Contractors Who Don’t Plug In May Be Shut Out

Not long ago, businesses hoping to sell to the slow-moving federal government searched through hefty reports for contracts that suited their strengths, then submitted bids by mail or in person.

If they were awarded a job, they wrestled with paper purchase orders and invoices, and often had to wait months for payment.

All that is changing as the electronic commerce revolution--already raging in the private sector--sweeps through government.

For those hoping to contract with the federal government today, computer technology is no longer an advantage, it’s a necessity. So dramatic are the changes in the way government contracting works that small businesses resistant to the new technologies could soon find themselves shut out, particularly if they miss a looming deadline to register on a centralized database.

“What’s at stake for those that don’t get on the bandwagon is they won’t get any business,” said Jeanie Barnett, editor in chief of Minority Business Entrepreneur magazine, which caters to minority- and women-owned businesses that contract with major corporations or government agencies.

“If you’re starting a business and targeting that as your market, you had better have done your homework already and realized that this is a requirement,” Barnett said.

Many are finding themselves unprepared. All businesses that contract with the Department of Defense--by far the federal government’s biggest buyer--were supposed to register by March 31 in a centralized computer database, but were granted an 11th-hour extension to May 31, said Mary Dean, small-business specialist with the Defense Contract Management Command in Van Nuys, which administers Pentagon contracts. All federal agencies will eventually join the database, she said.

“If they don’t get centrally registered, they won’t get paid and they won’t get a contract,” Dean said. “It’s critical.”

Electronic data interchange, or EDI technology, is also becoming increasingly essential to small-business owners who want to make it in the private or public sector.

Already, much business-to-business commerce is conducted through EDI, which allows for the protected exchange of information like purchase orders and invoices. Software that translates EDI is increasingly available at prices even small businesses can afford. Some government agencies, however, including the Defense Department, still require users to get EDI software through specially certified VANS--or value-added networks--which can cost anywhere from $600 to $20,000 a year, depending on the complexity of the transactions.

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Even the way businesses get paid--by big companies and government alike--is changing. By January, all federal agencies will pay vendors electronically--transactions that not all banks can handle. Businesses that haven’t arranged to receive payment through so-called electronic funds transfer will be out of luck.

The changes have been in the works since 1994, when Congress passed the Federal Acquisition Streamlining Act, requiring the behemoth federal bureaucracy to move from a paper-based system to an electronic one.

But changing technology has outpaced the federal act. Some agencies--including the National Aeronautics and Space Administration--have moved away from EDI and now publicize most requests for proposals on the Internet, less costly to bidders. Once a job is awarded, vendors must still use EDI for nuts-and-bolts transactions such as purchasing and invoicing.

More than a dozen federal agencies are going beyond the requirements of the law in other ways, converting aging computer purchasing systems to Web-based electronic malls. Small businesses hoping for government business can add their electronic catalogs to these sites.

“Electronic malls can be very profitable,” said Kathleen Allen, outreach consultant with the California Electronic Commerce Resource Center, funded by the Defense Department to educate small businesses about electronic commerce.

“A lot of government buyers now have the authority to shop on their own. They have that little Visa card just burning a hole [in their pocket] and they can surf the Web and shop without waiting for approval.”

The resource center holds free workshops for small businesses throughout the state, but has focused most of its efforts in Southern California, where aerospace, the military and small business share a strong presence, Allen said.

“We come across temporary agencies, janitorial supply businesses or hardware companies. . . . They have a computer but they don’t even know what speed modem they’re using,” she said. “When buyers from any of the [military] bases say, ‘What kind of setup do you have? Are you out there surfing the Web?’ they very often say, ‘No.’ ”

Thirst for information is great, particularly among minority-owned businesses, said Terrence Payne, marketing advisor for the federally funded South Los Angeles Minority Business Development Center in Inglewood, which also offers free classes on EDI and how to use it to win federal contracts.

“It hasn’t been a high priority within the minority communities for the simple reason that [computer] education has not been a high priority,” he said. “This will take minority businesses to a whole new level. It should open up an area where commerce will be administered on a more level playing field, due to the fact that you can’t place the face with the business.

“When [minority businesses] figure out the technology, it’s going to raise the consciousness of marketing in our community.”

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The emphasis on electronic commerce in government mirrors what big players in the private sector have been requiring for a few years.

“Everyone is moving to do stuff electronically. The Fortune 500 [companies] are all doing it and the government is emulating it,” said Nicholas Buscovich, manager of the state’s Electronic Commerce Resource Center.

For the last three years, Merilyn O’Brien has been using EDI technology to sell jewelry from her Gardena company, Pieces of Art Inc., to J.C. Penney Co.

“They require it,” O’Brien said. “You can’t do business with them without it.”

Though getting hooked up to EDI through a VAN can cost as much as $20,000, O’Brien has been able to reduce her cost by working through a service bureau, an intermediary linked through a VAN to Penney’s computer system.

The Penney computer reads bar codes on merchandise, adjusting inventory accordingly. When stock drops low, it sends an electronic order that O’Brien then fills, sending back a shipping notice and invoice electronically. Payment also is made through EDI, directly into the business bank account.

The federal government, along with the city of Los Angeles and other government agencies, is moving toward electronic commerce for the same reason private industry likes it: efficiency and the elimination of paperwork, Buscovich said.

The Defense Department is leading the pack with the requirement that all contractors register by May 31 with a database known as Central Contractor Registration.

The move to pay vendors electronically affects all federal agencies. Many banks can handle electronic funds transfers, but provide only one line of information with each transfer, which can be confusing for bookkeeping.

Another system, known as Corporate Trade Exchange, or CTX, provides ample information with the transfers but is available only through larger financial institutions, Buscovich said.

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To some small businesses, the transition is intimidating.

“It’s a big impediment,” said Jan Bennett, president of Opportunity Marketing Group, a Los Angeles consulting and referral service for government agencies and corporations seeking minority and women-owned contractors.

“I don’t know of too many businesses--other than technology companies--that are even interested. . . . We’re all going to have to go that way, but until they really show us that we’re going to get contracts by doing it, we don’t want to invest in it.”

Others, however, are less suspicious. Two years ago, Mike Gavarechi formed Silicon Electronics--a Costa Mesa company that manufactures custom-designed computer memory. Three weeks ago, he signed up for a trial period on EDI and already has submitted half a dozen bids for government contracts.

The EDI system sends Gavarechi only those contracts that are appropriate to his business, “so it makes it more convenient for us to just submit a bid electronically.”

Gavarechi can also peruse contract awards to assess his competition. And if he gets a contract, he’s counting on EDI to get paid faster.

“They can just wire the amount to our account instead of us waiting for 60 days and calling different agencies to get our money,” he said.

His next step: getting his company’s electronic catalog onto the government electronic malls.

Said Gavarechi: “I think the Internet is a very good source to promote your product to all these government agencies.”

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What You Need

Electronic commerce is increasingly essential for government contracting and doing business with big private firms. Here’s what you need:

Internet Access: A computer with a relatively fast modem, preferably 33,600 bits per second (33.6 Kbps) or faster. Businesses should also select an Internet service provider that will meet their speed requirements. Internet commerce is thriving in the private sector. In addition, more and more government agencies are doing their procurement via the Internet.

Electronic Data Interchange: If you’re selling to a federal agency or many large businesses, you need Electronic Data Interchange. Software suppliers are increasingly offering EDI-translation software, which can be used to do business with many private-sector companies and some government agencies.

To do business with the Defense Department, however, you still must obtain EDI through a VAN, or value-added network, that is “FACNET certified” (FACNET is the Defense Department’s procurement system). A VAN is a commercial carrier that acts as an electronic mailbox, where trading partners can retrieve and deposit information. There are hundreds of VANS, but only about two dozen are FACNET certified.

Obtaining EDI through a VAN can cost as little as $600 a year, and as much as $20,000 a year, depending on the complexity of the transactions. Software gets more elaborate, and more costly, depending on how many trading partners you have.

Electronic Payment: Make sure your bank can handle electronic funds transfer through a system called Corporate Trade Exchange. By January, all federal payments will be made through EFT, and many private sector companies also are going this way.

Most banks can accept electronic funds transfers through a system known as Cash Concentration Disbursement Plan, which provides only one line of data with each transfer. Only 100 of the largest financial institutions are currently CTX-capable, but a banking industry association has required all members to adopt the system by September.

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Source: Electronic Commerce Resource Center

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Contracting With the Government

* For help understanding electronic commerce and referrals to free classes near you, contact:

California Electronic Commerce Resource Center, (818) 565-5673

For technical assistance, call (888) OAK-ECRC

Or check the Web site at https://www.oakland.ecrc.org

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* Local organizations offering free classes on electronic commerce and government contracting:

Defense Contract Management Command, Van Nuys, (818) 756-4444, ext. 225.

Defense Contract Management Command, Santa Ana, (714) 836-2913, ext. 661.

South Los Angeles (Inglewood) Minority Business Development Center, (310) 419-8760.

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* To register with the Department of Defense:

All businesses interested in contracting with the agency must register with the Defense Department’s central contractor registration by May 31.

Call the Department of Defense Joint Electronic Commerce Program Office, (888) 227-2423.

Or download the application from https://ccr.edi.disa.mil

Online training is available at https://www.acq.osd.mil/ec

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* Government contracting information on the Internet:

PRO-Net, a one-stop Web site created by the U.S. Small Business Administration, is open to government contractors and small businesses seeking federal, state and private contracts: https://pro-net.sba.gov

The National Aeronautics and Space Administration posts all competitive solicitations over $25,000 on its Acquisition Internet Service site:https://procurement.nasa.gov/

The General Services Agency site contains links to almost 200 federal government sites with procurement information: https://www-far.npr.gov/AcqOpp/AcqOpp.html

Los Angeles Minority Business Opportunity Committee site includes information on contract opportunities with public and private agencies in Los Angeles: https://mboc.cityofla.org/

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* Government electronic malls

The General Services Agency’s GSA Advantage is an online store with millions of items: https://www.fss.gsa.gov/

The Defense Logistics Agency’s electronic mall has a catalog of 4 million items (the DLA is the buying arm of the Department of Defense.): https://www.supply.dla.mil/