Differences Between Commercial & Government Purchasing

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A man is handing over some sort of contract.
A man is handing over some sort of contract. (Image: dolgachov/iStock/Getty Images)

If you want to increase sales for your business, working with government clients is a prudent strategy to consider. Commercial and government purchasing activities have many similarities -- a customer is buying goods and services after agreeing on a price and other terms. However, selling to the government is different in several critical ways from making commercial sales to other businesses.

Satisfying Taxpayers Instead of Profits

Government agencies have an ongoing mission of fulfilling the public good on behalf of taxpayers rather than achieving a profit. The government agency, unlike a commercial business, is most concerned about making the best use of public funds. Different legal standards prevail to ensure this happens: The Uniform Commercial Code guides most commercial contracts, but different laws -- such as the Competition in Contracting Act and the Armed Services Procurement Act of 1947 -- regularly govern the required legal practices for government purchasing contracts. You should plan to have a lengthy discussion with your legal team as part of your due diligence before finalizing purchasing agreements with government customers.

Multiple Purchasing Channels Available

While some government purchasing opportunities involve a lengthy proposal and bidding process, some sales channels offer faster prospects. For example, most government organizations can make immediate purchases involving smaller amounts with credit cards. Many purchase orders can be executed by a government buyer as soon as three informal bids are obtained. The General Services Administration provides preapproved pricing for many items in GSA schedules; smaller businesses should always investigate these purchasing guidelines before investing extensive time and effort in more involved government sales channels. In some cases, public bidding might be the only practical marketing alternative for your particular services or products. You will need to plan several months ahead for more involved government contracts. In comparison, a commercial purchasing environment is frequently less rigid because you are working with one company rather than an entire government purchasing network.

Contract Auditing

Government purchasing contracts routinely give the government customer explicit permission to audit your work. This requirement means your company needs to maintain meticulous records; as the result of an audit, you might be forced to adjust prices or pay penalties if contract terms are violated. In contrast, commercial contracts with nongovernment clients rarely provide a similar level of access to your confidential financial records.

Contract Terms Can Be Changed

Government contracts typically give the customer an absolute right to change or terminate a contract at any time for the “convenience of the government,” which is dramatically different from the terms found in a commercial contract. You should expect your corporate attorney to raise possible concerns because of the legal rights you will be sacrificing when you agree to let the government amend contract terms.

Special Government Compliance Requirements

With federal government clients in particular, your company and employees will be required to adhere to an extensive number of government policies if you participate in a government purchasing contract. For example, you will be asked to comply with practices that support social and economic goals such as equal employment opportunity guidelines. When dealing with purchasing in the private sector, your company will typically avoid these additional compliance regulations.

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