The FSS Contract - Why You Need It and How You Get It
Hannah Zerphy is a Managing Member of Orlaithe Consulting, a firm specializing in federal contracting. Hannah worked inside the VA as a Warranted Contracting Officer and a Training Coordinator for VA FSS, so she knows how the process works and how companies should present their products and opportunities. In this episode Hannah shares how to register on sam.gov, why a Federal Supply Schedule or FSS contract is usually your best option, choosing your product category, completing the FSS application, customer pricing disclosure, working with a contracting officer, and ongoing reporting.
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Episode Transcript
This transcript was generated using an automated transcription service and is minimally edited. Please forgive the mistakes contained within it.
Patrick Kothe 00:31
Welcome. There was a great response to the episode with Cheryl Nagowski, where we discussed federal market access. But many listeners wanted to learn more about the actual process to obtain a contract. So while the episode with Cheryl dealt more with the strategy of the Federal buying process, today's episode we're going to deal with the tactics. I would encourage you to listen to both episodes because you'll get a better overall picture of the whys and the hows of federal contracting. Our guest today is Hannah Zephrey, managing member of Orlaithe Consulting, a firm specializing in federal contracting, Hannah actually worked inside the VA as a warranted contracting officer and training coordinator for the VA FSS. So she knows how the process works and how companies should present the products and opportunities. Today we discuss registering on sam.gov why a Federal Supply schedule or FSS contract is usually your best option, choosing your product category, and then getting into completing the FSS application and customer pricing disclosures. What it's like to work with a contracting officer, and then responsibilities for ongoing reporting. Here's our conversation. Hannah, welcome. So great to have you with us today.
Hannah Zerphey 02:06
Thanks, Pat. It's great to be here.
Patrick Kothe 02:09
So Hannah, you've been involved in government contracting for quite a while now How did you become involved in it.
Hannah Zerphey 02:16
Um, so it's one of those things that I just kind of fell into, right. So my first job out of college was a customer service rep because I was just looking for anything I could get my hands on. And somehow I ended up I was at a distributor and I ended up on their government bid team. So that's kind of my first intro into government contracting. And then I had a friend living in Chicago and she said that her contracting office with the VA was hiring and so I put my application in and next thing I know I'm a warranted contracting officer and I was there for about seven years and then I left and in 2017, my business partner and I set up shop so it's kind of been you know, not a road I pictured for myself at all, I graduated with a degree in international affairs and Japanese language so you know, not anything related to that. But it's been it's been interesting especially, you know, we do a lot of VA and do D contracting and I have a lot of veterans in my family and I'm an active duty military so it's it's nice to be able to provide for them in some small way.
Patrick Kothe 03:29
So what keeps you there I mean, it's it's, it's a pretty specialized specialized field, what keeps you what keeps your interest in it,
Hannah Zerphey 03:37
there's just something especially working on this side of the aisle. So when I was with VA, it was making sure that the government was paying a good price for quality products to get to the veteran population, the active duty military, etc. On this side of the aisle, though, for me, it's more helping, especially small businesses, get a leg in the door, get a foot in the door, to get their products out there. And we do a lot of work with service disabled veteran owned companies and women owned companies. So it's, it's nice to be able to help those folks get involved too. And you know, we also deal a lot with some big pharmaceutical companies. And it's great to help get this massive behemoth organization kind of organized and compliant with all the different rules and regulations that they have to follow. So there's just I like to organize things and you know, it's kind of like putting a puzzle together. So it's a for me, it's that satisfaction of filling in all the blanks and crossing the T's dotting the eyes and that kind of thing. So it's very specialized knowledge. So I guess I just kind of feel like I have that knowledge. So it's almost my responsibility to stay in the field and help folks out because it It'd be hard if you don't have you know that someone in your your hip pocket to help you out when you need to.
Patrick Kothe 05:07
So you said it's kind of a puzzle. So let's let's start working the puzzle. So federal, the federal entities that we're talking about here, we're talking about the VA, we're talking about military and some other entities like Indian Affairs or and then the prison prison groups as well.
Hannah Zerphey 05:28
Even ice these days, they have their own health care group. I can't remember what it's called, but it was established, like a year or two ago. So and, you know, of course that helps with, it's the healthcare system for all the immigration detainees.
Patrick Kothe 05:43
So we've got these groups, do they all have their own individual process? Or is there a coordinated process for acquiring products? Yeah, so
Hannah Zerphey 05:52
the answer is yes. And, and yes, so each agency has its own process, you know, to do specific ordering. So purchases are made against the regulations established in the Federal Acquisition Regulation. And then each agency actually has their own set of rules that go above and beyond the far, so like, God has the default, which is the defense Federal Acquisition Regulation. And then VA has the var, which is the VA Acquisition Regulation. So within each of those, their own sort of specified rules on how they purchase, but for healthcare, VA has been obligated authority by the General Services Administration way back in the 1960s, to manage a multiple award schedule program for healthcare related products and services, including pharmaceuticals. So that this FSS program, any agency can purchase from the FSS program, so they still have to follow their own set of specified rules. But getting an FSS contract means that half the work has already been done. So it shortens the procurement process for both the company and for the purchaser in the government.
Patrick Kothe 07:18
So if you have a product that is applicable across all of these agencies, so it's a medical device that could be used in any one of those agencies, the first step would be to get a FSS contract.
Hannah Zerphey 07:32
Yeah, that that's what we would always recommend is go after a VA Federal Supply Schedule contract. And then with that, as your base, it'll be easier to get, you know, a God, or Indian health services, special contract or BPA, or whatever.
Patrick Kothe 07:53
So when we're talking about an FSS contract, is that a competitive bid situation? Or is it more like a license to be able to sell into?
Hannah Zerphey 08:05
So that's a really good question. It's, it's an interesting answer in that so the VA schedule programs, there are nine of them. And they're all open and continuous, meaning there's no closed date for the solicitation. So a company can submit a response at any point in time. So there's, there's competition in that there are already you know, I think like 1500, companies that have contracts, especially that 65, to a medical equipment and supplies, that's the largest in terms of contractors, schedule that VA manages, while you're not exactly competing against the people that are already on contract, the VA will evaluate your pricing, they will compare it to what you're offering commercially, to see if the government's getting the best discount. And if you're not offering the government your best discount, they want to know why. And then they may also evaluate the pricing that is currently available on schedule, and say, hey, look, you know, your $100 higher than what's on schedule, you need to explain this gap or lower your pricing. So it's not like in a traditional bid situation where you're going head to head. But they will take all of these different factors into account when they're developing their pricing strategy, or what VA is, is evaluating their pricing and making a fair and reasonable price determination.
Patrick Kothe 09:34
So we're gonna get into a little bit about the mechanics of whether you've got a new product or whether you've got an existing product, but just so I'm clear here, let's say you've got a pacemaker. And you already have seals out in the marketplace, and there are a lot of different pacemakers out there, and you want to go and get a FSS contract. You have some you have some work to do to let the government know where the pricing is for your your Product outside of the VA or outside of the government, and then what price you're going to offer it to the government. But there's also pricing or other companies that have pacemaker contracts. So So are you being evaluated on your own pricing outside the marketplace? Or are they going to say, Hey, you know, we've got, we've got five other pacemakers that are on contract right now your pricing isn't good. We're not going to give you a contract.
Hannah Zerphey 10:33
Yeah. So and that is an answer that is unfortunately, contracting officer dependent, because they are allowed an urge to use their own business acumen to make decisions like that. So in some cases, yes. They will say it's on contract for $50, and you're offering it at 60, you either need to come down, or we're not going to award this line item. When I was a warranted contracting officer there, what I would do is say, Okay, I need you to explain this $10 difference to me, because there could be a reason that there's a $10 difference, you know, because not all pacemakers are built the same. And so, giving the company an opportunity to sort of explain those differences, and then show where that $10 goes to then, you know, then I would awarded that is an individual by individual sort of thing, what is very useful, and what VA has been asking a lot for these days is for companies to submit market research with their proposal. And at first I kind of bristled to this requirement, because it's actually like, it's literally part of their job description to conduct market research, but they are not the contracting folks that are there are not clinicians, they're not experts in what these products are, whereas the company is the expert in what products they're offering. So by having the company conduct the market research, they can kind of, you know, they'll be able to compare it to correct products, and you know, they'll be able to find apples to apples versus apples to pineapple comparisons or Apple to potato, which, you know, is what often happens. Um, so by providing that market research with your proposal, you can kind of show those differences in a kind of show where you fall in line with what's our young contract, or what's available out in the open market.
Patrick Kothe 12:31
So there will be multiple contracts for a product, let me go back to the pacemaker here, there won't be one or two contracts for pacemakers. There may be 568 contracts,
Hannah Zerphey 12:42
there could be Yeah, there could be 100. I mean, there could be as many as yet I kind of look at the the VA schedules program as like the amazon.com of government space, because there could be dozens upon dozens of different companies that sell like or similar items. And so it's the agencies then the procurement people who need to make the decision as to which one they're going to buy. More often than not, they are kind of focused on lowest price, but best value is also something that they consider and so Best Value takes into account why this pacemaker is better than that one, because, you know, it's like version 2.0. And this one's version one,
Patrick Kothe 13:30
I kind of liken this to a licensed a hunter license to fish. So once you once you obtain that license, and you're able to go out and do the selling,
Hannah Zerphey 13:39
that's huge, the selling piece, you know, I think a lot of companies, they'll get this FSS contract and then just expect sales to come in. But that's definitely not the case. And especially if you're selling something very common, like bandages or gauze wrap, I mean, there's 1000s of companies that sell that kind of stuff. And so agencies are already going to have the you know, their companies that they like to cycle through to purchase from so unless you're offering something that's completely different, you know, you've reinvented the wheel so to speak, then you're gonna have to really put your boots on the ground and get your sales folks out there.
Patrick Kothe 14:19
So Hannah, let's let's kind of shift into obtaining an FSS contract. So we know that that's kind of the starting point, this is going to be your your license, you're going to need to do that. Let's let's go through the process of the application process. And what's going to help you with your probabilities of successfully attaining that.
Hannah Zerphey 14:40
The first stop is making sure that your company is registered in the government System for Award Management database, which is the database that all federal contractors have to be a part of, and it's reviewed annually. And then the next step is figuring out which schedule program you actually fall under. So like I said, there's nine of them. And they go from pharmaceuticals to dental and medical equipment to even professional health care, staffing services and cost protest sort of thing. So there's a wide variety you need to figure out, mostly the hardest ones to figure out are the equipment, because there's a couple of different equipment contracts, or schedule vehicles. And so you just have to figure out the right one, what your your special item number category is going to be. And then, you know, it's it's about 50 pages of paperwork that you kind of have to fill out. It's about 100 pages of terms and conditions that you need to understand and understand your risks and liability. And then there's a spreadsheet you're going to have to fill out. And depending on if you have commercial sales or not, there's voluminous commercial sales disclosures that you need to provide to the government. And then you know, there's a couple other pieces depending on if you're a larger small business, if you're large, you're required to submit a small business subcontracting plan. And and then you kind of put it all together, make sure the emails less than 10 megabytes and send it over to to VA for their consideration. So I always thought when I was working there, I was like, Why do these companies pay such big dollars to consultants to complete the paperwork, it's so easy, I mean, you're just filling out some, some boxes, you know, and there's just not a lot to it. But then working on this side, and this is not just me being like, okay, I want my paycheck, because I'm helping you, I can see why companies do it. Because it can be complicated, especially if you don't really work in the government space, or you don't have anyone on staff whose entire job is federal purchasing. If you're not familiar with all the different ways and enough how to present the data in a format that VA is used to seeing, you know, it can be really difficult to get one of these contracts push through.
Patrick Kothe 17:13
And once we've accomplished something, we can look back and say it is a pretty simple process. But as long as you're going through it, you've got all of this learning that you're that you have to have to do in order to get there. So having having a guide is always helpful. So you mentioned kind of starting off, you know, you need to need to get registered and that registration is with sam.gov right?
Hannah Zerphey 17:37
Yeah, yeah. sam.gov and it's free so if someone's asking you to pay for it, then Matt is not sam.gov we get that question a lot from our clients. It cuz there's a lot of companies out there that make it seem like they're the government but they're not.
Patrick Kothe 17:53
Yeah, so I've gone through the process in the past and registering it may take a couple hours ago, go through it and get registered and then you wait wait, wait a few days or a week or so I can't remember for an email to say your registered and you get a gauge number and then you say so your register with it that that process is probably going to take a week to two weeks to to get get registered with that, then you you mentioned that there's another step, the next step is understanding which group you're going to be submitting to is that generally a fairly simple thing, hey, I've got a device that goes into this category or or there's, there's some issues there,
Hannah Zerphey 18:34
there can be an issue, you know, so So we have one client who works in the diabetes space. And so the 65 part seven is where all the diabetes test strips live, anything, you know, sort of diabetic accessories, that's not insulin falls under this particular schedule, but their product is kind of a medical device, we spent quite a bit of time trying to determine whether it should live on Part Seven, or if it should go under 65 two way and we eventually decided it should go under 65 to way so so there are some you know, like square pegs into round holes situations, VA is actually they're very helpful, you know, so their contact information is on their website. And you can always reach out if you have that kind of question, say hey, look, here's what my product is. I don't know under you know what schedule I should submit under Can you help me and you know, they'll try their best to help you out.
Patrick Kothe 19:38
So you're probably best if you're starting this process of probably best to say, Okay, I'm going to start with the, you know, the sam.gov get that going and I'm going to start immediately and start contacting somebody say okay, which category Am I going to go in because that category is going to determine your 50 page 50 page application So so so once you once you've determined that you know which direction you go, now you got the 50 page application. So take me through how difficult that is, if you don't, if you don't know what else needs to go in there,
Hannah Zerphey 20:16
it's it's mostly, you know, the biggest piece is just gathering all the relevant information. So, you know, it should be questions that are pretty straightforward for you to answer, like, what your delivery timeframes are commercially and what you plan on offering to the government. If there's hazardous materials, or if there's any fire or safety regulations associated with your product. Are there is your product a 510? k medical device? So we you know, you'd have to provide that, do you deliver to Alaska, Hawaii and Puerto Rico? Or would it be point of exportation for those? So it those kind of questions should be pretty basic to whoever's answering, you know, filling out the form, but then you kind of get into, okay, so our commercial sales practices. So do you offer quantity discounts to your commercial customers? Do you offer prompt payment discounts? What have your total sales ban for the line items that you're offering to the commercial space for the last year? What do you think your estimated sales to the government are going to be under any potential contract? And then it gets even deeper into that as to? Are you offering your best deal to the government? If not, why do you deviate from your standard selling practices, if you do, what control mechanisms are in place to ensure your pricing integrity, you know, and then the last section of the proposal is, if you're a new offer, you'd have to have past performance references, three past performance references for the products that you're offering, and government will reach out to those folks. And then if you're a large business, you have to submit a small business subcontracting plan. So that kind of goes from easy to hard, you know, in terms of the the information that's needed, I would say, someone whose job is like, just filling out paperwork wouldn't have any issues with the first half of the proposal, but then that second half, where you get into the commercial selling practice answers, that's where it gets tricky.
Patrick Kothe 22:26
If you're a company that has a brand new product, that's different than if you've been on the market for a while. So let's talk about the company with the brand new product, because I'm assuming that a lot of these questions are going to be anyways, not at not applicable, let's walk through an application like you have a brand new product, and then we'll come back and, and get to the other things. So
Hannah Zerphey 22:51
VA, I think their requirement is two years in business, they don't always they're not always a stickler for that. But I would say if you have a brand new product, you need at least some sales, whether it's strictly to the government, or commercially before you want to go after one of these contracts, because VA is going to, they're going to want to see that your company is viable.
Patrick Kothe 23:17
So are we talking about company? Are we talking about product because a company could be around for a while and introduce a new product? So are they more concerned with the company's practices or the product,
Hannah Zerphey 23:30
so they're more concerned with the company's practices, um, you know, and but of course, the the product also needs to be able to show that somebody wants it, you know, that it's not just you're not going to spend time getting it on contract, and then it's going to sit there for five years and no one in VA or do D is going to want to purchase it. But But that is a very good point, Pat, because they do you want to their focus is more on the fiscal responsibility of the company. And, and their ability to actually sell product and deliver it on time and all of those types of things.
Patrick Kothe 24:09
Okay, so your new company, you, you've been around for a little bit, you've got a new product, you need to go through many of these questions. But the questions that you're not going to have answers to are what are you? What is your pricing in other other areas? So how do you how do you deal with that? Just say, Hey, you know, we just launched the product, or how do you deal with that? That's
Hannah Zerphey 24:34
gonna be, you know, the kind of question that we'll end up having to work specifically with VA on you know, how do you want us to present this information to you? So what we would probably do is, you know, what, and what happens a lot of times is, if you don't have commercial sales, and you're the manufacturer with no commercial sales for that particular product, is we offer it to the government at some sort of discount. Then in the rest of our pricing proposal, you have to disclose who your most favorite customer is. And then you have to select a tracking customer. So for the most favorite customer, we list all commercial customers and probably list 0% discount, so they're going to pay list price. So say it's $100 will disclose all commercial customers pay $100 list the tracking customer as all commercial customers paying $100, and then the FSS or the government price would be $90. So they get a 10% discount those things, the MFC. And the tracking customer, they can always be changed after contract awards. So when the company starts to get commercial sales, we can go in and say, Okay, now we're selling to, you know, premier or vizient, or, you know, hospital ABC, and they're getting this discount. So we prefer this company, or this entity to be the tracking customer for purposes of this contract.
Patrick Kothe 26:01
So you're not disclosing your pricing to every customer, by customer name,
Hannah Zerphey 26:08
are you you can Yeah, so well, and in some cases, you have to so if you're not offering the government your best price, then you're obligated to disclose all commercial customers that get better than or equal to your proposed FSS pricing. So in some cases, that may be just one or two, in some cases, it might be 50 different companies. So it just depends on what your proposed FSS price is and where it falls within your commercial selling practices.
Patrick Kothe 26:42
I imagine that this is a fairly sensitive area for companies to disclose pricing all the way through how is assured that that price or that sensitive information is is not public.
Hannah Zerphey 26:59
My company stamps everything with a footer that says confidential and proprietary business information exempt from disclosure under FOIA exemption for so when it stamped with that it means that it can't be shared, that it is used just for this purpose of evaluating this particular contract. And we haven't had any issues with that VA has always been very respectful of that. And I mean, we get it, you know, we have some companies that say, Here's all our commercial agreements, here's our pricing file, just take a look and help us out. And some companies that say no, no, we want to go through this first try to whittle it down. So we're not sharing our information out there with everybody. The unfortunate part is that you have to make those disclosures. If you want an FSS contract, there's no way around it. So you just have to get yourself comfortable enough with the fact that the government is going to come in and they are going to look at your commercial selling practices to be able to evaluate your proposal.
Patrick Kothe 28:04
And you mentioned that there was a company or an individual company tracking, I forget the term that you use
Hannah Zerphey 28:10
tracking customer. Yeah. What is that? So VA, the FSS program has a really strange mechanism that they use to ensure their pricing integrity, and that's called the tracking customer. And that is a customer or category of customers. So it could be you know, GPO, so all GPOs would fall under this or it could be premier as one GPO and any time their pricing changes, so your pricing to premier would change, the government would get a price change relational to that. So it is we established a tracking customer ratio. So we Greg and I often go for a one to one ratio if we can. So that means if your pricing to premier goes down by $5, then your FSS pricing automatically needs to go down by $5. So it's kind of it you could do a whole podcast just on the price reductions call us. There's so much to it.
Patrick Kothe 29:16
So are we talking price reduction or price adjustment because what happens if there's a price increase, then you're
Hannah Zerphey 29:21
allowed to increase the price, but it has to be within that tracking ratio. So you can't increase it higher than what you increased it to your tracking customer. So it is price adjustment. But the how it affects companies the most is through the price reductions clause because if there is a change to your tracking customer, then the company is required to submit a modification to the government within 10 days of that change, reducing the government's price and you can end up triggering price reduction violations and that can you know you can get over to the The Office of Inspector General and there can be, I mean, there's all kinds of legalities associated with what's triggering a violation of the price reductions clause. So that's kind of where we focus because companies really need to understand the risks of that of not tracking appropriately and not being able to address any sort of changes in pricing.
Patrick Kothe 30:22
I think for clarity sake, you we're not talking about the government doesn't have to get the best price across the board of any customer that's out there. It has the government is trying to obtain the best pricing that it can. However, it's always you know, you always have to use the use the term under the same terms and conditions. Yes. So So if there's a larger group out there, or a more committed Group, a group that's going to commit volume, they deserve a better price. Exactly. So it's, what we're talking about is justification. The government wants justification to say, here's, here's, here's some clarity, here's, here's what our pricing is visibility into into our pricing. And here's the justification of why we believe that this is the best price for the government.
Hannah Zerphey 31:14
Yep, exactly, exactly. So, you know, I'm GPOs, they often have quantity requirements, or that kind of thing for their members to hit to get the relative tier pricing discounts. distributors, they do a whole slew of other things that the government is never going to do on behalf of a manufacturer. So they're going to get better pricing discounts. You know, so so there's a wide variety of things that that may be the root cause of not offering the government your best price. And that's, you know, that's a simple right up to go along with your proposal. We call it a commercial sales practice narrative. And it just says, Here's why we're not offering you our best price.
Patrick Kothe 32:00
And the government is not going to guarantee volume,
Hannah Zerphey 32:05
correct? Yeah, they are not under the FSS program. Now BPA is that are issued against an FSS contract, that's where you might get, you know, your, your guaranteed volume, and at that point, you can negotiate your pricing down a little bit to make, you know, sweeten the pot for them to guarantee purchase over the year.
Patrick Kothe 32:27
Okay, so we're through this submission. It sounds like there may be some back and forth with somebody in in that particular group while you're doing that submission.
Hannah Zerphey 32:41
Yeah, yeah. So once you've submitted the proposal, then VA, their stated goals are 180 days from receipt of an acceptable proposal to review, negotiate and award. Depending on the schedule program, depending on who you get, it may take longer, it may take less. And if you have to go for a pre award audit, that will add more time. So we're looking at, you know, if we're lucky, six to eight months review process, I have a contract that's been under review since 2018, and still hasn't been awarded. So you know, those are the outliers, obviously. But so when you go into this process, you need to understand that it's not fast, and you have to have patience with it. So the CEO who gets your proposal package will review it, they'll send out a clarification letter, if there's any information upfront that they feel is missing, or needs to be explained. Then the CEO will evaluate it conduct their responsibility determination, which is basically a check into the company and making sure that it's financially responsible, and an ethical company, and then they'll do their price reasonableness determination, and then open negotiations, which are more like discussions, and they'll go after you know, they have their high medium and low objectives that they'll go after and you the company are not obligated to accept the government's proposed terms. That's always something we really try to make very clear, is you can say no, you can say I need to, you know, take a look at this and give me a second, you know, give me a day or two to, to come up with an answer, or you could accept their terms. So there's flexibilities there, and then once the terms have all sort of been agreed to, they'll finish up their review and everything and submit it for proposal award. So that's kind of you know, a quick one through five this is these are the various steps that you'll go through. If your proposal exceeds $3 million annually. The estimated value of your proposal exceeds $3 million annually for medical devices or $5 million annually for pharmaceuticals. Then it will go to the VA Office of Inspector General for pre award review. And that is like, ending up in one of those is like, I imagine what an IRS audit would be a nightmare, it's kind of a nightmare, it's what it is, um, you know, it's, they'll ask you for six months of transactional data, they'll ask you for copies of all of your commercial agreements, and then they'll ask you for just a ton of additional data. And basically, what they're doing is they're reconciling your books to your general ledger to make sure that you know, all of your pricing is, is in good shape. And they're going to hunt and peck to try to find that one instance where you offered your product at, you know, 99 cents, and everywhere else has been offered at $10. So and then they're going to ask, you know, recommend that VA go after a lower price based on this one off instance. So that can add quite a bit of time to the review process, unfortunately.
Patrick Kothe 36:06
So he said, SEO, what is what is SEO, SEO is a contracting officer.
Hannah Zerphey 36:09
Okay,
Patrick Kothe 36:10
so you've got a contracting officer that's assigned to you, once you do the submission, are there some people that can help you during that submission time.
Hannah Zerphey 36:22
So there are, they're called p tax their government folks, and you can reach out to them, VA FSS contracting officers, they probably won't be super helpful. You know, other than generalizing, you know, helping you figure out what schedule you should submit under and which sin category you should submit under. Otherwise, they're not going to because they don't want to be shown as playing favorites, or offering more help to one company over another. So they kind of just stay away from it. So your best bet, if you need help is to, you know, to look for a consulting firm to help out.
Patrick Kothe 37:05
So you've got you've got your CEO, who is now you're locked into for those 180 days. And I'm sure sometimes you switch CEOs because they move or get promoted or leave the government. So you may have may have one or two people that are going to be with your file for that period of time. When you were talking earlier about terms. Are we talking about terms and conditions of sale as well, you're not just the price, but what are the what are the pricing? You know, the shipping who pays for what, you know, all of that stuff that so that's all negotiated out through this process? Exactly.
Hannah Zerphey 37:40
Yeah, even even your warrantied returned goods policies can be negotiated. If you're going to offer any annual rebates to the government that gets negotiated. Your prompt payment discounts for invoiced orders, all that kind of stuff falls under the terms and conditions.
Patrick Kothe 38:02
Okay, so let's assume that we're successful. Get get that FSS contract. Now what? Yeah, so
Hannah Zerphey 38:12
so the contracts are awarded for a five year base period. And then there's five one year options that can be executed. So the total timeframe for your typical FSS contract is 10 years. So with that, there are annual compliance requirements that you have to meet so your SAM registration has to be updated annually. You have to submit that 4212 report annually by September 30, which is a Department of Labor report that discloses the number of veterans you have employed. If you have a subcontracting plan, you have to report your goals and achievements against that annually and then submit a new subcontracting plan annually. And then for the FSS contract specifically, there's a an industrial funding fee, that is a half percent fee tacked on to your awarded price. And this fee you the company are basically serving as a as a pass through for this so the VA purchaser is paying this half percent fee to you and then you are remitting that fee back to the VA is National acquisition center as an administrative fee on a quarterly basis. So this is basically this IAFF is how the national acquisition center funds the FSS program. So it's a self funded entity which means like when the government shuts down, they don't actually shut down because they're not obligated their their funding isn't obligated by Congress. So this happens on a quarterly basis. You have to submit your sales reports, which means you the company need to be able to track sales under your contract. And you have to break it up into sales to the VA sales to other government agencies, which is everyone but VA, and then sales to state and local governments, because there are times when state and local governments can purchase under your contract. So you need to be able to track yourself that way. And then you'll submit the report through VA online portal, and then it will auto calculate what that half percent fee is for your total sales that you need to send back to the government,
Patrick Kothe 40:37
state and local governments. If we're talking about, you know, the University of Minnesota or the University of Connecticut hospital, Is that considered to be state and local government?
Hannah Zerphey 40:47
If it's a state university? Yeah, yeah, it can be. So there's actually a wide variety of comp of government entities that can purchase against these against these contracts in times of a public health emergency or a public disaster that's been declared by the President. And if the company has opted in, then state and local governments can purchase from these contracts. So for right now, because we're in the COVID pandemic, and the pandemic is still technically ongoing. FEMA hasn't declared it over state if you opt it into the public health emergencies. participation, then state and local governments can purchase from your FSS contract for you know, anything from antiviral medications to to respirators and that kind of thing. So, so there, you have the option, the company is in total control of that option, but state and local companies or governments can and that would include universities, I mean, anything that is state run.
Patrick Kothe 41:55
So you have responsibilities after you receive this on an annual basis and sounds like on a quarterly basis for some things as well, to be able to supply information back to the government to make make sure that you're compliant. Some of its
Hannah Zerphey 42:10
dependent on company size. If you have more than 50 employees, you have to maintain an affirmative action plan and submit an EEO one report that you know, it's discloses your achievements under that plan for the year. And then there's just those are the big ones, the SAM registration, the vets 4212 subcontracting plan if you need it, and affirmative action plan if you need it. But there's also just you know, within your SAM registration, there's questions like, has anyone in your company ever been disbarred? Does your company have any tax liabilities? Right now the big one is for telecommunications, do you use any telecommunications equipment from Chinese state run companies like Huawei or ZTE, and so you have to make sure that you can mark no for all of that kind of stuff. So it, there's the actual, like, annual stuff and quarterly stuff that you have to submit isn't that great, but compliance in general is such a big, important piece of your FSS contracts because you know, like I mentioned at the beginning there is that you know, over 100 page document that you have to be familiar with, and know what you're actually signing your company up for. Because there at times there could be personal liability if your company fails to meet the requirements or stay in compliance with all the rules and regulations.
Patrick Kothe 43:44
So Hanna, we started off by saying as FSS contract is kind of a bedrock thing but it's not the only thing So at what point so once you once you get this now you want to go out and sell to military want to go out and sell to VA so now you've you're out there talking to clinicians, what what is the the other contracting piece that needs to be put in place as you're going out trying to obtain additional business
Hannah Zerphey 44:14
so if you want to go for God, um, you know, we always recommend that you get adapa, which is a distribution and price agreement. And that's kind of nice because it's not a contract, it's a letter agreement. And that allows you to participate in their Prime Vendor program. So in their med search prime Mentor Program is huge. And then they also have E cat, which is their electronic catalog and that's more for like, so the Prime Vendor would be for like disposable stuff for the most part and then e cat is going to be for your non disposable or your your equipment type products.
Patrick Kothe 44:53
So let me make sure so this is in addition to the FSS contract, then you're going to put these on top of it.
Hannah Zerphey 44:59
Yeah. Yep, exactly. And your pricing can either be the same or it can be slightly different depending on on what you want to do.
Patrick Kothe 45:07
The VA is not my understanding is adapa is is can be a little bit quicker. So if So would it be an a company's best interest to you while they're while they're waiting that six months to do the dapaah? Yeah,
Hannah Zerphey 45:24
yeah, they definitely can. Yeah, the only impediment and I should have mentioned this at the very beginning. So VA FSS contracts are a must be compliant with the trade agreements act. So Buy America doesn't necessarily apply to FSS contracts. Specifically, they fall more with trade agreements. So you have to make sure that your product is manufactured in the United States or a designated country. So countries like China and India, and Russia are definitely off the table. So as long as your your products are ta ta compliant, it's easy peasy to get a Dabba, they go into effect on the first of the month, and their review times are really quick, you know, 30 to 60 days, I think they'd be are more towards the 30 days, because there's just a lot less for them to negotiate. They're they're mostly just negotiating their pricing.
Patrick Kothe 46:18
And that adapa is just for military, it's not covering VA s
Hannah Zerphey 46:23
some other agencies can purchase from their med search Prime Vendor program, but it's not nearly as wide as what VA has. And another piece to all of this is okay, so you can get your data that gets you on the med search Prime Vendor program. But you also have to negotiate with the wholesalers. Because the prime vendors all work through the different prime vendors that God has agreements with. So if you don't have an agreement set up with a, with a Prime Vendor like ABC, or McKesson, or Cardinal, or whoever else, you know, you're not going to be able to sell to God. So that can be kind of an impediment, especially for very small companies, because those wholesaler agreements Can you know, there's not a lot of wiggle room in there for people, you know, for small companies to kind of get what they need out of it. So that that should be something that you definitely consider when you're determining if you want to go for adapa or not, is will you be able to get an agreement with the wholesalers, and will that work in your best interest, whereas with an FSS contract, you don't need a wholesaler agreement?
Patrick Kothe 47:37
As a company if you're if you have a wholesaler involved obviously your profit margins gonna be less you're gonna be kicking a margin,
Hannah Zerphey 47:45
as well. Yeah, yep. So and So at that point, then you need to evaluate what you're offering to the government and, and include any of those wholesaler rebates and chargebacks, and all of that, so that you're not losing money. I did some work for a company who they didn't really understand what they were getting into with the wholesalers. And so they were losing, you know, $10,000 a month just in chargebacks. Like they weren't making any money. They were losing money. You know, and there's not much you can do when a cardinal starts coming after you for that kind of stuff.
Patrick Kothe 48:18
was a money on every device, but I'm going to make it up in volume. Yeah, yeah,
Hannah Zerphey 48:22
exactly. Yeah, so and then, you know, each, a lot of different agencies, though, they'll do Blanket Purchase agreements, they'll do national standardized contracts, you know, VA, their national contract service, they do they do standardization contracts, and the strategic acquisition center, they'll do big national type contracts. So having an FSS contract gives you that in to be able to respond more quickly and efficiently to these types of national or standardized contract vehicles. And and you already have your pricing determined, so you know, and that's been determined fair and reasonable by the FSS service. And so it just it makes everything a little bit easier. And in some cases, you have to have an FSS contract in order to respond to one of these other opportunities that's out there.
Patrick Kothe 49:20
So So Hannah, you've got a consulting company, orlaith Consulting, tell me a little bit about what you do and the value that you provide to companies to navigate help navigate this process.
Hannah Zerphey 49:36
Yeah, so my business partner and I, Greg madnesses. Name we met actually, while working as contracting officers at VA with the FSS service. And so we both and Greg ended up becoming a manager of one of the teams the pharmaceutical branch and then he served as a lawyer for VA representing them about FSS kind of stuff. So we both have this really unique insight or knowledge that not many folks out there have into FSS contracting specifically, which is a niche space, but it's a relatively large niche space. So we're able to help companies language their proposals, so that VA understands and accepts them more quickly than if they didn't, you know, we, I pride myself because my, the gal that hired me when I worked at VA, she, you know, was very old tool would take her red pen to proposals. And I was able to get a proposal through her review, when, just a year or two ago, and she had no red pen marks, you know, so we're very detail oriented, we do make sure that all those T's are crossed, and all those i's are dotted. And we help companies anticipate questions or clarifications that VA may have, which were then able to submit those as part of our proposal package, which then eliminates a lot of the back and forth that you go through to get your proposal into shape where the the contracting officer then says, Okay, now I can review this because I have a complete proposal package in my on my desk.
Patrick Kothe 51:27
So when do you get involved? And do you have different ways of getting involved? You said earlier that some people can fill out the first half of the proposal? And then the second half is, is more difficult? Do you just do the second half? Do you do the full proposal? How do you work it
Hannah Zerphey 51:43
We do, however, is best for the companies. So you know, some companies, they want to put the whole thing together, and then they'll send that package to us for review. Some companies want us to start from the very beginning and basically do everything for them. And some companies, you know, want a little bit of a mix of the two. So it just it's we're very flexible, you know, and try to help meet companies where they're at with their their FSS proposals, and really any solicit government solicitations, we help evaluate your responses to other RFPs and bids that are out there that companies find on sam.gov. So if we meet, you know, what you need is what will be
Patrick Kothe 52:32
let's assume that the sam.gov is is done. And you're starting to write that proposal. what's what's the time frame look like? Is it a couple of weeks? Is it a month? What you what, how long does it take to put that together?
Hannah Zerphey 52:47
It depends on the number of products that you're offering, right? So we have you know, I've we've got one client, they're offering like almost 15,000 line items, so that's going to take a bit longer. Some companies they offer one or two. So depending on how quickly the company is able to gather all the information that we need, you know, we can get it done within 30 days. I think like 30 to 90 days is usually a window for submitting a proposal. And that's it's all dependent on how quickly the company moves with us, and how quickly Greg and I are able to make heads or tails of the information that's been provided, the piece that takes the most amount of time is the commercial sales practices piece, because we'll ask you, the company to send us all of your commercial agreements. And we will review those and kind of identify any terms and conditions that we need to disclose. And then we'll actually write up the disclosures for you. So that takes time because there's a very specific way that VA likes to see it. And so you know, we want to make sure that there'll be get everything in that particular format. And there is another way that we didn't really talk about but for distributors, especially distributors and resellers with no commercial sales, you can still submit proposals, there's just a whole different way of submitting your proposal that requires you to disclose your they call it the VA calls at a cost build analysis. So basically, here's our acquisition acquisition costs from the manufacturer. Here's our value, add pieces for warehouse and distribution, admin costs, marketing, all of that kind of stuff. And here's the total of that add on price. And this is how it all equals the F bar proposed FSS price. So we help companies, distributors in those types of instances, as well tell that story to VA. You know, we are we're not just a pass through. We're not just you know, if it's a service disabled company, we're not just a socio economic Stamp, you know, we actually provide value to the government above and beyond what the manufacturer can provide. So there's, you know, those types of things take a decent amount of time to get into place and to language so that VA will understand the story that we're telling.
Patrick Kothe 55:24
So you started off talking about liking to be a puzzle solver. And, and when, when many of us look at that this government procurement process, and we think about that, you know, 1500 piece puzzle, it doesn't have any interlocking pieces, and it's it's all, you know, jumbled out on the table. And it's hard to see what the picture looks like, you're able to, you know, what the picture looks like, you know, when it when it's all done. And I think that's kind of the value that you bring is the ability to see here, here's how to, here's the issues we've got, here's how to, here's how we're going to get to get to a final on on there.
Hannah Zerphey 56:04
Yeah. And, you know, it's, it's helpful that Greg and I are friends with a lot of the folks that still work over there. So we have those that personal connection with a lot of the contracting folks, which means that it's a lot easier for us to pick up the phone and call them and ask a question, then, you know, for a company that would be cold, calling VA to get answers. And it also means that because we've submitted so many proposals, under a whole slew of different scenarios, we've got a lot of best practices that we have implemented in how we gather information, how we write up our narrative, and our cover letters and that kind of thing. So it helps us to be able to anticipate those questions that VA is going to have, because we've experienced it, you know, we've had proposals returned for various reasons. So then we've implemented changes to address those issues. In in future proposal submissions, so you know, there's, yeah, we've learned quite a bit. And every time we learned something new, we implement that for our clients moving forward.
Patrick Kothe 57:14
And as an insider, who understands the issues, the contracting officer ways, and then what a company should do to gain access. As we discussed, it's really pretty easy, provided you know what to do a few of my takeaways First, if you don't know, ask, every situation is different, your your situation, your products are gonna be different than somebody else's. So it's good to understand not only what the process is, but how your product fits within there. So that means you're understanding whether you should do that FSS versus, as we talked about what adapa does, or doesn't do for you what product category you truly are in, and there may be some some interesting things about your product. And whether you're a new product versus existing sales, and then what that means to the application process. And the other thing that that you talked about is if you don't currently use a distributor, and you want to get into that process with adapa. Well, there's gonna be some costs associated with there. So how much is that? Is that going to cost you. The second thing that really struck me was internal systems, not only for your initial application and the things that you're going to have to have to provide an initial application, but then post Contract Administration, and those reports that you're going to need to generate, making sure that you have systems in place to make it easier, easier to report. And also make sure that it's done on a rhythmic basis so you don't miss any deadlines. Finally, the FSS contract and what it is, it's it really is your license to hunt. There is no guarantee of business just because you got that contract doesn't mean that the dollars are going to start rolling in. But it does provide you the opportunity to access this important market. Thank you for listening. Make sure you get episodes downloaded to your device automatically by liking or subscribing to the mastering medical device, podcast and Apple podcast Spotify or wherever you get your podcasts. Also, please spread the word and tell a friend or two to listen to the mastering medical advice podcast as interviews like today's Can you help me become a more effective medical device leader. Work hard. Be kind
