Purchasing very large quantity of small products, need basic understanding.

[steppinthrax]

I'm looking at a contract with a state gov that wants the purchase of around 8,000 USB flash drives. The flash drives are going to be shipped to 15 to 20 different areas within that state. The flash drives have to be a EXACT model/manufacture to be compatible with equipment. I'm fairly new at this, so I've been reviewing the contract and understanding the requirements. I've also been contacting distributors and trying to get price quotes...

1. My understanding is I should contact Distributors first and get pricing information. I've contacted one and provided quantity information and they contacted me back (a little aggressive) they told me that they have a good relationship with their manufactures and they just won't quote me a price over the phone unless they see that I'm serious, they want to run a credit check. No issue with this, but my business is quite young. He also told me that the price he's giving me is more/less going to be the same everywhere I go (BS detector going off).

2. I got a SWAG price of around 11.78 per unit, that will roughly cost $94,240. Thing is I don't have that kind of money lying around :). If i'm awarded this contract and I purchase this product I will need to go into some guarantee with the manufacture/distributor that I will pay them. I'm sure they won't do anything until they see money first. So how do you purchase products from someone, where you have documentation that a gov will pretty much pay for them? My suspicion is I would need to take out a line of credit? Would I do this via some CC or some bank loan etc? It seems the distributor has a loan process, as they asked me if I would be going through their credit? Just to recap, only time I would go into purchasing this is if I"m awarding the contract, so the gov has a legal obligation to pay as I have a legal obligation to provide.

3. I'm not very clear on contracting and how the gov pays the Awardee. A friend indicated they always pay usually half upon award and the other half upon completion. I read the entire RFP and didn't see any information there regarding when payment will be done. It seems when every single product is delivered, then you are paid? What's the typical payment schedule? Do they pay first?

Thanks

[Harold Mansfield]

I've heard repeatedly on here that the gov does pay, but they don't pay quickly. I would think the terms of payment would be spelled out clearly with the contract.
Others here have done this before and I'm sure will chime in.

As for where to get the money, again I've never had to take out a line of credit but plenty of people around here have also been through this.
Just wanted to keep the thread fresh to get the answers you're looking for.

[steppinthrax]

I've heard repeatedly on here that the gov does pay, but they don't pay quickly. I would think the terms of payment would be spelled out clearly with the contract.
Others here have done this before and I'm sure will chime in.

As for where to get the money, again I've never had to take out a line of credit but plenty of people around here have also been through this.
Just wanted to keep the thread fresh to get the answers you're looking for.

Thanks,

Just and update. I got a notification back from the gov that they will make payment Once everything has been delivered.

[Harold Mansfield]

Thanks,

Just and update. I got a notification back from the gov that they will make payment Once everything has been delivered.
I'd guess on the next 1st of the month. That seems to be when every single government check goes out to everyone. I'm surprised to hear that the gov pays that fast. Of course they pay after everything has been delivered, but are you sure it's immediate and not 30-90 days after delivery?

[billbenson]

Na, don't expect payment that fast. Also, the government doesn't necessarily buy from the lowest bidder.

I've done a lot of business with the government. I wouldn't take the risk on this one.

[Paul]

We just got po/factoring from a company for a $100,000 local gov contract. Happened to be light electric utility vehicles.

They paid the manufacturer 70% of the order upfront, we paid the balance. As soon as the goods are delivered to the govt client we get part of the balance and when the client pays we get the rest (less fees).

If you expect continuing orders from the government or institutions you may want to consider that kind of arrangement. A little expensive but very usefull when needed.

[Pearce Services]

Good for you, your thinking big....

You noted that you are relatively new to this, and that the money could be a factor for you. Paul's advise of getting financial backing is solid.

My opinion is that if you tie up all your financial resources on one job, waiting to get paid, you will be essentially handcuffing your business until you get paid.
The profit for this must be enough to cover you for this downtime. I would much prefer to stick to jobs I can afford to handle until I grow to the point where these jobs don't cripple me. How much will it cost you in other missed profits and growth of your business if you are tied up with this.

So I see these options for you...

1) walk away
2) Get a financial backer
3) Gamble, bid the job, if you get it, then go to the suppliers and say "Here is the order, I OWN the contract, work with me, or get nothing" This will give you leverage you currently do not have. if you bid and lose, at least the Govt. knows you are a serious player and will keep you in mind for the next one.

Good Luck Kevin

[BrandonL]

Edit: Woops... didn't realize this thread was so old. Oops.

Look into purchase order financing. If you win the bid and you get a valid purchase order, there are plenty of companies that will finance the deal. I can even refer you to one.