THE WILD, WILD WEST OF SLG: Scaling State & Local Government Sales with Statewide Contracts
Updated: Feb 22, 2021
Do you tend to lump State and Local Government into your commercial or Federal sales motions?
We work with many tech companies looking to scale their US State and Local Government (SLG) sales. Compared with the well-established Federal procurement terms and information security programs, SLG sales might feel more like the wild, wild west version of commercial sales. However, the legal issues relating to appropriations, anti-corruption, competition, information security, and procurement fraud make the SLG selling motion—and risk profile—more akin to Federal.
One wild feature that bucks the trend: unlike US Federal and commercial customers, some states have mandatory statewide contracting vehicles. This vehicle is a master contract where the state procurement office negotiates the standard terms for all participating state agencies to award the contract. Once awarded, when purchasing a product covered by the master contract, all agencies can (and sometimes are required to) purchase off the contract with no further negotiation. If mandatory, the agencies cannot negotiate a separate contract without significant bureaucratic escalation.
Technology companies often view statewide contracting vehicles as a nice way to access multiple local markets across a state. But when the contract is the mandatory purchasing vehicle for agencies across a state, then the contract is not just a nice-to-have—it is a must-have.
In our experience helping tech companies, these types of mandatory contracts have common risks, pitfalls, and struggles. As the unofficial law edition of Wild West Weekly, we "acknowledge the corn"[1] and how to get those contracts in apple pie order.
"Big Bug"[2] named Statewide Contracts
Draconian Terms: States are notorious for inserting terms that are high-risk for tech companies into their statewide contracts. For example, the state may have terms that include:
Business: insist on conflicting ordering practices, Most Favored Nation/Customer and price-reduction clauses, conflicting use rights and Service Level Agreements, overly stringent data privacy and security requirements, intrusive background checks for on-site services personnel, high insurance levels, post-award reporting, technical standards
Legal: IP joint-ownership, IP indemnification, broad indemnification, extensive warranties, high liability limits, or no liability caps
No "Higgling"[3]: Some states do not negotiate statewide contracts—either accept the draconian terms. or don’t do business with the state.
"Hang Fire"[4]: States that negotiate might not prioritize putting in place a master contract with your tech company. And even if negotiation results in a contract with fewer risky business and legal terms and conditions, these negotiations tend to be hard-fought battles.
One Size Fits All: Often statewide contracts have a single set of terms and conditions for a specific product category, such as cloud services, and sometimes, even for all tech products and services. However, most tech companies don’t have a single set of terms; they have different terms for various products. To sell to a state entity, that tech company would have to reconcile all their myriad terms against the state’s standard terms. Risk review and analysis becomes multi-dimensional, because one state term might be acceptable for cloud services but not human-delivered support services.
Wrangling the Risk
“Eyes wide open” Risk Review & Analysis: Blindly signing up to a mandatory statewide contract and hoping for the best is not a good strategy. Instead, review the contract to identify risky terms and weigh those risks against the potential revenue and pipeline. With a thorough Risk Review & Analysis, companies can decide with “eyes wide open” whether to:
Sign as-is
Dedicate resources to negotiate (if a possibility), or
Walk away For tech companies that provide software licenses and/or cloud services, the company may want to sell both the license to the software (and/or access to the cloud services) and human-delivered support services. Often, tech companies establish different terms and conditions for support services. But some states have a single contract with one set of terms —no matter what the supplier is offering. In those cases, consider conducting a multi-dimensional review of those state terms against the components of the agreement terms that together address software, cloud service, and human-delivered support services.
If you can higgle, prep for the win-win: Make the most of any opportunity to negotiate, with upfront planning and project management along the way. Identify the internal RACI team and lead negotiator. Based on the Risk Review & Analysis, brainstorm the BATNA and possible “gives and gets.” Establish a cadence for getting input from, and deal communications to, key stakeholders. Enlist the help of IT, Finance or another business unit to make a business case for your product with the SLG customer to help keep up the negotiation pace.
Actively manage indirect parties: An indirect model in SLG is another good way to help scale the business. But from our experience, resellers tend to be a high-risk area on which companies give too little focus. With an indirect contracting model, another company sits between the tech company and the government; however, an indirect model doesn’t fully insulate the tech company from government issues. If you’re considering adding resellers to market your IT services, software, and/or cloud services on their statewide master contracts, design a reseller program with the proper terms that flow up to end government customer (if applicable) to ensure basic government contracts compliance by the reseller.
In the spirit of “trust but verify,” ensure your reseller agreement requires the third party to, at minimum: Flow the tech company’s terms up to the government entity; indemnify the tech company for liability vis-à-vis the reseller’s prime contract; implement a government contracts compliance program, including a code of conduct and training
Negotiate terms directly with the state, and then provide the custom terms and conditions to resellers to incorporate into their master statewide agreement.
If negotiation with the state is not an option, modify the Risk Review & Analysis to identify the high-risk terms the reseller must assume as the prime and which would necessarily remain with the tech company. Based on that analysis, decide whether to allow the reseller to add the tech products and services to the reseller’s statewide master contract.
10. Striking it rich and safeguarding your riches: Getting a master state contract in place gives the sales team an opportunity to go close deals and bring in the revenue. But sometimes a master state contract can also mean ongoing compliance and reporting. To manage post-award risk, be sure to design and implement a compliance and reporting program for your SLG business to remain in good standing with the state.
We Can "Jam the Breeze"[5] with You
We know that supporting SLG sales can be unpredictable for a legal team. When faced with spikes in workloads, larger projects such as compliance programs or developing playbooks, multiple deals, litigation, and commodity legal and contracting work, we can be agile by leveraging technology, contract attorneys, domestic ALSPs, and various specialized Alliance Attorneys. Your challenges become our solutions, as we can scale across every major state jurisdiction through our professional relationships.
Shoot us a call or email—we’d be happy to discuss your needs
Wild West Glossary [1] To confess the truth [2] The boss, an important person [3] To Higgle is to haggle or bargain [4] To procrastinate or delay: let’s hang fire before we make up our minds. [5] To go full steam ahead
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This article is not legal advice but gives a general summary for educational purposes only and is not intended to be comprehensive. Seek specific legal advice before taking or refraining from taking any action. Please see our full Legal Disclaimer