Net woes hit fed market

The federal market has begun to feel the tremors from the nationwide shake-up in the Internet industry.

FedBid.com, a commercial Web site that enables agencies to band together and use reverse auctions to streamline the buying process and get the best prices, unexpectedly took its site offline about two weeks ago.

A message at FedBid's Web site (www.fedbid. com) said that the site had been shut down for the holidays and would reopen Jan. 8. Media inquiries were directed to Phillip Fuster, the president and CEO of the Germantown, Md.-based company, but he did not return calls. The move comes at a time when many dot-coms that are trying to carve a business out of the burgeoning electronic government market face increased challenges, such as slower-than-expected government acceptance of online models and tightening supplies of venture capital to finance their operations.

Harold Gracey, former CIO for the Department of Veterans Affairs and now vice president of government affairs for FedBid.com, said that the company does indeed plan to resume Web operations Jan. 8. Although he is confident that the future is still bright for companies such as FedBid.com that can help streamline government procurement, he acknowledged that the general business climate for government-focused dot-coms was difficult during the second half of last year.

"The government's speed of change is not fast — it is cautious by design," Gracey said. "Timing is another issue. We're in the last year of an administration, and then the long and rather strange election period and delayed transition aren't the best times to start off new things. The leadership [at agencies] is hesitant to do something new given that they'll be answering to a new boss."

In July 2000, FedBid.com raised $5 million in its first round of funding. The company started shopping for a badly needed second round of money near the end of last year, according to Tom Meagher, vice president for equity research at BB&T Capital Markets, Vienna, Va., but it's going to be tough going, as the market for venture capital has tightened significantly.

"The market is 180 degrees different compared with last April, when money was being thrown round pretty much willy-nilly," Meagher said.

Similar stories are playing out elsewhere in the federal market.

FedCenter.com, a Web-based business-to-government marketplace operated by Herndon, Va.-based Digital Commerce Corp., whittled its payroll from 285 employees last March to just more than 200 by year's end, according to company executives, and closed two of its 10 sales offices.

And govWorks Inc., a New York City-based company that helps state and local governments provide online services to citizens and has plans to expand into the federal market, went through a restructuring process that culminated in numerous layoffs in November.