything unless for a certain set of circumstances which then you have to document.

Paul Schauer: 4:00

So you're talking about non government contracting companies of course, right. If if I work for a government contractor, I'm also not allowed to except large gifts in order to uh, to influence the procurement process from my sub contractors or vendors. Correct?

Kevin Jans: 4:19

That's correct. And that that's another difference is that even as a subcontractor in the government market, the rules are going to expand and flow down to you like the, if the term flow down clause. That's kind of a lot of things we're talking about here. What I'm referring to is the almost the hyperbole of the two ends of the spectrum is you have a completely commercial company and a completely government contractor your worlds are different and you can step in both worlds, but understand that the rules in each world is very, very different.

Paul Schauer: 4:48

Okay. Let's talk about the parts of the worlds that is same. I understand some of the steps are the same for how you buy for your own company and how the government ends up buying something. So let's walk through some of the things that are actually the same in the process.

Kevin Jans: 5:03

The biggest one is you need to have a requirement. What do you actually need? What are you buying? So I'll, I'll use the example of the CRM system again. If the government is looking to buy a equivalent of a CRM system, say sharepoint, they need a sharepoint system to manage data, how much data do they have? What does it have to interface with? How many users are going to be on the system? What is the expected cost for it? What is the budget for it? All those things that you and I when we go out and buy a CRM system to manage our relationships with our customers, we still need to do the same thing. What's your budget? What do you need sharepoint at one end of the spectrum or do you need a free version of sugar CRM at the other end and you need to decide what is that requirement. So that's somewhat, that is going to be the same, the level of detail on one hand, one could argue that the government is going to have a higher level of detail. I would argue that as as as a business owner, you want to have a good level of detail what your requirement is. Even if you're not a a government contracting officer, you need to really understand what you're trying to buy. So I would say that needs to be more the same. And the other part of it is understanding what is your competitive process? Are you going to get get three bids and just take the lowest one, which would be a lowest price, technically acceptable or are you going to get a technical and a past performance volume and also good price. And then compare the three. And for example, I'm actually in the process of hiring an editor for my book right now, and I went onto E-lance and I laid out my requirements. It's a 30,000 word book. It's, I need to have it done in approximately two weeks. It's about government contracts. It's called save your time, whether or not the government market is for you. Right? So you go through that and I laid out what I need from them. I need them to edit it, I need them to give me an understanding of the chapters need to be preordered, etc and have giving them as much detail as I could. What I got back, of course there was a range of prices. Some were three times as high as the other ones, but I also got explanations of how they're going to do it. That would be their technical approach and then have they ever done it before. In fact, one of my requirements was you have to have edited business books before. Well, that's past performance, so that process is the same. It exists everywhere in whether you're putting out something on E-lance or you're trying to figure out which guy you should hire to remodel your house, the write your requirement, figure out do you care and how much do you care about past performance and then how much weight are you going to put the technical approach, those steps are the same.

Paul Schauer: 7:28

Sure. So the process of of getting different quotes and surveying the market is Different between the government buying process and your own buying process, but you're doing the same thing. How you go about receiving those quotes, how you go about requesting those quotes might be different, but you're still, you're comparing different offerings that meet your requirements.

Kevin Jans: 7:52

Correct. And, and one of the other I consider it to be one of the similarities is that you come up with a competitive range. And the difference of course is in the government. You have to tell everybody how you're going to determine said competitive range. But the reality is that if you start out with 10 companies, you get 10 bids on, on going back to the editor, I have 10 different editors. I think it actually ended up with 24 if you can believe that. And then based on my criteria, I took some at the top off and some of the bottom off and now I'm in a competitive range of five companies. It's this or five, sorry, five people. Actually it's the same idea. It's just that the steps are a little bit different. I don't have to document it as much. I'm not required to write them a dear John Letter. I'm not required to give them as much specificity in the equivalent of the the section l and, m, which are there a evaluation criteria that, this is the kind of thing that I'm going to take you off of the list for.

Paul Schauer: 8:46

Okay. Let's talk about how you actually are going to pick which one of those uh, editors that that is going to work on your book. You wrote an blog post about the 80 20 rule and how it applies to the, the process of a government buying and how it's actually flipped between process in, in buying versus relationship and buying between what you would do buying on your own. And what you would do buying as a government contracting officer. Tell me about that.

Kevin Jans: 9:16

So the 80 20 rule came up with based on as a, as a business owner, 80% of the sales that our company gets as a service provider is based on relationships. People understand what we do, they understand, we support small businesses. They understand, we're passionate about helping companies navigate the market. Okay. That's how most commercial companies work. You're buying an apple. I bought my apple computer based on, I get their culture, I understand what they understand the, I understand why they do what they do. Understand how the, the, the style is very clean. And honestly, I know a lot of people who and who worked for have worked at apple understand what, what, uh, what the overall end game is. And it's to make a great product that does just enough.

Paul Schauer: 10:00

So you're actually operating somewhat on your personal feelings about the product?

Kevin Jans: 10:05

Exactly. And you use that for when you hire your accountant, that's a relationship. You're trusting them to do your taxes. You're trusting them to keep track of your, uh, potentially. I keep track of your personal finances, that's relationship based, the 20% is there still a process regardless of how strong their relationship is with an individual service provider, regardless of of how much you like the company, there is a point at which you're not going to pay five times as much for their support. You're not going to tolerate subpar service and service contracts in particular. We tend to stick with the company longer because of our relationship or we can't do that in a government market and government market. That relationship is only 20% whereas in our commercial providers it tends to be closer to 80% I'll flip that on his head. For the government market, the government market, you understand the needs of the, of the government customer. You understand, you've done some targeting, you know that this particular agency is the right, has the right needs for what you do. Let's say you're a a an operations and intelligence company and your, your staffing support specifically helps specific agencies that uh, do operations in Intel say special operations command for example. So you understand their culture, you understand what's important to them. You understand the difference between that culture as special operations command and what the VA does. I mean, they're very different goals, right? You understand what this program managers are looking for. That's the 20% however 80% whether or not you get work with them is through the process. It's do you understand how to put a proposal together? Do you understand how to respond to a section L&M? Do you understand that if your proposal i s late, you're out. It doesn't matter how, how good your relationship is.

Paul Schauer: 11:52

So you mean if I'm a government contracting officer or program manager. I just can't call up my friend who has a company that provides that service and say Hey Bob, we need you to come do some work for us.

Kevin Jans: 12:04

Correct. You can call them up. You can probably talk to them and you can give them a heads up on the fact that you want them to bid. There are some cases where that actually can happen through a justification and approval process for unique circumstances. But that's a podcast for another day. But in general terms, that is a completely different structure because the process, the 80% process, which goes through the market research. Here's another one. Let's say you understand what, what's the, going back to special operations command. You understand what Socom does. All those great things, but you're a, you're a women owned small business and they set aside the contract for a group of service, disabled, veteran owned small businesses. It doesn't matter how good your relationship is with that contracting officer, it doesn't matter how good you know their structure in an eligible bid, the process kick you out from the beginning. So if you didn't see that coming or if you weren't involved in helping to structure that, that um, set aside by helping with the market research process, etc you're out. Again, let's go back to the commercial market. You walk into this potential customer's office and sickle, come on. We've been friends for a long time. At least give me a chance to bid and more often than not, they're going to go, okay, contracting officer can't do that. If you come in as a, as either the wrong type of small business or as all large business and as a small business set aside, you are legally not able to swing at the ball. You don't even get to step up to bat.

Paul Schauer: 13:25

Yeah. So that's quite a difference from my own buying process where I can literally select any vendor or any company I want to do the job.

Kevin Jans: 13:33

Correct.

Paul Schauer: 13:34

So the 80 20 rule as applied to the government buying process. It tells me that despite the fact that I have relationships with different companies as if I'm the contracting officer, despite the fact that I know what they've done in the past, despite the fact that they might be providing other agencies fabulous service when they come in and submit a proposal, if they don't follow all the rules of the process to the t, I can't award with them. Even if they still, if I know they have the best price and the best solution and the best history of doing the job, if their proposals late, if they haven't covered everything I've asked for in the RFP or RFQ, I still can't award the contract to them.

Kevin Jans: 14:24

Yes, and here's, here's a great example of that. Um, had a, a contract for, for some equipment, we'll just leave it at that. And as a contracting officer and the company who had a much better solution, and this is a, a full and open, actually it's a small business set aside, but it was a, it was a, a best value source selection. So we were able to trade off between their technical past performance and price. And it had a significantly much better solution. Technically past performance was phenomenal. The customer really liked the user, really liked the product. We did a test, a physical evaluation of it and tested everything. They blew everybody else away, but their price was 50% higher. And during the competitive range, I told them, your s your price is significantly higher. So understanding the process and got them to so far, but the reality was I could not justify paying 50% more for a product because it, it was better, but it wasn't twice as good. So in the end, now the product we've got was was was good, it wasn't great. But then again it was well two thirds of the price. So think about how that plays out as a tax payer. You're thinking, yeah, I can't make that leap. So when you wonder about how, how important is the process? It's not a mountain. Just simple things like, oh, you're obviously, if you're late, you're late. But understanding the nuts and bolts of when you get a letter from a contracting officer that says your price is significantly higher. That's, that's a big red flag. It's not a shave 2% off your your price and keep going. It's a big deal. And those are the kinds of things in the process that people want you don't understand. And that's kind of one of the benefits of this podcast.

Paul Schauer: 15:57

Okay. You touched upon a couple, a bigger picture, government words, their best value competition, competitive range. We'll cover those in detail in later podcasts.

Kevin Jans: 16:07

Yes. But I think we'll have a lot of that going around as me as we build more of these.

Paul Schauer: 16:11

All right. So tell me about another difference between the processes. Say Say I've had the same people mow my lawn for the past five years and I love what they do. They show up on time, they do a great job, they don't mow it when it's raining outside. Can I just keep giving them a contract year after year, keep renewing their contract?

Kevin Jans: 16:31

Yeah. And that's a, that's a good way to say it is everything, every service provider, every product that we have and the government side, it's gotta be re competed unless you get official approval through a specific process to not. So for example, I mean the simple example would be the guy that mowsor guy or gal, mows your grass, but your accountant, the guy that comes to my house and it sprays for bugs. He's been doing it for 15 years. He comes once a year. I have no idea if I'm paying 10 bucks more to him than I should have somebody else. I haven't looked because I don't have to look cause it's just not worth my time. As a contracting officer, you gotta look every, at least every, a little as every year, but often about every five years. But think about how that plays out for you as a user. You had this great product going back to my product I was telling you about before. It is great product. Even getting it from the same vendor for the last five years. You like it, you've gotten used to it. But guess what? The contract is expiring and we have to recompete it. We have to rewrite the requirement and make adjustments to it depending on how things have changed and we have to recompete and you may end up with a completely different vendor that completely different product that makes that same solution. So think of it in terms of this stuff that you have in your house. Um, my printer and my printer keeps working. Okay, I'm going to keep it right. But if the service provider who comes out and fixes and does the adjustments to my printer to make sure that it works at the volume that I need, I'm going to hire a new guy every five years. It doesn't matter if I'm happy with that guy, I still have to compete it every five years.

Paul Schauer: 18:02

That sounds incredibly inefficient. That sounds like a great topic for another podcast as well. The reasons why the government does, uh, go about making you recompete every five years or more often than that.

Kevin Jans: 18:15

Correct. And I'll say that's a great topic for later. I'll give you one little tidbit then. Competition is supposed to be inefficient. And if you think about it's very efficient. You just give it to the same company over and over and over again, but if you want to be a government contractor, that system doesn't really serve you, does it? So that's a great topic for later.

Paul Schauer: 18:37

So let's sum up what we talked about today, the government commercial companies and even you yourself personally buy some of the exact same products we talked about. Some of the similarities and differences between how you buy and how the government buys the end goal is very similar. You're trying to get something that meets your requirements and gives you the best possible performance for your buck. Kevin also had talked about the 80 20 rule where when you buy for yourself, 80% is the relationship with the sellers and maybe 20 s percent is the process that you go through to buy it. When you're the government buyer, that's flipped and it's more 80% processing, 20% relationship. We hope the discussion today helped you understand a little bit more about why the government goes about doing what they're doing. If you have topics, suggestions, feel free to send us a note at paul@contractingofficerpodcast.com or kevin@contractingofficerpodcast.com or enter your comments directly into the site, contractingofficerpodcast.com thanks a lot. We'll see you soon.