Delivering the goods
The use of government cooperatives is increasing in popularity, because it often saves both time and money, according to recent study conducted by American City & County’s sister publication, Government Procurement and its partner, NIGP: The Institute for Public Procurement. The study was e-mailed to the magazine’s subscribers in August 2014, and was a follow-up to a 2011 survey on the same subject. More than 720 people responded to the survey, in contrast to 170 who responded in 2011.
The current survey shows 94 percent of governments are using cooperative purchasing agreements.
Approximately 47 percent anticipate their use of cooperative purchasing will increase over the next three years, while 43 percent anticipate it will stay about the same. Only about 3 percent think it will decrease, while 8 percent are unsure. In 2011, 95 percent of governments used cooperative contracts and 50 percent said they anticipated their use of cooperative purchasing would increase, while 41 percent anticipated it would stay the same, 3.6 percent anticipated it would decrease and 5.4 percent were not sure.
The survey shows that cooperative purchasing brings many benefits to a community. 92 percent of respondents say it saved them time, while 77 percent of respondents report it saved money. Program rebates also were noted by 33 percent of the respondents.
Brent Maas, NIGP’s executive director of business strategy and relationships, says the larger co-op programs may offer a greater number and diversity of contracts than their smaller counterparts. However, he emphasizes that the real value of a program is derived from the quality of the contracts it offers and how well each may fit the specific needs of the agency that may piggyback on it.
He suggests that to evaluate a co-op, one must review the nature of the program, the processes used to establish the contract, the contracting agency and the specific terms of the contract.
“All of those elements are the focus of the accreditation program the NIGP is rolling out,” Maas says.
Cooperative purchasing drawbacks
Survey respondents listed several concerns about cooperative purchasing. 45 percent thought there were too few local-purchasing options, while 41 percent thought co-op pricing was not aggressive enough. About 30 percent did not think cooperative purchasing met competitive solicitation standards, while 23 percent say there were not enough choices. About 40 percent of respondents who did not use cooperative contracts say they received better results from direct solicitations, down 10 percent from the 2011 survey.
What additional functions or features should cooperative contracts provide? 80 percent say local suppliers should be involved and 44 percent wanted involvement of small, women-owned or minority-owned businesses. 38 percent wanted more information on green compliance and sustainability.
Purchasing Technician Loretta Bush of Athens-Clarke County (ACC), Ga., says the main drawback with cooperative purchasing is that it eliminates competition. Smaller vendors cannot compete because they lack the revenue of the larger ones.
“It doesn’t give everyone an opportunity,” she says.
ACC doesn’t use cooperative purchasing for some items and services like consulting and engineering services and large equipment. Instead ACC will go through the conventional bidding process, depending on the dollar amount involved.
“We have so many firms up here and so many of our projects are unique,” she says. “We need [suppliers] to actually bid on them.”
Darin Matthews, Portland State University’s director of contracting and procurement, says that the biggest drawback in cooperative purchasing is that smaller and more local companies are cut out when procurement officials go co-op. When Portland State uses a co-op, those putting together the Requests for Proposals (RFP) do things differently than Portland State would.
“We would make sure that in our case, Portland-area suppliers were directly notified,” he says.
Matthews says that one area where co-ops can make themselves more useful is better partnering with local businesses or businesses owned by women or minorities.
Maas notes that fewer of 2014 survey respondents say that the choices co-ops offered were too narrow (23 percent vs. 28 percent in 2011) and that pricing wasn’t aggressive enough (41 percent vs. 47 percent in 2011). This shows that cooperatives have been more successful at expanding their offerings and pushing for the best pricing. However, he says the 2014 data shows 30 percent of respondents were concerned about co-ops not meeting competitive solicitation standards, a 10 percent increase over 2011’s 27 percent figure. Cooperatives should note that concern, since public procurement agencies almost universally require a competitive solicitation process as a criterion for piggyback use of a contract.
Maas also notes the concerns respondents had about a lack of local suppliers. The data indicates co-ops should be aware that locality is an important decision-making criterion and affects the approach a procurement professional takes when considering a cooperative contract or an independent solicitation.
“What that really translates into is a cooperative program being able to communicate the way in which the contracted suppliers represent or are members of the local community,” he says.
It might be difficult for a national co-op to support a purely local business, but some already do. For example, U.S. Communities contracts with Independent Stationers, a collection of local and regional office supply stores that are typically independently owned. Those stores compete with larger suppliers, but they’ve managed to carve out a niche.
“Independent Stationers is able to create the network of local suppliers who will honor the pricing as negotiated at the national level, but all the distribution product is coming from their stores,” he says.
A popular procurement tool
Cooperative purchasing represented between 5 and 10 percent of spending for 26 percent of respondents and between 11 and 25 percent for 25 percent of respondents. 15 percent used it for 26 to 35 percent of their spend, 8 percent for 36 to 50 percent and 3.5 percent for more than 50 percent.
Local/joint solicitations with neighboring jurisdictions grew dramatically in the past couple of years. In 2014, about 60 percent of respondents used them compared to approximately 17 percent in 2011. An unidentified survey respondent representing Wellesley, Mass., says when her town uses cooperative purchasing, it employs the practice along with other towns. The town issues an RFP each year per Massachusetts procurement laws and multiple towns — eight at present — buy off the contract, even though Wellesley is the name on it. The town is part of other co-ops, but those are fallbacks, not something it actually uses.
When asked the criteria the town uses for deciding when to purchase cooperatively, she says, “You need to be buying enough of whatever the product is in order to make it worthwhile for the company.”
If there’s a common product, the towns can go to the supplier in a group to acquire a larger amount than they would individually. Rather than buy 500 pens, for example, the towns would buy 10,000. That makes it worthwhile for the supplier to cut the price. The main drawback is the need to find enough partners to go in together. Fortunately, Wellesley has the opportunity to use a Massachusetts state contract if necessary, saving the town the time required to assemble an RFP (for bids over $30,000) or find three bidders (for bids under $30,000).
Bush says the major benefit of cooperative purchasing is that the competitive bidding process is already done. Bush anticipates continuing and even expanding ACC’s use of cooperative purchasing in the near future because it saves administration costs and time.
Matthews says Portland State uses several contracts from local and national cooperatives as part of its everyday business. The criteria the school uses to decide whether or not to use the co-op are type of goods available, quality and pricing.
“We don’t want the cheapest out there but we want a good deal and good value,” he says.
Matthews says using co-ops saves staff time — if they need something fast and don’t have the time to assemble their own RFPs, a cooperative contract is a good way to go. It also helps get the best available price.
He anticipates the school will continue to use cooperative purchasing and will integrate the contracts into its new e-procurement system. On a wider scale, Matthews believes co-ops will be valuable to procurement officials because in many cases agencies are operating with limited resources. For example, a longtime procurement official might retire and not be replaced. Even for fully staffed agencies, using co-ops will save time and allow for more training or focusing on different priorities.
Common cooperative categories
The survey listed 14 different categories for cooperative purchasing. The most popular was information technology and electronics equipment (about 68 percent), followed by office supplies (66 percent), automobiles, trucks and transportation equipment (63 percent) and furniture (nearly 62 percent).
Matthews says Portland State uses cooperative contracts to buy desktop and laptop computers, which are a major spend area for the school. Cooperative contracts are also used to purchase laboratory supplies — pricing and convenience are two reasons. When the school’s scientists want a certain type of lab-tested equipment, using a co-op makes it convenient and cost-effective. Like most others, the school also uses co-ops to purchase office supplies.
Bush says that ACC uses cooperative purchasing to acquire buses and some cars and trucks. The community also piggybacks on a state cooperative agreement to purchase office supplies.
The 2014 survey revealed some changes in purchasing patterns since 2011. 32 percent of building and construction supplies were purchased via cooperative contract in 2014, while 26 percent were purchased cooperatively in 2011. 62 percent of furniture was purchased cooperatively in 2014 versus 54 percent in 2011.
Maas theorizes that changes in those two categories reflect changes in the economy since the 2011 survey. 2011 was during the tail end of the Great Recession, likely leading to less construction and fewer furniture purchases because of staff reductions.
Getting the word out
The Internet proved decisive in procurement specialists learning about cooperative purchasing. 78.3 respondents said the Internet and websites were how they received information or did research about cooperative purchasing, while 74.8 percent said they learned through word of mouth or networking.
Maas says co-ops will be pleased to see that the best opportunity they have to promote themselves is via the Internet. However, he says if they’re looking for face-to-face promotion, the best avenue for that is trade shows. Talking with peers and word of mouth is right up there with the Internet in terms of effectiveness. If co-ops fail to take this into account, their marketing efforts will suffer.