Cooperative Purchasing

The common lament of government procurement customers is it takes far too long to award a contract. It often takes several days for a requisition to wend its way through the maze of approvals to the procurement shop. It takes months before a contract is awarded and the supplier can start assembling the order for delivery. One technology customer complained that she requisitioned the latest innovation, only to discover that it was obsolete by the time it was delivered.

Cooperative purchasing provides a fast and convenient alternative for many common government requirements. Based on the adage, "Why reinvent the wheel?" cooperative purchasing gives governments access to contracts for common products and services that were contracted by other governments.

What Is Cooperative Purchasing?

The American Bar Association Model Procurement Code for State and Local Governments, which sets the standard for state and local procurement law, defines cooperative purchasing simply as "procurement conducted by or on behalf of one or more public procurement units". My dog-eared copy of the NIGP Dictionary of Purchasing Terms defines cooperative purchasing as:

  1. Procurement conducted on behalf of two or more public procurement units.
  2. The combining of requirements of two or more public procurement units in order to obtain the benefits of volume purchases and/or reduction of administrative expenses.
  3. A variety of arrangements whereby two or more public procurement units purchase from the same supplier using a single IFB or RFP.

This definition describes two of the three primary benefits of cooperative purchasing:

  1. Volume purchases — By combining the requirements of multiple governments, suppliers are able to take advantage of economies of scale and offer lower pricing than might be available to a single government. This is especially true for smaller governments that may not qualify for the deep discounts available to larger governments.
  2. Reduced administrative costs — Obtaining bids and proposals requires hundreds of labor hours costing thousands of dollars and months to process. Cooperative purchasing gives governments the ability to buy immediately from existing contracts.
  3. Access to technical experts — Cooperative contracts are usually prepared and awarded by larger government procurement agencies or associations by skilled procurement professionals with support from technical, financial and legal experts.
  4. Better utilization of staff — By using cooperative purchasing contracts, managers can focus procurement resources on other activities, including contracts for unique program requirements.
  5. Convenience and efficiency — Cooperative purchasing contracts provide immediate access to a wide variety of products and services.

Types of Cooperative Purchasing Contracts

Most cooperative purchasing contracts are based on open competition through competitive bids or proposals and contain provisions allowing cooperative use. Cooperative contracts come in many forms:

  • "Piggyback" Contracts — This is the most basic form of cooperative contract in which one government awards a procurement contract with a clause allowing other governments use of the contract or to "piggyback". While these contracts are convenient, they do not provide the economies of scale because the contracting authority cannot predict demand for the contract and potential customers may not be identified in the contract.
  • Estimated or Definite Quantity Contracts — By providing suppliers with the estimated or actual need, based on a survey of participating governments, these contracts provide both convenience and economies of scale. These contracts
    require a higher level of effort from the contracting authority to identify participating members and survey requirements.
  • Multiple Award Schedules — The General Services Administration (GSA), Texas, California and other state governments offer multiple award schedules that give customer access to pre-qualified suppliers for specified products and services.

Under Section 211 of the E-Government Act of 2002, state and local governments may use GSA Schedule 70 contracts for information technology products and services. Also under the Federal 1122 program, public safety agencies may purchase designated products through GSA.

Cooperative procurement is more than just shared contracts. Most cooperative procurement programs provide many other services for members, including networking sessions to share ideas and best practices, training, procurement and technical advisory services and shared resources.

Sources for Cooperative Purchasing Contracts

In addition to the Federal GSA Schedules, sources for cooperative contracts include:

State governments — According to a 2003 survey by National Association of State Procurement Officials, 43 states provide cooperative purchasing contracts to governments within their respective jurisdictions.

Local government cooperatives — When permitted by law or ordinance, multiple local governments may combine to form purchasing cooperatives. Often these cooperatives are regional such as a county or metro area or based on similar needs such as schools or transportation authorities.

NASPO and WSCA — The National Association of State Procurement Officials provides cooperative contracts to its national member states or on a regional basis such as the Western States Contracting Alliance (WSCA). Local governments are permitted to use the NASPO and WSCA contracts with the permission of the respective state procurement office.

US Communities is a national cooperative purchasing association that serves its members with contracts awarded by member governments.

Getting Started

  1. First, check to see if state laws and local ordinances allow cooperative purchasing. If there is any question, confer with legal counsel.
  2. Look for cooperative purchasing contract sources. The best place to start is with the state procurement office. Buyers may also contact the National Institute of Government Procurement (NIGP) or the local NIGP chapter, National Association of State Procurement Officials (NASPO) and US Communities. An Internet search and networking with colleagues may reveal other cooperatives.
  3. Most cooperatives will require a membership application. Some cooperatives also require a membership fee or collect a small percentage of each transaction to cover administrative costs.
  4. After joining the cooperative, members are eligible to use the cooperative contracts. Members should carefully follow the required procedures for using the contracts.
  5. Members should carefully analyze the products and services under contract to ensure that they meet program requirements, compare prices and review the contract terms and conditions.
  6. Some cooperative contracts establish ceiling prices. For large buys, the contractor may offer additional discounts. It never hurts to ask for a quantity discount.
  7. Buyers should also review the terms and conditions of the purchase to ensure that they conform to program requirements. Most cooperatives allow some flexibility in negotiating contract terms and conditions.
  8. If everything works out, place the purchase order with the cooperative contractor.

Cooperative Purchasing Pitfalls

Cooperative purchasing may not be the best answer for every government or for every requirement. Some cooperative contracts are nothing more than a state or local government contract with a "piggyback" clause. Pricing may be based on small order quantities and may not be advantageous for the buying community. A quick price comparison with a couple other sources will help ensure that the cooperative contract pricing is fair and reasonable.

Some cooperatives require annual membership fees. Other cooperatives collect a percentage of each purchase to cover administrative costs. These fees may be as small as 0.2 percent (two tenths of 1 percent) for the WSCA computer contract to as much as 5 percent for other national contracts. Buyers should factor in this fee when comparing prices.

National, regional and other large cooperative contracts are based on the aggregated requirements of many governments. Most local, small, woman-owned and minority-owned businesses may not be able to compete with large national firms for large cooperative contracts. Procurement officials should ensure that cooperative purchasing meets program and community objectives and keep management informed of the advantages gained through cooperative purchasing.

Buyers should also carefully review the contract terms and conditions to ensure that they conform to legal and business requirements. Buyers should also analyze the procurement method used to establish the contract to ensure compliance with procurement laws and regulations. For example, competition may have been limited to suppliers registered with the cooperative contract authority or the contract may have been established using brand name only specifications or with no competition at all.

Start Your Own Cooperative Purchasing Program

Transportation programs and authorities have common needs that are unique to the transportation industry. Authorities can create market leverage by combining common requirements under cooperative contracts. There are many examples of school districts and local governments combining to form purchasing cooperatives. These cooperative endeavors often were started by a small group of visionary procurement officials participating in a networking session to establish the cooperative program and brainstorm opportunities. In its research paper, Strength in Numbers: An Introduction to Cooperative Procurements, the National Association of State Procurement Officials recommends the following best practices for forming a procurement cooperative:

  1. Designate a lead government with qualified procurement and technical staff as the lead government for the cooperative contract.
  2. Require that cooperative members sign an agreement to participate in the cooperative contract.
  3. Invite members from participating governments to participate in the drafting of the solicitation documents and the technical evaluation committee.
  4. Survey cooperative members for estimated requirements, delivery quantities and locations and other buying patterns.
  5. Identify the participating governments in the request for bids or proposals.
  6. Advertise the procurement in all of the participating communities.
  7. Ensure that the contracts are based on free and open competition and comply with the procurement laws of the participating governments.
  8. Ensure that the winning contractor is capable of serving all participants.

Summary

Most government procurement programs are stretched thin with increasing demand and limited resources. Cooperative procurement provides a way to leverage resources, reduce prices through economies of scale and provide better contracts. Cooperative contracts can help improve customer service by providing convenient and immediate sources for essential products and services.

John Adler is vice president, procurement for Dallas Area Rapid Transit (DART).

Sources
National Association of State Procurement Officials (NASPO)
National Institute of Governmental Procurement (NIGP)
General Services Administration
US Communities
State Procurement Offices

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