Seattle Wins with Strategic Partnerships
Seattle Wins with Strategic Partnerships
The City of Seattle’s progressive procurement practices allow purchasing officials to implement contract strategies that save money and meet the community’s goals of environmental stewardship and social equity.
In mid-1999, Seattle, WA, adopted Copernicus, a commodity team-based procurement approach. With the new contract strategies in place, the city re-engineered procurement practices to accommodate the uniqueness of each commodity area.
Annually, the Purchasing Services Division of the Department of Executive Administration presents an analysis of what money was saved and what process efficiencies, environmental stewardship, and social equity successes were achieved in the past year.
“For the last few years we’ve been happy to say that we’ve saved the city more than $2.5 million per year in better pricing along with many qualitative wins as well,” says Melody Mociulski, Seattle’s Purchasing Services Director.
Better pricing is due in part to strategic partner-ships that the city holds with vendors. These successful part-nerships have allowed purchasing services to create long-term, stable relationships with suppliers that reduce the cost of products and services. In some cases, the partnerships have created access to additional services that involve significant supplier investment. In all cases, the partnerships assure preferred service from key suppliers.
RISK
A defining element of a strategic supplier partnership is the shared risk for the buyer and the vendor. In Seattle’s case, the city chose to commit to a standard and to a particular manufacturer. This type of commitment raises some obvious concerns. “We are hoping that the company stays in business, hoping that we are getting a good value, and hoping that the vendor fulfills its end of the bargain,” Mociulski says.
The vendor is also taking a risk by holding prices firm, changing manufacturing cycles, and meeting other buyer requests. In a successful partnership, both parties must articulate potential risks. Both parties also must be willing to address those risks and be satisfied with resolutions that are within the framework of the contract.
PRICE
Once an entity sets a standard on a commodity and establishes a long-term relationship with a vendor, one of the first questions that comes up is how to best gage fair price. There must be some conscious way to answer the price question.
Mociulski suggests that an industry standard may be used to measure contract price. Contracts that are awarded by other jurisdictions may also be used for fair-value comparisons. “There should be some consciously identified mechanism against which to measure the contract price—even in a long-term relationship,” she says.
PERFORMANCE
With ongoing performance evaluations, the city looks at price as well as delivery, quality of product, environ-mental stewardship, and social equity concerns such as subcontracting opportunities for women-and minorityowned businesses (WMBEs).
The performance-evaluation framework within the contract should include a way to monitor on an ongoing basis. “By regular monitoring, you can assure your city policymakers that your goals are being fulfilled,” she says.
STANDARDS
When a public-sector entity chooses a sole source, certain requirements must be met. Is there a compatibility issue? Is there a sole manufacturer? Is there a standard?
“I think standards is an area where Seattle may have more discretion or more opportunities than other entities,” Mociulski says.
Public-sector procurement professionals have the same justifications that they must satisfy to initiate a sole source contract, but there are differences in the dollar thresholds and levels of authority across jurisdictions.
“The basic difference is whether entities are willing to adopt standards or not,” she says. “I think because we have our commodity teams we have a better mechanism to ensure that departments are talking to each other to make city-wide decisions.”
Seattle’s sole source legal requirements follow the benchmarks and standards on sole source procurement provided by the National Institute of Governmental Purchasers (NIGP).
As other cities have done, Seattle is dealing with staff cuts. The Purchasing Services Division has lost five of 30 staff members.
“As the department gets leaner, the group needs to look more consciously at picking wins,” she says.
The city chooses its procurement strategy according to the current business climate and opportunities within a commodity area. For example, commodity teams may pursue WMBE opportunities when available. The city may pay a bit more and award more contracts, but the strategy will satisfy social equity concerns. In other commodities, where there are no WMBEs available, there may be money saving partnership opportunities, in which case the group pursues a different strategy.
“We pick the strategy that makes sense within the commodity and juggle as many wins with a variety of goals as we can,” Mociulski says.
PARTNERSHIPS
Somewhat unique circumstances led to the city’s current strategic partnerships with Gateway and S&C Electric Co. From a technology standpoint, the city’s desktop computer commodity team, Technology Council, and Business Management Council had decided to standardize on Gateway—a decision that also brought greater latitude in negotiations.
“There should be some consciously identified mechanism…to measure the contract price,” says Melody Mociulski, Purchasing Services Director for the City of Seattle, WA.
“We had gone out with an RFP in 1999 for computers, and then midway through that process the tech folks in the city made the decision to standardize on Gateway,” Mociulski says. “We awarded to Gateway based on the standardization.”
The successful contract with Gateway was due to expire on May 31, 2003. Because the city had standardized its desktop computer configuration, a survey was conducted among technology experts and key department personnel prior to contract negotiations. The city based its decision to continue the standard based on the survey’s extremely favorable results city-wide. Once the decision was made, the desktop commodity team started negotiations with Gateway.
“The commodity team had a wish list of things that they had come up with from the survey results,” Mociulski says, “including configurations, environmental concerns, improved shipping mechanisms, and other issues that came up during the last few years of the contract.”
According to Bruce Armga, Senior Account Executive, Gateway, “When we have a strategic relationship, such as we do with the City of Seattle, they shared with us what is very important to them, and they have made good, sound requests.”
Gateway was accommodating of the city’s requests. “It was interesting to see the willingness of Gateway to step up and try to say ‘yes’ to everything on that list because they have been so happy with the partnership with the city and wanted it to continue,” Mociulski says.
“Having our clients be able to share information with us makes the part-nership work for everyone,” Armga says. “It’s not pulling out a contract and saying you will do this and that; it’s sitting down and understanding what are the business needs.”
According to Armga, “Even though it’s public sector, they are running a business and common sense does tend to seek out that common goal.
“The partnership has just worked extremely well,” Armga adds.
The city formally extended its contract with Gateway on June 1, 2003 for one year with a one-year renewal option. Improvements made to the contract include:
- Pricing: Extension of current pricing to additional monitor models with updated pricing every 60 days. The city has adopted a standard for flat panel monitors based on a life cycle cost analysis. The contract guarantees that discounts are extended to flat panel monitors.
- Shipping: Gateway has agreed to the addition of a second shipping company. “With the volume and issues of shipping around the country, we asked to have a second option available and they agreed,” she says. The company will also deliver to storage rooms rather than delivery docks.
- Environmental concerns: Gateway developed a lockable metal crate on wheels that delivers between 30 and 40 CPUs, keyboards, mice, cables, and more. The multi-packaging aspect of the contract has satisfied the environmental concerns of reducing the number of boxes and Styrofoam received. “Tied to that is further reducing the unnecessary components that we don’t need when they do multiple unit shipments, such as power cords and manuals,” she adds.
According to Armga, “It is absolutely critical to the city to be conscientious stewards of the environment, whether it be recycling or packing. Understanding what they are trying to accomplish allows us to support their efforts.”
“Coordinating it all takes a little bit of effort, but once we understand their goals and objectives, it was very easy for the company to say yes,” says Armga.
- Disposal of computers: In an effort to reduce the number of city computers ending up in landfills, the contract includes disposal services. Gateway has entered into a partner-ship with a third party, named Resource Concepts, Inc., of Carrollton, TX. Resource Concepts will pick up and dispose of Gateway computers and take them down the waste stream. The disposal option has also been extended to non-Gateway products. According to Mociulski, “For $10 they will take a Gateway and for $30 they will take an HP printer, for example.”
Seattle has a partnership with the area’s primary school district, Seattle Public Schools, for surplusing city computers. “When we upgrade and do not need the computers, the schools and some non-profit agencies take them,” she says.
As part of the new contract, Gateway will work with the school districts to take the computers at that stage of the waste stream, via the city’s partnership. “The schools are very excited about this because they have been trying to dispose of their computers in an environmentally friendly way,” Mociulski says.
- Road maps: There are many questions regarding where the computer industry will be five years from now. “Though Gateway has been good at long-term projections in shorter-term plans, we are formalizing that in what we call ‘Road Maps’ that they will share with us on a quarterly basis,” she says. “The forecasts will include where they see things going in their industry and in the computer industry in general.
“One of the important things that you get out of these strategic partner-ships is more sharing of information, trust, and forecasting,” she adds.
The same is true with S&C and City Light. City Light shares its forecasted plans for needing transformers and pad-mount switchgear with S&C, and S&C shares its manufacturing plans with City Light. “That sharing of forecasting is something that I don’t think you get unless you are in a more strategic partnership, rather than a narrow, adversarial, contractual relationship,” she says.
With S&C, the city had conducted many procurement processes for Seattle City Light (Seattle’s publiclyowned electric utility) in which S&C was the only bidder. Because of the historical outcomes of actual procurement processes, Seattle had justification again to do a sole source contract. Purchasing services found that S&C was the only vendor that was willing and capable of providing the unique systems that City Light needed.
“We pick the strategy that makes sense within the commodity and juggle as many wins with a variety of goals as we can,” says Melody Mociulski, Purchasing Services Director for the City of Seattle, WA.
One of the other benefits of the partnership is that it creates a more stable environment, especially for City Light and its energy-related business needs. If the utility has equipment down, it can call the supplier for replacements, or even have something manufactured.
For S&C, the supplier was going through one solicitation process after another. For a fair amount of work and anxiety, S&C was almost always the successful bidder. According to Mociulski, “For them to not go through all those bid processes and know that they are getting the business, it makes a more stable environment.”
S&C’s contract is up the end of this year and the commodity team is currently negotiating a new, multi-year contract that will continue the part-nership. City Light is extremely pleased with the S&C partnership and vice versa.
FUTURE PLANS
As Seattle develops contracting strategies in the future, it may determine that additional partnerships are desirable in specific commodity areas. Although it is not an approach that fits all commodities, it has definitely proven successful for the city and the vendors in the computer and electric utility areas. As the relationships evolved, lessons have been learned to apply to future partner-ships and how to be more proactive in their development.
“With the S&C and Gateway examples, the city moved towards the part-nerships as more of a reactionary versus proactive strategy,” Mociulski concludes. “When we start fresh in the future, we will know more how to frame the contract, the process, and better articulate the potential mutual benefits of these strategic alliances.”
