Finding Value in System Contracting

Image by NobMouse via FlickrAssociate Guest Post by Rusty Joerin of Woodsgift Enterprises

System contracts, also known as standing orders, open purchase orders or similar terms can add considerable value to your procurements. Reduced overhead, efficient use of staff time, standardization of product and volume discounts deliver value to the buyer.

System contracts are most frequently utilized for the supply of low cost items routinely and commonly used in the organization. Often referred to as Maintenance, Repair and Operating (MRO)category items, the value is delivered both on the price of the individual items and the processes surrounding and incorporated into the supply contract. System contracts can also apply to furnishings, fleet maintenance and software licensing amongst other goods and services.

System contracts provide great opportunities for co-operative procurements between several organizations. I managed the procurement of stationery and copy paper supplies on behalf of a number of public sector organizations that resulted in better volume discounts than could be obtained through separate contracts. With one organization leading the procurement process duplication of procurement effort across the group was eliminated.

Standardization adds value through reduction of inventory carrying costs, reduction of training costs in the use or installation of product and interchangeability of products throughout the organization.

System contracts can and should be longer term contracts. Three to five years with appropriate safeguards is reasonable. This provides a balance between competitive requirements and procurement process savings to be achieved.

Next time – some things to consider when writing contracts for system type procurements.

Rusty James Joerin, SCMP is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply.

Information about his experience and qualifications may be found at:www.woodsgift.com

Yet Another Countdown...

Tuesday, January 3rd, 2012. Government offices are back to regular working hours again. In Procurement, its the calm before the storm. Just like the mad rush of shoppers on Christmas Eve, Government year-end spending comes just before March 31st every year. Returning from winter holidays means there are merely 12 weeks and 3 days for the public sector to commit (spend) any remaining budget funds they may have.

Although the budget approval process starts in September the year before (ie the business plans for capital and programs are submitted in the Fall prior to the start of the new budget year) you will find procurement is only 'called' at the moment the program area is ready to go to RFP.

Timelines will be short, as the RFP needs to be "on the street" from 2- 5 weeks, depending upon the complexity and value. Evaluations will take another 2-3 weeks depending upon the schedules of the evaluators, and the number of responses required. In order to commit the funds, the contract needs to be signed before the year-end and delivery made.

So, dear vendor, at this time of year, when you send in a request to extend the closing date of the RFP - don't be offended, when the request is summarily refused. What I would suggest, rather than stating you need more time, explain WHY it is necessary that the marketplace has more time to provide complete materials that will shorten contract negotiations and expedite delivery, in a manner that would 'save time, money & scope creep' for the buying organization.

Unsolicited Proposals

Back in 2004, I helped research and develop a process for dealing with unsolicited proposals for a committee that was organizing a huge sporting event. The policy became something entirely different. In 2006, I did a briefing note for a government organization. The items that I had found were:
1) Most jurisdictions created policy based on Model Procurement Code and Regulations 1980 by American Bar Association – minimal procedural aspect to the requirements

2) Interest grew in obtaining innovative solutions, some jurisdictions had opened up scope of unsolicited proposals to Research and Development proposals (Nova Scotia), yet others deny all unsolicited proposals (City of Toronto).

3) A few studies had been conducted to determine what jurisdictions are doing (City of Toronto report published in 2003; Province of Ontario published in 2004)

4) Private sector receives benefit of innovation by partnering with vendors. The difference appears to be the non-disclosure aspect of the idea.

As a result of policies written solely for one industry (IT) or having no policy at all, public sector entities would find there was a mix of processes occurring: contract managers attempt to refuse the unsolicited proposal; vendors discuss ideas but don’t submit anything in writing; or the contract manager deems the item a ‘sole source’ and follows sole source procedures.

Sadly, vendors unfamiliar with the Freedom of Information Act attempt to protect their commercial interests with a non-disclosure statement to protect ideas from FOI or via a competitive process, but public sector agencies are bound by the Act and law trumps non-disclosure statements.

Some jurisdictions left the ‘approval’ process to higher levels (i.e. City Council) who were responsible to public more directly than civil servants.

• One jurisdiction went as far as to prequalify or ‘trial’ a product/service (no contract) before deeming it of merit

I'm looking around at public sector policies now, in 2010, and I'm not seeing anything of real difference. Is the public sector still missing out on innovation?

Sitting Across the Table

My father is a salesman. In my eyes, he was very successful and HONEST. He never played games, wasn't a schmoozer, and for a really shy guy, he did extremely well - winning awards, keeping family afloat during the aftermath of Black Monday (87), and eventually buying the company he worked for.

I chose a career in purchasing, basically sitting across the table from my father :) Strangely enough, I never felt we were at 'odds' with each others goals. My father, as a salesperson, sought to solve his customer's problems. I was most amazed at the fact some would want the latest, greatest machine; he'd look at their operations and tell them why they didn't need that, and how a different model (smaller, less expensive) would suit their needs including meeting their growth projections over the life of the machine.

So, never did I see sales and purchasing 'at odds', both were looking to solve a problem, build a relationship. However, in light of LinkedIn group conversations, I'm seeing a difference between sales and public sector buyers in the 'timing' of that relationship! Sales people want to build the relationship to 'win' the contract. Public Sector buyers need to run an open, fair, transparent competition, be completely objective, have no perceived conflicts, then build a relationship AFTER the contract is awarded. (there is a fear a relationship before/during a competitive process gives the perception the buyer has bias towards/against particular vendors).

That appears to be the issue regarding vendors hating the RFP process (no relationship building), and public sector buyers needing an arm's length approach to spending taxpayers' money. In light of Gomery enquiry and Ontario's E-Health scandals, public sector buyers are even more aware of keeping at arm's length from the vendor community when competing a contract.

So, how do we resolve the relationship timing, get the problem solved with the best solution, and avoid perception that public sector buyers are giving contracts to their 'friends' (Gomery, Ontario e-health scandals, etc)?

Related articles by Zemanta

• John Gomery to speak about a commission into corruption in Quebec (newswire.ca)