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Government Purchasers Confront a Problem: Not Enough Vendors

Procurement officers are having to get more active -- and more creative -- to find companies willing to work with the public sector.

Alabama actively courted vendors for its Meals on Wheels program.
‘We are not seeing large numbers or even sufficient numbers of qualified firms responding to our solicitations,” says Debbie Dennis, Oregon’s chief procurement officer. She’s bemoaning a startling fact of life: For many cities and states, there’s a lack of qualified vendors for all sorts of products.

The problem is more pernicious in some jurisdictions than in others, but almost everywhere state and local purchasers long for a more robust group of companies bidding to be their suppliers. The reason is a simple one. “We want as much competition as possible,” says Michael Jones, state purchasing director for Alabama and the president of the National Association of State Procurement Officials. Competition, he says, is one of the best ways to keep prices down since companies are more likely to bid low to win the contract. What’s more, the possibility of another vendor stepping into a slot the following year offers the current vendor a potent incentive to deliver high-quality work.

What can public purchasers do about the problem? Jones points to a solution Alabama found for an issue it faced for well over a decade: The state needed a vendor for its Meals on Wheels program, “and for some reason, we’ve always had the same vendor,” he says. With just one applicant, there wasn’t much ability to use competition to lower prices or enhance quality. So Alabama decided to actively seek out other potential vendors. Purchasing officers attended a number of conferences for suppliers every year, holding face-to-face meetings with companies. Finally, after years of effort, Alabama succeeded in finding a new bidder for its Meals on Wheels solicitation. A few months ago, a new company won the contract.

Minnesota has turned outreach into an art form. State procurement officers there seek out all the opportunities they can to meet with possible vendors. Prior to 2016, the state attended five supplier events a year. In 2016, it went to 59; last year the state hit 86 events, and it’s on track to far exceed that number this year.

The vendor shortage is particularly common in smaller states. South Dakota’s Steve Berg, director of the state office of procurement, tells us that there have been times in the last few years when he hasn’t received any bids for some requests for proposal. He believes it’s a small-size factor. “We can’t get the same attention from the national vendors the way other states do,” he says.

As a result, less-populated states like South Dakota tend to rely on local vendors, but they may not be qualified suppliers. Similarly, for some states, relying on local vendors may be a problem when it comes to finding enough suppliers who fit preferred categories, such as businesses owned by disabled people and by women and minority groups -- all of which are supposed to be preferred by law in many cities and states.

Some of the biggest problems crop up for more complex products or systems. Very few states or localities have any difficulty finding vendors for commodity items like pencils, chairs or laptops. But when it comes to multifaceted and sophisticated computer systems, entities “should not expect 10 or 15 vendors,” says Rick Grimm, chief executive of NIGP: The Institute for Public Procurement.

Another hindrance to a broad vendor base: The procurement process can be a herculean task for smaller firms. Procurement laws are often antiquated and can require scores of pages of forms, many of which cannot be submitted electronically -- even to this day. This puts states and localities at a disadvantage when compared to private-sector establishments that may be seeking the same bidders. “The private markets are less complicated,” says Dugan Petty, Oregon’s former CIO and chief procurement officer and a senior fellow with the Governing Institute. 

“I am aware of suppliers who won’t apply,” adds Carol Wilson, director of procurement for the Connecticut Department of Administrative Services. “We make it too hard for them to do business with us.” 

One issue that Wilson raises is the requirement in Connecticut, as well as in many states, for all subcontractors to comply with the same criteria that apply to the prime contractors. Companies that do business with a number of subcontractors have to make sure that all of them are complying with insurance requirements, non-discrimination mandates, restrictions on the gifts that can be given in the course of business, and the like.

There’s a reasonable comparison to be made between procurement restrictions and civil service laws. Both have rules that have, for the most part, been put in place to protect fairness and create a level playing field among competitors. That’s clearly a good thing. But when these restrictions and laws keep people out of the game, there can be fewer competitors left to protect. 

We’re not saying the rules have to go. We are saying that, in the interest of broadening and protecting a competitive base of vendors, some of them need rethinking and possible pruning.

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