Law opens door to technology

From electronic benefits transfer to national law enforcement to one-stop shopping for governmental services, information technology is the glue that bonds future federal partnerships with state and local governments. The Federal Acquisition Streamlining Act (FASA), signed into law by President Clinton on October 13, 1994, will bring the various parties together in a purchasing program that allows for cooperative buying of information technology.

The cooperative purchasing provision of the new law opens federal supply schedules to state and local governments for the purchase of everything from desks to desktop computers. It is still to be determined whether the initiative will prove itself to be a boon to price- and productivity-minded government shoppers or create a new set of problems for all concerned.

The theory behind FASA’s cooperative purchasing provision is that by opening General Services Administration (GSA) schedules to state and local governments, these purchasers gain the benefits of prenegotiated, substantially discounted pricing. This reduces – and may even eliminate – the administrative costs that state and local governments bear when conducting competitive procurements.

Even states like New York and Pennsylvania and large municipalities that maintain their own supply schedules or term contracts for information technology benefit from FASA because of the availability of an alternate supply source.

Making information technology easier to buy should make information technology easier to sell, and that could bring new suppliers into the multi-billion dollar marketplace, giving buyers not only lower prices but a wider range of purchase choices. A bigger market also gives the federal government more negotiating power with volume-hungry vendors.

But markets, regardless of size, are built on practical realities. On the buyer’s side, GSA must maintain its supply schedule on a break-even basis. That means participating state and local governments will probably pay an administrative fee to the federal government for the opportunity to buy on GSA schedules.

Vendors will have to reevaluate how they market to state and local governments. Today when vendors consider the state and local marketplace, they face 50 state customers and thousands of county and municipal customers, all doing business their own way. The cooperative purchasing provision pulls a common thread through an otherwise disparate audience-share for every advertising dollar spent, to reduce maintenance costs, to enter previously-closed markets and to operate from a single price file.

There are several potential risks. The most obvious is the effect that the new sales channel will have on profitability. Because of GSA volume discounts, many firms may see their margins for state and local business shrink. Companies will have to weigh the loss with the potential gain in sales performance.

There are other difficult supply side issues. Once FASA’s implementing regulations are finalized, schedule holders may face an “all or nothing” decision requiring vendors to sell to all interested groups instead of choosing their customers.

Supplier participation also depends on whether government customers localize GSA schedules. Such a move would pose a substantial administrative burden to the seller, calling into question whether the economies of scale in this new market justify the cost of doing business.

Cooperative purchasing is a good idea, but success depends on translating the idea into implementing regulations from which all partners stand to gain.