This is a re-post from Onvia's State, Local and Education (SLED) Procurement Snapshot for Q3-2015

State agency buyers are focused on one overarching goal: The relentless pursuit of greater efficiencies in procurement. In other words, if they can save money or time through the buying process, they will.

The evidence for this perspective can be found in various places from the automation of procurement to finding more value in traditional contracts to increased use of non-traditional contracts.

Even without budget deficits, state agencies are expected to embrace efficiency to satisfy stakeholders and meet expectations. Successful vendors take all of this into account as they connect with buyers, build relationships, prepare proposals and win new business.

The push to greater efficiency can cause challenges, especially for smaller vendors who may struggle to compete with the experience and scale of national firms. However, many opportunities do exist for all types of firms, and in some cases, vendors are given special assistance in the form of set asides.

For this article, Onvia talked with state procurement chiefs and other thought leaders who have visibility into the evolving world of state government procurement. What we found was that state agencies have been working diligently to modernize and streamline their procurement systems and methods. This is helping them maximize value on a per unit basis, as well as minimize staff time through the use of non-traditional purchasing that does not require advertised, formal bidding.

5 Ways States are Buying More Efficiently

The general theme of becoming more efficient, which came up in all of the interviews, can be seen in the following five key areas:

1) Using streamlined eProcurement

While some states have been experimenting with automation over the past decade, traditional paper-based contracting systems and procedures are increasingly being phased-out and replaced by streamlined, online platforms that can advertise bids, register and screen vendors, collect and process bid submissions electronically, and manage payments.

2) Consolidating systems and contracts

Agencies find they can save by consolidating smaller purchases from individual offices or across a period of time into a few larger awards such as multipleyear fixed term contracts. For example, in technology, states have been consolidating data storage from multiple locations contracted separately to a central location with a single larger services contract locked-in over several years.

3) Buying through cooperative purchasing entities

Co-op purchasing through national organizations is entering the mainstream, as a reliable tool that state buyers use to purchase fully vetted, pre-negotiated and competitively priced solutions that may not make sense to purchase with traditional methods. Leading national cooperative NASPO ValuePoint is an example. They estimate 11% growth in the total dollar value of buying off their state-level cooperative contracts in 2015. Our expert panel agreed this trend will continue.

Cooperative purchasing is not likely to be leveling off because state agencies will continue to be looking for any efficiencies they can find and when they have this option they will certainly consider it.

Michael Keating, American City and County

4) Using multiple award schedules (MAS)

These state-run schedules function essentially as an internal cooperative purchasing mechanism. State managers as well as local agencies in many cases can buy from them at any time without formal bidding or extensive paperwork. The schedules can have hundreds of vendors on one contract with an overall budget but no guarantee of revenue for any one business listed. Selected vendors have to initially compete to be included but then receive business periodically.

5) Limiting formal bids to only the largest purchases

Cities typically set their minimum purchase thresholds for advertised bids at around $20,000 - $30,000 each, however, state agencies may be allowed to make purchases informally at up to $1 million or more in value without having to go out for a traditional competitive bid. State chiefs mentioned this as one of the more flexible areas of an otherwise highly bureaucratic system. As an example of this trend, five years ago the State of Idaho decided to raise their minimum purchasing threshold for formal, sealed bids from $75,000 to $100,000 to help focus their time on the most important large purchases while reducing staff time on the majority of smaller purchases where informal bidding or single-quote procedures are used.

Understanding the 3 Tiers of State Purchases

State guidelines around ordering goods and services based on tiers of project value support the goal of efficiency by reducing the time needed to make many of the contracting decisions and eliminating delays and hassles:

Very small purchases Very small routine purchases (often limited to $10K or less) where buyers can go to any one supplier without getting multiple bids. These entry-level opportunities for local vendors can factor in convenience and customer service.
Small purchases Small informal purchases generally require multiple bids but do not need to go through a formal bidding process. States set their own rules as to the process and criteria.
Large purchases Large above-threshold formal purchases (often set at $100K or higher in value) require an advertised bid process.

Implications for Vendors

Efficiency is the underlying context driving state government contracting, which helps explain the decline in formal bidding opportunities as well as the growth in non-traditional contracting methods that promise to save money or staff time. Based on these trends and the noted fiscal weakness of many states, we expect growth rates for state-level bids and RFPs will continue to be lower than those of local government. However, fewer bidding occasions does not necessarily mean fewer dollars for contractors.

Vendors should learn about and consider the different approaches to competing and growing their revenues in an efficient procurement environment. These include working closely with a state’s automated system, cooperative purchasing, multi-vendor award schedules, and conducting outreach to increase the chances of winning below-threshold or unadvertised opportunities.

Given that state government buyers will be thinking along the lines of efficiency, smart vendors will keep this perspective in mind to inform their marketing and communication with target agencies.

Our panel of contributors to this feature include the following:

Jim Butler, Chief Procurement Officer, State of California

Lawrence Maxwell, Chief Procurement Officer, State of New Mexico

Bill Burns, Chief Procurement Officer, State of Idaho

Voight Shealy, Education & Outreach Director, NASPO ValuePoint

Michael Keating, Senior Editor, American City and County