- March 12, 2015
- Posted by: James Bregenzer
- Category: News
Tennessee Makes History with Innovation in Procurement
By Rebecca Montano-Smith, NASPO Senior Policy Analyst
Tennessee is well known for Graceland, beautiful Smoky Mountains and country music. Among other wonderful cultural and historical landmarks, Tennessee’s Music City also has great people. Nashville is home to the Department of General Services, Central Procurement Office whose professionals are tirelessly at work every day finding innovative procurement solutions that save taxpayers’ dollars.
In 2012, the State of Tennessee assessed the management and operation of its aging state-run facilities as well as its dispatch rental fleet and identified areas of improvement. This article showcases two innovative solutions that helped the state operate its facilities and fleet more efficiently and leverage new technologies and approaches.
Innovations in Facilities Management
Faced with ongoing high facility-related operating expenses, the state turned to the private sector to procure a statewide comprehensive facilities management contract and provide high quality service standards at a competitive cost. The assessment conducted in 2012 identified the need to reduce the high operating and maintenance costs, identify and prioritize short and long term maintenance projects, as well as to plan and operate more efficiently.
Under the new statewide facilities management contract, facilities that were previously managed internally, through over 400 contracts, are now handled through a single vendor. At the time, Tennessee’s public real estate portfolio included state-owned facilities of approximately 6,813,600 gross square feet and leased facilities of approximately 3,609,903 gross square feet. A Request for Qualifications with a three-tier approach was employed as the procurement method to ensure that only qualified vendors who met the needs of the state made it through to the cost proposal negotiations.
Communication with the vendor was also employed as an additional innovative feature to address the lack of industry knowledge regarding cost details, Key Performance Indicators (KPIs), and specifications related to facilities management. Through collaboration and communication with the industry, via the pre-response conference, input from responding vendors was used to improve the final scope of services, cost proposal, and terms of the pro forma contract. Finally, a strategic partnership was formed with the successful vendor who met prevailing industry standards.
The partnership with the vendor bore fruit only after one year of implementation. Benefits included improvements in service responsiveness and timeliness, centralized services, reduced operating costs, success measured by KPIs and best practices such as quality control, accurate reporting, and strategic sourcing. Additionally, due to the unique feature of this contract the collaboration with the vendor allowed for innovative and creative solutions that improve service and create savings.
Savings achieved by the new contract amounted to more than $2 million due to the consolidation of services that were previously handled through approximately 100 third-party contracts. The new vendor also performs reactive and proactive facility maintenance which saved the state over $1 million. The consolidation and re-sourcing included contracts such as security, janitorial, and grounds maintenance, which have been strategically sourced. Projected savings of $50 million are expected over the contract period of 5-7 years to include cost savings from annual state payroll, self-performing maintenance work, strategic sourcing, and energy cost.
Vehicle Fleet Management
An equally-innovative idea was also identified by the Tennessee’s Central Procurement Office working together with the Department of Motor Vehicles Management (MVM) to address the high cost of operating and maintaining a vehicle rental fleet in house. The state employed a cutting-edge solution for vehicle fleet management, at the time, involving outsourcing of its state-run fleet. It addressed a common problem faced by many states and has proven to be very successful. Since then car-sharing programs have become more prevalent and are a more familiar scene on various university campuses these days, thanks to a variety of vendors offering this type of service.
Key reasons for the needed innovative solution were the dated dispatch rental fleet with at least 50 percent needing to be replaced with new vehicles for an estimated cost of over $2.6 million. Additional contributing factors to the much needed change were the renovation of the MVM office space and the limited availability of the fleet to only normal state business hours. Three solutions were evaluated by the state, based on customer service and cost savings benefits. Solutions included replacing dated vehicles and renovating the state-owned parking lot spaces; discontinuing fleet dispatch and reimbursing employees for personal mileage; and implementing a car sharing program through an outside vendor. Implementing a car sharing program, with a cost of just over $800,000/year, was found to generate the most savings and improve customer service and therefore the solution of choice. Subsequently, the state compared pricing on all available contracts at the time of the analysis, which included a 21-state WSCA cooperative contract, state-wide contracts in Florida, Indiana, and Tennessee, and the University of Tennessee contract. Due to its rates of 8% below the contract rates for the other comparable contracts, the state decided to use the contract through the University of Tennessee for vehicle rental services which also allowed for cooperative participation and was competitively solicited. This contract also offered the best pricing and rebates.
The new car sharing replaced a cumbersome system that required many signatures followed by scheduling a shuttle pick-up or a drive to the dispatch center. The antiquated system was replaced by online reservation and 24/7 access to safer vehicles which a customer satisfaction of 76%, according to a survey sent to state employees. Reporting was also improved thanks to the new technology allowing for reports on the mileage driven and time used which is submitted monthly to the central procurement office and MVM by the vendor.
Overall, the estimated cost savings of the car sharing program increased from 22% in the first year of the pilot program, to realized savings of 43% based on usage in the five cities that previously maintained a satellite dispatch rental fleet. The total savings for the state were almost ten million dollars. The grand total includes cost savings of about 600,000 per year compared to the annual cost of running the old dispatch rental fleet and the cost avoidance from not having to purchase new vehicles, avoidances for annual maintenance and upkeep, facility repair, as well as sale proceeds of the land and old dispatch fleet. Additionally, the state receives a quarterly rebate from the vendor of 8% of the total spend of $1,000,000 per year based on combined usage, including state, local, usage by the University of Tennessee, as well as personal usage by state employees.
These are all great ideas with demonstrated savings implemented by dedicated public procurement professionals. NASPO recognized the value of both solutions and bestowed its prestigious Cronin Bronze Award for the Innovations in Facilities Management and an Honorable Mention for the Vehicle Fleet Management innovative solution.
To learn more about these two Tennessee initiatives, you can watch the previously recorded webinars here:
All webinar recordings for Cronin finalists are available on the NASPO web site at Cronin Award for Procurement Excellence.