National Association of State Procurement Officials

Buying Smart: State Procurement Saves Millions

A report outlining recommendations to reform the government procurement process for information technology
Produced by a joint task force of the National Association of State Purchasing Officials and the National Association of State Information Resource Executives

The National Association of State Purchasing Officials and the National Association of State Information Resource Executives present this report as a major step in initiating information-technology procurement reform. Buying Smart: State Procurement Reform Saves Millions is a practical, hands-on guide detailing current challenges in procuring information technology, proposed solutions, and best practices found in the states. As advancements in technology occur at an amazing rate, states must position themselves to keep pace with these changes and to provide procurement methods that assure customers of receiving leading-edge information-technology products and services in a timely and cost-effective manner.

The report is a testament to the value of procurement reform and the direct benefits states across the nation have seen after employing new strategies. A key to each state's procurement reform success is support from governors, agency heads, legislators and other decision-makers. This report speaks directly to this audience in an attempt to clearly define the issues and to lay the groundwork for reform.

NASPO and NASIRE first joined forces in 1994, when each determined they shared a common commitment to procurement reform. Together, the associations represent the senior procurement and information-technology officials in the 50 states, the District of Columbia and the U.S. territories.

This most recent report is a continuation of the associations' commitment to actively pursuing reform. In 1995, NASPO and NASIRE collaborated with the Strategic Computing and Telecommunications in the Public Sector program of Harvard University's Kennedy School of Government in a study that led to a report entitled Information Technology and Government Procurement: Priorities for Reform. The findings and recommendations in this report also benefited from the involvement of the Information Technology Association of America.

A task force of NASPO, NASIRE, and ITAA members provided oversight for the project. P.K. Agarwal, chief information officer for the California Franchise Tax Board and Gary Lambert, deputy state purchasing agent for the Massachusetts Operational Services Division served as co-chairpersons for the study. Other taskforce members included: Mike Benzen, chief information officer, Missouri Office of Information Technology; David P. Gragan, director, Indiana Division of Procurement; John M. Kost, former chief information officer for the state of Michigan; Greg Layton, Government Technology; Dugan Petty, director, Alaska Division of General Services; and, Carolyn T. Purcell, executive director, Texas Department of Information Resources.

We hope you will consider this document for procurement reform in your own state.

Buying Smart: State Procurement Reform Saves Millions

You've seen the headlines, read the articles and heard the horror stories: State agency installs mission-critical computer system, which fails to perform as promised and is over budget. Losing vendor protests a bid and halts the development of multi-million dollar information system. Agency spends nine months trying to purchase a handful of PCs and ends up spending too much on computers that are already obsolete when they are finally delivered. Something is amiss when state governments procure information technology.

Fortunately, state procurement and information technology executives around the country are hard at work, developing plans and launching initiatives to reform how states procure hardware and software. But they can't do it alone. Procurement reform needs help from governors, agency heads, legislators and other key decision-makers in order to succeed.

Procurement officials and information technology executives are pushing reform for two fundamental reasons. First, states depend on computers more than ever, spending billions of taxpayer dollars annually to acquire the technology. Second, existing procurement practices and technology are like two opposing forces. Unless changes are made, they will begin tearing apart the fabric of government, adversely affecting states fiscally and economically.

On the one hand, we have a procurement system that relies on checks and balances to preserve fairness and promote full competition so that goods and services can be purchased at the lowest possible cost. Without a doubt, the public procurement system has equity and integrity, but it can be slow.

Information technology, on the other hand, is one of the most volatile industries in the world. Today's PC computers have the same raw computing power that existed in mainframes built 10 years ago, yet the cost of the PC is a mere fraction of yesterday's big iron computers. Software development is just as fast-paced. Today, it's not unusual for software vendors to turn out entirely new versions of their products within a six-month time frame.

Not surprisingly, many of the procurement processes and policies used by state governments today _ competitive bids, pre-specification of requirements, manual systems for bids and proposals, short-term vendor relationships, to name a few examples _ work poorly, or not at all, with the fast-paced, complex field of information technology.

The federal government, facing similar problems, has already taken significant steps to reform its procurement system in order to get better value out of the $25 billion it spends annually on information technology. In February 1996, the President signed into law reform measures that make procurement faster and more efficient, give more discretion to agency and employee purchases of technology and overhaul the appeals process for bid protests.

Now, state governments are responding to the need for change. Numerous state procurement offices have taken steps to re-engineer the procurement process, reducing the time it takes to procure information technology, streamlining the layers of review and oversight, allowing managers more discretion for small purchases, broadening relationships with vendors and awarding bids based on best value.

But implementing these changes is not easy. State procurement and technology executives need support to enact these changes. Other states, which are still procuring technology in ways that are inefficient and costly to taxpayers and businesses, need leadership to reform how they purchase technology. Procurement reform as it affects information technology needs to move forward. Here's why _ and how _ you'll want to act on information technology procurement reform today.

The High Cost of Public Procurement

Several years ago, the state of Texas undertook a study that compared the cost of procurement in the public sector with the private sector. They found that governments spend an average of 5.5 cents to process every dollar of procurement while the private sector spends just 1 cent per dollar to do the same.

If you project those numbers against what state and local governments spent on technology in 1995, you'll find that it costs states, cities and counties as much as $1.9 billion to process $34.5 billion in technology procurements. But if their processing costs were as low as the private sector's, state and local governments would have spent only $345 million to procure the same amount of technology, a savings of $1.5 billion dollars, a cost reduction of nearly 80 percent!

Another way to look at the problem is the high cost per transaction. Some state procurement officials point to the $75 to $100 it costs in labor and paperwork just to process a single transaction, whether it's to buy a software program, a printer or a microcomputer. Either way, the bottom line adds up to a procurement system that costs your government more money than it should.

Besides the expense and waste, today's unreformed procurement systems are a drag on the economic well-being of states. With its enormous budget and influence, your government sets the tone for a state's economic vitality and progress. A procurement system that is slow and inefficient sends a strong signal to the business community that your state is unable or unwilling to compete in today's fast-paced economy.

Conversely, a state government that has reformed its procurement system and uses the latest techniques, such as an electronic bidding system on the Internet, creates a healthier economic environment. These states send out a positive message to the business community, showing how economically savvy they are, while governments that operate using decade's old procurement processes based on manual systems are less likely to have such an impact.

In this new global economy, states must rely upon all available tools to attract investment and development. By reforming your procurement system and using the technology of electronic commerce, you can help unleash the strength and competitiveness of your state's economy.

Finally, the problems that bedevil your procurement system end up diminishing the delivery of services to citizens and businesses. Without a doubt, information technology can help a state provide more services _ cost-effectively _ than by manual means. But if your procurement system slows the acquisition of technology, resulting in the implementation of computer systems that are obsolete or don't perform as they should, then your government's ability to automate and improve service delivery has been compromised.

Taxpayers and businesses interact with responsive customer services every day because private sector firms have automated, re-engineered and improved the way they provide services. These customers expect the same from government.

With many states still applying procurement practices used since World War II, however, it has become extremely hard for procurement and technology executives to purchase high-tech computer systems that can improve service delivery. Our economy, government and services have changed significantly since the 1940s. Shouldn't procurement do the same?

Priorities for
Procurement Reform

1. Faster, more timely
procurement
2. Better procurement planning
3. Secure better value relative to the price
of goods and services procured
4. Better use of
information tech-nology within the
procurement process

Source: 1995 Harvard University Survey of government officials and private sector vendors

Cashing In On the Benefits of Procurement Reform

Just a few short years ago, it was difficult, if not impossible, to find an example of procurement reform in state government. Today, a growing number of states are tackling their procurement problems on several fronts. All are making progress, but it's clear that no one solution will work for all 50 states. Differing laws, regulations, as well as politics and economics, can affect a state's approach to procurement reform.

What has emerged from the work conducted by states so far and from the books and reports written on the subject, is a consensus on several key reforms that can have the greatest impact on improving government procurement systems.

Here are the leading efforts at procurement reform and how some states have put these best practices into action:

1. Simplifying the Procurement of Commodity Items and Services

PROBLEM:
Certain types of computer hardware and software have become commodity products in recent years. The prices for PCs, for example, are extremely competitive and continue to drop because of market pressures. At the same time, their performance also has improved significantly.
Yet many state governments are unable to benefit from the values and savings brought on by the marketplace because their procurement system processes all computer purchases the same way: through competitive bids based on elaborate specifications and equally elaborate responses by vendors. By the time the process is completed, government agencies end up with commodity hardware and software that costs significantly more than it would down at the local computer store.

SOLUTION:
States should learn to distinguish commodity products from non-commodity products in the information technology field and then simplify the acquisition of commodity items, such as PCs, printers and office automation software, through the use of catalogs, master contracts, state stores and the like. States should also eliminate bidding for small purchases of commodity items so that the benefits of the technology can be realized without delay, and the cost of the acquisition can be minimized for both agency users and procurement staff.

Who's Benefitting From Commodity Procurements:

The state of Texas has simplified the procurement of computer technology through its Qualified Information Systems Vendor Catalogue, which are product listings by vendors who have been screened by the state. Once a vendor's catalog has been accepted, agencies can then negotiate prices for listed products.

California has developed the Multiple Award Schedule (CMAS), which allows agencies to purchase items from companies with federally-approved (GSA) product schedules. This has had the effect of broadening choices and speeding up the acquisition of computer products and services at the best price. Agencies transactions with CMAS can reach $250,000 without having to go through the traditional bid process, saving them time and speeding the acquisition of time-sensitive technology.

North Carolina has posted request for proposal information, PC/peripheral and other commodity pricing on the state's Department of Administration Web site. The end result has been a system that offers more flexibility, efficiency and choices for buyers. Price information may be updated within 24 hours rather than monthly and is available to connected state agencies, towns, cities, public schools, state universities and hospitals. Buyers are able to comparison shop among current vendor offerings on an "apples to apples" basis, creating greater competition and better prices. Quality is assured through a Qualified Providers list.

Several other states, including Michigan and Missouri, use master contracts, which serve a large number of agencies, reduce the number of procurements and, through economies of scale, drive better bargains. Currently, Michigan has one master contract for all desktop computing products and services. Prices are exceptional because of the huge volume and the lack of any contract management costs for user agencies. Missouri has such contracts set up for a variety of commodities and is awarding a prime vendor contract for all desktop computing products and services.

Many of the telecommunications contracts being developed by the state of New York, such as cell telephone service, incoming "800" number service and long distance services, require bidders to submit rate schedules which escalate discounts based on aggregate volume contract usage. Whenever possible, the state has tied this approach together with the concept of the Office of General Services (OGS) serving as the anchor tenant. That is OSG commits to buying a certain minimum number of circuits, minutes, etc., as part of its mission to provide centralized telecommunications services. Being able to act as the anchor tenant provides two distinct benefits:
-The vendor community is guaranteed some level of revenue and responds with a more aggressive bid.
-The end user community is presented with a high degree of flexibility. With OGS satisfying the applicable commitment level, potential contract users can increase and decrease participation without concern for length of term or termination penalties.

The State of New Mexico reports that their first Multiple Award Schedule (NAS) for personal computers was established in 1983. Since that time the procurement process has been refined and expanded to also include other classes of computer equipment as well as data, telephone and radio communications equipment. New Mexico has been using GSA contracts as the basis for the establishment of beneficial direct pride agreements with manufacturers and others since 1984. Thanks to the forward thinking of the New Mexico Legislature, identical Procurement Code provisions apply to all governmental jurisdictions throughout the State including cities, counties, public school and institutions of higher education and others. This fact allows the State Purchasing Agent to pool the combined purchasing power from all of the governmental entities into higher levels of volume discounted agreements with true statewide applicability for both products and services. Price agreement usage is unlimited which means there is no cap to trigger the required use of traditional bid processes. There are, however, "intelligent shopping" procedures that are encouraged and supported to assist the user agencies in selecting a system that represents the best value.

2. Building An Infrastructure for Electronic Commerce

PROBLEM:
State governments rely on manual systems to identify products for procurement, advertise contracts open for bid and to process purchase orders and invoices. The system is time consuming, costly and fraught with error.

SOLUTION:
Electronic commerce has already caught on as a cost-effective and efficient method for ordering goods and services and for making payments in the private sector. Now it's expected to become an aid for governments and economic development.

Electronic commerce involves the restructuring of existing procurement systems and the development of computer networks to exchange order and payment data. Governments also need to develop electronic databases of solicitations, product pricing information, and other pertinent procurement information so that vendors and other interested parties can view and respond to proposals electronically over the Internet.

Who's Engaged In Electronic Commerce:

Texas and Massachusetts have both set up projects involving electronic data interchange - the computer-to-computer exchange of order and payment transactions for specific goods and services.
Several states, including Oregon, Texas and Massachusetts, and Missouri have set up databases of information on solicitations that are available over the Internet. This form of electronic commerce will allow states to reach a much larger number of bidders, thereby increasing the competition for high-quality goods and services.

Since 1992, Oregon has allowed vendors to access, view and download state solicitations for bids using a PC and a modem. No longer having to conduct mass mailings to vendors for every bid opportunity, the state of Oregon saved $1.3 million in paper and personnel costs. Oregon also estimates it has saved approximately $33 million over prices thanks to increased competition from vendors since going online.

Indiana conducted a nine month test ending in 1996 to investigate an electronic commerce environment in their state. The results, with 150 vendors participating in five commodity areas, were even greater than anticipated. Not only did the state conduct live solicitations and awards via electronic data interchange, but the involved vendors have continued to ask the state to roll out a fully operational system.

The state of New York has had its contracts available on the Internet, through a Gopher server, since 1994 for all vendors and agencies to quickly access. Time critical bulletins can be immediately provided, with New York no longer relying on mail delivery. In mid 1996, the contract data was also made available over the World Wide Web. A number of New York's contracts also provide EDI ordering services. Plans are underway to establish an electronic store similar to the Federal Advantage system to permit electronic ordering, and to have vendors electronically update the contracts, as well as provide activity reports based on the ANSI X.12 standards. New York also plans to expand the use of the procurement card, which is currently being piloted, to make purchases from centralized term contracts.

The state of Missouri is using the Internet for sharing information, soliciting bids/proposals, and for a question and answer medium on specific solicitations. The state and the vendors have found this very beneficial in both saving time and increasing accessibility of information.

The State of New Mexico reports that because of the breadth and quality of their information systems price agreements, only a few specialty products are solicited through invitations for bids in any given year. For that reason, there has not been a need to pursue and form of electronic commerce solution for these items. However, the invitation for bids process is used extensively for other commodities and the State of New Mexico is aggressively pursuing system solutions that utilize the Internet capabilities. Bid and RFP notification are posted on the State's home page along with pertinent vendor registration and price agreement information. Plans are in place to enhance these electronic capabilities. This State certainly concurs with the Electronic Commerce recommendation contained in the report.

3. Procuring Information Technology Based On Best Value

PROBLEM:
Your government's procurement system is driven by the need to be as objective as possible when deciding which vendor wins a contract. To maximize that objectivity, cost is given extraordinary weight in the selection process. When you award a contract based on the lowest bid, too often you end up with a product that is low in quality, high in risk and fails to meet the needs of the agency.
This issue is especially important regarding the procurement of information technology. As your state increases its reliance on computers and telecommunications, it is critical that information systems are built with quality, are reliable and supported by reputable vendors. Awarding technology contracts based on low-bid can turn into a high-stakes gamble for developing computer systems that are completed on time and are reliable.

SOLUTION:
Procurements based on best value take into consideration a variety of factors, including the life-cycle cost of equipment, the past performance of vendors and their ability to successfully complete the contract on time. The state of Michigan often uses scoring models in which price is less than 33 percent of the total score for selecting a vendor.
For some states increasing the emphasis on best value procurements may simply require some astute leadership and training of government officials on how to apply "non-objective" requirements to the selection process. For other states, new legislation may be required.

Who's Using Best Value:

The state of Texas has been applying best value to its information technology procurements since 1993. The values include life-cycle costs, employee productivity improvements and vendor performance.

The Commonwealth of Massachusetts recently reformed its procurement policies and procedures. The changes empower departments to procure goods and services at best value. Their handbook states: "...higher quality may be more cost effective over time when compared to a lower quality, less costly procurement. Long-term investments, as appropriate and necessary, and long-term value are also important considerations beyond cost...."

The state of New York's procurement statute was amended in 1995 providing agencies the statutory authority to contract for services and technology on the basis of "best value" or "low price." Even "low price" in the new statute, includes far more than just the cost of an item or service, for example: the administrative, training, storage, maintenance, delivery, life span and life cycle cost factors.

Missouri has applied best value consideration for years in its procurements in accordance with the statutory authority to award to the "lowest and best" bid/proposal. In applying best value consideration, the state considers various criteria such as technical capabilities and contractor support, method of performance, experience and reliability of a company, qualifications of individuals proposed for a project, life cylce costs, and other information learned while evaluating proposals.

Value based procurement was implemented in New Mexico as a standard for Information System Technologies in the mid 1980's. The request for proposals (RFP) procurement process for information systems was reformed in 1988 with the development and publication of the shell or model RFP document. This document provides a standard format and standardized boilerplate for all procurement documents. The RFP Procurement Guide provides the procurement managers with a handy resource document to be used throughout the procurement process, with a focus on techniques and procedures and well as examples. An electronic library has been established with both procurement documents and contracts. Quality assurance improvements have been added with document preparation assistance and document review prior to issuance, enhancing the quality assurance review process that was already being completed prior to award. Real time procurement consultation is provided throughout the procurement process. These improvements are accompanied by procurement manager and evaluation committee member training for every procurement as an integrated step in the procurement process. The Structured Evaluation Methodology ("SEM") was developed in New Mexico on information system procurements and was adopted as the standard methodology for proposal evaluation. The SEM is a series of steps and evaluation techniques that, when used in combination with "best value" factors, will always identify the proposal that represents the best value to the procuring agency as well as the numerical score against a uniform predefined scale. The numerical score provides agency management with an assessment of risk. A high score indicates that the best proposal offers a good to superior match to the system requirements for the product or services. A lower score indicates an increasing level of risk. Experience has shown that not all procurement requests should result in contract award. Risk is an important management consideration that is frequently overlooked because the evaluation methodology employed does not provide a risk assessment as does SEM. The horrendous system failures documented in the various trade publications are undoubtedly a direct result of this oversight.

4. Developing Beneficial Partnerships With Vendors

PROBLEM:
State governments avoid strategic alliances with vendors to discourage the perception of favoritism. This is evident in the many state laws that impose short time limits on a contract between a state and a vendor. These efforts at objectivity and neutrality serve their purpose for procurements of traditional goods and services, but have not worked well with procurements of complex technology.
Computer technology vendors, with their experience and expertise, are dependable sources of high-quality, technical and managerial assistance, yet few states can take advantage of these resources because of contract term limitations. This leaves states in the predicament of attempting to procure technology for mission-critical systems without the benefit of a strategic partnership to share risk and add value to the procurement, beyond the initial specifications.

Traditional relationships with vendors under contract often veer towards trouble because of the existing procurement process. Government often ends up bearing the financial risk of the project and paying the contractor's costs for change orders. Protests, hearings and delays can ensue, resulting in a system that costs more than estimated, has fewer benefits and uses out-of-date technology.

SOLUTION:
State governments must be more flexible when it comes to determining the length of time that a contract should exist. The issue is to create a partnership whereby communication with a vendor promotes better understanding of state government needs and result in longer-term contracts (not necessarily focused on creating additional responsibilities for the vendor but instead focused on promoting continual improvement of services). Longer-term contract should be designed to create partnerships with a vendor that will promote better understanding of state government needs and allow for assessment of how the contract is performing thus ensuring that the vendor is working towards meeting the requirements of state government and continually improving.

A better understanding of the needs and requirements through the partnership process should lead to more efficiency and effectiveness on the part of the vendor to meet state government needs. For example, the vendor must be willing to undergo an assessment conducted by the state or participate in a designated assessment process to provide evidence to the state of continuous improvement. This approach may result in higher first year costs but lead to reduced costs in succeeding years and greater efficiency because of the partnership process. The ability to get work done should be increased and the processes simplified because the supplier should be continually improving as a result of regular assessment. Contract extensions should be contingent upon assessment results. Additionally, assessment results could be a factor for selecting vendors when changes of scope occur.

Who's Forming Partnerships:

The state of Michigan routinely adds work to contracts if it is in the state's best interest. The state also makes extensive use of negotiations rather than competitive bidding to dramatically reduce the amount of time required to get essential work completed in the field of information technology. Michigan is able to do this by using the RFP to describe the nature of the problem _ not the solution _ by narrowing the number of categories of criteria, making it easier to compare the different solutions offered by the vendors and by using the process of "best and final offer" to move the negotiation process swiftly to conclusion.

The California Franchise Tax Board formed a strategic partnership with two qualified vendors in order to upgrade and replace their tax collection system. Rather than draw up detailed bid specifications, the Tax Board presented pre-screened vendors with a statement of their problem and asked for responses in the form of workable solutions. Once a vendor was selected, the contract was then negotiated. The Tax Board financed the project from the savings and new revenue generated by the benefits of automation.

For one of the three systems installed under the partnership, the payback was five times higher than what was originally estimated. As a result, the vendor was paid back for its investment in five months rather than two years. The project took only four months to complete compared to the average 18 to 24 months for a project of this size.

The state of New York's procurement statute provides the opportunity for agencies to enter into strategic partnerships for the enhancement of the business interests of the state. These partnerships are formed by amendment to existing contacts, enabling the state and the vendor to jointly develop new commodities and services not otherwise available. Partnerships may also include the sharing expertise, efforts and resources.

Since the New Mexico Procurement Code has always allowed for contracts and price agreements up to eight years in duration, the problems described in the section titled "Developing Beneficial Partnerships with Vendors" simply have not been a problem here. The State's typical information system procurement has a fixed minimum term with a series of optional one-year renewals up to the statutory limit. The contract terms and renewal options are established in the RFP used for the original solicitation, which eliminates the need for any extraordinary procurement measures. If the relationship between the State agency and the vendor is satisfactory, the agency may exercise one or more renewal options. Where it makes sense to do so, multiple agencies may collaborate on a procurement and share the services of a common contractor. Multiple agency price agreements are also an effective procurement vehicle for some situations.

5. Solving Problems With Solicitations

PROBLEM:
Too often, agencies issue solicitations for bids that include detailed specifications for the final product. This works fine for simple commodities, but not for complex computer systems, where more than one solution to the problem may exist.

Detailed bid specifications limit or preclude vendors from proposing their best solution. Instead, vendors propose only the solution that the agency has requested. These bids also are difficult for an agency to write, requiring exhaustive research and development to determine the best solution.

SOLUTION:
Write bids that briefly state the problem without the need for detailed specifications. Vendors, who are the subject matter experts, can use their discretion and creativity to offer an innovative solution rather than simply replicate the agency's specifications. Vendors, who offer a solution of their own design that they believe will work, are more willing to share in the project's risk.

Risk sharing is considered an important step in helping large, non-commodity procurements of technology to succeed. Governments can structure agreements where the vendor/partner is paid part or all of the fee based on achieving a desired outcome. Another option involves payment to the vendor/partner based on a percentage of savings generated by the new computer system or a percentage of increased collections (computer systems that identify businesses that haven't paid certain taxes, for example).

Who's Writing Problem-Oriented Bids:

Michigan has slimmed down the development of its bids, cutting the time it takes to draft a Request for Proposal (RFP) from weeks or even months to just hours. The California Franchise Tax Board also stated its bid in the form of a problem rather than specifying the details of the bid. The Board reported significant benefits from the new approach (see "Who's Forming Partnerships").

In an effort to streamline the bidding process, new York has established backdrop contracts in the computer consulting and training areas which function essentially as a prequalified bidder list. New vendors are continuously recruited based on their responses to an open bid. Agencies and localities conduct a mini-bid process to prequalified vendors based on individual project definitions in order to determine best value/lowest price. This reduces the bidding process to six weeks. New York plans on expanding this concept to integration services in the near future. Vendors who can provide a total solution including hardware, software, and services will be able to offer proposal through the mini-bid process.

The state of New York is also in the process of establishing contracts for compliance auditing to be used to spot check the performance of the contractors. In one case the auditor will be paid on a contingency basis (percentage of what they find.) This plan provides for the state to share in the savings that result from accounts payable type audits. In the other case, the auditor will be paid an hourly/day rate for more detailed audits fo service levels for various types of contracts.

A Successful Procurement Is One Which:

- Is driven by results or outcomes
- Generates the best quality economic value
- Is timely
- Minimizes the burden on administrative resources
- Expedites simple or routine purchases
- Allows flexibility in developing alternative procurement and business relationships
- Encourages competition
- Encourages the continuing participation of quality vendors
- Supports Commonwealth and Department plans

Source: The Commonwealth of Massachusetts Procurement Policies and Procedures Handbook

Getting Started With Procurement Reform

Lower costs. Better business practices.

An infrastructure for 21st Century electronic commerce. Improved services for taxpayers. The benefits of procurement reform are clear and compelling. Yet the move from inertia to action may seem complicated. Every state has different circumstances, different needs. No single approach to reform will work for all state governments. Instead, take a look at how several states began their reform efforts and share their ideas and plans with your key government officials to get the ball rolling:

The state of Alaska formed a Procurement Advisory Council, which reviewed all procurement-related statutes, regulations, policies and practices. The Council, which consists of all major stakeholders in the state, as well as some leaders from the private sector, identified those elements of procurement that weren't effective and began to restructure them through re-engineering and new legislation.
The state recently adopted changes to its model procurement code based on broad concepts for procurement reform, including best value, partnerships and past performance as a criteria.
The Commonwealth of Massachusetts formed a purchasing work group, consisting of several departments, including the Department of Procurement and General Services and the Office of the Comptroller, and established a procurement program based on a number of reform initiatives. The work group changed the state's procurement emphasis from low bid to best value, combined four separate state regulations on procurement, running nearly 100 pages long, into one regulation just seven pages in length, issued a new procurement policies and procedures handbook and developed an electronic clearinghouse for proposals and solicitations available over the Internet. Other changes added greater flexibility to the state's procurement process.
The state of Michigan created the post of chief information officer (CIO) and gave the position control of procurement as it relates to information technology. Not restricted by any state laws governing procurement, the CIO has introduced a number of new procurement strategies, including master contracts, vendor partnerships, best value procurements and flexible acquisitions, which can range from multi-year contracts with a single vendor to using a credit card for small purchases. The CIO handles responsibility for the procurement of all major information technology systems, while allowing agency users the discretion to make smaller procurements.
The governor's office in the state of Indiana formed a quality driven team comprised of the state procurement director and key staff members of 14 customer agencies to review the procurement system and find ways of streamlining the procurement process. After a detailed review of the way procurements have traditionally been conducted in that state, the team received the governor's approval in July 1996 to implement several recommendations, including more purchasing authority granted to agencies, adequately trained and staffed to fulfill the requirements for seeking the best value in purchases. This new purchasing environment will become effective in October 1996, and will substantially decrease the time required to make most purchases below $25,000 while, at the same time, ensuring agencies get the products they need and vendors get paid more rapidly.
The governor's office in Missouri formed the Commission on Management and Productivity which established a task force to review the purchasing process and implement changes to make it more efficient. This task force produced recommended changes to purchasing statutes which were subsequently adopted by the legislature and signed by the governor and became effective Aug. 28, 1996. The most significant changes include: the ability to enter into negotiations with bidders in order to accept best and final offers as part of the procurement process, increasing the bid threshold to $25,000 for sealed bids and the ability to use electronic media in the purcahsing process.
The state of New York has formed a Procurement Council comprised of representatives of state agencies, local governments, the business community and preferred sources (i.e. the disabled workshops). The Council is responsible, for example, for developing procurement guidelines, recommending legislative changes which would improve the procurement process, and acting as a clearinghouse for identification of potential cost reductions and other efficiencies.

Putting Procurement Reform Into Action

Every state has its own methodology for problem solving. What follows are some tips taken from real experiences and studies of procurement reform and information technology:

Identify the stakeholders. Include those from procurement, information technology and user agencies. Consider input from the business community.
Talk with states that have already reformed their procurement systems.
Become familiar with the range of procurement reform strategies that can benefit your government. (NASPO and NASIRE have identified more than 40 problem areas in procurement and ways to reform them.).
Draft a list of goals for procurement reform.
Develop a strategic plan.
Roll out reforms. Start with those that will have the most immediate effect and best payback.

Resources

This report has been developed by the
National Association of State Information Resource Executives
and the National Association of State Purchasing Officials
as part of a Joint Information Technology Procurement Project.

For more information on how you can begin procurement reform, please contact:

Gary Lambert
Deputy State Purchasing Agent
Operational Services Division
Commonwealth of Massachusetts
One Ashburton Place, Room 1017
Boston, MA 02108-1552
617/727-7500 x260
glambert@state.ma.us

P.K. Agarwal
Chief Information Officer
Information Technology Division
Franchise Tax Board
P.O. Box 2229
9645 Butterfield Way
Sacramento, CA 95812-2229
916/845-5530
pagarwal@ftb.ca.gov

NASPO and NASIRE encourage the use and the reproduction of this document as a tool for reform. As part of the effort to track the effectiveness of the report, the task force asks that you contact our headquarters to let us know how you will be using the report by phoning (606) 231-1885. All references to the report should be attributed to the NASPO/NASIRE Joint Task Force on Information Technology Procurement Reform. Copyright c September 1996

National Association of State Purchasing Officials/National Association of State Information Resource Executives Joint Task Force on Information Technology Procurement Reform sample legislative language

A BILL to reform the procurement of information technology.

WHEREAS state procurement and information technology executives recognize the need to improve the current procurement process for information technology hardware, software and services; and

WHEREAS enhancements in (STATE)'s procurement practices for information technology can save taxpayer's money by increasing the flexibility of purchases, making it possible for agencies to take advantage of the ongoing price and performance improvements that take place in one of the most volatile and fast-changing industries in the world; and

WHEREAS many states have demonstrated the benefits gained from implementing procurement reforms; and

WHEREAS a reformed procurement system can spur on the economic well-being of (STATE) by increasing its ability to attract business through the use of up-to-date procurement tools, such as electronic commerce and electronic bidding systems; and

WHEREAS a reformed procurement system can expand and enhance the delivery of services to citizens and businesses in (STATE) by speeding the implementation of automated systems that provide information and services to citizens and businesses; and

WHEREAS, the National Association of State Information Resource Executives (NASIRE) and the National Association of State Purchasing Officials (NASPO) report on procurement reform identifies certain changes that can save millions of dollars;

NOW, THEREFORE, be it enacted by the People of the State of (STATE) a bill relating to the reform of procurement as it pertains to information technology:

Notwithstanding any general or special law to the contrary, the (organization name) shall develop policies and procedures which promote flexible procurement of information technology hardware, software and services which are in the best interest of the state of (state name), provided further; wherever practical procurements shall be conducted utilizing electronic commerce, and provided further; each procurement for information technology shall be developed using best value principles, which shall be defined by policy and procedure. Whenever practical, the (organization name) shall establish contracts which will establish partnerships that are beneficial to the state of (state name), provided further; the (organization name) shall be allowed to issue solicitations defining a business problem so long as there are clearly defined evaluation criteria developed in advance of issuance of said solicitation which shall be used in evaluating solicitation responses.

This legislation is thereby supported by the following procurement reform goals:

a. Simplify the procurement of information technology commodity items and services in order to benefit from the values and savings brought on by the marketplace, so that benefits of technology can be realized without delay and the cost of the acquisition can be minimized for both agency users and procurement staff,
b. Build an infrastructure for electronic commerce in order to create a cost-effective and efficient method for ordering goods and services, for reaching a much larger number of bidders and for increasing the competition for high-quality goods and services,
c. Procure information technology based on best value, not lowest price, in order to ensure that expensive and complex computer systems are built with the highest level of quality, reliability and support from vendors,
d. Develop beneficial partnerships with vendors in order to share risk and add value to the procurement of complex technology, and to promote a better understanding of state government needs and to allow for an ongoing assessment of how the vendor is performing and to make improvements based on the assessment,
e. Use solicitations for bid to define a business problem in order that vendors can offer innovative solutions rather than simply to specify the details of the final product and so that vendors will offer a technology solution of their own design, based on their high level of expertise, that they believe will work, making them more willing to share in the project's risk.
For more information on the Task Force and the project, please call (606) 231-1885.