The Only Time Uncle Sam Pays Well


I hope everyone had a great weekend! I’m back.
The way I see it, only two people have the right to handle a gavel: judges and auctioneers. Unless I’m missing something, to hold the wooden hammer you either have a law degree or be able to talk really fast.
Today, we’re going to be talking about auctions, but not in the traditional sense. There will be no gavel, nobody knows who is bidding or how much, and instead of paying to buy something, the government will be paying you for a service.
Got most of the inspiration for this idea here, but thought it was interesting either way.

Most of us probably think that the government works slowly. Not only that, but that it’s also under resourced. Why else (besides the outdated pension system) would an employee go to work for the government, when they could make double in the private sector?
As well as all the other things Bill Clinton ~got his hands on~, he saw a way to improve a key government responsibility: procurement.
Thus, was born. You may think SAM is short for Uncle Sam, but it actually stands for System Award Management (SAM), and it really flipped the government’s ability to procure menial items like office chairs, etc. on its head.
Now instead of dedicating someone to do something like that, the government can focus their resources on higher impact items like budget, defense, commerce, etc.
This cut a lot of government spending and was counterintuitive to how a lot of democrats thought at the time. Not only did it cut costs, but it also created/increased a lot of small businesses.
Not too bad.

How Does It Work?

So, if the government doesn’t have people buying the office chairs, then who does it? is essentially an auction house, a contract award management system. The government posts its needs, and people like you and me can make bids to provide the service.
When you go to the database, you’ll see entries like this one for example:

And when you open it up, you see something like this:

Tell you what, it looks like Fort Carson needs 15 minifridges. These inquiries can range anywhere from refrigerators to office chairs to trucks.

Anyone who can provide that service can make a bid on that contract. You basically just fill out all the attachments, give them a few more details, name your price, and voila you may just have their business.


The Downsides

Sadly however, it’s not all sunshine and rainbows. Here’s why:
  • You can’t see what other people bid: Since anyone can bid on these contracts, the small businesses are inclined to make an “attractive” offer. AKA the competition drives down the price of the bids and can reduce profits. If the government has 4 offers ranging from $25,000 to $100,000, all promising the same thing, they’ll almost always go with the lowest offer
  • The government is the government. I’m not sure if it’s just the government’s way of raising the barrier of entry or the government being the government, but the amount of form-filling-out you must do is insanely tedious. Most players in the space have a dedicated person who specializes in filling out the forms correctly.
Granted the government did create the system, so obviously they designed it to where they get great service and perfect documentation for lower prices.

And whenever a contract gets zero bids, the government just pulls up its britches and reverts to doing it themselves. Which doesn’t happen often because it’s a pretty competitive landscape.

What You Really Need Is A Competitive Advantage

People made A LOT of money doing this, and still do, but the biggest key to success is holding a competitive advantage.

What does that look like?

Let’s say you own a landscaping company, and the government posts a contract for mowing services, it would be much easier for you to submit a cheaper bid than someone who only has a push mower/has to buy one.

Or let’s say you know of a business that’s going bankrupt and is auctioning off their office furniture for next to nothing, you could buy it for much cheaper and fulfill an order easier than someone who has to buy all of the furniture wholesale.

The biggest success stories in the space are due to people specializing. Finding the thing they have a unique advantage in, winning a few contracts, and then going all in. Essentially creating a monopoly and becoming the government’s sole supplier for that particular thing.

This Sounds Familiar…

If this is starting to sound familiar, well it is. The whole movie War Dogs is based off this system. Two guys start dealing arms (bullets, guns, etc.) to the government for the war in Afghanistan, become fabulously rich, get in way over their heads, and then it all crumbles.

They’re actually the reason you won’t find military contracts in the system anymore. It’s a great movie, plus it has Miles Teller.

Final Thoughts

The origin story and utility of this program are things I find quite admirable. When the budget was tight, Clinton introduced a system that flipper procurement on its head. Now the government is spending less because of the cheap bids while simultaneously supporting small and local business.

Decentralized procurement isn’t necessarily the newest concept (people bid to be McDonald’s sole French fry supplier all the time), but seeing the government implement it so quickly and people taking advantage is something we haven’t seen before.

These contracts are released just about every day, so who knows, if you see something you like, make a bid.

‘Til Friday

from, matt

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