Lessons From Cities Trying to Be Better Buyers
Chicago and many other municipalities are focusing on reforming the rigid and inconsistent rules of procurement.
Trice Construction was frustrated. For years, the Chicago contractor for sidewalks, curbs, gutters, foundations and pavement had been dealing with the procurement process in the city and its six independent agencies: the housing authority, the park district, public schools, the transit authority, city colleges and the public building commission.
Among the procurement problems that had troubled Trice, as well as other companies, had been the separate and inconsistent procurement systems for each agency. The challenges consisted of distinct dollar thresholds for various bids; a variety of definitions for emergency procurements that don’t go through the regular bidding process; and variations in the number of hours that make up a standard working day. “Each agency had its own set of standards,” says Stephanie Hickman, Trice’s president and CEO.
When procurement systems are like that, vendors go elsewhere and competition declines, forcing expenses to rise. “The canary in the coal mine is that not enough vendors bid,” says Chicago’s Inspector General Joe Ferguson, adding that inconsistencies favor incumbents and bigger entities. That puts smaller companies like Trice at a disadvantage.
Fortunately, reforms have found their way to the top of the to-do list for Chicago and many states and localities that suffer from inconsistent practices and other management challenges. Major cities like Boston, Philadelphia, New York and Washington, D.C., as well as a number of counties, are engaged in various kinds of procurement reform. In Governing’s March special report on state procurement practices, we found multiple states were involved in or considering reforms.
While it’s early, there’s still a great deal to be learned from the efforts Chicago has made thus far -- and how they play out over time. For the last seven years, Jamie Rhee, the city’s chief procurement officer, has worked to get agencies within the core city government to develop more standardized practices. As of last year, there’s been an all-out effort to bring greater transparency and standardization to every sister agency.
This effort was a mandate from the mayor, who appointed a reform task force in 2015 that is co-chaired by Ferguson. Making the process more open is a key goal. “One of the big focuses for the city is to eliminate the perception that you have to know someone to get ahead in government contracting,” says General Counsel James McIsaac. “It’s perception only, but it exists, and having the most transparent system possible refutes that allegation.”
One step to greater transparency has been for the city to publish online every contract it awards, including both winning and losing bids for jobs. “Our goal is for every vendor to know why they win and why they lose,” says Rhee. All subcontractor information is posted online as well. The city’s process acts as a model for the six sister agencies.
Chicago also now produces a consolidated buying forecast, in which plans for the next six quarters of solicitations are disseminated in one document for all the city agencies. “This is a huge planning tool when you know in advance that agencies are going to come out with procurements, both big and small,” Rhee says. It has helped the core city and its six agencies see when they may have opportunities for joint procurements.
Another critical change has been the sharing of information about contractors that have been banned from doing business with the central city government or any of the six agencies. In the past, a company that ran into trouble with one government entity could win a bid at another. Policies are being amended so that agencies can honor each other’s debarments. In the future, if someone is banned in one place, they’re banned in all places.
Of course, reforms can be problematic. There’s such a thing as too much standardization, particularly if it compromises flexibility. “Some of the component agencies really do comparatively unique things,” said Ferguson. “You have to have a standardized process that recognizes when unique operational aspects come into play.”
Six years ago, Illinois began to put in place several state procurement changes. The impetus for reform stemmed largely from ethical questions regarding contracting that had been raised in Gov. Rod Blagojevich’s administration.
By and large the Illinois reforms have improved the state system and restored its integrity. But reform is an ongoing process. The impact of changes needs to be subjected to analysis to see if a fresh round of improvements is needed.
For example, over time new registration requirements for vendors began to diminish competition. Contract bids were being eliminated when they didn’t adequately follow complex new rules. Subsequently, the rules were rewritten to allow a vendor to fix an improper registration.
The original Illinois reform also went too far in cutting off communications with vendors during a bidding process. The reform helped to prevent improper contact in order to avoid collusion, but it also prevented clarifications and information about best practices and new innovations. “We heard from the vendor community that the reform was shutting doors,” says Ellen Daley, chief procurement officer for Illinois General Services. “So we changed it to allow conversations to take place, and we listed the types of conversations that were permissible.”
One lesson learned from the overall experience: Reform requires substantial training for procurement managers in government and for vendors as well.