Insights

GSS Public Procurement Report
October 2019 Vol. 4, Issue 3

Introduction
Every year, consulting firm Government Sourcing Solutions (GSS) meets with hundreds of senior government procurement officials across the United States. In those meetings, GSS's team of former senior government procurement leaders/chief procurement officers (hereafter "CPOs") hears firsthand about the issues and hot topics those leaders are facing.

Top Issues Identified by CPOsIn September 2017, GSS began collecting and analyzing data on the issues most often mentioned by public procurement leaders in those meetings. For the first time, Cooperative Purchasing has become the #1 issue. This was consistent across local governments, school district/educational institutions and higher education but not at the state level, where Cooperative Purchasing was only cited by CPOs in 11% of our meetings.

The latest reporting period (February 1, 2019 – July 31, 2019) yielded some interesting insight into the issues facing state procure-ment leaders specifically. In this edition of The Public Procurement Report, we dive deeper into the state data, including how the 2018 gubernatorial elec-tions continue to impact state procurement and how the move to upgrade and replace on-site legacy IT systems and ongoing staffing issues in state procurement and IT offices are leading to an Increase in the Complexity and Number of IT Projects.

Cooperative Purchasing Takes Over the Top Spot
Since the beginning of data collection for The Public Procurement Report, Cooperative Purchasing has consistently registered as a top trend among governments across the country. The latest data analysis indicates that the issue is increasing in importance to the CPOs of local governments, school district/educational institutions, and higher education, while for states Cooperative Purchasing ranks significantly lower.

Cooperative Purchasing at the Local and Education Levels
Between February 1, 2019 and July 31, 2019, Cooperative Purchasing was cited most often overall during our meetings. As the following chart demonstrates, Cooperative Purchasing has continued to grow in rank to become a top issue mentioned by the CPOs of cities and counties, school/education districts and higher education institutions. Cooperative Purchasing Response Rank

The number of cooperative purchasing solution providers, including national consortia, regional cooperative programs, and cooperative contracts of like institutions, increased steadily over the last 20 years, driven in part by the success of predecessors and the need to address dwindling internal agency resources including staff, training, and funding.1 More recently, however, there has been trend toward the consolidation of those consortia, further complicating the landscape of cooperative purchasing solution providers. At the same time, many public purchasing leaders are still refining the way they approach the implementation of cooperative purchasing solutions.

States on the Cutting Edge
While Cooperative Purchasing is a top issue at the local level, it registers as just the 8th most-reported issue in our meetings with state CPOs. So why is Cooperative Purchasing not cited as often by state procurement leaders? States have been taking advantage of Cooperative Purchasing since the Western States Contracting Alliance (WSCA) was formed in 1992. The predecessor of NASPO ValuePoint, WSCA was formed to leverage the purchasing power of states with the leadership and expertise of state CPOs. WSCA and parent organization the National Association of State Procurement Officials (NASPO) provided state CPOs the framework and education needed to promote Cooperative Purchasing as a best practice solution. State adoption was so widespread that by 2012, 95% of the states that responded to the 2012 NASPO Survey of State Procurement Practices indicated that they had the authority to use WSCA or other states' contracts through cooperative purchasing, and by 2016, 92% (46) of states reported that they used NASPO ValuePoint contracts.2 In fact, state governments have adopted cooperative purchasing at such a rate that between 2012 and 2015, they published 4.8% fewer solicitations and RFPs.3 With so many years of experience under their belt, Cooperative Purchasing seems to be less top of mind for state CPOs than for local government or school district/educational institution procurement leaders at this time.

Speaking of States….
By The NumbersProcurement at the state level is distinct from local government or school district/educational institution purchasing in many ways. Like many local central purchasing offices, state procurement offices establish contracts that are legally, fairly, and competitively awarded. These contracts are available for use by all non-exempt state agency customers as well as political subdivisions, school/educational districts, and higher education institutions (which are sometimes mandated to use state contracts), further increasing the potential value of a statewide contract award. In addition, state CPOs can be more autonomous and often have more decision-making ability than the CPOs of local governments, where boards, councils, and commissions often have oversight of awards over lower dollar value thresholds than exist at most states. States also have more customer agencies and employees than most local governments, school/educational districts, or higher education institutions. Finally, state CPOs often must work with both legislatures and executive branch leaders to develop laws and policies that impact purchasing statewide.

For those reasons and more, it is worth taking a deeper dive into what state CPOs specifically are saying in our meetings and further exploring the different pressures that they face.


Issue

eProcurement
It's no surprise that eProcurement continues to be the most often cited issue facing state CPOs – it consistently ranks among the top 10 priorities reported every year by NASPO. For instance, "eProcurement/ERP solutions" was the #3 priority listed in NASPO's 2017 Top 10 Priorities for State Procurement.4 In 2018, eProcurement was again a top 10 priority – "Driving Procurement Efficiency with Automated Software Solutions" (including "integrated eProcurement/ERP solutions (and) greater use of spend analysis software and electronic systems with complete tracking and reporting functionality") ranked #5.5 Most recently, NASPO listed "Maximizing E-Procurement Solution Utilization and Functionality" as the #4 state CPO priority in the 2019 list.6

Impact of Politics on Procurement
The 2018 gubernatorial elections continued to influence procurement at the state level, where CPOs reported that the Impact of Politics on Procurement was the #2 most often reported issue for the second reporting period in a row. Many of the new and incumbent governors campaigned on ideas that have already begun to impact procurement.

Arkansas
During his 2018 campaign Arkansas Governor Asa Hutchinson promised to reduce the number of state agencies from 42 to 20 or fewer.7 On July 1, 2019 he signed the Transformation and Efficiencies Act of 2019, which reduced the number of cabinet-level agencies from 42 to 15 and accomplished the largest reorganization of the state's government in almost 50 years. As part of this reorganization, the Office of State Procurement, previously organized under the Department of Finance and Administration, now reports to the Secretary of Transformation and Shared Services. According to the State's website, "The goal of Transformation is to prioritize efficiencies and effectiveness throughout state government such as centralizing state services through a shared services model, finding revenue savings, and simplifying services to the citizens of the state."8 With the clear focus on identifying efficiencies, this reorganization has the potential to impact state procurement operations in both the short and the long term.

South Dakota
Since taking office in January 2019, South Dakota Governor Kristi Noem has made increased transparency a top priority. To this end, her administration is enhancing the state's transparency portal (Open SD) with a more friendly user-interface and work is being done to see if the portal can help other local government entities improve their transparency as well.

In addition, Governor Noem has emphasized the advantages that the state's buying power affords to local governments and political subdivisions that purchase from existing state contracts. While these governments have always had the statutory authority to purchase from contracts let by the Office of Procurement Management (OPM), OPM has recently begun to increase state contract adoption through outreach and partnerships including presenting at trainings sponsored by the state's Procurement Technical Assistance Center.

Says Steven Berg, OPM Director, "The Office of Procurement Management is committed to expanding the access local governments and political subdivisions have to the volume pricing discounts available from state contracts. The benefits of spend consolidation is one of the central tenets in our existing LEAN implementation."

That LEAN implementation didn't originate from the executive branch, however. Statewide agency adoption of LEAN methodology was initiated through South Dakota's Legislative Research Council budget via Letters of Intent beginning in 2016. OPM along with the rest of the Bureau of Administration began working with a consultant to implement LEAN in August of 2018.9 Berg is a member of the Lean Leadership Team. He says, "Since the implementation began, the Bureau of Administration has focused on top to bottom adoption of LEAN methodology. All Bureau employees have received Six Sigma white belt training, and OPM has become more efficient and data driven than ever before." So, while priorities emanate from the leadership of the executive branch, the influence of politics on state procurement often can be found from the legislative branch as well.

Michigan
Michigan Governor Gretchen Whitmer campaigned in 2018 on a "Buy American, Buy Michigan" agenda and stressed creating "strong and enforceable" policies for contracting and procurement that steer tax dollars toward American- and Michigan-owned suppliers.10 This is no small market -- last year, Michigan signed 8,813 contracts totaling about $2.14 billion.11

It did not take long to implement this policy -- just four days into her term, on January 4, 2019, Governor Whitmer signed a Directive requiring the state Department of Technology, Management and Budget (DTMB) to adopt policies to increase purchases from opportunity zones or suppliers that are "geographically disadvantaged" with the goal that contracts with those suppliers make up 3 percent or more of Michigan's annual expenditures by 2022-23.12

More recently, on July 29, 2019, Governor Whitmer issued Executive Directive 2019-15, which instructs DTMB to consider a supplier's wages and benefits, compliance with labor and environmental rules, and "the overall economic impact of the potential supplier's bid on Michigan business and workers" when awarding contracts. The "Michigan Jobs First" Directive also requires the DTMB to prepare an annual report on the implementation of the mandate.13

Educating New and Existing Stakeholders
State CPOs are not just tasked with implementing campaign promises after a gubernatorial election. Politics directly impacts procurement as new leaders mean that CPOs must educate those incoming administrations, legislators, and their staffs on procurement's role, processes, and value. To that end, CPOs should be aware of any stakeholder goals that could affect procurement and be prepared to demonstrate how procurement can help achieve those goals. CPOs should communicate in-depth explanations of current procurement laws, policies, priorities, and identify for new leadership any agencies (e.g. higher education, K-12, DOT) that may be exempt from central procurement. CPOs should also be able to communicate procurement's potential role in achieving any socioeconomic priorities of the incoming administration.

Often, state procurement offices are responsible for developing and delivering training to their own staff, agency procurement staff, local government purchasers, other government stakeholders, the general public, and state suppliers. In addition to static information about the state's procurement process, any directives or priorities of the new administration must be communicated and explained to these interested parties as well.

Looking Ahead – 2019 Local Elections
In 2019, elections have been or are being held in 61 of the U.S.'s 100 largest cities, including 31 mayoral elections. Most of these elections are officially non-partisan, although many candidates are affiliated with political parties.14 Even with the absence of partisanship, local elections are still political, and the winners can and will impact procurement.

Some cities are already seeing the effect of 2019's mayoral elections on procurement. For instance, in August 2019, newly elected Tampa Mayor Jane Castor signed Executive Order 2019-3, which directs the Purchasing and Contract Administration Departments to revise the city's procurement policies and practices to specifically recognize and identify certified LGBT-owned business enterprises.15

In February 2019 Chicago elected Lori Lightfoot, self-described "procurement geek,"16 as the city's new mayor. In 2005, Mayor Lightfoot served 9 months as Interim First Deputy in Chicago's Department of Procurement Services (DPS), during which she "worked to completely revise the city's minority and woman-owned business certification and compliance programs, and to transform the city's then $2 billion annual procurement processes…."17 In September 2019, Mayor Lightfoot signed a resolution identifying a series of actions to be undertaken by DPS to encourage participation of LGBT businesses (LGBTBEs) in City procurement opportunities.18

Increase in Number and Complexity of IT Projects
Since GSS started gathering data for The Public Procurement Report, state CPOs have continued to increase the frequency with which they report an Increase in Complexity and Number of IT Procurements as an issue. It's easy to conclude that ever evolving technology, including the increase in the use of Artificial Intelligence (AI), robotic process engineering, and the movement to the cloud would drive the growth in reporting of the trend by state CPOs.

What might not be as apparent is the link between the Increasing Complexity and Number of IT Procurements and the remaining top-5 reported trends from state CPOs: Staffing Levels (2) and Staff Ability/Training (3).

The Impact of Staffing Issues on IT Procurement
Innovative WaysAs expensive legacy IT systems age, mainframe applications have become more expensive and complex for states' IT staff to host, maintain, and upgrade. The current and future "silver tsunami" of government retirees that we've explored in earlier versions of The Public Procurement Report has left state IT departments with fewer, less experienced staff to perform maintenance and upgrade those aging IT systems. However, while the spend in states is going to legacy modernization and transformation, state IT staffs are slow to be replaced. With lower pay than available in the private sector and dwindling retirement benefits among the disadvantages state IT offices face in recruiting, state IT offices are already feeling the effects of staffing shortages. These staffing pressures are causing states to adopt a more managed services approach to IT services and procurements, especially when it comes to legacy IT system modernization.

Moving to a managed services IT model is meant to help alleviate skilled IT and procurement staff deficits and to reduce the complexity of the state IT environment by standardizing systems enterprise-wide. Managed services, by definition, is an approach that outsources staff and is the tactic many states are taking to alleviate the pressures felt from a diminishing IT workforce. According to the National Association of State Chief Information Officers (NASCIO)'s The 2018 State CIO Survey, 76% (38 states) of respondent state CIOs said that they were exploring outsourcing / as-a-service models that require no capital when asked to identify the options their states were exploring to help fund the modernization of legacy systems.19

In this year's NASCIO survey, 9% of respondent state CIOs reported that in order to deliver or obtain IT services over the next three years, their states would be introducing a managed services model while 61% said they would be expanding their use of an existing managed services model. In addition, 41% of the CIOs reported that their states will maintain existing outsourced IT services, while 50% planned to expand existing outsourcing initiatives. Note also that 7% of state CIOs in the same survey reported that they planned to downsize IT staffs in the next three years.20

How does your state CIO organization plan to deliver or obtain IT services over the next three
years?According to Doug Robinson, Executive Director of NASCIO, "Mitigating the loss of the retirees' institutional knowledge and the difficulty states are facing to fully staff their IT and procurement departments has caused states to move away from hardware acquisition and legacy maintenance and toward service-based and managed services IT procurements."

As our data demonstrates, procurement offices are facing their own staffing crises due to retirements, attrition, and budget cuts – Staff Ability and Training and Staffing Levels fill out the top 5 issues mentioned in our meetings with state CPOs According to the National Association of State Procurement Officials (NASPO), 30% of supply chain professionals are at or beyond retirement age and there are six vacancies in the procurement sector for every qualified individual.21 Most of these positions are underpaid, undertrained, and therefore hard to fill in today's strong labor market. Understaffed procurement offices already struggle to manage the workload of procuring goods and services contracts that are largely unchanged from the previous contract. But when new, complex managed service IT contracts which they may have never procured previously are added to the mix, it is easy to understand why the increase in the number and complexity of IT projects has become an increasingly pronounced challenge in recent years. And it is a trend that is likely to continue, especially at the state level.

Conclusion
In the latest six-month reporting period examined in this edition of The Public Procurement Report, Cooperative Purchasing became the top issue discussed in our meetings with public procurement leaders. This was driven in large part by higher reporting frequency of the topic at the local government and education district/institution level. As we noted above, states had a head start through WSCA and NASPO, and near nationwide adoption of cooperative purchasing in state procurement offices was achieved by 2016. The procurement leaders of the country's cities, counties, school districts, and higher education are navigating an ever-changing landscape of cooperative purchasing vehicles and the data shows that their interest in cooperative purchasing is increasing nationwide.

In addition, this edition of The Public Procurement Report examines the issues cited most often in GSS's meetings with state CPOs. eProcurement was brought up most often, while the 2018 gubernatorial elections still seem to be resonating as the Impact of Politics on Procurement came up second most often. Finally, Staff Ability/Training and Staffing Levels (the third and fourth most often referenced issues by state CPOs) concerns in both central procurement and IT offices are influencing the frequency with which state CPOs are reporting the Increasing Number and Complexity of IT Projects as a concern.

Appendix A: Most Reported Nationwide Public Procurement Issues (February 1, 2019 – July 31, 2019)

Chart

1 Cooperative Procurement: Great Value (Great Confusion), NIGP, 2013. https://www.nigp.org/docs/default-source/New-Site/position-papers/150105_cooperative-purchasing-position-paper_complete_updated.pdf?sfvrsn=2
2 https://www.naspo.org/Portals/16/2016SurveyofStatePrac/2016%20Survey%20Infographic_FINAL.pdf
3 2018 State & Local Government Contracting Forecast, Onvia+GovWin, 2017, page 11. http://images.more.deltek.com/Web/DeltekInc/%7Bfc59c4c7-7f20-4196-a46e-614abe154536%7D_2018-State-and-Local-Government-Contracting-Forecast.pdf
4 https://www.naspo.org/Publications/ArtMID/8806/ArticleID/3408
5 https://www.naspo.org/Publications/ArtMID/8806/ArticleID/4591
6 https://www.naspo.org/Portals/16/TopTen/Top_10_5_2019.pdf?ver=2019-01-03-122827-243
7 https://www.asa2018.com/asas-plan/
8 https://portal.arkansas.gov/agency/department-of-transformation-and-shared-services/
9 https://sdlegislature.gov/docs/interim/2018/documents/DAPP12032018-N.pdf
10 https://www.metrotimes.com/detroit/michigan-democratic-gubernatorial-candidate-voter-guide/ Content?oid=14297617
11 https://www.detroitnews.com/story/news/local/michigan/2019/07/30/whitmer-prioritizescontracts- put-michigan-jobs-first/1855899001/
12 https://www.detroitnews.com/story/news/politics/2019/01/04/whitmer-state-should-increasepurchases- disadvantaged-businesses/2481487002/
13
https://www.michigan.gov/whitmer/0,9309,7-387-90487-502873--,00.html
14 https://ballotpedia.org/Partisanship_in_United_States_municipal_elections_(2019)
15 https://www.bizjournals.com/tampabay/news/2019/08/15/tampa-becomes-second-florida-city-torecognize. html
16 https://www.chicagotribune.com/politics/ct-met-mayor-lightfoot-toni-preckwinkle-lunch-20190513- story.html
17 https://lightfootforchicago.com/about-lori/
18 https://www.chicago.gov/content/dam/city/depts/dps/PressReleases/ ResolutionLGBTBusinessEnterprises.pdf
19 The State CIO Survey, NASCIO, October 2018. https://www.nascio.org/Portals/0/Publications/ Documents/2018/2018StateCIOSurvey.pdf
20 The State CIO Survey, NASCIO, October 2019, page 5. https://www.nascio.org/Portals/ 0/2019StateCIOSurvey.pdf
21 "Major Procurement Trends: Helping Your Office Move Forward," Procurement Pulse, NASPO, July 9, 2019. https://pulse.naspo.org/post/major-procurement-trends-helping-your-office-move-forward/ #more-1335

Download Click here to download a PDF copy.

Insights Main Page