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How State Procurement Offices Are Learning to Buy Better

Cautiously and slowly, governments are taking more risks and modernizing the way they purchase goods and services.
by | July 2019

Read the Governing Institute's 2019 state procurement report here.

 

As consumers, we’ve been part of a tech-driven revolution. Most of the companies we buy from remember our preferences and automatically offer suggestions for similar purchases. When we are interested in a product, we look online at customer ratings and reviews to make sure we are getting a quality item that will last. Cumbersome chores, like filling out forms with our address or credit card information, are done for us automatically. If we have a question about a product or the process, a chatbot pops up to help out.

In state and local government, where one-third of annual expenditures go toward buying goods and services, this experience is a rarity. Although hundreds of billions of taxpayer dollars are spent each year on everything from printer paper to snowplows, many state procurement offices remain stuck using old-fashioned methods. Whether it’s because of restrictive policies or a fear of failing in an unpleasantly public way, state purchasing practices have been slow to adapt to the 21st century. 

But there are signs of change. There is a growing shift away from buying the “best of the cheapest” toward buying smart. That is, taking into account the whole experience, from before a product or service is chosen to long after it’s purchased. “When you have the suppliers and the buyers all communicating well, working in lock step and understanding the process, you’re naturally going to get the best savings possible,” says Jim Colangelo, Michigan’s chief procurement officer. “And all that while preserving a positive relationship with suppliers which, in my experience, is more valuable than squeezing them for an extra $50,000.”

Another change has been the attempt by some purchasing departments to find new ways to learn quickly from glitches as they happen and adjust their approach toward what’s working. In business circles, it’s known as fail-fast. In some cases, it is freeing purchasers from the long-entrenched fear of experimentation that can hobble the procurement process. 

These are two of several findings in a newly released Governing Institute report highlighting some of the biggest emerging trends and issues in state contracts and purchasing. Over the past year, researchers assessed state purchasing processes in 28 states and the District of Columbia, weighing factors such as contract management and effective implementation of technology. Among other findings, they learned that data and analytics are now driving all parts of the procurement process, a sign that states are seeking to be more responsive and flexible. While gaps remain -- such as in using technology to improve the customer and vendor experience -- states in general are moving toward a more modern approach to buying.  

 

A break from the past

At the heart of the risk-averse procurement culture is this reality: When something goes wrong, it generates bad, sometimes high-profile publicity. That leads to more regulations or rules about what procurement offices can or can’t do. When things go swimmingly, the public never hears out about it. So rather than try something different and risk, say, the charge of favoritism, many states stick with long-established processes for soliciting and choosing vendors.

That’s what makes the shift away from low price and toward value such a departure for states. All but one of the states surveyed -- Hawaii -- ranked best value above low price in the Institute’s survey. Jason Soza, Alaska’s chief procurement officer and a member of the National Association of State Procurement Officials (NASPO) board of directors, says the shift has been happening very gradually for some time. It’s finally starting to become more visible as offices are taking a more holistic view and factoring in things like repair costs and how long a product will last. “We’ve hit a tipping point,” he says. “The survey is reflecting that.” 

Even when regulations require states to place price first, purchasers are finding workarounds. Wisconsin’s statute, for example, still requires its procurement office to award business to the “lowest responsible bidder” -- antiquated terminology better suited to the days when states mostly bought commodities and construction. After consulting with lawyers, procurement officials determined that the law allows them to award a bid to multiple, low-cost suppliers. 

That means that on a recent bid for wireless services, for example, the office set its price parameters and awarded the contract to a group of companies that came in with the lowest bids. Then, officials approached the companies individually to negotiate deals that they felt gave the state the best value. “It opens the door for us to deal with them after the fact in a way that a lot of states that might have ‘best value’ in the law are already doing upfront,” says Sara Redford, Wisconsin’s procurement director.

Meanwhile, there’s evidence that some states are shedding the procurement community’s long-held fear of experimentation. A number of states are adopting agile approaches, such as immediately building and improving off lessons learned (when, say, something goes wrong or a new factor comes into play) and making it more important to respond to a change than to follow the original plan.  

New York, for instance, has put new procedures in place so that vendors can quickly add new technology products or services to centralized contracts as they become available. The office can also adjust to vendor and customer preferences such as submitting electronic price lists or conducting virtual pre-bid meetings. This kind of flexibility is key for an office whose customers range from the state transportation department to a small Adirondack ski town.

“We are rejecting any answer that begins with ‘because we always have,’” says New York State Office of General Services Commissioner RoAnn M. Destito. “This involves trying something new and letting our customers and vendors react to it, which in turn allows us to identify opportunities for improvement.” In this environment, she adds, officials can address challenges and seize opportunities within a matter of months instead of years. 

 

Using technology

The new trends are encouraging for those who want to see states become nimbler in their purchasing, but there’s a long way to go. States largely don’t use modern customer-service tools common in the private sector, such as automated chatbots. Two in three states in the Governing Institute survey don’t use electronic invoicing.

Michigan is one that does. In fact, it has enlisted automation to improve the experience for both vendors and for its government agency customers in various stages of the procurement process. The office has created a tool -- similar to how TurboTax works for tax filers -- that can automatically fill out an RFP for vendors, based on the information they enter. The state is also a leader, along with Utah and Georgia, in tracking its own net promoter score from customers, a practice now common in the private sector. Such scores are used as a proxy for gauging customer loyalty and their overall satisfaction with a product or service.

For many states, a barrier to employing such rigorous metrics is a concern about what the numbers will say. But such information, Michigan’s Colangelo says, is essential for any place that wants to improve. When his state started its program, “initially, it was very scary -- staff were worried about what their scores might be or if they were hitting their cost savings targets,” he says. “But now, it turns out to be a point of pride.”

For NASPO’s Soza, automation, agility and value are linked. As he sees it, if offices can push past their aversion to risk and use technology to make everyone’s experience easier, procurement staff can increase their focus on delivering value. Which means, he says, “the return on the investment in those tools will come quickly.” 

The desire is certainly there. NASPO’s Top 10 Priorities for State Procurement this year and last year included a number of tech-driven goals. “Hopefully,” Soza says, “this trend will continue.” 

 

Read the Governing Institute's 2019 state procurement report here.

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