People in the private sector like to opine that government should operate like a business, but that’s just not practical. The goal of the public sector is to provide the best possible services at the lowest possible cost, with a focus on the health, safety and welfare of the community. The goal of the private sector is to make a profit. These competing interests make it impossible for governments to run like a business; plus, there are some poorly run businesses no one should ever emulate.
But that’s not to say local units of government (LUGs) can’t learn a thing or two from the private sector. There are elements of successful businesses that can be incorporated into the business of government; particularly, certain procurement practices.
LUGs with decentralized or no formal procurement practice can benefit more than others, especially those that look at purchasing goods and services as only a task. The sooner the “done” box can be checked, the sooner they can get to the next issue du-jour.
LUGs often use bid networks and place orders with the, “lowest qualified bidder” no matter how many bidders participate. They also see over-specified bigger ticket items, many times prepared with the help of a vendor who then becomes the only person capable of meeting the requirements. Other potential providers can usually read between the lines in these cases and don’t bother submitting a bid.
Those who deal with purchasing goods and services in the public sector have a great opportunity to lower costs, develop new providers and even create mutually beneficial or “out of the box” agreements. They can use the savings to improve the way core services are delivered or help “Fix the damn roads,” as one successful Michigan politician campaigned on.
Procurement procedures in the public sector must contend with local and state rules and some layers of bureaucracy, but that doesn’t mean they can’t be improved. At the end of the day, most ordinances usually allow the LUGs to do what is in their best interest when something doesn’t fit in the box. This is where adopting a more commercial approach to procurement, can improve efficiency and transparency, while maintaining the public’s interest.
Private sector procurement has the goals of increasing shareholder profits and improving sustainability and brand reputation. In local government, the shareholders are the residents, and the profit is counted as fund balance. Greater fund balances allow for building a safer, healthier, more economically successful community with appreciating property values.
In other words, LUGs should seek out the products and services that offer the most value to their communities if they want to increase their shareholder value. And, just like in the private sector, that means finding products and services that are reliable, efficient, sustainable, technologically advanced and cost less.
To achieve this, LUGs should consider adopting and adapting. There are many alternatives, including consolidating purchases to limited supply chains and seeking out long-term, joint-purchasing agreements with nearby communities. In the end, LUGs can leverage their purchasing power to reduce costs while improving efficiency and productivity.
Quite frankly, a bid needn’t end when Sealed Bids are opened; that’s actually a good place to start. Make sure to ask bidders to provide detailed breakdowns of their costs, and study that data to look for anomalies. If you see big differences in commodity prices, use that to help determine a new baseline. In situations where vehicle purchases are required, the economy can establish better prices than a 1- or 2-year-old state established vehicle price. Local dealers get volume “spiffs” with their manufacturer, which can add another $500-$1,000 in incentive money to a deal. Always, let me repeat, ALWAYS, double check state vehicle prices against your local dealer to see what they can do. They are community members who pay taxes, and this simple effort can foster better business/government relations, even if they can’t help (this time).
Never give up though. The end of the month and end of the year are the best times to buy vehicles, as those waning days are when a dealer is trying to make their number. One community Munetrix introduced this concept to saved $35,000 on a 32-vehicle purchase.
Again, government officials must follow the rules of their profession and all policies established by local, state and federal law. They must also follow the ethical guidelines and use their moral compass in the process. However, these items don’t prevent procurement officials from negotiating to achieve the best value for their hard-earned taxpayer’s money.
Supplier score cards are a great way to manage suppliers and track performance if they do more than “one off” work. Adopting a supplier score card that measures established criteria — such as quality, on-time delivery, responsiveness, etc. — would provide an easy and efficient way for governments to assess their suppliers. Score cards also make it easier for suppliers to improve their performance. The creation of minimum supplier standards makes it easier to weed out low-performing suppliers in the bidding process while also increasing efficiency.
There are many other areas to consider when evaluating the LUG procurement process, including inventory management and developing accounts with frequently used providers so that check runs only occur once per month.
This discussion could go on for a long time, but the take-away should be when it comes to procurement in the public sector, certain private sector best practices can be used without changing the fact a government is being run, and not a business.
Adopting and adapting these business practices could make your procurement management easier and more efficient, and increase the value of your services to residential shareholders.
11 Procurement Best Practices for Local Units of Government:
- One bidder does not make them the lowest qualified. It usually means there was something wrong with the RFP; tear it up and start over.
- Consider being product vague in your bid. In other words, don’t over specify what you want to buy, instead explain the problem you are trying to solve; let the experts present their solution or alternatives. With technology changing so fast, there may be an NBT out there you’ve never considered.
- Consider tying commodity prices to longer-term contracts. This creates partnerships, where swings in the price or fuel or other energy related costs can be adjusted at specified intervals.
- Build strategic openers into long-term contracts when possible.
- Ask for cost breakdowns, then use the data to set targets. It’s not uncommon to see aggregate prices for a road project (for instance) be quite different across multiple bids, when the price of aggregate is not that elastic.
- Ask for other suggestions. A great standard line in a RFP is, “In the case of a similar or tie bid, what differentiator could you add that would make your submission more attractive for our community to consider?”
- Consider a Best and Final Offer (BAFO) strategy. There is an old adage in the world of sales and procurement; if you don’t ask, you’ll never get. Be bold! You (the customer) are in the driver’s seat and the bidders want your business. Use that to your advantage.
- Send anybody involved with procurement to negotiations and other training classes.
- You don’t have to own everything. Consider “make vs. buy” comparisons. If you can find a product or service on the open market which will allow you to deliver the service without jeopardizing quality, use this as a productivity gain to help offset the problem you will be facing in the future as you experience more attrition.
- Always build detailed bid comparisons to easily see key elements of a bid, and consider using a weighted Decision Analysis tool (PUGH) to quantify the value proposition.
- Never buy a vehicle without cross checking state negotiated vehicle rates with local dealers.