How the Government Market is Organized

The government is NOT a single organization, it's a loose collection of customers that have to follow the Federal Acquisitions Regulation

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Three Things to Know About the Government's Structure

  • The government is not one customer, it is a constellation of thousands of buying offices each doing their own thing
  • While there are thousands of offices they all have to buy the same way because they are all controlled by the Federal Acquisitions Regulation (FAR)
  • Program Officers decide what to buy, Contracting Officers decide how to buy

The Government's Structure (An Analogy)

Galaxy

The Milkyway

The Government is massively complex and can be hard to understand, so let's start with something simpler: the structure of our galaxy, or technically our "Galactic Cluster."  

  • A Galactic Cluster is a collection of galaxies that all orbit the same "Super Giant."
  • Each galaxy is composed of solar systems that all orbit the same black hole
  • And each solar system is a collection of planets that all orbit the same star.

So, on the one hand, a Galactic Cluster is a single entity but if you zoom in on any part of it you find out that it is composed of smaller and smaller organizations

The Cosmos and the Government

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There is a hierarchy:

  • The cosmos has a hierarchy: Galactic Clusters contain Galaxies, Galaxies contain Solar Systems, Solar Systems contain planets and so-on
  • The Federal Market has a hierarchy: The government contains Agencies, Agencies contain Sub-Agencies, Sub-Agencies contain planets and so on.

Related but independent:

  • While clusters, galaxies, and stars are connected they are independent entities. So what is happening around one star doesn't affect other stars
  • Similarly, while all government agencies are connected each one does its own thing.

Certain rules apply everywhere:

  • No matter where you are in the galaxy gravity and the laws of physics apply
  • No matter where you are in the government budget cycles and the Federal Acquisitions Regulation apply

The Governments Structure

So let's talk government now.  The government is massively complex but for right now here is what you need to know:

  • The Branches: There are three branches of government, the Executive, the Legislative, and the Judicial
    • The Executive: 99% of the prospective government customers fall under the Executive branch (for example, the Department of Defense falls under the Executive branch)
    • The Legislative: The money comes from Congress.
    • The Judicial: The Judicial branch plays the smallest role in the contracting process so for now we will skip over them.
  • The agencies: The Executive Branch has about two dozen major agencies ("Departments" or Cabinet-level agencies) and a hundred or so minor organizations
    • Sub-Agencies: Agencies are broken up into Sub-agencies
    • Offices: Sub-agencies are broken up into offices and we care about two types of offices:
      • Program offices (PEOs): These are the offices that decide WHAT to buy. Program offices are responsible for accomplishing a particular part of an Agency's mission.  So there is a program office for Land Vehicles in the Army, and there is a program office for vaccines in HHS.  Program offices:
        • Identify the products and services they need from contractors to accomplish their mission
        • Set the specifications for the products and services that they want.
    • Contracting offices: These are the offices that decide HOW to buy. Importantly for us they:
      • Design the acquisitions process (e.g. will there be an RFI? Will this purchase be published on SAM or will they buy through a Vehicle).
      • Will this purchase be set-aside.
      • They handle the paperwork
      • The names in the RFI/RFP are typically the contracting officers

Some Important Ways That the Federal Market Is Different from the Commercial Market

 

Commercial Markets

Government Markets

Length of contract

Service contracts tend to be short.  Typically a year or less and renewed frequently.

Service contracts tend to last five years.

Success metrics

Companies have an easy way to know if they are winning: profitability.

The government struggles to know if their purchases are succeeding.  If America doesn’t get attacked, does that mean recent security purchases are effective?

Competition

If you have delivered good work for a company, they will probably renew your contract without putting it out for open competition again.

No matter how well you’ve done, when the contract is up, the government will almost certainly have to open the follow-on contract to competition again.

Outsourcing

Private companies are constantly evaluating whether to contract or use in-house services.

The government typically prefers to outsource any non-core functions.

Price

Commercial actors are willing to pay more if they know they are getting more.

The government is highly price sensitive.

Subjective evaluation

Private organizations have a lot more freedom in how they evaluate proposals.

Government is required to have highly-structured evaluation processes.

Differentiation in evaluation

Companies will evaluate someone with a Harvard MBA differently from someone with a lower-tier MBA

Government evaluates all people with the same credential (e.g. an MBA) the same

Collaborative contracting

Firms prefer to work with vendors to find ways to “grow the pie” before making a decision.

The government’s highly structured proposal process makes collaboration and creativity difficult.

Market research

Challenging since companies don’t have to disclose their RFPs or vendors.

Easier since RFPs and data on winners is made public.

Risk

Companies like to be first movers if they think it will give them an advantage

Agencies prefer to be a late mover once a technology is proven

 

This is a lot of information, and we don’t expect you to internalize the significance of each observation now, but they will be important as you build your business plan.