Services fuel GSA boom
Business on the General Services Administration schedule has surged over the past year to about $4.5 billion, nearly doubling fiscal 1997 sales and more than tripling 1996 results.
According to GSA sales figures, which cover the fourth quarter of fiscal 1997 through the third quarter of fiscal 1998, Dell Computer Corp. exceeded $460 million in sales to remain the top GSA vendor, with Gateway Inc. a distant second at $214 million. Government Technology Services Inc. ranked third with $186 million in sales, although that does not include the reseller business acquired from BTG Inc.
Aside from Dell, the top vendors reported similar numbers for fiscal 1997, in which GSA schedule sales totaled $2.8 billion.
The balloon in sales, according to GSA, comes largely from sales by small businesses and from services business, which was added to the GSA schedule in late fiscal 1997; each brought in more than $1 billion during the year.
"This will be the first full fiscal year that we've had services on the schedule," said William Gormley, assistant commissioner at the Office of Acquisition in the Federal Supply Service, which operates the schedules. "I think that in the next three to four years, services will be at the same sales levels as products," he said.
Science Applications International Corp., one of the services vendors in the top 20 this year, has more than doubled its sales on the schedule, according to Anthony Fleury, program manager for GSA information technology schedules.
"It's been a phenomenal change in the federal government procurement environment," he said. In the past, SAIC did most of its business with the government through indefinite-delivery, indefinite-quantity contracts and sole-source contracts. But once the company got on the GSA schedule, it soon learned the schedule could be very lucrative very quickly, he said.
Litton/PRC Inc. also cracked the top 20 with $44 million in sales. The company could not be reached for comment.
Product manufacturers, such as IBM Corp. that sell products and services jointly also have capitalized on the change.
This complete offering is a large reason why IBM has done so well on the schedule, said Chris Stergiou, GSA program manager at IBM, which owns Lotus Development Corp. and Tivoli Systems Inc. "It is far easier for customers to do one-stop shopping than to go to several vendors," he said.
However, new rules on buying services on the schedule may depress the current high volume of business, according to Gormley and vendors.
"[High volume] may be in jeopardy," said Bob Dornan, senior vice president of Federal Sources Inc. "GSA, based on pressure from [the Office of Management and Budget], has added some new procedures to the ordering of services...and this process could have a significant negative impact on the sales of services off the schedule."
The new rules, which include requirements for stricter competition on the schedule and performance-based statements of work, Dornan said, "reimpose some adult supervision...and that's really going to slow it down."
But GSA sales also have seen a boost from the small-business community, Gormley said. Sales from small business jumped from $930 million last year to $1.3 billion this year, or about 30 percent of schedule sales. GSA had set a goal of 23 percent for the year.
Gormley attributed this growth to several factors, including the fact that for the first time, agencies have been able to take credit against their small-business goals for using small businesses not on the schedule. And the small businesses have seen the difference.
"We have found it to be an opportunity for us to increase our business," said David Steward, chief operating officer of World Wide Technology Inc. "We've seen a substantial increase in our business."
GSA has been encouraging the use of small businesses and has also encouraged small businesses to partner with larger businesses so that "small businesses will have an opportunity to participate on larger opportunities," he said. "The federal government has found a more entrepreneurial way of doing business."
Among the traditional top vendors on the schedule, Dell saw the largest jump in business, from $270 million last year to $461 million this year.
"I think that Dell's direct model is proving to be the kind of relationship the government wants," said Bob McFarland, vice president and general manager of Dell's Federal Sales and Marketing Division.
But the direct-sales model is not Dell's only strong point, or else other direct vendors, such as Gateway and Micron Electronics Inc., would be right up there with the same numbers, McFarland said. Dell does a lot more that brings it out on top.
"I attribute it to a direct relationship and interaction with the customers," he said. "We've got an awful lot of people who are assigned to work the government day in and day out, [over the phone and in the field]. We bring a lot of resources to bear to deal with the government issue."
That personal relationship and attention to customers really can make a $200 million difference, analysts said.
"I think, organizationally, Dell is one of the friendliest companies to deal with, and that rolls over," said Mark Amtower, president of Amtower & Co., Ashton, Md. "Institutionally, it's no surprise" that Dell has done as well as it has, he said.
Across the market, vendors report that agency buying patterns have begun to shift. The fourth-quarter spending spree still happens, vendors said, but agencies have started to spread out their spending.
"The spikes are still present, but they are not as radical as they have been in the past," said Greg Branic, director of CPU marketing at GTSI. Even in September, when budgets must be spent or lost, more agencies are looking carefully at the technology they want to buy instead of just purchasing the first thing that comes up, he said. "There doesn't seem to be in some agencies the impetus to spend their money by Sept. 30 this year."
"My impression is that it has spread out a little more," said Tom Simmons, manager of Compaq Computer Corp.'s federal sales. "The government has done a better job planning their expenditures and spreading them out."