Tips For Foreign Companies Eyeing US Gov’t Contracts
Foreign companies looking to win a prized contract with the U.S. government have many reasons to be intimidated, including bulky regulations that govern the contracting process and disadvantageous trade preferences.
Such barriers, combined with an increasing political sentiment that favors American companies could make even the most talented foreign competitor think twice about dipping its toes in the U.S. federal government contracts pool, which was worth $220 billion in 2016.
But government contracts lawyers say the barriers are surmountable, and a company committed to learning and understanding the rules of competitive bidding in the U.S., and using them to strategically position itself as a strong competitor, has a good shot of winning business from the government.
Government contracts attorneys gave Law360 five tips for foreign companies looking to get a piece of the government contracts pie in the U.S.:
1. Don’t Fear FAR, but Take it Seriously
Making the most of the U.S. government’s vast array of contracting opportunities means learning to love — or at least deal with — the 53-part Federal Acquisitions Regulations, the main set of rules that governs federal agencies’ contract purchases.
These are the rules for doing business with the American government, which, lawyers say, is entirely different from doing business in the commercial market.
“The level of detail and the sheer number of rules is what may be intimidating,” said Andy Irwin a government contracts attorney at Steptoe & Johnson LLP.
Irwin had some warnings, however, for companies that believe they can quickly be successful in the U.S.’s large procurement market.
“Everyone else has been dealing with the system for a long time,” he said. “It’s not something you can kind of go into lightly.”
Companies that are serious about winning business with the U.S. should do some “front-end thinking” and make a commitment to really understanding the regulations here. In some cases, they should set up “relatively sophisticated” internal controls and accounting systems, according to Irwin.
Once they invest in learning the rules, the upshot is that the bidding process itself is “substantially open and competitive, and there are actually relatively few barriers,” he said.
2. Establish a U.S. Presence
Foreign companies that are serious about winning a contract with the U.S. government should consider moving part of their operation to American soil, government contracts lawyers said.
“If you’re going to sell to the U.S. government, you should count on having a U.S. address,” said Jim D’Agostino of Greenberg Traurig LLP.
Companies that do this benefit from their proximity and gain a better understanding of compliance requirements and American business culture.
If a company can afford it, one of the best moves is to establish a production facility in the U.S., which will give the company a political constituency of American voters and politicians, according to Steven Diamond of Arnold & Porter LLP’s government contracts practice.
That principle has certainly come into play in one of the most heated contract battles going on right now, including the fight between Europe’s EADS and America’s Boeing Co. over an estimated $50 billion contract to make refueling planes for the U.S. Air Force. EADS plans to assemble its refueling tankers in Alabama if it wins the contract.
The fight “has been pitched as U.S. versus Europe,” said Diamond. “It’s also Alabama versus Missouri because of where the planes are being built.”
If it cannot afford a U.S. presence, a foreign company can hire U.S. consultants, said Lorraine Campos, of Reed Smith LLP‘s government contracts practice, who doesn’t believe a company needs to relocate for bidding purposes.
She is currently working with a company she said was successful at obtaining contracts in America in part with the advice of three or four consulting companies.
She attributes the contracting success of one of the companies she works with to the advice of three or four consulting companies.
3. Shoot for a Subcontract
Because there are fewer requirements on subcontractors than contractors, government lawyers said that bidding for a subcontract — a contract with a company that already has a procurement deal with the government — could be a good introduction to the market for a foreign company.
“Some of requirements flow down to you as a subcontractor, but not all of them, so the regulatory overlay may not be quite as detailed and it may be a little bit easier to deal with and less intimidating,” Irwin said.
Small foreign businesses can also look for subcontracting opportunities, since government agencies are required to award at least 23 percent of all contracts to small firms, according to the Small Business Administration.
And federal agencies frequently meet these requirements through subcontracts, according to Campos.
4. Know the Market and Where you are Competitive
Because of trade preferences and other rules that favor U.S. companies, foreign firms may be inclined to believe they face stiff competition.
This may not be true, especially in industries where American companies are flagging, attorneys said.
Making technology items like computers and processors, as well as parts for new and innovative warfighter products are particular areas where foreign companies could do well, according to Campos.
Diamond recommended that companies take a look at the Biz Ops web site, the searchable database of all procurement opportunities across the U.S. government.
Companies should also try to learn how various agencies procure products or services, whether through individual contracts or very large omnibus contracts, Diamond said.
And they should find out how many other companies make the same or similar products or services, because, regardless of nationality, if a company is the sole source of a certain good, it will have a significant competitive advantage, he said.
5. Be Prepared for Culture Shock
Companies that don’t operate in a nation with strong conflict-of-interest, employment and accounting requirements may have a hard time adjusting to U.S. procurement standards.
D’Agostino gave the example of a French aerospace company he has represented that had never heard of an ethics and compliance program and had as a result created “a watered down, minimally compliant” one when it began dealing with the U.S.
It took a year to get them to understand the importance of a strong compliance system, D’Agostino said.
Emphasis on ethical benchmarks and disclosure is incredibly important, and foreign firms should expect that the U.S. government will want evidence of how internal compliance systems are being carried out.
One recent example came out in formal requests from the Defense Contract Audit Agency for companies’ ethics training materials, codes of conduct and lists of all violators of those codes, and open investigations, according to an October 2009 entry on Sheppard Mullin Richter & Hampton LLP ’s government contracts blog.
While companies may object to wide-ranging monitoring, it can be the price of doing business here, attorneys say.
“The advice is pretty much, I hate to say it, that’s the way procurement is done here in the United States,” Campos said.