Jump to content
The Wifcon Forums and Blogs

Recommended Posts

Situation: Simplified Acquisition (approx. $100k); a single manufacturer, a large business, makes an end product; that manufacturer has numerous authorized distributors (both large and small businesses) but also has its own branch that specializes in government sales; the government requires the specific product (usually because of compatibility with previously purchased equipment)

At my old agency, we would award sole-source directly to the manufacturer to avoid doubling overhead and profit. The reasoning was that there was really only one source and a direct path to it was more favorable than dealing with a middleman.

I am seeing some resistance to this strategy at my new office so I am curious how others handle the situation.

Link to post
Share on other sites

Jwomack is right. Some manufacturers won't compete with thier resellers. They just tell you that they can give a high quote if you need a third. Some try to compete but thier reseller accepts such a small mark up that they win. You never know.

Link to post
Share on other sites

From a contracting standpoint, it is usually preferable to award directly to the manufacturer of the product if the resellers are simply adding a pass-through cost and not adding value. Let me explain why from a real-life scenario:

* You award a brand-name only contract to ABC, a small business reseller of ACME.

* XYZ, ACME’s only manufacturing subcontractor, just went out of business.

* ACME tells ABC that it cannot deliver products on your contract by the time they promised.

* ABC tells Government they cannot get the products you wanted.

At this point, you are completely at the mercy of ACME. Since you do not have a contract with ACME, you cannot threaten them with contract termination. Their liability is limited because you have no privity of contract. You could try to get consideration from ABC, but their margins are razor-thin. Resellers normally agree to very one-side reseller contracts in favor of the manufacturer that limit liability. You could terminate ABC, but it is really not their fault, and you still would not have the products. Overall, you end up with a lose-lose situation with little leverage.

If you had awarded the contract to ACME you are in a much better negotiating position. You could negotiate a settlement with ACME in lieu of other contractual remedies. ACME would know that you could terminate them for cause/default, and would be more willing to provide consideration.

The only advantage I can see to competing amongst resellers is if the resellers are small business for a low-risk product or service.

Link to post
Share on other sites

...At my old agency, we would award sole-source directly to the manufacturer to avoid doubling overhead and profit. The reasoning was that there was really only one source and a direct path to it was more favorable than dealing with a middleman.

I am seeing some resistance to this strategy at my new office so I am curious how others handle the situation.

Along the line of Don's questioning, several questions came to my (small) mind:

Q1: How did you know that you are avoiding "doubling (of) overhead and profit" in this case?

Q2: Did you try an open competition and notice a price difference?

From your short description and the fact that you asked for others' general approaches, it appears tghat you are making assumptions rather than investigating the market conditions. You didn't explain anything about the manufacturer's own branch that specializes in government sales.

Q3: What is the purpose and pricing practice of the Gov't Sales Branch and do they compete against their resellers?

Link to post
Share on other sites
Guest
This topic is now closed to further replies.
×
×
  • Create New...