People often ask me for advice on how to successfully sell to Government clients. In an earlier blog article, I provided concrete advice on how to respond to Government tenders. Since Governments mostly require a tender procedure for their procurement, understanding the tender process is a critical success factor for sales teams that target the public sector. In today’s blog I’ll elaborate on a specific type of tenders (and contracts): tenders for Government frameworks contracts. I’ll explain:
- What are framework agreements?
- What is the rationale behind framework agreements?
- Why are framework agreements so attractive?
- How to approach tenders for framework agreements (as a sales person)?
- What to do after winning a framework agreement? (a.k.a. how to benefit from an existing framework contract)
- What are the implications for how public sector sales personnel is managed?
In this article, I use the terms “contracts” and “agreements” interchangeably. I also use the terms “Government” and “public sector” interchangeably.
What Are Framework Agreements?
Framework agreements are contracts that define the terms governing potential future contracts that shall or may be established for a certain predefined period of time, in particular with regard to price, terms of delivery and potentially the envisaged quantity.
This definition implies something very important, that one should not overlook: when a supplier signs a framework contract, they still do not sell anything, and they still do not secure any revenue or any income. The framework contract is just the “umbrella” under which future sales can be realized.
Although commercial companies can also buy through framework agreements, in this article we focus on Government framework contracts, as these agreements are an important mechanism in Government procurement, more than in the private sector.
What Is The Rationale Behind Framework Agreements?
Why do Government agencies use so many framework contracts? Although there are several answers, I believe that the main reason is the inherent (complex) nature of Government procurement.
On the one hand, fair competition laws require that public sector procurement above a certain threshold (which differs per country and type of procurement) is done through a tender. Thus, the Government agency cannot decide to buy the products or services of one supplier without giving other suppliers a fair chance to win the contract.
On the other hand, Government procurement processes are complex, long and expensive (in terms of effort spent on the process) for the procuring agency and for participating bidders; this is often referred to as “administrative burden”.
The combination of these two factors leads to a desire to optimize Government procurement by reducing the number of public tenders. And therefore, when the Government agency knows that in an upcoming period (often measured in several years) it will need to procure the same or similar products or services on a regular basis yet potentially with fluctuating demand, it prefers to issue a single tender for a framework agreement for the whole period, instead of having multiple tenders (for smaller quantities) spread across the same time.
But this is not the only reason for using framework agreements. Often, a key goal of framework contracts is for the Government to enjoy lower prices thanks to economies of scale. By bundling its demand and offering it to a single supplier, the Government is likely to influence suppliers to reduce their prices, as the bigger contract increases the level of competition in the market.
Why are framework agreements so attractive?
Government framework contracts are attractive not just because typically their Total Contract Value (TCV) is high. From a supplier side, the need to go through a tender process for each and every sale (in the absence of framework contracts) poses challenges, and primarily:
- Commercial organizations like predictability. When going through tenders for every sale transaction, there is very little predictability of future revenues.
- Preparing a proposal for a Government tender is very time consuming, and often investments need to be done upfront also in adjusting existing products and solutions to the specific needs of a specific clients. Especially in cases where these adjustments are required as part of the bidding process, the cost of participating in the tender process is high for suppliers, while the chances to win the tender are almost always substantially less than 50% (most organizations lose more tenders than they win).
Winning a Government tender for a framework agreement can solve these two problems (if you do your post-contract activities wisely). If done well, winning a framework contract can give you predictable revenues for several years, without the costly process of going through competitive tender processes before each and every sale. And therefore, winning framework tenders is so attractive and beneficial for sales teams.
How To Approach Tenders For Framework Agreements?
As a sales person (often the job title is “account manager” or “account executive”), Government framework contracts are a great opportunity. If you win a framework contract, and you do your job well, you’re likely to secure – with a good degree of probability – not only the short term revenue but also the revenue in 2, 3 or even 4 years. Such predictability of future sales is the joy of commercial directors. But winning framework contracts is more challenging than winning regular tenders. Here are some tips to help you win framework contracts. These tips come on top of the tips that I have already provided in my earlier article “A guide: how to respond to government tenders?”.
Consider partnerships, even with competitors
You may not be able to fulfil all the needs of the client, or not optimally. Your win chances may increase if you team up with one or more other suppliers with complementing skills or offerings, such that your combined offering provides the best solution for a client need. Many sales teams fail either due to hubris (blindly believing that “we can do it all by ourselves; we don’t need others”) or greed (they want to receive the total contract value, not willing to give up some of the potential future revenue when working with a partner). Many Government framework contracts are awarded to consortia, not to single bidders. Consortia often comprise of companies that partner for a specific opportunity, while they compete on other contracts.
Long preparation: Selling to Government is a marathon, not a sprint
Successfully winning framework contracts requires networking on two sides: with potential partners (as explained above) and with the client. Government procurement procedures do not allow you to be in touch with the client during the procedure. And therefore, the way to make sure that the client knows what you can offer and thinks highly of you is to deliver great performance and great experience every single day when you work with them. This advice works for incumbents (who already have contracts with the client prior to the tender being published), but what about other, new suppliers? The answer is simple: there are other ways to engage with a potential client. Be creative, and preferably earlier than later. If you start engaging only when a tender is published, you’ll probably be too late. Selling to Government, and in particular winning Government tenders for framework contracts, is a marathon, not a sprint. Marathons require long term preparation and planning. For personal advice, contact me through the contact form or through my LinkedIn profile.
The right mindset – Prepare your own management
Most organizations – especially those that aren’t large multinationals – do not have many Government framework contracts. Therefore, their sales mindset is “we invest today in what will deliver money tomorrow” but not “we invest today in what will deliver money the day after tomorrow”. If the organization has this short-term mindset, even an enthusiastic sales person who wants to invest their time in winning a framework contract is likely to fail. The problem occurs because winning a framework contract requires a-priori investment (of your time, costs of adapting your offerings etc) while the ROI (the return on investment, i.e. the profits earned from future contracts) will occur maybe in a few of years, or in the best case: next year. But often not in the same year. Yet sales organizations are typically driven by this year’s sales targets. Or even more: this quarter’s sales targets, or this month’s sales targets. Consequently, if the management doesn’t have the right long-term mindset, even the most enthusiastic sales person will have big difficulties lining up the resources required to make them successful in winning a framework contract. In order to succeed, you (the sales person) need to prepare your management, convey to them the opportunity to secure revenue for multiple years, and get them aligned to this long term journey. It’s not easy to for sale people to change their managers’ thinking. But if they succeed the whole organization will eventually be grateful. Last but not least: what should you (sales person) do if you fail to convince your management to invest in the long term? Honestly,… probably the best advice is to leave the company. If management doesn’t want to invest in the long term, the company won’t be successful in the long run anyhow. To learn more about this topic, read my earlier blog article “To be or not to become: The KPI dilemma”.
Define a bid strategy
Once the tender is published, read it thoroughly and understand the requirements and their implications: functional requirements, non-functional requirements, delivery SLAs, budget, pricing restrictions, legal terms & conditions and more. Understand what the client aims to achieve, and what are the strengths and weaknesses of yourself and of your known competitors. Consider who could be the unexpected competitors, and what their strengths and weaknesses are. Then define a bid strategy. Winning a framework tender requires a clear strategy, which will dictate your whole proposal preparation, and needs to be conveyed clearly through the proposal. Your bid strategy will define how you are going to win, and thus what are your Unique Selling Points (USPs), how you deal with your competitors’ USPs, and what you need to do (internally and externally) in order to win. Without a clear bid strategy, you’re not likely to win. A bid strategy is important in every Government tender, but much more in tenders for framework contracts, because they are typically more complex and more competitive.
Use creative pricing strategies
Pricing is always an important element in any proposal, but even more in framework proposals. The client often expects to enjoy economies of scale, and you will have to incorporate this into your proposal. Often the client also imposes their own pricing models, which may be different from your own pricing models. Your own organization will need to be flexible and accept unusual pricing models. Depending on the rigidity of your organization, you may need to invest a lot of time internally to obtain approvals for the imposed pricing models. Flexible organizations where Finance works with the business rather than impose restrictions on the business definitely have an advantage.
Also here the advice is: be creative. Your competitor knows you and will expect you to follow certain patterns in your pricing. Surprise them. Be creative. Offer something that they don’t anticipate. Think creatively how to use the client’s imposed pricing models to your benefit.
The Next Step After Winning a Framework Contract Is Business Development
Congratulations! You won a Government tender, and your organization now has a framework contract! What now?
Well, first take a day or two to celebrate your achievement. Then, realize that the hard work has just begun. Because now you’re about to learn what is the biggest pitfall of sales people who are not experienced in Government framework contracts. In short: they (these sales people) simply don’t get it. They simply don’t understand how the system works. They think that once the have signed a framework contract, the money will flow in. But that’s far from being the reality.
A framework agreement is a “license to hunt”
A framework agreement guarantees zero revenue. Yes, zero. It merely defines the conditions under which the Government client can buy from you (i.e. place an order under the terms that have been defined in the framework agreement). That is why we often refer to a framework agreement as a “contracting vehicle”. It can be used to facilitate smooth and fast contracts, without going through a tender process for every individual contract. But these contracts won’t arrive at your footsteps by themselves. Clients will only place an order if they have a need, if they know that you have a framework contract offering a solution for their need, and if you approach them before your competitors already found another way to offer their services to the client.
A sales organization that has won a Government framework contract needs to realize: now it’s time for business development. Now is the time to identify where in the client organization there is a need for your services, go speak to these people, present your offerings, and tell them that you have a framework contract for delivering this service. The framework agreement gives you a “license to hunt”, i.e. a formal reason to approach stakeholders within your client organization to offer and sell your services. Now it’s your time to go and create the need for your services.
Spread your wings – and spread the word
As a sales person, you typically know several people within the client organization. If you’ve invested in the relationship, you may even know several dozens of people. But you need to be humble and recognize that you are not familiar with most of the people in the client organization.
There’s yet another reason to be humble. Don’t fall into the trap of thinking you know which stakeholders in the client organization need your services. You probably know indeed some of these stakeholders. Yet there may be many more stakeholders who may need these services, but are not aware of you, or maybe they are not yet aware of your offering being a solution for their need. And maybe they are not even aware of the fact that they have a need for your services. Be humble avoid the hubris trap, and do not assume that you know who needs your services. Spread your wings, and explore the client organization in great detail. Go through their organization chart, and identify which departments and which stakeholders may have a related need. Contact them, introduce yourself, and go talk to them. Create a plan to inform as many as possible relevant stakeholders in the client organization about your services and about your framework contract. Turning the framework contract into concrete revenue requires a business development plan.
Mind the competition
Your competitors do not stand still. Having lost the tender, they are seeking for alternative ways to offer their products and services to the client. Recognize this fact, consider what you would do if you were them, and use these insights in your business development plan, as part of a broader account plan.
Remember that the client has no commitment to order your services during the whole duration of the framework contract. If your service does not meet the client’s expectations, they will not place a next order. And you will lose the benefits of having a Government framework contract. The account manager needs to work closely with the delivery team to ensure service excellence on an ongoing basis.
What Are The Implications For How Public Sector Sales Teams Are Managed?
Sales organizations have monthly, quarterly and yearly targets. A sales person’s salary typically has a significant commission component that depends on the same year’s sales results. Yet, as explained above, the importance of winning Government tenders for framework contracts is often for the long term, not for the same year’s sales targets. Understanding this discrepancy is critical for sales organizations. Here are tips for commercial directors:
- You already have sales staff with responsibility for this year’s sales target. Next to them, you need business developers who focus on the long term.
- Incorporating long-term goals in the KPIs of your public sector sales team (as opposed to sales teams selling to the private sector) will increase your chances to achieve long-term success in this market. Measuring Government sales staff only based on this year’s sales is counter-productive.
- Sales cycles in Government are long, and framework contracts are important for your long term success. Therefore, recruit public sector sales staff with the intention for them to work on the same account(s) for multiple years. This is not a career path for people who wish to change what they do every couple of years.
- Different sales people require different skills. Sales people working with clients that already signed a framework agreement need more skills in relationship building. Their negotiation skills are less important.
- You need an experienced person on your team. Selling to Government is substantially different from selling to the private sector. You need at least one experienced person (experienced in selling to the Government) on your team. He or she will guide the more junior people, or the sales people who have experience outside the public sector.
Government framework contracts often bundle demand of several departments, making them complex on the demand side. As they present opportunities for suppliers to earn substantial revenue, these tenders tend to be highly competitive.
As often in life, success requires preparation and planning. A major difference between framework contracts and regular contracts is that a framework contract is merely a contracting vehicle; it does not yet guarantee any revenue. Understanding this difference implies that being successful requires extensive business development activities not only in the pre-contract phase (preparing for the tender; responding to the tender) but also in the post-contract phase, when the business developer’s role is to identify and create demand, and use the existing framework contract as a contracting vehicle for the client to place as many as possible orders under the terms of the framework contract. These post-contract business development activities are an absolute necessity in order for your framework contract to result in concrete revenue.
Need Help Winning Government Tenders?
In this blog I provide concrete advice, based on years of experience in working with Government clients. I’ve seen companies succeed, and I’ve seen others fail. Failures can often be attributed to not following known principles, because of lack of experience in selling to Government, because of having a short-term mindset or because of arrogance (I described the hubris pitfalls earlier in this article).
How can you succeed if you do not have enough experience in selling to Government? As an independent consultant, I provide consulting services to guide sales teams in addressing the Government market, and in responding to concrete Government tenders. I’ll support your team while teaching them the art of selling to Government. Where to start? Contact me through the contact form or through my LinkedIn profile.