Purchase Power: A Special Report on State Procurement
Procurement is at the heart of almost everything a government does. But states vary widely when it comes to how well they manage the things they buy.
These state rankings are the result of a year-long survey and assessment by the Governing Institute. Over the coming months, the institute will compile more detailed state-by-state reports, which will be released to state procurement officials. Watch the Governing Institute site for more details on those upcoming reports.
Governments buy a lot of stuff. Every year, one out of every three dollars governments spend goes toward purchasing something -- from photo copier ink to new vehicle fleets -- to help provide services. This very large chunk of the budget would seem to make procurement the most obvious area to look for new ways to save taxpayer money. Yet for the billions spent every year in state procurement, many central offices have long remained mired in old techniques. They’ve been unable to take a big-picture view when it comes to spending, and they’ve only dabbled in using data and new technology for more efficient purchasing.
The examples of what can go wrong are many. Take Mississippi, which has a high reliance on no-bid contracts. In 2014, the commissioner of the Department of Corrections (DOC) resigned and became the subject of a federal investigation for allegedly taking $2 million in bribes in exchange for steering prison contracts to a former lawmaker. In Colorado, an audit last year found poor oversight of more than one-third of the contracts surveyed in the state’s health exchange. The lack of follow-through to make sure vendors were complying with contract requirements was partially responsible for more than $400,000 in questionable costs.
When these problems make headlines, the response from lawmakers is usually swift and targeted. Last August, Mississippi Gov. Phil Bryant issued a pair of executive orders requiring more transparency when awarding contracts and requiring professional training for procurement officers in the DOC. While these legislative responses might tackle the specific problem at hand, such one-time fixes to procurement rules have led to a hodgepodge regulatory structure that makes sweeping overhauls daunting.
On a grander scale, the bad publicity for procurement offices tends to reinforce old-fashioned ideas that have built a stagnated culture. Many states would rather stick with their established processes for soliciting and choosing vendors than initiate reforms that could raise the spectre of favoritism. “They often choose to take the safe path rather than the best strategic path,” says Old Dominion University professor and public procurement expert Stephen B. Gordon, “because they’ve been punished before and they could be punished again.”
For years, these factors have held a vise grip on the ways in which states buy things -- until now. Recent years have seen sweeping reforms in certain states, leading to greater purchasing flexibility, more attention on vendor performance, better tracking of how contracts are executed and new technology.
While many states are slogging through the beginning stages of these reforms -- and some haven’t changed at all -- a handful are clearly ahead. In an in-depth survey over the past year, the Governing Institute assessed state purchasing processes and ranked 39 state procurement offices, weighing factors such as contract management and effective implementation of technology. (View the survey's highlights here.)
Six states stood out as top performers: Georgia, Virginia, Minnesota and Utah filled out the top four slots with Massachusetts and Ohio tied for fifth. What these states have in common is an effort that began more than a decade ago to modernize their technology and use it to introduce new ideas. Another common denominator was the full support of top-level officials, including governors, who viewed the procurement office as a place to advance the state’s goals rather than an enforcer that simply ensures the state is buying by the rules. As other states across the country are now engaged in their own overhaul efforts, these states offer an effective blueprint for better buying.
Over the past decade, the way most of us buy things has changed dramatically, thanks to new technology. Trips to the store and orders from catalogs have shifted to one-click purchasing and smartphone swiping that allows for quick comparison-shopping to find the best prices. Consumers assess how often they run out of household products and sign up for monthly bulk shipments to save money and keep from running out. Private-sector companies have used technology to buy more effectively and track how well their money was spent.
But the Governing Institute survey suggests that the tech-fueled purchasing revolution has been slow to catch on in most governments. Only 35 percent of respondents, for example, said they have up-to-date spending information and market metrics in their databases even though nearly two-thirds cited such areas as critical to success.
Many states are now taking steps to better track procurement from start to finish, but implementing those changes isn’t always smooth. For instance, Colorado Central Purchasing recently installed a new financial system that tracks the money attached to a project from requisition all the way to vendor payment. But a lack of training on how to use the system -- and the rigidity it placed on the process by requiring budget approval before the solicitation -- has created headaches. “Often this pushes purchasing and sourcing into a get-it-done situation,” Colorado's IT department said in the survey, “with a shortened time for vendor marketing, research and specification/requirements review.” (The state's central purchasing office later told Governing that characterization is innacurate.)
Some states have been early adopters, and it’s these places where working with state procurement offices has become more intuitive and efficient. In 2001, Virginia’s procurement office contracted with a company to develop a software service that was tailored to the state’s buying needs. That service was the basis for what is now “eVA,” the state’s e-procurement platform. Contracting with a company to provide a service, not necessarily just the software, gives the procurement office the flexibility to meet new needs quickly, says Robert Gleason, the state’s purchasing director. For example, if the governor issues a new executive order creating a new type of category for minority-owned businesses, the procurement office wouldn’t have to go through the process of adding that onto their contract with their e-procurement software provider, as in some states. Instead, Gleason forwards on the new specs to his service provider. “They’re primed and ready to go for the next change,” he says, “so I can meet the governor’s objective on the fly and it’s already covered under the existing cost structure.”
States like Virginia that have a well-established relationship with technology are not just more nimble. They are also finding new and effective ways to develop their solicitations. Georgia’s central procurement office has a team of business analysts they call “mathletes” who analyze spending data to help structure future solicitations so that the state can get a more favorable price. Lisa Eason, Georgia’s deputy commissioner for procurement, says the team has shaved off $61 million a year over what would have been paid -- representing an 11 percent annual savings rate.
Technology can be important, but effective procurement still requires good management. That’s become a challenge in recent years, as many state offices report a loss of talent due mainly to retirements and more competitive salaries in the private sector. According to research by the National Association of State Procurement Officers (NASPO), 40 percent of offices report being understaffed compared with the workload requirements. That can leave little, if any, capacity for getting creative and trying new ideas. Customer service has also suffered, although many procurement officers seem to be more optimistic on that front than is likely warranted. Nearly 90 percent of respondents said state agencies are usually pleased with the central procurement office, but fewer than half of the offices even have performance measures for their customer service to these agencies. Only about one-third of offices even ask for formal feedback in the form of evaluations from agencies. And few states have customer service groups dedicated entirely to agencies’ needs.
Georgia has used enhanced training as a way to address its human resources issues, particularly the concern that its staff retain its skill and institutional knowledge as more and more baby boomers retire. In addition to high training requirements, the state’s office is constantly tailoring its trainings to be relevant. For example, it pays special attention to any repetitive staff errors that may crop up, and shares that information with other divisions responsible for training and policy. That information can lead to tweaks in the state training curriculum and even revisions to state policy, if needed.
Georgia’s approach to training has also made it a leader in an area where most states are lagging behind, the survey found. Contract administration -- following through to make sure the vendor and the state stick to their agreements -- is one of the most significant challenges facing state procurement today. Only a few states have made real inroads in this area, and that progress has come only recently. In 2014, Georgia developed a contract training course for procurement officers in both its central office and in state agencies to help contracts run more smoothly. “A lot of our contract administration was very reactive, when someone would call and complain,” says Eason. “So we’d have to react instead of being proactive.”
Florida and Missouri also have new offices that oversee contract management, but most places do not. Fewer than half of state procurement offices in the Governing Institute survey even publish a contract administration manual, and less than one-third have a consistent way of tracking contract performance that they share with project administrators.
This lack of attention leads to mistakes and details slipping through the cracks, particularly in cases where the central procurement office is responsible for handling the solicitation but hands over the project entirely to a state agency after finding a vendor. New York State Comptroller Thomas P. DiNapoli found in 2013 that the state Office for People with Developmental Disabilities overpaid a contractor by more than $1.1 million because it based payments on budgeted expenses rather than actual expenditures. In 2012, a Florida audit of a publicly funded jobs agency found that it ignored or overlooked state and federal financial reporting guidelines, leading to more than $15 million in questionable costs.
Much of what can go wrong with contract administration can be traced back to a lack of focus on designing the project and objectives early on. Too often, says Old Dominion’s Gordon, procurement regulations focus on the middle stage of finding a vendor and writing the contract. That’s too late, he says. “Contracts are awarded and often forgotten,” he says. “They’re just allowed to drift.”
Part of smart procurement means using technology to find innovative ways to connect the state to new suppliers. That’s a key area in which most states are lagging, the survey found. But there are some bright spots. California is unique in using civic engagement methods already popular in cities to identify and connect with new potential vendors. Last fall, California launched its Green Gov Challenge, a competition that asked participants to create apps, visualizations and other tools to help improve government sustainability practices. The state awarded cash prizes to participants that came up with the best ideas and has the option to develop a contract with any of the winners. Virginia in 2012 became the first jurisdiction to launch a mobile app for suppliers to connect with state buyers. Business owners interested in contracting with the state can register, download the app and get notifications when the state bids out for work in their field. A new feature introduced in recent months allows small businesses to connect via the app to bid on a project together.
Some states are using technology to help promote more diversity among suppliers. Here, Minnesota has launched a unique effort to support and promote businesses that reflect the makeup of the community. Last year Gov. Mark Dayton issued an executive order establishing an Office of Equity in Procurement and a Diversity and Inclusion Council to promote this goal. On recommendations made by the council, the state now has representatives who conduct in-person recruiting of minority-, women- and veteran-owned businesses to bid on state contracts. The procurement office is also developing an online portal where small businesses can apply for all their minority certifications, with the goal of eliminating the confusing paperwork many small businesses face when first working with the state.
But it can be difficult to balance those kinds of policy priorities -- supporting minority-owned businesses, for example, or small businesses in general -- with a state’s responsibility to spend taxpayer dollars wisely. Often, the goals may not align, raising concerns of a state playing favorites by prioritizing certain kinds of suppliers over others. For instance, part of Minnesota’s procurement strategy is to participate in cooperative purchasing with other governments as a way to take advantage of economies of scale and get the best price for a solicitation. By nature, that eliminates most small business participation because they don’t have the infrastructure to compete. “It’s just this big cauldron of issues you throw into a pot and sometimes they’re completely conflicting,” says Betsy Hayes, Minnesota’s chief procurement officer. “And trying to balance all those issues is what really makes it all fascinating.”
To help achieve that balance between value and policy promotion, it’s useful to have clear objectives for each project and a transparent selection process. But the truly important factor is support from the top down. With a consistent message from the governor through to agency heads and front-line workers, it’s easier to see how each new project fits into the state’s goals. In many states, leaders have begun to view procurement as part of their overall strategy, not just a place to hand down regulations. “The key,” says NASPO’s DeLaine Bender, “is for leaders not to be overly prescriptive that they make it so difficult to reform and add that flexibility.”
Slowly but surely, public-sector procurement is changing. Starting in the 1990s, states began taking a smarter approach to the way they buy things. In the past decade, advances in technology and data -- along with growing economic pressures -- have led to more strategic purchasing processes in some states.
The bad news is that states, by and large, have struggled to take full advantage of technology to improve procurement. The good news is that that seems to be changing. With a small handful of states leading the way, procurement offices are demonstrating that it’s possible to maintain accountability and spend public money responsibly while also pursuing new tech innovations and promoting stated policy goals. A generation ago in procurement, “no one wanted subjectivity,” says Hayes, “it had to be completely black-and-white. I think that’s why it’s taken a long time for the safeguards and the processes to be developed where these more sophisticated procurement methods are accepted.”