The Outlook for Procurement
The economic adjustment that began in 2008 continues to color the budgets and behaviors of government entities at all levels. With state and local budget forecasts indicating shortfalls for the coming three to five years, governments will continue to depend on spending cuts, service and workforce reductions, and aid from the federal government to balance budgets.1 (See Table 1.)
Both state and local year-over-year expense budgets are estimated to grow approximately 6 percent, yet estimates show state revenue growth lagging at 0.6 percent and local budget growth near only 5 percent, a clear reflection of continuing budget challenges. These projected estimates are based on the previous four years of budget data, so they reflect a scenario that presumes status quo behavior, which is not necessarily an accurate presumption. Nevertheless, these estimates warn that continued attention to cost containment, program reductions, efficiency maximization and revenue generation are necessary to achieve balanced budgets in the coming years.
Focus on procurement, practices and supporting technology
Retired three-star general William “Gus” Pagonis, known for his logistical achievements during Desert Shield/Storm and later head of Sears’ Logistics Group, observed at NIGP Forum this summer2 that procurement and logistics remain a largely untapped source of bottom-line savings for the majority of both private corporations and public entities. As every government seeks the greatest value from each tax dollar, administrators will increasingly look to the procurement departments to derive maximum value from all contracting practices whether or not they are intrinsically expense-generating or have secondary (if not primary) revenue-generating capacities. Innovations in procurement practice to meet this demand are inevitable, and we can expect to see the increased and broader adoption of current practices that have previously benefited early adopters of cooperative purchasing practices, purchasing card (p-card) programs and federal grants.
In the procurement community, cooperative practices have been successfully employed by agencies of all sizes and types for a decade or more. These practices include piggy-backing, partnering with neighboring jurisdictions for shared services or increased economies of scale, and competitive solicitations of a national scope awarded by a lead public agency. However, awareness, adoption and use of these procurement tools are not yet universal. Anecdotal evidence — provided by those in city and county management, their elected officials and procurement practitioners — indicate that many state, city and county leaders remain unaware of procurement and the practices available to their jurisdictions to support budget effectiveness. Surprisingly, some states and localities still restrict the use of cooperative practices. As economic pressures continue to build, the environment for legislative change shifts in favor of cooperative purchasing. The growth of regional and national cooperative programs during the past five years confirms the value these programs offer for those who take advantage of them.
P-card programs are a tool both to delegate low-dollar purchasing authority to end-user departments and to realize rebates based on volume. While procurement departments have also had to adjust to fewer personnel, p-cards provide a mechanism to control, measure and analyze spend while increasing the speed at which material requirements are fulfilled.
Beyond these third-party cost-saving and revenue-generating resources, pressure over time from government administrators and the public will increasingly drive procurement and finance leaders to seek more effective tools to expand their internal capacities and eliminate redundancies. The aforementioned p-card is one such tool, and its use alongside online order entry and supplier “punch-out” tools feeds an important transactional data mine that supports spend analysis and spend management systems.
The United Kingdom, which is five to 10 years ahead of the United States in adoption of spend analysis and spend management applications in government practice, provides a ready reference for domestic government officials who seek a better understanding of these practices and their value. Similar to the pressures driving adoption of cooperative procurement practices, public pressure on elected officials to demonstrate fiscal responsibility will support the use of technology-based tools that contribute to more effective sourcing practices, reduce accounting and financial errors, and improve reporting, transparency and accountability throughout each government enterprise. Demonstrating greater effectiveness in any of these areas provides politicians a stronger platform upon which to build their reelection campaigns. As more and more elected officials make this realization, we can expect an increase in the adoption rate of spend management technologies.
Competition, bid protests and preference legislation
As shrinking budgets result in fewer government contracting opportunities for the supplier community, competition heightens for available opportunities, as evidenced by the growth of disputed bids and adoption of vendor protective legislation. Although broad state and local bid protest statistics are not available, the U.S. General Accounting Office (GAO) reported that in FY2008 and FY2009 federal bid disputes increased 17 percent and 20 percent, respectively. Conversely, the number of disputes upheld has steadily declined from 29 percent in FY2006 to 18 percent in FY2009. Comparing the raw number of disputes versus sustained disputes shown in Table 2 provides a more telling demonstration of the urgency in the marketplace to secure the available government business.
The GAO website shows 292 open protests as of August 25, 2010, already exceeding the “FY2008 Total Sustain + Deny Decisions” rendered. Anecdotal reports from state and local procurement leaders echo the GAO’s FY2008 and FY2009 figures with an expectation of continued protest filings at a pace on par or slightly higher than current levels.
Additional evidence of increased competition for government contracts is the growth of states reporting vendor-based price preference policies3 as specific business classes seek to achieve or maintain competitive equality with larger or more established government suppliers. (See Table 3.)
Stiffer competition will continue to influence protest and legislative efforts as organizations adapt to leaner government budgets and fewer opportunities to secure government business.
Demand for procurement professionals
A unique confluence of factors is influencing a growing demand for public procurement professionals. These factors can be briefly summarized as follows:
- Aging workforce
Fifteen percent or more of the existing federal4 and state5 procurement employees are eligible to retire in the next three-to-five years. Forecasting to 2018, the percentage of federal acquisition employees eligible for retirement jumps to 60 percent4.
- Need for more personnel
Federal hiring plans call for adding more than 12,000 new procurement acquisition/contracting personnel by 20156.
- Demand for additional skills
The transition of procurement from a transaction-centric function to a center for applied strategic business practices demands workers with a strong education; business, contracting, legal, and/or finance acumen; systems awareness; and effective communication and partnering skills.
- Not enough education
There is a near-absence of higher education government procurement degree programs.
- Required certifications
State and local governments increasingly require procurement practitioners to hold or obtain professional certification as a condition of hiring.
Anticipating the possibility of substantial retirement-related turnover and recognizing the changing nature of procurement and the competencies demanded of the procurement professional, agencies increasingly seek educated, experienced and certified7 government procurement professionals. Unfortunately, public procurement as an occupation or career option does not enjoy broad awareness in the undergraduate population; nor are there many institutions of higher education offering government procurement and contracting-specific degree programs. As a result, the public acquisition and contracting workforce is not expected to grow substantially in the relative near-term.
Most procurement workers gain their knowledge and skills on the job and from professional development programs offered by professional associations and continuing education providers. Coupling this dynamic with the procurement workforce needs at all levels of government and the private sector, state and local governments can expect an uphill climb over the coming five years as they seek the human resources to effectively sustain and develop procurement programs to meet challenging budgetary goals successfully.
For individuals in government procurement and those entering the field, the coming five years hold great challenge and opportunity. Challenge comes from working with tight budgets to meet the high expectations of elected officials, government administrators and the public. Procurement professionals will need to develop a diverse array of competencies to effectively meet the legislative, business and service requirements necessary to support their entities and their communities.
The potential silver lining for the individual procurement practitioner is that awareness and demand for his or her talents are on the rise, and there is a growing number of existing professionals eligible to retire. This presents opportunity for those still in procurement and contracting as well as for those who would enter this demanding field. In other words, in the procurement/acquisition/contracting professional marketplace, a seller’s market is just around the corner.
Some Views on the Economy
Council of State Governments
Sujit CanagaRetna, senior fiscal analyst: Despite multiple economic challenges, my review of a range of different economic data leads me to conclude that the U.S. economy will continue to grow, a development that will eventually bring relief to states in the form of increased revenues and broad-based economic growth. While state revenues will continue to lag the national economic recovery and states will face considerable fiscal headwinds going into both the 2011 and 2012 fiscal years, there is room for cautious optimism.
National Governors Association
NGA Executive Director Raymond C. Scheppach: Because states lag behind national recovery, they expect 2011 to be as bad as 2010, and states will not begin the path to recovery until 2012. Spending cuts have been made across the board, and governors have been tremendous fiscal stewards. However, it will continue be an uphill climb for states until 2013, when revenues are expected to return to 2008 levels.
National League of Cities
Annual Report on Cities’ Fiscal Conditions: Financial officers report the largest spending cuts and loss of revenue in the 25-year history of the survey. Some 87 percent of city finance officers report their cities are worse off financially than in 2009. City revenues — as generated in property, sales, and income taxes — will decline 3.2 percent in inflation-adjusted dollars according to finance officers. To compensate, city officials are cutting back spending, with expenditures declining by 2.3 percent. These are the largest cutbacks in spending in the history of the survey and the fourth year in a row that revenue declined. Financial pressures are forcing cities to lay off workers (79 percent), delay or cancel capital infrastructure projects (69 percent), and modify health benefits (34 percent).
About the author
Brent Maas is the marketing director for the National Institute of Governmental Purchasing (NIGP), a professional association providing education, research and promotional programs to more than 16,000 procurement professionals from over 2,400 U.S. and Canadian federal, state, provincial and local member agencies. E-mail Brent at [email protected]. Learn more about NIGP at www.nigp.org.
McNichol, Elizabeth, et al. “Recession Continues to Batter State Budgets; State Responses Could Slow Recovery.” Center on Budget and Policy Priorities. July 15, 2010.
Pagonis, William “Gus.” The Effects of Procurement on the Supply Chain.” Plenary speech. National Institute of Governmental Purchasing Annual Forum and Products Exposition. August 14, 2010.
“NASPO 2009 Survey of State Government Purchasing Practices — Executive Summary.” National Association of State Procurement Officials. September 2009.
“FY2008 Annual Report on the Federal Acquisition Workforce.” Federal Acquisition Workforce. October 2009.
“NASPO Research Brief – Responding to an Aging and Changing Workforce: Attracting, Retaining and Developing New Procurement Professionals.” National Association of State Procurement Officials. October 2007. p. 5.
Combines civilian (2,397) and defense (9,887) additional acquisition positions. See Federal Acquisition Institute. “FY2008 Annual Report on the Federal Acquisition Workforce” and U.S. Department of Defense. “Defense Acquisition Workforce Improvement Strategy.” Strategic plan submitted to Congress. April 2010.
“Purchasing Managers, Buyers, and Purchasing Agents.” Bureau of Labor Statistics Occupation Outlook Handbook, 2010-2011 Edition.