The use and breadth of preference policies seems to be increasing. Twenty-seven states provide a legal preference for in-state bidders, one more than reported that preference in 2007. Thirty-one states (compared to twenty-seven in 2007) reported that they have a reciprocal preference law.
These states also reported the following vendor based price preferences:
women-owned businesses (11, up from 4 in 2007), minority-owned businesses (13, up from 5 in 2007), small businesses (11, up from 7 in 2007), disabled-owned businesses (11, up from 6 in 2007), sheltered workshops (18, up from 13 in 2007), veteran-owned businesses (2, up from 1 in 2007) and correctional industries (20, up from 14 in 2007).
Twenty-one states include womenowned businesses in the definition of minority-owned businesses. Twenty-seven (up from 22 in 2007) states have small business certification programs with various agencies (most outside
central procurement) responsible for the process. Twenty-one states have “Buy American” laws that affect public procurement.
Section 19: Preference Policies, NASPO 2009 Survey of State Government Purchasing Practices
Often times when one reviews the results from a survey we scrutinize the findings through a lens of confined parameters that limits our assessment to the questions being presented but not the factors that necessarily have the greatest influence on the subject being examined.
While it is not unreasonable to determine “reciprocal preferences” or the application of the Buy American Policy on purchasing decisions, do such questions actually provide a meaningful picture of public sector procurement policy and practice?
I guess what I am asking is simply this, other than creating yet another reporting mechanism do these kinds of surveys reflect more policy than actual preference?
Let me expand a little bit further on this concept by citing a recent example.
In Canada, there was a great outcry of injustice relative to Royal LePage being awarded a contract to manage the Federal Government’s re-location requirements based on the claim that other potential bidders were not provided with enough time to actually respond to the RFP. It should be noted that this was the fourth time Royal LePage has won the contract since the relocation program began as a pilot project in 1998.
The general attitude was that someone must be getting a kick-back somewhere from LePage!
When I was contacted by the press to give my opinion, I offered a perspective that up until that point in time had surprisingly not been considered.
Specifically I had indicated that as long as government’s offer multi-year contracts that span three to five years, the LePage-type situation is unavoidable.
My reasoning of course is quite simple. The cost to pursue a large contract of this nature is considerable in terms of time and money. The cost to service such a contract if you are the successful bidder is even greater.
Being the “winning bidder” as a senior executive from one large ERP vendor put it, means that you have for all intents and purposes taken yourself “out of the game in terms of pursuing other opportunities.” In other words, and given an organization’s talent pool, a winning vendor ultimately ties up or allocates precious resources to meet the contract’s service requirements that makes the viable pursuit of other contracts difficult if not impossible.
The inherent risks for the vendor are therefore numerous in that if they have not properly priced the winning bid, they could hemorrhage money such as EDS did a few years back with a U.S. Navy contract.
The following excerpt from an October 8th, 2004 article titled “Out with the old at EDS” paints a very interesting picture:
“The company has struggled with troubled contracts, including a massive deal to upgrade the U.S. Navy’s computer and communications systems. Earlier this year, EDS wrote down $559 million related to the Navy contract, which has incurred about $2 billion in operating losses since it began in 2000. The company said Monday that it would delay its earnings report while it considers taking another charge related to the contract.”
There are of course other factors that must also be taken into consideration in the case of large, multi-year contracts including the necessity of developing a solid working relationship at the operational level on both sides of the contracting fence.
Human nature is one where the more time you spend with someone, the greater the likelihood that a relationship will be established that over a few short years will provide an incumbent vendor with an “inside track” as to the inner workings of the client it services. I am of course not talking about a superficial or transitory interaction, but instead one in which a high level of collaboration and cooperation are necessary to ensure the successful fulfillment of the contract itself.
Against this backdrop it is both unrealistic and perhaps even somewhat naive to expect that a preferential relationship will not become a factor in future RFPs. In fact, and as the reporter who had contacted me indicated, even the vendors who had filed the protest regarding the contract award to the existing supplier admitted that given the same circumstances they would expect the same.
This being said, the re-tendering process is of vital importance in that it is the only vehicle to ensure that the government is still receiving best value in areas such as service level performance, current market pricing and innovation?
On the other hand, you do have to take into account the fact that with the award of multi-year contracts, especially when said contracts are renewed with the same vendor, the competitive landscape changes in that fewer suppliers will come to the proverbial table the next time the contract is up for renewal. This means that the information pool from which a cross-reference metrics will be created has also become somewhat narrow and possibly irrelevant.
Although I do not believe that anyone involved in the LePage bid on either side of the transactional fence has deliberately circumvented the RFP process for their own personal gain, every now and then it is a good idea to have a review if nothing more than to maintain the integrity of the process. Or to take a line from the classic movie The Godfather, “Every now and then you have to have a war to get rid of the bad blood.”
While the NASPO Survey is without a doubt interesting in terms of the feedback it provides from a 10,000 foot level, the results would deliver considerably more valuable insight if the questions were expanded to address some of the deeper and more critical elements of public sector prourement policy.
For example, they might ask state procurement officials if they offer multi-year contracts (I know the answer is obvious), and if they do what percentage of the overall budget is consumed by such contract awards?
They can then ask about the renewal process and how each state manages the balance between natural preferences and verifying that they are receiving best value for large, multi-year contracts on a consistent basis.
This is the kind of information that can lead to both increased knowledge and improved practices. It is also the kind of survey that is truly needed.
Procurement Insights 
Posted on November 2, 2009
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