State and local consortia can bring opportunity but also risk

February 7

Plenty of technology vendors have wondered why state and local governments don’t band together to buy as a group. But it would be more complex than many realize.

Even in good times, everyone dreams of shared costs, and the federal government has routinely funded state consortia to develop solutions that might work across state lines. In periods of recession, when government buyers have their pockets turned inside out, this idea takes on even more urgency.

It’s difficult to be more than guardedly optimistic about the potential for these arrangements, but if vendors learn to weigh a few key factors, they can allocate business development attention accordingly.

Only two species of consortia exist. The first, the “ground up” variety, comes about when a group of buyers joins together to procure a solution as a unit. The second type, or “top down,” occurs when a higher level policy body or funding agency, such as the state legislature or the federal government, mandates or provides an incentive for a consortium-based solution.

Ground-up consortia are fragile and laborious. It can take years for those involved to iron out the political and financial arrangements before they even begin to develop joint requirements and issue a solicitation. The sales cycle for such an arrangement can be very slow.

Even worse, these arrangements are highly volatile. They generally rely on a very motivated sponsor — usually an official from one jurisdiction who takes on the onerous task of bringing everyone together. If that sponsor leaves or falls out of favor, the consortium has the potential to fall apart midstream, even if a product has already been acquired.

Top-down consortia are typically a more attractive option. Policy directives and funding handed down from above — generally with compliance deadlines — greatly expedite the period between formation and solicitation.

But the technical difficulties of determining the scope and delivering a group solution remain. Vendors know how difficult it can be to deliver a product in just one jurisdiction.

None of this is to say vendors should avoid consortium-based clients. But vendors should incorporate several considerations into their risk assessments:

Always assume that the consortium could fail as a result of its internal or external politics.

Vendors overestimate the degree to which the federal or a state government can force lower jurisdictions to do something. Unless unlimited funding and severe penalties for nonparticipation are in place, anyone can walk away at any time.

Have a fall-back plan. If a consortium-based clientele dissolves, what was once a single customer might become three to five separate customers, maybe more.

Do not allow the business relationship to be completely brokered through the consortium leadership. Make sure you have a deeper relationship with each member of the consortium that can survive the dissolution.

Vendors should not fear consortium-based buyers, but they must recognize that they will be powerless to control the ultimate success of the consortium. By understanding the type of consortium with which they are doing business and keeping some contingencies in mind, vendors can maximize their revenue opportunity, regardless of the circumstances.

Chris Dixon is senior manager of state and local industry analysis at Herndon-based Deltek, which analyzes the government contracting market and can be found at www.deltek.com.

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