Parts Broker (middleman)

I have seen a lot of discussion on reddit lately about becoming what I call a parts broker. I know it doesn’t always apply to aircraft or vehicle parts, but it’s the same process.

People seem to believe being a broker for the government is an easy “get rich quick” scheme that doesn’t take much effort to be successful. There are companies that are successful doing this type of work. I have known a few be very successful, but I have seen a lot of them fail. So the question becomes why to so many fail? There are all kinds of specific reasons for their failure, but the primary cause is they don’t have a strong executable business model to start with. They just jump in and start losing bids.

Here are a couple thoughts you should consider when creating your business model.

• What are you going to sell? – Many people want to jump in and sell anything the government will buy from them. So let me make a very simple example. Your company finds a solicitation to buy flux capacitors, so you call a flux capacitor company and get a quote for 10 units. Which is the solicitation quantity. You add say 25% OH, 10% GA, 15% Profit Margin on top of the price you were quoted. So lets say your price comes out to $100 per unit, or $1000 total contract value. Everything sounds good. You competitor company A also calls the same flux capacitor company and gets the same quote, add similar markups and submits a quote. So now your competition comes down to who is willing to accept the lowest markups. Now company B takes a different approach. They have done some research and estimated the quantity of flux capacitors the government buys in an average year (this is public information). They contract the same supplier in advance of the solicitation being release by the government and negotiate a 15% discount if they agree to quote their parts exclusively to the government. So now their starting price is already 15% less than your company and company A’s. They win the bid, because they have a price advantage.
• How do you verify your supplier maintains a quality product? – remember you’re the seller, so if the government has a quality issue they come to you to resolve it not your supplier. If your supplier refuses to honor a warranty you are still obligated to honor any quality requirements within the solicitation. That is a common area for companies to get in trouble with the government.
• Can you support your price? – The government in accordance with the Federal Acquisition Regulations (FAR) can require certified pricing.
• You’re putting a lot of trust in your supplier. How strong is your relationship with them?

I could continue on with this list, but this post is getting longer than I intended. You can be successful being a broker or middleman, but it’s not as easy as people seem to think.