Readers Respond to GPRO Articles

Alaska’s Procurement Outsourcing Pilot

The fiscal conditions of Alaska, like many other states, require us to continually seek opportunities that reduce the expenditure of public funds. We must thoroughly explore responsible methods that are responsive to agency needs and accountable to the public. Alaska’s procurement outsourcing pilot, authorized during last legislative session, provides such an opportunity.

The supply chain management firm that received the contract has performed the full range of procurement and warehouse management services in excess of five years. Clients include major national corporations, which have similar MRO needs. It is not simply a “newly formed limited liability corporation” as stated in the article.

The article infers that some type of impropriety occurred because the state contracted for an initial

assessment of the pilot agency, but did not ask the National Institute of Governmental Purchasing (NIGP) nor the National Association of State Procurement Officers (NASPO) to participate.

Given that the pilot agency had been previously selected by the state, the scope of work was limited to general administrative tasks such as mapping existing business processes, verifying job duties, and describing transactional dollar amounts, labor and overhead costs, federal funding requirements, online systems and reports. Since no specialized procurement experience was required to perform the work, neither NIGP nor NASPO were solicited.

The article also alleges the state failed to follow standard practice when awarding the initial assessment contract, which is true; the minimum legal requirements were

exceeded! Soliciting at least three in-state proposals is required for this level of procurement ($50,000 and less). However, a total of twelve companies were solicited, some located outside Alaska including large, nationally recognized firms. Only one proposal was received. The winning outofstate proposal was evaluated, determined to be responsive and scored, references were checked, the total price was well below the “do not exceed” dollar amount, and the contractor provided proof of insurance as required. The statement that there was no “apparent investigation or justification, which is standard practice when only one proposal is received” is simply not correct.

Purported cost savings are mentioned and the article states that not much of anything was revealed in the legislative record that the private sector couldn’t do better, faster, and cheaper. After awarding a contract, here are the facts:

Cost Savings: The comparison of state employee costs to the contract rates, including a one-time implementation fee will result in savings of 22 percent over the twoyear pilot term. Annual cost savings would increase dramatically to 34 percent if the pilot term were extended.

Additional savings will be realized due to the avoidance of employee training costs, CDL drug tests, supplies and equipment. Vacated office and warehouse space will also be available for other state purposes. The contractor’s e-commerce tools, systems and procurement methods are expected to result in efficiencies and further reduce the cost of goods and services.

Better, Faster, Cheaper: The successful contractor will not only employ a variety of standard procurement methods (formal, informal, negotiated, etc.), but also incorporate online techniques such

as electronic requisitioning, reverse auctioning, bundling and catalogs via a suite of Internet e-commerce tools and systems. Such enhancements will improve the delivery of procurement services in a more timely, yet less expensive manner. All of these services are included in the contractor’s proposal at no additional cost.

The term privatization used throughout the article is an erroneous label for this project. Under privatization the government transfers both the responsibility and accountability for a function. In this case, procurement and warehouse services are being outsourced. That is, a private sector company is responsible for the services provided, but the state will remain accountable for the results.

The senior procurement manager for the pilot agency will directly administer the contract, observe the contractor’s work on site and independently benchmark results. Although the procurement code was waived for the most part, the contractor will be required to follow procurement standards developed by the state. In addition, the contractor proposed additional rules that will basically mirror the state’s competitive levels in many instances. The contractor also proposed detailed procedures for building a viable and diverse vendor base to serve the state’s needs. We believe sufficient safeguards are in place to protect public interests.

The article attaches some vague significance to the word ” globalization” and Mr. Grant states that in light of this term being used in the legislation, there was a concern that only Alaska-based businesses would be considered for award. A condition he says that was not removed from the RFP. Again, those statements are incorrect. The word “globalization” is not found anywhere in the legislation nor did the

RFP restrict award to Alaska-based businesses. Services could be performed at the contractor’s location, in or outside Alaska, and only a limited number of employees were required on site.

Mr. Grant’s assumption that the feasibility study portion of the legislation was a foregone conclusion due to the time frames involved is erroneous. Requirements for feasibility studies, alternate plans and associated time frames are found in Alaska’s employee bargaining agreements, not the legislation. Alaska, like any public jurisdiction must abide by the terms of its collective bargaining agreements. The employees’ unions received appropriate notice three months before issuance of the outsourcing RFP, which was seven months in advance of the deadline for alternate plans.

The article ends with the question “Any lessons learned from this?” This is an emotional subject and outsourcing will not work in all public procurement applications. However, in this instance it

appears that we can learn from private sector supply chain management practices. In my opinion, rather than attack new ideas with unsubstantiated rhetoric, we must explore, understand, benchmark and if warranted—embrace innovative and responsible methods that reduce the expenditure of public funds. To do otherwise will surely, to quote Mr. Grant, “end government procurement as we know it.”

—Walt

Harvey,

CPPB,

CPPO, Contracting Manager, State of Alaska

Editor’s Note: Harvey was the recipient of NASPO’s 2002 Gold Medal Award for Procurement Innovation and NIGP’s 2003 Best Practices Finalist Award.

You’re joking about Alaska, aren’t you? If the legislature has exempted the new procurement firm from the state’s procurement code, how will the success or failure of this pilot be evaluated? Someone in the legislature should be held accountable for the consequences of this action.

—Carey

Plazak, Purchasing Manager, Village of Schaumburg, IL

Capital of Colorado

As usual, I think the magazine is great. However,

I don’t think anyone in the

State of Colorado-is going to like the fact that you moved the state’s capital from Denver to Colorado Springs in the caption on page 20, April 2004.

But it is a nice picture of the Denver skyline. At least you know some of us are reading the magazine.

The column in the April issue of

Government

Procurement by my esteemed colleague and friend, Beau Grant, was indeed thought provoking.

A wise man once said, “Those who fail to remember the past are doomed to repeat it.” The history of public procurement in the United States is fraught with periodic scandals and corruption. For that reason, a body of law and practice has built up around the function of procurement to protect the public’s interest.

Government and private enterprise are inherently different—one is formed to serve the public interest;

—Jim O’Neill,

Director of Purchasing and Risk Managment, City of Fort Collins, CO

things. Anyway, I’m really looking forward to see how other react to this particular article.

—Ray DeRuyter,

CPPB,

Specification

Writer,

Ontario

County,

NY

the regulations and laws that public procurement professionals implement and obey are adopted by elected policy makers, who are attempting to eliminate all possibility of corruption in the expenditure of public funds. These regulations and laws are the basis for the frustrating complexity of the public procurement process. And, even if we believe they may be restrictive and time consuming, those of us in public procurement are sworn to carry out to the best of our abilities the laws that govern our function.

—Jack

T.

Pitzer,

Ph.D.,

CPPO,

CBM,

Purchasing Agent (Director), City of Alexandria, VA

the other to earn profit and capture markets.

One of the core functions of government is that of procurement; it is as much a core function as taxing, policing, or legislating. The central mission of government procurement entails the authority and responsibility for the appropriate obligation and expenditure of public funds. To minister to this, the concept of “agency” or “contracting warrant” has been established. A trusted public servant is granted the authority and responsibility to bind the organization in a contract and to obligate funds from its treasury.

I believe it is inherently dangerous to believe that a private firm may be granted the agency for a governmental entity and authorized to obligate and bind the entity’s resources in the same way the firm procures for its own interests. Study the history of the civilian commissaries of the pre-and post-Civil War era and learn the abuses resulting from abdication of the government’s core responsibilities.

We in public procurement can always learn more about efficiency and effectiveness, and during my nearly 40 years in the field, I have seen it evolve tremendously. Our procurement officers today are more intelligent, better prepared and certified in higher numbers than ever before in history.

Our processes, designed to guarantee competition and openness of contracting for the government dollar, sometimes seem onerous to the uninitiated. The use of modern technology, those processes are becoming less burdensome.

Anyone who believes that turning the public procurement process and authority over to a private firm will solve the perceived obstacles to “a more businesslike government” is fooling him/herself and needs a history lesson.

They also should not forget that

Ijust read [Grant’s] latest article in the April issue of

Government

Procurement. I have to admit that I have been discussing this very issue with people for a number of years now. I really don’t see any way out of this happening in some form or another. I believe that the trick here is for procurement departments to be proactive on the issue.

I also believe that if done properly, there may be more than a little credence to some type of private procurement department. Of course I would never agree with the way that Alaska evidently went about the process.

Instead of having legislators compile and issue the RFP, why not have a group of procurement professionals do the job? Get the existing staff involved from the start and encourage them to participate as a vendor as well. Perhaps there could be a “semi-private” award. Allowing the successful vendor to participate in public benefits while remaining a private organization that must show a preset group of results in order to keep their contract may sound a little off the wall, however, we all need to get out of that box and get on with

Thanks for the informative article in

Government

Procurement.

A few thoughts. It is non-sensical to believe public procurement doesn’t produce savings as the decision makers seem to think. The very nature of bidding belies that thought.

How to demonstrate our worth: I was somewhat alarmed at the thought of a wave of procurement outsourcing. Here’s what I think could be done. If every time we

Wow, this is cute. The primary concern that pops right up for me is the legal responsibility and accountability that a private third party would be subject to. Those of us working in this profession are bound to procurement ethics and legal accountability based on public ( government) rules and regulations of the agencies and political divisions for which we work.

What will be the extent of the responsibility of a third party employee that engages on less than ethical practices? To what extent can rules, regulations and government statues be applied to a ” private” contractor?

I personally feel this is one heading for trouble right from the get go. It will be very interesting see how this ends. In the event that the program is deployed and implemented, what will be the performance and difficulties encountered? Very interesting.

—Ramon Bristol Castrillon,

Buyer, Miami Dade College, Miami, FL

submit a bid, RFP, RFQ or reverse auction to our governing bodies, we show a savings, it might catch someone’s eye.

The savings could be based upon what the vendor would provide the same goods or services to the private sector without bidding or compare the bid price to the vendor’s list price. A running total would open some eyes very quickly.

I will discuss this with my staff and brainstorm some ideas about how we add value to the procurement process. If we have any ground-breaking ideas, I’ll be happy to share them with you.

one organization is addressing the problem. It at least shows recognition for the problem and an effort to do something about it.

Review [Grant’s]

Government

Procurement article, “The True Hurts,” August 2002, page 38, and the response it generated from one of our California peers in the October 2002 issue, page 28. Too many of us seem to be like this person. He stands ready. He has taken all of the training and obtained all of the certifications. All he is waiting for is for his agency to call him to duty and “allow” him to use the wealth of knowledge he has obtained by taking all of the classes his agency has paid for him to take. In the end, it’s about initiative and integrity. Apparently too few of us have it.

—Paul Ghere,

Manager of Purchasing, East Bay Municipal Utility District (EBMUD), Oakland, CA

Editor’s Note: to find past issues and articles online, visit: www.govpro.com and select Article Archive.

—Robert Combs,

Purchasing Division Manager, City of Fort Worth, TX

We have met the enemy, and the enemy is us! Thanks Beau, for asking for feedback on your recent

Government

Procurement article. Your comment in the second paragraph tells the whole story: ” They (Alaska State Legislature) quickly targeted procurement because there wasn’t anything on the record that demonstrated procurement’s value to the state.” Why is that?

Public procurement leaders today have a responsibility to identify key success indicators, develop strategies to address those issues, lead their organizations to accomplish those issues, measure to insure continuous improvement relative to those issues. Then, make sure that senior management leaders, responsible politicians and ultimately taxpayers/ratepayers understand the value of the procurement function as it relates to the successful accomplishment of objectives that of each of these groups have established for themselves.

If the people, like state legislators, don’t know what procurement is doing for them and their constituents, we (procurement profeshowsionals) can’t expect to be treated any differently than our peers in Alaska were treated.

Functions that are considered administrative rather than strategic, get outsourced. That’s the world we live in. Unfortunately, public purchasing has always been seen as the administrative function that occurs at the end of the decision making process. We turn PR’s into PO’s as directed by the decision makers.

The sad truth is, too many of us were trained up in that mode and that’s the role we see ourselves in and we’re comfortable with it. This despite all that NIGP, NPI, ISM, CAPPO, etc. have tried to teach us over the past 15 or more years.

The truth that’s even more sad is when most procurement functions are outsourced many of the current incompetent procurement leaders will survive because their agencies will need them to manage the outsource contracts. Because of this the privatized companies will clearly see their mission as administrative which, over time, may serve to stifle our professional creativity and spiral our profession back to the dark ages.

Clearly it’s time for current procurement managers, directors, agents, etc. to lead or retire and give the next generation of procurement professionals a chance to determine its own destiny.

From where I sit, the Alaska State Procurement Director has once again proven that organizational membership and professional competency do not necessarily go hand-in-hand. Perhaps this individual, and others, needs to review the article I authored for

Government

Procurement, April 2003, page 14, entitled “Water Utility’s Purchasing Division Envisions Revisions.” It’s about transitioning a public purchasing organization from one that is administrative to one that is considered, within the agency, to be strategic.

This article is not the “last word” on the subject, rather it’s the story of

WE’D LIKE TO HEAR FROM YOU

We welcome your feedback on articles and columns that have appeared in

Government

Procurement, as well as your suggestions for future articles.

Write to us at Letters, Government Procurement, 1300 E.9th St., Cleveland, OH 44114-1503; e-mail us at [email protected]; or fax us at 216-931-9799. Please include your full name, title, and daytime phone number. Also, please let us know whether you wish to have your letter considered for publication. Letters may be edited for brevity and clarity.