Cost to Procure – How Cooperative Procurement Can Help

Public procurement teams are stretched thin these days – with limited resources and ever-increasing workloads. As the federal government makes substantial cuts in their services and personnel, more responsibilities will be turned over to the states and their political subdivisions to absorb and manage. Strategic government teams are seeking efficiencies and tools to help mitigate these challenges. Cooperative procurement is fast becoming one of those contracting tools to help stay on top of the increasing demands.

When faced with a new operational need or an expiring contract, procurement teams make key purchasing decisions. If it is a low-dollar purchase, using a p-card or a simple 3-quote process might be the most expedient method. However, for most government or educational institutions, the purchase is conducted through a traditional bid route or a cooperative contracting path.

Personnel Costs Matter Too

The biggest difference between the two is that the bid process can be long – often taking months – to finally negotiate and award the contract. With cooperative procurement, that solicitation process has already been conducted with a ready-to-use contract available to vet and make a purchase within a few days. “Time is money” is a popular quote. And in that long bid process, the consideration of personnel time and those associated costs should also be considered.

The National Cooperative Procurement Partners (NCPP) serves as North America’s premier Association for cooperative procurement. The Association sponsored a RFP Tracking Project to determine the cost-to-procure for the traditional bid process. Public entities voluntarily tracked their personnel costs from start to finish for every person who worked on the bid project – including procurement, risk management, legal counsel, subject matter experts, evaluation team, and management.

The study was conducted for 10 months and projects were organized into two groups: non-complex (commodities or low-cost) and complex (construction, over $1M, large labor component). Salary ranges for each position were standardized for an apples-to-apples comparison across different entities. The results of the study provided insight into the average personnel costs to procure.

The single step that took the most time and resources was the development of the scope of work and specifications. In addition, it found that complex projects required more personnel resources from across the organization, adding to everyone’s workload. For non-complex projects, the cost to procure averaged over $1600 while complex projects averaged over $17,000. And these costs are considered on the low side, as only salaries, and not fully loaded personnel costs were considered.

The project highlights that for every item purchased, the cost to procure personnel costs should be considered as well. For instance, purchasing a $50,000 commodity with installation services through the traditional bid process could be over $67,000 if all the personnel costs were also considered. On the other hand, choosing the cooperative path is just the cost of the item, plus the few hours to conduct a review of the contract terms and pricing - much more time efficient.

Taking the Cooperative Procurement Path

Within the state of Tennessee, airport teams are looking to the cooperative path for greater flexibility and project savings. According to Christopher Starr, P.E., State Aviation Manager for the Department of Transportation: “We are 100% state funded so maintaining costs is very important to us. To conduct a traditional bid for a repair project can take over a year, and then awarded to low-bid which doesn’t always mean the best value. The pricing provided through a cooperative contract offers a ceiling price, so I understand that this is the highest we will ever pay. However, our experience is that the price is often much less than the ceiling.”

Repair projects, in general, can be fraught with unknowns and exact quantities are not always known in advance of the project. Choosing to move to cooperative contracts for maintenance and repair projects provides quicker turnaround times for projects such as runway crack repairs and sealcoating. With a solicitation process already conducted, the awarded contractors have successfully competed and can meet all local and state requirements. This provides a best-in-class workorder based contracting tool for last-minute emergencies and repair projects that can’t wait for the long-bid process.

PJ Mills VP of Marketing & Business Development for Hi-Lite Airfield Services shares: “There was a particular project where there were less quantities of material than expected. Under the Sourcewell cooperative contract, we went back and lowered the pricing to reduce costs for the state. This would not have been necessarily available through a traditional bid, where the contractor often keeps that extra money.” Due to the success of this program, the state of TN supports 77 airports and expects to spend up to $25M over the next 5 years. Many other state airport teams are starting to explore this option.

New Tool Available for Procurement Teams

To assist teams in making that crucial decision on whether to bid or choose a cooperative contract, NCPP worked with Pavillion to create a simple Cost to Procure Calculator. After entering a few simple fields, including what will be purchased and estimated budget, the calculator provides the estimated costs of going out to bid vs. cooperative contracting. This tool can assist teams in choosing the best path while understanding the full costs of a procurement process.  The personnel time spent should always be considered in addition to the actual item or service being purchased. 

With reducing workforces and increasing workloads, it is a necessity for entities to continue to meet their operational needs and future challenges. As a result, cooperative contracts are fast becoming a successful tool used by states, municipalities and educational institutions across Canada and United States.

Tammy Rimes is the Executive Director of National Cooperative Procurement Partners (NCPP). The NCPP is North America’s premier association for cooperative procurement with a membership of cooperatives, suppliers with cooperative contracts and public procurement and government employees.  Further resources can be found at www.NCPPAssociation.org.