The benefits and risks of using a cooperative contract
Working in public procurement isn’t easy. According to a 2018 survey of state and local government purchasers, over 40% of procurement staff feel overworked. A county-level procurement administrator we interviewed summed up trends that have made procurement work more challenging: “We’ve been struggling for the past decade with budget reductions and staff cuts, while the amount of work is increasing.”
Faced with limited time and resources, local governments are increasingly buying cooperatively. Today, about 20% of local government spend goes through cooperative contracts. But it can be challenging to understand how to use cooperative purchasing and balance its potential advantages with its risks. As a public buyer, here’s what you need to know about the benefits and potential risks of cooperative purchasing.
Benefits of Cooperative Purchasing
Using a cooperative contract reduces the administrative burden of purchasing and expedites the purchasing process.
When you use a cooperative contract, you’re relying on the work another agency has already done to run a competitive bidding process. That process includes market research, writing the bid solicitation, advertising the bid solicitation, receiving and evaluating proposals, and negotiating a contract. Running a competitive bidding process typically takes 4–24 months; an internal audit of Philadelphia’s procurement practices found it took 2.5 months to create the bid solicitation, not to mention collect and evaluate proposals or negotiate and award the contract. Reducing the amount of time that purchasing staff spend managing new solicitations and generating new contracts, especially for products or services that don’t require too much customization, saves months of administrative time and effort.
In addition, in technology and “smart cities” categories especially, local governments are branching out into unfamiliar territory. These new tech-based solutions or services are even more difficult to research and scope. In 2018, it is estimated the cities in the United States spent nearly $25 billion in support of “smart city” initiatives. Cooperative purchasing, and a general ethos of collaboration, will help governments identify best-in-class products, share research findings, and expedite purchases without requiring additional operating budgets or staff time. Sharing contracts also shortens the sales cycles considerably for smaller firms, like startups, that may not otherwise be able to access the government market.
Achieve cost savings
Cooperative purchasing can help agencies achieve more competitive pricing by aggregating government purchasing power.
The Kansas City Regional Purchasing Cooperative (KCRPC) has helped its members achieve nearly $12M in savings by fostering more cooperative purchasing. A 2017–2018 San Mateo County Civil Grand Jury Report identified potential cost savings of between 5% and 15% for San Mateo County and its 20 cities if they worked more collaboratively to share contracts or run joint solicitations. If those savings were realized, the 21 entities could have as much as $108 million to reinvest into other priorities each year, just by collaborating better at a local level.
Smaller governments can achieve price-saving advantages from purchasing off a contract created by an agency with greater purchasing power.
The cost-saving advantage of cooperative purchasing is particularly salient for smaller jurisdictions or government agencies that are not able to buy goods or services in large quantities. If those governments are able to utilize a contract negotiated by a larger entity, or pool demand with other small, neighboring groups, they will often be able to achieve better pricing than they could on their own. For example, the Texas Department of Information Resources estimates that in FY18, the Department’s cooperative contracts for technology saved public education agencies and local governments in the state more than $120 million just in product pricing alone.
Reduce costs for your suppliers
Governments spend trillions of dollars a year (~$1.6T at the local level in the United States), so the way they award contracts can have a massive impact on which types of businesses ultimately succeed and grow. When a supplier is awarded a contract that includes cooperative purchasing language, that supplier can now turn that successful contract award into multiple contracts, especially with other governments in the region. When you use an existing contract instead of running a new competitive bidding process, you can reduce the cost of doing business with governments for suppliers. This is especially meaningful for small-, women-owned- and disadvantaged businesses, which may struggle to navigate the high costs of selling into the government sector.
Potential Risks (and How to Mitigate Them)
Make sure you’re really saving time.
Leveraging a cooperative contract (“piggybacking”) that has been created by another public agency takes less time than generating a new contract through competitive bidding. However, finding a cooperative contract can feel like finding a needle in a haystack. We’ve heard from public buyers who know that a contract likely exists, but cannot devote months to calling peer agencies to track down the contract and supporting documentation for diligence. CoProcure aggregates contracts from national and regional purchasing cooperatives, states, and local agencies to reduce the time that public buyers have to spend searching for relevant contracts.
Ask suppliers for the best pricing available.
Remember: Cooperative contracts provide a price ceiling, but not always the most competitive price. While cooperative contracts nearly always save time, there are instances, particularly for large local governments, where running a new solicitation will yield a lower unit price due to that agency’s purchasing power. Even if you’re not a large agency, you may still seek to negotiate the pricing in a cooperative contract, particularly if your agency is buying a much larger volume than the contract creator. We’ve also heard from public procurement staff who essentially compete suppliers available through cooperative contract as the final step before making a purchase. If you have several suppliers available via cooperative contracts, you may reach out to suppliers to see if they’re able to provide any additional discount to your agency.
Determine how much control you need over the contract, especially the timing of the contract.
Before you decide to use a cooperative contract, you should assess whether you’ll need to make a one-time purchase before the current expiration or if you expect to need to make ongoing purchases over a longer period of time. If this is only a one-time purchase, as long as the current contract and solicitation met your requirements, you likely will not need to worry about future amendments or changing any other terms or conditions in the contract.
However, if you plan to utilize the contract for a multi-year term or more than once, or if you need to make sure certain additional terms and conditions are met, you may consider creating your own agreement with the vendor that references the existing cooperative contract. This is because once an agency moves forward with a cooperative contract, it is largely at the mercy of the contract creator; changes to terms might be negotiated, or the length of the contract might prevent the piggybacking agency from utilizing it for as long as is necessary to deliver the good or service in question. Having a separate agreement with the vendor will ensure you are kept up to date on any chances, and in addition, you can use CoProcure to save the contract and receive notifications when it is updated.
Put in the extra effort to work with local and/or diverse suppliers.
Local and/or diverse suppliers are not always readily available through cooperative contracts, but if you’re intentional, you can use cooperative contracts to help achieve your agency’s equity in contracting goals. You can also use supplier diversity filters on CoProcure to seek out diverse businesses available on cooperative contracts.
In an instance where a government is using a contract created by another public entity, it may mean that the supplier is not local. This is particularly true if the contract is available through a national cooperative, and logistical challenges in terms of service delivery and cause pushback from local businesses or elected officials interested in keeping public dollars in the community. However, cooperative purchasing does not preclude governments from working with businesses in their communities.
By seeking out contracts created by proximate government agencies, or contracts awarded directly to minority-owned, women-owned (MWBE) or local businesses, purchasers can achieve the efficiency of cooperative purchases while maintaining a commitment to working with traditionally underserved businesses. In fact, cooperative contracts can be a powerful tool to promote the growth of small and diverse businesses, especially within a region, if an agency decides to make that a priority. In addition, even national cooperative contracts will often allow for local subcontractors or resellers, so with a little bit of research, purchasers can balance local or diverse business preferences with a need to get things done.
Balancing the benefits and risks
Cooperative purchasing isn’t a silver bullet for all procurement challenges, but leveraging the expertise, experience, and procurement work of thousands of governments across the country can help you save time, achieve costs savings, and even access local and/or diverse suppliers, faster.