Small Companies Win Big

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Small Companies Win Big

By Dennis McCafferty
and Neil Munro
Staff Writers

Chalk up a big win for small business, which is set to slay a 1994 law that allows the federal government to broker information technology sales directly to state and local governments.

Despite a well-financed lobbying campaign by information technology heavyweights, committees in the House and Senate have voted to end the "cooperative purchasing'' law, which allows state and local governments to buy products from the online catalogs maintained by the General Services Administration, bypassing small companies not wired into the Washington procurement scene.

The winning coalition of small companies includes pharmaceutical companies, tractor dealers, fire engine manufacturers and computer shops.

"This would have given very large companies a lock on all state and local business," said Kenton Pattie, a lobbyist based in Annandale, Va., who lobbied members of Congress on behalf of the National Emergency Equipment Dealers Association, which formed a broad 200-company coalition against cooperative purchasing.

The large companies lost because "they were outnumbered by thousands of small businesses [in all sectors of the economy] that protested to Congress," Pattie said.

However, some analysts and industry officials predict that local companies will lose out anyway as state and local governments increasingly rely on large companies for systems integration and outsourcing programs to cut costs and ease management burdens.

Large states like California, Texas, Florida and Ohio have already landed agreements with vendors to provide GSA-level pricing. More than half of the states operated under mandates that would significantly limit GSA schedule purchases, according to the U.S. General Accounting Office.

Following an earlier vote by the Senate Appropriations Committee, members of the House Appropriations Committee voted July 31 to kill cooperative purchasing. If, as seems likely, the full House and Senate approve the measure later this fall and President Bill Clinton also approves the measure, it would wipe out the cooperative purchasing law. Implementation of the law has been held up by stop-gap measures in Congress since its little-noticed passage in 1994.

Federal officials and elected leaders remain doubtful that cooperative purchasing can survive, and it's also unlikely that cooperative purchasing can be revived next year, GSA officials said.

"There's some indication that some [federal officials] are interested in trying to salvage it," said Ida Ustad, deputy associate administrator for acquisition policy at the GSA. "Whether they have much of a chance of succeeding becomes more difficult the further down the road we get.''

Large information technology companies supported the proposal, and although no formal study was completed, International Data Corp., the Framingham, Mass.-based research firm, estimates that cooperative purchasing could have eventually provided $1 billion in information technology sales for companies on the GSA's schedules within the next several years.

"In our world, it kills the whole idea of best value, and that's what competition is about,'' said Bob Laclede, national sales manager for Reston, Va.-based Decision Support Systems Inc., which deals with more than 280 resellers who have computer products on GSA schedules. "Why can't you negotiate the best price? This is a step back to the old ways.''

The biggest names had the most to gain from such a vehicle, while smaller local companies not on the GSA schedules would have been squeezed out, critics said.

Much of the current state, city and county government spending goes to local businesses, said Pattie. Moreover, local businesses benefit from spending by many government-backed operations, including hospitals, libraries, schools and utility companies, who could buy off the GSA schedules if the law is not killed, Pattie said.

Those stakes explain why those businesses lobbied hard to ensure that their carefully cultivated vendor relationships would not get plowed under by some big-time sales arrangement conjured up in distrusted Washington.

But local governments and smaller states would have benefited, given their relative lack of access to volume-based purchase discounts, said Milford Sprecher, IDC's program director who tracks state and local government technology use.

"This is unfortunate,'' Sprecher said. "Some states were not interested in it. But certainly some would have used it and, especially, the local governments would have. To me, it's a very logical thing to do. It just makes good sense.''

Local companies lost the battle during a tense July 31 meeting where House members voted on the final draft of the bill appropriating funds to a variety of government agencies, including the Treasury Department.

Rep. James Moran, D-Va., sought approval for an amendment that would have ended the cooperative purchasing plan for all industries except the information technology industry. His amendment was rejected without a formal tally of votes, partly because of opposition from House Appropriations Committee Chairman Bill Livingston, R-La., and from Rep. Tom Delay, R-Texas, the Republican whip.

"We are looking at options. ... We are not going to let it drop," said James McIntyre, a spokesman for Moran.

One plan would be to seek another vote on the issue when the appropriations bill is debated by the full House of Representatives in September, he said. However, the overwhelming rejection of the amendment leaves little hope that it could win during a later vote, said congressional staff members. Also, the Senate has already voted to kill the cooperative purchasing plan.

The Beltway companies lost because "there are lot of people who feel very passionate about this at the local level," said Larry Gately, a vice president at Gately Communication Co. Inc., Hampton, Va. This commitment helped win state and local politicians, who helped persuade House lawmakers to vote against the cooperative purchasing plan, he said.

"We have absolutely gone after local representatives because we are the people that put them in office," Gately said. Moreover, local government officials oppose the cooperative purchasing measure because it allows distant companies to win local contracts, hurting local employers and tax receipts, he said.

Ultimately, in light of the widespread, commercial-like changes that sweeping federal procurement reform has prompted, the defeat of cooperative purchasing is a huge disappointment, industry leaders said.

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