In the two years since it won its contract with the General Services Administration to provide personal computers to the federal government through a chain of specially approved stores, Math Box Inc. has become the nation's most profitable publicly owned computer retailer.
The lesson of Math Box's success already appears to have triggered a rush for its lucrative government contract when it comes up for renewal in June. "Over 220 firms have asked the government for copies of the bid," said Robert J. Guerra, MBI's senior vice president for government relations. "We expect about 30 to 35 strong competitors."
The contract, which was awarded to Rockville-based MBI in 1983 in a bidding competition with such retail giants as Xerox Corp., ComputerLand and Radio Shack, called for the firm to set up retail centers where federal agencies can shop for computer equipment and software. Business generated by those centers -- Office Technology Plus stores -- climbed from zero to $31 million in two years and now accounts for almost one third of MBI's $100 million-a-year business.
"We were a very small, $6 million company in Rockville," said Avner Parnes, the company's chairman and chief executive officer. "We read about this government bid and said 'My god, this is a great opportunity for a young company to go ahead in business.' "
"This was a very important stage in the growth of our company," he added.
For the first nine months ended Sept. 31, MBI's net income, $2.6 million, was 2.9 percent of its $89.5 million in sales, making it the most profitable of the top eight publicly held computer retailers.
MBI's commercial business also has soared from $6 million in sales for fiscal year 1983 to an expected $70 million for this fiscal year. Since 1983, the company has added 13 new commercial outlets in Washington, Philadelphia and Boston.
Parnes attributes the company's commercial growth, while other computer retailers have suffered, to MBI's management expertise, regional rather than national concentration and a move out of the personal home computer market.
"We recognized early that the home market was volatile," said Parnes. "While our competitors were trying to be everything for everybody, we decided to concentrate on the business community, which was a very large niche and a fast-growing one."
When former GSA administrator Gerald P. Carmen announced the new contract two years ago, he noted that it took 20 years to bring 18,000 large, general-purpose computers into the government. "Obviously, we cannot afford the luxury of such long lead time now for the smaller, less expensive personal computers which will be acquired in large numbers by the government," he said.
Federal agencies say that the advantage of the OTP stores is that purchases can be made there more quickly and without the red tape involved in ordering from other contractors, according to congressional investigators.
But last month the General Accounting Office issued a report in which it said the government was paying an average of 12.8 percent more for computer equipment from the OTP stores than it was paying from other government suppliers.
The report, requested by Rep. Parren J. Mitchell (D-Md.), chairman of the House Committee on Small Business, said that the government would have saved $379,000 in May and June 1985, the two months that were examined, if the computer purchases had been made from other government contractors rather than the OTP stores.
The GAO reported that in one case, involving Multimate software, there was a 76 percent difference -- about $232 -- between OTP's price and the price for identical software from other government contractors.
MBI executives said last week that GAO's calculations in that case were "absolutely incorrect" because the agency unknowingly compared four packages of different OTP software as a single bundle of Multimate with one Multimate software package from other federal contractors.
MBI also argues that the reason there is a price difference between its products and those of other contractors is because the equipment can be purchased immediately and the Math Box offers more service and instruction on how to use its products.
"You can't talk about price as a stand-alone," said Guerra of MBI. "All of the services we offer -- systems consulting support before and after the sale, testing, integrating and servicing the product -- cost a lot of money. You're not going to be able to give that kind of service and be a price-only competitor."
The GAO report did note that using OTP stores required less time and effort even for buyers who knew what they wanted. If buyers need information on a particular product, they can refer to a single catalogue that lists and describes all OTP products, according to the GAO.
"In contrast, to obtain information about the terms and conditions of individual schedule contracts, buyers must contact a representative from each contractor," the GAO report said.
Nevertheless, Mitchell said Friday that he was "certain that there are many other companies that would give that same kind of service for a lesser price." He said, however, that he did "not know of any of these firms off-hand."
Mitchell has lashed out at federal agencies not only for paying higher prices at MBI, but also for not giving their business to smaller companies.
"Evidence suggests that agencies are routinely purchasing items from the store that are available at less expense from other government contractors , many of whom are small businesses," Mitchell said in a press release.
MBI executives argue, however, that their company is a small business and that if Math Box weren't getting this federal business through the contract, it would go to large companies.
"We're troubled by anybody's impression that we're taking business away from small business because we are a small business," said Armen A. Manoogian, president of MBI. "We meet all the Small Business Administration definitions of a small business now even though we're getting larger and larger. We have less than 500 employes."
Indeed, the GAO report specifically says that the contract was awarded by the General Services Administration to "a small business in Rockville." The report also said that "it is unclear whether OTP's existence has adversely affected small businesses that were other contractors for GSA ."
The GAO report said there were indications that five federal agencies, which it did not name, were not adhering to GSA rules concerning the documentation of procurement decisions. In addition, the investigative arm of Congress found 13 instances in which agencies possibly circumvented OTP's $100,000 maximum order limitation for procurement actions by splitting their orders. The GAO plans to further investigate these potential violations, which involved $1.8 million over a 14-month period.
"Even if there were violations, which we don't think necessarily there are, it's a very minor number," said Manoogian.
Some OTP critics take issue with the GSA contract altogether because they say it's anticompetitive.
"It's unfair to hundreds of other firms that sell in other ways to pick one and make it a privileged firm," said Terry Miller, president of Government Sales Consulting, an Annandale consulting firm.
Miller criticized the "favored position" that OTP holds because agencies may purchase up to $100,000 at the OTP stores without advertising the purchase in the Commerce Business Daily, a publication that allows companies to compete for government purchases.