State and Local Government Procurement [4 ed.] 9781604271959, 9781604278477

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STATE AND LOCAL GOVERNMENT PROCUREMENT: A Practical Guide Fourth Edition

Published by: The National Association of State Procurement Officials 110 West Vine Street, Suite 600 Lexington, Kentucky 40507 (859) 514-9159   FAX (859) 514-9166 https://www.NASPO.org

Copyright © 2024 National Association of State Procurement Officials ISBN-13: 978-1-60427-195-9 Printed and bound in the U.S.A. Printed on acid-free paper. 10 9 8 7 6 5 4 3 2 1 Library of Congress Cataloging-in-Publication Data Names: National Association of State Procurement Officials (U.S.), issuing   body. Title: State and local government procurement : a practical guide / NASPO Description: Fourth edition. | Plantation, FL : J. Ross Publishing, 2024. | Includes bibliographical references and index. | Summary: “The National Association of State Procurement Officials is proud to make the State and Local Government Procurement: A Practical Guide, 4th Edition, available to government professionals, students, suppliers, educators, and others interested in learning about public procurement. Whether you are a seasoned procurement professional or new to the field, this guide should provide you a valuable reference tool in your efforts. This edition of NASPO’s flagship guide features many changes, improvements, and additional content”—Provided by publisher. Identifiers: LCCN 2023034395 (print) | LCCN 2023034396 (ebook) | ISBN   9781604271959 (hardback) | ISBN 9781604278477 (epub) Subjects: LCSH: Government purchasing—United States—States. Classification: LCC JK1683 .S698 2024 ​(print) | LCC JK1683 ​(ebook) | DDC  352.5/32130973—dc23/eng/20230808 LC record available at https://lccn.loc.gov/2023034395 LC ebook record available at https://lccn.loc.gov/2023034396

Copyright © 2024 The National Association of State Procurement Officials 110 West Vine Street, Suite 600 Lexington, Kentucky 40507 (859) 514-9159   FAX (859) 514-9166   https://www.NASPO.org

FOREWORD

FOREWORD The National Association of State Procurement Officials is proud to make the State and Local Government Procurement: A Practical Guide, 4th Edition, available to government professionals, students, suppliers, educators, and others interested in learning about public procurement. Since the publication of the 3rd Edition, this guide has continued to be adopted by many procurement offices for use in their internal training programs and resource libraries. It also continues to be used by academic faculty as a classroom textbook within several university and college programs across the country. This edition of the guide features a restructuring of the chapters to reflect the procurement process, new content, and other improvements. It is our hope that these changes build upon the foundation of previous editions while enhancing the overall quality of the resource. On behalf of the NASPO Board of Directors and members, I would like to thank all the NASPO members and other procurement professionals who contributed to the updating of this text. I would also like to thank our Chief Executive Officer, Lindle Hatton, and the NASPO staff for their leadership throughout this revision process. Their efforts were essential to ensuring this guide remains a relevant and valuable resource for all public procurement professionals. Whether you are a seasoned procurement professional or new to the field, this guide should provide you with a valuable reference tool in your efforts. Delbert H. Singleton, Jr. Division Director, Procurement Services, State of South Carolina 2023 President, National Association of State Procurement Officials

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ACKNOWLEDGMENTS

ACKNOWLEDGMENTS The process of revising and publishing this book has been a truly collaborative effort. This endeavor could never have been achieved without the dedication of our volunteers, organizational partners, and staff. NASPO is fortunate to have a membership and network of knowledgeable professionals to utilize in the development of this guide. Their knowledge and expertise helped shape the focus of the text. Additionally, NASPO staff was heavily involved in this revision process as project managers, graphic designers, editors, reviewers, and content contributors. They ensured both the quality and timely delivery of this important project. I would like to thank all of our contributors and partners for their commitment to this effort: John Adler, NASPO Life Member Joel Atkinson, Cooperative Contract Manager, NASPO Valerie Bollinger, Administrator, State Division of Purchasing, Idaho Department of Administration Abigail Chittenden, Cooperative Portfolio Manager, NASPO Emily Cranfill, Procurement Content Manager, NASPO Josh Descoteaux, Cooperative Portfolio Manager, NASPO Bryce Fiske, Legal Counsel, NASPO Stephanie Gale, Training Program Manager, NASPO Kinzie Gaunce, Research Project Manager, NASPO Telice Gillom, Procurement Content Manager, NASPO McCall Ginsburg, Deputy General Counsel, Georgia Department of Administration Global Electronics Council Becky Gourde, Curriculum Specialist, NASPO David Gragan, Chief of Administrative and Strategic Operations, NASPO Mark Hayden, Former Chief Procurement Officer, State of New Mexico Jordan Henson, Deputy Chief Learning Officer - Procurement U Courtney Iverson, Deputy Chief Cooperative Procurement Officer: Supplier Development, NASPO Solomon Kingston, Deputy Chief Cooperative Procurement Officer Paul Krivacka, Director of Legal and Category Management, State of Tennessee Matt Limoges, Deputy Bureau Director, State Bureau of Procurement, State of Wisconsin Adam Manne, Chief of Procurement, City of Baltimore, Maryland Rebecca Montaño-Smith, Deputy Chief Learning Officer: Research and Innovation Organisation for Economic Co-operation and Development (OECD) Holly Scott, Former NASPO Staff Member Bob Sievert, eProcurement SME, NASPO Megan Smyth, Director of Legal Education, NASPO Tia Snyder, Cooperative Portfolio Manager, NASPO Kelly Stein, Deputy Director of Marketing and Communications, NASPO Chadwick Stephens, Research Manager, NASPO Derrick Strand, Executive Director, Universal Public Procurement Certification Council (UPPCC) Fay Tan, Legal Counsel, NASPO Julia Wolfe, Director, Environmental Purchasing, Commonwealth of Massachusetts Mark Wriston, Senior Procurement Engineer, Department of General Services, State of California

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ACKNOWLEDGMENTS

Finally, I would like to thank our project lead, Megan Lancaster, Senior Research Manager. Her strong project management and editing skills were key to the success of this guide. Sincerely, Matt Oyer, MPA Chief Learning Officer, National Association of State Procurement Officials

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National Association of State Procurement Officials

CONTENTS

Chapter 1: INTRODUCTION 1 History and Organization of This Text 1 Changes in State and Local Public Procurement 2 Organization of This Text 3 The Model Procurement Code for State and Local Governments 5 Conclusion 5 Endnotes 6 Chapter 2: PROCUREMENT LEADERSHIP, ORGANIZATION, AND VALUE 7 Recommendations and Considerations 7 The Case for a Single Procurement Administrator at an Executive Level 8 Drafting a Comprehensive Procurement Law 10 Procurement Rules and Regulations 12 Responsibilities of the Central Procurement Office 13 Creating Tools for Public Employees and Suppliers 14 The Value of Procurement 19 Measuring Performance 20 Staffing for Strategic Procurement Services 23 Conclusion 25 Endnotes 25 Chapter 3: IMPORTANCE OF COMPETITION, ETHICS, AND COMPLIANCE 27 Recommendations and Considerations 27 Key Terms and Concepts 28 Why Competition Matters 29 Combating Anticompetitive Practices 30 Practices and Laws that Restrain Competition 31 Laws that Promote Competition 31 Procurement Practices that Hinder Competition 34 Procurement Practices that Encourage Competition 37 Why Ethics and Integrity Matter in Competition 38 Procurement Office Ethical Standards 39 Laws Addressing Unethical Behavior 40 Oversight of the Procurement Process 42 Ensuring Supplier Integrity 43 Cooperation with Enforcement Authorities and Reporting 44 Conclusion 45 Endnotes 46 Chapter 4: PROCUREMENT PLANNING Recommendations and Considerations Planning with Users and User Agencies Devising Procurement Strategies Market Research and Other Presolicitation Groundwork Supplier Management: What Is Supplier Management? Why Supplier Management? Supplier Management Best Practices

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CONTENTS

Formal Project Management 56 Selection of Contract Type 58 Managing Risks 63 Conclusion 65 Endnotes 66 Chapter 5: SOLICITATION METHODS 67 Recommendations and Considerations 67 Terminology and Overview 68 Overview of Formal Competition Source Selection Methods 69 Competitive Sealed Bidding 69 Competitive Sealed Proposals 73 Small Purchases 76 eProcurement Systems 77 Unique Types of Source Selection Methods 78 Notifying Suppliers 80 Bidder and Offeror Conferences 81 Conclusion 82 Endnotes 82 Chapter 6: DEVELOPMENT TECHNIQUES FOR PURCHASING GOODS AND SERVICES 83 Recommendations and Considerations 83 Key Terms and Concepts 84 Objectives of the Procurement, Specifications, and Scope of Work 84 Management of Specifications and Scopes of Work 85 Procedures for Developing Specifications and Scopes of Work 86 Supplier Management: Fair and Ongoing Engagement 88 Types of Specifications 90 Preparation of Service Descriptions and Scopes of Work 94 Supplier Management: Valuable Performance Management 96 Considerations for the Procurement 97 Conclusion 99 Endnotes 99 Chapter 7: PROPOSAL EVALUATION AND AWARD 101 Recommendations and Considerations 101 Evaluation and Award Overview 102 Using and Selecting Evaluation Committees 103 Evaluation of Bids and Proposals Generally 105 Evaluation of Bids 106 Evaluation of Proposals 109 Price and Cost Analysis 112 Multiple Source Awards 116 Conclusion 117 Endnotes 117 Chapter 8: PROTESTS 119 Recommendations and Considerations 119 Key Terms and Concepts 120 Value and Risks of Administrative Procedures 122 Preventing or Defusing Disputes During a Solicitation 123 Administrative Process for Protest 125 Conclusion 130 Endnotes 130

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CONTENTS

Chapter 9: NEGOTIATIONS 133 Recommendations and Considerations 133 Key Terms and Concepts 134 Steps in the Negotiation Process 134 Conclusion 140 Endnotes 140 Chapter 10: CONTRACT MANAGEMENT AND ADMINISTRATION 143 Recommendations and Considerations 143 Key Terms and Concepts 144 Overview of Contract Management 146 Supplier Management: Supportive and Collaborative Contract Administration 148 Contract Administration Plans 149 Steps in Contract Administration 150 Measuring and Paying for Performance 152 Warranties 154 Quality Assurance 156 Conclusion 161 Endnotes 161 Chapter 11: CONTRACT DISPUTES, CLAIMS, AND DEBARMENT 163 Recommendations and Considerations 163 Key Terms and Concepts 164 Contract Dispute Resolution Provisions 165 Contract Claim Resolution Provisions 166 Available Remedies 167 Alternative Dispute Resolution 168 Additional Tools: Suspension and Debarment 169 Conclusion 171 Endnotes 172 Chapter 12: NONCOMPETITIVE AND LIMITED COMPETITION PROCUREMENT 173 Recommendations and Considerations 173 Authority and Central Oversight 174 A Word About Competitive Requirements when Using Federal Funds 175 Investigation and Preservation of Records 175 Types of Noncompetitive or Limited Competition Procurements 175 Conclusion 181 Endnotes 181 Chapter 13: EMERGENCY PROCUREMENT AND PREPAREDNESS 183 Recommendations and Considerations 183 The OECD on Covid-19 and Public Procurement 184 Federal Law and Directives 186 Procurement in the Emergency Management Process 187 Purchase Orders, Contracts, and Purchase Cards 190 Conclusion 191 Endnotes 191 Chapter 14: ePROCUREMENT 193 Recommendations and Considerations 193 Key Concepts and Outcomes 194 Procurement Practices Without eProcurement 195 eProcurement and Other State Processes and Systems 196

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CONTENTS

Potential Outcomes and Benefits 198 Actual State Outcomes 203 eProcurement System Modules and Components 205 eProcurement System Options 209 Full versus Partial eProcurement Solutions 210 eProcurement Project Challenges and Considerations 212 Preparing for eProcurement 214 Success: Implementation and Adoption 215 Conclusion 216 Endnotes 217 Chapter 15: SUSTAINABLE PROCUREMENT 219 Recommendations and Considerations 219 Key Terms and Concepts 220 Public Policy Supporting the Procurement of Sustainable Commodities and Services 222 Creating a Sustainable Procurement Program 223 A Note on Ecolabels 227 Using the Power of the Procurement Process and the Contract 228 Implementing a Sustainable Procurement Program 229 Using Credible Standards, Third-Party Certifications, and Ecolabels 232 Measuring and Marketing Effectiveness 234 Maintaining Your Sustainable Procurement Program 236 Conclusion 236 Endnotes 237 Chapter 16: PROCUREMENT OF CONSTRUCTION AND RELATED SERVICES 239 Recommendations and Considerations 239 Key Terms and Concepts 240 Authority to Conduct Construction Procurements 241 Selecting the Appropriate Construction Project Delivery Method 241 Source Selection Methods for Architects and Engineers 246 Selection Methods for Project Delivery Methods 247 Types of Contracts 247 Bonding Requirements 248 Contract Administration 248 Conclusion 249 Endnotes 249 Chapter 17: COOPERATIVE PURCHASING 251 Recommendations and Considerations 251 Key Terms and Concepts 252 Legal Authority for Cooperative Purchasing 253 An Overview of Cooperative Purchasing Alliances and Trends 254 Considerations for Initiating a Cooperative Purchase 257 Costs of Administration 259 Benefits and Challenges of Cooperative Purchasing 259 Federal Government Cooperative Purchasing Issues 261 Conclusion 263 Endnotes 263 Chapter 18: PROCUREMENT OF INFORMATION TECHNOLOGY Recommendations and Considerations Key Terms and Concepts Calls for Collaboration on Reform

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Foundational Planning 267 Sourcing and Procurement Issues 270 Pilot Projects or Demonstrations 272 Cooperative Purchasing 273 Outside Technical Assistance 273 Alternatives to Buying IT Hardware and Software 274 Contract Terms and Conditions 278 Contract Management 280 Conclusion 282 Endnotes 282 Chapter 19: PROFESSIONAL DEVELOPMENT 285 Recommendations and Considerations 285 The Case for Public Procurement as a Profession 286 Professional Certification 286 Sources of Procurement Education 290 Conclusion 293 Endnotes 293 Appendix A: PROCUREMENT CYCLE DIAGRAM

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Appendix B: CHECKLIST FOR STATUTORY COVERAGE

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Appendix C: SURPLUS PROPERTY 301 Recommendations and Considerations 301 Definitions of Key Terms 302 Authority Over Surplus Property 302 The Disposition Process 302 Allocation of Sales Proceeds 305 Federal Surplus Property 305 Endnotes 305 Appendix D: STUDYING FOR CERTIFICATION 307 Using the Practical Guide to Prepare for the CPPB or CPPO Exam 307 Endnote 309 INDEX 311

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CHAPTER 1: INTRODUCTION

This 4th Edition of State & Local Government: A Practical Guide (hereafter referred to as this Practical Guide) identifies the current issues encountered by state or local government procurement officials and suggests ways to address them. The text also describes the principles and practices at the heart of a procurement system that must remain flexible and accountable. Since its first edition, this guide has been a reference tool for practitioners and a resource for training and academic programs. The intent of this text is to provide relevant insight and strategies for anyone currently working in or interested in public procurement.

organization, the Council of State Governments, published State and Local Government Purchasing in 1975.

A combination of the factors that are discussed in the pages of this Practical Guide indicates that the challenges that public procurement officials are facing are rapidly evolving. Public procurement officials are obliged to find innovative strategies to adapt to new situations while still upholding traditional legal and ethical standards. Because of this, it is essential to recognize that the central procurement office is a valued partner serving a vital role in the strategic delivery of government services.

NASPO published a completely updated and restructured edition of this Practical Guide called the First Edition in 2008. This 4th Edition is the third update since then. The text goes through a comprehensive review and revision process with each new version. This process involves dozens of professionals from procurement offices, academia, associations, advocacy groups, and various government offices.

HISTORY AND ORGANIZATION OF THIS TEXT Although the National Association of State Procurement Officials (NASPO) was founded in 1947, it did not achieve its long-held goal of publishing a text on the public procurement profession at the state and local government level until the 1970s, when the Law Enforcement Assistance Administration of the United States Department of Justice provided funding for a study of state and local procurement. As a result, NASPO, through its then-parent

The book became a companion to NASPO’s survey of state purchasing practices, which the organization began conducting in 1949. The sec­ond survey was entitled Purchasing by the States II and was published in 1954–55. The third version came 10 years later. Subsequent broader surveys became part of each edition of the original book. NASPO separated the text and the survey in 1997. NASPO now provides the most recent survey results to everyone through its website.1

Scope of the Text The word procurement, as used in this text, means the cradle-to-grave of purchasing—from when the need to buy a certain commodity, construction, or service is first identified to the time for a commodity to be disposed of at the end of its useful life or when a service or construction project is concluded. Each chapter of this Practical Guide covers the role that the public procurement official should play at each point of that process. When studying this text, the reader should keep in mind that state and local governments are not carbon copies of each other. Every public

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entity has its own characteristics that impact the structure, policies, and process of the procurement office. This Practical Guide is a roadmap with effective procurement as the destination rather than a detailed blueprint that limits ingenuity and innovation.

Guiding Principles of Procurement This Practical Guide seeks to paint a clear picture of the principles of public procurement: • • • • • •

Competition Impartiality Openness Innovation Effective use of public funds Flexibility

Successful outcomes depend on the effective implementation of those principles. An ideal procurement program derives from a comprehensive law accompanied by an easy-to-use set of rules, regulations, and guidelines. Effective implementation requires sufficient resources, an adequate budget, competent personnel, and resourceful management—situated at a high level within the public entity’s organizational structure, along with positive executive and legislative support. Some fundamental guiding principles of a good public procurement program are: • Assurance of consistency of goals, objectives, policies, procedures, and decision making • Measurement of the performance of the procurement system considering its goals and objectives • Recognition of procurement as a profession with a strategic function in government • Centralized leadership of all aspects of the procurement process • Recognition that procurement begins with timely, coordinated planning with contracting user agencies

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• Assurance of the day-to-day adherence to the principles of public procurement, including a balance between accountability, innovation, and flexibility • Maintenance of an environment of openness and fairness

CHANGES IN STATE AND LOCAL PUBLIC PROCUREMENT Although there have been several major changes in the role of the state and local public procurement officials over the last decades, it is also noteworthy that some of the same issues that existed in the past still exist today.

A Look Back As the procurement process became more complex, the role of the public procurement official began to evolve into a more strategic one. The procurement official moved to the center of the web of relationships among key contractors, government administration, and user agencies. They were expected to provide expertise to user agencies as they determined their needs, to conduct a process to select a contractor in a manner that generally satisfied both the user agency and competing suppliers, and to manage the resulting contract strictly but congenially. As the technology developed that made it possible to automate the procurement system, expectations were raised that faster service was achievable. The public procurement official was expected to be a leader in charge of streamlining the procurement process. Demands for change occurred while the government’s reliance on purchased services and commodities increased, the services and commodities sought were less routine, and the role that public procurement played within the executive branch became more strategic to the success of essential government programs.

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The COVID-19 pandemic profoundly impacted public procurement and the government workforce. Procurement officials faced enormous challenges in procuring essential commodities such as personal protection equipment (PPE). They worked tirelessly to support the needs of their states and communities. The expertise and dedication of these professionals were evident throughout the response to the emergency. Additionally, they demonstrated the need for the ongoing, strategic engagement of procurement in government decision making. Chapter 13 (Emergency Procurement and Preparedness) will discuss this topic in more detail.

A Look Ahead The public procurement official is still responsible for the accountability of the procurement process, while the competing and complex demands of user agencies dictate that the official be a flexible and creative problem solver, exercising whatever latitude the procurement laws permit. Caution and the temptation to implement all possible safeguards should be balanced with a more user-friendly process that is flexible and cuts through red tape. The push to exercise that latitude more freely is complicated by the fact that state and local government procurements often receive intensive scrutiny. The public procurement official and the process become lightning rods for criticism when the media, the legislature, and even the user agency assume that something went awry. That criticism often demonstrates a lack of understanding of the procurement process. For instance, the media may denounce a failure to award to the low bidder, even though it may be that the public procurement official used the competitive sealed proposal process authorized by law, permitting award based on multiple factors rather than price alone. New challenges and increasing complexity in procurement mean that public procurement officials need specialized training and education. The availability of academic curriculum, online

learning, internal training programs, and professional certifications reinforces the view that public procurement officials are truly members of a specific profession. Chapter 19 (Professional Development) addresses this very current topic. It is essential that procurement officials communicate the crucial role and value that their office provides to their entity. They should be their own advocates and do their part to increase the professionalization of public procurement. NASPO urges all those who participate in the state and local procurement process, particularly government executives, to ensure that public procurement officials are provided with the support and resources that are necessary to make meaningful change.

ORGANIZATION OF THIS TEXT This Practical Guide is divided into 19 chapters addressing a component or issue pertaining to the state and local government procurement process. There are several new features and structural changes in this edition. They include: • In this 4th Edition, the chapters have been reorganized to provide a logical progression to the text. The first three chapters cover foundational topics within public procurement. Chapters 4–11 each focus on a step within the procurement cycle (refer to Appendix A.) This is followed by an exploration of specific types of procurement in Chapters 12–18. The guide concludes by discussing the need for a continued focus on professional development and certification within public procurement. • Several chapters have been combined to provide a more integrated approach to the topics. This includes: $$ The previous chapters called Non-­ Construction Specifications and Contracting for Services have been combined into Chapter 6, Development Techniques for Purchasing Goods and Services.

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$$ The previous chapters, Importance of

• •

•

•

Competition and Procurement Program Integrity, were combined into Chapter 3, Importance of Competition, Ethics, and Compliance. The previous chapter on surplus property has been revised and added as Appendix C. Whereas the topics of protests, disputes, claims, and debarment were previously combined, they have now been separated into two chapters to reflect their places within the procurement process: Chapter 8, Protests and Chapter 11, Contract Disputes, Claims, and Debarment. Another new addition to the guide is Chapter 9, Negotiations. Although featured in various chapters within the 3rd Edition, negotiation practices and processes are now featured as a stand-alone chapter within the procurement process. This ever-changing area requires regular research, training, and attention from the procurement official in order to be effective. This chapter provides a discussion of processes, strategies, and considerations, no matter the form or extent of the negotiations being conducted. A final element you will notice in several chapters is the supplier management callout boxes. Each of these sections focuses on the role of supplier management in relation to the topic of the chapter. Supplier management continues to evolve as a practice within public procurement. Procurement officials need to recognize the value of developing and maintaining relationships with their supplier community.

Terminology Used This Practical Guide strives to ensure that certain terms are used uniformly throughout the text, avoiding the confusion that arises when different terms are used to mean the same thing. It should be noted that terms may evolve over time, and it is important to continuously revisit them to ensure consistency in usage. Although

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many terms are defined throughout the guide, the following is a directory of some of the most common and misinterpreted terms: • Chief Procurement Officer: the person who heads the central procurement office of a state or local government. • Procurement official and procurement professional: used interchangeably to encompass all staff within a public entity directly involved in the procurement process. • Central procurement office: the procurement office within a state or local government that is responsible for conducting all or most of the procurements for that government. • Public entity and entity: refer to any public entity, including public universities, local governments, etc. • User agency: the agency, board, or de­­ partment within a state or local government that is one of the following, depending on the context: $$ The agency for which the central procurement office conducts a procurement. $$ The agency that has the authority to conduct its own procurements outside of the central procurement office. $$ The agency requesting that the Chief Procurement Officer approve its request to engage in a limited or no-competition procurement such as a sole source or emergency procurement. • User: the public agency employee who utilizes or oversees the commodity or service being procured. • Commodities: tangible things such as products, equipment, software, and hardware—in contrast to services and construction. • Supplier: any entity or individual representing an entity that sells commodities, services, or construction. This replaces the term vendor used in previous editions. • Contractor: a supplier that holds a current contract with an entity.

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• Supplier management: a business practice that focuses on developing and maintaining relationships with contracted suppliers to provide the best value contracts, products, and services. • Respondent: refers to suppliers that have submitted a response to any solicitation, both bids and proposals. However, offeror or bidder may still appear when referencing a specific entity’s code or regulation as an example, but respondent is a more inclusive and descriptive term. The chapters of this Practical Guide also use the following shorthand terms: • NASPO: National Association of State Procurement Officials • NASPO ValuePoint: cooperative purchasing division of NASPO • State Practices Survey: 2022 survey of biennial NASPO state chief procurement officers with 44 states responding • Model Procurement Code: American Bar Association Model Procurement Code for State and Local Governments

THE MODEL PROCUREMENT CODE FOR STATE AND LOCAL GOVERNMENTS It is important to address a noteworthy event in state and local public procurement history—the publication in 1979 of the American Bar Association Model Procurement Code for State and Local Governments (hereafter referred to as the Model Procurement Code).2 The American Bar Association revised the Model Procurement Code and its regulations for implementation in 2000. It separately published a Model Code for Public Infrastructure Procurement in 2007, which extracted those portions of the 2000 Model Procurement Code related to the procurement of construction. The Model Procurement Code is widely considered a

model for best practices in public procurement. The American Bar Association designated the Model Procurement Code as a model code, not a uniform code, so states might recast parts of its provisions to fit their needs. The State Practices Survey found that 26 responding states had “partial” or “complete” adoption of the Model Procurement Code.3 The development of the Model Procurement Code, along with its implementing model regulations, the Model Procurement Ordinance for Local Governments, and the Model Code for Public Infrastructure, remain to be major events that affect both the present and future conduct of state and local government procurement. Terminologies may have changed since the Model Procurement Code was first issued in 1979. For instance, the term best value, relating to the evaluation of bids and proposals, took hold in some sectors in the 1990s and is discussed in this edition. Additionally, the term sourcing strategies is often used in public procurement circles to describe the development of nonstandard approaches to purchasing commodities, services, or construction, particularly of IT. The key benchmark for any law, such as the Model Procurement Code, is whether, despite its age, its language is flexible enough to permit the approaches reflected in those new terminologies. So far, the Model Procurement Code’s language holds up well. It continues to be a starting point—a model law and not one seeking uniformity—for finding good language from which a public entity may draft a solid procurement law or ordinance.

CONCLUSION Throughout this Practical Guide, the kinds of decisions faced by public procurement officials and Chief Procurement Officers illustrate the importance of developing knowledgeable and skilled procurement professionals. NASPO

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and other organizations, as well as some colleges and universities, have launched initiatives aimed at creating sustained training programs to support state and local government procurement offices. Preserving the integrity of the procurement system and making it fair and equitable is an objective that is unique to public procurement. Public procurement officials have responsibilities that sometimes cause friction between user agency satisfaction and compliance requirements. The speed of change has refocused the profession on the need for continual growth of knowledge and skills. This Practical Guide is intended to

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help practitioners focus their own learning on the topics of most importance to the profession.

ENDNOTES 1. “2022 Survey of State Procurement Practices Report,” NASPO, last modified January 31, 2023, https://​www​.na​s​po​.org​/pr​a​c​t​ i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 2. Model Procurement Code for State & Local Gov’t (Am. Bar Ass’n 2000). 3. “2022 Survey of State Procurement Practices Report,” NASPO.

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RECOMMENDATIONS AND CONSIDERATIONS • The Chief Procurement Officer should define the internal purposes, policies, processes, goals, and objectives of the office. • The central procurement office and the Chief Procurement Officer should establish performance standards and measurement tools for assessing the efficiency and effectiveness of the procurement process. • The central procurement office should publish appropriate manuals for procurement and nonprocurement personnel that set procurement processes and procedures in simple, concise language. • The Chief Procurement Officer should delegate but closely monitor procurement functions that can be logically, effectively, and efficiently performed by others. The delegation should be in writing, and the scope of the delegation should be commensurate with the expertise and resources of the agency, department, or person to whom the delegation is to be made. • The central procurement office should establish mechanisms such as advisory groups, focus groups, and cross-functional procurement teams with stakeholders and leverage expertise. • The central procurement office should ensure that consistent and uniform legal advice on public procurement and contract law issues is readily available. • The central procurement office should develop meaningful and accurate performance measurements that are tied to their goals and objectives.

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This chapter promotes the strategic leadership of the state and local public procurement process. To implement that vision, this chapter advocates that procurement authority should be placed in a single leader—an experienced Chief Procurement Officer—whose position is at a high executive level within government. This chapter will demonstrate that a strong central leader is essential to a public entity’s procurement system. State and local governments should take steps to ensure that their procurement office has adequate support and authority to achieve the following: • Ensure the best use of public resources • Foster a culture of innovation, flexibility, and discretion • Promote professionalism • Encourage competition The Harvard Business Review describes strategic leaders as persons who “ .  .  .  are constantly vigilant, honing their ability to anticipate by scanning the environment for signals of change.”1 Unless a Chief Procurement Officer sits at the table alongside the public entity’s highest executives to gain the best knowledge of the future plans of the public entity, they cannot, in turn, find proactive ways for the procurement process to support such plans. Vesting authority in a single, strategic leader does not mean user agencies lose their authority to procure. Instead, central leadership and structure ensure the procurement process works seamlessly to meet the public entity’s needs through collaborative development and interpretation of laws, rules/regulations, and policies. It also allows for professionalism in the process by establishing criteria for delegating procurement authority, creating training programs, providing tools for procurement officers and suppliers, and fostering cooperation among all parties.

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THE CASE FOR A SINGLE PROCUREMENT ADMINISTRATOR AT AN EXECUTIVE LEVEL The National Association of State Procurement Officials (NASPO) has long professed that each state’s primary member—the Chief Procurement Officer—should be elevated to cabinet-level status. This topic has been ranked by NASPO members as one of their Top 10 Priorities every year except for one since the survey began in 2015.2 That ranking is not a self-serving act. It reflects the benefits of vesting a single leader with the authority to lead the procurement function in a manner that supports the public trust in its value and effectiveness. The private sector has also recognized this as a best practice for decades, aiming to achieve many of the same objectives this chapter sets forth as justification for creating a similar procurement structure within public entities.3 The argument that a public entity should designate a single strategic procurement leader at an executive level within that entity is not new. The American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code), approved by the organization’s House of Delegates in 1979 and revised with that body’s approval in 2000, champions a state or local public procurement structure managed by one single experienced Chief Procurement Officer at a high level, with tenure and authority over all of the public entity’s procurements.4 Leadership means going beyond merely purchasing items. It involves developing partnerships with user agencies without sacrificing the responsibility to keep the procurement system accountable. Leadership starts with a cooperative and professional attitude. It means that

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instead of saying no to a maybe question, the answer should be—let’s figure it out. • Treating the public procurement function as merely an administrative, risk-averse process that is a necessary evil significantly reduces its chance of success. User agencies should view public procurement officials as essential facilitators and problem solvers. However, to achieve this, procurement officials should be given appropriate access to in-depth program knowledge, well-trained personnel, and appropriate decision-­ making authority, along with adequate time to plan and implement procurement solutions. For user agencies to view the procurement office as a valued partner in their planning and program development, the executive leadership of an entity should recognize procurement as a strategic function. It also signals to procurement professionals that they are expected to provide superior service.

• •

•

• NASPO’s members recognize that strategic leadership is a significant obligation for them. They and the public procurement personnel they manage should have a solution-focused attitude if they are to be considered of strategic value. When a government chief executive or user agency asks for solutions, the answer cannot be: “The rules won’t let us do that;” “We can’t take that risk;” “We would need a lot more time;” or “We have never done it that way.” The complex problems facing public entities today and a chronic lack of resources mean that chief executives seek creative solutions to accomplish their tasks. Some key tasks of a central procurement office led by a strategic leader—the Chief Procurement Officer—are the following: • Establish a program of professional excellence and make this competence known to executive and legislative management, client agencies, and the public • Clearly state the procurement system’s obligation to provide service and value to its

• • •

•

customers—taxpayers, government agencies, and suppliers Define the management role of the Chief Procurement Officer and the central procurement office in decision making, policymaking and implementation, and in oversight of the full spectrum of procurement activities Build an office culture that fosters employee motivation, professionalism, and productivity Encourage innovation and ingenuity through a commitment to training and research for the professional procurement staff and to management within the user agencies Commit the central procurement office to work with user agencies and suppliers to achieve value for the funds spent in the acquisition of construction, commodities, and services Commit the central procurement office to communicate needed revisions in the procurement law to executive and legislative leadership Support the use of technology to provide faster services and current, accurate procurement information Encourage continuing education and professional certification for the procurement staff Establish programs to measure the performance of the procurement system and require communication of those measures to customers Establish and maintain open communication with the public, including the news media

The vision of one strategic procurement leader with responsibility over all of a public entity’s procurement may seem naïve. Public entities are often headed by executive and legislative officials who regularly change after elections. Long-term continuity of vision and policy direction is an aspiration that is only sometimes met.

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Large and politically powerful user agencies and suppliers that contract with them can also wield influence to prevent central oversight by a single strategic procurement leader. Those barriers do not mean that the concept of a single leader and the data that supports it are flawed. This chapter discusses tools for providing a solid, broadly unified procurement structure in which the Chief Procurement Officer may delegate procurement authority to others within a public entity based on objective criteria. It also includes a discussion of exemptions from a single leader’s oversight and the best way to achieve collaboration, consistency, and policy development in those cases.

DRAFTING A COMPREHENSIVE PROCUREMENT LAW The structure and authority of an effective procurement program are rooted in the law granting the procurement official authority to act. The procurement law does not need to—and indeed should not—specify every procurement activity in order to authorize it. The best procurement laws offer a clear statement of legislative intent, a high-level description of the procurement structure and processes, and broad authority to the Chief Procurement Officer. The nature of public procurement changes because what the public entity needs shifts regularly. Therefore, a procurement system should be adaptable, responsive, and flexible. This means the law should outline the public entity’s public procurement policies and procedures while allowing procurement professionals to exercise discretion. The Model Procurement Code and Model Procurement Ordinance offer excellent starting points for statutory and ordinance language for adoption or adaptation. The general philosophical approach in those model laws is that the law should consist of clear, simple, broad legal

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parameters and authorities, leaving operational details to be filled in through separate implementing rules, regulations, and policies. The law should be written so that it does not require legislative action to amend it when change occurs at the policy level. For instance, in its 1979 version, the Model Procurement Code did not codify anything requiring a paper process or require that notices should be published in newspapers. Thus, it was unnecessary to update its provisions in 2000 to embrace an electronic process. Appendix B offers a checklist that specifies organizational structure, leadership responsibilities, and activities that a good procurement law should authorize. Especially critical is the creation of the position of the Chief Procurement Officer and the central procurement office they direct. The law, in whatever form is appropriate, should: • Place the Chief Procurement Officer and the central procurement office at an executive level, reporting directly to the public entity’s chief executive • Authorize the Chief Procurement Officer to institute and maintain an effective program for all procurement of commodities, services, and construction within the public entity • Assign the Chief Procurement Officer and the central procurement office the responsibility for implementing policies and providing oversight for the full spectrum of procurement functions • Designate the Chief Procurement Officer as the sole authority to delegate procurement authority and to determine the conditions for doing so • Define the applicability of the law to include all of the public entity’s procurements • Exclude blanket exemption for the purchases of an entire user agency or department; if exclusions are considered

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necessary, define them narrowly by types of commodities, construction, or services sought and not so broadly as to exclude all the procurements of certain user agencies • Include a set of procurement definitions so that the law does not use different words to mean the same thing

Exemptions from Procurement Law Generally speaking, procurement laws often exempt some agencies, departments, or particular types of procurements from that law’s coverage or centralized procurement management. There are various arguments made by agency officials, legislators, and others for maintaining these exemptions. For instance, states historically have excluded construction from their primary procurement laws—particularly highway construction—and have created separate procurement laws for those types of procurements. For example, the argument offered for exempting highway construction procurements is that they are heavily regulated through the federal highway funding authorities. Agencies may also perceive that they are ceding authority and power to the central procurement office by having their procurements regulated through a central procurement office. However, legislative exemptions from a procurement law may result in negative procurement results, including: • Losing the benefit of reducing the total public entity spend from economies of scale • Inadvertently reducing competition as suppliers are required to meet multiple and differing sets of competition requirements among user agencies • Diminishing adherence to procurement laws and best practices when underqualified or unqualified personnel are procuring commodities, services, and construction • Minimizing the cultivation of strong supplier relationships that focus on performance and output due to varied processes and procedures across the public entity

An Approach to Reducing Exemptions In the face of sometimes formidable opposition to centralized oversight by user agencies that might perceive a loss of power or authority, one compromise is for the law to cover all user agencies and make them subject to the law’s requirements but eliminate the Chief Procurement Officer’s oversight of those procurements. In adopting its version of the Model Procurement Code, Utah took this approach when embracing one of its proposed structures. It created a procurement policy board that develops procurement regulations and policies under the Utah Procurement Code, which is generally applicable to all user agencies. The policy board comprises the Chief Procurement Officer and the leaders of the exempted user agencies, along with representatives of cities, counties, and school districts.5

Delegation of Procurement Authority Rather than excluding some user agencies from the procurement law, a better approach is to make all user agencies subject to the Chief Procurement Officer’s authority along with that official’s agreement to delegate procurement authority. This approach recognizes a user agency’s historical procurement authority while still achieving the goal of retaining central procurement leadership and management entity-wide. Delegation of procurement authority should always be to a qualified individual by name rather than an agency or organization. Controlling delegation in this way ensures that the Chief Procurement Officer can qualify the individual through training or certification to exercise that delegated authority properly. In its Commentary Notes to Centralization of Procurement Authority of the Model Procurement Code,6 the American Bar Association suggests the following factors for the Chief Procurement Officer to consider in delegating procurement authority:

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• The expertise of the potential delegate in terms of procurement knowledge and any specialized knowledge pertinent to the authority to be delegated • The past experience of the potential delegate in exercising similar authority • The degree of economy and efficiency to be achieved in meeting the state’s requirements if authority is delegated • The resources available to the office of the Chief Procurement Officer to exercise the authority if it is not delegated and the consistency of delegation under similar circumstances There are certain authorities, though, that a Chief Procurement Officer should never delegate. The most important of those is the approval of exemptions from competition, such as sole source or emergency procurement. Chapter 12 (Noncompetitive and Limited Competition Procurement) discusses these types of procurements in more detail.

PROCUREMENT RULES AND REGULATIONS The same philosophy previously discussed for adopting a procurement law also applies to adopting rules/regulations that implement the statute. The terms rules and regulations mean the same thing, but state and local governments will vary as to which term they use. Rules and regulations are generally limited to state governmental entities. A statute should authorize their creation and establish the means by which they are adopted within a state government. Their scope is limited to what statutes explicitly direct and to matters that are reasonably inferable from the explicit statutory language. They should undergo a rigorous administrative review before adoption. Local public entities such as school boards, public universities, cities, and towns generally do not have the legal authority to adopt rules/regulations.

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Rules and regulations should provide the requisite detail needed to interpret the statutes authorizing them. They should direct the development of guidelines and procedure manuals without addressing every discrete step in a process. For instance, a rule or regulation may define the criteria for sole source procurements without establishing the exact format through which a user agency should make a request for one. The Chief Procurement Officer should have the authority to promulgate rules and regulations under the procurement law. The Model Procurement Code offers statutory language for that approach as well as an alternative one that separates policymaking from day-to-day operations. The latter approach proposes the creation of a policy board, either of high-level outside persons with business experience or cabinet-level employees of the public entity. Either configuration anticipates support staff. The policy board of the state of Utah, which was discussed earlier, is responsible under the Utah Procurement Code for adopting rules/regulations. The American Bar Association offers a list of examples of possible topics to cover in procurement rules or regulations for states adopting versions of the Model Procurement Code. Some of the topics mentioned are:7 • Conditions and procedures for delegations of procurement authority • Prequalification, suspension, debarment, and reinstatement of prospective bidders, offerors, and contractors • Small purchase procedures • Conditions and procedures for the procurement of perishables and items for resale • Conditions and procedures for the use of source selection methods including emergency procedures • The opening or rejection of bids, proposals, and offers, and waiver of informalities in bids and offers

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• Confidentiality of technical data and trade secrets submitted by actual or prospective bidders or offerors • Partial, progressive, and multiple awards • Supervision of storerooms and inventor­ ies, including determination of appropriate stock levels and the management, transfer, sale, or other disposal of publicly owned supplies • Conducting price analysis • Use of payment and performance bonds in connection with contracts for supplies and services • Guidelines for use of cost principles in negotiations, adjustments, and settlements

RESPONSIBILITIES OF THE CENTRAL PROCUREMENT OFFICE The mandate to lead and manage the public entity’s procurement system is the foundation for organizing the central procurement office and assigning staff responsibilities. Even if the central procurement office and the official in charge are not placed at the recommended executive level, the responsibility for leading the procurement system should still be the objective that defines the office’s work.

Policy Generation, Implementation, and Communication While the central procurement office should be the undisputed leader of a public entity’s procurement system, it should not operate in a vacuum, particularly when establishing rules/regulations or policies that will affect the work of others. The development of policies, procedures, and guidelines does not need to be consensus-­ driven, but the act of leading requires that the voices of those touched by the procurement system have an opportunity to be heard. This should include not only client agencies but also current and prospective suppliers.

One best practice is for the Chief Procurement Officer to establish regular forums with user agencies and users, including user-agency procurement officials. Doing so goes a long way toward assuring that issues are addressed in a timely and open fashion. For example, the state of Colorado maintains a Procurement Advisory Council (PAC) that includes procurement staff from state agencies and Higher Education Institutions. The group is governed by by-laws and has an elected Executive Committee as its leadership. The stated purpose of the council is to: 1. Bring Procurement Officers into an organization through which they can improve the quality of the procurement process within the State; 2. Strive for the more effective exercise of the procurement and supply functions within State Agencies and [institutions of higher education] IHEs to attain greater efficiency and economy in State administration; 3. Participate in the review and development of processes for State procurement programs; 4. Provide professional development opportunities to all members of the Council; and 5. Meet with peers and share information and experiences for the mutual benefit of all members of the Council. 8 Similarly, a practice that has emerged in a number of states is a supplier council or similar body to capture feedback and sell-side recommendations of our trading partners.

Training and Staff Development Training for procurement staff and user agencies is critical to maintaining a high level of competency and professionalism. As will be discussed in Chapter 19 (Professional Development), the central procurement office should devote resources toward developing training and education programs for user-agency staff, in addition to assuring the professional development and certification of the procurement staff

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in their own office. The central procurement office should also maintain a relationship with the public entity’s personnel division in order to ensure that the job classifications and employee recruitment for procurement positions keep pace with changes in procurement and reflect the appropriate level of professionalism.

Professional Certification The professional certification of public procurement personnel has been around since the last century but has not been fully adopted by all states nor political subdivisions. NASPO believes it is a best practice to encourage (if not require) professional certifications in public procurement. Many states have established state procurement certificates, and the trend today leans toward national or even international certifications that confirm mastery of a common body of knowledge supporting the public procurement professional and, therefore, the public trust.

Procurement During Emergencies Another critical function of government is to support its citizens during emergencies. In many ways, the COVID-19 pandemic put procurement during an emergency in the international spotlight, and most, if not all, public jurisdictions have had to take a hard look at their rules, policies, and procedures during emergencies to ensure they can better react to future emergencies. As stressful as it might sound, the role of public procurement during an emergency is to locate and provide needed commodities, services, and construction that may not otherwise be available. Therefore, planning and preparation are critical to ensure the central procurement office is ready to provide this support in emergencies. The central procurement office should also understand its role within the state or local government emergency operation plans and have its own emergency plans to ensure it has adequate personnel, equipment, and resources to provide purchasing services to support the

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emergency response. Having strong relationships with suppliers and establishing indefinite quantity and indefinite delivery contracts annually for commodities, services, and construction that are commonly needed during an emergency can also greatly improve reaction time during emergencies. Finally, procurement officials should ensure that the procurement procedures and documentation for emergency purchases are adequate to satisfy requirements for federal reimbursement and eventual federal, state, or local audits. This role relies entirely on the central procurement office having an exhaustive understanding of the procurement process and its governing rules and regulations. Chapter 13 (Emergency Procurement and Preparedness) describes emergency procurement and preparedness in more detail.

CREATING TOOLS FOR PUBLIC EMPLOYEES AND SUPPLIERS One of the critical components of the public procurement process is maintaining an open system so that all those interested in it can see how public funds are being spent. Toward that end, it is important for the central procurement office to publish manuals that describe that process to: • • • • •

User agencies Users Suppliers Legislative bodies The public

These tools should be developed in a manner that permits the greatest amount of input by those who will be using them. Generally, these tools take the form of an operations manual as well as a supplier manual entitled, for example: How to Do Business with the [State, City, University, School District]. Today, any public procurement office with a website has probably placed those manuals on that site in electronic form, making them widely available and in a format that is easy to revise.

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As a rule, the manuals, particularly the how-to manual for suppliers, should not discuss the specifics of the procurement law—primarily because the manuals need to be in plain, easily understood English, and the language of laws is not known for simplicity. Electronic versions of those laws, at least at the state level, are readily available online, and links are often provided in the manuals. NASPO maintains profiles for all states9 and a database10 of each state’s laws, regulations, and procurement websites. These can be accessed on the NASPO website.

Operations or Procedures Manual An operations manual establishes and describes the internal procedures of the procurement office. This manual should be a practical guide for public procurement officials. There is no need to repeat the law or rules/regulations in an operations manual. In the case of a local public entity, there may be a need for more detail in an operations manual because there may be a procurement ordinance but no implementing rules or regulations if the state’s procurement laws do not bind that entity. The subjects addressed in an operations manual will vary, depending on the applicable procurement law’s language and the authority it grants to a procurement official. The following list addresses some of the how-to topics that may be useful for an operations manual to discuss, but it is not exclusive: • Establishing and maintaining supplier lists • Performing market research • Locating new sources to increase competition • Monitoring and evaluation of supplier performance • Determining bidder or offeror responsibility • Notifying suppliers of contracting opportunities • Receipt, opening, and tabulation of bids and proposals • Determining responsiveness in bids and proposals

• Handling of supplier mistakes • Handling of proprietary information and trade secrets • Defining circumstances under which any or all bids or proposals may be or are rejected, including collusive bidding and resolution of identical bids • Handling and return of samples • Handling of and need for bid security • Notifying successful and unsuccessful bidders and offerors • Outlining small purchase procedures • Specifying roles and responsibilities relating to contract administration and management—for example, verifying contrac­ tor compliance with metrics including service levels and milestones; enforcing provisions for price reduction; handling requests for price increases; monitoring contractor adherence to contract terms and conditions; and implementing quality assurance • Handling protests of bidders and claims of contractors • Handling complaints from user agencies or the public about suppliers, contractor performance, or procurement office services • Transferring or other disposition of excess and surplus property • Key steps and procedures for conducting different kinds of procurements • Maintaining complete procurement/contract file documentation, retaining records, and making records available to user agencies and the public • Reporting anticompetitive practices and suspected collusion to appropriate legal authorities • Tracking and measuring procurement office performance and maintaining user agency communication through means such as surveys and focus groups

Supplier Manual The manual should be brief, concise, and free of jargon. It can be made available in various

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formats, whether as a static document, webpage, online course, etc. The introduction should be phrased in a friendly, informal way, setting the tone for the material to follow, which also should be written in an easily readable, nonbureaucratic style. It should offer some general information about the public entity’s procurement program’s background, organization, and overall philosophy. The introduction should also include an invitation to visit or call the central procurement office for further details or a complete understanding of topics discussed in the manual. If possible, having the signature of the jurisdiction’s chief executive (the governor in the states) as part of the introduction of the manual is a powerful invitation for suppliers to offer bids or proposals for state business. Here is a list—by no means exhaustive—of some of the topics that the procurement office may wish to address in the supplier manual: • Construction, commodities, and services purchased • Public procurement officials in the offices and a description of their responsibilities • Location and address of the central procurement office and of procurement offices of user agencies with delegated procurement authority • How suppliers may register for inclusion on supplier lists and access any special requirements or communications • Methods of conducting competitions for contracts, including the receipt of solicitations • Basic statutory provisions, and of rules/ regulations and policies, but not necessarily quotations or citations of statute or ordinance • Manners in which procurements are conducted, for example, by competitive quotations, sealed bids, sealed proposals, multistep bidding, and under emergency and sole-source conditions • Statements prohibiting supplier gifts to public employees, and other ethical matters

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such as back-door selling or collusive bidding • Socioeconomic procurement programs, such as supplier diversity programs or environmental procurement mandates The NASPO website provides access to a variety of state how-to supplier manuals.11 While offering a supplier manual online is a great benefit, it is important to provide something that a procurement official can distribute at supplier fairs and other outreach opportunities. That may be as simple as a business card with the web address where the supplier may access the manual.

Supplier Diversity and Socioeconomic Programs Overview The fundamental purpose of state and local government procurement is to buy the commodities, construction, and services needed for the operation of that government. The objective is to acquire these items at the best value for the public entity. It is inevitable, however, that other state and local government policies influence the procurement function. The buying power of state and local governments is frequently used to achieve socioeconomic objectives that do not directly pertain to the procurement of commodities, construction, and services. Such objectives find their way into a law or executive order, which will generally direct a public procurement office to implement those goals. There is a wide range of possible socioeconomic objectives. Examples are procurement preferences for local businesses, sustainable commodities, and small and diverse businesses— often called disadvantaged businesses, which is the term used in this chapter. A disadvantaged business can be defined as a small business that is owned or controlled by a majority of persons, not limited to members

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of minority groups, who have been deprived of the opportunity to develop and maintain a competitive position in the economy because of social or economic disadvantages due to circumstances beyond their control. Some jurisdictions, such as the Commonwealth of Massachusetts, have expanded definitions of supplier diversity to add veteran business enterprise (VBE); service-disabled veteran-owned business enterprise (SDVOBE); disability-owned business enterprise (DOBE); and lesbian-, gay-, bisexual-, transgender-owned business enterprise (LGBTBE).12 This chapter’s reference to disadvantaged businesses should not be confused with the federal government’s Disadvantaged Business Enterprise (DBE) Program. That federal program flows down to state and local governments when they are issuing contracts using federal funds for things such as highways, public transportation (such as airports and light rail), concessions in airports, and equipment related to those items. As part of the mandate that accompanies the use of those federal funds, the state or local government is required to have a certification process in place to assure that a business claiming to meet the federal definition actually does so. The upcoming discussion does not focus on federal requirements but instead provides an overview of socioeconomic programs at the state and local government levels that are unrelated to spending federal funds. Maryland is an example of a state government that has instituted a socioeconomic program for nonfederally funded procurements. In 1978, the state’s General Assembly enacted legislation to create a minority business enterprise (MBE) program to encourage minority-owned firms to participate in the state’s procurement process. The state’s current law requires user agencies to make every effort to achieve an overall minimum goal of 29% of the total dollar value of their procurement contracts directly or indirectly from certified MBE firms.13

Maryland uses the federal government criteria for determining which businesses qualify and which do not. Since the state already has the staffing and process in place within its Department of Transportation for certifying businesses as disadvantaged for federally funded procurements, it uses the same staff and process to certify businesses applying for the benefits of nonfederally funded state contracts. Each user agency in state government reviews and assesses its procurements for commodities, services, maintenance, construction, and architectural/engineering contracts to determine an MBE participation goal appropriate for each contract. The definition of an MBE business used by the state of Maryland is as follows: [A] Business must be at least 51% owned and controlled by one or more socially and economically disadvantaged individuals. Under current State law, an individual is presumed to be socially and economically disadvantaged if that individual belongs to one of the following groups: African Americans, Hispanic Americans, Asian-Pacific Americans, Subcontinent Asian Americans, Native Americans, and Women. Persons who own and control their business but are not members of one of the above groups, also may be eligible for MBE certification if they establish their social and economic disadvantage. Disabled individuals may also apply for MBE certification. A determination of whether an individual meets MBE eligibility criteria is made on a case-by-case basis.14 Strategies for Obtaining Supplier Diversity in Procurements In 2022, NASPO released the paper Supplier Diversity Snapshot: 8 States in Review15 based upon research conducted into the supplier diversity initiatives of eight different state procurement offices. At the time of this research, at least 35 states had procurement diversity

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initiatives either within the state purchasing division or organized under another administrative department. As stated in the prior section, while most programs define diversity in general broad terms to refer to women, ethnic or racial minorities, disabled persons, veterans, and LGBT persons, there are some differences in terminology or certification between states. Much like state governments in general, these programs’ structures, operations, and sources of authority differ from state to state. However, there were common objectives present in nearly every program that was reviewed, including outreach, targeted spending, and regular reporting. Many of the strategies and practices that were being utilized by these states are listed in the next paragraph. The full publication can be accessed on the NASPO website.

•

•

• Strategies commonly utilized to support small and diverse supplier objectives are specified in the following list. Additionally, NASPO maintains the State Preference Repository, a list of preferences and set-asides provided by each.16 • Percentage preferences: allow a small or disadvantaged business to bid a higher price than the bid of a larger, nondisadvantaged business but still be considered the lowest bid if the bid of the small or disadvantaged business is no more than a certain percentage higher (such as 5 or 10%) than the actual low bid. • Set-asides: a preference, which may be total or partial, in which a procurement is reserved solely for participation by small or disadvantaged businesses. • Unbundling contracts: unbundling in­ volves changing a previous single award, large-volume contract either by breaking out commodities or services into smaller groups and making multiple contract awards or breaking the contract up into geographical regions. By unbundling contracts, disadvantaged businesses that may not have the capacity to compete for

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•

•

•

the entire award may be able to compete for part of the award or a particular region of a state. Evaluation points for small or disadvantaged businesses: negotiated procurements that use evaluation factors to identify the supplier that submits the best proposal; one approach may be to specify in the solicitation that points will be given to a supplier that is small or disadvantaged. Disadvantaged business subcontracting plan: a strategy to promote small or disadvantaged businesses requires suppliers competing for the contract to show their efforts to involve small or disadvantaged businesses by submitting a plan with their bid or proposal. Outreach: make special efforts to identify small and disadvantaged businesses and to encourage them to seek public business through methods such as advertisement of opportunities in trade journals or small or disadvantaged business audience publications and webpages, as well as being in contact with the local chamber of commerce offices and other organizations. Education: provide special training or introductory seminars and workshops and on-demand web-based training for businesses, including those without previous procurement experience. Collaboration: partner with a local Procurement Technical Assistance Center on outreach and training. These centers are managed by the Department of Defense and established through cooperative agreements with state and local governments and nonprofit organizations in order to provide procurement assistance.17 Engagement: provide forums and expositions where small and disadvantaged businesses can present their products and network with public entity procurement professionals.

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Challenges and Criticisms There are common challenges and criticisms when considering the implementation of supplier diversity initiatives. A common argument is that programs may contain elements, such as set-asides or preferences, that are counter to full and open competition. Programs that give some preference to small and disadvantaged businesses have risks. For example, a law establishing a preference for local businesses in state A may trigger a reciprocal preference law in state B, disadvantaging a business headquartered in state A when it competes for contracts under a procurement solicited by state B. Additionally, programs giving preferences based on race or gender may raise legal issues under the Constitution of the United States. Programs should be based on documented disparities and narrowly tailored to address documented discrimination. There is substantial case law that addresses this topic, but it is not covered in this Practical Guide. Operating a program fairly, consistently, and transparently often requires additional dedicated resources that offices may not have. Supplier diversity initiatives may increase the burden on the state for monitoring contract compliance and ensuring accountability. Without a robust process for verification of qualifications or certifications, opportunities for abuse can arise. There are also risks involved. The adoption of rules or statutes that give an advantage to targeted businesses without sufficient justification may bring legal scrutiny, especially if applied inconsistently.

THE VALUE OF PROCUREMENT Today, procurement has a much greater role in a state or local government than the traditional mission of simply obtaining high-quality commodities, construction, and services for the lowest possible cost or the best value. Instead, it has become a critical function within the public entity—with the potential of contributing as much

as, or more than, other governmental functions toward the efficient and effective operation of public entities. The next few sections describe how a high-performing and innovative procurement office can provide value to its state or community.

Leveraged State Contracts Procurement professionals strive to award longterm, high-volume contracts that leverage a public entity’s buying power to obtain the best prices for commodities, construction, and services and to reduce administrative costs. Other public entities, including higher education institutions, use these contracts, lowering the cost to taxpayers. When a public entity does not leverage its buying power through a robust central procurement organization, user agencies should expend resources to purchase for their individual needs. Because the volume purchased is less than it would be if all user agencies’ needs were combined, those purchases are often at higher prices.

eProcurement Solutions Public entities that have invested in and then implemented robust, fully functional procurement solutions have achieved substantial savings by automating the procurement process. These eProcurement solutions have made a public entity’s business opportunities more accessible to suppliers, reduced paperwork, increased competition, and made the procurement process more efficient and effective, resulting in savings. The evolution and impact of eProcurement solutions are discussed in more detail in Chapter 14 (eProcurement).

Creating and Sustaining Private Sector Jobs Chapter 3 (Importance of Competition, Ethics, and Compliance) describes the economic im­pact that public procurement plays in the nation’s economy. Many private sector

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businesses depend on public contracts to generate cash flow and to create or sustain jobs. One often overlooked resource that helps directly improve competitiveness and sustain jobs is a state’s Procurement Technical Assistance Center (PTAC). These centers, funded partially by the United States Defense Logistics Agency, provide free counseling to businesses in all federal, state, and local government procurement aspects. Many state central procurement offices are involved in the strategic direction of PTACs, including educating suppliers about doing business with state governments. There are more than 300 local PTAC offices across the country.18

When public entities are removed from a state’s procurement law and establish their own rules, businesses are forced to track a myriad of practices and procedures. Competitions initiated by those exempted public entities can vary significantly.

Ensuring a Fair, Open, and Honest Process

Procurement Office as a Strategic Partner

Public procurement involves billions of dollars of public funds. Taxpayers believe procurement should be public and transparent. Central procurement offices ensure through oversight and use of technology (such as eProcurement systems) that the procurement process remains fair, open, and honest and that its process and outcomes are transparent to the public. Without a strong central procurement office, the procurement process can deteriorate, thus compromising transparency and accountability. This topic will be explored more in Chapter 3 (Importance of Competition, Ethics, and Compliance).

As mentioned earlier, the growth of complex government services and systems requires that the procurement office be viewed as a trusted partner. The expertise and experience that procurement officials bring to a project are essential to its success. Agencies should engage the procurement office early and view them as an ally, not a gatekeeper. Likewise, procurement officials should strive to be solution focused and look for opportunities to engage in the planning process. This collaboration should continue throughout the entire procurement life cycle to ensure success and bring value back to the procurement office.

Importance of Consistent Laws and Regulations Businesses suffer when there is inconsistency in the rules and regulations that pertain to procurement laws. As an example, the introduction to the Model Procurement Code states: The proliferation of “local content” procurement regulations has created a multitude of arcane differences among the thousands of public entities buying commodities and services on an annual basis . . . complex,

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arcane procurement rules of numerous public entities discourage competition by raising the costs to businesses in order to understand and comply with these different rules. Higher costs are recovered through the prices offered by a smaller pool of competitors, resulting in unnecessarily inflated costs to state and local governments.19

MEASURING PERFORMANCE This entire topic is too broad to address in this Practical Guide, but procurement office performance management is critical. The work of the procurement office should be strategically focused on achieving measurable goals and objectives tied to the areas of value that were previously identified. Setting and measuring metrics is essential to tracking performance and demonstrating the procurement office’s value.

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Here are a few key questions you should ask before setting out on a performance-measuring journey: • • What does success mean to my organization? • What do I need to measure before starting to track performance? • What are the best tools to measure meaningful results over time (quarter over quarter or month over month)? • What stakeholders need to be involved in this process?

•

• •

It is essential to have clarity on some of the key terms related to measuring performance. The Association for Supply Chain Management provides the following definitions for two terms that are often used interchangeably but have distinctly different characteristics:20 • Performance measure: the actual value measured for the criterion • Metric: a standard of measurement used to monitor performance The Government Finance Officers Association provides helpful guidance on the characteristics that government performance measurements should include:21 • Useful: measures should provide information that is helpful to decision making, understanding, or accountability efforts • Relevant: measures can be clearly linked to the service delivery/program outcomes that they are intended to measure, appropriate for the outcome being measured, and are readily understandable • Reliable: collection methods and measure definitions need to be understood so stakeholders can rely on the information • Adequate: ensure enough and also an appropriate variety of measures are used to measure performance and that measures do not incentivize behavior that adversely impacts the measures—such as

•

a quantity versus quality scenario; there is often not a single measure that can provide sufficient context and understanding Collectible: measures are readily available and do not involve excessive time/effort to collect Consistent: measures can be regularly collected to track outcomes over time and avoid the need to continuously identify new measures Environment: measures include variables related to externalities that impact service delivery and program performance Responsibility: clearly identify responsibilities for collection, storage, and dissemination of the data Systems: existing data collection capacities are leveraged appropriately or new systems are identified in order to ease the burden of data collection

There are, of course, different forms of metrics that can be applied. Some of the commonly cited ones are included here:22 • Input: focused on the amount of resources dedicated towards an organization, activity, etc. Example: average number of staff hours spent developing a solicitation. • Output: the quantity of work completed or product produced. Example: the number of agency trainings conducted. • Efficiency: expresses the relationship be­­ tween input and output. Example: usage of statewide contracts as a percentage of overall spend. • Outcome: measure the extent to which a process, service, or activity has achieved its intended result or impact. Example: user agency customer satisfaction score. It is with these different forms of metrics in mind that an organization can then focus on those that are most meaningful and tied to the goals of the procurement office; these are commonly referred to as key performance indicators (KPIs).

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The Balanced Scorecard Institute defines a KPI as: Critical (key) indicators of progress toward an intended result. They help you understand if you are achieving your goals. KPIs create an analytical basis for decision making and help focus attention on what matters most.23 It is important to note that not all metrics are KPIs, and not all measures are performance metrics. To further clarify the terms, think of measures as quantitative numbers or the amount of something that is being measured. Metrics, on the other hand, are binary measures derived from one or more measures. And finally, KPIs are key metrics that measure how an organization performs in the most critical areas by showing the progress or lack of it. There is a need to differentiate between true performance metrics that measure your key activities and vanity metrics (see Figure 2.1). Vanity metrics are superficial numbers that are not actionable and do not indicate actual progress toward achieving an organization’s goals. You can use the chart below as a helpful tool to better understand the difference between true KPIs and vanity metrics.

A 2016 study conducted by NASPO entitled Critical Success Areas and Key Performance Indicators for State Central Procurement Offices identified four high-level, critical success factors/areas and corresponding KPIs that a central procurement organization should focus on to be successful (see Figure 2.2). It also included potential KPIs representing the most common measures used in each area. These KPIs quantify the identified success factors and enable measuring the strategic performance around each area identified as critical to success. These four critical areas and examples of the KPIs are listed in Figure 2.2. The complete list of KPIs, corresponding objectives, and additional guidance can be found in the report.24 Creating universal, ready-to-use KPIs that all public procurement offices can use is impossible. Each office needs to develop its own KPIs that are strategic, actionable, relevant, aligned with organizational goals, and in compliance with statutory requirements. The central procurement office should consider defining additional metrics to accommodate specific statutory and regulatory requirements and individual targets and baselines that are meaningful to each central procurement organization.

FIGURE 2.1 Vanity Metrics • Basic quantitative numbers, reflecting non-time bound activities • Metrics are not actionable and are loosely tied to key activities or not at all

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Key Performance Indicators (KPIs) • Clearly defined metrics that influence organizational success and help decision making • Shows performance change over time

• Can be used in reports but does not directly reflect actual accomplishments

• Tied closely to organizational goals

• Does not measure performance changes over time

• Measures accomplishments, not just work done

• Shows progress made toward desired goals

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FIGURE 2.2 Critical Areas

Example of KPI

• Effective management and increased efficiency of the procurement process

• RFP cycle time, inception

• Create a customer-focused enterprise with contract management and supplier performance

• Average internal customer satisfaction score from monthly or annual customer satisfaction survey

• Increased transparency, openness, and accountability of the procurement process

• Timely posting of procurement information timeline

• Increased professionalism of the procurement workforce

• Number of procurement staff that acquired a procurement certification

STAFFING FOR STRATEGIC PROCUREMENT SERVICES Since publishing the 3rd edition, the COVID-19 pandemic and increased resignations have severely impacted the nation’s labor market.25 Some states have been unable or have chosen not to fill open positions. Hiring freezes and staff reductions may occur for many reasons. However, there should be communication with a public entity’s senior leadership—governors and mayors, for instance—so that the unintended consequences of staff reduction will be clearly understood. A significant result is the delay of contract awards, which impacts government services, private sector business cash flow, the local economy, and tax revenue. This is not merely a cry for more bodies. The activities of a well-run central procurement office—complex procurement, planning, market research, contract development and management, procurement office performance tracking, and training—cannot be done with a skeleton staff. One approach for calculating the number of public procurement officials required to conduct only the procurements of the central procurement office, but not the rest of that office’s

responsibility, is described in the following steps. This is based on the hours calculated for procurements conducted by public procurement officials who are not new to their jobs. Step 1 • Study the labor hours needed to administer one invitation for bids (IFBs), two requests for proposals (RFPs), and three spot purchases. • Identify the required steps for each of these methods of procurement—both preaward and post-award. • Assign a labor-hour value to each step depending on whether the procurement was low, medium, or high complexity. • Consider all procurements over a year, current and projected IFBs and RFPs, for instance—and categorize them as low, medium, or high complexity. • Total all of the labor hours, which will be the total office labor hours for the existing and projected workload. Step 2 Calculate a public procurement official’s productive work hours in a year (see Figure 2.3). Meetings, interruptions, and other events take up unproductive time. Here is an example of a calculation of this number:

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FIGURE 2.3 Hours 365 days in a year × 8 hours a day

2,920

Less weekends

(832)

Less 11 holidays

(88)

Less annual leave

(80)

Less sick leave

(40)

Less than 10% unproductive time

(188)

Total Productive Time, One Staff

1,692

Step 3 Take the total hours calculated in Step 1 and divide them by the number resulting from Step 2. Assuming that a workload of 37,000 labor hours is required as a result of Step 1, and then dividing it by the 1,692 productive hours determined in Step 2, the result will be the necessary number of procurement officials: 21.87, in this case. Essentially, twenty-two officials are needed to accomplish this workload, which is adjustable up or down for any calculation error or increased productivity goal. Central procurement and other public procurement offices have a strategic impact by saving their government’s money. The savings are much higher than any savings that are realized from not filling procurement jobs. As described earlier, officials should track their actions and report their successes. Those reports, along with staffing analyses, like the one previously shown, will help provide the justification that is needed for any request for more staff.

Staffing for the Future Finally, the COVID-19 pandemic set in motion numerous unexpected consequences, several of which directly impact how a modern procurement office operates and utilizes its strategic workforce, namely staffing shortages and the shift to remote/hybrid work. Years of economic

24

instability during the pandemic created equally unstable employment across the United States; however, the public sector workforce (along with many others) has struggled to recruit and retain the staff necessary to fully recover from these early pandemic staff losses. At some point along the way, the term The Great Resignation became a colloquial way to summarize the millions of workers who quit their jobs following the start of the pandemic—but this only represents part of the puzzle. According to an analysis of U.S. Bureau of Labor Statistics data published by the National League of Cities, local government labor loss was 18 times greater than nonfarm labor loss across the country. Despite historic investments in state and local government relief funding from the federal government, “municipalities continue to struggle in attracting and retaining workers.”26 State government is no different, ranking “Talent Management and Succession Planning” as the top priority facing state procurement offices nationwide in NASPO’s 2023 Top 10 Priorities for State Procurement national ranking.27 In addition to these ongoing staffing shortages, state and local governments continue to respond to the international movement to remote and hybrid work, reenvisioning how municipalities provide services and connect with citizens. Historically, few shifts in the workplace have happened as quickly and with such an impact as the shift to remote/hybrid work that public sector employers now face. Each jurisdiction has been left to determine its own rules and policies regarding remote work and what works best for its agencies. However, one thing remains clear; the procurement workforce of the future and its leaders should continue to adapt and find ways of using technological change to its greatest effect if it hopes to navigate the public sector landscape of the coming years. NASPO provides several educational resources on these topics, including an online course available through Procurement U, Talent Management Strategies.28

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CONCLUSION The key ingredient in an effective public procurement system is leadership through the Chief Procurement Officer and a central office placed at a high executive level. To achieve this, executives and legislators should recognize the importance of the central procurement office. Leadership also requires that the person serving as the Chief Procurement Officer, along with those who work under that official, adopt an attitude of professionalism, openness, cooperation, and innovation. Leadership means going beyond simply acquiring things; training, outreach, planning, and supplier management are just a few of the other activities that are equally important to every procurement office. As the following chapters of this guide will demonstrate, the demands and challenges that procurement offices face require strategic leaders who are empowered to make decisions.

ENDNOTES 1. Paul J. H. Schoemaker, Steve Krupp, and Samantha Howland, “Strategic Leadership: The Essential Skills,” Harvard Business Review, January 2013, https://hbr.org/20​ 13/01/strategic-leadership-the-esssential-sk​ ills. 2. NASPO Top 10 Priorities, NASPO, accessed April 26, 2023, https://www.naspo.org/prac​ tical-guide-resources/. 3. R. Flynn & J. Brown, “Global CPO survey 10-year Lookback 2011-2021,” Deloitte, accessed April 26, 2023, https://​ww​w2​.de​l​o​i​t​ te​.com​/co​n​t​e​nt​/dam​/De​l​o​i​t​te​/be​/Do​c​u​m​e​n​ ts​/Op​e​r​a​t​i​o​ns​/gl​o​b​al​-cpo​-su​r​v​ey​_10​-ye​ar​ -lo​o​k​b​a​ck​.pdf. 4. Model Procurement Code for State & Local Gov’t Art. 2 (Am. Bar Ass’n 2000). 5. Model Procurement Code for State & Local Gov’t §2-102. 6. Model Procurement Code for State & Local Gov’t §2-301.

7. Model Procurement Code for State & Local Gov’t §2-102 Commentary. 8. “Colorado Office of the State Controller: State Purchasing and Contracts Office” (SPCO), Procurement Advisory Council, accessed January 21, 2023, https://​osc​.co​ l​o​r​a​do​.gov​/sp​co​/pr​o​c​u​r​e​m​e​nt​-re​s​o​u​r​c​es​/pr​ o​c​u​r​e​m​e​nt​-ad​v​i​s​o​ry​-co​u​ncil. 9. “State Profiles,” NASPO, accessed April 26, 2023, https://​www​.na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​ -re​s​o​u​r​ces/. 10. “Repository of State Practices,” NASPO, accessed April 26, 2023, https://www.nas​ po.org/practical-guide-resources/. 11. “State Profiles,” NASPO. 12. “State Profiles,” NASPO. 13. “Minority Business Enterprise (MBE) Program,” Governor’s Office of Small, Minority & Women Business Affairs, accessed April 26, 2023, https://gomdsmallbiz.maryl​ and.gov/Pages/mbe-Program.aspx. 14. Minority Business Enterprise (MBE) Program,” Procurement and Business Services, University of Maryland, accessed April 26, 2023, https://​pu​r​c​h​a​se​.umd​.edu​/ve​n​d​o​rs​/bu​ s​i​n​e​ss​-di​v​e​r​s​i​ty​/mi​n​o​r​i​ty​-bu​s​i​n​e​ss​-en​t​e​r​p​r​i​ se​-mbe​-pr​o​gram. 15. “Supplier Diversity Snapshot: 8 States in Review,” NASPO, last modified November 14, 2022, https://www.naspo.org/practical-gui​ de-resources/. 16. “State Preferences Repository,” NASPO, accessed April 26, 2023, https://www.nas​ po.org/practical-guide-resources/. 17. “About the PTAP and APTAC,” Association of Procurement Technical Assistance Centers, accessed April 26, 2023, https://www​ .aptac-us.org/about-us/. 18. “Find a Procurement Technical Assistance Center,” Association of Procurement Technical Assistance Centers, accessed April 26, 2023, https://www.aptac-us.org/fi​nd-a-ptac/. 19. Model Procurement Code for State & Local Gov’t. 20. “Research and Development,” Association of Supply Chain Management, accessed April 6, 2023, https://​www​.as​cm​.org​/ma​k​i​ng​ -an​-im​p​a​ct​/re​s​e​a​rch/.

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21. “Performance Measures,” Government Finance Officers Association, accessed April 26, 2023, https://​www​.gf​oa​.org​/ma​t​e​r​i​a​ls​/ pe​r​f​o​r​m​a​n​ce​-me​a​s​ures. 22. See “Performance Measures Guidebook,” Iowa Department of Management, accessed April 26, 2023, https://​dom​.io​wa​.gov​/re​s​o​u​r​ ce​/pl​a​n​n​i​ng​-gu​i​d​es​/pe​r​f​o​r​m​a​n​ce​-me​a​s​u​r​es​ -gu​i​d​e​book. 23. “What is a KPI?” Balanced Scorecard Institute, accessed April 26, 2023, https://www​ .kpi.org/. 24. “Critical Success Areas and Key Performance Indicators for State Central Procurement Offices,” NASPO, July 2016, https:// www.naspo.org/practical-guide-res​ources/.

26

25. “The “Great Resignation” in perspective,” U.S. Bureau of Labor Statistics, July 2022, https://​www​.bls​.gov​/op​ub​/mlr​/20​22​/ar​t​i​c​le​ /the​-gr​e​at​-re​s​i​g​n​a​t​i​on​-in​-pe​r​s​p​e​c​t​i​ve​.htm. 26. Jacob Gottlieb and Julia Bauer, “The Municipal Workforce Through the Pandemic: Where Are We Now?” National League of Cities, July 2022, https://​www​.nlc​.org​/wp​ -co​n​t​e​nt​/up​l​o​a​ds​/20​22​/07​/Mu​n​i​c​i​p​al​-Wo​ r​k​f​o​r​ce​-Th​r​o​u​gh​-the​-Pa​n​d​e​m​ic​-Br​i​ef​.pdf. 27. “NASPO’s Top 10 Priorities 2023,” NASPO, accessed April 26, 2023, https://www.nas​ po.org/practical-guide-resources/. 28. “Talent Management Strategies,” NASPO, accessed April 26, 2023, https://www.nas​ po.org/practical-guide-resources/.

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CHAPTER 3: IMPORTANCE OF COMPETITION, ETHICS, AND COMPLIANCE RECOMMENDATIONS AND CONSIDERATIONS • To safeguard a fair, transparent, and competitive procurement process, procurement officers should maintain knowledge of anticompetitive laws and ethical standards. • Develop a good working relationship, based on continual communication and cross-education, with the office’s attorneys, ethics officers, risk managers, and any other appropriate enforcement officials, and report any concerns pursuant to the laws of your state. • Compliance programs should embrace documentation procedures designed to detect and prevent the circumvention of procurement processes, ethics, and antitrust rules. • Create standard contract terms and conditions that address key ethical and anticompetitive issues, such as organizational conflicts of interest, and specifically provide that any violation of those ethical standards is a breach of contract. • Keeping abreast of local markets and performing market research helps procurement officials understand market dynamics and makes them aware of anticompetitive behaviors.

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Fairness, transparency, and competition are the fundamental tenets of public procurement. Most public procurement officials would probably agree that the most critical objective of what they do is to be good stewards of public funds—ensuring that government users obtain high-quality goods, services, and other deliverables that are appropriately priced through a process that is ethical and competitive. Public entities spend hundreds of billions of dollars annually through their procurement processes. That hefty dollar amount means that state and local government contracts make up a significant portion of the economy of the United States. That significance, as also recognized in the American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code), means that each public procurement official should always remain informed and vigilant. Behaviors can either support or damage the integrity of a public procurement system. This chapter will examine those behaviors in three sections: (1) a discussion of competition, antitrust laws, and how public procurement officials can support competitive practices; (2) an introduction to procurement ethics, ethical standards, and considerations for creating an ethical procurement system; and (3) guidance to the procurement official on how to detect anticompetitive and unethical behavior. This chapter also includes an overview of federal and state laws relating to anticompetitive supplier behavior and procurement ethics.

KEY TERMS AND CONCEPTS Competition What equates to adequate competition for the state and local procurement process cannot be quantified in exact terms or prescribed by one procedure. As a rule, competition generally means the level of competition that an

28

unrestrained free market produces, but adequate competition depends on the purchasing circumstances and varies accordingly. Adequate competition is illustrated in the following two paragraphs. Let’s say the government needs a modest quantity of paper clips, and there are dozens of retailers actively competing to sell paper clips; in that case, the public entity, and therefore the taxpayer, is well served to simply identify the lowest price for the quantity of paper clips needed and purchase them without a formal solicitation process. This approach is efficient and takes advantage of a competitive market. Therefore, many public entities have rules allowing for informal, smaller dollar purchases without formal competition. When the volume of commodities or the dollar amount the government will spend rises, ensuring adequate competition often requires a more formal process. Returning to the paper clip example, if the government is going to buy over a million paper clips and is willing to offer a contract to supply them for a specific term, such as a year, that’s when a formal invitation for bids supports competition, as there may be another level of price competition created by the large purchase. Suppliers price their commodities based in part on the volume sold. A retailer may sell 100 paper clips for a dollar but would sell a total of 1,000 paper clips for fifty cents per 100. This is why adequate competition in public procurement depends on the purchasing circumstances and varies accordingly.

Antitrust and Restraint of Trade To further understand competition, it is essential to define the two legal terms—antitrust and restraint of trade—and put them in context. They are standard terms that arise during the discussion of competition, ethics, and compliance. They will be used throughout this chapter, particularly in introducing federal and state laws promoting competition.

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Generally, antitrust is “of, relating to, or being legislation against or [in] opposition to trusts or combinations; specifically: consisting of laws to protect trade and commerce from unlawful restraints and monopolies or unfair business practices.”1 In the same vein, restraint of trade means: 1. An act, fact, or means of curbing the free flow of commerce or trade . . . 2. An attempt or intent to eliminate or stifle competition, to effect a monopoly, to maintain prices artificially, or otherwise to hamper or obstruct the course of trade and commerce as it would be if left to the control of natural and economic forces  .  .  .  also: the means (as a contract or combination) employed in such an endeavor.2 While these technical definitions tell us what adequate competition means, they do not clearly explain what an adequate level of competition looks like in a real-world procurement system. This chapter will explain what antitrust or restraint of trade means within a public procurement system and for a procurement official.

Transparency Public procurement should be transparent, and ethical procurement practices support transparency. Other chapters of this Practical Guide discuss the importance of openness in a sound procurement system. For instance, Chapter 6 (Development Techniques for Purchasing Goods and Services) cautions against permitting only certain suppliers to contribute to the preparation of specifications. Chapter 5 (Solicitation Methods) addresses methods of soliciting bids and proposals broadly and in a way that invites competition and how to document each step and decision. Chapter 12 (Noncompetitive and Limited Competition Procurement) describes the need to establish clear standards for instances in which competition is limited, for centralized approval, and for retention of evidence of the circumstances of a reduced competition

procurement. Chapter 7 (Proposal Evaluation and Award) outlines the principles for receiving, handling, and evaluating bids and proposals in a manner that fosters confidence that the process is fair and legal. All the principles in these chapters obligate the public procurement official to manage the process in a manner that complies with procurement laws, regulations, and policies and withstands public scrutiny. These principles are critical to ensuring that the process is seen as one of integrity and credibility.

WHY COMPETITION MATTERS Governments are large consumers in virtually every market. But governments, like any consumer, do not have unlimited funds. Additionally, unlike private industry, governments cannot routinely pass costs on to their customers—­ namely, taxpayers. A price acceptable to a private firm may be unduly burdensome for a government. Effective competition in state and local public procurement plays a key economic role and widely benefits a community’s economy. In turn, benefits return to the government through vigorous competition for that government’s contracts. Suppliers competing in a truly competitive free market should, theoretically, be more reluctant to unreasonably elevate prices and reduce quality because of the risk of losing customers. The ready availability of market alternatives, created through customer demand and effective competition, isolates unreasonably priced, poor-quality goods and services. While there are situations in which competition should be limited, see Chapter 12 (Noncompetitive and Limited Competition Procurement), competition is the central premise of public procurement. Therefore, every public procurement practice should have two co-equal objectives: (1) using the power of free markets to generate

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the best prices for goods, services, and construction; and (2) ensuring the fairness and impartiality of the procurement process. Effective competition can also: • • • •

Promote open access to the marketplace Induce new suppliers to enter it Promote better market performance Encourage new technology, innovation, and higher productivity • Result in the conservation of scarce and irreplaceable resources In this authentic way, public procurement officials who promote competition provide an essential public service. The methods by which public procurement officials have conducted competition have changed over the years and will continue to do so. Often, the lowest price is no longer the only key factor in selecting a supplier. That fact, along with the billions of dollars that state and local public entities spend, makes the role of public procurement officials even more critical when preventing and detecting suppliers’ anticompetitive practices.

COMBATING ANTICOMPETITIVE PRACTICES Awareness is the first step toward combating anticompetitive practices and guaranteeing a competitive and ethical procurement system. For public procurement officials, this also means knowing how the market works so they may be able to recognize whether the lack of bids, unreasonably rising prices, or other suspicious behavior is a problem that requires additional investigation. To obtain such knowledge, public procurement officials should have training in how free markets work according to the economic laws of supply and demand. They should also learn how to conduct market research to know what

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an appropriate, noncollusive market response to a solicitation should look like. Rudimentary knowledge of antitrust law and competition policy is also essential. Next, well-informed public procurement officials should understand the scope of their own discretion. Procurement laws often give public procurement officials considerable flexibility to make awards on any reasonable basis consistent with competition and ethical standards. Another tool against antitrust and anticompetitive activities is managing public procurement offices to discourage favoritism and being vigilant of conflicts of interest. A strong Chief Procurement Officer and enforced ethical policies will aid the public procurement official in withstanding political pressure to sole source, bundle, hurry the contract competition, or compromise the fairness of the selection process. Consistent and updated training for procurement officials on ethical policies and rules and how to identify potential antitrust violations should be conducted regularly and often referenced in order to emphasize its importance. Ethics and conflicts of interest are discussed in detail later in this chapter. Public procurement officials should consider the best practices to enhance and promote competition, as recommended later in this chapter and elsewhere in this Practical Guide. They should be mindful that user agencies are consumers. The essential purpose of antitrust laws and their enforcement is to protect consumers. For example, state and local government procurement played a critical role in a case 3 involving anticompetitive behavior in four national drug distributors who wished to merge into two. The United States Federal Trade Commission (FTC) has jurisdiction to investigate mergers and their effects on competition. The FTC coordinated with 32 state and local governments to compile their drug purchase costs. The FTC combined their stories into a friend-of-the-court brief that the FTC credited with successfully

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defeating the mergers of the four drug distributors in the year 2000. The cost to state and local governments of even a 1% price increase would have been so staggering that it was clear to the federal court that governments and, ultimately, their citizens would be irreparably harmed. Successful enforcement, as in the aforementioned example, requires evidence and a re­ minder that the public procurement official is the frontline defense against anticompetitive behavior. By thoroughly documenting procurement decisions, keeping abreast of local markets, understanding the effect on the taxpayer of a reduction in competition, and listening closely to suppliers’ discussions about changes in markets, the public procurement official is in a unique position to gather the sort of evidence that makes an enforcement action more likely.

PRACTICES AND LAWS THAT RESTRAIN COMPETITION As a practical matter, a government may restrain competition at times through its laws. The most common government limitation of competition is regulation. Laws of the state of California, for instance, have for some time required that vehicles sold in the state have emissions equipment that complies with different, and often stricter, standards than those mandated by the federal government. This kind of state-mandated constraint, often because of social objectives, is generally immune from antitrust and restraintof-trade laws. Bidding preference laws, sometimes called state preferences, and set-asides may also restrain competition and require a public entity to favor a supplier, such as a supplier that offers products made in a specific state.4 Although these types of laws have been in use at federal, state, and local levels for decades, many of these types of laws have been and will continue to be subject to close legal scrutiny.

However, other government-caused and unintentional anticompetitive practices may result from: • Poor judgment • Misunderstandings of markets • Lack of resources to do necessary market research • Blind obedience to past practices • Cronyism Ultimately, these practices prevent the public purchasing entity from getting high-quality goods or services for the best possible price. In some cases, competition is compromised accidentally through the mistaken belief that the public interest is being served by the action taken or by a misguided, albeit sincere, effort to be helpful to suppliers. There may also be political pressures. There have been documented cases of elected officials implementing costly government programs that involve lucrative contracts between the government and campaign contributors. In these types of situations, it can be difficult for appointed public officials to resist pressure from elected public officials.

LAWS THAT PROMOTE COMPETITION Federal and State Antitrust Laws This portion of the chapter contains an overview of federal and state laws that address anticompetitive economic behavior. Since public procurement officials play a critical role in the economy of the United States, because of the volume that state and local governments consume, procurement officials should generally be aware of the laws that support a fair, transparent, and competitive procurement system. Understanding these laws is foundational to compliance and helps guide the creation of state, local, and agency procurement policies.

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Summary of Federal Antitrust Laws There are three primary federal laws that prosecutors use to protect customers. The FTC describes those laws as follows: Congress passed the first antitrust law, the Sherman Act, in 1890 as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.” In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act (FTC Act), which created the FTC, and the Clayton Act. With some revisions, these three core federal antitrust laws are still in effect today. The antitrust laws proscribe unlawful mergers and business practices in general terms, leaving courts to decide which ones are illegal based on the facts of each case. Courts have applied antitrust laws to changing markets from the time of horse and buggies to the present digital age. Yet, for over 100 years, the antitrust laws have had the same fundamental objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.5 Table 3.1 provides a snapshot of the laws and their provisions, and abundant information is available online about these three critical federal laws. Additionally, states have adopted their own versions of these laws—popularly called mini or little versions—which are discussed later in this section. Procurement officials need to be aware of these versions at the federal and state levels and should comply with both. Federal Antitrust Guidelines The United States Department of Justice (DOJ) and the FTC have issued several sets of guidelines to help concerned parties understand the effect of antitrust law on proposed business relationships. The guidelines cover cybersecurity,

32

healthcare, intellectual property, and joint ventures.6 The guidelines are sometimes heavy on economics, but in certain industries, such as healthcare, they have become the standard by which antitrust prosecution risk can be assessed and avoided. In addition, the FTC website contains helpful information about the laws discussed in this chapter and other tools to assist in detecting anticompetitive activities.7

State Antitrust Laws State Constitutions The first level of law for states is their constitutions; for home-rule municipalities and counties, it is their enabling charter. Some states have language that protects competition built into their constitutions. For example, a state constitution might provide that “monopolies and trusts shall never be allowed.”8 Legislation-creating governments, such as counties or municipalities, may have pro-­competition or procurement ethics provisions built into the enabling legislation. Such legislation or charters operate as the constitution of that government. Statutes granting powers to cities, counties, and agencies may proscribe anticompetitive conduct. Even city charters may have language prohibiting the expenditure of public funds other than via a competitive process. State Little-Sherman and Mini-Clayton Acts Most states have adopted their own antitrust statutes that apply to trade within that state. In practice, these statutes are typically called little-Sherman Acts because the state statute’s language parrots the federal Sherman Act’s Sections One and Two. Typical language of a state little-Sherman Act explains, “Every contract, agreement, combination or conspiracy in restraint of trade or commerce, any part of which trade or commerce is within this state, is unlawful.”9 Most little-Sherman Acts contain a mini-Clayton Act, which gives state attorneys general and, often, district or county attorneys the authority

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Table 3.1  Federal Antitrust Laws Snapshot The Sherman Act 15 United States Code (U.S.C.) §§1–7

• ​The Act:   •  ​Outlaws “every contract, combination, or conspiracy in restraint of trade”   •  ​Outlaws any “monopolization, attempted monopolization, or conspiracy or combination to monopolize” • ​As interpreted by the United States Supreme Court, it only prohibits unreasonable restraints of trade. • ​Some acts are considered so harmful to competition that they are always illegal, such as arrangements between individuals or businesses to fix prices, divide markets, or rig bids. These acts are per se violations of the Act, that is, there is no defense or justification allowed for them. • ​Penalties are both civil and criminal.   • ​Criminal penalties are generally reserved for intentional and clear violations such as fixed prices or rigged bids.   • ​Criminal penalties may go as high as $100 million for a corporation and $1 million for an individual, along with 10 years in prison.   • ​The Act allows for fines to be increased under certain circumstances. • ​The DOJ enforces compliance.

The Federal Trade Commission Act 15 U.S.C. §§41–58, as amended

• ​The Act:   • ​Bans “unfair methods of competition”   •  ​Bans “unfair or deceptive acts or practices” • ​The United States Supreme Court has ruled that all violations of the Sherman Act also violate this Act. Thus, the FTC may institute cases under this Act against the same activities that violate the Sherman Act. • ​The Act also covers other practices that harm competition that do not specifically align with those in the Sherman Act. • ​Only the FTC brings cases under this Act.

The Clayton Act as amended by the Robins-Patman Act of 1936 and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 15 U.S.C. §§12–27, 29 U.S.C. §§52–53

• ​The Act covers specific practices that the Sherman Act does not clearly prohibit. An example is the same person making business decisions for competing companies. • ​It prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” • ​It also bans certain discriminatory prices, services, and other trade practices between merchants. • ​It requires companies planning more extensive mergers or acquisitions to notify the government of their plans in advance. • ​The DOJ enforces violations of this Act. • ​It authorizes state attorneys general, state and local governments, and private parties to sue for civil triple damages when they have been harmed by conduct that violates either the Sherman Act or the Clayton Act, and to obtain a court order prohibiting the anticompetitive practice in the future.

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to prosecute antitrust violations in the name of the state and on behalf of consumers within the state. These public prosecutors are often empowered to seek injunctions and damages where state and local public entities have been economically harmed. These mini-Clayton Acts also give private parties and governments the right to sue for antitrust damages and attorneys’ fees. However, state statutes are not always identical to the Sherman and Clayton Acts. Not all state little-Sherman Acts make antitrust violations criminal. Some states have enacted special statutes that make only certain types of antitrust breaches criminal. Only the state attorneys general or county prosecutors may enforce these criminal provisions. The most important aspect of state antitrust statutes for state and local governments may be that their agencies have rights as victims of an antitrust offense. When procurement professionals suspect antitrust violations resulting in higher prices, fewer bidders, or lower-quality commodities, they should have procedures in place to communicate these suspicions so that the attorney general may take rapid remedial action and recover public funds. Additional State Laws Furthermore, many states have conflict-of-­ interest laws, as discussed later in this chapter when explaining the importance of ethics, and criminal laws that address anticompetitive behavior, such as explicitly prohibiting bid rigging or special statutes often prohibiting restraint of trade in government contracting. Most states have criminal statutes that apply to competition offenses. Bid rigging is often prosecuted using fraudulent scheme criminal statutes, which make it a felony to utilize an artifice or scheme to defraud any person, including a government. Fraudulent scheme enforcement does not require proof of all the elements of an antitrust offense and applies to unilateral action where there is no conspiracy.

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However, state statutes outside the antitrust and procurement laws often affect competition in public procurement. For instance, an exemption of a commodity type from a procurement law requiring competition may not be in the exemptions section of that law but instead is buried elsewhere in a government’s law. Public procurement officials cannot assume that only one law or set of laws apply to public procurement. Nor can they assume that state legislatures or local governments will be careful to enact laws that do not conflict with one another. Therefore, it is essential that public procurement personnel be trained in the statutes that apply to them and that there is a relationship with appropriate lawyers in the procurement office or the state’s attorney general’s office to have their questions answered.

PROCUREMENT PRACTICES THAT HINDER COMPETITION While procedural requirements and policies are helpful in achieving adequate competition, more than blindly following a process is needed to ensure adequate competition. Sometimes, a procurement official may unknowingly engage in behaviors that could hinder competition. The first preventative step is for procurement officials to become aware of such behaviors. Here are some procurement activities that may diminish competition and should be considered: • Accepting a late bid because it is low: by accepting a late bid, the public procurement official is essentially unfairly extending the bid deadline for only one bidder, giving that bidder additional time to prepare their bid that was not granted to others. The bidder submitting the late bid may also have used information from other, timely bids that have already been publicly announced in order to ensure the bidder receives the award.

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• Using evaluation criteria not stated in the solicitation as the basis of award: this practice changes the rules of the game and stands competition on its head. True competition cannot occur where the suppliers do not know the real specifications, the scope of work, or the evaluation criteria. This practice may also create the perception that evaluation criteria were changed to ensure a specific supplier re­ ceives an award. • Unnecessary sole source purchases: in today’s global economy, rarely is there only one supplier that can provide the commodity or service the government needs. Sole source procurement, viewed skeptically by auditors and by the public, may occur due to a lack of market research or, if used to extend an existing contract, reluctance by end users to transition to a different supplier, product, or service, even if better-value alternatives exist. Sole source procurement may also reflect an improper relationship, such as in the case of a pilot program managed by a supplier that leads to a set of specifications authored by that supplier or favoring that firm. The sole source procurement could also result from political pressure and cronyism. • Improper communication with suppliers: public procurement officials must communicate with suppliers to understand relevant markets. However, communications should always be open to all possible suppliers. Suppliers may have opportunities to provide input before the solicitation goes out, such as in an open-forum question-and-answer session. A good rule is that if the public procurement official gives information to or solicits input from one supplier, that official should provide the same or equal opportunity to other suppliers known to them. Contacting one supplier, particularly for help writing specifications, may lead to an unfairly biased solicitation that gives that supplier an unfair

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advantage. All communications should avoid the appearance of favoritism. Unnecessarily restrictive supplier qualifications: while experience may be useful, requiring too much experience eliminates all new suppliers from competing. Similarly, requiring too much stock on hand generally favors big suppliers and eliminates small suppliers who may, given the chance to bid, be able to provide the product needed. Another example of restrictive requirements is a solicitation calling for delivery within 24 hours, which may be unnecessary and frequently favors larger suppliers. Bundling and other specifications or scope of work restrictions: the bundling of products, services, or projects with others that could be procured through a separate solicitation has several anticompetitive outcomes. First, it facilitates collusion among bidders. Deals may be cut regarding who will bid as the prime contractor and who will be the subcontractor. Second, the practice eliminates headto-head competition among those who supply the prime contractor. Third, smaller suppliers, who may be able to bid on 30% of a bundled solicitation but cannot bid on the other 70%, are cut out of the process. Finally, the user agency loses oversight of the subcontractors. Sometimes, bundling is essential or even mandated, such as in design-build contracts. But every time it occurs, competition is diminished. Barriers to prequalification: the fact that only large suppliers have historically been qualified to supply what is needed does not mean that small suppliers have not come into the market who, through legitimate joint ventures, may also qualify. Effective, procompetitive procurement is open to every supplier who can possibly qualify in every commodity, construction, or service likely to be procured. Brand names and other unnecessary restraints in specifications: a public procurement official may believe that only

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Brand X can fulfill the agency’s needs or that Brand X copiers are better than Brand Y, but that assumption may be wrong. Specifications should ask for the best possible copiers capable of producing what is needed, such as 50 copies a minute if that is a legitimate need. Procurement officials should ask for what they need by description and a single brand name only if legitimately required to fulfill the need. See Chapter 6 (Development Techniques for Purchasing Goods and Services) for more information. • Post-bid specification changes: material changes to specifications made after a solicitation is issued are often the result of a failure to conduct proper market research before issuing that solicitation. The changed specifications should be treated as a new competitive opportunity, and all qualified suppliers should be given the opportunity and additional time, if needed, to participate. • Post-award contract changes: immediate post-award contract changes are often anticompetitive and unjustified. Change orders should only be approved where the change is within the original scope of work. Changing the scope of work after the award lowers competition by depriving other suppliers of the opportunity to compete for the new scope of work. A post-award design change that should be made to move a wall 10 inches to avoid a power line is within the design scope of work. Adding a new facility to the original design contract is sole source purchasing without justification. Another problematic contract change is inappropriately extending the duration of contracts where the original solicitation did not specify that there would be the possibility of extensions or renewals. • Most-favored-customer pricing: most-­ favored-customer pricing results from a contractual provision, also known as a

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most-favored-customer clause or nondiscrimination clause, in which the seller promises the buyer that it will not offer another buyer better terms before offering those terms, or better terms, to the first buyer. While appearing to limit price increases, this mechanism actually sets artificial floors on prices. Slow pay: when a public entity fails to pay invoices on time, the cost of borrowing to the contractor discourages competition and may preclude participation by small businesses. Many states have prompt pay laws or timeline requirements. Rotation of suppliers or lists: the rotation of lists of suppliers who may bid is an artificial device that impedes market forces. It may be competitively acceptable to solicit for a multisupplier contract and to rotate work among those two or three selected in a clean, competitive process. However, these awards should not result in long-term contracts and should be competed annually since better suppliers may come into the market. Long-term contracts: long-term contracts lock the user agency into the market at the time of contract award. Some long-term contracts may be justified to lock in rising prices at current levels, but the public procurement office will want to avoid being locked in should prices fall. If long-term contracts are used, they should include a price escalation/de-escalation clause establishing criteria for price adjustments. Confidentiality problems: leaks of inside information are a hallmark of bid rigging involving government personnel. If information is not public, no supplier should have it. If it is shared, all should have it. Proprietary information: companies are entitled to protect their proprietary information, but what is considered proprietary is limited to specialized processes that are not a competitor’s business. In general, one competitor learning about another’s

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approach (particularly that of the winning supplier) after a completed competition is procompetitive since the losers may be better equipped to compete the next time. Pricing should not be considered confidential after award since this is the taxpayer’s business. Although these behaviors may not intend to limit competition, they can result in that outcome, nonetheless. To ensure compliance with federal and state competition and ethics standards, the Chief Procurement Office should regularly review and monitor these activities, and procurement officials should avoid such behaviors.

PROCUREMENT PRACTICES THAT ENCOURAGE COMPETITION Conversely, fostering and maintaining competition requires the diligent efforts of each public procurement official, and affirmative practices that encourage competition should be part of every procurement policy. The following is a brief checklist for procurement officials to consider while procuring goods and services to ensure their actions encourage competition. Integrating the following considerations into each part of the procurement process will help to limit the previously mentioned practices that hinder competition.

1. Preparing to Compete Market Research and Supplier Outreach • Performing market research to understand the scope of the marketplace • Estimating prices and costs based on thorough market price and cost research • If prequalification of suppliers is used, prequalifying as many suppliers as exist in the current market for the solicitation • Understanding cost models used by the targeted industry to ensure costs are

re­­quested and evaluated in a format allowing for an apples-to-apples comparison • Giving suppliers an equal opportunity to provide input on their industry through appropriate channels, such as a pre-­ procurement request for information Specifications and Scope of Work • Clearly identifying in the solicitation the need to be filled with a view toward qualifying the broadest range of commodities, services, construction, and suppliers • Avoiding the bundling of multiple unrelated commodities or services unless it is impossible to obtain the needed product without bundling • Avoiding unnecessarily restrictive mandatory minimum requirements • Carefully weighing the advantages and disadvantages of partnering in long-term contracts, even if permitted by law, since markets can change rapidly • Drafting specifications independent of any prospective supplier or brand name commodity • Avoiding narrowly written specifications or scopes of work that limit the potential responses

2. Competing in an Open Fashion Competitive Strategy and Sole Source • Recompeting a commodity or service if markets change significantly • Recompeting rather than extending contracts in response to new demands, changed needs, or changed markets • Restricting sole source procurements to a limited, well-defined, and published set of criteria $$ Documentation justifying the need for a sole source procurement should also be required Bidding Systems • Publicly announcing invitations for bids or requests for proposals using different forms

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of publications (such as websites and e-mails to professional supplier groups and industry organizations) aimed at reaching the broadest possible number of potential suppliers • Widely publishing the results of each formal competition • Assuring that the public procurement office’s website is easy to locate on the government’s website so that suppliers may quickly learn about contracting opportunities • Removing potential barriers to supplier participation, such as a requirement that bids and proposals be submitted in person or a requirement that suppliers complete a lengthy registration process before they can access the government’s eProcurement system Supplier Selection, Evaluation, Award, Negotiations, and Protest • Selecting qualified bidders or offerors inclusively and avoiding a set of limitations, such as considering only three bids or proposals • Always requiring suppliers to sign noncollusion affidavits since, even if false, they can be the basis for enforcement and debarment of colluding suppliers without the high cost of an antitrust enforcement lawsuit • Conducting fair contract negotiations that treat all suppliers who reach this stage equally • Handling bid protests, contract claims, and disputes fairly

3. Effectively Managing Contracts and Records Contract Administration and Monitoring • Engaging in post-award contract changes only if circumstances require; change orders are part of the contracting process, but they should be justified

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• If the post-award changes either could have been foreseen or are significant, consider whether it should be competed again • Building into enterprise procurement and financial systems the capability of keeping records of competing supplier information (including pricing) and of analyzing that data to support the detection of anticompetitive activities Public Records • Documenting each stage of the process in a single procurement file or series of files • Keeping nonproprietary procurement rec­ ords open for review so that unsuccessful suppliers may become better equipped to compete in the future

4. Maintaining a System of Integrity Professional Ethics • Staffing the procurement process with genuinely independent, well-trained public procurement professionals and making sure that they are free to exercise their professional judgment without political pressure • Avoiding conflicts of interest and establishing and adhering to a set of ethical principles, which are discussed later in this chapter • Avoiding unique advantages for a supplier that are not available to other suppliers

WHY ETHICS AND INTEGRITY MATTER IN COMPETITION As previously mentioned, fairness, transparency, and competition are fundamental tenets of public procurement. Unethical behavior is the antithesis of the competitive process. Public officials who allow bias to sway their procurement decisions or who accept gifts and other compensation from persons who do, or want to do, business with a public entity are acting in a way

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diametrically opposed to the foundation of public procurement. Unethical behavior can tarnish the integrity of officials, the procurement office, and the public entity. Maintaining strong ethical standards is essential to ensuring public trust, and procurement officials should avoid even the appearance of impropriety. In addition to what is mentioned in this chapter and other chapters of this Practical Guide, extra steps may be taken to help maintain ethical practices within a procurement organization. Some of these are discussed in the upcoming paragraphs and may be considered when reviewing how a public entity approaches its ethics program and ensures compliance within its procurement system.

PROCUREMENT OFFICE ETHICAL STANDARDS Creating a simple and concise list of ethical standards establishes a basis for guaranteeing those public procurement officials—whether a centralized (with all procurement conducted by a single office) or decentralized procurement system—understand their everyday ethical obligations. To develop such a document, the Chief Procurement Officer should gather all public procurement officials within their administration to create a short list of essential standards. This list should be consistent with the state’s relevant laws and ethics commission guidelines to ensure no conflicts. Although the standards may not be legally enforceable because they are simply guidelines, they make a meaningful statement about the ethical principles under which all public procurement officials, by agreement, will operate. All those who participate in the procurement process, such as evaluation committee members and user agency personnel who provide specifications, should also be given copies of those guidelines.

The following points illustrate what those standards might look like and why they are essential: • Be independent and unbiased: any public procurement official should be independent of suppliers, bidders, prospective bidders, and in a perfect world, politicians, and political appointees, including their own bosses. While procurement personnel should be friendly and helpful, they should resist the temptation to accept benefits from or socialize with any supplier to prevent altering the public perception. Suppose a public procurement official has social friends who may seek or have sought business with the official’s employer. In that case, they should remove themselves entirely from every aspect of a procurement process involving those suppliers. • Act only in the public interest: a public procurement official should represent the public’s interest exclusively. On the other hand, it is the responsibility of the supplier representative to maximize their employer’s profit. This is not to say that it is terrible to have a profit motive. The profit motive drives markets toward developing better products; however, a public procurement official should always be aware of the driving motives of the supplier. • Remain a trustee of the public’s money: a public employee is a fiduciary for the public’s money, or in other words, a trustee. An effective public procurement program emphasizes that the money being spent was hard-earned by the taxpayers. A practical rule is for public employees to spend the public’s money with the care they would demand that a bank exercise in handling their own funds. • Follow the law: most public entities are subject to procurement laws, rules, and regulations that require competition. New public procurement officials should undergo procurement integrity training. All public procurement officials should have more than a passing knowledge of the ethics laws

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that apply in their own state or local government. They should develop close working relationships with attorneys assigned to their procurement office and those that deal with anticompetitive legal matters so that legal questions can be asked and answered. A close working relationship with these types of attorneys empowers public procurement officials since the public entity’s lawyers may be able to intercede with higher-ups when those higher-ups intend to take un­­ lawful actions, behave unethically, or act against public policy. • Strive for market efficiency: ensuring perfect efficiency with extensive procurement laws and rules is difficult. However, efficiencies can be realized in ways public procurement officials can control. Competition creates market efficiencies. Public procurement officials should do their own market research, independent of suppliers. They should study historical outcomes that reflected poor procurement choices so that they may avoid them in the future. Identifying how efficient suppliers function can serve as a guide for the next set of specifications or scopes of work. It is sometimes argued that permitting existing or prospective suppliers to write specifications or statements of work is efficient. A market competitor should be allowed to write specifications only when it cannot compete for or subcontract under the procurement for which they are drafting solicitation language. • Do not accept gifts: consideration must be given to the perception of accepting gifts from a supplier, no matter how small. Guidance should be developed as to if and under what circumstances gifts may be accepted. For example, some states set a dollar value under which a gift may be accepted. • Maintain confidentiality: the business of the government in procuring goods and services is the taxpayer’s business, not the personal business of public procurement

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officials, their business associates, their families, or their friends. Ethical procurement practice demands that public procurement officials reveal only as much information as is necessary to ensure a fair and competitive process. The possession by a competitor of insider information not available to other competitors is all too common in procurement law enforcement actions. If the information is public, the best policy is to ensure that everyone who wishes to compete has access to that information. If the information is not shared, it should remain confidential. • Do not play favorites: truly professional procurement personnel do not help friends, family members, or business associates gain an unfair advantage in the procurement process. Each supplier should stand on level ground. Ethical procurement generates clear payoffs. On a personal level, it goes a long way toward avoiding a situation in which a public procurement official or agency is named in the next headline claiming public corruption. On a practical level, the agency, the taxpayer, and the economy can choose the best supplier who has developed high-quality, well-priced commodities, construction, and services. Ethical procurement is not always easy, but it is always worth the effort and supports a competitive process.

LAWS ADDRESSING UNETHICAL BEHAVIOR The behaviors that can damage the public procurement process are just as damaging when directed at influencing the decisions of public officials unrelated to procurement, such as licensing officials and legislators. As a result, it makes little sense to limit state and local laws establishing ethical behavior only to public procurement officials. A public entity’s ethics laws cover the entire range of state and local government decisions and actions and thus are

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often more far-reaching than the procurement officials. For example, the state of Florida’s code of ethics is broad and addresses the behavior of all state employees and public officials. It explicitly addresses the “solicitation or acceptance of gifts,” “doing [personal] business with one’s agency,” “unauthorized competition,” and “conflicting employment or contraction relationships.”10 However, it also has a general provision about the possible misuse of one’s position for personal gain:

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112.313 (6) Misuse of Public Position. No public officer, employee of an agency, or local government attorney shall corruptly use or attempt to use his or her official position or any property or resource which may be within his or her trust, or perform his or her official duties, to secure a special privilege, benefit, or exemption for himself, herself, or others.11

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Conflict of Interest Laws Conflict of interest laws provide further guidance on ethical behavior for public employees and officials. A conflict of interest is “a conflict between the private interests and the official responsibilities of a person in a position of trust.”12 Public procurement officials are in positions of trust. The decisions that they make commit public entities to spending billions of dollars. Conflict of interest laws, as they are generally called, aim to prohibit decision making where the public’s interest should or may compete with a public employee’s self-interest. Such laws are most likely to have the following components: • Define self-interest (generally by focusing on financial or ownership interests) • Define who is responsible under the law (such as the employee and the employee’s relatives) • Cover not only the self-interest of the public employee but impute the financial

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interest or ownership of relatives to the public employee as if it is the self-interest of the employee Prohibit the public employee with a self-interest from participating in any decision, vote, contract, or other matter of the public entity Require the employee to: $$ Declare the self-interest publicly in writing $$ Recuse themselves or decline to participate in any decision, vote, contract, or other matter in which the employee has a self-interest Establish the specific circumstances under which a public employee may sell goods or services to the public entity that they serve or prohibit such sales Set restrictions on public employees’ ability to undertake outside additional employment or prohibit such employment Make a public employee violating the law subject to civil and/or criminal penalties for a violation of the law

Although each state is different in approach and detail, the prohibited behaviors are universal. For example, Virginia’s State and Local Government Conflict of Interest Act identifies ten forms of prohibited conduct that apply to any “officer or employee of a state or local governmental or advisory agency.”13 Further, sensitivity should be shown around the roles of suppliers in an environment where consultants are increasingly used to assist governments with complex procurements. Organizational conflict of interest laws and policies help mitigate the problems associated with these necessary relationships. It is important to remember that technical compliance with ethics does not always solve the perception problem. Sometimes the appearance of impropriety can be as damaging to a procurement system as would public findings that there have been criminal violations of conflict statutes.

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Kickbacks and Bribes Another type of behavior that a comprehensive set of ethics laws should address is kickbacks and bribes. A bribe is “money or favor given or promised in order to influence the judgment or conduct of a person in a position of trust.”14 A kickback is “a return of a part of a sum received often because of confidential agreement or coercion.”15 A kickback involves the sharing by a government contractor of public contract proceeds back to the public official who made the tainted contract decision. For example, a building contractor might give a portion of its contract payment to a government official who was involved in awarding the contract. A bribe differs from a kickback in that it involves a payment to a public official before deciding on a government matter. The occurrence of either of these at any point during the public procurement process is disastrous and often addressed in public entities’ laws and regulations. For example, a supplier’s kickback offer can be grounds for suspension or debarment in Oklahoma.16 See Chapter 11 (Contract Disputes, Claims, and Debarment) for more information.

Revolving-Door Restrictions Revolving-door restrictions target former public entity employees from using their previous positions for immediate gain. These types of ethics laws should: • Forbid former public employees from representing or assisting someone with a governmental matter, including a contract, if the employee participated in the case personally and substantially and if the matter was one over which they had significant decision-making authority • Forbid former government executives for a period of time from participating in a governmental matter for which the former executive was officially responsible

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These laws are often called revolving-door laws because of the circular image of the former government employee being on both sides of an issue. However, revolving-door restrictions only sometimes address the critical issue of prospective employment discussions. For example, a public procurement official or a user on an evaluation committee may be approached by an offeror—however innocently—after learning of that employee’s imminent retirement. Policies should deal with prospective employment discussions if the law does not address this situation. At a minimum, the discussions should be disclosed, and whether the employee should be disqualified from involvement in a procurement should be determined.

OVERSIGHT OF THE PROCUREMENT PROCESS Review of Unauthorized Acts Circumvention of a procurement system from within a state or local government often takes the form of efforts by user agencies to avoid the competitive process. These behaviors can create risks to the government because they are unauthorized. They are attempts to contract in violation of the law. Circumvention can lead to protracted disputes and even litigation since the government is not generally required to pay a supplier receiving an unauthorized contract. Some examples of actions that fall within the category of unauthorized acts are: • Ordering an item from a supplier without proper competition or in violation of existing contracts • Creating emergency procurements in situations that are not, in fact, emergencies • Dividing requirements into smaller amounts to artificially bring them below the formal competition dollar amount At a minimum, a supplier that was part of an unauthorized procurement should be required

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to file a written claim for the dollar amount it is owed and provide documentation of the work performed. Since the procurement was outside the law and the procurement process, the user who took the unauthorized action should be required to state in writing why they proceeded with the purchase. Depending on the validity of the claim and the innocence of the contractor in the transaction, the Chief Procurement Officer or the public employee authorized to settle claims may approve the payment. Generally, these approvals should be at a high enough managerial level to highlight the issue’s importance and mitigate the increased risk that sometimes results from after-the-fact approvals of unauthorized acts. Threshold questions to ask in circumvention cases are whether the user’s justification for the action rings true and whether the terms and prices were fair and reasonable. However, if the public employee or the supplier has a pattern of unauthorized purchases, that history makes a case against approving any claim. In many cases, the employee who acted outside of their authority may be personally liable to the contractor. Circumvention of sound procurement principles is harmful to government. There are reasons why competition principles and other procurement practices are used. They promote integrity in the system and help ensure fair and reasonable pricing. Nevertheless, unauthorized acts occasionally occur, and state and local governments should have well-established procedures for dealing with them as part of their compliance programs.

Reviews of Delegated Procurement Authority The Chief Procurement Officer should perform a periodic and systematic review of the procurement operations within the public entity, mainly where procurement authority has been

delegated to persons outside of the central procurement office. The review may cover a range of actions but, at a minimum, should focus on compliance with the law, policies, and rules that govern the procurement program. Delegations should only be issued to persons trained in procurement law, regulations, and policies.

ENSURING SUPPLIER INTEGRITY It is unlikely that a public entity’s laws will provide a complete set of tools to define and enforce ethical behavior among all who participate in the public procurement system, yet ensuring supplier integrity is an essential component of a fair, transparent, and competitive strategy. There are steps that the Chief Procurement Officer and individual public procurement officials may take in each procurement to help ensure ethical standards for suppliers.

Managing Integrity Through Contracts One tool that a public procurement official may use to enforce ethical standards is to insert clauses into contracts that specifically address and establish those standards. For instance, the clause may state that not following ethics standards is a breach of contract, and the public procurement official may terminate the contract if evidence shows that the supplier paid a gratuity, kickback, or contingent fee relating to the award of a contract. The Model Procurement Code advocates the inclusion of ethics contract clauses.17 It also requires that a supplier, before being awarded a contract, represent in writing that the supplier has not retained anyone with a contingent fee for the award and that this representation be conspicuously outlined in every contract and solicitation.18 Finally, a contract should authorize the auditing of books and records of a contractor and require that the supplier retain contract records

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for a specific period after the contract’s expiration. A procurement law should already provide that authority, but if it does not, the public entity may gain that authority by making it clear in the contract’s language.

Resolution of Supplier or Contractor Complaints A truly open procurement system is unafraid to be challenged on its contract award and management decisions. This openness is achieved by establishing a publicized, workable procedure for bidders and contractors to file bid protests, appeals, disputes, and contract claims. Allowing suppliers to question a particular procurement makes it more difficult for unethical behavior to remain secret. Chapter 8 (Protests) discusses the processes available to challenge solicitation and award decisions, and Chapter 11 (Contract Disputes, Claims, and Debarment) discusses dispute resolution techniques and clauses. The ultimate tool that a public procurement official can wield against unethical behavior is the authority to suspend or debar a supplier from competing for their state or local government’s contracts. Public entities vary as to the grounds for suspension and debarment and the procedures required to invoke them. See Chapter 11 (Contract Disputes, Claims, and Debarment) for more information about debarment and suspension procedures across the states.

COOPERATION WITH ENFORCEMENT AUTHORITIES AND REPORTING Every public procurement official should have a relationship with an antitrust or ethics enforcement office. For state agencies, this is the state attorney general (who may have a designated antitrust unit), an assistant attorney general assigned to the procurement office, or an in-agency attorney.

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Some state agencies have internal audit or investigative departments, such as an Office of the Inspector General, that are charged with ferreting waste, fraud, and abuse. Antitrust violations always result in waste, fraud, or abuse on some level. States also have auditor departments that are in charge of looking for government waste and inefficiency. Counties have district or county attorneys who may be charged with enforcing state antitrust laws since many are criminal laws. Counties may also have internal auditors. Municipalities have city attorneys who enforce local laws and ordinances. These officials may have the ability to prosecute fraud in procurement. Public procurement officials are critical witnesses in antitrust enforcement actions. Not only have they witnessed and documented anticompetitive conduct, but they have also seen the harm to their government and the taxpayers from a lack of competition.

Reporting Suspicious Behavior There may be several options for a public procurement official to report unethical or anticompetitive behavior. It often takes courage because the behavior may involve elected officials or senior managers within the public entity. How do public procurement officials protect themselves if they fear retribution or retaliation for reporting suspicions? Most state legislatures have enacted what is known as whistleblower laws. Whistleblower laws typically require the public employee who is reporting suspicious behavior to provide written notice of the issue to a specified government official before reporting the behavior further within a state or local government. In many cases, that specified government official is elected—for instance, the attorney general, governor, or city council member. If the law also specifies an official who is not elected—such as a police agency official—the public procurement official may feel more comfortable reporting suspicious behavior because

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it would appear, at least on the surface, to re­­ move some of the political ramifications of invoking the law’s protection. The most impor­ tant thing to remember is that the public procurement official should report the suspicious behavior to one of the specified government officials before reporting it further in order to be protected later from reprisals or retaliation.

Behaviors to Report The following list describes some suspicious behaviors that deserve more scrutiny and may need to be reported through the appropriate channel or to the appropriate supervisor or official. Although this list is not exhaustive, it can help procurement officials to remain vigilant and safeguard against wasteful spending. • Identical bids: remain wary of identical bids. When determining whether two or more offers are, in fact, identical, consider the circumstances and evidence and whether they are the result of collusion or price-fixing. For example, two plumbers bidding at a rate of $50 per hour may not necessarily be a red flag, but two suppliers bidding exactly $306,859.00 for a complex IT system warrants additional investigation and scrutiny. • Suspicious bidding patterns: audit bid histories occasionally and publish reports to qualified suppliers. If patterns suggesting rotating bids among suppliers appear, report these to appropriate enforcement authorities. • Simultaneous price increases: conduct market research to determine if price increases appear market-driven and justified. • Cronyism: where information suggests that a supplier has become too close to a procurement official, report that information. When the offending public official is a superior, refer to your specific ethical guidelines on a reporting structure. • Post-bid and contract changes and extensions: report unwarranted post-bid

or post-award changes, including unsupported contract extensions and claims of cost overruns, as these practices are rarely competitively justifiable. • Market aberrations: know markets well enough to recognize if a strange-looking response to a solicitation is market-driven. There are times when markets change rapidly for reasons outside the suppliers’ control. One needs only to look at historic real estate bubbles that burst to know that sometimes markets rise beyond all economic reality and that sometimes they collapse. For public procurement officials, a burst bubble is a tremendous purchasing opportunity that the government may take advantage of, but only if its contracts contain language that allows it to do so. Where market prices are rising unrealistically, the user agency does well to avoid locking into rising prices. • Anticompetitive remarks and admissions: write down the date, time, and identity of the speaker, witnesses to the anticompetitive or suspicious remarks, and the best recollection of what was said as soon as possible.

CONCLUSION Ensuring competition, ethics, and integrity within the operations of a public procurement process requires an overlay of safeguards—laws, regulations, and policies that define unacceptable behavior. Such safeguards should include procedures that ensure the independence of those responsible for operating and participating in the procurement system and a compliance program that regularly reviews procurement office behaviors. Unethical and anticompetitive behavior cannot be entirely eliminated. Still, by announcing to suppliers and public employees alike that ethical behavior is expected and defining what ethical behavior is, the likelihood of unethical and anticompetitive behavior can be reduced.

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ENDNOTES 1. Merriam-Webster.com Dictionary, s.v. “antitrust,” accessed March 13, 2023, https://​ www.merriam-webster.com/dictionary/anti​ trust. 2. Merriam-Webster.com Legal Dictionary, s.v. “restraint of trade,” accessed March 13, 2023, https://www.merriam-webster.com​ /legal/restraint%20of%20trade. 3. “McKesson Corp. and AmeriSource Health Corp.,” Federal Trade Commission, July 31, 1998, https://www.ftc.gov/legal-library/bro​ wse/cases-proceedings/9810025-mckess​ on-corp-amerisource-health-corp. 4. “State Preference Repository,” NASPO, ac­­ cessed March 13, 2023, https://www.naspo​ .org/practical-guide-resources/. 5. “The Antitrust Laws,” Federal Trade Commission, accessed March 13, 2023, https://​ www.ftc.gov/advice-guidance/competiti​ on-guidance/guide-antitrust-laws/antitrust​ -laws. 6. “Business Guidance,” Federal Trade Commission, accessed March 13, 2023, https://​ www.ftc.gov/business-guidance.

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7. “Home,” Federal Trade Commission, ac­­ cessed March 13, 2023, https://www.ftc.gov/. 8. Ariz. Const. art. 14, §15. 9. NM Stat. §57-1-1 (2018). 10. Fla. Stat. 112.313 (2023). 11. Fla. Stat. 112.313 (6) (2023). 12. “Conflicts of Interest,” CFA Institute, ac­­ cessed March 13, 2023, https://www.cfain​ stitute.org/en/advocacy/issues/conflicts-of​ -interest#sort=%40pubbrowsedate%20des​ cending. 13. VA Code Ann. §2.2-3103 (2023). 14. Merriam-Webster.com Dictionary, s.v. “bribe,” accessed March 16, 2023, https://www.merr​ iam-webster.com/dictionary/bribe. 15. Merriam-Webster.com Dictionary, s.v. “kickback,” accessed March 16, 2023, https://​ www.merriam-webster.com/dictionary/kick​ back. 16. Okla. Admin. Code §260: 115-3-21(2023). 17. Model Procurement Code for State & Local Gov’t §12-206(3) (Am. Bar Ass’n 2000). 18. Model Procurement Code for State & Local Gov’t §12-207(2).

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RECOMMENDATIONS AND CONSIDERATIONS • The procurement office should foster a relationship with user agencies that encourages early collaboration in planning. • The central procurement office should provide training and resources for supporting staff access to current market information, such as subscriptions to online market research tools and attendance at trade shows. • The Chief Procurement Officer should consider adopting project management practices and templates for large-scale, complex procurements.

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Government is continuously confronted with the challenge of meeting the needs of a changing social, political, and economic environment. At the public procurement officer level, planning and strategizing better ensures that the procurement process is seamless in implementing critical short-term and long-term government program goals. A public procurement professional should not work without a strategic plan or in isolation. Nor should they begin the procurement process without communicating with stakeholders and developing a strategy. This chapter discusses the importance of communication with user agencies and engaging in research-based planning during the early stages of a procurement.

PLANNING WITH USERS AND USER AGENCIES Many decisions that state and local government officials make impact the procurement process in some way. As previously noted, Chapter 2 (Procurement Leadership, Organization, and Value) of this Practical Guide advocates that the best procurement structure is one in which there is a strategic leader—a Chief Procurement Officer—who, among other things, participates in the executive planning process. Similarly, it is essential that the public procurement official be invited into the early stages of a user agency’s specific program planning, where that program will require the support of the procurement department. This allows procurement to have advanced knowledge of upcoming projects and solicitations that will require their expertise. In turn, the public procurement official, as part of their plan for a specific procurement, should initiate a collaborative and team-focused approach with user agencies and users. A public procurement official should not be passive. A well-informed public procurement official can play a vital role in the planning for complex new technology, for example. That official should think in terms of the long view, be a problem solver, and innovate, perhaps formulating a new

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way of conducting a competitive procurement. Their professional knowledge of the process provides critical information to the user agency about the source selection methods available and how flexible they may be, market conditions, and a range of other considerations. On the other hand, the public procurement official is not in a position to know precisely how the user agency will utilize the commodity or service. Because the official is not sitting in the user’s seat, they will not understand in detail the user agency program that the commodity or service will support. The knowledge that the user agency and the users provide about the program is a key ingredient for success. Public procurement officials should reach out regularly to user agencies and users to develop a solid working relationship and a good means of exchanging expertise and knowledge. Potential outreach strategies include regularly scheduled meetings, agency trainings, state procurement conferences, and other networking opportunities. The principle of collaboration early in the process applies to more than major procurements. Cooperation improves the effectiveness of any procurement, regardless of size, by providing valuable information and insights. It helps the procurement office plan its operations around the users’ needs. This is critical both for the success of the individual procurement, as well as the overall workload management of the procurement office. Procurements conducted without proper planning or time can be disruptive and costly. Forging a good relationship with users and user agencies is a key role a public procurement professional should play. The initial interaction provides the procurement official the opportunity to establish trust and start a relationship through personal engagement with agency stakeholders. This is the best time for the procurement official to set clear expectations, listen and respond to concerns, and build a partnership. The procurement process requires interactions not only with agency stakeholders, but many

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other agencies for approvals, guidance, and collaboration. The procurement specialist is the central point of contact responsible for the coordination of many moving parts. Connections with other agencies are an opportunity to represent the central procurement office and build stronger relationships. Because of the important aspect of these relationships to a public procurement official’s job, a public procurement office should provide training as part of its orientation for new staff on relationship building. Additionally, the procurement official’s success in this area should be measured as part of their performance evaluation.

DEVISING PROCUREMENT STRATEGIES As previously discussed, continuous communication with user agencies can provide the procurement office with an understanding of the priorities and ongoing needs of an agency. As soon as the user agency requests the public procurement official’s assistance—ideally, early in the procurement planning process—that official should think strategically and innovatively. The procurement official should begin to identify initial components and issues specific to the agency’s needs such as: • Information required to write the solicitation • Appropriate solicitation and evaluation methods that will be used • Timeline • Contract type In these early planning stages, the procurement official should consider not only the commodity or service being procured but other issues such as contract terms, payment and performance measures, and risk management. In short, they should consider all factors that need to be part of the solicitation process. The following paragraphs discuss strategic sourcing and the overall need to engage in research-backed decision making at the start of the procurement process.

Strategic Sourcing Strategic sourcing began as a tool used in private-­sector procurement. Its use in the federal public procurement system took hold in the early 2000s. From 2003 through 2012, the United States Office of Management and Budget issued five directives relating to strategic sourcing.1 The United States General Services Administration maintains a website entitled Federal Strategic Sourcing Initiative (FSSI). It offers a description of strategic sourcing: Strategic sourcing is the structured and collaborative process of critically analyzing an organization’s spending patterns to better leverage its purchasing power, reduce costs, and improve overall performance. The primary goals of FSSI are to: • Strategically source across federal agencies • Establish mechanisms to increase total cost savings, value, and socioeconomic participation • Collaborate with industry to develop optimal solutions • Share best practices • Create a strategic sourcing community of practice2 Since most definitions of the term strategic sourcing tend to be vague and broad, the FSSI website provides the best idea of how that approach is used within a public procurement system. For instance, the website identifies the current commodities and services that the federal government has strategically sourced and describes the features of the contracts, including the availability of environmentally friendly items and the use of small and disadvantaged businesses. As may be seen by the federal description of strategic sourcing, its use relies heavily on the

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availability of comprehensive spending information, an issue for state and local governments that this chapter has already discussed.

Establishing the Business Case With the initiation of the procurement process, it may be necessary for the user agency to engage with the procurement office in the development of the business case for the procurement. The California Project Management Office (CA-PMO) provides this description of a business case and the value it provides: Establishing a compelling business case will help solidify support and commitment from organizational leaders and external organizations. A business case captures the reasoning for initiating a project or task. It is often presented in a well-structured written document that justifies the organization expending resources and effort in support of a specific business need.3 It is often used to compare various state or local government business solution alternatives and to provide a basis for selecting the one that delivers the greatest value to that government, the user agency, and other stakeholders. The business case stage of planning can be a simple or more detail-oriented investment analysis, depending upon the scale of the project at hand. For cutting-edge, innovative projects with lower relative spend and risk, a business case may contain a problem statement that a user agency is trying to solve. A more comprehensive analysis may identify many more quantitative and qualitative evaluations and risk factors serving as the basis for the selection of a business solution. These factors can include desired outcomes, budget estimates, and IT requirements. It is during the business case planning stage that different service delivery models should be considered. Those models may have differing mixes of operating expenses, such as procuring IT services contracts versus using in-house

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experts or buying IT hardware and software versus cloud solutions. A well-researched and thorough cost-benefit analysis for each alternative will help support the subsequent procurement process, including drafting a statement of work and other elements of a solicitation. Ultimately, the use of a business case should help the organization prioritize its procurements by making smart decisions. It also should provide the basis for the evaluation of business outcomes following project closure. Questions to be answered at this phase may include: • Why begin the project now? • What is the impact of not carrying out the project? • How does the project support user agency goals? • What business problem does the project solve? • What is the financial impact? • When will the project show results? The State of California’s Department of Technology is an example of a public entity that has embraced in-depth planning and project management practices throughout the procurement process. Their CA-PMO offers templates and guidance for templates for each phase of an IT project.

MARKET RESEARCH AND OTHER PRESOLICITATION GROUNDWORK A key aspect of planning is research. A public procurement official, if acting professionally, should not be a passive recipient of the information that a user agency provides to them for a particular procurement. That official has an obligation to arm themselves with all available research and data relating to the needs of a user agency.

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Market research can be defined as the gathering and analyzing of information on the capabilities and limitations in the commercial marketplace, as well as determining the best method to obtain the required goods and services. The goal of market research is to better understand the marketplace and suppliers. The benefits of market research include helping determine exact needs, staying up to date on market conditions, and identifying potential suppliers.

Conducting Market Research Market research should be a part of the procurement plan, regardless of the cost or complexity. The results of market research are critical to determining the appropriate procurement methodology. The research should be understood and validated by public procurement officials to ensure that the correct procurement process is selected.

•

• • •

•

The breadth and depth of the market research depend on the urgency, dollar value, and complexity of the procurement. A market research plan should consider including the following tasks: • • Analyze the marketplace and identify the usual commercial practices for similar types of projects. This research will ensure that the cost structure of the procurement aligns with the way in which the industry prices its commodities and services. • Consider all potential business models and service delivery methods that can achieve the desired results. For example, as a service, cloud-based solutions should be realistically evaluated along with traditional IT commercial off-the-shelf service models. Determine which provides the best fit, considering the public entity’s enterprise architecture, business objectives, and overall strategic plan, as well as the total cost of ownership. • Use market analysis to create functional requirements for the commodities and services. By doing so, the public entity will

be able to ensure that the requirements are not overstated or needlessly limiting, which could eliminate qualified commercial items and supplier products. Consider publishing these functional requirements in the form of a draft solicitation and inviting suppliers to provide comments on them. Document the effects of the research on the development of the requirements, such as whether next-generation technology is emerging but not quite matured as the market research is being conducted. Track potential supply chain and logistical issues. Identify likely suppliers that can meet the business objectives. Request price/cost estimates to determine whether options are within funding constraints. A change in scope or other requirements may be necessary. Issue a request for information (RFI), if necessary. It is important to be realistic about the benefits of the RFI process. It can be time-consuming, so the public entity should clearly define the objectives of the process and construct the RFI document and activities accordingly. Research what experience other public entities have had with procuring this commodity or service.

Cost Savings One of the most obvious roles of public pro­ curement professionals is to determine how best to save their state or local government money, either through obtaining the best value price of a commodity or service or through cost avoidance. A poorly devised procurement raises the costs to a public entity because user agencies end up with commodities or services that do not meet their needs, wasting precious dollars. A well-run procurement is based on a full understanding of the user agencies’ needs. This calls for teamwork, a well-written specification/scope of work, relevant evaluation criteria, and appropriate

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contract terms, all of which greatly increase the chances that the public entity will receive the best value for its money. While many procurements are not based solely on lowest price, the procurement official should aim to use their expertise, through market research and other available data, to investigate ways in which the public entity and the specific user agency may save money. That may be through locating a better performing and less costly version of a commodity than the one the user agency regularly purchases, finding a way to increase competition among service suppliers, or looking for opportunities to combine user agency purchases to obtain volume discounts from suppliers. For certain types of commodity procurements, it may be appropriate to request information from competing suppliers about either their costs or the costs to the public entity of owning and operating suppliers’ commodities. The best known of these costs are life-cycle costing and total cost of ownership. The Association of Supply Chain Management (ASCM) Dictionary defines life-cycle costing as, “in evaluating alternatives, the consideration of all costs—including acquisition, operation, and disposition costs—that will be incurred over the entire time of product ownership.”4 Additionally, ASCM defines total cost of ownership of the supply delivery system as “the sum of all the costs associated with every activity of the supply stream.”5 Chapter 15 (Sustainable Procurement) and Chap­ter 7 (Proposal Evaluation and Award) discuss these two approaches and cost analysis generally. The analyses that the public procurement official conducts using the information that the supplier submits during a competition permit the official to evaluate suppliers’ bids or proposals to determine which commodity offers the best value. Those analyses may be used to determine the

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actual lowest price submitted in situations where that is the basis for contract award as stated in the solicitation or to calculate which offered price should be given the highest number of points, for instance, where price is one factor for contract award as stated in the solicitation. One of the critical tools that may assist with a cost-savings strategy is the availability of comprehensive expenditure data, as discussed earlier. The public procurement official should not be daunted by the lack of that type of data, but instead, use their ingenuity to find other ways to achieve cost savings.

Collecting and Analyzing Data To gain the intelligence needed for the development of the solicitation and resulting contract, it is necessary to collect and analyze all available data. As previously discussed, some relevant data should be available through an eProcurement system. Other data is available outside of the entity, such as descriptions of new models of a piece of equipment on the market. Public procurement officials should be problem solvers and investigate data sources on their own initiative. Examples of some of the types of data that are critical to know are: • User agency buying patterns • Current and future market conditions for the commodity or service • Past performance information about contractors under prior contracts • Past performance of the same or similar commodities or services

Methods of Collecting Internal Data There are two broad categories of purchases for which a public procurement official should plan: those that are somewhat predictable because they recur and those that respond to a user agency’s new or changing needs.

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For recurring types of procurements, access to comprehensive expenditure data is essential in planning. A single set of dollar figures for a public entity’s purchases, broken down by commodity and service type, with further details available such as makes and models, could lead to a consolidation of user agencies’ purchases. That, in turn, would allow the public procurement official to achieve pricing on larger quantities of a commodity or service, perhaps lowering costs. There have been great strides made in recent years toward reaching this goal, but it is a work in progress. Without this data, the public procurement official should be creative and find alternative sources of information. For nonrecurring types of purchases, a public procurement official should use other approaches to determine the future requirements of user agencies and users. One approach is for the public procurement official to survey key contacts in user agencies regularly, asking them to identify what they will need, the quantities they expect to order, and the times they will need them. Another approach is to engage a panel of users from a broad array of user agencies to meet regularly to discuss challenges, solutions, and forecasts. The panel may consist of user subject matter experts that a public procurement official brings together to provide input for procurements of specific types of commodities or services. A public procurement official may also convene a contract oversight group to assist with the management of large and important contracts, such as health insurance or office supplies. This type of collaboration allows a public procurement official, based on user ideas and knowledge, to be innovative and to discover new or different ways to conduct future procurements well before the user agencies need them. Budget data is another source of internal information that may be helpful. However, most state or local government purchases are funded out of their regular budgets. The budget that the legislative funding body—a state legislature or a city council—approves for a user agency will not generally identify specific items to be purchased.

The exceptions to this are capital (or high-­dollar) procurements such as large construction projects or complex technology systems. Legislative funding bodies specifically appropriate funds for those. Such appropriations are based on the estimated cost of the procurement. That means that a significant amount of planning for the procurement should occur before the user agency requests the funds. The public procurement official should be part of the team that develops the plan well before a budget item goes to the appropriating body, such as the legislature or city council. Legislative and gubernatorial-announced programs are also a source of information for a public procurement official. One example is legislative appropriation and authorization to buy drones or body cameras. An explicit statement by an executive government official about implementing a new initiative or technology should spur the public procurement official to begin evaluating the market and preparing for the future. There is no single best way for public procurement officials to ensure that they obtain the best information. In fact, the collection of internal data for planning purposes should be part of a broader outreach effort by a procurement office to its user agencies and users. If there is good communication between that office and the user before, during, and after the procurement, obtaining data about the user’s needs should evolve as part of that communication.

Methods of Collecting External Data It is easier than it has ever been for a public procurement official to locate useful sources of external data and carry out market research through the Internet and its search engines. The time saved by having that information at the official’s fingertips means that there is no excuse for not conducting a thorough review of available resources. Among the resources available are studies, papers, and publications of organizations of public officials. Subscriptions to publications and industry databases are also critical to ensure that a public

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procurement official remains current. A best practice is to create a line item in the procurement office budget that permits its public procurement officials to have access to information about industry innovations and future products and services. Industry trade shows are another excellent source of information, particularly concerning technology. While budgets are often scarce for travel, trade shows allow a public procurement official to obtain information on a wide range of suppliers’ commodities in a neutral setting, without becoming too close to suppliers. The public procurement official should also seek information directly from suppliers. Online survey tools can provide a simple and effective method of obtaining that information in a way in which suppliers may remain anonymous.

Even more, data can be obtained through the issuance of an RFI to suppliers. This is a solicitation that is used solely to seek supplier information and ideas. There is no contract awarded. In this method, suppliers respond to specific questions related to the commodity or service requirements. An RFI can not only provide specific industry information but can also help identify potential suppliers in the market. There are many other external sources of information, and some require membership or other fees. The National Association of State Procurement Officials (NASPO) provides many free resources to its membership and the public, including publications on research strategies and market trends. It is important for there to be a commitment by the managers of a public procurement office to obtain the best external data that the budget will bear.

SUPPLIER MANAGEMENT: WHAT IS SUPPLIER MANAGEMENT? Supplier Management is a business practice that focuses on developing and maintaining relationships with contracted suppliers to provide the best value contracts, products, and services. Supplier Management represents the overlap between several other management styles—Supplier Performance Management, Supplier Relationship Management, and Contract Management. All these practices have value and benefit on their own and are useful for a procurement office; ultimately, the center of overlap impacts all types of supplier engagement as well as stages of a contractual relationship, which will be made clear in the callout boxes utilized throughout this Practical Guide. The Supplier Management callout boxes cover: • Fair and Ongoing Engagement in Chapter 6 (Development Techniques for Purchasing Goods and Services) • Valuable Performance Management in Chapter 6 (Development Techniques for Purchasing Goods and Services) • Supportive and Collaborative Contract Administration in Chapter 10 (Contract Management and Administration) The goal of Supplier Management is to create a system that allows the state and their contracted suppliers to build rapport, communicate effectively about their respective needs and abilities, and ultimately provide the best value services and products. This practice recognizes that entities and suppliers need each other in order to succeed. For procurement professionals who often feel they are reacting to shifting markets and related issues, utilizing Supplier Management practices will allow them to be more proactive in their approach (see Figure 4.1).

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FIGURE 4.1

Supplier Relationship Management

Supplier Management

Supplier Performance Management Contract Management and Administration

WHY SUPPLIER MANAGEMENT? The market in which procurement professionals are purchasing goods and services is constantly changing. Though many procurement professionals have areas of expertise, it’s impossible to be an expert in everything! Developing professional relationships with the people and the companies who are the experts in their fields is critical. A working relationship where both sides can be trusted to act fairly, understand the business needs of their customers and suppliers, and want to collaborate is an invaluable resource. Better understanding the abilities and needs of the suppliers, customers, and market at large can eliminate some of the risk associated with contractual relationships. Supplier Management practices recognize that contracted suppliers have a vested interest in the success of their contracts. Suppliers not only directly benefit from a positive outcome in terms of financial profit, but they may also pay taxes, employ people, and own property within the state, county, or city with which they have a contract. Suppliers may gain new business because they count a governmental entity as one of their customers. Ultimately, it’s important—­as much as possible—to see a contracted supplier as a type of partner in the administration of a successful contract. This view will allow room for an increased understanding of the needs and abilities within a contractual relationship. This can empower the procurement professional to create more thoughtful contract terms, which also allows them to learn and build upon their knowledge throughout the procurement process.

SUPPLIER MANAGEMENT BEST PRACTICES The development of Supplier Management practices within a procurement office depends on the laws and policies of that entity, as well as the goods and services being purchased. continued State and Local Government Procurement: A Practical Guide, 4th Edition

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The condition of current relations between the suppliers and procurement officials must also be taken into consideration. Effective Supplier Management requires that everyone involved agrees upon the tenets and value of pursuing this management style. For an office considering implementing a Supplier Management business practice, the first step should be to survey existing management techniques—the procurement office may already be utilizing Supplier Management without calling it “Supplier Management.” The principles of effective Supplier Management include: • Fair and ongoing engagement of all suppliers—contracted or not—throughout the procurement process • Supportive and collaborative contract administration from start to finish • Valuable performance measurement and meaningful outcomes for both positive and negative performance Whether a procurement office is already using Supplier Management or not, small changes can be made to improve communication, engagement, and success at any step in the procurement process without the need for a total overhaul of existing practices.

FORMAL PROJECT MANAGEMENT Since large-scale procurements, such as IT services, can be complex and involve a great number of stakeholders, it becomes a project rather than a simple, traditional procurement. In these instances, project management processes are essential to the overall success of a procurement. Whether adopted in part or in whole, procurement offices should consider implementing similar procedures and templates. There is a great benefit to investing in project management training for procurement officials.

Project Charter At the onset of a complex procurement, a project charter may need to be developed that formally authorizes work to begin. As defined by the state of California, a project charter: Formally authorizes a project. It describes the business need for the project and the anticipated project results. It formalizes the existence of the project and provides the project with the authority to expend organizational resources to support project activities.6 56

One of the purposes of a project charter is to document decisions related to the procurement. It authorizes the project and the project manager through an agreement between the project manager (such as the technology department) and the sponsor requesting the project (the user agency or agencies) before significant resources are committed and expenses are incurred. Too often, finite resources are directed toward efforts based on an informal approach to starting a project. Often, projects begin without a clear understanding of the important factors that affect a project’s success, such as its scope, resource use, oversight authority, roles, and responsibilities. A well-crafted project charter can be the remedy for this situation. Specifically, the charter confirms agreement among stakeholders on the business goals and needs that justify the project. It includes the primary objectives in support of the business goals that will be a measure of the project’s success. By formally chartering a project, the project manager and project team have clear guidance on how the project should be planned and managed.

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The State of California’s Office of Systems Integration offers a template for developing a project charter. It is divided into the following parts:7 • Business Problem or Opportunity • Strategic Alignment • Project Scope Statement $$ Project Objectives $$ Preliminary Scope Statement • Approach $$ Project Approach $$ Assumptions $$ Constraints $$ High-Level Preliminary Risks $$ Summary Milestone Schedule • Resource Forecast $$ Rough Order of Magnitude (ROM) Estimated Budget $$ Anticipated Funding Sources $$ Staffing Essentials $$ Known Sources of Technical Information • Organization $$ Project Organization $$ Project Governance $$ Stakeholder Register $$ Related/Dependent Projects $$ Dependencies The project charter should include the appropriate business case information to ensure that a comprehensive view of the project is communicated. It should be developed in coordination with stakeholders, and activities under it should not be undertaken without the approval of key stakeholders. Because this is a collaborative effort, it is important to establish a solid partnership among the various stakeholders to help improve project management processes and achieve on-time, on-budget delivery of the desired project outcome. The project charter should clearly spell out the roles and responsibilities of the project team. Additionally, a Responsible, Accountable, Consulted, and Informed (RACI) chart can be used to help define authority and accountability based on expertise and roles. “A RACI chart (or RACI

matrix) clarifies roles and responsibilities, making sure that nothing falls through the cracks. RACI charts also prevent confusion by assigning clear ownership for tasks and decisions.”8 This enables the project manager and the project sponsor to ensure performance accountability and timely decision making. The project charter should be referenced throughout the procurement process.

Preparing Project Plans Project plans identify how and when the activities, processes, and procedures will be used to manage the IT project. These plans also describe assumptions and constraints, organizational structure and governance, and the management of parameters for cost, quality, staffing, and communications. They should include a description of how the project plans will unfold for both the project deliverables and the corresponding management activities, such as the project kickoff meeting, status meetings, project monitoring, and reporting. The plural plans is used here since the project may be broken down into subject matters. Note that planning will not succeed unless there is an integrated project team made up of all critical positions. Key stakeholders may include the sponsor, project manager, subject matter (business) experts, technical experts, procurement staff, and legal staff. An essential element of the planning process is the development of a communication plan. This plan describes how the information will be stored and distributed throughout the project and how questions that arise will be promptly addressed. At the beginning of the project, it may be impor­ tant to assess the communications competency of the project. For a complex service project, an effective outside organization whose interest in success is aligned with that of the public entity is critical. Examples are Medicaid providers who submit invoices and receive payments from the state electronically. As in any collaboration, this

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requires an effective communications process at all stages to ensure that the project team, stakeholders, potential offerors, and contractors have timely and effective information. The State of California’s Department of Technology is an example of a public entity that has embraced in-depth planning and project management practices throughout the procurement process. Their CA-PMO offers templates and guidance for templates for each phase of an IT project. Additionally, the Texas Department of Information Resources has similar tools and guidance.9

SELECTION OF CONTRACT TYPE One of the most important decisions a public procurement official makes is the type of contract they will award as a result of a procurement. There are many types of contracts, and selecting the right one largely depends on an analysis of the risks that the procurement and resulting contract pose. A later portion of this chapter describes some structured ways of analyzing risks. The Recommended Regulations of the Model Procurement Code offer the following list of some of the types of contracts available for commodities or services contracts:10 • Fixed-price contracts (with contract-specified adjustments) • Firm-fixed-price contracts • Fixed-price contracts with price adjustment • Cost-reimbursement contracts • Allowable cost contracts • Cost-plus fixed-fee contracts • Cost incentive contracts • Fixed-price cost incentive contracts • Cost-reimbursement contracts with cost incentive fee • Performance incentive contracts • Time and materials contracts • Labor hours contracts

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• • • • •

Definite quantity contracts Indefinite quantity contracts Requirements contracts Leases Leases with purchase option

If a public procurement official finds the preceding list of contract types daunting, it is understandable. They are not expected to be an expert in this area. This chapter aims to provide resources to that official as they strategize about the type of contract to be used in any particular procurement. A good starting point in determining the contract types that may be available to the public procurement official is to become familiar with what is authorized by the state or local government’s procurement law. An example of such legal language can be found in the Model Procurement Code: §3-501 Types of Contracts. Subject to the limitations of this Section, any type of contract which will promote the best interests of the [State] may be used; provided that the use of a cost-plus-apercentage-of-cost contract is prohibited. A cost-reimbursement contract may be used only when a determination is made in writing that such contract is likely to be less costly to the [State] than any other type or that it is impracticable to obtain the supplies, services, or construction required except under such a contract.11 Cost-plus-a-percentage-of-cost contracts are often prohibited in public procurement, including at the federal government level.12 A cost-plusa-percentage-of-cost contract is one in which, before completion of the work, the contractor and the public entity agree that the contractor will be entitled to a fee amounting to a predetermined percentage of the total cost of the work. Thus, the more the contractor spends, the greater its fee. It incentivizes the contractor to incur cost at the expense of the public entity. Note that determining what is and what is not a cost-plus-a-percentage-of-cost contract is not simple.

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At the outset of a procurement, a public procurement official should understand that contract types fall into two broad categories— fixed-price contracts and cost-reimbursement contracts, with incentive contracts somewhere in between—and that they vary according to:13 • The degree and timing of the responsibility assumed by the contractor for the costs of performance • The amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals Many contracts awarded by state and local governments are some version of a firm-fixed-price contract under procurements conducted either via competitive sealed bidding or via competitive sealed proposals. Chapter 5 (Solicitation Methods) describes those procurement methods in more detail.14 At the federal government level, firm-fixed-price contracts or fixed-price contracts with economic price adjustment are the only contract types that may be used when a procurement is conducted by competitive sealed bidding. The Federal Acquisition Regulation (FAR) defines a firm-fixed-price contract as: Fixed-price types of contracts provide for a firm price or, in appropriate cases, an adjustable price. Fixed-price contracts providing for an adjustable price may include a ceiling price, a target price (including target cost), or both. Unless otherwise specified in the contract, the ceiling price or target price is subject to adjustment only by operation of contract clauses providing for equitable adjustment or other revision of the contract price under stated circumstances.15 Federal Acquisition Regulation Subpart 16.1, entitled Selecting Contract Types, provides valuable information that any state or local government public procurement official may use as a guide. There is more in those regulations than

a state or local government procurement official needs, but they are a useful starting point. A theme that runs through these regulations is the importance of the risk posed by particular contract types. Because of that reality, federal regulations mandate that the decision to use a particular contract type be documented. As seen from the titles of the various contract types mentioned, there is a close relationship between the type of contract and the determination of the price under a contract. Even though there are contract designations such as definite quantity or indefinite quantity, those are a combination of contract types—in many cases a form of fixed-price contracts.

Factors in Selecting a Contract Type The factors that Subpart 16.1, and specifically FAR Subpart 16.104, offers to assist with the selection of a contract type include: (a) ​Price competition. Normally, effective price competition results in realistic pricing, and a fixed-price contract is ordinarily in the Government’s interest. (b) ​Price analysis. Price analysis, with or without competition, may provide a basis for selecting the contract type.The degree to which price analysis can provide a realistic pricing standard should be carefully considered. (c) ​ Cost analysis. In the absence of effective price competition and if price analysis is not sufficient, the cost estimates of the offeror and the Government provide the basis for negotiating contract pricing arrangements. It is essential that the uncertainties involved in performance and their possible impact upon costs be identified and evaluated, so that a contract type that places a reasonable degree of cost responsibility upon the contractor can be negotiated. (d) ​Type and complexity of the requirement. Complex requirements, particularly those unique to the Government, usu-

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ally result in greater risk assumption by the Government. This is especially true for complex research and development contracts, when performance uncertainties or the likelihood of changes makes it difficult to estimate performance costs in advance. As a requirement recurs or as quantity production begins, the cost risk should shift to the contractor, and a fixedprice contract should be considered. (e) ​Combining contract types. If the entire contract cannot be firm-fixed-price, the contracting officer shall consider whether or not a portion of the contract can be established on a firm-fixed-price basis. (f) ​Urgency of the requirement. If urgency is a primary factor, the Government may choose to assume a greater proportion of risk or it may offer incentives tailored to performance outcomes to ensure timely contract performance. (g) ​Period of performance or length of production run. In times of economic uncertainty, contracts extending over a relatively long period may require economic price adjustment or price redetermination clauses. (h) ​Contractor’s technical capability and financial responsibility. (i) ​Adequacy of the contractor’s accounting system. Before agreeing on a contract type other than firm-fixed-price, the contracting officer shall ensure that the contractor’s accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type. This factor may be critical:   (1) ​ when the contract type requires price revision while performance is in progress; or   (2) ​ when a cost-reimbursement contract is being considered and all current or past experience with the contractor has been on a fixed-price basis. (j) ​Concurrent contracts. If performance under the proposed contract involves concurrent operations under other con-

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tracts, the impact of those contracts, including their pricing arrangements, should be considered. (k) ​Extent and nature of proposed subcontracting. If the contractor proposes extensive subcontracting, a contract type reflecting the actual risks to the prime contractor should be selected. (l) ​ Acquisition history. Contractor risk usually decreases as the requirement is repetitively acquired. Also, product descriptions or descriptions of services to be performed can be defined more clearly.16

Analysis of Risks Posed by Contract Types Finally, FAR Subpart 16.1, specifically 16.103(d), describes the documentation that those regulations require to support the selection of a contract type for a procurement. While it may be unlikely that a state or local government procurement official will detail the procurement file to this extent, a review of the following items provides the factors, including risks, that need to be considered and weighed to make the best decision: (d) (1) Each contract file shall include documentation to show why the particular contract type was selected. This shall be documented in the acquisition plan, or in the contract file if a written acquisition plan is not required by agency procedures. (i) Explain why the contract type selected must be used to meet the agency need. (ii) Discuss the Government’s additional risks and the burden to manage the contract type selected (e.g., when a cost-­reimbursement contract is selected, the Government incurs additional cost risks, and the Government has the additional burden of managing the contractor’s costs). For such instances, acquisition personnel shall discuss—

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(A)  How the Government identified the additional risks (e.g., pre-award survey, or past performance information); (B) The nature of the additional risks (e.g., inadequate contractor’s accounting system, weaknesses in contractor’s internal control, non-compliance with Cost Accounting Standards, or lack of or inadequate earned value management system); and (C)  How the Government will manage and mitigate the risks. (iii)  Discuss the Government resources necessary to properly plan for, award, and administer the contract type selected (e.g., resources needed and the additional risks to the Government if adequate resources are not provided). (iv) For other than a firm-fixed price contract, at a minimum the documentation should include – (A) An analysis of why the use of other than a firm-fixed-price contract (e.g., cost reimbursement, time and materials, labor hour) is appropriate; (B)  Rationale that detail the particular facts and circumstances (e.g., complexity of the requirements, uncertain duration of the work, contractor’s technical capability and financial responsibility, or adequacy of the contractor’s accounting system), and associated reasoning essential to support the contract type selection; (C) An assessment regarding the adequacy of Government resources that are necessary to properly plan for, award, and administer other than firm-fixed-price contracts; and (D) A discussion of the actions planned to minimize the use of other than firm-fixed-price contracts on future acquisitions for the same requirement and to transition to

firm-fixed-price contracts to the maximum extent practicable. (v) A discussion of why a level-of-effort, price redetermination, or fee provision was included.17

Contract Types Requiring Substantiation of Costs or Prices As noted before, some contracts call for the contractor to substantiate the quoted cost or prices. The reasons may be related to the type of contract, such as cost-reimbursement contracts. In that category, there are contracts under which price is negotiated, those that reimburse any contractor costs (such as travel), cost-plus-fixed-fee contracts, and cost incentive contracts. In other cases, the need for substantiation arises because of the lack of full competition in awarding the contract. Chapter 7 (Proposal Evaluation and Award) and Chapter 12 (Noncompetitive and Limited Competition Procurement) address those situations. The Model Procurement Code’s recommended statutory language is simple and to the point in authorizing a public procurement official to ask a supplier for cost or pricing information: §3-403 Substantiation of Offered Prices The Procurement Officer may request factual information reasonably available to the bidder or offeror to substantiate that the price or cost offered, or some portion of it, is reasonable, if: (1) ​the price is not:  (a) ​based on adequate price competition;  (b) ​based on established catalogue or market prices; or  (c) ​set by law or regulation; and (2) ​the price or cost exceeds an amount established in the regulations.18 Thus, it is important for a public procurement official to decide in advance of a procurement whether they may need to insert language advising suppliers that they may be asked to provide

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cost or pricing data during the procurement or the contract. The Recommended Regulations of the Model Procurement Code describe the types of information that the public procurement official may seek from a supplier or contractor as follows: R3-101.01.2 Cost Analysis is the evaluation of cost data for the purpose of arriving at costs actually incurred or estimates of costs to be incurred, prices to be paid, and costs to be reimbursed. R3-101.01.3 Cost Data are information concerning the actual or estimated cost of labor, material, overhead, and other cost elements which have been actually incurred or which are expected to be incurred by the contractor in performing the contract. R3-101.01.6 Price Analysis is the evaluation of price data, without analysis of the separate cost components and profit as in cost analysis, which may assist in arriving at prices to be paid and costs to be reimbursed. R3-101.01.7 Price Data are factual information concerning prices, including profit, for supplies, services, or construction substantially similar to those being procured. In this definition,“prices” refer to offered or proposed selling prices, historical selling prices, and current selling prices of such items.This definition refers to data relevant to both prime and subcontract prices.19

Length of Contracts A decision about the length of a contract requires that public procurement officials weigh several objectives. They should consider the user agency or agencies’ needs, the nature of the item being procured, the long-term need for it, and the principle of competition, which creates a presumption that a purchase ought to be competed regularly.

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As a practical matter, many state and local government contracts that support that government qualify as multiyear. That is because the duration of those contracts is at least a year, and the start dates of contracts vary based on when the public procurement official awards the particular contract. All public entities have a fiscal year for budgeting purposes. If that fiscal year begins on July 1, a public procurement official does not award all contracts of one-year duration on July 1. There are good reasons, however, in certain situations, to put in place a long-term contract, the duration of which may be as long as 10 years. In contracts of that length, it is critical for the contract to include special terms that will support the issues that may arise in any long-term relationship, such as extending the termination clause period to allow the public agency additional time to implement a new solution. Consideration should be given to other factors potentially arising from the long-term nature of the contract. Simply using a public entity’s standard contract terms is not sufficient. There is a barrier to longer-term contracts. Laws reserve the authority to appropriate funds only to a state or local government’s legislative body—for a state, its legislature, and for a city, its city council. While some state legislatures meet every two years and thus appropriate funds for a two-year period, most appropriate funds for only one year at a time. The solution that governments use to resolve the appropriations issue is to insert into each contract language such as the following, which is taken from the Federal Acquisition Regulation: Funds are not presently available for performance under this contract beyond ________.The Government’s obligation for performance of this contract beyond that date is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. No legal liability on the part of the Government for any payment may arise for

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performance under this contract beyond _____ , until funds are made available to the Contracting Officer for performance and until the Contractor receives notice of availability, to be confirmed in writing by the Contracting Officer.20 States should strongly consider including a version of this language in every public contract and in a public entity’s purchase order terms. These contract clauses are called funding out or nonappropriations clauses. There are instances in which the legislative body of the state or local government appropriates funds for specific high-dollar projects that will take longer than a year or more to complete, such as highway construction or the procurement of an enterprise system. In those cases, a funding out-clause does not have as important a role to play as it does in other types of contracts. However, those contracts should still include it. This recognition of the legislative body’s power to appropriate public funds becomes an issue in contracts under which the contractor is financing something that the government will purchase by making payments to the contractor over time. Examples of these types of contracts are the lease/purchase of equipment or contracts for the construction of a public facility that the contractor will build at its cost and the public entity will occupy. While contractors that are in the business of lease financing to governments acknowledge that governments should include funding out-clauses in contracts, those contractors may want to negotiate some specific contractual protections relating to situations in which the government may need to terminate the contract using that clause. Any strategy of a public procurement official to compete for and enter into contracts for long terms should be supported by a law that authorizes those types of contracts. The issue of legal authorization is a separate one from that relating to the appropriation previously discussed.

Here is a sample of language that may be used in a statute or ordinance for that authorization. It is taken from the Model Procurement Code: §3-503 Multi-Year Contracts. (1)  ​Specified Period. Unless otherwise provided by law, a contract for supplies or services may be entered into for any period of time deemed to be in the best interests of the [State] provided the term of the contract and conditions of renewal or extension, if any, are included in the solicitation and funds are available for the first fiscal period at the time of contracting. Payment and performance obligations for succeeding fiscal periods shall be subject to the availability and appropriation of funds therefore. (2) ​Use. A multi-year contract is authorized where:   (a) ​ estimated requirements cover the period of the contract and are reasonably firm and continuing; and  (b) ​such a contract will serve the best interests of the [State] by encouraging effective competition or otherwise promoting economies in [State] procurement. (3) ​ Cancellation Due to Unavailability of Funds in Succeeding Fiscal Periods. When funds are not appropriated or otherwise made available to support continuation of performance in a subsequent fiscal period, the contract shall be cancelled and the contractor shall be reimbursed for the reasonable value of any non-recurring costs incurred but not amortized in the price of the supplies or services delivered under the contract. The cost of cancellation may be paid from any appropriations available for such purposes.21

MANAGING RISKS A public procurement official is at the center of a process that requires a consistent and in-depth look at the risks posed by a procurement and

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contract. There are milestones all along the decision-making process—starting with the user agency’s decision that it needs something through contract completion to fulfill that need— at which the risks of the activity proposed should be reviewed. As an example, the public procurement official’s selection of a contract type involves the consideration of risks, which has already been discussed in this chapter. Effective risk analysis and management requires strategies and plans. These should be developed in a structured manner to ensure that nothing in the analysis is missed. Strategies that have been discussed earlier in this chapter, such as conducting market research, engaging end users/SMEs (subject matter experts), and leveraging the knowledge of the supplier community can help identify risks.

Steps in a Risk Analysis For the purpose of providing an outline of the basic steps in risk analysis, this discussion offers a formal structure for conducting that analysis. It is recommended that those involved in the risk analysis will include a public entity’s personnel who are SMEs in the possible risks on which the activity or issue touches. However, any individual sitting at their desk may use the process described here for risks/benefits decisions.

source of the possible risks. That keeps the analysis discussion on point. In some cases, it may be useful to list the benefits of the activity or issue so that they may be compared to the risks once those are identified. In some cases, there may not be any benefit, such as when a critical supplier of cloud services, for instance, does not maintain cyber insurance for its operations. Additionally, as will be discussed later, it is a good practice to ask the suppliers who are competing for a contract themselves to identify the risks associated with the service, commodity, or construction that the procurement is seeking. • Assessment of the risks: Once risks are identified and a list is made, each risk is assigned a score, such as one through five; or a ranking, such as low, medium, or high. The risk is given a separate score or ranking for two different factors: the probability of the risk occurring and the impact if the risk occurs. Once that is done, the overall risk, based on the two scores, is determined, and may be plotted on a chart such as the one following this paragraph. Those that hover high in Quadrant 2, or perhaps medium to high in Quadrant 1, and are located near the dividing line between the two top quadrants present the highest risk (see Figure 4.2). FIGURE 4.2

The basic steps in risk analysis are: • Identification of the risks involved: To complete this step successfully, there should be a clear written statement of the activity or issue to be evaluated so that there is a common understanding of the

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IMPACT

It may not always be possible to include the appropriate SMEs at the table. If an issue that requires a risk analysis is identified by an evaluation committee during an evaluation of proposals, the confidentiality of the committee’s deliberations may not provide any opportunity to include others in its risk assessment.

High or 5 Quadrant 1

Quadrant 2

Quadrant 3

Quadrant 4

Low or 1 Low or 1 PROBABILITY

High or 5

• Determine the risk response, including actions to reduce risks: After the risk

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assessment, handling the risks requires the public entity to determine whether the benefits of the activity outweigh the risks and its risk tolerance. Using the example stated earlier of a critical supplier for cloud services that does not maintain cyber insurance, the public entity should determine its tolerance for taking that risk and how it might reduce the risk. For instance, if the supplier agrees to reimburse the public entity for some of the standard costs of a data breach, such as the cost of forensic experts, notification of the victims, call center services, and credit monitoring, will that suffice? Cloud service suppliers uniformly demand that the contract place a dollar cap on their liability for those costs, which requires the public entity to perform another risk analysis. • Monitor and control risky activities: Monitoring and controlling risks during contract performance can include requirements for approvals, authorizations, reviews, reconciliations, and contract exception reporting. Mandatory security training for certain types of contractors and administrative permissions/controls relating to technology systems are other examples. Monitoring and control for risk management purposes should also be linked with other project management activities, such as weekly or monthly reviews. Effective contract administration may be the most important element of risk monitoring and control in procurements. Chapter 10 (Contract Management and Administration) describes good contract management/administration in more detail. Post-award kickoff meetings, careful monitoring of project schedule and status, and aggressive resolution of contract issues as they arise become central to monitoring the risks of a procurement project and assessing the need for any adjustments.

Requiring Suppliers to Identify Risks It is unlikely that a group of public entity employees and a public procurement official will be

able to identify all the key risks that a particular service, commodity, or construction poses, particularly in the case of more complicated ones. A best practice for a solicitation is to ask competing suppliers not only to address specific risks that public entity employees have identified in their risk analysis but to identify in a detailed way, from their viewpoint, the potentially significant risks posed by the contract to be awarded under the solicitation. Suppliers should also be required to provide a plan to reduce and otherwise manage risks. The solicitation should include criteria for evaluating suppliers’ responses relating to risk since they may demonstrate whether a supplier understands the project context. It may be prudent in some cases to require a bidder or offeror to include a risk mitigation plan enumerating the risks that the potential contract may pose from the supplier’s point of view and providing steps to mitigate them. Suppliers’ responses allow the public procurement official and the evaluation committee the opportunity to assess the risk in each supplier’s proposed approach, including whether it requires excessive contract administration to maintain the schedule and to achieve a successful outcome within the proposed cost. Risk management is an enterprise-wide concept that covers strategies and planning in all aspects of a public entity’s activities, including procurement. It is a tool for identifying threats to successful procurements and managing them. The process of identifying, assessing, responding to, and monitoring/controlling risk are key ingredients in procurement planning.

CONCLUSION Participation in the overall government planning process enables a public procurement official to provide strategic services to user agencies. As that official and the procurement office provide those types of services on their own initiative, user agencies will recognize the importance of

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involving procurement professionals early in the procurement planning process. The planning phase of any procurement should be built upon a foundation of collaboration with the user agency. The implementation of a comprehensive strategy that includes extensive research, project management controls, and sound decision making is essential to initiating a procurement.

ENDNOTES 1. “Federal Strategic Sourcing Initiative (FSSI),” U.S. General Services Administration, accessed January 3, 2023, https://​www​.gsa​ .gov​/buy​-th​r​o​u​gh​-us​/pu​r​c​h​a​s​i​ng​-pr​o​g​r​a​ms​/ fe​d​e​r​al​-st​r​a​t​e​g​ic​-so​u​r​c​i​ng​-in​i​t​i​a​tive. 2. “Federal Strategic Sourcing Initiative (FSSI),” U.S. General Services Administration, last modified December 20, 2022, https://​www​ .gsa​.gov​/buy​-th​r​o​u​gh​-us​/pu​r​c​h​a​s​i​ng​-pr​o​g​r​ a​ms​/fe​d​e​r​al​-st​r​a​t​e​g​ic​-so​u​r​c​i​ng​-in​i​t​i​a​tive. 3. “Recommended Practices,” California Department of Transportation, accessed January 3, 2023, https://capmf.cdt.ca.gov/Reco​ mmended-Practices.html. 4. Pittman, Paul H. and Brian J. Atwater, ASCM Supply Chain Dictionary (Chicago: Association for Supply Chain Management, 2022), 107. 5. Pittman and Atwater, ASCM Supply Chain Dictionary (Chicago: Association for Supply Chain Management, 2022), 207. 6. “Templates,” California Department of Technology: California Project Management Office, accessed January 3, 2023, https://​ capmf.cdt.ca.gov/Templates.html. 7. “Project Charter,” California Department of Technology: California Project Management

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Office, accessed January 3, 2023, https://​vi​ ew​.of​f​i​c​e​a​p​ps​.li​ve​.com​/op​/vi​ew​.as​px​?sr​c​=​ h​t​t​ps​%3A​%2F​%2F​c​a​p​mf​.cdt​.ca​.gov​%2F​f​i​l​ es​%2F​CA​-PMF​_In​i​t​i​a​t​i​ng​_Te​m​p​l​a​t​es​_wi​th​ _In​s​t​r​u​c​t​i​o​ns​%2F​P​r​o​j​e​ct​_Ch​a​r ​t​er​_Te​m​p​l​a​ te​_wi​th​_In​s​t​r​u​c​t​i​o​ns​.do​cx​%23​a​1​1y​%3D​&​w​ d​O​r​i​g​i​n​=​B​R​O​W​S​E​LINK. 8. “RACI Charts,” Racichart.org, accessed January 5, 2023, https://racichart.org/. 9. “Project Management Essentials,” Texas De­partment of Information Resources, accessed January 5, 2023, https://​dir​.te​x​as​ .gov​/te​c​h​n​o​l​o​gy​-po​l​i​cy​-and​-pl​a​n​n​i​ng​/di​g​i​t​al​ -pr​o​j​e​ct​-se​r​v​i​c​es​/pr​o​j​e​ct​-ma​n​a​g​e​m​e​nt​-es​s​ e​n​t​i​a​ls​-pm​-es​s​e​n​t​ials. 10. Model Procurement Code for State & Local Gov’t—Recommended Regulations Part—E (Am. Bar Ass’n 2002). 11. Model Procurement Code for State & Local Gov’t—Recommended Regulations §3-501. 12. Federal Acquisition Regulations, FAR 16.102 (c) (2022). 13. FAR 16.101 (a). 14. FAR 16.102 (a). 15. FAR 16.201 (a). 16. FAR 16.104. 17. FAR 16 103 (d). 18. Model Procurement Code for State & Local Gov’t—Recommended Regulations §3-403. 19. Model Procurement Code for State & Local Gov’t—Recommended Regulations R3-101.01.2-7. 20. FAR 52.232-19. 21. Model Procurement Code for State & Local Gov’t—Recommended Regulations §3-503.

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RECOMMENDATIONS AND CONSIDERATIONS • Public procurement officials consider a wide range of source selection methods to be able to meet users’ needs. • The standard for contract award under competitive sealed bidding should be the lowest cost to the state or local government. • Procurement law should broadly describe the competitive bids and proposals methods to allow for best value as a standard for contract award and authorize best-value procurements. • As allowed by law, procurement officials should seek to be innovative in selecting a solicitation method.

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While technology is revolutionizing how the public procurement official conducts competition for a contract, the principles governing the process remain largely the same. This chapter provides a basic overview of the competitive source selection methods—that is, the methods that a state or local government uses to select a supplier for a contract—that are currently in use.

TERMINOLOGY AND OVERVIEW

Procurement of construction services and what are called alternative delivery methods for building public infrastructure differ from the source selection methods described in this chapter. Chapter 16 (Procurement of Construction and Related Services) discusses those variations.

The first is formal competition. It means that a competitive procurement should be posted and advertised publicly so that all suppliers who provide the commodity, service, or construction that the procurement seeks have the opportunity to respond. Most often, the law applicable to the public entity sets a maximum expected dollar amount below which a contract may be exempt from formal competition. Full or formal competition is required if the expected contract price or cost of the procurement meets or exceeds that dollar amount specified in the law.

Note that this chapter provides an overview of the traditional methods of procuring commodities, services, and construction. It also offers a look at some different methods that may be used to purchase highly complex items. To understand those methods in action, Chapter 18 (Procurement of Information Technology) offers a useful discussion. Also, be aware that the issuance of a solicitation and the decision about which source selection method to use are only part of the planning for the procurement. That planning requires the public procurement official to consider what happens after the contract is awarded. The solicitation should contain the essential tools for managing the contract that results from it. The time before issuing a solicitation is the point at which contract administration needs to be considered and, where appropriate, the drafting of a contract plan begins. Chapter 4 (Procurement Planning) and Chapter 10 (Contract Management and Administration) offer insights into this issue. This chapter introduces important key terms and traditional source selection methods for competitive procurements. For these methods, the chapter describes the tools and requirements that a public procurement official uses to announce, solicit, and receive responses for a procurement.

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Formal and Informal Competition It is important to start with the basics. Source selection methods are divided into two categories based on the level of competition that a public entity conducts.

As discussed later in this chapter, announcing a public invitation does not necessarily mean that the public procurement official should take out an advertisement in the Wall Street Journal. Instead, the invitation to participate—called the solicitation—should be readily available, for instance, on the public entity’s website. The source selection methods used for procurements that are expected to cost below the dollar amount set for the formal competition are in the category called informal competition.

Key Terms and Concepts Understanding a public procurement system requires comprehension of its terminology. The following terms designate the primary source selection methods used for formal competition. • Competitive sealed bidding: a method for acquiring goods, services, and construction for public use in which an award is made to the lowest responsive bid and responsible bidder, based solely on the

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response to the criteria set forth in the solicitation. This method is often used for more simple or direct solicitations that can be judged best by cost; it does not include discussions or negotiations with bidders. The solicitation type used for this source selection method is an invitation for bid(s) (IFB), sometimes called a formal bid.1 • Competitive sealed proposals: a method for acquiring goods, services, and construction for public use in which an award is made to the offeror whose proposal is determined to best meet the criteria specified in the solicitation. Though price is generally one criterion, it is not the only one and is not the sole basis for contract award. This method is often used for more complicated or nuanced solicitations that should be judged by more qualitative aspects than just cost; discussion and negotiations may be conducted with responsible offerors who submit proposals. The solicitation type used for this source selection method is a request for proposals (RFPs). • Offeror: a person or entity who submits an offer in response to a solicitation. • Bidder: a person or entity who submits a bid in response to an IFB. Some public entities may use different terms or definitions; however, the terms defined here are fairly standard.

OVERVIEW OF FORMAL COMPETITION SOURCE SELECTION METHODS There is still a perception among the media, state legislators, the public, and even the supplier community that the lowest price should always be the sole basis for the award of a contract by a public entity. That simply is not the case. Because of the complexity of commodities, services, and construction that public entities buy today, price or cost is most often only

one of several factors in determining which supplier is awarded a contract. When the American Bar Association issued its first version of the Model Procurement Code in 1979, state and local governments almost exclusively used competitive sealed bidding to conduct procurements, focusing on low price or cost. As those governments’ requirements grew more complicated, trying to satisfy all of those needs based only on the consideration of low price or cost was not an effective approach. The Model Procurement Code offers a range of source selection methods in addition to competitive sealed bidding. It provides sample language for a state legislature or local government to adopt to authorize the competitive sealed proposals method. In addition to providing that price or cost need not be the sole basis for contract award, the language within the code authorizes negotiations with suppliers (offerors) submitting proposals under the competitive sealed proposal method. The Model Procurement Code provides a starting point for understanding the conditions for using the competitive sealed bidding and competitive sealed proposals methods.2

COMPETITIVE SEALED BIDDING Responsiveness can be a difficult concept to understand at first. A responsive bid meets all requirements outlined in the IFB in form and substance. The determination of responsiveness rests on whether a bid demonstrates an absolute commitment to the material requirements of the IFB. What is material and what is not is discussed in the upcoming paragraphs. The other element of consideration in a bid is whether the bidder is responsible. A responsible bidder is a business or individual who is financially and technically able to perform what is required as outlined in the IFB and subsequent contract. Note the difference between the two terms: responsive and responsible.

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Responsiveness applies to the bid submitted and whether it complies with all of the important items set forth in the IFB, including the specifications and the contract terms. Responsibility, on the other hand, applies to the bidder and requires a determination that the bidder is, for instance, financially solid and has not been convicted of fraud. The essential elements for the award of a contract under the competitive sealed bidding method are the responsibility of the bidder, the responsiveness of the bid, and the lowest price.

Content of the Invitation for Bids An effective IFB should contain the following: • General and special instructions to bidders, including: $$ The date and time when bids are due $$ The location where they are due if bids are not submitted electronically $$ The process for handling information in a bid that the bidder marks as proprietary and confidential $$ The date/time/location for any pre-bid conference • A general description of the commodity, service, or construction to be purchased • Specifications, design, or scopes of work identifying the features of the commodity, service, or construction needed—prepared using the suggestions offered in Chapter 6 (Development Techniques for Purchasing Goods and Services) or Chapter 16 (Procurement of Construction and Related Services) • The criteria for evaluating bids • A statement of the basis on which the award will be made, which generally should be consistent with the language of the public entity’s law or procedures that announce the standard for the award • The standard and special contract terms and conditions, including the type of contract to be awarded

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• Price sheets on which the bidders can submit prices for the items requested, along with any price increases for renewal years • A noncollusion affidavit • A sheet on which the bidders sign their bid It is important for there to be sufficient time between the date when the public procurement official publicizes the IFB and the due date. Factors that will affect the amount of time between publication of the solicitation and the bid due date include the complexity of the commodity, service, or construction being purchased and whether the public procurement official schedules a pre-bid conference, which is discussed later in this chapter.

Basis or Standard for Contract Award If the public entity’s law or policies contain language specifying the basis or standard that the public procurement official should use in determining who is awarded the contract, that official should not deviate from it. Doing so is an invitation for bidders who were not awarded the contract to file bid protests. Chapter 8 (Protests) discusses bid protests and provides tips for avoiding them. Examples of the language of such laws or policies help illustrate this. For instance, the Model Procurement Code’s award basis or standard under its competitive sealed bidding provision is: The contract shall be awarded with reasonable promptness by written notice to the lowest responsible and responsive bidder whose bid meets the requirements and criteria set forth in the Invitation for Bids.3 The Model Procurement Code’s language is broad enough to allow for the use of life-cycle costing or total cost-of-ownership calculations in determining the lowest bid. Other laws or policies may state a slightly different standard. If the law or policies state that

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award should be based on the responsible bidder submitting the lowest price—without mentioning the language in the Model Procurement Code related to criteria—it may be that the law or policies do not allow the consideration of anything but the price. Most commonly, IFB only considers cost, responsiveness, and responsibility. A bid should not deviate from the critical requirements of the IFB. The bid is still responsive if the deviation is only minor—or immaterial. An immaterial defect or deviation is one that can be corrected without giving an unfair advantage to the bidder in question. For example, if a bidder provided too few copies of their bid. The concept of responsiveness and the basis or standard for the award are also discussed in Chapter 7 (Proposal Evaluation and Award).

Receipt and Control of Bids To ensure a fair public procurement process, the time and date established as to when bids are due must be a hard deadline. That is because, among other things, it is inappropriate to give bidders who did not plan well the same consideration as those that did. Additionally, most public entities—either because it is required by law or simply due to practice— open bids publicly and announce or provide access to bidders’ prices immediately after the date and time that bids are due. It would be highly unfair to allow a bidder to submit a bid after seeing or hearing the other bids. If the bidding process is a paper one, it is critical for the envelopes in which the bids are submitted to be date- and time-stamped. The public procurement official should keep them in a secure place to prevent them from being misplaced, lost, or tampered with until the date and time of bid opening. The procurement office may want to implement a method of logging manual bids as they are received as an additional means of documentation. This may protect the office against the possibility of overlooking a bid or receiving a claim from a supplier that a bid has been misplaced or discarded.

Since formal bids should remain sealed until the bid opening, proper identification is impor­ tant on the outside of the bid envelope. The IFB should require the bid envelope to show the solicitation number, opening date, and bidder’s name or supplier number. eProcurement systems, discussed in Chapter 14 (eProcurement), allow for the electronic submission of bids, including date/time stamping, sealed bid folders, and electronic opening of bids.

Bidder Request to Modify or Withdraw Bid There are occasions when bidders ask that they be permitted to modify or withdraw their bids after they have submitted them to the public procurement office but before bids are due. Generally, it is appropriate to accommodate the request if an authorized bidder representative submits a request in writing before the date and time that bids are due. Any modified bid should be submitted by the due date and time. After bids are opened, the general rule is much stricter, as discussed later in this chapter.

Public Opening and Confidentiality The requirement for the public opening of bids has long been a practice—if not a requirement in law—in state and local government procurement. It aims to reduce the potential for collusion and favoritism and foster public confidence in the procurement system. The best practice is for the opening to occur immediately after the date and time when bids are due. The prices submitted in the bids and the names of the bidders should be announced and available publicly at that time. Additionally, the public procurement official should make a written record—often called an abstract—of the bidders and the bid prices, or any no bid that a supplier may have submitted, and place it in the procurement file. If the competition was

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performed electronically, the eProcurement systems would likely make that record automatically. During the COVID-19 pandemic that began in 2020, many procurement authorities moved to some form of virtual bid-opening format. In addition, the increased use of eProcurement has allowed some procurement offices to rethink the need for in-person bid openings. Suppose a procurement office considers eliminating in-­ person bid openings or moving to a virtual format. In that case, it is vital to ensure that the process being implemented is transparent, protects the integrity of the procurement process, and fosters public confidence. After the contract award, the documents in the procurement file—the bids, their evaluation, and any other information that played a role in the public procurement official’s selection of the winning bid—should be made public, except for proprietary information.

Late Bids When a bidder submits its bid late, that is, after the deadline, the best practice is for the public procurement official to refuse to accept it. There is one narrow exception in instances where the tardiness is due solely to the public entity’s fault or inaction. An example of a rule/regulation that specifies this treatment of late bids is in the Recommended Regulations of the Model Procurement Code, which provides: No late bid . . . will be considered unless received before contract award, and [unless] the bid  .  .  .  would have been timely but for the action or inaction of [State] personnel directly serving the procurement activity.4 The rule, regulation, or policy on exceptions should also be clear on three additional points:

• The bid should have been out of the hands of the bidder or its agent before the time/ date set for bid opening. • The delay occurred out of the bidder’s hands and is not the bidder’s fault. • Evidence of these facts is available and is documented as a public record. For instance, the failure of a delivery service to deliver as promised would not fall into the exception. However, the closure of the public entity’s mail room might. Ideally, if there is a failure at the entity level, the closing date for the solicitation can be extended to allow additional time for submission so that exceptions do not have to be made for late bids.

Mistakes in Bids Claims by bidders that they made mistakes in their bids are common. Depending on the timing of that claim and the type of error made, the procurement official’s approach may differ.5 The following paragraphs describe different types of claims and the most appropriate responses. Before the deadline for receipt of bids, a bidder may correct a mistake or withdraw its bid in writing. After the bids are opened, but before award, a public procurement official may waive a mistake, or permit a bidder to correct it, only if it is minor and the true intent of the bid is obvious from the information in the bid itself. The bidder may not provide outside documents or other evidence to show the error. An example is an arithmetic error in totaling up a column of numbers to arrive at the bid price on the bid sheet submitted with the bid. Suppose the mistake is clear by looking at the bid alone and the bid is otherwise responsive, as defined earlier. In that case, the public procurement official may permit the correction so long as doing so does not give the bidder an unfair advantage over other respondents. On the other hand, a bidder that claims, for instance, that it mistakenly failed to agree to the

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insurance requirements in the IFB has made a material mistake that may not be corrected. The bid is nonresponsive since insurance coverage relates to price because it is an added cost for the bidder. Whether insurance cost was part of the bidder’s pricing in this particular instance does not matter. Responsiveness is determined based on the theoretical effect of a bid defect on price, quantity, quality, or delivery. All mistakes other than the minor ones previously cited that surface after bid opening and before contract award are not correctible. Any remedy for a mistake becomes more difficult after the award of a contract. The universal legal view is that a mistake in a bid that comes to light after the award does not relieve the bidder/ contractor from contract performance in accordance with the contract award.

COMPETITIVE SEALED PROPOSALS Similarities and Differences Compared to Competitive Sealed Bidding Generally The basic contents of the RFP, the solicitation document used for the competitive sealed proposals method, are similar to those of an IFB. The solicitation should include: • General and special instructions to offerors • The time and date for any pre-proposal conference • The deadline—date and time—for submission of proposals, and the place to submit them if the submission is in paper form • The format in which offerors should submit their proposals • Pricing or costing requirements, including price or cost increases for renewal periods • The specifications • The non collusions affidavit • The general and special contract terms and conditions.

The essential difference between the competitive sealed bidding method and the competitive sealed proposal method is that the latter permits qualitative evaluation of factors other than price. Many of the steps that are part of the competitive sealed bidding method also apply to the competitive sealed proposals method. For example, there should be public notice of the contracting opportunity. Additionally, the receipt of proposals within the procurement office should be subject to the same tracking and security procedures that apply to bids. As with competitive sealed bidding, a public procurement official opens proposals publicly. However, they only read or provide access to the names of the offerors. Neither prices nor other information contained in the proposals is public until after a notice of intent to award a contract is announced or, depending on the public entity, an actual contract award has occurred. This is seen as preserving the soundness of the process by avoiding situations in which offerors change their proposals to their best and final offers, which are discussed later, based on other offerors’ proposals. The law of the state of Montana takes a different approach. It requires open access to proposals shortly after their submission, except for proprietary information or trade secrets. That law says: Section 18-4-304 Competitive sealed proposals. (4) ​After the proposals have been opened at the time and place designated in the request for proposals and reviewed by the procurement officer for release, proposal documents may be inspected by the public, subject to the limitations of:  (a) ​the Uniform Trade Secrets Act, Title 30, chapter 14, part 4;  (b) ​matters involving individual safety as determined by the department; and  (c) ​other constitutional protections.6 Additionally, the deliberations of evaluation committees reviewing the bids and negotiations with

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offerors are open and not confidential in some states, including Montana. Other chapters of this Practical Guide provide additional guidance on aspects of RFPs, such as the development of specifications or scopes of work that are key to a well-written RFP. Those chapters are: • Chapter 6 (Development Techniques for Purchasing Goods and Services) • Chapter 7 (Proposal Evaluation and Award) • Chapter 18 (Procurement of Information Technology) Proprietary or Confidential Information in Proposals Offerors often designate large portions of their proposals as proprietary and confidential. The law or policy of some public entities protects offerors’ true proprietary information and trade secrets from public disclosure. Because so much of a proposal may be designated as proprietary and confidential, it becomes a problem once a public procurement official has made a contract award or has issued an intent to award a contract. At that point, the offerors who did not receive the award will ask to see the winning offeror’s proposal. Suppose the public procurement official disagrees with an offeror’s claim of confidentiality. In that case, the best approach is for them to advise the offeror and allow them to explain the reasons it believes the information to be proprietary. In some states, the procurement official makes the final determination with the assistance of legal counsel. In other states, the determination is made by the courts. The policy and process surrounding handling proprietary and confidential information in proposals can have significant consequences and should balance potentially conflicting interests. On the one hand, public procurement officials are always interested in promoting public trust through transparency. On the other hand,

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suppliers may have genuine concerns about submitting proposals that contain trade secrets if they are not confident that the procurement entity will protect that information. Companies often invest millions of dollars in their research and development efforts. They may not be willing to risk their competitive edge by submitting trade secret information that could become public. Especially in smaller jurisdictions, the chilling effect on the competition can make it difficult for the public entity to secure innovative solutions. Striking the right balance between transparency and protecting proprietary and confidential information is challenging but extremely important. Evaluation Criteria and Committee One critical difference between the content of an IFB and an RFP is that the latter should state the criteria for evaluating each proposal. Evaluation criteria are the qualitative factors used to score a proposal and select the most qualified response. Since contract awards made using the competitive sealed proposals method are not generally based solely on low price, listing the evaluation criteria informs the offerors about the methods used by the public procurement official to organize the proposals’ evaluation and keep it on track. Development of the criteria that will be the framework within which proposals are evaluated requires the public procurement official to work closely with the user agencies for which they are conducting the procurement. If one is used, that official should also work with the evaluation committee to refine those criteria. This ensures that the committee will have a complete and shared understanding of the details to consider in relation to each of those criteria. In many cases, the criteria will fall into three broad categories: • Technical capability and the approach for meeting the specifications or scope of work • Competitiveness and reasonableness of price or cost • Managerial and staffing capability, including experience and past performance

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Some public entities have a standard set of criteria, stated in broad terms, that they use in nearly every RFP. Standard criteria are usually approved by that jurisdiction’s attorneys and can allow for improved efficiencies and consistent conformity to common requirements across every procurement. However, to effectively meet the goals of each unique procurement, evaluation criteria will often need to be tailored to ensure it meets the requirements. Depending on the law or policy of the public entity, the RFP should list the criteria in order of importance or provide some indication of the weight they will be given during the evaluation. The Model Procurement Code requires that the RFP lists evaluation criteria and any subcriteria in order of importance. It does not require that a solicitation offer further information, such as ascribing to each criterion a percentage (for instance, 35%) or a description (such as critical). When developing evaluation criteria, thinking critically about what factors matter to the end users is important. Subject matter experts may tend to want to evaluate everything; however, this often will not result in the best outcome. Two important questions to consider when developing the evaluation criteria are: (1) What factors will differentiate suppliers? If all suppliers are likely to respond similarly to a question, evaluating it has little value. (2) What is the agency willing to pay more to receive? One supplier may have a unique function that sets it apart from other solutions, but if that function is not a priority for the agency, then evaluating it may increase the price unnecessarily. Ultimately, careful development of evaluation criteria may determine the success of the procurement. It is imperative that the evaluation factors be set and not changed once proposals have been

submitted. Making changes to them after the proposal submission deadline opens the process to an accusation that changes favored a particular offeror since they occurred once the names of the offerors and their proposals were available to the public procurement official and the evaluation committee. Identifying evaluation criteria for the procurement of complex information technologies is part of an entire project structure in which the public procurement official and a representative of the public entity’s chief information officer are co-equal managers of the procurement process. Chapter 18 (Procurement of Information Technology) provides insights on this topic. Chapter 7 (Proposal Evaluation and Award) discusses evaluation criteria and committees in more detail. Availability of Discussion and Negotiation Another key difference between an IFB and an RFP is that, under the latter, the public procurement official may engage in discussions or negotiations with offerors whose proposals, after a first review, are generally deemed eligible for contract award. The RFP should advise offerors of this in language such as: The procurement official may enter into discussions or negotiations with offerors whose proposals the official determines, after an initial review and based on the offeror’s initial proposal, to be acceptable or potentially acceptable based on the requirements of the solicitation. After an initial evaluation of the proposals, the procurement official and the evaluation committee may determine that discussions and negotiations with offerors are warranted. As noted earlier in this chapter, the solicitation should advise offerors of the possibility of discussions and negotiations. The Model Procurement Code provides a useful standard regarding the offerors who should

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be afforded this opportunity. It states that a procurement official should present the opportunity to all offerors whose proposals are found to have a reasonable possibility of being selected for award under the terms of the RFP. Chapter 7 (Proposal Evaluation and Award) and Chapter 9 (Negotiations) offer additional information about discussions and negotiations. Basis or Standard for Contract Award As in the case of an IFB, the RFP should inform offerors of the basis for a contract award. If that basis or standard is embedded in the public entity’s law or policy, the statement of that basis or standard should be the same in the RFP. The basis or standard for award under the Model Procurement Code is: Award shall be made to the responsible offeror whose proposal conforms to the solicitation and is determined in writing to be the most advantageous to the [state], taking into consideration price and the evaluation factors set forth in the Request for Proposals.7 Chapter 7 (Proposal Evaluation and Award) also discusses the standards or basis for the award. The term best value in the context of a standard for contract award has risen in use over the past three decades; the term signaled a movement away from a competitive sealed proposals process that required the contract to be awarded to the lowest-priced, technically acceptable proposal. When evaluating best value, other factors such as quality, features, and total cost of ownership are considered. Since 1979, the Model Procurement Code has always permitted bestvalue contract awards. Given the complexity of many state and local government procurements today, a public procurement official should not always rely on the way that competitive sealed proposals have been conducted in the past. As Chapter 2 (Procurement Leadership, Organization, and

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Value) demonstrates, being a strategic leader means envisioning future needs and trends and finding ways to address them.

SMALL PURCHASES Rules, regulations, or policies should describe minimum levels of competition for procurements at dollar levels below the dollar amount required for formal competition but leave the means of competition to the discretion of the public procurement official. They should also warn that a user agency’s requirements may not be split up into small-dollar purchases to avoid the requirements for formal competition. Reasonable and adequate competition should be the norm, while some purchases are too small to justify the time and expense of soliciting any competition. Introducing purchase cards provides control of procurement and accounting functions while giving users more flexibility. Higher-dollar small purchases should not require formal competition. Still, they should preserve the openness of the procurement system so that any supplier that has requested to quote on a particular type of purchase is invited to do so. Additionally, some competition should be consistent with the dollar level of the contemplated purchase. The solicitation document most closely associated with small purchases is a request for quotation. A request detailing the commodity or service needed is sent to suppliers, who are asked to respond by a certain date. Evaluation and award are based on aspects such as price, quality, delivery, and service. The principles governing the evaluation of quotations and award of contracts for small purchases should follow those for fully competed procurements. For instance, the purchase description that the public procurement official provides to suppliers should avoid favoring a particular product and the records confirming how each

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procurement was made along with the basis for contract award should be maintained.

ePROCUREMENT SYSTEMS Many states and some local governments have eProcurement systems that support many of the steps outlined in this chapter. Chapter 14 (eProcurement) discusses these systems in more detail. As Chapter 14 demonstrates, eProcurement systems have allowed the public procurement official to concentrate on what needs to be done rather than on paperwork and hand-created documentation. On a grander scale, the state and local governments that have instituted such systems have saved great sums of money. For a deeper understanding of how a particular source selection method works, office procurement manuals are available at the state central procurement office. Furthermore, The National Association of State Procurement Officials (NASPO) maintains profiles for all states, and each profile includes a link to that state’s laws and procurement website where manuals are posted. They can be accessed on the NASPO website.8

UNIQUE TYPES OF SOURCE SELECTION METHODS Though there are well-known and successful traditional methods of source selection—as outlined in this chapter—procurement officials also should adapt to new technology and other developments in the market. For many entities, it is possible to follow the rules, laws, and policies that are in place and find creative ways to engage with suppliers, save money, and develop successful solicitations. Several new and innovative methods are being used to procure what is needed.

Reverse Auctions A reverse auction is an online auction where sellers bid against one another for the entity’s

business; this is typically used to purchase commodities in volatile markets—such as fuel or electrical power—from multiple prequalified suppliers. Chapter 6 (Development Techniques for Purchasing Goods and Services) discusses prequalification in more detail. In a reverse auction, the public procurement official posts a description of its needs online, and the interested parties bid online. Their bids, but not their identities, are public during the competition. Bidders may change their prices up to the time that the bidding closes. Not all commodities and services are suitable candidates for reverse auctions. They are foreign to some industries, and market research is essential to assessing the viability of reverse auctions as a sourcing strategy. Problems with the value and integrity of reverse auctions have been attributed to factors such as errors in supplier data, post-auction negotiation, changes in specifications or quantities, and resulting problems from poor quality, late deliveries, and supplier performance. Reverse auctions are only one tool in the portfolio and should be used judiciously. According to NASPO’s Repository of State Practices, just over half of all states fully authorize reverse auctions for procurement (see Figure 5.1).9 The majority of states have the authority to conduct reverse auctions. There is a more detailed discussion of this method in Chapter 14 (eProcurement).

Request for Information A request for information (RFI) is a tool that can be used to gather information before preparing a solicitation for a formal competition. It is typically nonbinding and used to get feedback and comments—including everything from best practices, new technology, and industry standards—­ from suppliers before issuing a solicitation. Generally, the cost is not included in the information requested. Sometimes, an entity may use an RFI to develop a prequalified list of suppliers or as a prerequisite for responding to future RFPs.

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FIGURE 5.1 | REVERSE AUCTIONS Authorization to conduct reverse auctions

29.41%

Full authorization 52.94%

No authorization Partial/limited authorization

17.65%

In 2022, the state of Idaho introduced a new RFI format that provides focused information about the state’s project and does not ask for a written response from suppliers. Instead, the RFI requests that interested suppliers sign up for a virtual meeting during which they will answer a series of questions. Rather than focus on what the supplier can offer the state, these questions are more focused on understanding what information the state can provide about its needs in order to receive more meaningful proposals. This new process increases efficiency, reduces cost, and increases competition. Additionally, Idaho has seen increased participation from suppliers and improved pricing accuracy from suppliers.10

Pilot Projects For procurements involving commodities or services like information technology, one method that may help perform critical market research is pilot projects. Those projects are ones in which the public entity uses a particular commodity or service at no cost and without any financial obligation to the supplier for the sole purpose of evaluating the commodity or service.

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Chapter 12 (Noncompetitive and Limited Competition Procurement) explains that these projects often pose ethical issues for public procurement officials. Additionally, a procurement law, if the public entity is under one, should specifically authorize them. One state whose law permits pilot or demonstration projects is Arizona. The Arizona Revised Statutes state: 41-2556 Demonstration projects. A) ​A demonstration project may be undertaken if the director determines in writing that the project is innovative and unique. This state shall not be obligated to pay the contractor, or to procure or lease the services or materials supplied by the contractor. However, on the written request and justification by the agency and written determination by the director that it is in the best interest of this state, this state may pay the contractor for the demonstration project. The contract term shall not exceed two years. A request and written determination of the basis for the contract award shall be included in the contract file. B) ​A contract to procure or lease services or materials previously supplied during a

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demonstration project shall be conducted under this article. C) ​Except as otherwise provided by law, a contractor for a demonstration project shall not be precluded from participating as a bidder or offeror in a procurement for the services or materials supplied during a demonstration project.11

Innovative Procurements Meeting the needs of agency customers while navigating challenges, such as supply chain disruptions, inflations, and everchanging technology, requires procurement officers to be problem solvers—seeking opportunities for innovation. Identifying and implementing new variations of solicitation methodologies is no small feat and requires flexibility with the entities’ procurement code. The Model Procurement Code provides language that a state or local government may adopt to permit a procurement official to devise new source selection methods when circumstances dictate a need. The American Bar Association added new language to the Model Procurement Code in 2000, and the state of Alaska adopted a version that states: AS 36.30.308 Innovative Procurements. a) ​A contract may be awarded for supplies, services, professional services, or construction using an innovative procurement process, with or without competitive sealed bidding or competitive sealed proposals, in accordance with regulations adopted by the commissioner. A contract may be awarded under this section only when the chief procurement officer, or, for construction contracts or procurements of the state equipment fleet, the commissioner of transportation and public facilities, determines in writing that it is advantageous to the state to use an innovative competitive procurement process in the procurement of new or unique requirements of the state, new technologies, or to achieve best value. b) ​The procurement officer shall submit a procurement plan to the Department of

Law for review and approval as to form before issuing the notice required by (c) of this section. c) ​A procurement under this section is subject to the requirements of AS 36.30.130. d) ​Nothing in this section precludes the adoption of regulations providing for the use of bonuses instead of preferences in a procurement of construction.12 Over the last several years, there has been increased usage of a solicitation methodology commonly referred to as challenge-based procurement. Although this approach has different variations, the foundational concept is that the government presents a challenge and allows industry to present potential solutions rather than narrowly prescribing the resolution they seek. This approach integrates elements of the traditional RFP process while also providing the opportunity for suppliers to offer up their own unique solutions. Minnesota’s Office of State Procurement (OSP) provides a recent example of a challenge-based procurement. In 2018 the Minnesota Department of Transportation (MnDOT) approached OSP looking for a procurement solution for connected and automated vehicle (CAV) technology. Several factors influenced their decision to depart from a traditional approach:13 1. The RFP process could take up to six months to develop while technology moves fast. Technological advances happen quickly; the traditional RFP would leave MnDOT with only a specified window of time to receive proposals, potentially missing out on new technological advances occurring outside of that window. 2. MnDOT wanted to be open to a wide variety of CAV solutions, with the ability to contract with multiple suppliers who could specifically meet MnDOT’s goals. 3. MnDOT wanted built-in dialogue with suppliers, including a standardized opportunity for a pre-proposal meeting and no revealing of trade secrets in proposals.

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Using this conversation as a foundation, OSP partnered with MnDOT to overcome the identified potential issues and deliver a modern look at procurement through a challenge-based RFP. Minnesota statute requires the agency to clearly define what good or service will be awarded. OSP used the same criteria as all other RFP procurements for the CAV Challenge: • Concept definition • Alignment with stated Minnesota goals and priorities • Work plan • Risk assessment/strategy • Experience • Quality assurance/quality control The difficulty with the CAV Challenge was the wide variety of new technologies in which MnDOT was interested. Following best value principles, the CAV Challenge RFP was advertised and opened for proposals indefinitely. Approximately every two months, there was a reviewing period of all proposals submitted, with the supplier community submitting stand-alone, independent solutions instead of responding to prescriptive requirements found in the traditional RFP. The solution-focused proposals provided a glimpse into the market’s evolving options and allowed MnDOT the autonomy to award the proposal with the most applicable use of technology. The solutions proposed to MnDOT through the CAV Challenge respond to a set of goals, with the overall goal of MnDOT being a national leader in CAV technology. As of 2021, OSP reported that the CAV Challenge produced an estimated savings of $30,000 per award through reduced staff hours and increased efficiency. The CAV Challenge was launched in September 2018 and won NASPO’s George Cronin Award for Procurement Excellence, Bronze in 2019.14 It should be noted that the challenge-based methodology should not be considered a replacement for all other solicitation methods. A multitude of factors should be considered when deciding

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whether it is fit for a particular procurement and the needs of the agency customer.

NOTIFYING SUPPLIERS Notifying suppliers of a pending procurement is essential in encouraging open competition. With eProcurement systems in use today, the suppliers registered in those systems to supply specific commodities, services, or construction will often be notified automatically of contracting opportunities relating to the items they have registered. Chapter 14 (eProcurement) discusses these systems in more detail, including supplier registration and notification. The procurement office website should post contracting opportunities prominently. Those sites should allow suppliers to download the solicitation directly or e-mail a copy request. For some entities, law or policy dictates that they advertise in newspapers or trade journals as well.

Registering Suppliers As previously discussed, state and local government procurement officials use registering suppliers as a common method to notify suppliers of contracting opportunities. In many cases, those supplier registrations link to the public entity’s financial system to allow for payment to the supplier if it receives a contract. Registration requires suppliers to select the types of commodities, services, or construction they wish to supply. Those breakdowns and categories of commodities, services, and construction are generically called commodity codes. Chapter 14 (eProcurement) discusses the commodity codes used by public entities. Most states make the supplier registration process available on their websites. In some public entities, suppliers should pay to register. Charging for registration, at least at the state level, requires statutory authorization. Note that

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a fee may be a barrier for small and minority businesses.

BIDDER AND OFFEROR CONFERENCES Conferences with prospective bidders or offerors—before or after a solicitation is issued—help any formal competition. Often operating as a type of focus group of suppliers, they provide an excellent source of information for the public procurement official. Additionally, they allow suppliers to better understand the needs of the user agency, increasing the quality of responses to the solicitation. As technology expands, some public entities use webcasting and other electronic means to broadcast these supplier conferences. Using these technologies in the procurement process increases the real-time exchange of information between public procurement officials and suppliers. They enhance the chances for a positive outcome for procurements they use.

Pre-Solicitation Conferences A presolicitation conference is a meeting held prior to or as part of developing a formal solicitation. It allows suppliers to share information that may help the entity create an effective solicitation, especially as it applies to technical requirements or new information in the related field. There are some built-in limitations to the utility of a presolicitation conference. Suppliers generally do not like sharing information they believe is proprietary to their competitors. Even where they provide information in writing, they understand that the public procurement official may not have the authority to keep that information confidential under open records/freedom of information laws.

Pre-Award Conferences A public procurement official convenes a preaward conference after the solicitation has been

issued but before bids or proposals are due. Its purpose is to allow suppliers to ask questions about specific parts of the solicitation and to ensure that the suppliers understand its requirements. It also alerts the public procurement official to parts of the solicitation that may not be clear— requiring the issuance of a solicitation amendment correcting or clarifying the solicitation text. Some conferences may include an inspection or site visit. This is most common when procuring janitorial or landscaping services or in other procurements where the suppliers’ ability to provide an accurate bid or proposal may depend on seeing the entity’s space. The solicitation should contain the date, time, location, and information about web access for the pre-award conference. Attendance at pre-award conferences may not be mandatory (i.e., required for a supplier to be eligible to submit a bid or proposal) because it may limit competition. Regarding the conference agenda, the best approach is for the public procurement official to review the solicitation paragraph by paragraph, permitting questions limited to the paragraph at hand. That prevents questioning that may confuse the attendees. After the conference, the public procurement official, by way of a solicitation amendment, should disseminate the questions and answers generated during the conference, along with any solicitation modifications made as a result.

Written Questions and Answers Some public entities allow prospective bidders or offerors to submit questions relating to a solicitation. The questions and the answers should be made available to all interested bidders via an addendum to the solicitation. The solicitation should clearly explain this process, including a deadline for submitting questions and an estimated time frame for responses to be publicly posted. The public procurement official should take pains to ensure that this process is complete and made public a sufficient time before the bid or proposal is due so that interested

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bidders or offerors may consider this when preparing their bid or proposal.

CONCLUSION This chapter identifies the concepts and methods the public procurement official applies when procuring commodities, services, and construction and emphasizes the discretion and flexibility they should exercise. These concepts and methods have been used for decades and will likely be practiced for decades more. It will be the public procurement official’s responsibility to use them creatively to meet the needs of a public entity, its user agencies, and its users.

ENDNOTES 1. “Dictionary of Procurement Terms,” NIGP, accessed January 18, 2023, https://www.ni​ gp.org/dictionary-of-terms. 2. Model Procurement Code for State & Local Gov’t ART. 3 (Am. Bar Ass’n 2000). 3. Model Procurement Code for State & Local Gov’t §3-202(7). 4. Model Procurement Code for State & Local Gov’t—Recommended Regulations R3-202.9 (Am. Bar Ass’n 2002).

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5. Model Procurement Code for State & Local Gov’t—Recommended Regulations R3-202.11. 6. Mont. code ann. §18-4-304 (2021). 7. Model Procurement Code for State & Local Gov’t §3-203(7). 8. “The Repository of State Practices,” NASPO, accessed January 26, 2023, https://​www​.na​ s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 9. “The Repository of State Practices,” NASPO. 10. “2022 Silver Cronin Award: Idaho’s Help Me Help You! A New Take on Requests for Information,” NASPO webinar, accessed January 12, 2023, https://​www​.na​s​po​.org​/ pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 11. Ariz. Admin. Code §41-2556 (2022). 12. Alaska Admin. Code tit. 36 §36.30.308 (2021). 13. “Minnesota Connected and Automated Vehicle (CAV) Challenge: A CASE STUDY,” NASPO, last updated May 15, 2021, https://​ www​.na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 14. “Cronin Awards 2019: Minnesota’s Innovation in Solicitation, Evaluations, & Award of Contracts,” NASPO, last updated February 10, 2020, https://​www​.na​s​po​.org​/pr​a​c​t​i​c​al​ -gu​i​de​-re​s​o​u​r​ces/.

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RECOMMENDATIONS AND CONSIDERATIONS • A specification should clearly identify the essential performance parameters and characteristics of the commodity or service to be purchased. • Standardization of specifications is appropriate where user agencies frequently and repetitively purchase the same commodities and uniform performance and quality levels can be identified. • A procurement policy should prefer the purchase of commercial commodities over specifications that require items to be specially made, and it should stress functional and performance characteristics above design requirements. • The central procurement office should have a written policy stating that when an agent or representative of a supplier unofficially and significantly participates in the preparation of a specification, the procurement office will not consider bids or proposals submitted from that supplier.

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The heart of the competitive source selection process is the specifications—the description in the solicitation that identifies for suppliers the characteristics of the commodity or service that the public entity wishes to buy. It is the critical statement of what the government seeks in order to meet its needs. This chapter discusses the general principles applicable to preparing those specifications and scopes of work. Chapter 16 (Procurement of Construction and Related Services) addresses the preparation of designs for seeking contractors to construct public infrastructure. The scope of work (sometimes shortened to SOW) should be a simple-to-understand statement of what the item will be used for or how the item will be used once delivered. The scope could also include a description of the problem that the item is intended to solve. Generally, the specifications and/or scope of work portions of a solicitation should be distinct from the other sections. Suppliers need to be able to easily identify what the state or local government seeks to buy. Mixing instructions or terms and conditions into the specifications hinders suppliers’ clear understanding of what it is that the public entity is seeking. To begin, the chapter clarifies important terms, such as specifications, scope of work, and statement of work, and then introduces their objectives. Then, the chapter shares procedures for drafting different types of solicitation documents. Finally, the chapter concludes by providing additional factors to consider, such as using federal funds and site visits when drafting specifications.

KEY TERMS AND CONCEPTS Procurement officials in different offices may use certain terms interchangeably. For instance, specification, scope of work, and statement of work may overlap in how and when they’re used in the procurement process. In other procurement offices, these three terms may have

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distinct and specific roles that depend heavily on the type of purchase being made. A procurement professional should be familiar with how their office uses these terms and ensure they correctly use the term and any relevant template for their organization. In this guide, the term specification is used in its broadest sense: specifications define the requirements for the products or services that will achieve the user agency’s desired outcome. Specifications elaborate on the critical characteristics for meeting the user’s needs. The term scope of work, when used in public procurement, refers to the request being made of suppliers responding to a solicitation. Though some entities may use scope of work interchangeably with statement of work, many understand that the scope of work appears in the solicitation and refers to the agency’s requirements, while the statement of work appears in the resulting contract and is the agreed-upon solution to how those requirements will be met.

OBJECTIVES OF THE PROCUREMENT, SPECIFICATIONS, AND SCOPE OF WORK Developing specifications and scopes of work demands good communication between the public procurement official and the user agency. For commonly used commercial commodities, such as pens, paper towels, and copy paper, the procurement office can prepare specifications without significant input from the user agencies in developing the actual language of the specification. However, it is essential to obtain continuous feedback from users about how those commodities work and whether user agencies or users are buying them once a contract is in place. Usage information is critical so that the public procurement official knows if specifications need to be adjusted for the next procurement.

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For instance, it is crucial to ensure that the paper towels described in the specification fit the various towel dispensers throughout the public entity’s buildings. For more complicated procurements, the first step in developing specifications or scopes of work requires that the public procurement official and user agency representatives work closely to determine the objective of the procurement. For complicated procurements, it is important to meet with the end users of the commodity or service that will be provided to gather input that may be missed if the representatives of the user agency do not typically use the item being purchased. Issues they might address are what the user agency’s needs are, whether they are short term or long term, and whether the commodity or service is related strictly to an internal market or one that the public will be using. In some instances, the user agency may not have considered the public procurement official a strategic partner in its initial planning process. Those procurements start on the wrong foot and can result in the public procurement official playing catch-up on what may have been months or years of prior planning. It is critical to ensure that the public procurement official is included early in the planning process. Chapter 4 (Procurement Planning) discusses this further. Some of the steps that the public procurement official may take with user agencies to determine the objective of the procurement are: • An analysis of the market, the competitive climate, and resources or research available on commodities and their performance, such as specifications from other public entities or associations like ASTM International1 • Identification of unique or atypical elements of the user agency’s request • Data gathering, including an understanding of the user agency’s intended use for the item, how often it will use the item, and the quantity of the item needed

• An analysis to identify the acceptable level of performance, such as equipment speed, service performance standards, error levels, or quality of deliverables2 • An analysis of any outside requirements, such as federal Occupational Safety and Health Administration requirements, that may affect the user agency’s request3 • An analysis of the tasks required to complete the specifications or scope of work drafting process, including whether outside technical assistance is needed • A visit to the user agency’s location for the equipment or service to better understand the purpose of the procurement and the fine details that may not be present in the documentation provided Whether the drafting involves a commonly used commodity or service or something more complicated, specification and scope of work writing is not strictly an exercise in finding the lowest cost commodity or service on the market. It is a careful balance among factors related to suitability, performance and price, and overall cost-effectiveness. Specifications and scopes of work may eliminate some suppliers from a competitive procurement. A sound drafting process aims to find a balance between what the user believes it needs and a fair expression of those needs that is not too restrictive for the marketplace.

MANAGEMENT OF SPECIFICATIONS AND SCOPES OF WORK To find that balance, it is imperative that the drafting of specifications have a central manager. That central manager is sometimes the Chief Procurement Officer (CPO) or, more often, a procurement official to whom the CPO has delegated authority and whom the law should authorize to have overall management responsibility for specification development and oversight.

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Users often have a valid but different perspective since their day-to-day jobs involve implementing state and local government objectives that are unrelated to the procurement process. As the person tasked with ensuring that the goals of the procurement law are met, the CPO should have ultimate responsibility for the soundness, openness, competitiveness, and suitability of specifications. Specifications should always describe what is needed, not what is wanted. Therefore, the procurement official should be knowledgeable enough to separate the two. Exercising that authority requires a delicate balance between the primary service role that a public procurement official plays to assist their user agency and users and the responsibility that the official has to ensure; for instance, the user agency is not buying something simply because a supplier suggested it or that it is not buying something that patently exceeds the user agency’s requirements. For the most part, the debate centers not on the statement of the type of commodity or service needed but on how it is described—that is, the text of the specifications or scope of work. This is true even when the CPO delegates procurement authority to a user agency procurement office. That office has the same duties as the CPO in managing specifications. However, the CPO should retain oversight authority as part of the terms of the delegation. In doing that, they are a sounding board and ultimate arbiter for user agency procurement officials who may be at odds with their users. The Recommended Regulations of the American Bar Association Model Procurement Code support the need for this oversight authority, stating that the CPO shall have the authority to return a purchase requisition to a user agency when “the quality requested is inconsistent with the [State’s] standards and usage.”4 To ensure that everyone within state or local government understands their appropriate roles in the drafting of specifications, the CPO should

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establish and communicate—through policies and manuals—­clear guidelines for that task.

PROCEDURES FOR DEVELOPING SPECIFICATIONS AND SCOPES OF WORK Developing specifications and scopes of work is a critical skill for any public procurement official, but it can be difficult and time-consuming. Several steps can be taken to increase efficiency, accuracy, and, ultimately, success in developing specifications and scopes of work.

Identifying the User Agency’s Needs This chapter has discussed the importance of investing the overall authority in the CPO to determine specifications for competition. That principle safeguards that the decision is made by someone whose duties under the procurement law are to ensure that there is an appropriate balance of competition and the user’s needs. However, it is just as critical that the public procurement official, whether from the central office or a user agency, maintains through their own initiative good communication with the user agencies. The public procurement official’s responsibility is to serve the state or local government customer within the procurement law’s framework. Good contract management tools—as discussed in Chapter 10 (Contract Management and Administration)—and the information they generate become critical to drafting specifications or scopes of work for the next competition to repurchase those or similar items. For complicated items, such as technology integration or health insurance coverage, another impor­ tant factor in preparing reliable specifications and scopes of work is ensuring that the public procurement official is part of the strategic planning for the purchase. Procurement planning with users is discussed further in Chapter 4 (Procurement Planning).

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For a procurement focused on a specific user’s need, the public procurement official should request that the user express their requirements in terms of functional or performance requirements. The public procurement official may also design questionnaires for the user agencies to complete that detail their use of those items. The thrust of the questionnaires should be on how the requested commodity or service is to be used along with the expected results. This planning helps to accomplish two impor­ tant objectives: (1) reminding user agency program personnel to describe a purpose for which the item is required to promote competition, and (2) providing the central procurement office with the kind of information needed to invite broader competition from prospective bidders and offerors and establish valid criteria for evaluating responses.

Aids in Preparing Specifications and Scopes of Work As noted earlier, it is not the purpose or role of the central procurement office to write all specifications and scopes of work on its own. The central procurement office, public procurement officials in user agencies, and in some cases, the user agencies themselves should assist in preparing specifications and scopes of work. Here are some examples of resources that are available to the public procurement official: • Commodity information from the industry • Standards and test information from na­ tional professional societies • Previous specifications and scopes of work used in successful procurements by the agency • Example specification information from other federal, state, and local governments, whether from the entity itself or through online database services that aggregate this type of data across multiple entities • Knowledge and expertise from personnel of the user agencies

• Specification assistance for complex items through services contracts to assist in drafting specifications (and possible assessment and recommendations in the award process) The procurement office staff should establish and maintain open communications with these resources in a manner that systematically gathers, culls, classifies, and uses the information available. Once the public procurement official understands the user’s needs, they should make a plan, such as conducting market research, to investigate the available resources. The public procurement official should begin writing the specification or scope of work once the information gathered has been thoroughly weighed, analyzed, discussed, and vetted with the user agency or agencies. Chapter 4 (Procurement Planning) discusses market research planning and sources of information. Specification advisory committees or focus groups involving various commodity areas and consisting primarily of knowledgeable program people from various user agencies are a necessary and invaluable part of a successful development process. For some critical contracts, these committees should stay intact beyond the contract award process to assist the public procurement official in monitoring contract compliance and making decisions (for instance, on renewal price increases). The expertise and testing capabilities of colleges and universities, especially technical institutions, are particularly useful as a resource for specifications. Outside the state and local government community, many industry trade associations and independent research and testing organizations can supply up-to-date technical information regularly across a full range of commodity areas.

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Direct Supplier Marketing Sometimes, the marketing programs of suppliers geared to sales efforts create demand that may not exist and stimulate unwarranted preferences for particular brands or suppliers; the practice may result in a supplier improperly drafting or writing a specification. In the absence of a law, the central procurement office should have a written policy stating that where an agent or representative of a manufacturer or prospective bidder or offeror unofficially and significantly participates in the preparation of a specification, a procurement office will not consider bids or proposals submitted on that manufacturer’s commodity. It should further state that a bid or proposal will not be accepted or considered by that supplier under a solicitation based on those specifications. While information and advice are needed from industry and suppliers, a supplier who drafts specifications unofficially for the user agencies prejudices the rights of other prospective competitors and the public. Acceptance of bids or proposals from suppliers that have had significant input into specifications raises the risk of protests and litigation in which the supplier’s unofficial role in specification development is rightfully revealed. That, in turn, reduces confidence in the procurement process by the public and legislative bodies. An adequately reviewed and vetted specification should not give any particular supplier an advantage, so it is never a

good idea to accept a user agency specification without careful examination. There can be situations where the public procurement official seeks out supplier input, or a supplier is under contract to provide a needs assessment or a design. In those cases, the issue concerning whether the supplier may participate in a competitive procurement that may follow is not clear-cut. There needs to be balance to ensure fairness. In some cases, requesting a review of draft specifications by the potential bidders can help ensure that the specifications are competitive and language in the specification cannot limit competition. The feedback from this process should be carefully reviewed to ensure that requested changes will increase competition rather than accidentally or purposely reduce competition. Suppose the public entity issues a solicitation seeking a contractor for the first phase of a project that involves preparing data or specifications to be used in a competitive follow-up procurement. In that case, the solicitation should advise prospective bidders and offerors that they may be barred from competing in the future phases of the project. Note that the Common Rule relating to procurement using federal funds (discussed more thoroughly at the end of this chapter) precludes any outside party assisting with drafting specifications from competing for the procurement using those specifications.5

SUPPLIER MANAGEMENT: FAIR AND ONGOING ENGAGEMENT Throughout the procurement process, effective Supplier Management practices prioritize fair, open, and honest interactions with all suppliers in the relevant field—whether they currently have a contract or not. Keeping in mind the laws and policies of the procurement office, the first step in engaging suppliers is to understand their business and the market at large. Particularly for recurring purchases or statewide contracts that are maintained year over year, procurement professionals should be aware of what suppliers exist in the field, how their offerings are similar and different, and how they do business. continued

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At different times in the procurement process (see Appendix A), contact with suppliers will take different forms. During the Definition of Need (Step 1), the procurement official should seek as much information from as many suppliers as possible. Asking questions, visiting supplier locations, and holding informational meetings—as allowed by the procurement office’s laws and policies— should all be done with clear communication to suppliers that this information gathering does not impact the likelihood of them winning an award. During the Solicitation Development (Step 3) and Evaluation of Responses (Step 4), the procurement office should have clear, understood boundaries with all suppliers regardless of whether they have had or currently hold a contract. After Contract Formation and Award (Step 6), the procurement officer must find a balance between maintaining open communication with the supplier community at large and developing the partnership with the supplier who has earned the contract. During a contract’s life, the supplier who is doing business with the entity should be supervised and trusted as part of the administration of the contract. Meanwhile, the procurement officer should continue to research the commodity or service and other providers; whether the current contract is successful or not, there is always a solicitation on the horizon, and ongoing learning will allow the procurement professional to be prepared. It can sometimes be difficult to balance the partnership developing with the contract supplier and the open and fair engagement of noncontracted suppliers. However, existing relationships must be set aside when it comes time to evaluate responses to another solicitation. Effective Supplier Management requires a procurement official to always consider whether they are (1) following the laws and policies of their entity, and (2) prioritizing fair and ongoing engagement of all suppliers.

Commercial Product Preference

Alternatives and Optional Items

The best practice is for a procurement policy to prefer the purchase of commercial commodities over specifications that require items to be specially made. It should also stress functional and performance characteristics above design requirements in preparing specifications. Procurement policies and procedures should provide uniform formats of specification and scope of work documents—that is, standard presentation of the elements, consistent types of item identifiers, and adequate reference to the kind and source of the commodity or service requirements.

Alternatives and optional items in a solicitation describe commodities or services that are not the main object of the solicitation. Specifically, they describe items that the user agency may buy in addition to the item for which it has issued a solicitation. One of the foundations of the public competitive process is that competing suppliers have a level playing field. When suppliers offer different terms than those requested—including alternatives or optional items—the user agency’s consideration of those items gives an advantage to the offering supplier that competing

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suppliers do not have. The best practice is for the public procurement official not to evaluate those items. Any alternatives or options the user agency may wish to consider should be clearly requested in the solicitation, either by name or by asking all suppliers to submit their optional or add-on items. Alternate specifications are sometimes needed in the public interest to compare costs or to keep an award within the funds available. They can be used to obtain broader competition (alternative commodities), quicker deliveries (alternative delivery requirements), and other advantages. Optional items will have the same effect. Optional items are features that may be adapted to a piece of basic equipment, such as an automobile or communication product, to enhance performance or capacity. They may be needed under certain circumstances or may represent only luxury accessories. Optional items can significantly affect the total price of the commodity. It is important to make sure that the suppliers understand that optional items are optional for the agency to purchase, not that they are optional for the bidders to offer them. Careful planning and proper structuring of specifications, scopes of work, and solicitations are critical to successfully including alternates and purchasing optional items.

TYPES OF SPECIFICATIONS The specifications a public procurement official chooses for a competitive procurement may take different forms depending on the nature of the project. Some specifications focus more on how items are made, while others focus more on how items perform. In some cases, a specification may blend components of both how it’s made and performs. For this reason, it may be helpful to think of specifications falling along a spectrum from how it’s made to how it performs. Some common specification types are:

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• • • • •

Design specifications Brand-name specifications Brand-name-or-equal specifications Qualified product lists (QPLs) Performance specifications

It is common to write performance specifications for service contracts. Additionally, services specifications can describe the type of equipment that the services contractor should have available. An example is a solicitation seeking printing services in which a particular type of printing equipment is identified through a brandname-or-equal specification to show the functionality requested.6 A specification may include things other than a description of the commodity or service the government wishes to buy. It may require submitting and testing samples or prototypes, the inspection of the supplier’s production site, custom or environmentally friendly packaging, or warranties that go beyond those the manufacturer may typically give. The range of items that state and local governments purchase necessitates the use of all types of specifications. In solicitations covering hundreds of laboratory supplies or automotive parts items, a brand-name-or-equal specification may be the most appropriate. A brand-name specification is necessary for a proprietary mechanical part that no other will fit, with price competition solicited from as many dealers as possible. For gasoline, a performance specification may be necessary. For an X-ray machine or an air compressor, a combination design-­performance specification may work well. It is critical to a public procurement program’s success that public procurement officials have the training, knowledge, and confidence to choose the most advantageous type of specifications necessary to meet the user agency’s needs. The most commonly used specifications are described in the following paragraphs.

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Design Specification Design specifications describe the dimensional and other physical requirements of the item to be purchased. Design specifications indicate that the specification concentrates on how a commodity is to be fabricated or constructed. Design specifications tend to include detailed drawings that identify critical dimensions and unique requirements. It is the most traditional specification that is historically used in public contracting for buildings, highways, and other public construction. It represents the kind of thinking in which architects and engineers have been trained. It is used when a structure or commodity must be made to meet a specific need. Additionally, large-scale technology systems re­ quire a unique set of specifications since those systems do not exist in a commercial, off-theshelf form to meet the specific needs of a state or local government. Because of the high cost of a major construction or enterprise technology system project, it is generally the case that a public entity should ask its legislative body—a state legislature or city council, for instance—to appropriate funds for that specific project. Consequently, the public entity should estimate the project’s cost to request funds. A project design provides the basis for calculating the estimate. For large technology systems, this becomes a problem. The rapid pace of changing technology creates a dilemma since the slow nature of the legislative funding process can make a design obsolete before the procurement gets off the ground. Detailed design specifications frequently have precise characteristics that unnecessarily limit competition. Unless the specification seeks a custom-produced item, drafting design specifications without being unduly restrictive can be extremely difficult. Design specifications may also reflect the status quo and lag behind the state of the art, preventing consideration of the latest commodity improvements.

Since commodity design specifications do not accommodate rapidly changing technology and are poorly suited for purchasing many commercial commodities, a public procurement official should use them sparingly. In most cases, it is far better to use a performance specification alone or combined with a design specification so that suppliers select their best commodity for the functionality required.

Brand-Name Specification A brand-name specification is “a name, term, symbol, design, or any combination . . . used in specifications to describe a product by a unique identifier specific to a particular seller or manufacturer that distinguishes it from its competition.”7 There are legitimate circumstances when using this type of specification is appropriate. For instance, the original equipment manufacturer may be the only part producer. Still, it may not be the only supplier that carries the original manufacturer equipment item for sale. It thus may not be the only supplier from which a public agency can solicit a bid. Since this specification limits competition to a single commodity, it is the most restrictive.8 A public procurement official should use this type of specification when it is clear that it is the only way to meet a user’s need. To ensure that its use is appropriate, law or policy should require that the CPO determine in writing, in advance, the propriety of its use. Even where a brandname specification is warranted, competition among multiple suppliers is often possible.

Brand-Name-or-Equal Specification A brand-name-or-equal (sometimes brandname-or-equivalent) specification consists of one or more brand names, model numbers, or other commodity designations that identify, by way of example, the specific commodity of a particular manufacturer that has the characteristics of the item that the public entity is seeking. A solicitation using a brand-name-or-equal specification invites other brands or models

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substantially equivalent to those named to be considered for awards, with the public procurement official reserving the right to determine equivalency. To ensure that suppliers submitting an alternative to a brand-name commodity know the exact features of the brand-name commodity that make it the benchmark, it is a best practice that the specification identifies those critically necessary features significant to the specified brand. For instance, it is not likely that the color of a lawnmower brand will be critical to a user agency. However, there are other key features of a brand that could make it the standard, such as deck size, engine horsepower, or available warranty. One practical tip about writing this type of specification is to include a statement that the designated brands are only for reference purposes, not a statement of preference. Here is some sample language that can be used: Any manufacturers’ names, trade names, brand names, or catalog numbers used in the specification are to establish and describe the general performance and quality levels. The references are not intended to be restrictive, and bids are invited on these and comparable brands or commodities of any manufacturer. An excellent way to express to suppliers that they can submit an equivalent may be by using a phrase in the specification, such as equal or approved-equal or similar in design, construction, and performance. Some public entities refer to this type of specification as brand-nameor-equivalent instead of a brand-name-or-equal to better clarify that commodities of equivalent performance and quality levels will be considered. The ultimate determination of whether a proposed product is equal or equivalent should rest solely with the procurement official writing the specification and should be made clear to offerors. Brand-name-or-equal specifications invite commodity and price competition across

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the marketplace. They have a legitimate place in public procurement but should be used only where the brand name describes an industry standard for which there are competitors. In fact, it is best, where practical, to specify three or more brand references.

Qualified Products List A qualified product list (QPL), usually used to describe a commodity rather than a service, is commonly defined as a: List of products identified by manufacturers’ names and model numbers that are the only items that meet the minimum specifications as determined by the using entity. These products are used when quality is such a critical factor and testing so lengthy or expensive that the entity wants to stay with proven products. The list is prepared by testing products, either in the lab or in daily use. Items may be added to the list by the supplier, demonstrating their quality by meeting specifications that have been defined by the using entity.9 During the competitive procurement in which it is used, the generated list restricts suppliers to offering only commodities on that list. The criteria and the methods for establishing and maintaining a QPL vary widely for different types of commodities. Some items require more detailed benchmarking or testing than others and dictate that the public procurement official has access to testing facilities. Various commodities might be tested in different ways. For musical instruments, the procurement office may establish a committee of musicians to test different brands of an instrument according to certain procedures. In another circumstance, for an item of heavy construction equipment, that office may establish the desired performance level and then conduct field tests of similar models from different manufacturers to determine which meets those performance requirements.

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In the case of padlocks, the procurement office may test several brands under controlled conditions and assess their performance. The office may use laboratory tests to accept or reject a brand for ready-mixed paints.

of a QPL. Since QPLs focus on commodities already on the market, they do not encourage or take advantage of innovation unless they use those performance ratings as qualification and contract award criteria.

The CPO should establish policies and procedures specifying how the qualification process works. This includes ensuring that the procurement office announces that it is establishing a QPL and the procedures for suppliers to submit their commodities. The announcement should also advise suppliers of the qualifications of the commodities sought and the means used to evaluate the commodities submitted. It should also advise suppliers that if they do not participate by submitting commodities to qualify, they will not have the opportunity to do so until the procurement office establishes a new QPL in the future.

The actual samples and testing results have a life beyond the establishment of the QPL, and the public procurement official should retain them in the procurement file. That official may use them as a contract standard to enforce quality if a contractor subsequently delivers questionable commodities. The need for enforceability results from a concern over receiving substandard commodities. At times, manufacturers modify the quality of a commodity without changing its model number or other designation. The commodity may still be listed as acceptable, though it may no longer meet the specification. The public procurement official with the sample in hand has a formidable tool in enforcing the quality level that the contract specifies.

Using a QPL eliminates the need for samples or testing under a solicitation issued to purchase the types of commodities that have been prequalified. Instead, the public procurement official may make an award promptly since the acceptability or comparative rating of commodities is done before the solicitation is issued. Subpart 9.2 of the Federal Acquisition Regulation (FAR), the body of regulations that implement the United States government’s procurement system, spells out how the QPL process works within that system.10 To avoid a QPL process that leads to marginal levels of quality, one approach is for the qualifications procedures to include qualitative ratings or test scores tied to prices, where appropriate, for the commodity. For example, a QPL may require a truck tire to pass a use test of a minimum average of 25,000 miles to be qualified. If tests on the six brands of tires submitted pass the tests and average 25,000; 26,000; 29,000; 30,000; 32,000; and 36,000 miles, the public procurement official may determine the lowest average cost per mile. This qualitative or numerical test score comparison to price is critical for assuring the best use

Performance Specifications Performance specifications state the function that a user agency wishes to achieve. They do not commit the procurement official to a set design or commodity that will presumably meet the required functionality. Instead, the specifications state what the user agency needs the commodity to do and asks the supplier to demonstrate that its commodity qualifies. A performance or functional specification is less concerned about how a commodity is made and more concerned about how well it performs and at what cost. In contrast to the design approach, performance specifications afford the manufacturer or supplier sizable latitude to accomplish the end purpose. The use of performance specifications is not limited to the purchase of commodities. They are also critical in service contracts. The best practice for a public procurement official who is writing a specification for services is to

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establish critical minimum levels of service to which a supplier should commit in the proposal it submits. These are sometimes included as part of the scope of work. Those minimum levels become a key part of the service contract and provide the most valuable tool for the public procurement official in measuring contract performance. Chapter 10 (Contract Management and Administration) discusses this in more detail. The following examples illustrate the use of performance specifications for services. A solicitation seeking services to administer a public agency’s employee health insurance program may require that the supplier agree to respond to all telephone calls from employees within 24 hours and to generate no more than three employee complaints per quarter. A solicitation requesting janitorial services may mandate that the supplier commit to vacuuming offices three times per week and generate no more than one complaint monthly about breakage. See Chapter 10 (Contract Management and Administration) for more information about service contracts. Performance specifications are not new. Dated December 23, 1907, Signal Corps Specification No. 486: Advertisement and Specification for a Heavier-Than-Air Flying Machine was almost entirely a performance description.11 Materials and design were mainly left to the bidders, while performance requirements listed such things as takeoff and landing at a specified distance and on specified surfaces. The Wright Brothers, Dayton, Ohio, was the successful bidder at a contract price of $25,000.00 for delivery within 200 days to Fort Meyer, Virginia, with the package to be marked Order 3619. Writing competitive performance specifications and evaluating bids or proposals submitted in response requires a different approach than one geared more toward design. For design specifications, the goal is to look for similarities and equivalencies in commodities to establish common denominators and largely to ignore

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commodity differences. On the other hand, performance specifications accept the similarities but seek to identify differences that provide equal or better performance at lower costs. Another element of a performance specification focuses on ownership costs as a more accurate basis than the initial price for achieving economy. Chapter 7 (Proposal Evaluation and Award) discusses these types of cost analyses. Performance specifications are useful tools because they essentially ask the supplier to show that its commodity or services can meet benchmarks. Those benchmarks make contract management easier. The central procurement office’s policies and guidelines should encourage public procurement officials to start their analysis of what type of specification to use by focusing on performance specifications first.

PREPARATION OF SERVICE DESCRIPTIONS AND SCOPES OF WORK This portion of the chapter focuses on three areas relating to the preparation of service descriptions for a solicitation or a scope of work issued under a contract: • Appropriate level of specificity in the description of the service sought • Measurement of performance • Establishment of a general legal standard with which the contractor should comply The American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code) provides a definition of services and distinguishes those from two other general types of items that a procurement official purchases under the Model Procurement Code—supplies and construction. Section 1-301(21) of the Model Procurement Code states that services means:

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.  .  .  The furnishing of labor, time, or effort by a contractor, not involving the delivery of a specific end product other than reports which are merely incidental to the required performance. This term shall not include employment agreements or collective bargaining agreements.12

The precision of the description of the services relies heavily on understanding the user agency’s needs and wants, even if the services sought are seemingly simple. For instance, in a description for janitorial services, does the user wish to require that the contractor use ecofriendly products?

The key concept to draw from the definition is that while a services procurement may require the delivery of something tangible like a report, the procurement is still one for services.

The service description will depend in part on whether:

The distinction should also be drawn regarding what is commonly referred to as professional services, which typically includes architecture, engineering, legal, etc. This category of services includes individuals from specialized fields that require qualifications such as licenses, registrations, or certifications. Chapter 16 (Procurement of Construction and Related Services) discusses common requirements related to architectural and engineering services.

Preparing the Service Description As discussed earlier in this chapter, drafting a description—a specification or scope of work— for a solicitation seeking a services contractor requires close collaboration between the user agency and the public procurement official, particularly if the services are complex. Technical experts and lawyers may also need to be part of the team. While it may be stating the obvious to point out the necessity for a close working relationship, it is important to keep in mind that a services contract creates a human-to-human relationship between government employees and the contractor that is aimed at achieving a specific end. The words used to describe the services being sought should be precise since features that are found in specifications for commodities, such as equipment output minimums or life-­cycle standards, are not applicable.

• The sought service is complicated or routine • There are a specific and limited number of deliverables (such as a report) that the contractor should provide during or at the end of the contract or when the contract calls instead for the contractor to provide the same services regularly during the term of the contract (such as landscaping services) • The solicitation seeks a contractor or contractors to provide multiple types of related services from which a user agency may choose during the contract as the user’s need arises No magic set of principles will ensure that a service description achieves the desired results. However, the following recommendations provide general guidance to consider during development: • Make the description broad enough to cover all of the services sought. Use examples of types of services desired under the general service description to illustrate what is intended, stating that the examples are not all-inclusive of the desired services. • Concentrate the description on the service output rather than itemizing individual tasks. Detailed itemizing of individual tasks may restrict the effectiveness of the contract. • Include, as an output requirement, that the contractor should provide all of the underlying data or other information that served as the basis for the report or recommendation (if the service description is for a

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consulting report, particularly where a recommendation is being requested that will be the basis of a public policy decision). • Tie the service description to the measurements in the solicitation by which the contractor’s performance will be evaluated. If the service description and the measurements do not fit well, these need to be reexamined to bring them into alignment. • Ask a peer to read the service description in order to gain the perspective of someone who knows nothing about the user agency’s needs. Ask whether the service description is clear and precise, allows flexibility, and paints a vivid picture of what the solicitation seeks. Where state and local government procurements utilize federal funds, the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, known as the Common Rule, provide that solicitations:

• Must incorporate a clear and accurate description of the technical requirement for the service to be procured • Must not unduly restrict competition • May include a statement of the qualitative nature of the service to be procured • Where necessary, must set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use13 In complex service procurements, a procurement office may contract with an outside party to assist in developing the service description and other parts of the solicitation. The Common Rule states that those outside parties “must be excluded from competing for such procurements.”14 That reflects the best practices for all procurements on which outside assistance is used, whether or not federal funds are paying for the purchase.

SUPPLIER MANAGEMENT: VALUABLE PERFORMANCE MANAGEMENT When it comes to managing supplier performance, Supplier Management practices can help a procurement office move from focusing on the production of data—an extensive list of key performance indicators (KPIs) or service-level agreements that may or may not accurately show the success of a supplier’s work—to a focus on outcome-driven performance management. With performance data, it is possible to collect too much or even the wrong type of data. If more time is being spent gathering the information and less time is being spent using it to improve the supplier’s performance, it may be in the procurement office’s best interest to reevaluate what data they are collecting and how they are getting it. In many cases, KPIs are focused on output—the amount or type of work done, the processes or products used, and the time it took. In order for KPIs to be more successful, leading to better contracts and better Supplier Management, they should be focused more on outcomes. The procurement office should determine the end goal of their relationship with a contracted supplier. For a supplier providing commodities, this might be timely delivery of quality products. For a service provider, outcome-focused KPIs are even more important. As an example, the success of a janitorial service provider should not be measured by how often they mop, sweep, and disinfect but by how well they clean. Focusing on outcome improves accountability and ultimately justifies both the contractual relationship and the use of more meaningful KPIs. continued

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When writing, negotiating, and finalizing a contract, the procurement officer should work with the supplier to develop the KPIs that will be used in the contract. This allows the supplier to offer data points that might be more meaningful in their field, that hold them to a higher standard, or that showcase a streamlined process. The benefit to the procurement office of allowing supplier involvement in developing KPIs is that the supplier can more easily be held to a standard that they not only agreed to but also helped write. As part of the development of KPIs and other metrics, the procurement office should also create clearly outlined and enforceable consequences for poor performance, but also for exceeding expectations. If a contracted supplier does not face a consequence when they do not perform, there is no incentive for them to improve. For some states and entities, poor performance triggers the development of a corrective action plan, which is designed to allow the supplier to explain what went wrong and why, but also to outline the changes they will make to ensure the error does not continue. The corrective action plan can then be retained as part of the contract file for future reference as needed. Effective Supplier Management requires the procurement professional to consider whether their performance measurement practices provide value to their entity and supplier relationships—the outcome of the measurement process is just as important as the outcome of the performance itself. Meaningful consequences allow for continual improvement of the contract, for both the entity and the contracted supplier.

CONSIDERATIONS FOR THE PROCUREMENT Use of Federal Funds In 2013, the federal government issued the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 Code of Federal Regulations Part 200 (Common Rule). Any nonfederal public entity whose procurements are funded with federal monies must comply with the Common Rule. The Common Rule requires the precise, accurate, and open process for developing specifications that this chapter discusses. For instance, the Common Rule states: (d) ​ The non-Federal entity must have written procedures for procurement transactions. These procedures must ensure that all solicitations:

 1) ​Incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured. Such description must not, in competitive procurements, contain features which unduly restrict competition. The description may include a statement of the qualitative nature of the material, product, or service to be procured and, when necessary, must set forth those minimum essential characteristics and standards to which it must conform if it is to satisfy its intended use. Detailed product specifications should be avoided if at all possible. When it is impractical or uneconomical to make a clear and accurate description of the technical requirements, a “brand-nameor-equivalent” description may be used as a means to define the performance or other salient requirements of procurement. The specific features of the

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named brand which must be met by offers must be clearly stated; and  2) ​Identify all requirements which the offerors must fulfill and all other factors to be used in evaluating bids or proposals. (e) ​The non-Federal entity must ensure that all prequalified lists of persons, firms, or products which are used in acquiring goods and services are current and include enough qualified sources to ensure maximum open and free competition. Also, the non-Federal entity must not preclude potential bidders from qualifying during the solicitation period.15

Samples and Site Visits Samples and commodity data questionnaires are valuable aids in the specification process. For many commodities, comparing and testing samples can effectively supplement a brief commodity description that is the basis for a specification. This is how the process generally works. The public procurement official requesting samples under a solicitation subjects them to comparisons such as visual inspection, taste testing, or chemical and physical laboratory tests. To ensure objectivity, the comparison may be conducted blindly, without identification of the particular brands being tested. Data and relative performance results are documented. Then the public procurement official and a team of users examine that documentation and determine the best commodity on a price/performance, cost-­ effective basis. Examples of commodities for which this approach is useful are waxes and floor finishes, paints, disinfectants and germicides, file cabinets, surgical dressings, tires, cleaning agents, classroom furniture, and art materials, to name a few. As mentioned earlier, it is important to keep tested or reviewed samples to compare them to what the contractor supplies.

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When a commodity is expensive compared to the total contract value, it is important to determine if the supplier should be paid for the submitted sample or if it can be returned to the supplier after testing has concluded. Special care should be taken to describe what will happen if the item is damaged in the process of testing. A solicitation may require suppliers to submit product questionnaires and call for technical data to be furnished to enhance the public entity’s understanding of its own solicitation’s specifications. In many cases, the product questionnaires and requested data may substitute for the submission of samples. When asking for both a questionnaire to be filled out and technical data provided, it is important to state what happens if the two documents do not agree. Either set the order of precedence of the information provided or state that clarification will be requested during the evaluation stage. Prototypes may also be of value in assuring compliance and ultimate satisfaction with a commodity. A prototype is a “product model constructed for testing and evaluation to see how the product performs before releasing the product to manufacture.”16 Where a solicitation requires the production and submission of a prototype, it stipulates that the successful supplier that is awarded the contract will be required to submit that prototype before the government orders any of the commodities. In purchasing truck chassis or band uniforms, for example, the final award of a contract may be contingent upon the successful supplier producing a model that demonstrates compliance with the specification’s requirements. The process allows problems to be resolved before the successful supplier manufactures and delivers the units. Suppose the public procurement official and the successful supplier do not agree on the preproduction sample. In that case, the solicitation and contract should provide that the public procurement official may cancel the

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contract, perhaps paying an amount for the prototype, and then contract with another supplier that competed for the same contract. Chapter 10 (Contract Management and Administration) discusses testing in more detail. Similar to saving the actual samples and testing results in the establishment of the QPL, prototypes have a life beyond acceptance, and the public procurement official can and should use the prototype to establish consistency of the product throughout the contract.

Standardization Standardization of specifications is appropriate where user agencies frequently and repetitively purchase the same commodities and where uniform performance and quality levels can be identified. It reduces the variety of items bought, simplifies inventories, consolidates requirements into large-volume bids and contracts, and eliminates duplicative specification writing. Laws should assign the responsibility for developing a standardization program to the CPO, who may delegate that responsibility to ensure that all appropriate users and relevant parties are involved. The ability of a standardization program to meet its fundamental objectives, which is to achieve uniformity and keep current, depends upon flexibility—both in how it operates and how quickly the program can develop the specifications. Standard specifications should incorporate performance standards wherever practical to reduce rigidity and obsolescence. Standardization boards and standing specification committees should avoid becoming institutionalized, too comfortable with the status quo, and inflexible. Ad hoc committees and supplier input can bring fresh approaches to the process. A central procurement office that standardizes specifications should regularly reexamine its program to ensure that it accommodates and is readily responsive to new concepts, improved commodities, and advanced applications. This

calls for a focus on at least five aspects of the program: • Identifying items for which standards are relatively stable, such as meats, canned fruits and vegetables, and various building materials. • Discontinuing standard specifications for items where such specifications are no longer needed or updating and maintaining them has become impractical. • Substituting, wherever possible, performance requirements for dimensional and other design-type details, especially in the case of items for which manufacturing standards tend to be unstable. • Providing a highly expeditious means of reviewing and modifying a standard specification for a current procurement. • Expanding the advisory role and ad hoc participation of user agency personnel throughout the standards process. When possible, use industry standards or thirdparty standards.

CONCLUSION Specifications and scopes of work are the lifeblood of the procurement process. They should be broad enough to allow for fair competition and precise enough for the public entity to acquire the quality commodities and services it needs for its essential programs. Balanced specifications and effective scopes of work require thorough planning and communication between all stakeholders involved. The procurement official should be proactive in their approach to collaborating with the user from the moment a need is identified.

ENDNOTES 1. “Products & Services,” ASTM International, accessed May 1, 2023, https://www.astm​ .org/.

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2. Deliverable can be defined as, “[t]he actual contractual work product as defined in the statement of work; the desired goods or services described in a statement of requirement, specifications, scope of work, or other similar solicitation component to be provided under the contract. (Australia) 2. The completion of a milestone or the accomplishment of a task that can be measured and verified and may be a unit by which a contractor or consultant may be paid. See also: Milestone.” “Dictionary of Procurement Terms,” NIGP, accessed January 25, 2023, https://www.nigp.org/dictionary-of-terms. 3. “Law and Regulations,” Occupational Safety and Health Administration, accessed January 25, 2023, https://www.osha.gov/laws​ -regs. 4. Model Procurement Code for State & Local Gov’t—Recommended Regulations R3-103.01 (Am. Bar Ass’n 2002). 5. 2 C.F.R. §200.319(b) (2023). 6. Designs for construction projects may also include brand-name or brand-name-or-equal specifications in them relating to equipment that the project design requires to be installed, such as heating/air conditioning/ ventilation systems, or windows. The same cautions that this chapter discusses about using them for commodity procurements

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applies to their use in construction procurements as well. 7. “Dictionary of Procurement Terms,” NIGP, accessed January 25, 2023, https://www.ni​ gp.org/dictionary-of-terms. 8. The Common Rule, the set of regulations establishing procurement and accounting requirements for the expenditure of federal funds by nonfederal entities, explicitly states that a brand-name specification restricts competition. 2 C.F.R. §200.319(6) (2023). 9. “Dictionary of Procurement Terms,” NIGP. 10. Federal Acquisition Regulations, FAR 9.2 (2022). 11. “Signal Corps Specifications No. 486,” Wright Brothers Aeroplane Company, accessed January 25, 2023, https://​www​.wr​i​g​ht​-br​o​t​ h​e​rs​.org​/Hi​s​t​o​r y​_Wi​ng​/Wr​i​g​ht​_St​o​r y​/Sh​o​w​ i​ng​_the​_Wo​r​ld​/Ba​ck​_in​_Air​/Si​g​n​al​_Co​r ​ps​ _Sp​ec​.htm. 12. Model Procurement Code for State & Local Gov’t §1-301(21) (Am. Bar Ass’n 2000). 13. 2 C.F.R. §200 (2023). 14. 2 C.F.R. §200.319(b). 15. 2 C.F.R. §200.319 (d-e). 16. Paul Pittman and Brian Atwater, ASCM Supply Chain Dictionary (Chicago: Association for Supply Chain Management, 2022), 167.

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RECOMMENDATIONS AND CONSIDERATIONS • The evaluation should be consistent with the criteria and requirements specified in the solicitation. There should be a plan for how the evaluation will be conducted before the due date for bids or proposals. • The analysis of the bids or proposals should be documented in writing; documentation is essential, not only to show that the evaluation conformed to the law and the solicitation, but also to show that the process was fair and unbiased. • It is imperative that those involved in evaluating bids or proposals be completely unbiased in whatever role they play in the evaluation. • There should be a rigorous determination of a respondent’s responsibility as part of the evaluation process. Responsibility should not be presumed because the respondent has previously been a contractor for the public entity. • The documentation of the selection of the winning respondent should demonstrate compliance with contract award standards stated in the law and the solicitation. It should also be consistent with the procurement procedures and guidelines, such as internal procurement manuals, that exist to assist the public entity’s public procurement officials.

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Evaluating bids and proposals is a key point in the procurement process. The needs of the user agency, as reflected in the solicitation, are compared side-by-side with the response of suppliers heeding the call to meet those needs. This chapter discusses the process of making that comparison—the evaluation of bids or proposals— and awarding a contract. This chapter will also use the term respondent throughout to refer to suppliers that have submitted a response to any type of solicitation, bid, and proposal. Some jurisdictions use bidder or offeror, depending on if the supplier submitted a response to a competitive sealed bid or competitive sealed proposal process. Offeror or bidder may still appear when referencing a specific code or regulation example, but respondent is a more inclusive and descriptive term. At the outset, it is important to consider who should make the award decision. In most cases, an award recommendation is made by a selection committee and signed off by the procurement office. A procurement law should ideally confer the final award-decision authority solely on the public procurement official. However, in some state and local governments, such as cities, counties, and districts, applicable laws may grant an elected officer or bodies of elected officials the authority to award a contract. The awarding of a contract and the functioning of a truly professional procurement system do not fit well within a political, often legislative-­type process. Lobbying and other normal characteristics of the deliberations of a political body such as an elected city council or board of supervisors run counter to the promise that suppliers’ responses to a solicitation will be judged fairly by those most knowledgeable about the procurement process and the subject matter of the procurement. Thus, where the public political body has the ability to delegate its authority to award contracts, it should do so to the Chief Procurement Officer (CPO) in the interest of sound

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management. This also allows public officials to devote their time to the important policy and budgetary issues for which they were elected. Refer to Chapter 3 (Importance of Competition, Ethics, and Compliance) of this Practical Guide for more information on the importance of ethics and competition in the procurement process. As specified in the title, Proposal Evaluation and Award, this chapter first introduces impor­ tant principles and concepts at the foundation of bid or proposal evaluations. With this understanding, the chapter provides considerations for using and selecting an evaluation committee. It then concludes by outlining the steps of an evaluation process and by discussing topics such as criteria, price/cost analysis, and multiple-source awards.

EVALUATION AND AWARD OVERVIEW Key Principles and Concepts Several overarching principles should drive any evaluation of a bid or proposal and subsequent contract award. Some of those important principles are: • Alignment of the evaluation to the law: The evaluation should conform to the procurement law. Suppose that law, for instance, does not explicitly permit the public entity to take into consideration evaluation criteria in considering bids but requires that the contract award be made to the lowest responsible bidder. In that case, it is doubtful that evaluation criteria may be used. If the law allows criteria other than low price to be used in evaluating bids but limits them to those that are objectively measurable, then it is critical to limit criteria to factors that fit the specific requirement. Similarly, if the law says that price or cost should be one of the criteria in evaluating proposals, then the

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•

•

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•

•

solicitation should list price or cost as an evaluation factor. Alignment of the evaluation to the solicitation: The evaluation should also be consistent with the evaluation criteria and requirements specified in the solicitation. If the evaluation is based in part on whether a bid or proposal meets certain minimum requirements, then those requirements should be clearly identified as such in the solicitation. Additionally, the evaluation criteria should be those that will allow whoever is weighing bids or proposals—a public procurement official or an evaluation committee—to measure how well a particular bid or proposal fares against the criteria. Finally, a mismatch between the solicitation requirements and the evaluation criteria is unfair to suppliers, who may be misled about what is required or important. Evaluation plan: The plan for how the evaluation is to be conducted should be in writing and in place before the due date for bids or proposals. That precludes any criticism that the plan was crafted after bids or proposals were in the public procurement official’s hands and that it was skewed in a particular supplier’s direction. Evaluation of price or cost: The public procurement official should evaluate cost or price with any needed assistance from a public entity’s fiscal personnel, leaving the technical evaluation to the evaluation committee where one has been appointed. Written documentation: The analysis of the bids or proposals should be documented in writing. The formal procurement process, and even the informal one at some dollar levels, is a written one, with a written solicitation asking for written responses. Documentation is important to show that the evaluation conformed to the law and the solicitation and that the process was fair and unbiased. Timelines: The solicitation should specify a time (such as three months) during

which a respondent should keep their bids and proposals open—that is, keep their pricing firm. Therefore, before the solicitation is issued, the public procurement official should have in mind a reasonable estimate of the time that the evaluation of bids or proposals will take. The evaluation sometimes takes longer than anticipated and is stated in the solicitation. In those situations, the public procurement official should ask each respondent to extend their bid or proposal for another specified amount of time. • Impartial evaluators: It is imperative that those involved in the evaluation of bids or proposals be completely impartial and unbiased in whatever role they play in the evaluation. This typically includes having each evaluator sign a conflict-of-interest form or certification document. The Evaluation Committees section in the upcoming text covers more detailed considerations for ensuring impartial evaluators. • Determinations of responsibility: A respondent’s responsibility should be determined as part of the evaluation process. Responsibility should not be presumed because the respondent has previously been a contractor for the public entity. • Alignment of the contract award with the law and the solicitation: The documentation of the selection of the winning respondent should demonstrate compliance with contract award standards stated in the law and the solicitation. It should also be consistent with the public entity’s procurement procedures and guidelines, such as internal procurement manuals, that exist to assist public procurement officials.

USING AND SELECTING EVALUATION COMMITTEES The following discussion focuses on important concepts for developing evaluation criteria and using evaluation committees.

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Evaluation Committees It is a standard practice to use an evaluation committee of subject matter experts, usually from the user agency, to assist the public procurement official in evaluating proposals. In many jurisdictions, the procurement official will serve as the committee chair. They may or may not be a voting member of the committee. In some complex procurements, such as selecting a health insurance plan, the procurement office may employ an outside consultant to assist in the evaluation. Individuals chosen for the evaluation committee should be familiar with the entity’s procurement code and the competitive solicitation from which the submissions were received. They should also have sufficient knowledge of the established evaluation criteria and effectively apply them to the submissions equally and unbiasedly. They are often required to sign something to certify they understand and accept the obligation and responsibility of sitting on the committee. Before respondents submit their proposals, the committee should have an opportunity to discuss the evaluation criteria, identify any subcriteria, and understand how those will be applied. It should also decide how the committee will operate. Finally, the public procurement official and, if appropriate, the committee should determine whether to use a scoring or ranking process, a consensus approach, or a combination to evaluate proposals.

Independence and Impartiality The independence of the evaluation committee is essential to its fairness. To ensure that it is independent, the public procurement official should decide who sits on the committee and lead the committee through the process. This role should include onboarding new committee members, defining clear expectations and guidelines for each member’s participation,

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setting timelines and milestones to ensure the committee stays on task and schedule, and maintaining detailed notes throughout the process. In the real world, the governor’s or mayor’s office or a large user agency may sometimes demand that they select the persons to sit on an evaluation committee for a highly visible and important procurement. If a public procurement official cannot dissuade them from their position, that official should insist upon naming at least some committee members. Another problem occurs when a supervisor and their subordinate sit on the same committee and are from the user agency requesting the procurement. To avoid any possibility of intimidation influence, these situations should be avoided. Additionally, it is important that all evaluators be impartial and free from bias to evaluate all submissions fairly and equally. Impartiality, in this instance, relates to an evaluator being free from any perceived or real financial or personal interest. Evaluators should review all responses and ensure neither they nor their immediate family members have any personal or financial interest in any of the persons or suppliers submitting responses. Evaluators should also make every effort to mitigate unconscious biases that could impact their evaluations by evaluating responses in an objective, merit-based manner that is free of assumptions and personal bias or feelings. Finally, an evaluator’s role on the evaluation committee should be kept confidential to protect the evaluation process from interference and prevent outside influence or even the appearance of influence or impropriety. Confidentiality also requires that an evaluator not be permitted to discuss the process or any aspects of the evaluation with other evaluators or third parties outside of the evaluation committee meetings

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and other defined points of the jurisdiction’s evaluation process. This includes any contact with respondents competing for the award. Confidentiality does not end after the evaluation process either. Evaluators should refrain from releasing or disclosing any information or records pertaining to the solicitation or evaluation except where laws and regulations require.

EVALUATION OF BIDS AND PROPOSALS GENERALLY The following discussion focuses on some steps in the formal procurement process that apply to the evaluation of both the bids and the proposals.

Initial Review for Compliance: Responsive and Responsible After opening bids or proposals, a public procurement official should verify that they contain all the required documents and information and are properly signed. The point of that exercise is to determine whether there is any omission or defect in a bid or proposal that requires rejection before formal evaluation even begins. A public procurement official should not waste time on an incomplete or defective submission or on any late submissions received after the deadline. Bids For bids, the determination is whether they are responsive, that is, whether they demonstrate an unequivocal commitment to the material requirements of the solicitation. Chapter 5 (Solicitation Methods) discusses this concept in more detail. Nonresponsive bids should be set aside and not evaluated. Proposals For proposals, the determination is more complicated. Problems may be obvious, for instance, only to technical persons assisting with the procurement or sitting on the evaluation committee.

In reviewing proposals for initial compliance, the public procurement official may review them for the most obvious noncompliance problems, and an evaluation committee composed of users with technical knowledge assists with what is often called determining technical acceptability. Proposals that are technically acceptable or may become so during clarifications or discussions, if any, with the evaluation committee is kept in the pool, and those that are too flawed to be within reasonable parameters are eliminated. No matter how that sorting is carried out, it should be reasonable, based on any requirements in the law and the solicitation, and documented.

Discussion and Negotiation Typically, with competitive sealed proposals, the public procurement official may engage in discussions or negotiations with respondents whose proposals, after a first review, are generally deemed eligible for contract award. Regarding the respondents who should be afforded this opportunity, the Model Procurement Code offers some guidance. It states that a procurement official should present the opportunity to all respondents whose proposals are found to have a reasonable possibility of being selected for award under the terms of the request for proposals (RFPs).1 In some jurisdictions, this is only allowed after the official recommendation for award has been announced. Either way, the following suggested language in a solicitation should advise potential respondents about discussions or negotiations: The procurement officer may enter into discussions or negotiations with respondents whose proposals that officer determines, after an initial review and based on the respondent’s initial proposal, to be acceptable or potentially acceptable based on the requirements of the solicitation. Chapter 9 (Negotiations) also describes the negotiation process in more detail.

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Sending Bids or Proposals to Users for Evaluation At the start of the formal evaluation process, some procurement offices refer bids or proposals to the user agency for its review and recommendation. That process is generally informal and unstructured. While input from the user agency may be helpful, the informality of that approach results in at least part of the evaluation being placed outside the hands of the public procurement official. That means that there may not be a complete record of how the award decision was made, exposing the process to accusations that it was suspect. The better approach is for the public procurement official to conduct and maintain control over the evaluation of proposals. There is room for user agency input in that approach without the public procurement official losing oversight of the process. The use of an evaluation committee is one method, and it is an approach that is structured, formal, and a matter of record. The public procurement official exercises control of the process so that the evaluation effort does not go astray or gravitate toward consideration of factors not announced in the solicitation.

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The laws of some public entities specifically require that price or cost be evaluated only by the public procurement official. The law of the state of Utah is an example.2

Documentation Because the evaluation process focuses on elements such as responsiveness in the case of bids and subjective evaluation criteria in the case of proposals, suppliers and the public may understandably think that the evaluation process is a mystery. It is common to see protests that challenge, for instance, the application of the evaluation criteria, an evaluation committee’s interpretation of a proposal, or the determination that a solicitation is materially defective. It is critical, therefore, that the written record of each key step in the procurement be sufficient to demonstrate how that decision was made. In preparing documentation, the public procurement official should be aware of one of the laws of contrariety: if something can be misinterpreted, it likely will be. At a minimum, the documentation in the procurement file should tell a reasonable story about the process followed from beginning to end—particularly about the basis for award.

Evaluation of Price or Cost

EVALUATION OF BIDS

One matter that a public procurement official needs to resolve before assigning evaluation responsibilities to a committee is whether that group will evaluate price or cost. It is the best practice for the public procurement official to make that decision with appropriate fiscal personnel assistance, if necessary, and possibly in developing the initial cost proposal. In many instances today, price or cost requires some calculation, such as life-cycle costing or total-costof-ownership analysis. While the public procurement official may need help in performing the cost or price analysis, this analysis should not be within the purview of any committee evaluating bids or proposals.

When evaluating competitive sealed bids, most public entities focus on only one evaluation criterion—­price, either as a principal determinant or an element of the overall cost. In most cases, the award is made to the responsible and responsive bid with the lowest cost.

Price/Performance Evaluation For a procurement where a price/performance evaluation will be carried out, the invitation for bids should notify suppliers that price/performance factors will be used and require them to submit technical performance and other data with their bids to allow for this evaluation. Today,

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price/performance analysis relies on strategies such as life-cycle costing or total cost-of-­ ownership calculations, which are discussed in detail in Chapter 15 (Sustainable Procurement). Whether or not the public entity has a sustainable procurement program, the public procurement official should consider price/performance in determining which bid offers the lowest price or cost. If the public procurement official needs outside expert assistance to make the necessary technical assessments, that expertise should be made available. Additionally, as Chapter 6 (Development Techniques for Purchasing Goods and Services) notes, there is an abundance of information available online about energy use, maintenance, and other costs related to owning many brand-name commodities.

Types of Non-Price Evaluation Criteria Non-price evaluation factors used in selecting the winning bid under competitive sealed bids are generally limited to objectively measurable ones. The state of Utah’s Administrative Code defines objective criteria as follows: (19)(a) ​ “Objective Criteria” means the quantifiable requirements, standards, and specifications set forth in a solicitation by which solicitation responses from vendors will be evaluated and scored by evaluators based on the measurable and verifiable facts, evidence, and documentation provided in each vendor’s solicitation response. (b) ​Objective criteria [are] not evaluated and scored based on the personal judgement, interpretation, or opinion of evaluators. Objective criteria [are] evaluated and scored strictly on the observable, verifiable, and measurable facts, evidence, and documentation provided in each vendor’s solicitation response. (c) ​Examples of objective criteria that may be included in a solicitation:

  (i) ​ Vendors must document that they have a minimum of five years of experience on similar projects;   (ii) ​Vendors must have three licensed technicians on the project; and   (iii) ​Vendors must certify that they have an “A” rating from an accredited rating agency.3 Table 7.1 lists some examples of objectively measurable criteria offered by the state of Utah and the Commonwealth of Kentucky for the evaluation of bids. The Utah Administrative Code also lists those same criteria and others when addressing competitive sealed proposals. The difference is that what is measured in evaluating a bid should be objectively measurable in contrast with criteria used in evaluating proposals under the competitive sealed proposals method, which may also require measuring subjective criteria. The state of Utah’s definition of subjective criteria is discussed under the heading Evaluation of Proposals later on in this chapter. Objectively measurable criteria rely heavily on whether a number can be used to define baseline compliance for each criterion, such as the number of years of experience for each respondent personnel assigned to the contract, commodity performance ratings provided by a specified outside certifying organization, or expected delivery times in hours or days. Nonnumerical values like pass/fail may also be used, such as criteria requiring a valid license or certification.

Evaluation of Price Discounts It is a good practice to ask respondents to offer discounts, particularly under indefinite quantity/­ indefinite delivery contracts. Three common types of discounts are: • A percentage off the price—deductible from an established catalog list price • A percentage off of an invoice amount— deductible for payment of an invoice within a specified time • A percentage off of the price—based on the volume purchased

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Table 7.1  Examples of Objectively Measurable Criteria State of Utah4

Commonwealth of Kentucky5

A procurement unit that conducts a procurement using a bidding process shall evaluate each bid using the objective criteria described in the invitation for bids, which may include:   • ​Experience   • ​Performance ratings   • ​Inspection   • ​Testing   • ​Quality   • ​Workmanship   • ​Time and manner of delivery   • ​References   • ​Financial stability   • ​Cost   • ​Suitability for a particular purpose   • ​The contractor’s work site safety program, including any requirement that the contractor imposes on subcontractors for a work site safety program   • ​Other objective criteria specified in the invitation for bids

Suggested evaluation criteria for commodities, establishing minimums and maximums for scoring purposes:   • ​Delivery: time, number of delivery equipment   • ​Price: lowest price   • ​Product(s): these are general measurable and quantifiable criteria. The agency is responsible for developing measurable criteria that best suit the agency’s business need. Remember, use only relevant, objective, and measurable criteria. If product best value criteria are not important to your agency’s business needs, use the ranking approach and other appropriate criteria.   • ​Product training   • ​Supplier responsibility: years in business, amount of inventory, personnel (number of dedicated employees required for the contract); experience—years of combined experience; qualifications such as a minimum of one (1) year in an (applicable) accredited educational institution is required   • ​Service: response time   • ​Warranty: a period of warranty

If the solicitation asks respondents to supply discounts, it should specify if and how the public procurement official will evaluate them. By doing that, the procurement office prevents respondents who do not offer discounts from claiming they did not know the public procurement official would accept them. A discount from an established list price is the only one that can be considered in evaluating bid prices. A discount based on future volume purchases will not occur until the contract is in place and thus is too speculative to consider during the procurement process. The same may be said of the discount offered for prompt payment of an invoice.

Determining Responsibility As noted in Chapter 5 (Solicitation Methods), a universal requirement for the award of a

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contract through a public procurement process is that it be made to a responsible supplier. In other words: are they capable of actually doing the work? In some instances where a supplier has been a contractor for the state or local government for many years or is well-known throughout the community, the determination of that supplier’s responsibility might be taken for granted. In other cases, some of the criteria related to a supplier’s responsibility, such as past performance of contracts, are made a part of the evaluation of a bid or proposal, requiring the supplier to demonstrate compliance in its bid or proposal with those criteria. Neither of those situations, however, excuses the public procurement official from making a specific determination that a supplier is responsible separate from the evaluation of its bid or

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proposal. Regardless, suppliers often have multiple ways to prove responsibility as both new and returning customers for the state or public entity. The responsibility requirements should be consistent with the scope of the project. An example of a comprehensive responsibility determination process is that of the state of New York. The Office of the New York State Comptroller has established a precise and detailed process for examining a supplier’s integrity and capability to perform a contract. The following information is part of a description from that office’s website: In making a vendor responsibility determination, you must assess whether the vendor has the following: • Appropriate financial, organization, and operational capacity and controls • Appropriate legal authority to do business in New York • A satisfactory record of integrity • An acceptable performance record on past contracts You should consider any information that comes to your attention and work with the vendor to address any negative information. Things to keep in mind: • Determinations must be made on a case-­by-case basis. • No specific response or piece of information from the vendor should automatically trigger a determination. • A previous non-responsibility finding does not necessarily ban the vendor from future State contracts.6

Reviewing Supplier Information When reviewing a vendor, you should rely on the scope of the contract to help guide you in determining what information is most relevant. However, your review must address the four

categories listed here before you can make a determination: • Financial and Organizational Capacity: Assets, liabilities, recent bankruptcies, equipment, facilities, personnel resources and expertise, and proper auditing and accounting controls • Legal Authority: Authority to do business in New York State, licenses, and registrations • Integrity: Criminal indictments or convictions, civil fines and injunctions imposed by other agencies, antitrust investigations, ethical violations, tax delinquencies, or debarment by federal, state, or local governments • Previous Contract Performance: Reports of less than satisfactory performances, early contract termination for cause, contract abandonment, court determinations of breach of contract More information on a comprehensive responsibility determination can be found on New York’s website. Since the information that a public procurement official needs to make a responsibility determination is uniform regardless of the type of procurement involved, it should not be too difficult to establish templates and checklists for collecting the needed information from suppliers and analyzing it.

EVALUATION OF PROPOSALS Under an RFP, non-price/cost evaluation factors generally play a much greater role in selecting a winning bid than in selecting a winning proposal. Additionally, criteria used to evaluate proposals may include ones that rely on the evaluators’ subjective judgments and are not limited to objectively measurable criteria. Finally, unlike the competitive sealed bidding method, there are opportunities for respondents to modify their proposals within limits and for discussions and negotiations to occur.

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As noted earlier in this chapter, the Utah Administrative Code contains a definition of subjective criteria: (28)(a) ​“Subjective Criteria” means the open-ended requirements, standards, and specifications set forth in a solicitation by which solicitation responses from vendors will be evaluated and scored by evaluators based on the personal judgement, interpretations, and opinions of the evaluators after reviewing and analyzing the information presented in each vendor’s solicitation response. (b) ​Subjective criteria [are] not evaluated and scored strictly on the observable, verifiable, and measurable facts, evidence, and documentation provided in each vendor’s solicitation response. Subjective criteria [are] also evaluated and scored based on the personal judgement, interpretation, and opinion of the evaluators after reviewing and analyzing the information presented in each vendor’s solicitation response. (c) ​ Examples of subjective criteria that may be included in a solicitation:  (i) ​Vendors must describe how they will manage the project to meet the deadline;  (ii) ​Vendors must demonstrate that they have the knowledge, skills, and ability to accomplish the scope of work; and  (iii) ​Vendors must explain how their product complies with the specifications.7

The Evaluation Instructions to the Evaluation Committee At the outset of the evaluation, the evaluation committee members should be advised of their roles in the process and the requirement to exercise independent, impartial judgment. The state of Arkansas provides the following guidance for information to cover with an evaluation in an initial orientation meeting:

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• Roles, responsibilities, and conduct expectations of committee members • Evaluation and scoring process, including evaluation form • Documentation requirements • Timeline and instructions for the next steps in the process8 Additionally, many jurisdictions require evaluation committee members to sign a form or forms acknowledging that they understand their role as an evaluator before the evaluation process truly begins, which includes: • Acknowledging their review of the solicitation and knowledge of applicable requirements/criteria set forth therein • Knowledge of the overall evaluation process itself (including timelines) • Certifying the confidentiality of the information to be shared • Acknowledging the ethical elements involved. Ethical elements will vary by jurisdiction but typically include conflicts of interest, financial interest, and, more often today, a statement on mitigating bias and a commitment to equity and inclusion across the process. Evaluation Form The evaluation document, or scoring sheet, will include the scoring and weighting determined for the project. It guides the committee throughout their evaluation and provides consistent documentation. The state of North Dakota provides this guidance on the importance of the evaluation document: • Provides a means for all evaluators to review and evaluate proposals in a consistent and objective manner • Helps the evaluators discuss differences in their initial review and, for those differences that are based on an incomplete or incorrect reading of the information presented, resolve them

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• Documents the results of the evaluation committee’s work and provides support for the final recommendations9 Evaluation documents differ greatly by jurisdiction; however, the following elements should generally be incorporated: • Organized by categories of requirements • Include or refer to specific criteria from the RFP • Have space for individual scores and comments for each category (not all states retain individual scores on file) • Include the individual committee members’ information and date of review • All of the documentation for the evaluation of all vendors in one document, with the same categories and criteria • Provide a place to calculate the total score for each vendor • Document committee consolidated scores and ranking of each vendor • Use formatting effectively so it is easy to review and understand Methods of Evaluation In state and local government procurement processes, it is the general practice to use numerical

scoring to evaluate proposals—either points or rankings. That practice is even embedded into various governments’ procurement laws and procurement handbooks. For instance, the Utah Administrative Code directs each evaluation committee independently to assign a preliminary draft score to proposals.10 The Commonwealth of Pennsylvania’s Procurement Handbook also requires the evaluation committee to use the scoring sheets provided to it.11 Numerical scoring is often perceived as the most objective means of evaluating criteria, including those that are subjective, such as a respondent’s references. In contrast, the federal government uses a variety of ways to evaluate proposals. Table 7.2 lists some methods, along with their pluses and minuses. The best practice is to allow flexibility in the manner in which the evaluation is conducted. Sequence of Evaluations After the initial review of proposals, the sequence of the evaluation will vary, depending on the evaluation plan. If there are oral presentations, site visits/demonstrations, discussions/negotiations, and best and final offers, the evaluation committee will not make its final evaluation until

Table 7.2  Advantages and Disadvantages of Evaluation Method Type Type of Evaluation Method

Advantages

Numerical scoring

• ​Too easy to focus on the score without an • ​Calculating a total in-depth analysis of a proposal’s strengths score for each proand weaknesses and the potential impact of posal is easy success under the contract • ​Evaluators often feel that they are being pre- • ​Numbers do not automatically transform the evaluation into an objective or precise one cise by using numbers

Color coding (assigning colors to designate evaluation decisions such as blue = exceptional, green = acceptable)

• ​Hard to identify the most technically superior • ​Allows the evaluaproposal where each proposal evaluated has tors to focus on the a mix of colors strengths, weaknesses, • ​More difficult to consider the relative imporand risks of each tance of evaluation factors and subfactors proposal

• ​Same as color coding Adjectives (such as exceptional, outstanding, acceptable, weak, and unacceptable)

Disadvantages

• ​Same as color coding • ​If many adjectives are used, the distinction between those adjacent to each other becomes difficult

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these activities have occurred. It may make multiple evaluations before conducting a final one. The Utah Administrative Code mandates the following best practice: (7)(d) ​To score proposals fairly, an evaluation committee member must be present at each evaluation committee meeting and must review each proposal, including, if applicable, oral presentations. If an evaluation committee member fails to attend an evaluation committee meeting or leaves a meeting early or fails for any reason to fulfill the duties and obligations of a committee member, that committee member shall be removed from the committee. The remainder of the evaluation committee members may proceed with the evaluation, provided there are at least three evaluation committee members remaining.12

PRICE AND COST ANALYSIS The separation of the analysis of price/cost from the analysis of the technical aspects of proposals is also a best practice. The price or cost evaluation should be mathematically based on the importance of price or cost as an evaluation factor. The public procurement official may need to ask for assistance from financial personnel within the public entity because the application of accounting principles may come into play. Removing the evaluation of a price or cost from an evaluation committee frees it to concentrate on the more important non-price portions of the respondent’s proposals and whether they suit the public entity’s business needs, as stated in the solicitation. Once the public procurement official completes his or her evaluation of price or cost, that official combines it with the committee’s evaluations. Since the committee is likely to conduct more than one evaluation during a procurement, the timing of when the public procurement official provides the total evaluation, including price or cost, to the committee depends on the public entity. 112

Technically speaking, the term cost refers to the base dollar amount it takes for the supplier to provide the service or item. The term price refers to the amount that includes both cost and profit. The Model Procurement Code’s recommended statutory language is simple and to the point in authorizing a public procurement official to ask a supplier for cost or pricing information: §3-403 Substantiation of Offered Prices. The Procurement Officer may request factual information reasonably available to the bidder or offeror to substantiate that the price or cost offered, or some portion of it, is reasonable, if: (1) ​the price is not:  (a) ​based on adequate price competition;  (b) ​based on established catalogue or market prices; or  (c) ​set by law or regulation; and (2) ​the price or cost exceeds an amount established in the regulations.13 The Recommended Regulations of the Model Procurement Code describe the types of information that the public procurement official may seek from a supplier or contractor as follows: R3-101.01.2 ​Cost Analysis is the evaluation of cost data for the purpose of arriving at costs actually incurred or estimates of costs to be incurred, prices to be paid, and costs to be reimbursed. R3-101.01.3 ​ Cost Data are information concerning the actual or estimated cost of labor, material, overhead, and other cost elements which have been actually incurred or which are expected to be incurred by the contractor in performing the contract. R3-101.01.6 ​Price Analysis is the evaluation of price data, without analysis of the separate cost components and profit as in cost analysis, which may assist in arriv-

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ing at prices to be paid and costs to be reimbursed. R3-101.01.7 ​Price Data are factual information concerning prices, including profit, for supplies, services, or construction substantially similar to those being procured. In this definition,“prices” refer to offered or proposed selling prices, historical selling prices, and current selling prices of such items.This definition refers to data relevant to both prime and subcontract prices.14 Conducting a price analysis is less complicated than conducting a cost analysis. Price analysis may be based on market research that was focused on pricing. Cost analysis, on the other hand, involves applying government accounting standards. The regulations that implement federal procurement law are quite detailed regarding this subject.15 It is beyond the scope of this Practical Guide to provide an in-depth discussion of this topic, but here are some good practices relating to these types of analyses: • The solicitation should reserve the right of the public procurement officer to conduct a price or cost analysis. • The public procurement officer, in evaluating prices or costs, should go beyond the simple numbers that suppliers offer and, in appropriate circumstances, should scrutinize them to ensure that they are reasonable. The State of Georgia Procurement Manual provides the following guidance and cost-scoring formula:16

The supplier deemed to have the most competitive cost response overall, as de­ termined by the state entity, will receive the maximum score for the cost criteria. Alternatively, in the event the cost proposal is scored at the category, subcategory, or line level, the state entity should assign the maximum score per category/subcategory/line for the most competitive cost response at that level based on its value. As a general rule, other suppliers’ cost re­ sponses will receive a percentage of the maximum score based on the percentage differential between the most competitive cost proposal and the specific proposal in question. This cost scoring can be accomplished using the formula noted in Table [7.3]. Discussions and Negotiations If the evaluation committee engages in discussions with respondents about their proposals, it should use some reasonable basis to decide which respondents will be afforded that opportunity. The Model Procurement Code states that those respondents “who submit proposals determined to be reasonably susceptible of being selected for award” should be given that opportunity.17 Another commonly used standard employed to sift through proposals is to determine which of them is within a competitive range. Evaluation committees talk to respondents for two purposes. One is to obtain limited clarifications of respondents’ proposals, usually through one single point of contact. This is typically only allowable for minor informalities, which the Alaska Administrative Code 2AAC 12.990 (8)

Table 7.3  Cost Scoring Formula

L /R × P = Z

Where: L = Price of the supplier’s response with the lowest cost R = Total cost of the Proposal being ranked P = Total points available for cost scoring Z = Assigned points

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defines as, “matters of form (style) rather than substance, which are evident from the bid document, or are insignificant matters that have a negligible effect on quantity, quality, price, delivery, or contractual conditions and can be waived or corrected without prejudice to other bidders.”18 The other is to enter into limited negotiations with respondents. The public entity’s law should authorize both. For example, the state of Indiana typically conducts at least two rounds of clarifications during the evaluation process following an RFP, and a respondent’s written clarification response is incorporated into their proposal. However, the requested clarifications must be carefully crafted so they don’t accidentally lead the respondent to a specific answer that the state or entity is hoping for. It is not intended to guide respondents into adding and/or bettering their proposal; it is simply to clarify something clerical that is already presented. In some cases, a committee might need to ask clarifying questions of a proposer if the committee is unsure of the meaning of the response, and the answer might be of a substantive nature. An example would be asking a software supplier to clarify its definitions of uptime or service level time to ensure the response can be accurately scored. Federal procurement law, as an alternative example, makes a clear distinction between clarifications on the one hand and discussions and negotiations on the other.19 Meetings with respondents during an evaluation process for purposes of clarifying proposals are quite limited and occur where the contract award will be made without discussions/negotiations “to clarify certain aspects of proposals (e.g., the relevance of a respondent’s past performance information and adverse past performance information to which the respondent has not previously had an opportunity to respond) or to resolve minor or clerical errors.”20 They are limited to a narrow set of issues. Under federal law, discussions and negotiations are handled the same and allow the agenda for

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the meetings between respondents and the evaluation committee to be more substantive. In fact, at the federal level, it is generally the best practice for the public procurement official to seek revisions of proposals after discussions/ negotiations have occurred so that the substantive issues raised in those meetings may be reflected in writing and evaluated. The agenda for discussions/negotiations is described aptly in the federal procurement regulations: At a minimum, the contracting officer must . . . indicate to, or discuss with, each offeror still being considered for award, deficiencies, significant weaknesses, and adverse past performance information to which the offeror has not yet had an opportunity to respond. The contracting officer also is encouraged to discuss other aspects of the offeror’s proposal that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal’s potential for award. However, the contracting officer is not required to discuss every area where the proposal could be improved. The scope and extent of discussions are a matter of contracting office judgment.21 Ultimately, each state and local government will likely handle this aspect of evaluations with its own level of nuance. It is critical that all evaluation committee members become very familiar with their evaluation regulations and procedures and that any meetings with respondents during the evaluation process not reveal information about the proposals of competing respondents. This can be challenging but is essential to ensuring the process remains fair. For more on negotiations, see Chapter 9 (Negotiations). Best and Final Offers After discussions/negotiations, a public procurement official should request that those respondents who engaged in discussions/negotiations submit revisions to their proposals—often called

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best and final offers. The submission of revised offers after discussions/negotiations is required under federal procurement law and the Model Procurement Code.22

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This gives respondents a chance to modify their proposals to reflect in writing the issues discussed in negotiations, including price. The request should be in writing and instruct respondents that if they choose not to submit a revised offer, the public procurement official and the evaluation committee will consider their initial proposal as their complete submission. The principles that apply to the evaluation of initial proposals also apply to the revisions that respondents submit in their best and final offers. The evaluation should stay within the criteria outlined in the solicitation and the plan that the public procurement official and the evaluators put into place at the outset of the evaluation process.

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Determining Responsibility The responsibility determination process is the same for any supplier or suppliers in line for contract award, whether the procurement was conducted through competitive sealed bidding, competitive sealed proposals, or for that matter, any other selection process.

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Contract Award As noted earlier, the contract should be awarded to the responsible respondent whose proposal is judged to best meet the requirements of the solicitation and law. Awarding a contract may sound straightforward, but there are several key considerations and requirements to keep in mind: • Approval: Who should approve award decisions, and who needs to approve the final contract? The award decision should be transparent because the resulting contract will be a legally binding document. The approval process will vary by the public entity and based on the complexity and risk of the contract, but often leaves final

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approval in the hands of the CPO or equivalent in coordination with legal counsel. Notification: Most jurisdictions will require some type of official notice of intent to award, which starts the official period for allowable protests. The jurisdiction’s regulations will typically specify the number of days it should be posted, at what locations it should be posted (virtual or otherwise), and the defined process for award filing. State and local governments will also have specific rules around what notices and information will be publicly available. Florida, for example, requires that most meetings be available to the public and announced in advance, including committee selection meetings and final scoring due to Florida’s Sunshine Law and the Florida Public Records Act. Debriefing: After award or awards have been issued, offer an opportunity for unsuccessful respondents to have a debrief meeting in order to discuss why their proposal was not selected. For more information on supplier debriefs and the protest process, refer to Chapter 8 (Protests). Documentation: The documentation of the selection of the winning respondent should demonstrate compliance with contract award standards stated in the law and the solicitation. It should also be consistent with the procurement procedures and guidelines, such as internal procurement manuals, that exist to assist the public entity’s public procurement officials. Maintaining Communication Channels: Once the contract has been awarded and signed, it is best practice to develop effective communication channels between the supplier and contract administrators by scheduling a kickoff meeting. At a minimum, this meeting should include those involved in planning and conducting the procurement, the procurement official, a representative from the awarded supplier, and anyone else likely to play a role in contract performance and monitoring of performance. The goal of this meeting should

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be to discuss all parties’ contract responsibilities; reiterate how performance will be evaluated, documented, and reported; and how best to set performance metrics, among other things. Ensuring all parties have an understanding of the standards of performance helps establish a positive relationship from the start. • Contract Administration Plan (CAP): It is important to plan for and document all aspects of the procurement process, from developing specifications to contract closeout. Planning for contract administration usually involves some form of a CAP. The CAP document is a tool developed in the pre-award stage of the procurement process to aid in administering the contract and ensuring that all activities are carried out effectively. The CAP should include critical elements and activities for effective contract management and quality assurance. Additional information on a CAP document and contract administration in general can be found in Chapter 10 (Contract Management and Administration) of this Practical Guide, as well as the free Contract Administration Strategies course that is offered by the National Association of State Procurement Officials (NASPO) through Procurement U.23 It is also worth noting that in some jurisdictions, just because a supplier is awarded doesn’t mean they will ultimately end up with the contract. If a state or public entity’s law does not allow negotiation during the evaluation process prior to award, negotiations would instead be conducted after the award with the awarded respondent. Negotiations could fall through at this point, and then it would be necessary to conduct due diligence to determine the next best value proposal. That could mean going to the number two response and doing what’s necessary to determine and document whether that respondent would be in the best interest of your entity. If not, you would be allowed to move to the number three response and so forth.

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MULTIPLE SOURCE AWARDS There are times when it is beneficial for a public procurement official to award a contract to more than one supplier. In the case of definite quantity contracts, this is called a progressive or incremental award. For indefinite quantity contracts, it is called a multiple award. Conditions are right for a progressive award when two or more suppliers are needed to supply the required definite quantity specified in the solicitation or to meet the delivery requirements. A multiple award is the award of a contract to two or more suppliers to furnish an indefinite quantity of a commodity or service. To guard against carelessness and abuses in using multiple source awards, a public entity’s law or policy should specify that: • They should not be made when a single award can meet the contract requirements. • The number of suppliers awarded a contract is limited to the minimum number necessary to reasonably satisfy the needs of the user agencies. • Awards should not be made for the purpose of dividing the business or providing a selection of commodities, services, or suppliers to satisfy user agency preferences instead of actual needs. A procedure should also be in place prescribing how the end user will go about ordering from multiple awards. A solicitation would state that the public procurement official is looking to award three contracts from a solicitation. There will be primary, secondary, and tertiary contract awards. If the primary contractor is unable to provide service, then the using agency would reach out to the secondary vendor. An example of this type of award might be for snow removal from government buildings and parking areas. A solicitation might call for award based on the geographic

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region within the state to ensure the timeliness of services. Procedures for the utilization of multiple contractors should be addressed in the solicitation. The terms and conditions for multiple awards should be included in the solicitation.

CONCLUSION The bid and proposal evaluation process should be flexible but should also stay within the boundaries of principles that ensure equitable treatment of all respondents. The public procurement official and any evaluators who are assisting should ensure that the evaluation criteria are broad enough to permit a range of responses from competitors but are also precise enough for those suppliers to submit their best ideas and products in response. Additionally, they should leave a clear and easy-to-follow written trail of how decisions have been made. Good management of this process should assure public confidence in the fairness of the procurement function.

ENDNOTES 1. Model Procurement Code for State & Local Gov’t §3-203(6). (Am. Bar Ass’n 2000). 2. Utah Admin. Code 63G-6a-707-(6)(b) (2020). 3. Utah Admin. Code R33-1-1 (19)(a)–(c) (2023). 4. Utah Admin. Code 63G-6a-606-(1) (2021). 5. “Basics of State Government Procurement: Best Value Overview,” Commonwealth of Kentucky, accessed January 28, 2023, https://​on​e​s​t​op​.ky​.gov​/ex​p​a​nd​/Pa​g​es​ /go​v​p​r​o​c​u​r​e​m​e​n​ts​.aspx. 6. “How to Make a Vendor Responsibility Determination,” Office of the New York State Comptroller, accessed May 1, 2023, https://​ www​.osc​.st​a​te​.ny​.us​/st​a​te​-ve​n​d​o​rs​/ve​n​d​r​ep​ /how​-ma​ke​-ve​n​d​or​-re​s​p​o​n​s​i​b​i​l​i​ty​-de​t​e​r ​m​i​n​ a​tion.

7. Utah Admin. Code R33-1-1 (28)(a)-(b) (2022). 8. “Office of State Procurement Guidelines for: The Request for Proposal Process,” Arkansas Office of State Procurement, accessed May 1, 2023, https://​www​.ar​k​a​n​s​as​.gov​/dfa​ /pr​o​c​u​r​e​m​e​nt​/do​c​u​m​e​n​ts​/rfp​_ev​a​l​u​a​t​i​on​_pl​ an​.pdf​#:~:​t​e​x​t​=​T​he​%20​f​o​l​l​o​w​i​ng​%20​g​u​i​d​e​ l​i​n​es​%20​d​e​v​e​l​o​p​ed​%20​by​%20​t​he​%20​O​f​f​ i​ce​%20​of​,pr​o​c​e​d​u​r​es​%20​a​re​%20​f​o​l​l​o​w​ed​ %20​in​%20​t​he​%20​R​FP​%20​e​v​a​l​u​a​t​i​on​%20​ p​r​o​cess. 9. “Request for Proposal (RFP) Evaluator’s Guide,” North Dakota State Procurement Office, last modified May 2019, https://www​ .omb.nd.gov/sites/www/files/documents/do​ ing-business-with-the-state/procurement​ /rfp-evaluators-guide.docx. 10. Utah Admin. Code R33-7-703(7) (2022). 11. “Procurement Handbook Chapters, Pt. 1 Ch. 06 Methods of Awarding Contracts,” Pennsylvania Department of General Services, last modified May 22, 2017, https://​ www​.dgs​.pa​.gov​/Ma​t​e​r​i​a​ls​-Se​r ​v​i​c​es​-Pr​o​c​u​ r​e​m​e​nt​/Pr​o​c​u​r​e​m​e​nt​-Ha​n​d​b​o​ok​/Pa​g​es​/de​f​ a​u​lt​.aspx. 12. Utah Admin. Code R33-7-703(7)(d) (2022). 13. Model Procurement Code for State & Local Gov’t—Recommended Regulations §3-403. 14. Model Procurement Code for State & Local Gov’t—Recommended Regulations R3-101.01.2-7. 15. Federal Acquisition Regulations, FAR 15.4 (2022). 16. “Georgia Procurement Manual,” Georgia Department of Administrative Services, accessed May 1, 2023, https://​pur​.do​as​.ga​.gov​ /gpm​/my​w​e​b​h​e​lp​/co​n​t​e​nt​/ge​o​r​g​ia​_pr​o​c​u​r​e​ m​e​nt​_ma​n​u​al​/ch​a​p​t​er​_5/56​/563​/56​32​/56​3​ 22​.htm. 17. Model Procurement Code for State & Local Gov’t §3-203(6). 18. Alaska Admin. Code title 2, §12.990 (8) (2022).

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19. FAR 15.306 (2022). 20. FAR 15.306(a)(2) (2022). 21. 48 C.F.R. §15.306 (d)(3) (2022). 22. Model Procurement Code for State & Local Gov’t §3-203(6).

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23. “Contract Administration Best Practices Guide,” NASPO, last modified September 1, 2023, https://www.naspo.org/practical​ -guide-resources/.

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RECOMMENDATIONS AND CONSIDERATIONS • Although states differ in their approach to bid protests, the process generally helps ensure a fair and transparent procedure for addressing complaints made during the solicitation and award process. • Processes should be in place for filing protests and initiating appeals for review of initial decisions on those protests. • The procurement office should train its public procurement officials on actions and best practices that may reduce the conditions from which protests arise or, once they have occurred, allow them to be resolved quickly and fairly for all parties.

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At times, contracted suppliers may believe that a state or local government has acted unreasonably or made a wrong decision in a solicitation for a public contract or while managing the contract. That belief may or may not be justified, but the public entity should address the allegation, nonetheless. Conversely, a public entity may believe that a contractor or their agent has acted unreasonably during the performance of a contract. Both types of allegations are common in the world of contracting, and having a process to resolve tension is an essential component of transparent, fair, and competitive public procurement. Generally, there are two main points during the procurement process when the potential for issues leading to a protest is highest: (1) during the solicitation and award process, and (2) during contract performance. The first types of issues, those related to the solicitation or award phase, are often called bid protests or simply protests and are the focus of this chapter. Contentions during the contract administration phase, often called contract claims or disputes, that arise when parties disagree over the performance of a contract are discussed in Chapter 11 (Contract Disputes, Claims, and Debarment). It is important to note that not all states use the term protest to describe the contentions arising during the solicitation or award, nor do all states have a formal protest procedure. Some states, such as Iowa, Maine, and Nevada, refer to a protest as an appeal. The following states do not have a formal protest process: Connecticut, Massachusetts, South Dakota, and Minnesota. The National Association of State Procurement Officials (NASPO) maintains the Repository of State Practices (RoSP), which provides information on states’ procurement statutes, regulations, and policies—including protest procedures.1 Since procurement procedures differ among states, localities, and agencies, procurement officials should familiarize themselves with their state’s statutes, regulations,

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and policies. Typically, solicitation documents include protest procedures. This chapter provides an overview of the protest process within the states. It begins by defining the two types of protests and briefly introduces the state administrative process for addressing disputes to provide context for the protest process. Next, the chapter explores the benefits and challenges that protests bring to a procurement system and its officials and offers strategies for avoiding these contentions. The chapter concludes with a detailed overview of state protest procedures.

KEY TERMS AND CONCEPTS Protests As previously mentioned, a protest is a unique procurement tool used in the solicitation and award process to resolve contentions. Supplier challenges brought during the public entity’s selection of a supplier are typically called protests. A protest is “a written objection by an interested party to a solicitation or award of a contract with the intention of receiving a remedial result.”2 Generally, there are two types of protests: 1. A protest filed prior to a contract award 2. A protest filed after an award announcement is made Protests filed before the award seek to challenge the content of the solicitation itself before the suppliers’ submissions to the solicitation are due. For example, a potential supplier may believe that the solicitation’s terms provide an unfair advantage to a competitor, such as specifications or scopes of work that seem slanted toward a particular competitor. The protestor in this type of protest seeks to have the solicitation revised to correct the problem raised in the protest. Most protests are of the second type and occur after the award. This type consists of a complaint

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by a supplier who unsuccessfully competed for a contract award. In the protest, they may challenge the following: • The rejection of their bid or proposal during the evaluation process • The entity’s award to a competitor Protests after the award may allege irregularities in the solicitation and evaluation processes and include assertions of bias or claims that the winning supplier will not be able to perform the contract. Ultimately, a protestor in this context seeks either award of the contract—rarely granted as a remedy—or correction of the irregularity, such as a reevaluation of bids or proposals consistent with the terms of an invitation for bids (IFBs) or a request for proposals (RFPs).

Administrative Procedures and Exhaustion of Them Processes that are established in law and that a supplier must follow if it files a protest or contract claim are called administrative procedures. Typically, a supplier filing a protest (protestor) or a contract claim (contractor) must first complete all the administrative procedures— called administrative remedies—before taking the matter to court. Often, those administrative procedures consist of two stages before the last stage of being brought to court. Stage 1: Initial Decision The head of the procurement office that is conducting the procurement also reviews the protest or contract claims and issues a decision. Stage 2: Appeal of Initial Decision If the supplier filing the bid protest or the contractor filing the claim is unsatisfied with the decision made at Stage 1, the supplier may appeal that decision to a higher-level official within the public entity. That higher-level official may initiate a hearing on the appeal. To do so, a hearing officer is appointed to conduct a hearing, which is less formal than a trial but has some of the same features. After the hearing,

the hearing officer recommends a decision to the higher-level official for their consideration. That official may accept or reject the recommendation. State administrative procedures for protests are further explained later in this chapter. Stage 3: State Court There is a potential Stage 3 for bid protests and contract claims, consisting of an appeal from the Stage 2 decision to a state court. Courts generally will not consider a protest or contract claim unless the protest or claim has proceeded through Stages 1 and 2 if the public entity has those procedures in place. In legal parlance, that requirement is known as the exhaustion of administrative remedies. The court will review the Stage 2 decision in a limited way. It will overturn the Stage 2 decision only if it concludes that the decision was arbitrary and capricious. The legal term arbitrary and capricious conduct is “willful and unreasonable action without consideration or regard for the facts and circumstances.”3 Some laws or agreements require state and local governments to maintain a supplier dispute resolution process. Federal regulations governing the expenditure of federal funds state that a nonfederal recipient (for example, a state and local government) “must be responsible, in accordance with good administrative practice and sound business judgment, for the settlement of all contractual and administrative issues arising out of procurements.”4 Further, the states that elected to be covered by the World Trade Organization Agreement on Government Procurement should provide opportunities for review of award decisions of state agencies in large procurements covered by the Agreement.5 Dispute resolution and mechanisms to defuse contentions during the procurement process are further explained in Chapter 11 (Contract Disputes, Claims, and Debarment). For states without formalized or administrative procedures for a protest, the remedy available to suppliers is to go directly to state court.

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VALUE AND RISKS OF ADMINISTRATIVE PROCEDURES It is essential to recognize the value of establishing workable administrative procedures for suppliers to file protests, contract claims, and appeals. A genuinely open procurement system is not afraid to be challenged for its contract award and contract management decisions. It is in the interest of a user agency to establish an administrative process for protests from suppliers. It permits the user agency to investigate and rule on a protest or claim before the supplier can ask a court to intervene. As discussed in this chapter, protests and other dispute resolution processes require resources such as procurement staff time. Still, an administrative protest or dispute resolution process serves the interests of transparency and promotes an effective procurement system that is fair to all involved.

Risks and Disadvantages of a Protest Process Protest processes vary among states, but there is a definite common understanding that the process has value. Research conducted by NASPO has found that the most frequently indicated benefits of a protest process were that it provides a fair process and a reality check on flawed or anticompetitive awards. It also offers an opportunity to identify defects in the procurement process. Notwithstanding the potential positive outcomes, responding to a protest can indeed be a time-consuming effort. Responding to a complex or lengthy set of allegations in a protest requires time and support from legal counsel, who will be required to defend a user agency at Stages 2 and 3. While somewhat burdensome, these protests can go more smoothly if legal counsel is notified at the first sign of an issue. Even better, if legal counsel has been involved from the beginning of the procurement, they

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may already be aware of the potential issues. Familiarity with procurement, until the protest is made, will speed up the entire process and allow for generally more positive outcomes. Legal counsel for the user agency and/or the procurement office may be embedded or part of the attorney general’s office. In either situation, it is critical to maintain a good working relationship and open communication with your legal support for situations such as these. While not ideal and against the spirit of the protest process, suppliers may use a protest to retaliate against a competitor. It is possible that a procurement process may not have functioned perfectly, particularly if the service or commodity being procured is complex. The protesting supplier’s assertion that a mistake or even several mistakes occurred in the process, therefore entitling it to some relief, is wrong where, even if the assertion is true, the correction of the mistake or mistakes does not change the outcome, which was the award of a contract to a supplier that is not the protestor. Another drawback to a bid protest process is that it can halt the award or performance of a contract for a critically needed commodity, service, or construction until Stages 1 through 3 are complete. The delay can often be lengthy.

Value of Protest Process Protest procedures generally allow a supplier to protest the terms of a solicitation—an IFB or an RFP, for instance. The intention is that the suppliers who may know the most about the commodities, construction, or services being purchased will point out flaws in the solicitation—for example, how the solicitation describes the goods or services. Protest procedures allowing solicitation protests require the protest to be filed before the deadline for submission of offers so that the public entity may consider the protestor’s allegations and correct the problem if the allegations are true, thus improving the solicitation and the basis for the competition.

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In practice, some suppliers may withhold their concerns about flaws in the solicitation until after the public entity selects another supplier for the award. However, an attempt by the supplier to call attention to those flaws later in a protest challenging the public entity’s award decision will be deemed to have been made too late. Protests may also enhance fairness by requiring that notice be posted of an intended contract award without competition, such as a sole source contract. In determining whether the conditions under the law authorizing non-­ competed public contracts have been satisfied, a public procurement official relies on the facts that a user agency provides. Announcing the intended award of a non-compete contract allows for public scrutiny of those facts and for filing a protest if there are any flaws in determining that a non-compete contract is appropriate.

PREVENTING OR DEFUSING DISPUTES DURING A SOLICITATION Before this chapter launches into a more detailed description of the protest processes, it is essential to offer some ideas about how to prevent a contentious situation in the first place.

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Tips for Avoiding Bid Protests6 • Ensure that all solicitation specifications and requirements are relevant, objective, and encourage competition. • When issuing an RFP, do not use a generic set of evaluation criteria. Make sure that the evaluation criteria are suited to and specific to the commodity or service being purchased. • Confirm that within the solicitation, the risks and responsibilities assumed by each party are clearly outlined. • Reach out to your legal support if you have any questions about things that may become issues further down the road; this

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not only makes you less likely to get a protest, but if you do, the attorney is already informed about the matter. Make sure that the solicitation addresses the process for handling information that potential suppliers may claim as trade secrets or otherwise confidential information. Ask a colleague to review the solicitation to ensure clarity, accuracy, and objectivity. Avoid deviating from the written requirements of the solicitation during the evaluation of bids or proposals. Use of terms in the solicitation such as requirements, mandatory, or shall informs potential suppliers that they should comply. Review the solicitation to ensure that the items stated are truly mandatory. Ensure your procurement complies with state statutes, administrative laws, policies, and procedures. Give the supplier sufficient time to read, draft, and respond to the procurement. Hold a pre-bid/proposal conference to address supplier questions and concerns. Take notes and share them with all suppliers. Create a simple way for potential suppliers to submit questions, and then make the information available to all potential suppliers. Put communication in writing to avoid an appearance of favoritism or inconsistent release of information. Have a process for determining when a solicitation amendment is needed. This should include publishing the amendment, notifying potential suppliers, and allowing sufficient response time. For evaluations, take appropriate measures to verify that your evaluation team has no conflicts (personal or financial), favoritism, or bias for or against any supplier. States will typically address this by having evaluators sign a Conflict or Confidentiality Statement. After awards are issued, offer a debriefing opportunity (if allowable in your state) for unsuccessful suppliers.7 The debriefing

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should include a discussion as to why those suppliers’ proposals were not awarded. Keep the debriefing objective and to the point. This is not an opportunity for suppliers to argue for more points or a different outcome. Include all communication, decisions, and documents in the procurement file. An unsuccessful supplier will likely want to see the procurement record or make a public records request for it. A well-­documented procurement file may discourage that supplier from filing a protest and will be critical as evidence during any protest and appeal. Note that any deadlines for protest by an unsuccessful supplier may need to be extended in good faith until the unsuccessful supplier can view the requested documents. The procurement file should show with particularity how the pertinent factors and criteria were applied in determining that the successful proposal is most advantageous to the state in order to assure suppliers that their proposals were evaluated fairly. Remember that internal e-mails will be part of the procurement record and may be sought under a public records request. Make sure that those communications conform to what the solicitation specifies. Ensure that all persons involved with the procurement, including evaluation committees or teams, understand the importance of limiting communications on the procurement to only the public procurement official and the committee or group as a whole. This is where reaching out to your legal support would be helpful—they can help you understand and train others on what you should and should not include in internal e-mails. Provide written rejection notices to all suppliers whose bids and proposals were unsuccessful. Include specific feedback, the bid tabulation, and other information to help the supplier understand the award decision.

Tips Relating to Protests and Protest Responses In the event of a protest, here are some tips for handling the situation and developing a protest response: • Reach out to the internal or external legal support available to you and inform them of the protest so they can adequately support you and your office. • Understand your state’s protest statutes, administrative laws, policies, and procedures for resolving protests. • Do not allow protests to be submitted verbally. Per your state requirements, require all protests to be submitted in writing. • Take immediate action on numerical or process errors if satisfactorily brought to the public procurement official’s attention. Do not put the supplier through the time and expense of a formal appeal—admit the mistakes. • Discuss any protest with the user agency or department and legal counsel when received. Ensure that each protest point is vetted and analyzed against the solicitation requirement and how the proposal or bid was evaluated. This exercise assists in preparing the state’s response to the protest, ensuring no errors in the evaluation, and preparing the staff for possible testimony. • Be timely, direct, and factual. Do not minimize a supplier’s position; all suppliers feel best suited for a contract award. • Be impartial, courteous, and responsive to the protestor, regardless of how angry or weak the protest is. • Explain the policies behind statutes and administrative rules. • Explain the standard of review and procedural requirements (in as simple language as possible). • When suppliers inform you that they will protest, refer them to their legal counsel on how to do so. As a public procurement official, you can get in hot water giving legal

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advice to a supplier on how or whether they should submit a protest. • Carefully write a protest decision and imagine that the reader will be a judge or a hearing officer who knows nothing about the matter. Be concise and clear. Do not cite statutes, ordinances, or rules/regulations to explain the incorrect protest. Explain the facts that make the supplier’s position incorrect. • Involve legal counsel in written responses to protests—the Attorney General or public agency counsel will ultimately have to defend any legal challenge. For every protest, internalize how you can improve your procurement process. Protests are a learning opportunity for the procurement unit. There are resources available online discussing ways to avoid protests. One of these is offered by the Federal Acquisition Institute, an arm of the United States government under the jurisdiction of the Office of Federal Procurement Policy and managed by the General Services Administration. While the training is federally oriented, the issues are generally the same at the federal, state, and local levels. The training video, Strategies to Successfully Prevent and Defend Bid Protests, is available online anytime.8

ADMINISTRATIVE PROCESS FOR PROTEST A Model for Administrative Processes Article 9 of the American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code) includes model language for legal and contractual remedies. Many states have adopted some or all of the Model Procurement Code. Commentary included in the Model Procurement Code notes that “it is essential that suppliers have confidence in the procedures for soliciting and awarding contracts, and this can be ensured

by allowing an aggrieved person to protest the solicitation, award, or related decisions.”9 Even if the Model Procurement Code has not been adopted, the provisions serve as valuable models for state and local governments considering establishing protest and dispute processes.

Components of an Administrative Process Although not all states use a formal administrative process for protest, several standard procedural features can be compared: • Timeliness: When must the protest be submitted? When must the decision be issued? • Standing and filing requirements: Who can file? What should be included? Is a protest bond required? • Remedies: What remedies are available? • Administrative and appeal processes: What are the stages of the administrative process? Is there an available administrative process to challenge a decision? Standing Standing, the legal term that determines whether the party bringing the action has the right to do so, should also be considered when filing. Protest procedures should articulate who has standing and, therefore, can submit a protest. Sometimes this person is called an interested party. Generally speaking, standing requires that the person filing the protest be connected to the procurement in some reasonable way and have been aggrieved in a measurable way. Most states mirror the Model Procurement Code, and generally, standing to protest a solicitation is limited to prospective suppliers. The protest process should require that a potential protestor first provide the grounds for standing before they are allowed to proceed. For example, in Alaska, the protestor must be an “actual or prospective supplier whose economic interest may be affected substantially

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and directly by the issuance of a contract solicitation, the award of a contract, or the failure to award a contract.”10 Timeliness There are time limits for filing protests, and they are strict. Failure to comply may result in the protest not being considered. When considering timeliness, knowing when the clock starts and stops is crucial. Generally, the clock begins to run (1) from the time that a diligent protesting supplier knew or should have known about the flawed decision or another issue that is the basis of its protest; or (2) a prescribed time frame based on the stage of a procurement. For example, Colorado and Mississippi base the timeline on when the protestor should have known, while other states such as Delaware and Louisiana base the timeline on the stage of the procurement. The Model Procurement Code states, “Protest shall be submitted in writing within [14 days] after such aggrieved person knows or should have known of the facts giving rise thereto.”11 Therefore, the procurement official should understand their protest process, even though they may not be the actual protest official. A public procurement official should track the time limit and preserve all records, including e-mails, to show when suppliers were notified about not receiving the contract award. Memos of discussions with suppliers are sometimes helpful. Moreover, suppose a supplier files an open records/freedom of information act request relating to a protest. In that case, records regarding the timing of the request and the public procurement official’s offer to disclose or actual disclosure of records may be vital in determining the timeliness of a protest. In this case, as in many others, documentation of what happened and when can be essential when dealing with a protest and an aggrieved supplier. Filling Requirements Generally, protests should be filed in writing with the public procurement official conducting

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the procurement that the supplier is contesting. There also may be formal requirements for protests. Often, a protest should contain a clear statement of the law and the facts supporting the protest and should be filed in a specific manner. Failure to comply with the state’s particular requirements may result in the protest being rejected without it ever being considered on its merits, so it is essential to avail oneself of the knowledge before it is needed. As an example of an actual process, in the state of Utah: (4)(b) ​A protest may not be considered unless it contains facts and evidence that, if true, would establish the following:   (i) ​a violation of this chapter or other applicable law or rule;   (ii) ​the procurement unit’s failure to follow a provision of a solicitation;   (iii) ​ an error made by an evaluation committee or conducting procurement unit;   (iv) ​a bias exercised by an evaluation committee or an individual committee member, excluding a bias that is a preference arising during the evaluation process because of how well a solicitation response meets criteria in the solicitation;   (v) ​a failure to correctly apply or calculate a scoring criterion; or   (vi) ​that specifications in a solicitation are unduly restrictive or unduly anticompetitive.12 It is also typical for states to articulate what does not constitute a basis for a protest. As an example, again from Utah’s procurement code, a protest may not be based on the following: (5)(a) ​the rejection of a solicitation response due to a protestor’s failure to attend or participate in a mandatory conference, meeting, or site visit held before the deadline for submitting a solicitation response;

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(b) ​ a vague or unsubstantiated allegation; or (c) ​a person’s claim that:   (i) ​ a procurement unit that complied with Section 63G-6a-112 did not provide individual notice of a solicitation to the person; or   (ii) ​the person received late notice of a solicitation for which notice was provided in accordance with Section 63G6a-112.13 Protests and later appeals are generally limited to the issues the supplier raised in their original protest, even if other issues may surface later. Structured protest procedures should not allow a protestor to circumvent other processes to request a protected record or protected information that otherwise is not subject to disclosure under the state’s open record laws. Your process should outline under what circumstances a protest can and cannot be considered. It should be clear to the supplier community what ability they have through your administrative process to appeal or protest the procurement unit’s decision. This clarity should help alleviate ambiguity for the procurement unit and supplier regarding the subject of the protest. Additionally, the procedures in some states require the submission of a protest bond which is often left to the discretion of the chief procurement officer. Bond values vary from state to state but generally fall anywhere from 5 to 25 percent of the contract value. The following states may require a protest bond:14 • • • • • • •

California Florida Hawaii Nevada South Carolina Tennessee Utah

Remedies The remedies available to the protestor vary by state but often include one or more of the following: • Costs, such as attorney fees or bid preparation costs • Revision of solicitation or cancelation • Award termination For example, South Carolina specifically distinguishes whether remedies are available prior to award or post-award with the following language: (2) ​Remedies Prior to Award: If, prior to award of a contract, it is determined that a solicitation or proposed award of a contract is in violation of law, then the solicitation or proposed award may be:   (a) ​canceled;  (b) ​revised to comply with the law and rebid; or  (c) ​awarded in a manner that complies with the provisions of this code. (3) ​Remedies After Award: If, after an award of a contract, it is determined that the solicitation or award is in violation of law:   (a) ​ the contract may be ratified and affirmed, provided it is in the best interests of the State; or  (b) ​the contract may be terminated and the payment of such damages, if any, as may be provided in the contract, may be awarded. (4) ​Entitlement to Costs: In addition to or in lieu of any other relief, when a protest submitted under Section 11-35-4210 is sustained, and it is determined that the protesting bidder or offeror should have been awarded the contract under the solicitation but is not, then the protesting bidder or offeror may request and be awarded a reasonable reimbursement amount, including reimbursement of its reasonable bid preparation costs.15

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As noted earlier in this chapter, courts give public procurement officials broad discretion. The Model Procurement Code reflects this approach. Specifically, it provides that a public procurement official’s determinations are final and conclusive unless they are clearly erroneous, arbitrary, capricious, or contrary to law.16

• •

That provision mirrors in many ways the reluctance of judges to substitute their judgment for that of procurement professionals. In the bid protest context, courts generally defer to procurement decisions if they are not arbitrary and capricious. As previously stated, the expression arbitrary and capricious applies to an action that has been taken according to one’s will or caprice, therefore conveying a notion of a tendency to abuse the possession of power.

Administrative Stages of a Protest Stage 1: Protest Decision The first decision on a bid protest is generally written by the public procurement official who conducted the procurement or that official’s manager, but this varies by state and can include a hearing officer, determinations officer, administrative law judge, or an independent board. The issuing of a decision can be as short as ten business days17 to as long as 60 days,18 depending on the state. A thorough and well-documented decision should do the following: • Summarize the nature of the procurement and the supplier’s arguments. • State when the protest was filed and by whom; if the protest is filed late, a clear, factual narrative of the dates and times is important. • State the ground(s) for the protest as specified by the supplier. • Include a fact section in the response, setting forth all of the facts that relate to the supplier’s protest, stating if and/or where the protest misstates them and why. • Include a discussion section that relates the facts to the law and describes how the

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•

•

law was followed or if there was a minor misstep during the procurement, state the reasons that the misstep does not change the original decision of the public procurement official. Avoid simply stating the law that supports the procurement decision. To show that the law or the evaluation procedure conducted under the solicitation was followed, explain clearly why the procurement complied, and if applicable, describe the mischaracterization of the facts by the supplier protesting. Plainly state a decision—for example, the protest is denied—and in cases where a protest is sustained, state the remedy (e.g., resubmission to the evaluation committee for reevaluation consistent with the RFP). State the appeal rights, if any, and the name and address of the official to whom appeals can be addressed. If the appeal rights are articulated by statute, provide a copy of the statute rather than trying to explain their rights. This will help avoid potential supplier claims of a procurement unit providing incorrect legal advice.

When submitting any written documents in a protest situation, it is best practice to have those documents reviewed by the legal counsel supporting your office. They may be able to provide helpful suggestions and ensure that all the information necessary has been provided to allow the protest to proceed as quickly as possible. Before issuing a written decision, the public procurement official may elect to hold an informal protest hearing. While a hearing is not typically held, there are some considerations when a hearing is held. The protest official may: • Subpoena witnesses and compel their attendance at the protest hearing • Subpoena documents for production at the protest hearing • Obtain additional factual information

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• Obtain testimony from experts, the person filing the protest, representatives of the procurement unit, or others to assist the protest official in making a decision on the protest Generally speaking, the state’s rules of evidence do not apply to a protest hearing. If a hearing is held, a protest official should: • Record each hearing held on a protest • Preserve all records and other evidence relied upon in reaching the protest official’s written decision until the decision and any appeal of the decision become final The rules and/or regulations for a public entity often grant authority and specify requirements for issuing protest decisions, and they must be followed. As a good practice, public procurement officials issuing protest decisions are encouraged to seek legal review of their proposed decisions. Stage 2: Supplier Appeals Protest Decision Depending on a public entity’s statutes, regulations, and policies, a supplier may have an administrative remedy to appeal the written decision by a public procurement official that denied a protest. This may be done through an established procurement appeals entity or the equivalent. The Model Procurement Code provides for a Procurement Appeals Board to review a contested protest decision made by the Chief Procurement Officer.19 More than half of the states maintain a formal appeals process for challenging a procurement officer’s decision.20 Any appeals process the state has would be an additional step to be exhausted before going to court. This administrative review of a procurement official’s decision is generally limited to the established record from the initial protest and written decision. No additional evidence or claims are considered. An assessment on

standing is often conducted to ensure that the supplier appealing the decision has the legal authority to do so. The public procurement official’s decision is upheld unless (depending on the state) it is found to be arbitrary, capricious, or clearly erroneous. In some cases, such as in Maryland, the appeal is made to an appeals board, not a higher-level official. The appeals board hears the appeal and renders a final decision.21 Protests within the state government of Colorado consist of only one required administrative decision. A supplier must lodge its protest with the head of the user agency that awarded the contract. After a decision at that level, a protestor who does not agree with that decision can either appeal to the executive director of the Department of Personnel and Administration or pursue court action.22 However, following a decision by a Procurement Appeals Board in Utah, the decision can be appealed to the Utah Court of Appeals. The Utah Court of Appeals will consider the appeal as an appellate court and will not hear the matter as a trial de novo. In a trial de novo, the appeals court would reconsider all issues in the case anew. The appeals court is often limited in its authority in that it may not overturn a finding, dismissal, or decision unless the finding, dismissal, or decision is arbitrary and capricious or erroneous. It is important to note that each process is unique for each state, and procurement officials should familiarize themselves with their state’s rules and regulations.

Stopping Contract Performance In federal government contracting, a bid protest often results in an automatic stopping—called a stay—of the procurement process. If, when the stay occurs, the resulting contract isn’t yet complete, it may remain in place until the protest is decided. The federal government stay may be

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overridden only for compelling reasons. Automatic stays of contract award or performance are less frequent at the state and local government levels. Where the laws or policies of a state or local government provide for a stay at the filing of a bid protest—such as suspending the start of contract performance—until a final protest decision is made, the stay may be lifted if a user agency shows that the contract must proceed without delay to serve the best interest of the public entity.

Debriefings A debriefing, if conducted properly and allowed under your state statutes, is an effective tool for answering the questions of unsuccessful suppliers and potentially defusing a protest. Subpart 15.5 of the Federal Acquisition Regulation (FAR), the body of regulations implementing the federal procurement system, provides guidance about conducting debriefings, including avoiding a point-by-point comparison of bids or proposals.23 Even where a debriefing is allowed, after the evaluation process, it is also a good practice for the selection (evaluation) committee to prepare and submit to the procurement unit a written statement that: • Recommends a proposal for an award of a contract if the evaluation committee decides to recommend a proposal • Contains the score awarded to the recommended proposal based on the criteria stated in the RFP • Explains how the recommended proposal provides the best value to the procurement unit Further, it is good practice to make this statement public in being fair and transparent. This helps alleviate supplier concerns from otherwise just being told they were not awarded.

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CONCLUSION By following their state’s statutes, policies, procedures, and recommendations included in this chapter, procurement officers can reduce the likelihood of a protest occurring. However, it is essential to remember that protests are part of the procurement process and can help provide transparency and accountability. The successful resolution of protests depends on the procurement actions and contract administration quality. Finally, close and early coordination with the public entity’s legal counsel is critical once issues arise that may proceed to formal administrative or judicial review.

ENDNOTES 1. “Repository of State Practice,” NASPO, accessed March 27, 2023, https://​www​.na​s​po​ .org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 2. “Dictionary of Procurement Terms,” NIGP, accessed March 27, 2023, https://www.nigp​ .org/dictionary-of-terms. 3. “Capricious,” Legal Information Institute, accessed March 27, 2023, https://​www​.law​ .cornell.edu/wex/capricious. 4. 2 C.F.R. §200.318(k) (2021). 5. “Domestic Review Mechanisms,” World Trade Organization, accessed March 27, 2023, https://​www​.wto​.org​/en​g​l​i​sh​/Tr​a​t​op​_e/ gp​r​oc​_e/di​s​p​ut​_e.htm. 6. Jack Zeigler, “Preventing Protests,” American City and County, last modified March 1, 2006, https://​www​.am​e​r​i​c​a​n​c​i​t​y​a​n​d​c​o​u​n​ ty​.com​/20​06​/03​/01​/pr​e​v​e​n​t​i​ng​-pr​o​t​e​sts/. 7. A debriefing is defined as “a practice used primarily during the Request for Proposal process, whereby the contracting authority will meet with those parties whose proposals were not deemed appropriate for award. It is viewed as a learning process for proposers who may gain a better understanding regarding perceived deficiencies

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contained within their submitted proposal.” “Dictionary of Procurement Terms,” NIGP, accessed March 27, 2023, https://www.nigp​ .org/dictionary-of-terms. 8. “Strategies to Successfully Prevent and Defend Bid Protest,” Federal Acquisition Institute, last modified August 6, 2014, https://​ www​.fai​.gov​/me​d​ia​-li​b​r​a​ry​/it​em​/st​r​a​t​e​g​i​es​-su​ c​c​e​s​s​f​u​l​ly​-pr​e​v​e​nt​-and​-de​f​e​nd​-bid​-pr​o​t​ests. 9. Model Procurement Code for State & Local Gov’t §9-101, Comm. (1) (Am. Bar Ass’n 2000). 10. Alaska Stat. Ann. §36.30.699 (2022). 11. Model Procurement Code for State & Local Gov’t §9-101. 12. Utah Code Ann. §63G-6a-1602(4)(b) (2022). 13. Utah Code Ann. §63G-6a-1602(5) (2022). 14. See American Bar Associations, Guide to State Procurement: A 50 State Primer on Purchasing Laws, Processes, and

Procedures, ed. Melissa Javon Copeland (Chicago: ABA Publishing, 2022). 15. S.C. Code Ann. §11-35-4310(2)-(4) (2022). 16. Model Procurement Code for State & Local Gov’t §3-701. 17. Colo. Rev. Stat. §24-109-102 (2023). 18. Tenn. Comp. R. & Reg. §0690-03-01.12(2) (a)(5) (2022). 19. Model Procurement Code for State & Local Gov’t §9-501. 20. “Repository of State Practices,” NASPO. 21. “Welcome to the Maryland State Board of Contract Appeals,” Maryland Board of Contract Appeals, accessed March 28, 2023, http://​ms​b​ca​.ma​r ​y​l​a​nd​.gov/. 22. See Colo. Rev. Stat. §24-109-102, 203 & 204 (2023). 23. Federal Acquisition Regulations, FAR 15.505 (2022).

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RECOMMENDATIONS AND CONSIDERATIONS • Negotiations should follow the principled negotiation approach, focusing on interests and separating the people from the problem. • Throughout the negotiation process, emphasis should be placed on gaining information and training in negotiation techniques. • The importance of strategy meetings—in order to ensure that the negotiation team agrees on how to approach the negotiation and what outcomes are desired—cannot be overstated.

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Negotiation is a common part of everyday life and plays an important role in the procurement process. When used properly, negotiations can help achieve best value contracts for public entities. Effective negotiations can improve quality, delivery, and cost and provide more profound clarity for all parties around contract expectations. It is imperative for public procurement professionals to embrace negotiation when appropriate, seek it as a skill, refine it in staff, and realize that it is often essential to achieving best value. When negotiation is practiced in public procurement environments, it should be done with the tenets of fairness and integrity in mind. In other words, it should include principled bargaining because that is the standard owed to the public. However, negotiation also requires diligence and thought; procurement officers cannot start throwing positions and demands at suppliers and hope to achieve best value. To begin, this chapter introduces the components of principled negotiations and highlights the benefits of negotiation through an example. Then, it provides a detailed explanation and considerations for each step of the negotiation process.

KEY TERMS AND CONCEPTS Principled bargaining or principled negotiation is a way of approaching a negotiation by dealing with the issue based on its merits and seeing the people involved in the negotiation as human beings.1 According to the seminal work Getting to Yes by Fisher, Ury, and Patton—which was the first to discuss principled or interest-based bargaining—there are four key elements of principled negotiation:2 1. Separate the people from the problem. It can be easy to allow emotions to come into play during a negotiation. Still, it’s always better to approach the emotions and personalities separately from the actual issues being discussed.

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2. Focus on interests, not positions. Rather than waste time arguing or compromising between hard-and-fast positions, negotiators will be better served to find the root desires, needs, and motivating factors. 3. Invent options for mutual gain. When focusing on interests, it becomes easier to understand what options will meet the needs of both parties; the best solution might not be the first or most straight­ forward. 4. Insist on using objective criteria. Choosing what data or standards will be used in a negotiation—market value, industry standards, or expert opinion—will allow the negotiation to keep moving forward fairly.

STEPS IN THE NEGOTIATION PROCESS The need for negotiations will often begin to take shape during bid or proposal evaluations. Government entities vary greatly regarding when during the procurement process they can conduct negotiations and what elements they are allowed to negotiate. The timing and extent of negotiations will vary for government entities, and it is almost always explicitly authorized in statute. Negotiation occurs most commonly when a contract is awarded from a solicitation but may also result from a renewal of an existing contract or review of a current contract’s terms—based on budget changes, performance, or changing scope, for example. However, procurement officials should familiarize themselves with applicable statutes, regulations, and policies. For example, the state of Texas permits negotiations only for the following procurements: • Purchases using competitive sealed proposals, • Purchases using requests for offers, • Purchases under [Department of Information Resources] DIR cooperative contracts,

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• • • •

Purchases of consulting services, Purchases of professional services, TXMAS purchases, State Use Program purchases (when procuring services not goods), • Sole source and competitive proprietary purchases, and • Emergency purchases when there is in­ sufficient time to solicit bids.3

Step 1—Receive and Evaluate Responses The negotiation process begins with the receipt and evaluation of bids or proposals. During an evaluation, entities may need to confirm whether submissions are responsive and responsible by verifying financial statements, contacting references, or conducting site visits. With offers that are evaluated and determined to be equal or almost equal, negotiation can help reduce the price or obtain additional features the public entity values. The American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code) states that those offerors “who submit proposals determined to be reasonably susceptible of being selected for award” should be given the opportunity to engage in negotiations.4 Another commonly used standard employed to sift through proposals is to determine which is within a competitive range, which “includes only those proposers considered to have a reasonable chance of being selected for award and who are, therefore, chosen for additional discussions and negotiations. Proposals not in the competitive range are given no further consideration.”5 The state of South Carolina provides this guidance for establishing a competitive range: (H) Competitive Range. After complying with subsection (G), the procurement officer shall establish a competitive range comprised of the offerors that submitted the most promising offers. Ordinarily, the

competitive range should not include more than three offerors.The procurement officer may select only one offeror and may select more than three. The procurement officer shall document the rationale for the selections.6

Step 2—Determine the Need for Negotiation This step aims to determine if formal negotiations are needed, with what offerors, and what approach will be taken. When establishing a timeline for a solicitation or purchase, it is important that the procurement official establish a realistic timeline for negotiations. If too little time is scheduled, time constraints may hamper negotiation efforts. In addition to the impact of statutes and policies on this decision, other considerations include: • The amount of time negotiation might take • The impact on resources • The amount of benefit expected from negotiating • Other factors that may be unique to the solicitation At this point in the process, the public procurement official should consider the targeted outcome of negotiations—do they hope to receive a better price from an offeror or more beneficial terms and conditions within the contract? These questions about potential cost and benefit should not be put aside when this step ends but should remain a focus throughout the negotiation process. Common procurement negotiation areas are clarification, scope, price, and terms and conditions. Clarification, scope, and price are all aspects that will likely have been addressed during a solicitation through clarifications with offerors and sometimes requests for best and final offers (BAFO); however, additional informal clarification through negotiations may be required. Clarifying a supplier’s solution to ensure the public entity

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and the supplier are on the same page regarding terms of art and industry standard is crucial during negotiation. Negotiating with responsive and responsible suppliers typically revolves around the contract’s terms and conditions (sometimes colloquially called Ts and Cs). Many states differentiate between mandatory and nonmandatory clauses in their contracts; it is critically impor­ tant that the procurement professional understand what authorization they have to negotiate and on which terms.

Step 3—Select Negotiation Team The negotiation team will prepare for and execute the negotiations. Therefore, selecting the right individuals to be on this team is critical. The goal should be to identify members with the personalities, skills, and expertise needed to achieve the targeted negotiation outcome. If it becomes clear that those skills aren’t available on staff, then use professional development and training to grow those skills in the office. Training and development should be proactive; it will not help to have someone learning negotiation while in the middle of a high-stakes negotiation. Instead, staff should be given opportunities to develop their negotiation skills before they’re asked to sit at the table. Some states require specific training or certification to lead or participate in negotiations, particularly for high-dollar contracts. For example, Florida statute requires: If the value of a contract is in excess of $1 million in any fiscal year, at least one of the persons conducting negotiations must be certified as a contract negotiator based upon department rules in order to ensure that certified contract negotiators are knowledgeable about effective negotiation strategies, capable of successfully implementing those strategies, and involved appropriately in the procurement process.7

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Especially for large contracts, it is important to have a cross-functional team representing all key stakeholders. Often, those stakeholders that should be considered may include: • • • • • •

Central procurement Finance User agency Legal Subject matter experts (SMEs) Management

However, the composition of the negotiation team will differ based on the negotiation circumstances. Identifying individuals’ roles on the team is a helpful practice. Negotiation team roles may include: • The procurement official: This person is the voice for the team and communicates whether the team will accept or decline changes. The same individual may also fulfill the buyer role mentioned at the bottom of this list. • The SME: This person provides a review of technical specifications or requirements and may have industry-specific knowledge of the market, suppliers, and best practices. • The financial analyst: This person understands the financial impact of the market and the buying entity’s budget and can support the negotiation for terms and conditions related to government finances. • The legal expert: This person should ideally have expertise or experience in procurement and can understand the legal considerations for the market—such as laws concerning hazardous waste disposal—and supports the team in all legal matters. • The buyer: This person provides an understanding of the specifications, solicitation, process, bid/proposal evaluation, and contract needs; the buyer should always be present during negotiations and should act as the negotiation team lead.

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This list provides a snapshot of the core roles that should be considered for any negotiation team. Wisconsin’s IT Procurement Best Practices Playbook provides a helpful acronym to consider when deciding who should be involved in negotiations—TEAM:8 • • • •

T for technical staff E for an expert in procurement A for attorney M for management of the program

Step 4—Research and Plan As with many undertakings in the procurement world, planning is the most crucial step in the negotiation process. This step involves gathering information and developing a plan to be followed during the actual negotiations. It begins by identifying the overall objectives of the negotiation and allowing those objectives to drive the resulting plan.

teams—the areas of the negotiation that are the most important, the desired outcomes, and the possible pressures impacting them. The negotiation should prioritize options that will result in mutual gain where possible. Each negotiation is unique, so it is important to remain flexible throughout the negotiation process to increase the likelihood of success. Ultimately, the negotiation team should be prepared for a negotiation to end without both sides coming to terms. Part of the planning stage should always include developing a best alternative to a negotiated agreement (BATNA), which should outline what other options are available to the procurement official if they have to walk away from a negotiation.9 These options should depend on what is allowed by statute. Still, they might include opening negotiations with another offeror—usually the second-best responsible and responsive proposal—or extending an existing contract to allow more time and flexibility.

Research and preparation should include market research, where the public procurement officer might utilize internal resources, such as previous contract data, and external resources, such as periodicals or search engines. The research phase should also include performing cost, price, supplier fiscal year schedules, and risk analyses. All of this research may seem overly time-consuming or excessive, but the more information the procurement official has, the better prepared they are to negotiate an outcome ensuring that fairness and best value are achieved.

Another possibility for a BATNA is to cancel and reissue the solicitation to increase the competition and find a supplier who can come to terms with the entity. It is critically important for the public procurement professional and the negotiation team to remember that a bad negotiation isn’t one that fails but results in a bad contract. It is always better to walk away from a negotiation than to accept terms and conditions that are not in the public entity’s best interest.

Step 5—Strategy Meetings and Finalizing the Negotiation Plan

In addition to market research, the negotiation team should identify the potential positions of the other party, including understanding the negotiation strategies they might use. The negotiation team should also consider what aspects of their position might be areas of compromise— for instance, an item’s cost, a service expectation, or some other condition of the contract. Even more important than the positions each side will take are the underlying interests of both

Strategy meetings allow the team opportunities to prepare for negotiations. Strategy meetings may be ongoing, especially for a large, complex procurement. While finalizing the negotiation plan, the team should review how the negotiation will be conducted, including the roles of each member and any guidelines, protocols, or policies everyone should know. Team members may also role-play scenarios to further prepare for the negotiation.

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During the strategy meeting, it is also impor­ tant to establish the expectation of the resulting negotiation being principled in nature. The procurement official may be the correct person to establish these expectations as many of the core values of principled negotiation are shared in the public procurement function. By the end of the strategy meetings, the negotiation team should clearly understand and agree upon the goals and expectations of the negotiation. The Texas Procurement and Contract Management Guide provides this insightful summary of the goal of negotiations: The end goal in a negotiation focused on performance results is a mutually beneficial agreement where the successful respondent makes a reasonable profit but also delivers the products/services on time with the highest possible quality.10

Step 6—Negotiate Several factors should be considered when both sides come together for the first negotiation meeting. The first is—perhaps surprisingly—the physical location chosen for the meeting. There can be a subtle power dynamic at play when deciding to meet in a conference room, either at the procurement office or at a supplier’s headquarters, for example. The location chosen for a meeting should be as neutral as possible whenever possible. Additionally, it may be tempting to hold negotiation discussions over the phone or via e-mail instead of meeting face-to-face with the other side. Unfortunately, things like facial movements and tone, which cannot be seen on the phone or heard via e-mail, can help achieve agreement in a negotiation. As much as is practical, negotiation meetings should be held in person or using a video conference option, especially for the first meeting. Tactics There are many tactics that either side can use in a negotiation, and it will benefit the public procurement official to be aware of the types, most

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common tactics, and potential counter-­tactics to use if encountered. Tactics can typically fall into three main categories, which are described by the Florida Department of Management Services Florida Certified Contract Negotiator Instructor Guide as follows: • Reason (which relies on logic and data) • Power (which relies on force and authority) • Rapport (which relies on bonding and sympathy)11 Some examples from each tactic type are described in Table 9.1, along with possible counter-­ tactics to employ if the other side seems to be using these tactics. Leverage In addition to the tactics commonly used in negotiations, a public procurement official and their negotiation team need to recognize the types of leverage in each negotiation. There are three types of leverage: positive, negative, and normative.13 Positive leverage is the ability of one side to provide something that the other side wants or needs; the value of this form of leverage for the procurement official is dependent upon the quality of the negotiation team’s BATNA. Negative leverage relies on the ability of one side to make the other side’s situation worse. This type of leverage is threat-based and should be restrained since it can cause a strong emotional reaction and harm the relationship between parties. Positive and negative leverage relates to certain power tactics, while normative leverage relates more to rapport tactics. Normative leverage uses social norms and customs to convince the other side that a position is the most reasonable and consistent with their or society’s values. Each negotiation, and even each meeting for an ongoing negotiation, will be different. Successful negotiators will utilize their knowledge and research about the opposition to determine what tactics and forms of leverage will best achieve their goals. For the public procurement professional, it is essential to do this with integrity—to

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Table 9.1  Reason, Power, and Rapport Negotiation Tactics12 Tactic

Description

Counter-Tactic

“Little Professor”

Cites facts and figures to convince the other side that you know what you’re talking about.

Know the facts, figures, rules, etc., that might impact the negotiated terms.

“Standard Practice”

Uses words like “usually,” “typically,” or “generally” to refer to industry standards or rules that govern either side (either to stand firm on their point or to push against the other side’s position).

Again, know the facts and the entity’s position; know the rules and don’t violate them. If things were done differently in a prior contract or negotiation, be able to explain and defend the discrepancy.

“False Deadline”

Implies an existing window of opportunity that will soon close, used to pressure the other side into a quick decision.

Ask about the outcomes, deadlines, and consequences: “What will happen if . . . ?” It may become necessary to say no and utilize the agreed-upon BATNA.

“Snow-Blind”

Utilizes a person experienced in the commodity or service being negotiated and who uses jargon, making their argument hard to follow and simultaneously seem logical, which can confuse and intimidate the other side.

If possible, find a Subject Matter Expert in the field to translate; don’t be afraid to ask questions, including asking the other side to explain their terms and jargon.

“Moral Appeal”

Communicates that a particular concession is the “right” or “fair” thing to do, implying there is only one possible choice.

Very rarely is there one clear answer (especially if it benefits only one party); remember that the goal of negotiation is to find compromises that are fair to everyone involved.

“Broken Wing”

Invokes sympathy by disclosing a hardship (either for a member of the team or for the organization as a whole) in order to gain concessions because the other party feels sorry for them.

Simply acknowledge and be compassionate regarding the hardship, and then move on. Any personal or professional difficulty should have no impact on the negotiation.

be a strong negotiator but not a tyrannical one, to understand the goals of the other side, and work together as much as possible to achieve an outcome that allows both sides to win, keeping in mind that the supplier’s win is secondary to the responsibility the public procurement official has to the public. Outcomes Ultimately, there are three potential outcomes to a completed negotiation: • Win-Lose • Win-Win • Lose-Lose

The first is a Win-Lose outcome, where one side clearly gets the best deal, and the other side does not. This outcome might be necessary for an event where both sides want the same thing and that thing is somehow finite. Most negotiations surrounding contract terms and conditions, which are the kind most common for a public procurement professional, do not need to result in a Win-Lose outcome. Thoughtful and educated negotiation on the part of the public entity will allow both sides to communicate their goals effectively. They will find areas in which they agree and areas where compromise can be reached so that both sides feel they’ve come

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away with what they need. This is called a WinWin outcome in a negotiation. The worst possible outcome for a negotiation is a Lose-Lose, where both sides walk away from a completed negotiation feeling that they have not gotten what they want or need to any substantial degree. As long as an effective BATNA has been developed, a negotiation team can comfortably end a negotiation as soon as it becomes clear that it will result in a lose outcome for the state. Walking away from a negotiation should be supported by policies and procedures as much as possible and done at the discretion of the Chief Procurement Officer.

Step 7—Document Process and Outcomes As with all activities a public procurement official performs, emphasis should be placed on transparency and accountability in the negotiation process. Throughout the negotiation, the team should take detailed notes and retain documentation of the process from start to finish. These documents should be created and kept with the solicitation file and any resulting contract file in accordance with laws and statutes. A clear account of the state’s experience will offer protection from potential protests—either from nonwinning suppliers or from a supplier with whom the state could not come to terms. The negotiation record may also be useful during the administration of the resulting contract or contracts; if a supplier is noncompliant or seems to have misunderstood the state’s position, the state can refer to the negotiation documentation to help clarify. In addition, these notes can provide timestamps on various little agreements entered into throughout the negotiation, which avoids either party forgetting the terms of those agreements. Finally, retaining information about the negotiation process and outcomes will provide valuable insight the next

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time the procurement official begins a solicitation or negotiation for the same goods or services or is negotiating with the same supplier in the future.

CONCLUSION The value of negotiation skills for a public procurement official cannot be overstated; effectively negotiating can improve quality, delivery, and cost and provide clarity to both the public entity and the supplier regarding contract expectations. Ultimately, appropriate negotiations lead to the best value in contracts. For this reason, negotiation should be embraced by public procurement offices when appropriate, and the skills associated should be sought, taught, and refined in their staff. As in all public procurement areas, fairness, integrity, and transparency should be kept front-of-mind.

ENDNOTES 1. Roger Fisher, William Ury, and Bruce Patton, Getting to Yes: Negotiating Agreement Without Giving Up (New York, New York: Penguin Group, 3rd Ed. 2011). 2. Fisher, Ury, Patton, Getting to Yes: Negotiating Agreement Without Giving Up, 11. 3. See “State of Texas Procurement and Contract Management Guide, Version 2.1” State­wide Procurement Division, accessed March 22, 2023, https://comptroller.texas​ .gov/purchasing/publications/procurement​ -contract.php, 83. 4. Model Procurement Code for State & Local Gov’t §3-203(6) (Am. Bar Ass’n 2000). 5. “Dictionary of Procurement Terms,” NIGP, accessed March 22, 2023, http://​www​.ni​gp​ .org​/ho​me​/fi​nd​-pr​o​c​u​r​e​m​e​nt​-re​s​o​u​r​c​es​/di​c​t​ i​o​n​a​r y​-of​-terms. 6. S.C. Code Ann. §11-35-1535(H) (2019).

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7. “Florida Certified Contract Negotiator,” De­part­ment of Management Services, accessed March 22, 2023, https://​www​.dms​ .my​f​l​o​r​i​da​.com​/bu​s​i​n​e​ss​_op​e​r​a​t​i​o​ns​/st​a​te​ _pu​r​c​h​a​s​i​ng​/pu​b​l​ic​_pr​o​c​u​r​e​m​e​nt​_pr​o​f​e​s​s​i​ o​n​al​_de​v​e​l​o​p​m​e​nt​/fl​o​r​i​da​_ce​r ​t​i​f​i​ed​_co​n​t​r​a​ ct​_ne​g​o​t​i​ator. 8. “Best Practice Playbook IT Procurement,” Wisconsin Department of Administration, accessed March 23, 2023, https://​doa​.wi​ .gov​/Do​c​u​m​e​n​ts​/DEO​/Be​s​t​P​r​a​c​t​i​c​e​P​l​a​y​b​o​ o​k​I​T​P​r​o​c​u​r​e​m​e​nt​.pdf. 9. “Business Negotiation Strategies: How to Negotiate Better Business Deals,” Harvard Law School, October 3, 2023, https://​www​ .pon​.ha​r ​v​a​rd​.edu​/fr​e​e​m​i​um​/bu​s​i​n​e​ss​-ne​g​ o​t​i​a​t​i​on​-st​r​a​t​e​g​i​es​-how​-to​-ne​g​o​t​i​a​te​-be​t​t​er​ -bu​s​i​n​e​ss​-de​als/. 10. “State of Texas Procurement and Contract Management Guide, Version 2.1” Statewide Procurement Division, accessed April 25, 2023, https://​www​.glo​.te​x​as​.gov​/the​-glo​/ab​o​ ut​/do​i​ng​-bu​s​i​n​e​ss​/pr​o​c​u​r​e​m​e​nt​/in​d​ex​.html, 83.

11. See “Florida Certified Contract Negotiator,” Department of Management Services, accessed April 25th, 2023, https://​www​ .dms​.my​f​l​o​r​i​da​.com​/co​n​t​e​nt​/do​w​n​l​o​ad​/13​2​ 6​66​/82​5​5​02​/Pa​r ​t​i​c​i​p​a​nt​_Gu​i​de​_for​_Co​n​t​r​a​ ct​_Ne​g​o​t​i​a​t​o​rs​.pdf. 12. See “Participation Guide for Contract Negotiators,” Department of Management Services, last modified October 14, 2021, https://​www​.dms​.my​f​l​o​r​i​da​.com​/bu​s​i​n​e​ss​ _op​e​r​a​t​i​o​ns​/st​a​te​_pu​r​c​h​a​s​i​ng​/pu​b​l​ic​_pr​o​c​ u​r​e​m​e​nt​_pr​o​f​e​s​s​i​o​n​al​_de​v​e​l​o​p​m​e​nt​/fl​o​r​i​da​ _ce​r​t​i​f​i​ed​_co​n​t​r​a​ct​_ne​g​o​t​i​ator. 13. G. Richard Shell, Bargaining for Advantage: Negotiation Strategies for Reasonable People, (New York, New York: Penguin Group, 1999).

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RECOMMENDATIONS AND CONSIDERATIONS • Effective contract management begins in the procurement planning and solicitation development stages when risks and responsibilities are identified. • The solicitation should contain measurable performance standards that the contracted supplier will attain. • The central procurement office may wish to form a contract administration team composed of the user agency’s procurement official, the user agency’s contract administrator, primary contract users, and other public entity employees with relevant expertise. The contract administration team should be involved in the procurement, from the development of the specifications to the closeout of the contract. • Quality assurance should be considered, incorporated, and maintained throughout the life of a contract.

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Effective contract management and contract administration requires regular oversight and communication. Once a contract is in place, it is easy to get caught up in the day-to-day aspects of procurement obligations and to assume that a lack of complaints about a contract from user agencies is a sign that all is well.

differences and complexities. For more information on construction projects, please consult Chapter 16 (Procurement of Construction and Related Services).

At times, this is not the case. Quality assurance is an important aspect because assuring quality requires the development of contract terms and contract administration procedures that define the steps the public entity will take to confirm that what the contracted supplier delivers is consistent with the contract. This chapter provides public procurement officials with general guidelines and techniques for contract management, contract administration, and quality assurance.

Contract Management and Contract Administration

To better understand the role that contract management and administration play in the success of a contract, this chapter begins by clarifying some of the key terms and concepts from the post-award through contract closeout phases of the procurement process. This chapter does not address the management of construction projects because of their

KEY TERMS AND CONCEPTS

In the public sector, contract management and contract administration are often used interchangeably to refer to post-contract-award ac­tivities. The differences in terms will appear within some of the examples used in this chapter. Throughout this Practical Guide, the terms contract management and contract administration will be used as shown in Figure 10.1. The National Association of State Procurement Officials (NASPO’s) Contract Administration Best Prac­ tices Guide also includes links to many states that maintain contract management manuals.1 The successful management or administration of a contract once a public entity awards it—and the success of the contract itself—depends in large part on sound and careful planning during

FIGURE 10.1 | CONTRACT MANAGEMENT AND CONTRACT ADMINISTRATION

CONTRACT MANAGEMENT Contract management includes the entire contracting process, from the presolicitation activities through contract closeout.

Contract Administration Contract administration is a piece of contract management which includes all post-award administration activities through contract closeout, such as: Contract monitoring Managing changes Maintaining documents Addressing claims and disputes

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the solicitation process. The training document that Hawaii’s State Procurement Office uses includes the following checklist demonstrating the elements of good procurement planning that will allow for effective contract management:2 • Specifications and scope of work are clear • Summary of performance requirements is clear • Evaluation criteria measure what is being asked for • Procurement method is appropriate • Payment is linked to performance • Subcontracting and flow-down requirements [from the solicitation/contract to the contracted supplier and its subcontractors] are defined • Performance evaluation is defined • Risks are identified and planned for • Terms and conditions (T&Cs), general and special conditions, are included in the solicitation Chapter 4 (Procurement Planning), Chapter 5 (Solicitation Methods), and Chapter 6 (Devel­ opment Techniques for Purchasing Goods and Services) include guidance on how to incorporate these elements into the procurement planning process.

Important Contract Terms in Contract Management Step one for establishing clear expectations in the post-award contract administration phase is to read the contract. As simple as that may sound, confusion and issues can quickly arise simply from a lack of knowledge or comprehension of the contract language. All parties need to understand the terms and conditions along with the expectations outlined in the resulting contract. A procurement official should be well versed in all contract terms that pertain to a procurement. Although the formal contract takes precedence, it is common for the procurement official to incorporate the solicitation documents into the contract by reference—knowing each term throughout the process is essential.

The formal contract between the supplier and the public entity covers many points, but there are three important goals it intends to accomplish: 1. Establish what the contracted supplier and the public entity should do 2. Detail how the contracted supplier will be paid 3. Allocate the other risks that may arise during contract performance between the contracted supplier and the public entity Good contract terms cover those three points clearly and unambiguously. Throughout this Practical Guide, the actual contract terms exclude specifications, scopes of work, and instructions for bidders or offerors in a solicitation. In fact, it is essential for a solicitation not to mix contract terms—which will apply once the contract is awarded—with instructions to bidders/ offerors or specifications/scopes of work. These parts of a solicitation address distinct matters and should be separated under distinct headings to avoid confusing suppliers. Every formal solicitation for a procurement should include contract terms so that suppliers can consider them when preparing bids or proposals. Additionally, contract terms should be included in a public entity’s purchase order (PO), which is the document that the public entity sends to confirm that funds are available to pay the contracted supplier. The issuance of the PO is authorization to the contracted supplier to begin work under the contract. Contract terms and conditions can be found in other procurement documents such as purchase orders or quote requests—all of which the procurement official should know well. Standard Contract Terms Public procurement offices maintain a set of standard contract terms routinely used in solicitations and POs. These terms provide contract performance standards, including contract term length, number of renewals allowed, payment requirements, etc. Remedies available to the

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public entity if the contracted supplier fails to perform are also essential. Some examples of valuable contract terms include: • Terms modified from the Uniform Commercial Code (UCC), which state that the entity reserves all legal and equitable remedies in addition to those outlined in the contract • Explicit warranties that are additional to those provided by law • Termination of the contract for default or breach • The right to offset from amounts owed the contracted supplier any expenses that the public entity incurs due to poor performance • Non-waiver language, which makes clear that the failure to invoke a remedy or enforce a right at one point during the contract does not waive that right or remedy in the future • Indemnification by the contracted supplier of the public from liability associated with claims, damages, and actions • Termination of the contract for convenience, lack of appropriation, default, etc. Non-Standard Contract Terms With the complexity of commodities, services, and construction that a public entity procures today, it is unreasonable for public procurement officials to rely on standard terms alone. They need to examine those terms in light of the contract’s three main points: (1) what the contracted supplier is supposed to do; (2) how the contracted supplier is supposed to be paid; and (3) who accepts what risk. Many contract terms should be founded on a preliminary risk analysis conducted during solicitation drafting, during evaluations of bids or proposals, during negotiation with the selected supplier, or even during contract performance. For more information on risk analysis, refer to Chapter 4 (Procurement Planning). Analyzing the three main points in each procurement will often demonstrate a need to draft

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additional contract terms that address that particular solicitation’s unique risks and requirements. Thus, a public procurement official should develop a strategy to collect reliable information concerning these three points, prepare the precise contract terms to address them and obtain any additional expertise through the public entity’s attorneys or finance staff, for example. The attorney general’s office of the state of North Dakota has prepared a manual to instruct public procurement officials in drafting contract terms.3 Such resources are excellent guides for developing contract terms.

OVERVIEW OF CONTRACT MANAGEMENT Contract management may be viewed along a continuum depending on the nature of what the contracted supplier is providing and the terms of the contract. Figure 10.2 shows some examples that help illustrate the levels of possible contract management intensity given a particular set of circumstances. Other situations can affect the level of management that a contract requires. In complex information technology project procurements, for instance, governance plans include instructions relating to contract management. Chapter 18 (Procurement of Information Technology) discusses managing these contracts in more detail.

Focus of Contract Administration Contract administration encompasses more than passively monitoring contracted supplier performance. The Michigan Procurement Policy Manual states, “Contract management is the process of actively managing State contracts to ensure compliance with the requirements of an executed contract.”4 The person or persons responsible for the administration of the contract should take active measures, such as verifying that payments to the contracted supplier are

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FIGURE 10.2 | LEVELS OF CONTRACT MANAGEMENT INTENSITY

Small-dollar contracts will generally require less contract management than largedollar ones.

One-time purchases of commercial commodities require less contract management than routine services. Contract duration for the latter is longer, and the contractor is often on site.

The purchase of noncommercial, special-order or nonroutine services requires more contract management than their routine counterparts.

correct based on verified achievement of contract performance measures and by resolving any barriers to successful contract performance that may arise during the contract term. The Contract Administration Best Practices Guide for the state of Arkansas offers the following as a nonexclusive list of duties involved in contract administration: • Understanding the contract terms and conditions including the scope and per­ formance indicators; • Monitoring the contracted supplier’s prog­ ress and performance to ensure goods and services conform to the contract re­ quirements; • Receiving and responding to communi­ cations between the agency and the con­ tracted supplier; • Documenting all actions and maintaining contract-related documents as part of the official contract file; • Participating in resolving disputes in a timely manner; • Conducting contracted supplier perfor­ mance evaluations as specified and per­ forming closeout activities;

The management of a contract awarded for a specific project and user agency requires user agency personnel working directly with the contractor, along with the procurement office that awarded the contract.

The central procurement office relies on end users alerting them about any problems with contractors for the contract management of indefinite quantity/delivery contracts, such as office supplies, temporary employment services, and travel services.

Contracts requiring performance and payments over time to provide an end product also require diligent contract management to ensure deliverables and service levels are met before payments are made.

• Managing changes to contracts (change orders, amendments, addenda, renewals, extensions, termination, etc.); and • Maintaining and closing out the contract file.5 Finally, successful contract administration requires consistent communication among the public procurement official, the user agency, the contracted supplier, and anyone on a contract administration team.

The Role of the Contract Administrator Published contract administration guides and manuals often differ as to whom they designate as the contract administrator or the person responsible for monitoring the contract after award. In most instances, the public procurement official who conducted the procurement and awarded the contract will also perform the duties of the contract administrator. It is often a best practice to appoint a user agency employee as a contract administrator when the procurement and the contract are for a specific user agency. While the state of Michigan calls that person a program manager, the state of Arkansas’s Contract Administration

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SUPPLIER MANAGEMENT: SUPPORTIVE AND COLLABORATIVE CONTRACT ADMINISTRATION In some procurement offices, it is common practice to leave contracts alone unless there is an issue, whether that is the standard procedure or because there is the perception of not having enough staff capacity to do it differently. Once a supplier has been awarded a contract, utilizing Supplier Management practices can ensure that the contractual relationship not only runs smoothly but also offers opportunities to both the entity and the supplier for growth—and doesn’t take a significant amount of time when done consistently. For contract administration to be supportive and collaborative, both the entity and the supplier must agree that it is a shared responsibility. Both sides must agree to the terms and conditions of the contract because the quality of the contractual relationship and the outcomes of the contract are extensions of that agreement. Effective Supplier Management in the administration of the contract is agile and changes depending on the stage of the contract’s life and the current issues or concerns. When a contract is new—even if the contracted supplier has done work for the entity before—it is imperative to focus on contract implementation and developing a sense of partnership between the supplier and the entity. A great way to begin is with a kickoff or orientation meeting, which allows both sides to discuss the requirements, expectations, roles, and responsibilities. This also sets a standard of open and direct communication from the beginning. Starting with a clear understanding of all these elements will limit the opportunity for confusion or issues with performance. During the life of the contract, the procurement professional should continue to learn about the supplier and their business, especially as it relates to the goods or services they are providing. Regular meetings and reporting allow for ongoing communication and timely problem resolution. As the relationship develops and rapport is built, the supplier can be given opportunities to problem solve, innovate, and otherwise respond to the unique needs of the entity with which they have a contract. Ultimately, effective Supplier Management practices in contract administration allow the procurement professional to learn from the relationship and create more meaningful contracts each time a solicitation is issued. Similarly, collaborative contract administration acknowledges the buy-in of suppliers, allowing them to continue to improve the goods and services they provide to the entity.

Best Practices Guide calls that person a con­ tract administrator. It mandates that the user agency assign one when the initial contract amount or the total projected cost of the contract is equal to or greater than $1,000,000.6 The remainder of this chapter uses the term user agency contract administrator to refer to the user agency employee designated to serve as the day-to-day administrator of a contract.

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It is critical that the user agency contract administrator understand that they do not have the authority to make or approve changes to the contract. The appointment of a user agency contract administrator to oversee a contract does not transfer to that employee the procurement and contracting authority of the public procurement official.

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The user agency contract administrator should be involved in the procurement planning process at the earliest stages. That person should be a key part of every step in the procurement process so that they have an in-depth knowledge of the contract along with the user agency project or program that it supports. This principle is reflected in the state of Hawaii’s procurement rules, which require that the contract administrator chair serves as a member of each committee evaluating proposals under a competitive sealed proposal solicitation.7 Good contract administration requires a close working relationship between the public procurement official and the user agency that is the beneficiary of the procurement. NASPO’s Con­ tract Administration Best Practices Guide notes that the public procurement official and the user agency should work together to determine the following:8 • Roles and responsibilities • How performance will be evaluated, including milestones and performance metrics • Monitoring methods • Reporting tools and processes • Process for resolution of disputes and claims

CONTRACT ADMINISTRATION PLANS Creating a contract administration plan offers contract administrators a framework for fulfilling tasks and assessing outcomes. The contract administration plan should be drafted concurrently with the development of the solicitation. Though plans will vary based on contract type and complexity, NASPO’s Contract Adminis­ tration Best Practices Guide lists the critical elements and activities of an effective contract administration plan:9 • Names and roles of contract administration team members, including who is responsible for measuring each of the following:

• • • • • • • • • • • •

performance, reporting, documenting files, authorizing payment, approving change orders, and supervising contract closeout Justification of solicitation source selection method Scope of work or specifications that include deliverables Contract goals Pricing structure for contract Delivery terms and requirements Key contract terms and conditions to include risk mitigation and information security Contract monitoring methods How performance will be measured and accepted Milestones for measurement (linked to payment terms) Payment terms Reporting method and frequency Required documentation

The Georgia Procurement Manual contains a template for a contract administration plan.10 There is also a checklist for developing a contract monitoring and administration plan in Arkansas’s Contract Administration Best Prac­ tices Guide.11 Quality assurance should also be a consideration within the contract administration plan. Quality assurance consists of steps that public entities should take to provide confidence that the quality of products or services will meet established requirements.12 It is unstated, but it is the overarching objective of each step of the procurement process leading to contract award. Quality assurance starts with narratives in a solicitation and contract that feature the precise description of the commodity or service sought and the metrics by which the contractor and the commodity or service it supplies will be evaluated during contract administration. The use of dedicated quality assurance plans is not widespread by state and local public entities. However, these plans are sometimes required for certain procurements using federal funds.

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The United States Federal Highway Administration and the Environmental Protection Agency are two of the funding agencies that require plans or programs.13 We will discuss quality assurance in more detail later in this chapter.

STEPS IN CONTRACT ADMINISTRATION Develop a Contract Administration Team For some projects, the public procurement official may need to approach the user agency contract administrator about establishing a steering or contract administration committee to assist in contract administration. A contract administration team should include representatives from key functions within the public entity, such as legal counsel, IT professionals, analysts, engineers, and other subject matter experts, in addition to the procurement official and the user agency contract administrator.14 This team serves to provide expertise and to help resolve any conflicts throughout the life of the contract. It is good practice for the committee to meet regularly and often to effectively monitor contract progress. Any meaningful recommendations by the team should be made after discussions with key personnel who are significantly involved in the contract, including the public procurement official, the contracted supplier’s representative, and the user agency contract administrator.

Hold A Kickoff Conference For certain contracts that are high-risk, complex, or affect many user agencies, a best practice is to conduct a preperformance conference or project kickoff meeting with key stakeholders. These tend to be informal discussions. If a contract administration team is in place, its members should attend any kickoff conference. Conferences such as these are important communication tools to use after contract award

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and before contract performance. Subjects discussed should include roles and responsibilities in determining how a contracted supplier’s performance will be evaluated, documented, and reported along with the best way to set performance metrics. A good understanding of performance standards helps establish positive relationships between the public procurement official, the user agency contract administrator (if applicable), and the contracted supplier. All those attending the conference should have an in-depth understanding of the contract. Arkansas’s Contract Administration Best Prac­ tices Guide has a checklist for these meetings that is available online.15

Maintain the Contract File Documenting activities and maintaining a contract file are good practices to ensure the delivery is in line with the contract requirements and that any issues are addressed promptly. The official contract file should properly document and include all contract performance issues. The contract file serves as the essential record of contract award and performance. It should contain the following: • Pre-award documents $$ Solicitation document $$ All responses to bids or proposals $$ Copy of the contract, including all attachments and amendments • Post-award to contract closeout documents (contract administration files) $$ Copies of all correspondence with the contracted supplier $$ Notes from all meetings and oral communications $$ Documentation of performance issues/ complaints, cure letters16 $$ Contract amendments $$ Documentation of deliverables $$ Payment records Developing and utilizing tools for tracking contract performance are critical components to National Association of State Procurement Officials

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maintaining the contract file properly. Creating checklists for processes, such as organizing the contract administration file, how to hold kickoff meetings, and contract monitoring and closeout, can simplify each process, increase transparency, and ensure that every step has been completed.

Manage Contract Change The importance of a process for managing changes to a contract cannot be overstated. Contract changes are inevitable. The flexibility to make contract amendments for revisions— such as performance times, the scope of work, specifications, or pricing—should be built into the contract language. Changes should follow these principles: • Only changes within the original contract’s general scope should be accepted. • Changes should be in accordance with the terms of the contract. • Only changes that are due to legitimate unforeseen circumstances should be allowed. • A written determination should be required before amending a contract. Modifications to the contract may be necessary due to circumstances unknown at the time of solicitation. To make these changes, you need the agreement of the public entity and the contracted supplier along with the proper documentation for each change. The contract administration plan should specify the steps and approvals needed to make contract changes. Some of the most common changes to contracts are: • Amendments: a change in the contractual agreement made by adding, altering, or omitting a certain part or term of the original document. Amendments should stay within the scope of the original document. • Extensions: while still subject to the same terms and conditions outlined in the original contract and any amendments, the

length of the contract terms are extended for an additional established period. • Renewal: can last as long as the term stated in the contract and is subject to the same terms and conditions outlined in the original contract and any amendments. A renewal clause and renewal contract pricing should be included in the original solicitation document. • Termination: when the contract ends before the ending date stated in the contract. This may be because performance is incomplete, out of convenience or default, or due to a government breach of contract.

Monitor Contract Performance and Compliance Contract progress meetings can help ensure effective communication during contract administration. The state of Michigan has described these meetings as opportunities for the public entity and the contracted supplier to review performance, compliance, market trends, and recommendations.17 Contract progress meetings should be regularly scheduled according to the project’s complexity and should be specified in the contract. The public procurement official, user agency contract administrator, and the contracted supplier’s representative typically attend these meetings with any other members of the contract administration team or other parties identified as valuable to the discussion. Regularly, depending on the length of the contract, the public procurement official and the user agency contract administrator should evaluate the contracted supplier’s performance, and document the evaluation. The report should summarize the contracted supplier’s performance since the last report. If the report identifies any issues, they should be addressed with the contracted supplier before the report is placed into the contract file. The Georgia Procurement Man­ ual has several templates for tracking contracted supplier compliance.18

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Resolve Contract Disputes Disagreements or issues, both big and small, may arise during the life of a contract. These are typically referred to as contract disputes. Dispute refers to the actual disagreement between the parties of a contract. This can occur regarding contract terms, performance, modifications, or other issues. The contract administrator, in most cases, will be able to work with the supplier and other parties involved to find a resolution. However, a public entity should have a contract dispute resolution procedure and tools in place. Additionally, the established dispute resolution procedures should be supported by a set of contract terms that specify to the contracted supplier how issues and disputes should be resolved. Those terms should also contain a full array of contract remedies available to the public entity if things go dramatically wrong. For more information about drafting dispute resolution provisions, the difference between contract disputes and contract claims, and available remedies, see Chapter 11 (Contract Disputes, Claims, and Debarment).

office. When closing out the contract, the files of the user agency contract administrator should be provided to the public procurement official responsible for conducting the procurement and awarding the contract. Since there should be only one official contract file, consolidating the contract administration team’s records will allow the procurement official to oversee the responsibility of the master file. As applicable, the public procurement official and the user agency contract administrator should prepare a contract closeout report that becomes part of the contract file. The NASPO Contract Administration Best Practices Guide and Arkansas’s Contract Administration Best Practices Guide19 contain useful checklists for conducting a contract closeout. In some states, surplus property falls under the purchasing umbrella. The surplus property program is responsible for ethically disposing of state property, including selling items to the public and other public entities. If surplus property is something your office is required to consider in terms of disposal of property or assets, that step should be added to your contract closeout checklist. Appendix C (Surplus Property) has more information on the topic.

Perform Contract Closeout Activities A contract is completed when all commodities or services have been received and accepted, all reports have been delivered and accepted, any public-entity-furnished equipment and materials have been returned, and final payment has been made to the contracted supplier. Before the public entity pays the final invoice, the public procurement official and the user agency contract administrator, as applicable, should ensure that all outstanding issues have been resolved and that both parties to the contract have fulfilled their contractual obligations. User agency contract administrators will often maintain their own files relating to the contract that are separate from those at the central procurement office or even the user agency procurement

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MEASURING AND PAYING FOR PERFORMANCE A contracted supplier’s performance may be considered through several interrelated variables. Many of these elements are discussed in the following paragraphs.

Deliverables When procuring goods, the contract deliverables are often easily measurable and tied to the transfer of tangible items from the contracted supplier to the public entity. Deliverables under a services contract involve the value that the contracted supplier provides. For a services contract, a deliverable may be a desired report or recommendation,

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Milestones are the points in time when the contracted supplier needs to complete a portion of its contract work to be on schedule. A milestone is more likely to be used in a services contract when there is a specific deliverable, such as a report, for the contracted supplier to provide.

The importance of tying payment to performance is reflected in part in the Common Rule. According to Common Rule requirements, an improper payment “can include overpayments, underpayments, or any payment where insufficient documentation prevents a reviewer from discerning whether a payment was proper.”20 The requirements also mandate that recipients of federal awards relate financial data to performance accomplishments and that federal agencies awarding federal funds provide recipients with “clear performance goals, indicators, targets, and baseline data.”21 Since these federal requirements reflect good practice, a public procurement official and the user agencies assisting that official should keep them in mind as they work together to develop a solicitation for a services procurement.

Performance Measures

Service Level Agreements

Performance measures may involve tools or metrics designed to assess a contracted supplier’s progress in meeting goals. These measures may consider the contracted supplier’s performance from a quantitative perspective; for example, how much of the work was accomplished from a qualitative perspective or how well the work was performed.

Service levels are a performance measure developed originally to measure services—to ensure a certain level and quality—in the information technology sector. Today, service levels can be an effective tool, whether in a separate agreement or built into the contract’s statement of work section, particularly where the contracted supplier is providing services on an ongoing basis. Some of the benefits of service level agreements are:

which may include subdeliverables such as progress reports at specified intervals of the contract term. In other service contracts, for example, a contract for a call center, the deliverable may be the ongoing services themselves. Then, the services may have additional performance measures tied to that deliverable, such as maintaining the ability to handle a certain number of daily phone calls.

Milestones

Unless payment is going to be made to the contracted supplier only at the end of the contract, periodic payments to the contracted supplier during the contract term should be tied to service levels, performance measures, milestones, or subdeliverables as specified by the contract. For instance, payments under a services contract with a major deliverable to be presented at the end of the contract should always be tied to milestones established at the start of the services contract. Suppose the contracted supplier does not meet a milestone. In that case, the services contract should, at a minimum, authorize the public entity to work with the contracted supplier to establish a new milestone date. Once that milestone has been achieved, payment to the contracted supplier can be released.

• They provide the contracted supplier with a clear picture of what is considered good performance. • Problems with performance may be identified early and amicably and be solved before the contracted supplier is considered to have breached the contract. • Agreed-upon penalties for failure to meet a service level eliminate the possibility of a contentious situation in which a contracted supplier seeks damages. • They allow for indirect quantification of loss beyond the typical cost, which can often be difficult. • They assist in aligning requested services with their delivery.

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• They improve the understanding of the services requested and the interdependent relationships involved in their delivery. • They provide a framework for effective communication between parties.

Developing Service Levels Service levels require the contracted supplier to perform specified outputs at a particular, measurable level. Examples include: • The percentage of the time that the service is available • How long it takes to contact someone on the phone • The total number of complaints about a service for a period of time—often categorized by ranking or severity • The average or total time to complete a particular activity related to the service— such as maintenance • The reasonably determined, hoped-for increase in the use of the service over the contract period—particularly where the contracted supplier is providing services to the public on the public entity’s behalf If the service is complicated and the contracted supplier’s performance depends in part on the public entity’s actions, there should be service levels in the contract for that public entity to meet as well. Service levels established for the contracted supplier to meet should relate directly to the services described in the solicitation. They should be based on a careful examination of service data detailing a solid service baseline and an understanding of what the contracted supplier can provide. Here are some basic rules for writing service levels: • Focus on specific outputs rather than tasks • Make the outputs measurable—if the public entity does not have access during the contract to all of the data needed to determine whether levels have been achieved, the contract should require the contracted supplier to report its service level performance

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regularly, reserving the right of the public entity to audit the contracted supplier’s records • Avoid making service levels complex, as those are more difficult to monitor • Allow for improvements in the service and provide a mechanism in the contract for revising the service levels to fit those improvements in the service • Review any historical data and entity-­ specific examples, as well as current industry trends Finally, there should be ramifications in the contract for the failure of the contracted supplier to meet one or more service levels. In this case, the contracted supplier’s service fees should be docked based on a formula that the contract sets out. The contract should further define that the failure to meet set numbers of service levels over a period of time results in the contracted supplier defaulting on its contractual obligations. Keep in mind that there is a point at which the contracted supplier’s failures result in such degraded service that the contract may no longer meet the public entity’s needs. Contracts may also offer an incentive to a contracted supplier that consistently exceeds the established service levels. The formulas for incentive and disciplinary measures related to service level achievement or failure should be part of the solicitation.

WARRANTIES Performance measures, milestones, deliverables, and service levels assist with contract administration by providing both the public entity and the contracted supplier with a means of measuring, evaluating, and demanding performance improvement. Explicit services warranties—those outlined in writing in the solicitation or contract—provide the public entity with another set of overarching standards with which the contracted supplier should comply.

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Warranties are intended to protect a buyer against poor quality and defects. They come into effect once the public entity has accepted a commodity and generally require the contracted supplier to repair or replace it without cost during the warranty’s duration. Warranties may be expressly written or implied. The existence of warranties may mitigate some risk of defects that do not appear at the time of acceptance.

Warranties in the UCC The Uniform Commercial Code (UCC) establishes two implied warranties that apply to the sale of commodities: 1. Merchantability or fitness of the commodities for the use that the supplier generally describes to the public 2. Fitness for a particular purpose, that is, the commodities are suitable for the purpose that the buyer has described explicitly to the seller The UCC specifies the remedies the buyer has if the seller breaches a contract by providing commodities that do not perform according to the contract, including meeting the terms of a warranty. To avoid confusion about which warranties apply, how they differ among suppliers, and to make warranties expressed and not implied, a solicitation and contract’s terms should include language that restates the UCC warranty language so that the warranties become a specific part of the resulting contract. Language similar to the following is not unusual:

• Are fit for the ordinary purposes for which commodities of that description are used • Run, within the variations permitted by the contract, of even kind, quality, and quantity within each unit and among all units involved • Are adequately contained, packaged, and labeled as the contract may require • Conform to the promise or affirmations of fact made on the container or label, if any22 Additionally, where the respondent at the time of contracting has reason to know any particular purpose for which the commodities are required and that the government is relying on the respondent’s skill or judgment to select or furnish suitable commodities, the respondent warrants that the commodities shall be fit for such purpose.

Manufacturer and Dealer Warranties

By submitting a bid or proposal under this solicitation or purchase order, the bidder or offeror warrants that any commodities provided will:

Manufacturers and dealers often offer warranties of their own. Express supplier warranties may be more limited than those under the UCC, and they often have explicit time limits; for example, 90 days or one year. Their terms typically define what the warranty covers, how the warranty is invoked, and the remedies for breach. The remedies often are made exclusive; in other words, the language of the warranty states that there are no warranties other than the one provided, including none of the UCC warranties. They may also place dollar limits on the financial obligation of the manufacturer or dealer in trying to meet the warranties. Additionally, written manufacturer or dealer warranties often exclude the UCC’s implied warranties of merchantability and fitness for a particular purpose.

• Pass without objection in the trade under the solicitation description • In the case of fungible commodities, are of fair average quality within the description

Given those limits, express warranties may or may not help assure quality. It is better to have a robust inspection program to identify defects and nonconformities in commodities when the public entity has more remedies available.

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Service Warranties The UCC does not apply to the sale of services. Contracted suppliers providing services generally do not offer warranties. Even though the UCC’s Article 2 does not apply to them, they often include language in their bids, proposals, or forms stating that they are not providing any warranties and that any warranties are explicitly excluded. Therefore, a services contract should explicitly establish warranties within the language of the contract itself. Warranties can be the critical validation for a public entity’s decision to terminate the contract for default if the contracted supplier continuously fails to meet performance measures, milestones, deliverables, or service levels. The following are some examples of explicit service contract warranties: • The contracted supplier will provide the services in compliance with all applicable laws, rules, and regulations. • The contracted supplier will provide the services in compliance with the code of conduct of, for instance, some industry, national, or international standard-setting organization. The public procurement official should include warranty language in any solicitation for services.

QUALITY ASSURANCE Quality Assurance Programs A solid Quality Assurance Program (QAP) is an essential asset to any public procurement office. As the consideration of quality assurance should begin in the development of the solicitation documents, it is crucial that offices have a set of plans in place to track the adherence of the contracted supplier to the program as well as the quality of the product or service(s) they deliver.

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The quality assurance plan typically addresses the following areas: • • • •

What will be inspected? When will the inspection take place? What monitoring methods will be used? How will performance be evaluated and assessed? • How will performance be accepted? • Who is responsible for each activity? Authority Effective public entity-wide quality assurance requires leadership. Applicable law should accord the Chief Procurement Officer (CPO) the authority to create standards and tools to implement a quality assurance program within their public entity. The American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code) provides an example of statutory language that establishes that leadership: §2-204 Authority of the Chief Procurement Officer. (3) ​Duties Except as otherwise specifically provided in this Code, the Chief Procurement Offi­ cer shall, in accordance with regulations: (d) ​establish and maintain programs for the inspection, testing, and acceptance of supplies, services, and construction23 The Model Procurement Code also provides the authority to inspect the plant or place of business of a contracted supplier or subcontractor24 and to audit cost or pricing data books and records along with the books and records of a contracted supplier or subcontractor under any negotiated contract or subcontract.25 In the absence of language in a statute or ordinance that grants the CPO broad authority to establish quality assurance programs, much can be implemented through manuals, solicitations, and contract and purchase order terms.

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Quality Assurance Manuals Although the authority to establish a public-­ entity-wide QAP should reside with the CPO, it is often the user agency’s primary responsibility to implement any program’s critical steps, coordinating with the public procurement official when supplier problems arise. Practical guidance on the steps to take when a user agency receives commodities under a contract can be found in the State Contracting Manual of the California Department of General Services: Departmental receiving and/or designated staff (dependent upon the goods received and whether or not staff with specialized expertise is necessary), should, upon ac­ knowledging delivery of an order, conduct an inspection for the following minimum conditions: • Verify that what was ordered conforms to purchase document documenta­ tion (Statement of Work, specifications, attachments, etc.), including the product description, model, brand, and product numbers. • Verify the quantity ordered against the quantity shipped or delivered. • Inspect for damage or breakage. • Check for operability/functionality. • Confirm instructions regarding special handling or packaging were followed. • Verify that the unit of measurement count is correct (e.g., if the unit of mea­ surement on the purchase document is one dozen, count 12 in the unit pack­ age). • Verify that delivery documentation (packing slip, certifications, etc.) is acceptable. • Verify that packaging integrity is pre­ served (no leakages, damages, etc.). • Verify that perishable items are in good condition and expiration dates have not been exceeded.26

California also maintains a useful set of written quality assurance standards and procedures. Chapter 20 of the state’s contracting manual addresses the receipt, inspection, and acceptance or rejection of non-information-­technology commodities.27 The schematic in Figure 10.3 from the manual demonstrates the process of receiving commodities with quality assurance in mind. The schematic in Figure 10.4 from the manual outlines the steps that should be taken when the user agency receives commodities that do not conform to the requirements of the purchase document (that is, the contract or the purchase order).

Quality Assurance for Delivery of Goods Inspection and Acceptance The quality assurance components of inspec­ tion, rejection, acceptance, and revocation are key terms representing milestones under Article 2 of the UCC, which applies to the sale of goods by a merchant to someone or some entity. For states that have adopted Article 2, the UCC provides default provisions governing the following: • • • •

Inspection and acceptance Rejection and revocation of acceptance Implied warranties Remedies for the buyer and seller

A buyer and seller can modify the UCC provisions through a contract or purchase order. Whether or not a state has adopted the UCC, a quality assurance manual should include a clear and concise description of key terms. It is also important to codify the public entity’s rights and remedies in the standard terms of the public entity’s solicitations and in other contract documents, such as purchase order terms.

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FIGURE 10.3 | GENERAL PROCESS FOR TAKING POSSESSION OF GOODS AND SERVICES PURCHASED

Term

Definition

Receiving

The act of taking possession of commodities in order to stage them for inspection or place them into inventory. Caution: Placing commodities into inventory without inspection may waive future inspection rights and remedies.

Inspecting

The act of examining commodities that have been delivered to determine conformance to what was ordered via the purchase document. In some cases, the acquisition may require specialized skills or expertise in examining the commodities to determine conformance.

Acceptance Testing

The act of testing what is purchased, either all items delivered or the first item delivered, or by random sampling of some or all items delivered. Testing determines that the commodities purchased are in conformance to the contract requirements as stated in the solicitation and purchase documents and the supplier’s and/or manufacturer’s published technical specification and that the commodities perform to a satisfactory level.

Acceptance

The legal act of documenting that the commodities and/or services conform to the requirements of the purchase document terms and conditions.

FIGURE 10.4 | REJECTING NONCONFORMING GOODS

Stage

158

Description

1

The person rejecting the commodities must immediately communicate the problem(s) and rejection in writing to the buyer.

2

The buyer is responsible for notifying the supplier within a reasonable time after delivery or tender under Uniform Commercial Code (UCC) 2-602, making arrangements to hold the rejected commodities somewhere protected from damage, and taking reasonable care of rejected commodities until the supplier can take possession of the commodities and remove them from the site.

3

The buyer is responsible for providing a notice of rejection letter to the supplier describing the defect(s) that renders the delivery as nonconforming to the purchase document, what the delivery and inspection criterion was, and how the delivered product does not conform.

4

The buyer can accept any unit of measure (e.g., lot, case, and pallet) and reject the rest (UCC2-601). Example: A department executed a purchase document for 50 cases of bond paper, but the supplier shipped 150 cases of bond paper. The receiving staff may either reject the entire shipment or accept the 50 cases of bond paper in accordance with the provisions of the purchase document. The remaining 100 cases of paper will be rejected and returned to the supplier.

5

If the supplier, within a reasonable time period or as stated in the purchase documents, does not remove rejected commodities, the department buyer may: • Ship products back to the supplier at the supplier’s expense. • Store the rejected commodities with reimbursement required from the supplier for any incurred costs.

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As a point of reference, the following reveals some of the UCC’s language encompassing the key terms: §2-513. Buyer’s Right to Inspection of Goods. (1) ​Unless otherwise agreed . . . , where goods are tendered or delivered or identi­ fied to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspec­ tion may be after their arrival. . . . §2-602. Manner and Effect of Rightful Rejection. (1) ​Rejection of goods must be within a reasonable time after their delivery or ten­ der. It is ineffective unless the buyer rea­ sonably notifies the seller. §2-606. What Constitutes Acceptance of Goods. (1) Acceptance of goods occurs when the buyer:  (a) ​after a reasonable opportunity to inspect the goods, signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or   (b) ​ fails to make an effective rejec­ tion . . . but such acceptance does not occur until the buyer has had a reason­ able opportunity to inspect them; or  (c) ​does any act inconsistent with the seller’s ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. (2) ​Acceptance of a part of any commer­ cial unit is acceptance of that entire unit. §2-608. Revocation of Acceptance in Whole or in Part. (1) ​ The buyer may revoke his accep­ tance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it  (a) ​on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or

  (b) ​ without discovery of such non-­ conformity if his acceptance was rea­ sonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances. (2) ​Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.30 To promote a clear understanding of these terms and ease of use, a quality assurance manual should define these key terms in user-friendly language and feature as little legalese as possible. Testing Research suggests that supplier-site testing and testing by state and local public entities is not a general practice. With commercial product/service procurements representing a large part of the items that state and local governments purchase, the need to have those capabilities have not been considered pressing. However, the right to do so should be preserved. The Commonwealth of Virginia has done so in its vendor’s manual: Inspection. All materials, equipment, sup­ plies, and services are subject to inspec­ tion and testing. Items or services that do not meet specifications may be rejected. Failure to reject upon receipt, however, does not relieve the contracted supplier of liability for latent or hidden defects sub­ sequently revealed when goods are put to use or tested. If latent defects are found, the contracted supplier is responsible for replacing the defective goods within the delivery time originally stated in the solicitation and is liable for any resulting expenses incurred by the state.31 First article testing is a specific type of testing to ensure that a commodity, particularly noncommercial, is suitable for the public entity’s needs

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before full-scale production begins. In instances where federal funding is involved, first article testing is required for the purchase of items such as light rail cars. The Federal Acquisition Regulation (FAR), the body of regulations that implements the federal government’s procurement system, provides a good summary of the conditions in which first article testing/inspection should be used: 9.303 Use. Testing and approval may be appropriate when— (a) ​The contracted supplier has not pre­ viously furnished the product to the Gov­ ernment; (b) ​ The contracted supplier previously furnished the product to the Government, but—   (1) ​ There have been subsequent changes in processes or specifications;  (2) ​Production has been discontinued for an extended period of time; or  (3) ​The product acquired under a pre­ vious contract developed a problem during its life; (c) ​The product is described by a perfor­ mance specification; or (d) ​It is essential to have an approved first article to serve as a manufacturing standard 32 Additionally, Subpart 9.3—First Article Testing and Approval describes how a first article testing program operates. The right to conduct first article testing should be specified both in the solicitation for the item to be tested and in the contract, along with the details of how the testing will be conducted and evaluated.

Minnesota’s The Right Step: A Case Study In 2018, the Minnesota Office of State Procurement (OSP) initiated a quality insurance program

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called The Right Step. The idea for The Right Step began when OSP asked, “How could we prevent compliance issues that may initially be of minimal concern from expanding into big, time-consuming problems? How could we catch potential fraud or even innocent mistakes that are threatening taxpayer dollars and our reputation? What kind of initiative would encourage stakeholder participation and get at the problematic issues with state contracting?” Out of these questions, The Right Step Program was formulated. The program entails a review of the first several transactions when a new statewide master contract is established to ensure that all contract end users understand and follow the contract requirements. The reviewer looks for any issues with invoicing, payments, and contract language and provides recommendations to mitigate any findings. After several more transactions, the reviewer checks back in to make sure issues are corrected. As the program’s title suggests, this allows contracts to get off on the right step by quickly and proactively correcting misunderstandings or errors early on that, if unnoticed, could lead to ongoing costly mistakes and overpayments. The program also entails ad hoc reviews as needed through issues identified by contract staff or end users. In 2021, The Right Step expanded to include contract reviews and the evaluation process for requests for proposals (RFPs). The same principles apply when a reviewer checks in on agency RFP evaluations before signing the contract. The reviewer examines the RFP, score summaries, and individual score sheets and identifies scoring discrepancies, math, and process errors. The evaluation either passes, or the agency is advised to go back and correct errors. The reviewer advises and checks back in to ensure the errors do not persist. This in-depth review continues until the agency successfully completes three consecutive evaluations, after which the agency is required to submit evaluation materials for one contract per fiscal year.33

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CONCLUSION Contract management and contract administration are essential pieces of the procurement process requiring regular oversight and attention. Effective contract management requires the public procurement official to exercise their planning, project management, communication, and problem-solving skills throughout the life of the contract. Collaboration by all parties involved is essential to the success of the contract.

ENDNOTES 1. “Contract Administration Best Practices Guide,” NASPO, last modified September 1, 2023, https://​www​.na​s​po​.org​/pr​a​c​t​i​c​al​-gu​ i​de​-re​s​o​u​r​ces/. 2. “Contract Management & Administration: An Overview,” Hawaii State Procurement Office, accessed February 11, 2023, https://​ spo​.ha​w​a​ii​.gov​/wp​-co​n​t​e​nt​/up​l​o​a​ds​/20​13​ /11​/sp​o​1​3​5​C​o​n​t​r​a​c​t​M​g​t​A​d​m​i​n​R​e​v​16​_07​ .pdf. 3. “Manuals for State and Local Government Agencies: Contract Drafting,” North Dakota Attorney General, accessed February 11, 2023, https://​at​t​o​r​n​e​y​g​e​n​e​r​al​.nd​.gov​/wp​-co​ n​t​e​nt​/up​l​o​a​ds​/20​22​/10​/Co​n​t​r​a​ct​-Dr​a​f​t​i​ng​ -Ma​n​u​al​.pdf. 4. “State of Michigan, Michigan Procurement Policy Manual, Section 12.1,” State of Michigan, last modified March 11, 2021, https://​ www​.mi​c​h​i​g​an​.go​v/​-/me​d​ia​/Pr​o​j​e​ct​/We​b​s​i​ t​es​/dt​mb​/Pr​o​c​u​r​e​m​e​nt​/do​c​u​m​e​n​ts​/MP​PM​ /Ch​a​p​t​er​_12​__C​o​n​t​r​a​ct​_Ma​n​a​g​e​m​e​nt​.pdf​ ?re​v​=​d​c​3​c​1​6​4​f​2​d​2​a​4​2​a​a​9​c​9​8​0​6​5​2​6​4​c​1​ 7ab4. 5. “Contract Administration Best Practices Guide,” Arkansas Department of Transformation and Shared Services, accessed February 11, 2023, https://​www​.tr​a​n​s​f​o​r m​ .ar​.gov​/wp​-co​n​t​e​nt​/up​l​o​a​ds​/20​20​/05​/OS​P​ C​o​n​t​r​a​c​t​A​d​m​i​n​i​s​t​r​a​t​i​o​n​G​u​i​de​_03​2​7​2​0​20​ .pdf.

6. “Contract Administration Best Practices Guide,” Arkansas Department of Transformation and Shared Services. 7. Haw. Code R. §3-122-45.01 (2008). 8. “Contract Administration Best Practices Guide,” NASPO. 9. “Contract Administration Best Practices Guide,” NASPO. 10. “Stage 7: Contract Process,” Georgia Department of Administrative Service, accessed February 11, 2023, https://​do​as​.ga​.gov​/st​a​ te​-pu​r​c​h​a​s​i​ng​/se​v​en​-st​a​g​es​-of​-pr​o​c​u​r​e​m​e​ nt​/st​a​ge​-7-c​o​n​t​r​a​ct​-pr​o​cess 11. “Contract Administration Best Practices Guide,” Arkansas Department of Transformation and Shared Services. 12. 23 C.F.R. §637.203 (2023). 13. “Quality Assurance Manual Volume 1: Quality Management Plan for Ambient Air Monitoring,” California Environmental Protection Agency, last modified July 2013, https://​arb​ .ca​.gov​/aa​qm​/qa​/pq​ao​/re​p​o​s​i​t​o​r y​/qmp​_fi​n​ al​.pdf; “Quality Assurance Program (QAP) Manual for Use by Local Agencies,” California Department of Transportation, last modified December 2008, https://​dot​.ca​.go​ v/​-/me​d​ia​/dot​-me​d​ia​/pr​o​g​r​a​ms​/lo​c​al​-as​s​i​s​ t​a​n​ce​/do​c​u​m​e​n​ts​/re​p​o​r ​ts​/qap​-ma​n​u​al​.pdf. 14. “Dictionary of Procurement Terms,” NIGP, accessed February 11, 2023, https://​www​ .nigp.org/dictionary-of-terms. 15. “Contract Administration Best Practices Guide,” Arkansas Department of Transformation and Shared Services. 16. A cure notice is “[a] written notice issued to a contractor to correct poor performance by documenting performance issues and giving the contractor an opportunity to remedy the situation within a prescribed timeframe.” Dictionary of Procurement Terms, NIGP, accessed February 11, 2023, https://​www​ .nigp.org/dictionary-of-terms. 17. “The Contract Administrator is responsible for scheduling and facilitating Contractor Progress Meetings.” A “Contract Progress Meeting” is intended to assist the State and Contractor in, including but not limited to,

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reviewing the Contract Compliance Report, addressing outstanding items on the Issue Tracking Log and Contractor Performance in MAIN, reviewing overall contract compliance, discuss market trends that will assist the State in understanding changes in the industry, and solicit contractor recommendations for increasing contract efficiency and reducing costs. Contract Progress Meetings can be held (in person or by conference call) at any time, but at a minimum, the Contract Administrator should hold a Contract Progress Meeting at least yearly. The Contract Administrator, Program Manager, and any individual identified by the parties should participate. “Contract Change Notice,” State of Michigan Procurement Division, accessed February 11, 2023, https://​www​.mi​c​h​i​g​an​.gov​/dt​m​b/​-/me​ d​ia​/Pr​o​j​e​ct​/We​b​s​i​t​es​/dt​mb​/Pr​o​c​u​r​e​m​e​nt​/ Co​n​t​r​a​c​ts​/002​/19​0​0​0​0​0​0​0​7​85​.pdf. 18. “Stage 7: Contract Process,” Georgia Department of Administrative Service, accessed February 11, 2023, http://​do​as​.ga​.gov​/st​a​te​ -pu​r​c​h​a​s​i​ng​/se​v​en​-st​a​g​es​-of​-pr​o​c​u​r​e​m​e​nt​/ st​a​ge​-7-c​o​n​t​r​a​ct​-pr​o​cess. 19. “Contract Administration Best Practices Guide,” Arkansas Department of Transformation and Shared Services. 20. 31 U.S.C. 503 §200.0 (2022). 21. 2 C.F.R §200.301(b). 22. U.C.C. §2-314. 23. Model Procurement Code for State & Local Gov’t §2-204 (Am. Bar Ass’n 2000). 24. Model Procurement Code for State & Local Gov’t §3-601.

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25. Model Procurement Code for State & Local Gov’t §3-602. 26. “State Contracting Manual, Volume 2,” California General Services Procurement Division, accessed February 11, 2023, https://​ www.dgs.ca.gov/PD/Resources/SCM​/TOC. 27. “State Contracting Manual, Volume 2, Chap­ ter 20,” California General Services Procurement Division, accessed February 11, 2023, https://www.dgs.ca.gov/PD/Resourc​ es/SCM/TOC/20. 28. “State Contracting Manual, Volume 2, Chap­ ter 20-1, 2000.1,” California General Services Procurement Division, accessed February 11, 2023, https://www.dgs.ca.gov/PD​ /Resources/SCM/TOC/20/20-1. 29. “State Contracting Manual, Volume 2, Chap­ ter 20-1, 2000.5,” California General Services Procurement Division, accessed February 11, 2023, https://www.dgs.ca.gov/PD​ /Resources/SCM/TOC/20/20-1. 30. U.C.C. §§ 2-513, 2-602, 2-606, 2-608 (Am. L. Inst. & Unif. L. Comm’n 1977). 31. “Vendors Manual, Section 7.10,” Commonwealth of Virginia, Department of General Services, accessed February 11, 2023, https://​to​w​n​h​a​ll​.vi​r​g​i​n​ia​.gov​/l/Ge​t​F​i​le​.cfm​ ?Fi​l​e​=​G​u​i​d​a​n​c​e​D​o​cs​%5C​1​94​%5C​G​D​oc​ _DGS​_43​58​_v2​.pdf. 32. Federal Acquisition Regulations, FAR 9.303 (2022). 33. “The Right Step Compliance Program,” Minnesota Department of Administration, accessed February 22, 2023, https://​mn​ .gov​/ad​m​in​/osp​/go​v​e​r ​n​m​e​nt​/pr​o​f​e​s​s​i​o​n​a​t​e​ c​h​n​i​c​a​l​c​o​n​t​r​a​c​ts​/ri​g​ht​-st​ep​-pr​o​g​ram/.

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RECOMMENDATIONS AND CONSIDERATIONS • A clearly articulated process for contract disputes and claims is essential to a transparent, fair, and competitive public procurement process. Those processes should be included in procurement policies, manuals, and public contracts. • Generally, contract dispute and claim resolution clauses should outline how notice is provided to/by the public entity and supplier, the timeline for the process, how a resolution or decision will be made, and the resources available after a decision is reached. • Alternative dispute resolution (ADR) can be a valuable tool in helping the parties think through their positions and can often result in finding a meaningful and mutually beneficial resolution to disputes or claims. • Suspension and debarment are longer-term, broad-scale prohibitions on a supplier doing business with the state and should only be used as a last resort.

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At times, contracted suppliers may believe that a state or local government has acted unreasonably or made a wrong decision in a solicitation for a public contract or while managing the contract. That belief may or may not be justified, but the public entity should address the allegation nonetheless. On the converse, a public entity may believe that a contractor or their agent has acted unreasonably during the performance of a contract. Both types of allegations are common in the world of contracting, and having a process to resolve tension is an essential component of transparent, fair, and competitive public procurement. This chapter discusses the typical issues, such as a contract dispute or a contract claim, that arise in public procurement contracting and recommendations for resolving those issues. Matters arising from a solicitation, such as bid protests, are addressed in Chapter 8 (Protests). This chapter will focus on the issues arising during the administration and management of a contract, as well as the types of remedies available to procurement officers to ensure contracts are managed effectively. It is important to note that the processes for contract disputes and claims are memorialized in the contract, and contract resolutions and remedies are most often a function of contract administration. Chapter 10 (Contract Management and Administration) provides this context. To begin, this chapter distinguishes between contract disputes and contract claims. It provides the typical tools that state and local governments have in place for airing and disposing of these types of contentious matters, such as contract terms. It also provides recommendations for preventing a disagreement from transforming into litigation. It concludes with a discussion of remedies, such as suspension or debarment, that public entities may use when contracted suppliers have failed to meet the terms and conditions as memorialized in the public contract.

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KEY TERMS AND CONCEPTS Throughout this chapter, contention, issue, or disagreement, rather than dispute, are used interchangeably to describe the common conflicts or tensions that arise between the public entity and the contracted supplier. These terms prevent confusion regarding the difference between a formal contract dispute and a contract claim. However, it is common for dispute to be used to describe any conflict between a supplier and a public entity throughout the procurement process. .

Party Contract contentions can come from any party, which is any group or individual participating in the contract agreement. Typically, contentions in public contracts are characterized as arising when the contracted supplier believes that the public entity has acted unreasonably or has made a wrong decision while managing the contract. The basis for these contentions is that one party failed to adhere to a contractual requirement. Ultimately, anyone who is a party to a contract can raise an issue if they believe that the other party is not adhering to the terms of the contract.

Dispute versus Claim When discussing disagreements, the two most common types that arise during contract management are disputes and claims. It is essential to distinguish between a contract dispute and a contract claim. These terms sound similar and can be related—a dispute is often the precursor to a claim—but they typically have very different contractual ramifications. A dispute is best described as an actual disagreement between the parties. The actual disagreement could be a disagreement over the meaning of contractual terms, the performance of the contract, or a modification to the contract requested by a party but not acquiesced to by the other party.

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When a dispute cannot be resolved to the parties’ mutual satisfaction, it may become a claim. The Federal Acquisition Regulation (FAR) defines claims as: . . . a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or inter­ pretation of contract terms, or other relief arising under or relating to this contract.1 While contract claims under public contracts are most often those that the contractor asserts against the public entity, the public entity may make claims against a contractor as well (see Table 11.1). Table 11.1  The Difference Between Contract Claims and Disputes Contract Claim

An actual disagreement over:

A formal complaint document:

 

 

 

Contract Dispute

 

• ​Contract terms (meaning) • ​Contract performance • ​Contract modification  

 

• ​Written assertion/ demand • ​Requesting relief • ​Submitted to administration

CONTRACT DISPUTE RESOLUTION PROVISIONS Dispute resolution is a function of contract management and is typically the responsibility of the procurement official. While a dispute happens before a claim, a dispute does not have to become a claim and can often be defused before its escalation from a dispute to a claim. There are several tools that a procurement official may use to defuse the contentious situation before a claim is filed. Typically, the procurement official’s most impor­ tant tool at their disposal is a well-crafted dispute

resolution provision in the contract itself that performs four primary functions: 1. Allows for notification of the dispute to the appropriate people 2. Provides a mechanism for consideration and decision of the dispute in a timely manner by an identified person 3. Provides the manner of notifying all parties of the results of that consideration 4. Identifies any further recourse that the parties may have One of the primary barriers to resolving a contract dispute occurs when the procurement official and central procurement office do not have regular interactions with the end user or user agency. In many cases, the agency using the contract directly interacts with the end user, making it more difficult for issues to make their way to the central office or the procurement official managing the contract. This means that the procurement official may not have the information needed to regularly assess the contracted supplier’s performance compared to the contract. Thus, it is vital to the management of any public contract that a disagreement between the end user and the contracted supplier be brought to the attention of the procurement official who is responsible for contract management. For example, a state agency may be using a contract for janitorial services and receive several complaints about the cleanliness of its bathrooms. This information should be communicated not only to the state agency but also to the procurement official. To help ensure this communication is made, the dispute resolution provision should provide that any dispute should be brought to the attention of the procurement officer by written notice from the contracted supplier or the using agency, as applicable. Once a procurement official becomes aware of the dispute, the dispute resolution provision should provide a mechanism for consideration of the issue. This could include reviewing all information submitted; discussions between the

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procurement official, the using agency, and the contracted supplier; or any other means of deliberation. It is essential to identify a timeline for review—a timeline should provide adequate time for review without allowing a dispute to languish for an inordinately long period. For example, in New York’s Informal Dispute Resolution Process, two 14-day timelines are provided: If negotiation between the Contractor and Authorized User fails to resolve any such dispute to the satisfaction of the parties within fourteen (14) business days, or as otherwise agreed to by the Contrac­ tor and Authorized User, of such notice, then the matter shall be submitted to the State’s Contract Administrator and the Contractor’s senior officer of the rank of Vice President or higher as its represen­ tative. Such representatives shall meet in person and shall attempt in good faith to resolve the dispute within the next four­ teen (14) business days or as otherwise agreed to by the parties.2 Once reviewed, the dispute resolution provision should provide for a decision by the considering official, which shall be binding on the parties. It should also identify a means of communicating that decision to the parties. Typically, the parties would be notified in writing of the decision by the procurement official. The written decision should identify the reason for the action taken and any further recourse available to the parties. For example, suppose the dispute resolution provision allows for the escalation of the dispute to the managerial level. In that case, the written notice should identify how to initiate the escalation to this level. If no additional recourse is allowed, then the written decision need not identify additional recourse. Many states, such as Oregon and Georgia, provide specific guidance on resolving and monitoring disputes in their state procurement manuals.3 A well-crafted dispute resolution provision that performs the four primary functions that were

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previously identified can help defuse disputes before they become claims. Often, disputes arise due to a misunderstanding between the parties or because one party feels that the other is being unreasonable. Injecting a third-party arbiter, such as the procurement official, into the process to help reach a mutually agreeable resolution can often help both parties feel their concerns have been heard and addressed. When an adequate opportunity to be heard is provided, there is more opportunity for successful performance and management of the contract.

CONTRACT CLAIM RESOLUTION PROVISIONS Sometimes, it is impossible to defuse a dispute, which can result in a party filing a formal claim. In those instances, the importance of a wellcrafted claims provision in the contract document increases dramatically. Claim resolution may be the responsibility of the contract manager or, depending on the rules and regulations of the entity, may be escalated to legal counsel or another division. A meaningful claims provision performs many of the essential functions of a well-crafted dispute resolution provision, but with more nuance as to how those functions are performed and by whom. A claims provision should, at a minimum: 1. Require notification of a contracted supplier’s intent to file a claim 2. Require identification of the claim and notification of the claim to the appropriate people 3. Provide for consideration and decision on the dispute in a timely manner by a disinterested party 4. Provide the manner of notifying the parties of the results of that consideration 5. Identify any further recourse that the parties may have 6. Provide that no claim filing should delay contract performance

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Claims are official complaints on a contract by one of the parties; thus, they often have performance impacts or fiscal impacts on one of the parties. Since state purchasing is planned well in advance and budgets are allocated accordingly, an unexpected effect on a contract can cause disarray in state planning. Moreover, some contracts can be multiyear endeavors. If a potential contract claim arises early in the contract, the state should be aware of the possibility of that claim when it arises. Due to the possibility of disarray and problems that can arise for the state, such as performance/fiscal impacts, a contract claim provision should require that a contracted supplier file a notice of intent to file a claim as soon as the supplier becomes aware of a potential claim. The provision should identify the person to whom the notice should be sent. The notice of intent to file a claim serves two purposes: (1) putting the entity on notice of the potential for performance or fiscal impact and (2) providing an opportunity for the entity to defuse the dispute before the claim is filed. The claims provision should provide that a notice of intent to file a claim is adequately identified as such. The provision should make clear that failure to file a notice of intent to file a claim at the time of the occurrence constitutes a waiver of that claim. Assuming a claims provision requires a contracted supplier to file a notice of intent to file a claim, the provision should then identify to whom the claim should be transmitted and require both that the claim be identified as such and be filed in a timely manner. While timely manner is debatable, a reasonable time frame is to require that all claims be submitted within sixty days of final payment on the contract. Once the claim has been filed, the claims provision should provide a process for consideration and resolution of the claim by a disinterested party. Unlike a dispute resolution provision, which can provide for review by an interested party, a disinterested party should review a claim. Disinterested parties can be within the same agency

but should not be otherwise involved with the contract. The review can often include an opportunity for the contracted supplier to be heard, but it does not necessarily provide that opportunity. Once reviewed, the claim provision should provide for a decision to be made by the considering disinterested party, which shall be binding on the parties, and a means of communicating that decision to the parties. Typically, the parties would be notified in writing of the decision by the disinterested party. The written decision should identify the reason for the action taken and any further recourse available to the parties. As an official complaint under the contract, a claims provision should provide some sort of recourse to appeal the decision, providing a meaningful opportunity for the contracted supplier to be heard. The hearing can be administrative but is often judicial in nature. Many states allow for appeals of contract claim decisions to be heard in their trial courts. Finally, a claims provision should provide that filing a claim does not excuse a contracted supplier from continuing to perform on the contract. At the most basic level, a claim is often a dispute about the amount of money owed under a contract. While the monetary dispute plays out in the claims process, nothing prevents a contractor from performing the services or providing the goods required under the contract. As such, a well-crafted claims provision should put a contracted supplier on notice that suspension of contract performance during the pendency of a claim is considered a breach of the contract. This will ensure that the state’s business can continue despite the disagreement between the parties.

AVAILABLE REMEDIES There are several remedies available to procurement officials drafting dispute and claim resolution clauses; the decision to include one or more of these remedies should be based on

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the laws and policies of the entity, as well as the type of commodity or service being purchased. Some entities may require the inclusion of dispute and claim resolution clauses and additional clauses defining appropriate remedies. These may include: • Alternative dispute resolution (discussed later in this chapter) • Liquidated damages4 • Contract termination or cancellation $$ Termination without cause—mutual consent of both parties $$ Termination for convenience when the contract no longer serves the best interest of the government $$ Termination for default (termination for cause) due to failure to perform, failure to deliver on time, or failure to comply with other terms and conditions—before terminating a contract for default, a cure notice should be sent to the contracted supplier; if the contracted supplier fails to remedy the contract deficiencies identified in the cure notice, the contract may be terminated Successfully instituting contract remedies relies heavily on the existence of good documentation of both the nature of the problem and the opportunities provided to the contracted supplier to remedy it. It also requires that the public entity demonstrate compliance with the notice and dispute procedures that the contract specifies. Consistent communication and documentation can often solve performance issues without the need for remedies laid out in the contract terms. But when these remedies are necessary, the procurement office should closely follow the steps outlined in advance by the contract terms. In the event that the entity chooses to pursue termination for default, there are several ramifications that should be considered and planned for before the remedy process begins. These considerations include:

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• Whether the entity will seek an alternative source of supply • The possibility of revising the contract or delivery schedule • Reprocuring the commodity or service • Whether there will be a lapse in access or service due to these decisions

ALTERNATIVE DISPUTE RESOLUTION There are two common forms of ADR that are often used and should be considered, as well as other potential forms of recourse by procurement officials. The two most common forms of ADR are arbitration and mediation. Arbitration is a form of ADR wherein a third party (the arbi­ trator or arbiters) considers the dispute and all relevant evidence and renders a decision on the dispute. Arbitration is more similar to a court hearing but is often preferred because it is less expensive and has less stringent procedural requirements. Arbitration can be binding or nonbinding. Binding arbitration concludes the claim process, while nonbinding arbitration does not require the parties to accept the arbitrator’s decision as final. It should be noted that some states cannot submit to the jurisdiction of binding arbitration due to the infringement on the state’s sovereign immunity. However, Alaska directly incorporates bidding arbitration into statute for construction contract claim appeals: An appeal from the procurement officer’s decision of a construction contract claim shall be resolved, if not by a hearing, by binding and final arbitration under Alaska Statutes sections 09.43.010–.180 if the claim is (1) less than $250,000 and the contractor requests arbitration of the claim, or (2) $250,000 or more and both the agency and the contractor agree to arbi­ tration of the claim.5

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Mediation, on the other hand, is somewhat similar to a negotiation. However, mediation is facilitated by a third party who considers the facts and arguments regarding the claim and then attempts to help the parties find a middle ground they can agree upon. Often, the mediator will consider the relative strengths and weaknesses of the claim to help the parties come to a realistic expectation of what would occur were the claim to proceed to court. Mediation can be a valuable tool in helping the parties think through their positions and can often result in finding a meaningful and mutually beneficial resolution to the claim. It should be noted that even if the claims provision provides for ADR procedures, it does not typically delay any deadlines for claim resolution found in state statutes or regulations. It is paramount that a procurement official managing a contract claim always keep in mind the deadlines imposed by state law, as failure to meet those deadlines can be punishing for the party failing to meet them.

ADDITIONAL TOOLS: SUSPENSION AND DEBARMENT The public entity can bring contract claims to enforce the terms of the contract while still maintaining a largely positive and trusting professional relationship between the entity and the contracted supplier. If the public entity begins to doubt the contracted supplier’s ethics and capability due to their actions, there are additional options available to the procurement official: suspension and debarment. Suspension and debarment work similarly at the state and federal levels; both suspension and debarment function to prohibit a supplier from working with the state, but there are significant differences. The American Bar Association’s Model Procurement Code defines the authority to invoke debarment or suspension as follows:

§9-102 Authority to Debar or Suspend. (1) Authority. After reasonable notice to the person involved and good opportu­ nity for that person to be heard, the Chief Procurement Officer or the head of a Pur­ chasing Agency, after consultation with the Using Agency and the [Attorney General], shall have authority to debar a person for cause from consideration for award of contracts. The debarment shall not be for a period of more than [three years]. After consultation with the Using Agency and the [Attorney General], the same officer shall have authority to suspend a person from consideration for award of contracts if there is probable cause for debarment. The suspension shall not be for a period exceeding [three months].The authority to debar or suspend shall be exercised in accordance with regulations.6 It should be noted that suspension and debarment are quite different from a determination that a supplier is not responsible. A decision that a supplier is not accountable typically applies to a single procurement or a series of procurements. Suspension and debarment are longer-term, broad-scale prohibitions on a supplier doing business with the state. Typically, the suspension is a short-term prohibition of a particular supplier acquiring new contracts with the state. Suspensions can last up to a year and do not usually require the state to terminate the existing supplier contracts. Suspension often occurs prior to debarment, and the suspension period allows the public body to investigate whether debarment is appropriate. Sometimes, suspensions are only permitted if there exists probable cause to debar. Debarment, on the other hand, is typically a longer-term prohibition of a particular supplier from holding any contracts with the state. The length of debarments varies by state, often ranging from three to five years, and in some cases, are determined on a case-by-case basis. Debarment also typically occurs simultaneously

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with the termination of all contracts currently held with the debarred supplier.

Common Causes for Suspension and Debarment State procurement is designed to promote competition and fairness in state contracts, so prohibiting a supplier from participating in the process is an extreme remedy. In recognition of the seriousness of the remedy, states typically identify specific reasons for which a supplier may be debarred. Sometimes, a violation is considered egregious enough to require debarment, not just make a supplier eligible for debarment. States vary in how they identify causes for debarment—causes can be identified by statute, regulation, or policy. Despite the different identification methods, many states have identified similar reasons for suspension and debarment. The most frequently identified cause for debarment is the conviction of a crime related to obtaining or attempting to obtain public contracts. Other general grounds for suspension and debarment include: • Conviction of a crime bearing on the supplier’s responsibility and integrity, such as embezzlement, theft, or bribery • Defrauding the state through material misrepresentations in bidding and contract matters • Failure to pay money owed to the state for any reason • A history of nonperformance on state contracts • Ethical violations that indicate a lack of business integrity, such as offering gifts to public employees who exercise responsibility over procurement decisions While there are common causes for debarment among the states, each state has its own list of causes for debarment. In some instances, the list of causes can be up to 20 items long, while in others, it can be rather short.

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For example, Kansas’s procurement code explicitly lists five causes for debarment: (1) ​Conviction of a criminal offense as an incident to obtaining or attempting to obtain a public or private contract or subcontract or in the performance of such contract or subcontract; (2) ​conviction under state or federal stat­ utes of embezzlement, theft, forgery, brib­ ery, falsification or destruction of records, receiving stolen property, or any other offense indicating a lack of business integ­ rity or business honesty which currently, seriously and directly affects responsibil­ ity as a state contractor; (3) ​conviction under state or federal anti­ trust statutes; (4) ​failure without good cause to perform in accordance with the terms of the con­ tract; or (5) ​any other cause the secretary deter­ mines to be so serious and compelling as to affect responsibility as a state contrac­ tor, including debarment by another gov­ ernmental entity for any cause pursuant to rules and regulations.7 Additionally, the Model Procurement Code identifies six situations in which a state or public entity may choose to suspend or debar a supplier.8

Suspending and Debarring Once a supplier has become eligible for suspension or debarment by virtue of one of the reasons identified by statute or regulation, the agency should determine whether to suspend or debar the supplier. Depending upon the state, the individual purchasing agency may have the authority to debar. In other instances, the central purchasing agency may be the only entity with the authority to debar a contractor. In addition to the District of Columbia and Puerto Rico, 45 states have a formal suspension and debarment process. In contrast, according to the 2022 State Practices Survey, nearly half of those

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states maintain a publicly available list of suppliers suspended or debarred in their state.9 Regardless of the debarring agency, if it is determined that the supplier should be suspended or debarred, the agency should send written notice of the action taken to the supplier. The written notice should provide the factual basis for the action taken. In the case of suspension, the written notice should identify the reason for the suspension and the duration, if applicable. The notice should state as much if a suspension is pending a debarment investigation. In the case of debarment, the notice should state the agency’s intention to debar and provide the factual basis underlying the intended debarment. Whether a suspension preceded the debarment or the intended debarment is the first step in the process, the debarring authority should provide the debarred supplier with the opportunity to be heard before issuing the debarment. This often takes the form of a hearing occurring after providing written notice of the intent to debar but before issuing a written decision to debar. The hearing can be administrative, but in some instances, a quasi-judicial or even judicial appeal is permitted to the supplier. If, after the hearing provided, the agency determines that debarment is merited, the agency should send a final notice of debarment. The notice of debarment should state the reasons for the debarment and the duration of the debarment. Debarments can generally last any duration of time but commonly cannot exceed three years. Once a supplier has been debarred, it should be added to the state’s debarred supplier list. The agency should publicly post the debarred supplier list. A publicly available list is helpful because being debarred by one state is often the basis for debarment in others. For example, Colorado statute includes debarment by any government entity as a means to debar a supplier in the state of Colorado as well:

(e) ​The person is currently under debar­ ment by any other governmental entity which is based upon a settlement agree­ ment or a final administrative or judicial determination issued by a federal, state, or local governmental entity;10 As a final note, the debarment does have an expiration date, and the procurement professional needs to understand the underlying goals of debarment. Yes, a debarment is intended to prevent a particularly bad actor from contracting with the state for a period of time. However, a debarment is also intended to allow the supplier to rehabilitate themselves as a business entity. Once the supplier has served their debarment period, the states typically consider them a responsible bidder again.

Debarment: The State’s Most Extreme Remedy Among the remedies available to the state, debarment is the most extreme. Several aspects of the debarment process indicate how seriously state legislatures and regulators take debarment. A hearing is required before debarment, and the debarment should have an expiration date indicating the severity of being excluded from doing business with the state. A history of debarment can be quite damaging to a supplier’s business and reputation. With that said, its status as an extreme remedy should not deter its use. Like all remedies in procurement, suspension and debarment have their purposes. When a supplier has proven to be unethical or defaults on multiple contracts with the state, debarment can serve as a mechanism to prevent that supplier from doing business with the state for a period of time.

CONCLUSION No matter what type of issue arises in the life of a contract and whether the affected party is the public entity or the contracted supplier, contract

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terms should be in place that outline appropriate and practical options for resolution. Dispute and claim resolution clauses should include as much detail as possible about the process for notification and resolution, as well as the remedies available to the affected party. Good dispute and claim resolution clauses create a more meaningful and effective contract, ensuring that all parties are treated fairly and receive what the contract promises.

ENDNOTES 1. Federal Acquisition Regulations, FAR 52.233-1(c) (2022). 2. “Dispute Resolution Policy,” New York Office of General Services, accessed February 27, 2023, https://​ogs​.ny​.gov​/sy​s​t​em​/fi​l​es​/do​c​u​ m​e​n​ts​/20​21​/10​/di​s​p​u​t​e​r​e​s​o​l​u​t​i​o​n​p​o​l​i​c​y1​-20​ 2​0​w​e​b​s​i​te​.pdf. 3. “Contract Administration,” Oregon Department of Administrative Services, accessed February 27, 2023, https://​www​.or​e​g​on​.gov​ /das​/OPM​/Pa​g​es​/ad​m​i​n​i​s​t​r​a​t​i​on​.aspx; “7.7 Step 6—State and Supplier’s Resolution of Disputes,” Georgia Procurement Manual, accessed February 27, 2023, https://​pur​.do​ as.ga.gov/gpm/MyWebHelp/GPM_Main​ _File.htm.

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4. Liquidated damages are “damages paid, usually in the form of a monetary payment, agreed to by the parties to a contract, that are due and payable as damages by the party who breaches all or part of the contract. May be applied on a daily basis for as long as the breach is in effect. May not be imposed as an arbitrary penalty. The key to establishing liquidated damages is reasonableness. It is incumbent upon the buyer to demonstrate, through quantifiable means, that damages did exist.” Dictionary of Pro­ curement Terms, NIGP, accessed February 27, 2023, https://www.nigp.org/dictionary-of​ -terms. 5. Alaska Stat. §36.30.627 (2008). 6. Model Procurement Code for State & Local Gov’t §9-102 (Am. Bar Ass’n 2000). 7. Kan. Stat. Ann. §75-37,103(b) (2022). 8. Model Procurement Code for State & Local Gov’t §9-102 (2)(a)-(f). 9. “2022 Survey of State Procurement Practices Report,” NASPO, last modified December 2022, https://​www​.na​s​po​.org​/pr​a​c​t​i​c​al​ -gu​i​de​-re​s​o​u​r​ces/. 10. Colo Rev. Stat. Ann. §24-109-105(2)(e) (2022).

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RECOMMENDATIONS AND CONSIDERATIONS • The Chief Procurement Officer (CPO) should be given the authority to grant or deny exceptions to the competitive procurement process. • All documents pertaining to a request and the decision to grant or deny should be centrally stored for recordkeeping and review. • The CPO should provide some public notice of sole source procurements. • If a CPO is unavailable to provide approval, procedures should permit user agencies to conduct procurements in emergency conditions and require timely submission of documentation of circumstances for subsequent approval.

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Circumstances can sometimes make it difficult or impossible to conduct a formal competitive procurement. There are source selection methods for conducting noncompetitive and limited competition procurements when conditions are appropriate. To provide a public procurement official with a full range of tools, a public entity’s procurement law should authorize the use of these methods where that law otherwise requires competition.

regulations. Once the law has established the mandate for competition, it must then define the specific authority of a public procurement office to make exceptions. Balancing the flexibility provided by exceptions to full competition with the need for proper administration requires central oversight, including the authority to establish strict conditions for the use of exceptions. That authority and oversight should reside solely with the CPO.

This chapter discusses the conditions and methods for awarding procurement contracts where there is limited or no competition.

That is the case even if the CPO delegates authority to a user agency to conduct procurements. Chapter 2 (Procurement Leadership, Organization, and Value) discusses delegations and central procurement authority in more detail.

AUTHORITY AND CENTRAL OVERSIGHT A very small dollar purchase, such as a school buying local produce, is one example of a type of procurement that a public procurement official conducts with limited or no competition. Chapter 5 (Solicitation Methods) addresses those types of procurements. High dollar noncompetitive or limited competition procurements can be controversial and may become fodder for newspaper headlines. But these can also be legitimate procurements that offer a public entity a means of buying what it needs in situations where full and open competition does not make sense. The authority to conduct these types of procurements rests in a public entity’s law establishing its procurement processes. In some cases, there may not be a law mandating competition or the law may simply give full discretion to a state or local government official to establish procurement processes. However, that is not a recommended practice. A public entity’s law should require full competition above a certain dollar level or authorize that dollar level to be established in its rules/

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Central oversight achieves several important public policy goals. For instance, it takes the decision to limit or eliminate competition away from the user agency requesting an exception. Public procurement officers within that user agency will often feel political pressure, real or imagined, to accommodate the request. Removing the decision from within the user agency provides a more objective and neutral process for evaluating that request. Additionally, central decision making means that there is a central repository for the documentation supporting the procurement decision. In turn, that offers one place for auditors and others to find data about these types of procurements, including the justification for limiting or eliminating competition. The following paragraphs address the types of procurements that fall into the limited competition or no competition categories. They also examine the kind of due diligence that is necessary to verify the reasonableness of price and the recordkeeping required to support the decisions being made.

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A WORD ABOUT COMPETITIVE REQUIREMENTS WHEN USING FEDERAL FUNDS In 2020, the federal government updated the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 Code of Federal Regulations Part 200 (Common Rule). Any nonfederal public entity whose procurements are funded with federal monies must comply with the Common Rule. The Common Rule states: §200.319 Competition. All procurement transactions must be con­ ducted in a manner providing full and open competition consistent with the standards of this section and §200.320.1 While §200.319 outlines the standards for formal competition, §200.320 of the Common Rule addresses the use of exemptions from full competition for procurements funded with federal monies. Qualifications for exemption include micro-purchases, single source availability, exigency or emergency circumstances, express authorization from awarding agencies, and inadequate available competition.2

INVESTIGATION AND PRESERVATION OF RECORDS For some limited competition or noncompetitive procurements, the central procurement office itself initiates the process. Often, however, such a procurement begins when a user agency makes a request to the CPO. That request should be in writing and must meet the conditions that are spelled out in the laws, rules/regulations, or policies establishing the conditions and procedures for these types of procurements. The written request for this type of procurement is inadequate if it merely cites a need for a waiver of competition without supporting information and justification.

In many cases, the CPO will not have any real means to independently examine the user agency’s determination of its need for these types of procurements. In other instances, the basis for exempting the procurement from full competition is clear, such as: • In emergencies • In instances where formal competition has previously failed • For commodities that are needed for overthe-counter sales • When a commodity is available from correctional industries Whether the basis of the user agency’s need is obvious or not, the procurement file should demonstrate that the CPO’s decision to approve the purchase was based on all the information available. For instance, the file should show that the CPO independently studied the market to determine whether the commodity was, in fact, the only commodity available. It should also demonstrate that the CPO took steps to substantiate that the price offered was reasonable. This is discussed later in this chapter, as well as in Chapter 4 (Procurement Planning). What is obvious to those within the executive branch of a state or local government is not always readily evident to those outside of it— such as journalists, legislators, and other suppliers. The key point is that the file should leave a satisfactory audit trail demonstrating that the CPO conducted an appropriate independent analysis of a user agency’s request and that they documented those efforts.

TYPES OF NONCOMPETITIVE OR LIMITED COMPETITION PROCUREMENTS There are many circumstances where the opportunity for competition is limited or not practical. Some of these are discussed in the following text.

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This does not suggest that the law must use the exact wording employed in this chapter for a public procurement official to have the authority to limit or eliminate competition. The CPO should interpret the law with reasonable flexibility while also considering the advice of the public entity’s attorneys. However, the ultimate decision as to whether the law permits an action or not should rest with the CPO.

Sole Source Procurements Sole source procurement is a commonly referenced designation. However, there is not one single universally accepted definition. The American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code) addresses the issue in its model statutory language and the commentary to it as follows: §3-205 Sole Source Procurement. A contract may be awarded for a supply, service, or construction item without com­ petition when, under regulations, the Chief Procurement Officer, the head of a Pur­ chasing Agency, or a designee of either officer above the level of the Public Pro­ curement Officer determines in writing that there is only one source for the required supply, service, or construction item. COMMENTARY: (1) ​This method of procurement involves no competition and should be utilized only when justified and necessary to serve [State] needs. This Code contemplates that the [Policy Office] [Chief Procure­ ment Officer] will promulgate regulations which establish standards applicable to procurement needs that may warrant award on a sole source basis. (2) ​The power to authorize a sole source award is limited to the Chief Procurement Officer and the head of an agency with purchasing authority, or their designees above the level of Public Procurement Officer. The purpose in specifying these

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officials is to reflect an intent that such determinations will be made at a high level. The permission for these officials to autho­ rize a designee to act for them should be subject to regulations.3 Competition is not available in a sole source procurement situation simply because there is only a single source for the procurement or no reasonable alternative source exists. The term sole source refers to the source, not the commodity or service. The ability of a supplier to meet a necessary condition dictated by circumstances such as an immediate delivery date or repairs at a particular location can create a sole source situation in which there is a single available supplier. Some examples of sole source procurements are:4 • Equipment for which there is no comparable competitive commodity—for example, a one-of-a-kind oscilloscope that is available from only one supplier • Public utility services from regulated monopolies • A component or replacement part for which there is no commercially available substitute and which may be obtained only directly from the manufacturer • An item where compatibility is the overriding consideration—such as computer operating software enhancements for an existing system • A used item—for example, a television transmitter tower that becomes immediately available Best practice is for the law authorizing the use of sole source procurement to require that the CPO provide some public notice that they are embarking on this type of procurement. Even if the law does not require it, notice can provide an excellent method of testing the user agency’s request for a sole source against the supplier community at large, which may have a different view.

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The National Association of State Procurement Officials (NASPO) has published sole source procurement information on its website.5 That information provides a more thorough look at what constitutes a sole source, how to reduce the use of unnecessary sole source procurements, and how to maximize competition. It also offers sample justification forms and templates for sole source requests.

minimize serious disruption in state services or to ensure the integrity of state records.”8

Some jurisdictions make distinctions between sole source and single source procurements. For single source procurements, there is a potential for competition among suppliers, but it is determined to be in the best interest of the public entity to procure the goods or services from one supplier in particular due to standardization, warranty, or other factors.6 Much like sole sourcing, a justification for the single source should document the circumstances and rationale leading to the selection of the supplier.

The Model Procurement Code addresses the issue in its model statutory language and the commentary to it:

Emergency Procurements Another circumstance in which competition may be limited or not practical is in an emergency. The focus here is not on the rarity of the item or service sought, but on expediency instead. As noted for sole source procurements, there should be some authority in a state or local government’s law to permit this type of procurement when that law otherwise requires procurements to be conducted through full competition. An emergency for procurement purposes is an unexpected and pressing situation requiring swift procurement action outside of normal procedures. The definition of an emergency varies by state. For example, the New Mexico procurement code allows for emergency procurements when “there exists a threat to public health, welfare, safety, or property requiring emergency conditions,”7 while the Missouri law allows for the waiving of competitive procurement when the commissioner determines that “immediate expenditure is necessary for repairs to state property in order to protect against further loss of, or damage to, state property, to prevent or

In addition to threats to life and property, an emergency may include circumstances such as an unexpected delay in delivery or an unanticipated volume of work. It never includes a situation created by poor planning on the part of user agencies.

§3-206 Emergency Procurements. Notwithstanding any other provision of this Code, the Chief Procurement Offi­ cer, the head of a Purchasing Agency, or a designee of either officer may make or authorize others to make emergency procurements when there exists a threat to public health, welfare, or safety under emergency conditions as defined in reg­ ulations; provided that such emergency procurements shall be made with such competition as is practicable under the circumstances. A written determination of the basis for the emergency and for the selection of the particular contractor shall be included in the contract file. COMMENTARY: (1) ​This Section authorizes the procure­ ment of supplies, services, or construc­ tion where the urgency of the need does not permit the delay involved in utilizing more formal competitive methods. This Code contemplates that the [Policy Office] [Chief Procurement Officer] will promul­ gate regulations establishing standards for making emergency procurements and controlling delegations of authority by the Chief Procurement Officer or the head of a Purchasing Agency. Such regulations may limit the authority of such officials to delegate the authority to make procure­ ments above designated dollar amounts.

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(2) ​While in a particular emergency an award may be made without any competi­ tion, the intent of this Code is to require as much competition as practicable in a given situation. When the amount of the emer­ gency procurement is within that adopted for Section 3-204 (Small Purchases), the competitive procedures prescribed under that Section should be used when feasible. (3) ​ Use of this Section may be justified because all bids submitted under the com­ petitive sealed bid method are unreason­ able, and there is no time to re-­solicit bids without endangering the public health, welfare, or safety. As with other emergency conditions, regulations will further define these circumstances, and any procure­ ments conducted pursuant to this author­ ity must be done so as to treat all bidders fairly and to promote such competition as is practicable under the circumstances.9 It is a best practice for rules/regulations and procedures to address situations where prior approval of the CPO is not feasible, such as when emergencies occur on weekends. In those cases, the rules/regulations and procedures should permit user agencies to conduct emergency procurements but require them to report the circumstances to the CPO within a short period of time to obtain approval after the fact. In an emergency procurement, the quantity to be purchased should only be that necessary to meet the circumstance. If time, the nature of the requirements, and other circumstances permit, verbal price quotations should be sought from more than one potential source. For certain commodity or service needs, the CPO may consider putting in place indefinite quantity contracts10 for a period of time (such as a year) through a formal competition in anticipation of certain emergency situations with the understanding that the user agencies will purchase from the contract only if an emergency need exists. For example, one emergency might be for helicopter services for forest firefighting

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work. Major disasters require prompt action and these types of contracts allow the procurement process to meet an urgent need in a competitive yet timely manner.

Procurement of Government-Produced Services or Commodities Many state laws mandate that state user agencies use commodities or services produced by correctional industries and sheltered suppliers, such as industries for the blind. For example, North Carolina has legislation requiring the following: §148-134. Preference for Division of Adult Correction of the Department of Public Safety Products. All departments, institutions, and agencies of this State that are supported in whole or in part by the State shall give preference to Correction Enterprises products in purchasing articles, products, and com­ modities that these departments, institu­ tions, and agencies require and that are manufactured or produced within the State prison system and offered for sale to them by Correction Enterprises. No article or commodity available from Cor­ rection Enterprises shall be purchased by any State department, institution, or agency from any other source unless the prison product does not meet the stan­ dard specifications and the reasonable requirements of the department, institu­ tion, or agency as determined by the Sec­ retary of Administration or the requisition cannot be complied with because of an insufficient supply of the articles or com­ modities required.11 In some states, the CPO may have the authority to establish the prices that user agencies will pay for those commodities and services. In most cases, however, the public procurement official will not have that authority. Under those circumstances, the public entity’s law must provide a mechanism for the CPO to determine whether

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the price charged is reasonable; and if it is not, to seek to purchase the services or commodities through normal competitive processes or existing contracts.

Procurement of Other Governments’ Property Some purchases may take place between two different governments. For instance, a state highway department may rent out a road grader to a county government, or a small town may ask a larger city to provide hosting services for its website and e-mail services. A state university may wish to buy a piece of research equipment from a university in another state. The best practice is for the CPO to review and approve the transaction, including the advisability of the purchase and its price, along with the terms and conditions in any written agreement.

Procurements with or from Other Governments’ Contracts Chapter 17 (Cooperative Purchasing) discusses cooperative procurement in detail. When a public entity purchases services, commodities, or construction from a contract competed and awarded by a second public entity—a cooperative contract—that purchase from the cooperative contract is an exception to any competition requirement in its law for that procurement opportunity. Therefore, it is important for the public entity to have the authority in its law to purchase from another public entity’s cooperative contract. In most cases, the public entity awarding the cooperative contract fully competes the solicitation. Typically, there are requirements in the law that have to be satisfied for a public entity to be able to purchase from a cooperative contract. For instance, there may be a requirement that the public entities—the one purchasing and the one competing and awarding the contract—have a written agreement for cooperative purchasing.

There is one issue related to cooperative purchasing that may be problematic for some public entities. In some cases, a public entity’s law may authorize that entity to make purchases from a cooperative contract only if the solicitation for that cooperative contract explicitly names that entity as a potential purchaser. If a public entity wishes to purchase from the cooperative contract but is not named as a potential purchaser, it cannot purchase from, or piggyback onto, a cooperative contract. Many governments below the state level freely purchase commodities and services from other public entities’ cooperative contracts whether the solicitations that resulted in those contracts specifically named them or not. While the naming of every participating public entity in the solicitation at the procurement’s initiation is ideal, particularly if the competing suppliers are trying to project potential volume in their pricing strategies, suppliers awarded contracts generally do not object to the additional business. It is convenient for the cooperative contract to allow the contractor the option of providing commodities or services under that contract to public entities that were not originally named in it. Laws authorizing cooperative purchasing vary widely. As Chapter 17 (Cooperative Purchas­ ing) explains, the specific legal authority in a particular public entity must be understood before it attempts to purchase through cooperative contracts.

Unsolicited Offers If a supplier submits an unsolicited offer to a public entity, acceptance of the offer constitutes a waiver of competition. A law should authorize acceptance of such offers while directing that rules/regulations and procedures be put in place to govern the conditions for considering, accepting, or rejecting them. Generally, the rules/regulations and procedures should require that the offer be made entirely upon the initiative of the offeror; that it be

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submitted in sufficient detail to evaluate its need and usefulness; that it be proprietary or unique to the extent that competitive solicitations are not practicable; and that its evaluation be subject to comparisons and tests as determined by the public entity receiving the offer. In addition, procedures should require that an unsolicited offer not be evaluated, nor any commitment be made by a user agency with respect to such an offer without the written approval of the CPO. The Recommended Regulations of the Model Procurement Code address the issue in the following way: R3-104.01 Unsolicited Offers. R3-104.01.1 Defined. An unsolicited offer is any offer other than one submitted in response to a solicitation. R3-104.01.2 Processing of Unsolicited Offers. The Chief Procurement Officer or the head of the Purchasing Agency shall consider the offer as provided in this Sec­ tion. If an agency that receives an unso­ licited offer is not authorized to enter into a contract for the supplies or services offered, the head of such agency shall for­ ward the offer to the Chief Procurement Officer who shall have final authority with respect to evaluation, acceptance, and rejection of such unsolicited offers. R3-104.01.3 Conditions for Consideration. To be considered for evaluation, an unsolicited offer: (a) ​must be in writing; (b) ​must be sufficiently detailed to allow a judgment to be made concerning the potential utility of the offer to the [State]; (c) ​must be unique or innovative to [State] use; (d) ​must demonstrate that the proprietary character of the offering warrants consid­ eration of the use of sole source procure­ ment; and (e) ​may be subject to testing under terms and conditions specified by the [State].

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R3-104.01.4 Evaluation. The unsolicited offer shall be evaluated to determine its utility to the [State] and whether it would be to the [State’s] advantage to enter into a contract based on such offer. If an award is to be made on the basis of such offer, the sole source procedures in Regulation 3-205 (Sole Source Procurement) shall be followed. R3-104.01.5 Confidentiality. Any written request for confidentiality of data con­ tained in an unsolicited offer that is made in writing shall be honored. If an award is made, confidentiality of data shall be agreed upon by the parties and governed by the provisions of the contract. If agree­ ment cannot be reached on confidentiality, the [State] may reject the unsolicited offer.12

Pilot or Demonstration Projects Public procurement professionals are often asked by a user agency to permit it to put a commodity or service through a practical test to see if that type of commodity or service might meet the user agency’s critical needs. Pilot or demonstration projects are exceptions to competition, although some might argue that if the supplier provides the commodity or service without charge, the transaction does not qualify as a procurement. Given the effect on future possible competition of allowing one supplier access to test its commodity or service, this type of arrangement should be reviewed thoroughly and require the approval of the CPO. Additionally, the public entity’s law should specifically authorize that entity to engage in this type of arrangement. One state whose law permits pilot or demonstration projects is Arizona. The Arizona Revised Statutes state: 41-2556. Demonstration projects A. ​A demonstration project may be under­ taken if the director determines in writing that the project is innovative and unique. This state shall not be obligated to pay

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the contractor, or to procure or lease the services or materials supplied by the con­ tractor. However, on the written request and justification by the agency and written determination by the director that it is in the best interest of this state, this state may pay the contractor for the demonstration project.The contract term shall not exceed two years. A request and written determi­ nation of the basis for the contract award shall be included in the contract file. B. ​A contract to procure or lease services or materials previously supplied during a demonstration project shall be conducted under this article. C. ​Except as otherwise provided by law, a contractor for a demonstration project shall not be precluded from participating as a bidder or offeror in a procurement for the services or materials supplied during a demonstration project.13 Supplier arrangements such as this one pose a dilemma for a CPO. On the one hand, a pilot or demonstration project allows the public entity to kick the tires of something that may solve a serious public problem without committing the public entity to a costly contract in situations where the contractor may try to resolve the problem but not be able to perform if the solution does not work. On the other hand, the pilot project supplier will have inside information for any formal competition that may be conducted based on the outcome of the project. Among other things, competitors of the pilot supplier will tend to be discouraged from competing based on that fact, to the detriment of the public entity.

described in the public entity’s law. Additionally, all steps in the process of conducting a noncompetitive or limited competition procurement should be documented.

ENDNOTES 1. 2 C.F.R. §200.319 (2022). 2. 2 C.F.R. §200.320 (2022). 3. Model Procurement Code for State & Local Gov’t §3-205 (Am. Bar Ass’n 2000). 4. “Sole Source Purchasing—Procurement and Contracts,” American University, accessed May 02, 2023, https://​www​.am​e​r​i​c​an​.edu​/fi​n​ a​n​ce​/pr​o​c​u​r​e​m​e​nt​-co​n​t​r​a​c​ts​/so​le​-so​u​r​ce​-pu​ r​c​h​a​s​i​ng​.cfm. 5. “Sole Source Procurement,” NASPO, last modified February 18, 2020, https://​www​.na​ s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 6. “Emergency Preparedness Guide,” NASPO, last modified December 1, 2022, https://​ www​.na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 7. NM Stat. §13-1-127 (2021). 8. MO Code Regs. Ann. tit. IV §34.045 (1995). 9. Model Procurement Code for State & Local Gov’t §3-206. 10. “Sole Source Procurement,” NASPO. 11. N.C. Gen. Stat. §148-134 (2023). 12. Model Procurement Code for State & Local Gov’t—Recommended Regulations R3-104.01 (Am. Bar Ass’n 2002). 13. Ariz. Rev. Stat. §41-2556 (2022).

CONCLUSION The public procurement function must be flexible enough to allow for exceptions to the requirement for full competition. Approval of these exceptions should be within the sole authority of the CPO. The key is that the special circumstances justifying the exception should be

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RECOMMENDATIONS AND CONSIDERATIONS • Each public procurement office should maintain its own emergency preparedness plan that addresses roles and responsibilities during an emergency, off-site office space and resources (such as computers and access to electronic procurement records), maintenance of off-hours staff contact information, and emergency purchase recordkeeping. • Each procurement office should establish and maintain relationships and lines of communication with other critical state offices before an emergency. • Each procurement office should participate in regular state disaster preparedness exercises, such as a tabletop or live-action exercise. • State public procurement offices should establish indefinite quantity/indefinite delivery contracts annually for commodities, services, and construction commonly needed during an emergency. • There should be a purchase card in place for the purchase of needed commodities, services, and construction during an emergency. • Documentation of purchases made during an emergency, including the amount of competition conducted and the payments made, is imperative.

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An important function of government is to provide support to its citizens during emergency situations. The need for a disaster recovery plan as part of the public procurement office’s planning process is indisputable. In previous editions of this Practical Guide, emergency preparedness implicitly referred to natural disasters such as fires, floods, and hurricanes. These events were usually localized and of short duration, lasting only days or weeks at most. The affected areas could, and did, assume that they could get help from within their own state and/or from neighboring states. The global COVID-19 pandemic changed all those assumptions. With the nationwide shutdown beginning in March 2020, all state government offices closed. Workers were sent home, but public procurement could not and did not stop. State procurement officials were on the front line of defense as they tried to procure critical personal protective equipment (PPE). The simultaneous worldwide impact meant that neighboring states could not help one another as they had done in the past. States were competing with one another, the federal government, local municipalities, and the private sector for the same limited supplies. The global nature and long duration of the COVID-19 pandemic challenged established state emergency procedures. Standard emergency procedures called for sending staff to a central Emergency Operations Center (EOC) to be physically colocated with other emergency responders, but the social distancing requirements that were in place to control the spread of the COVID-19 virus directly contradicted this

setup. Many states were not prepared to continue operations in a remote work environment. Some states lacked telework policies allowing staff to take home laptops or access state systems remotely. Some staff lived in rural areas without internet access. State procurement officials scrambled to buy hardware, such as laptops, hotspots, and cameras, to enable remote work just as the rest of the world was trying to do the same. States that were still conducting business using paper systems were suddenly forced to transition to electronic signature systems and stand-up eProcurement systems in an emergency environment. As the crisis dragged on, procurement staff worked around the clock for months on end to procure critical supplies. The impact of the COVID-19 pandemic on state procurement offices and the lessons learned from it was the subject of an academic study undertaken in September 2020 by several of the National Association of State Procurement Officials’ (NASPO) academic partners. The subsequent report, Assessing State PPE Procure­ ment During COVID-19: A Research Report,1 highlights the incredible demand the pandemic placed on public procurement officials and how public procurement officials answered. State procurement officials demonstrated remarkable ingenuity and dedication in the face of an unprecedented disaster. This chapter offers an overview of the laws directing that the states create emergency preparedness plans and the roles of the public procurement offices in those plans. An additional resource is the NASPO Emergency

THE OECD ON COVID-19 AND PUBLIC PROCUREMENT For years, the Organisation for Economic Co-operation and Development (OECD)* has been advancing the strategic nature of public procurement as a lever to achieve public policy objectives. Covid-19 left no doubt about the role public procurement systems can play to effectively respond to crises and to build resilience to prepare for major adverse events and mitigate risks

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for the population. Indeed, public procurement had a critical role to play during the Covid-19 crisis in ensuring not only the health of citizens but also public service continuity. Covid-19 challenged public procurement systems throughout the world in different ways. • First, it created a complex purchasing environment with both, demand and supply, under stress. On the one hand, public buyers went out to the market basically at the same time and to buy the same goods (personal protection equipment or PPE, ventilators, etc.). On the other hand, production and supply chains were limited due to lockdowns and restrained economic activities. • Second, the crisis and the mitigation of its immediate effects required governments to procure under exceptional circumstances, resorting to non-competitive procedures (i.e., direct awards) to speed up the response. • Third, all the circumstances described above created risks and opportunities for fraud and misbehaviour in procurement operations. In facing these challenges, governments in OECD countries took different measures related to public procurement to respond to Covid-19, namely: i) central government institutions provided support to contracting authorities through, for example, guidelines on emergency procurement, help desks, and training (82% of countries surveyed); ii) adoption of centralized and co-ordinated approaches to procure critical items (68% of countries); iii) implementation of special rules on contract management to alleviate the burden of the contracts due to force majeure (i.e., relieving suppliers from contractual penalties) and support suppliers, particularly SMEs, in keeping jobs (i.e., advanced and simplified payments) (50% of countries); iv) coordination with suppliers and market engagement strategies to facilitate matching supply and demand (50% of countries); and v) transparency and monitoring rules to mitigate corruption risks (39% of countries).** International and cross-border cooperation also came up as an important strategy to respond to the crisis. Member States of the European Union, for example, joined forces under the Joint Procurement Agreement (JPA) to buy PPE, respiratory ventilators, and testing items.*** In summary, just like other crises have demonstrated, public procurement is an essential government activity to respond effectively to the risks created by “black swan” events and to build up capacities and resilience for governments to handle emergencies. * The OECD is an international organization that works to build better policies for better lives. Its goal is to shape policies that foster prosperity, equality, opportunity, and well-being for all. The OECD draws on 60 years of experience and insights to better prepare the world of tomorrow. For more information, please visit www​.oe​cd​.org. ** “Public Procurement and Infrastructure Governance: Initial policy responses to the coronavirus (Covid-19) crisis,” OECD, last modified July 30, 2020, https://​www​.oe​cd​.org​/co​r​o​n​a​v​i​r​us​/po​l​i​cy​-re​s​p​o​n​s​es​/pu​b​l​ic​-pr​o​c​u​r​e​m​e​nt​-and​-in​f​r​a​ s​t​r​u​c​t​u​re​-go​v​e​r​n​a​n​ce​-in​i​t​i​al​-po​l​i​cy​-re​s​p​o​n​s​es​-to​-the​-co​r​o​n​a​v​i​r​us​-co​v​id​-19​-cr​i​s​is​-c0​a​b​0​a96/. *** “Public Procurement and Infrastructure Governance: Initial policy responses to the coronavirus (Covid-19) crisis,” OECD, last modified July 30, 2020.

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Preparedness for State Procurement Officials Guide, which is available on the NASPO website.2

The United States Department of Homeland Security

The National Incident Management System (NIMS) was developed as a result of Homeland Security Presidential Directive 5 (HSPD5),7 issued by President George W. Bush in February 2003. NIMS provides guidance for the management of domestic incidents (which it generally defines as terrorist attacks), major disasters, and other emergencies. HSPD-5 requires all federal de­ partments and agencies to use NIMS for internal incident management and when providing assistance to state, tribal, territorial, and local governments.

Congress passed the Homeland Security Act in November 2002.3 From that Act, the United States Department of Homeland Security was created, combining 22 different federal departments and agencies.4

Under HSPD-5, state, tribal and local entities are required to adopt the NIMS as a condition of receiving federal preparedness assistance. The introduction to the NIMS guide explains its role in the following manner:

Federal Emergency Management Agency The Federal Emergency Management Agency (FEMA) was established by President Carter in 1979 with the dual functions of civil defense and emergency management.5 In 2002, FEMA was placed under the Department of Homeland Security.

The National Incident Management Sys­ tem (NIMS) guides all levels of govern­ ment, nongovernmental organizations and the private sector to work together to pre­ vent, protect against, mitigate, respond to and recover from incidents.

FEDERAL LAW AND DIRECTIVES To understand the part that public procurement plays in emergency preparedness, it is impor­tant to be aware of the principles and approaches that drive emergency preparedness and disaster response.

FEMA has a Public Assistance (PA) Program that provides federal assistance to governments and other organizations following a Presidential disaster declaration. Through the PA Program, FEMA provides supplemental assistance for state and local government recovery expenses. The federal share will always be at least 75 percent of the eligible cost. The Robert T. Stafford Disaster Relief and Emergency Assistance Act (The Stafford Act)6 is the federal law related to federal government emergency assistance to state and local governments and to FEMA programs. This Act constitutes the statutory authority for most federal disaster response activities, especially as they pertain to FEMA and FEMA programs.

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State Plans

NIMS provides stakeholders across the whole community with the shared vocab­ ulary, systems and processes to success­ fully deliver the capabilities described in the National Preparedness System. NIMS defines operational systems that guide how personnel work together during inci­ dents.8

National Response Framework The National Response Framework (NRF) is another service of the Department of Homeland Security that provides guidance for conducting all-hazards responses. The 2019 Introduction to the NRF document explains: The National Response Framework (NRF) is a guide to how the nation responds to

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all types of disasters and emergencies. It is built on scalable, flexible, and adapt­ able concepts identified in the National Incident Management System to align key roles and responsibilities. The NRF is structured to help jurisdictions, citizens, nongovernmental organizations and busi­ nesses: • Develop whole community plans • Integrate continuity plans • Build capabilities to respond to cascad­ ing failures among businesses, supply chains, and infrastructure sectors • Collaborate to stabilize community life­ lines and restore services9 To accomplish these goals, the NRF focuses on the following areas: • Prevention: avoiding, preventing, or stopping a threatened or actual act of terrorism. Within the context of national preparedness, the term prevention refers to dealing with imminent threats. • Protection: securing the homeland against acts of terrorism and human-caused or natural disasters. • Mitigation: reducing loss of life and property by lessening the impact of disasters. • Response: saving lives, stabilizing community lifelines, protecting property and the environment, and meeting basic human needs after an incident has occurred. • Recovery: assisting impacted communities with restoration and revitalization.10 The NRF identifies response core capabilities toward meeting the National Preparedness Goal. The seventh core capability is logistics, in which procurement plays a key role. Under the NSF’s seventh emergency support function— logistics—the function is described as follows: Coordinates comprehensive incident re­ source planning, management, and sus­ tainment capability to meet the needs of

disaster survivors and responders. Func­ tions include but are not limited to: • Comprehensive, national incident logis­ tics planning, management, and sus­ tainment capability • Resource support (e.g., facility space, office equipment and supplies, con­ tracting services)11 Generally, state, and local procurement offices support the logistics function under the NRF but may be asked to serve other functions as well. Here is a complete list of the NRF emergency support functions:12 1. Transportation 2. Communications 3. Public works and engineering 4. Firefighting 5. Information and planning 6. Mass care, emergency assistance, temporary housing, and human services 7. Logistics 8. Public health and medical services 9. Search and rescue 10. Oil and hazardous materials response 11. Agriculture and natural resources 12. Energy 13. Public safety and security 14. National disaster recovery framework, long-term community recovery 15. External affairs

PROCUREMENT IN THE EMERGENCY MANAGEMENT PROCESS With that overview, the role that state and local procurement officials play before and during emergency response efforts is evident but should not be taken for granted. The responsibilities of the state’s central procurement office will vary based on the state’s plan and other factors, such as weather, geography, and the nature of the

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disaster. Establishing relationships and lines of communication with other critical state offices before an emergency is crucial. In addition, “procurement officials must be engaged as key stakeholders during state emergency response planning and mitigation.”13 During the initial weeks of the chaos of the COVID-19 pandemic, elected officials rushed to respond to the crisis by setting up task forces to source critical PPE. In some cases, these task forces did not include procurement staff. This may have been a missed opportunity to leverage the experience and expertise of procurement officials regarding issues such as supplier vetting, contract negotiation, compliance management, and the ability to secure PPE. Including the procurement staff as part of the state’s emergency response planning early in the process and participating in regular practice exercises will help ensure a smoother response when a real emergency arises.

Factors that Determine Procurement’s Role First, the public procurement office will be responsible during an emergency response for obtaining new construction, commodities, and services that are not otherwise available through other governments or nonprofit charitable organizations. Additionally, as previously noted, a public procurement office’s duty may fall within more than one emergency response function, depending on how centralized the procurement process is within a state or local government. For instance, if the state central procurement office does not have the authority to procure construction or construction services, that office will likely not be responsible in a disaster for assisting in emergency response NRF Function 3, Public Works and Engineering. Also, the roles and responsibilities of agencies within a state government’s particular structure may dictate which agencies are responsible for particular NRF functions.

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The Chief Procurement Officer (CPO) should coordinate with the state government entity that is tasked with being the state’s emergency operation center (SEOC) to understand what roles and responsibilities have been assigned to the central procurement office in the state’s emergency management plans. Periodically reviewing the state plan is important to make sure it is kept current.

Contingency Plan There are some obvious steps that the central procurement office should take to ensure that it has planned for the services it will need to provide in an emergency. Planning and preparation for any disaster fall under a continuity of operations plan (COOP). A COOP is a “predetermined set of instructions or procedures that describe how an organization’s mission-­essential function will be sustained within twelve hours and for up to thirty days as a result of a disaster event before returning to normal operations.”14 The central procurement office should develop contingency plans. For instance, it needs to identify an alternate emergency facility for office staff and ensure that the office will have access to the necessary data, records, supplies, and services to support the emergency response at that remote location. It is essential to establish a prioritized list of duties to help guide the reestablishment of operations. The nature of the disaster may require additional personnel.The contingency plans should address communication (land phone, cell phone, and radio), computers, government systems access, and backup electrical power issues.

Identifying the Procurement Response Team It is important for the central procurement office to make two key assumptions when preparing for an emergency: (1) some of its key personnel will not be available at the time of the emergency, and (2) it may not have access to

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its office. There are some obvious steps that the central procurement office should take to ensure that it has planned for the services it will need to provide in the next emergency. As a starting point for the CPO when examining their operations and preparing for emergencies, it is wise to look at certain expectations that the state plans to use to ensure they are ready for the worst-case scenario. At a minimum, the CPO needs to designate staff members to be available 24 hours per day to manage the procurement office’s emergency response and to be the liaison to the SEOC. The CPO may also want to designate a staff member as the incident commander to assist in coordinating the emergency response. When the central procurement office is called to support an emergency, the CPO will probably have to trigger an internal emergency notification procedure. Maintaining a current list of emergency contact telephone numbers for procurement officials and other staff who are emergency responders is imperative. An emergency may occur outside regular working hours, and this information is needed to contact staff about when, where, and why they should report to work. Designated personnel within the central procurement office will be required to respond to the SEOC’s activation of emergency procedures. If needed, a schedule will be developed for consecutive shifts of emergency responders.

Training the Team The central procurement office should ensure that all procurement personnel who will play roles in an emergency are trained for emergency response. Training should be coordinated with the SEOC. The central procurement office staff should also participate in SEOC exercises regularly, at least annually, to ensure a clear understanding of roles/staff coordination— internally and externally. FEMA offers online

independent study courses to help staff learn more about emergency management.15

Preestablishment of Statewide Contracts The central procurement office should identify those commodities and services that other state agencies or nonprofit charities are not likely to be able to supply, or at least not in the needed quantities. Once that is done, the central procurement office should establish indefinite quantity/indefinite delivery term contracts in advance for those items. Here are some examples of what those contracts might cover: • Transportation services • Tent rental with climate control option of heat and/or air • Generator rental with the requirement of on-site refueling • Portable lighting • Chain saws • Communication equipment • Fuel tankers with drivers along with the capability of on-site refueling from the tanker to a vehicle (diesel and gasoline) • Fuel contracts • Portable toilets and service • Cots, blankets, sheets, pillows, and linens • Sanitary requirements • Portable outside lighting • Body bags and refrigerated trucks to serve as mobile morgues • Meals ready to eat • Food sources • Office supplies • Water (bottle and bulk—for drinking and general use) • Earth-moving equipment • Housing, feeding, and sanitation capabilities For necessary items that are time-sensitive or otherwise in short supply, the central procurement office should develop a short contract form, such as a memorandum of understanding,

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which it can use to procure these items in the early stages of the emergency recovery. When obtaining pricing for equipment rental, the central procurement office should seek pricing with daily, weekly, and monthly options. Procurement officials should ask suppliers about their capacity during emergencies, including how many other customers they are committed to and their plan for allocation in case of shortages.

General Services Administration Contracts The United States General Services Administration (GSA) has programs to assist state and local governments in emergencies. The GSA Disaster Purchasing Program16 allows purchases from approved GSA Federal Supply Schedule suppliers to prepare for, respond to, and recover from presidentially declared disasters or acts of terrorism. The GSA National Wildland Fire Program17 allows for the purchase of wildland fire protection equipment and supplies that have been approved by the United States Forest Service from GSA’s Global Supply Program. The GSA also has Federal Supply Schedules accessible to federal grantees during public health emergencies.

Identifying Supplier Resources As part of emergency preparedness, a central procurement office should determine the available resources from suppliers. The office should maintain a current centralized listing of registered prospective suppliers who can supply specific emergency needs to the state. The listing of suppliers should include their emergency contact information for nights, weekends, and holidays. The best practice is to retain supplier information in a searchable electronic format accessible to emergency responders. Internet access may not be available during an emergency.

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The procurement office’s response team should maintain a file saved on an electronic media storage device with a hard paper copy. The file should include each commodity or service with the name, address, and emergency telephone contact information. The emergency supplier listing should be updated at least annually for current emergency contact information and telephone numbers.

PURCHASE ORDERS, CONTRACTS, AND PURCHASE CARDS Developing a standardized simple emergency purchase request form for use by state agencies, local governments, and nonprofit organizations that are part of the SEOC during emergency operations is critical. The request form and contract templates should be available electronically or through e-mail but also through a paper process to make it flexible. Expedited procedures for ordering, approving, tracking requests, and verifying receipt of commodities and services should also be in place. The central procurement office should establish a purchase card for emergency purchases with procedures in place for its use. The card should be the preferred method for ordering from a contract with the issuance of a purchase order to be used if the card is not appropriate for some reason.

Documentation Documentation is critical during and after the emergency. The central procurement office should maintain detailed logs of all purchases (including purchase orders), competition information (including bids obtained), suppliers contacted, activities, messages, approvals (signatures), and any correspondence relating to a purchase request.

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Statewide contracts already in place should be utilized for purchases whenever possible. If they cannot meet needs, the central procurement office should document why those contracts were not used. Documentation should also include any dealings with other entities such as FEMA, the Army Corps of Engineers, local governments, the private sector, and other public entities and nonprofit organizations. Purchases during emergency situations may be subject to federal reimbursement, so the central procurement office needs to ensure that it understands FEMA’s requirements and complies with them to the best of its ability.18 State central procurements offices that have had experience with large-scale emergencies indicate that before approving any reimbursement of expenses, FEMA has requested to see the documentation that competition was implemented. Procurement officials should ensure that competition is carried out where possible. If a noncompetitive purchase is contemplated, procurement officials should attempt to seek guidance from FEMA regarding requirements for federal reimbursement of noncompetitive purchases. They should also ensure noncompetitive purchases are well documented and comply with all applicable state and local government requirements.

Post-Disaster Financial Documentation After the disaster response, the central procurement office will be required to provide complete and timely documentation to support the purchases made during the disaster. Documentation may include electronic spreadsheets showing all detailed information, including purchase order numbers by date/time, supplier award, cost information, commodity or service description, user agency requester, and the procurement officer conducting the purchase. The information will be used to demonstrate compliance with the financial and competitive requirements of the federal and state government.

CONCLUSION Procurement clearly has a significant role to play in any emergency—namely, locating and providing needed commodities, services, and construction that are not otherwise available. Planning and preparation are necessary to ensure the central procurement office is ready to provide support in emergency situations. The central procurement office should understand its role within the state or local government emergency operation plans and have its own emergency plans to ensure it has adequate personnel, equipment, and resources to provide purchasing services to support the emergency response. Finally, procurement officials should ensure that the procurement procedures and documentation for emergency purchases are adequate to satisfy requirements for federal reimbursement and eventual federal, state, or local audits.

ENDNOTES 1. “ Assessing State PPE Procurement During Covid-19: A Research Report,” NASPO, last modified March 2021, https://​www​.na​s​ po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 2. “Emergency Preparedness for State Procurement Officials Guide,” NASPO, last modified December 2022, https://​www​.na​s​ po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 3. “Homeland Security Act of 2002,” U.S. Department of Homeland Security, last modified November 25, 2002, https://​www​ .dhs​.gov​/si​t​es​/de​f​a​u​lt​/fi​l​es​/pu​b​l​i​c​a​t​i​o​ns​/hr​ _50​05​_enr​.pdf. 4. “Creation of the Department of Homeland Security,” U.S. Department of Homeland Security, accessed March 7, 2023, https://​ www​.dhs​.gov​/cr​e​a​t​i​on​-de​p​a​r ​t​m​e​nt​-ho​m​e​l​a​ nd​-se​c​u​rity. 5. “Stafford Act, as Amended,” FEMA, last modified November 18, 2021, https://​www​ .fe​ma​.gov​/di​s​a​s​t​er​/st​a​f​f​o​rd​-act.

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6. “Stafford Act,” FEMA. 7. “Homeland Security Presidential Directive 5,” U.S. Department of Homeland Security, last modified September 7, 2022, https://​ www​.dhs​.gov​/pu​b​l​i​c​a​t​i​on​/ho​m​e​l​a​nd​-se​c​u​r ​i​ ty​-pr​e​s​i​d​e​n​t​i​al​-di​r​e​c​t​i​ve​-5. 8. “National Incident Management System,” FEMA, accessed February 15, 2023, https://​ www​ . fe ​ m a ​ . gov ​ / em ​ e ​ r​ g ​ e ​ n ​ c y​ - ma ​ n ​ a ​ g ​ e ​ rs​ / nims. 9. “National Response Framework,” FEMA, accessed August 17, 2023, https://​www​.fe​ ma​.gov​/em​e​r​g​e​n​cy​-ma​n​a​g​e​rs​/na​t​i​o​n​al​-pr​ e​p​a​r​e​d​n​e​ss​/fr​a​m​e​w​o​r​ks​/re​s​p​onse. 10. “National Response Framework,” FEMA, last modified October 28, 2019, https://​www​ .fe​ma​.gov​/si​t​es​/de​f​a​u​lt​/fi​l​es​/20​20​-04​/NRF​ _FI​N​A​L​A​p​p​r​o​v​ed​_20​1​1​0​28​.pdf. 11. “National Response Framework,” FEMA. 12. “Emergency Support Functions,” FEMA, accessed February 27, 2023, https://​www​.fe​ ma​.gov​/em​e​r​g​e​n​cy​-ma​n​a​g​e​rs​/na​t​i​o​n​al​-pr​e​ p​a​r​e​d​n​e​ss​/fr​a​m​e​w​o​r​ks​/re​s​p​o​n​se​#esf. 13. “NASPO Procurement Tabletop Exercise: After Action Report,” NASPO, last updated January 2022, https://​www​.na​s​po​.org​/pr​a​c​t​i​ c​al​-gu​i​de​-re​s​o​u​r​ces/. 14. “Glossary, continuity of operations plan,” NIST, accessed February 27, 2023, https://​ cs​rc​.ni​st​.gov​/gl​o​s​s​a​r y​/te​r m​/co​n​t​i​n​u​i​t y​_of​ _op​e​r​a​t​i​o​ns​_plan.

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15. “Training,” FEMA Emergency Management Institute, accessed March 7, 2023, https://​tr​ aining.fema.gov/emi.aspx. 16. “GSA Disaster Relief & Pandemic Products Program,” U.S. General Services Administration, accessed March 7, 2023, https://​ www​.gs​a​a​d​v​a​n​t​a​ge​.gov​/ad​v​a​n​t​a​ge​/ws​/se​ a​r​ch​/sp​e​c​i​al​_ca​t​e​g​o​r y​_se​a​r​ch​?ca​t​=​A​DV​ .DR. 17. “Fire Program,” U.S. General Services Administration, last modified September 7, 2018, https://​www​.gsa​.gov​/buy​-th​r​o​u​gh​-us​ /pu​r​c​h​a​s​i​ng​-pr​o​g​r​a​ms​/gsa​-mu​l​t​i​p​le​-aw​a​rd​ -sc​h​e​d​u​le​/sc​h​e​d​u​le​-bu​y​e​rs​/st​a​te​-and​-lo​c​al​ -go​v​e​r​n​m​e​n​ts​/fi​re​-pr​o​gram. 18. “Procurement Under Grants: Under Exigent or Emergency Circumstances,” FEMA, last modified March 18, 2021, https://​www​.fe​ma​ .gov​/ne​ws​-re​l​e​a​se​/20​2​0​0​5​14​/pr​o​c​u​r​e​m​e​ nt​-un​d​er​-gr​a​n​ts​-un​d​er​-ex​i​g​e​nt​-or​-em​e​r​g​e​n​ cy​-ci​r​c​u​m​s​t​a​n​c​es​#:~:​t​e​x​t​=​T​he​%20​F​e​d​e​r​al​ %20​E​m​e​r​g​e​n​cy​%20​M​a​n​a​g​e​m​e​nt​%20​A​g​e​ n​cy​%20​%28​F​E​MA​%29​,re​s​o​u​r​c​es​%20​u​n​d​ er​%20​e​x​i​g​e​nt​%20​or​%20​e​m​e​r​g​e​n​cy​%20​c​i​ r​c​u​m​s​t​a​n​c​es​.&t​e​x​t​=​T​he​%20Fed.

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RECOMMENDATIONS AND CONSIDERATIONS • eProcurement systems permit consolidation of all procurement processes throughout all levels of state and local government, providing a means to have decentralized buying practices with centralized oversight, insight, and controls. • eProcurement systems should permit the public entity to conduct all of its procurements through a single system—including formal and informal procurements. • Processes for conducting procurements are interconnected with the processes of many of these other operations; as such, all stakeholders should be considered when moving to an eProcurement system. • The success of any eProcurement project needs to be measured from at least two perspectives: successful system launch and broad system use. • Implementing a new system requires cohesive strategic planning, such as utilizing a business case, analyzing state readiness, and managing change.

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The use of eProcurement systems is becoming more prevalent in public procurement as more state and local entities have adopted, are adopting, or considering adopting new eProcurement systems. An eProcurement system is a technology platform that enables entities to automate the purchase of all commodities and services with tools designed specifically to meet procurement business practices and requirements, including the capability to integrate with financial systems to facilitate and protect related financial processes. The capability of individual systems varies from a simplistic shop, order, and pay functionality to more complex systems that allow for sophisticated sourcing, contracting, and data analytics. Once fully implemented, these systems can produce an almost immediate return on investment across each of the above objectives and provide significant growth in value as adoption increases. Many state and local governments have worked at developing and implementing eProcurement programs to accomplish these results and lessen the pressures of constricting budgets. This chapter provides an overview of eProcurement systems, primarily at the state government level, and begins by introducing the fundamental objectives of implementing an eProcurement system. It presents the many stakeholders involved with eProcurement systems and a system’s components. Finally, it discusses the benefits and challenges of implementing a new system and offers methods to support successful project implementation and system use.

KEY CONCEPTS AND OUTCOMES Over time, eProcurement systems have evolved, and so have their definitions. Generally, when eProcurement is discussed in public procurement, it refers to the following:

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.  .  .  a broad term used to describe the use of the internet and computer software to conduct the procurement process in place of the traditional paper-based methods. E-procurement covers several stages including the preliminary identification of a need, sending solicitations to vendors, receiving offers from vendors, legal tender, and contract management.1 Although state and local governments decide to implement eProcurement systems for various reasons, their objectives for eProcurement implementation are often similar. These objectives may include: • Increased efficiency: automating and streamlining manual and fractured processes • Reduced prices: increasing supplier participation and competition • Increased spend under management: bringing all procurement processes into a common environment and standardizing these practices • Purchasing analysis: providing access to spend data across the entire organization, with data analytics that give insight into what is bought, how it’s bought, and how to be more strategic in procurement practices • Expanded contract use: increasing use of contracts by state agencies, local governments, and higher education entities • Economic growth: increasing spending with in-state suppliers, historically disadvantaged businesses (e.g., small businesses and veteran-owned businesses), and other targeted suppliers • Improved transparency and accountability: internally improving visibility into the status and processing of procurement transactions and externally providing greater insight into where public dollars are spent

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PROCUREMENT PRACTICES WITHOUT ePROCUREMENT The effort of state and local governments to efficiently purchase commodities and services has always been a daunting task. In states with limited or no automation, central procurement office and agency-level procurement practices are usually siloed and fragmented with various localized manual processes that leverage e-mail, spreadsheets, and homegrown databases. Often, agencies have developed these practices and processes independently, with limited standardization and without centralized insight or controls. State employees and agency procurement officials needing to purchase commodities or services are left trying to navigate relevant procurement policies and rules in conjunction with trying to navigate tasks such as identifying appropriate suppliers and reviewing many price lists. Fundamental to these environments is the need for more visibility into the specific commodities and services being purchased across the state. Central procurement offices and individual agency procurement offices intuitively know that there are opportunities to consolidate buying of commonly needed commodities or services; however, they need more means to see or leverage the potential of combining procurement needs to secure better prices. Suppliers often have similar difficulties in doing business with a state that has yet to adopt an eProcurement system. Often, suppliers expend one-off efforts to find individuals in the agencies who may be interested in buying from them. These individuals may be in agency procurement offices or at the agency’s operation level, requiring a great deal of supplier time to find and make these contacts to market themselves. This especially impacts small businesses with limited staff and resources to put into this effort.

An equally challenging situation for suppliers is locating solicitations. To find business opportunities, suppliers should monitor multiple state websites and work to get onto agency and central procurement bidders’ lists, which sometimes means registering in multiple state systems. When the supplier successfully registers for a list, notifications of the opportunity are typically sent via e-mail. However, some organizations still depend on postal services to invite suppliers. Some organizations largely depend on suppliers finding these opportunities from postings made in the classified sections of local newspapers. Then to be considered to receive an award, suppliers navigate a variety of other state systems to be licensed, certified, set up for taxes, and registered with finance to be paid. Even after a contract award, suppliers face other inefficiencies in the process. For example, updated price lists and available product lists for a contract have to be distributed down to those state officials who will be placing orders. It is not uncommon for these officials to place orders using an outdated version of the price list or order products that are no longer available. This results in duplicated efforts and back-and-forth communications to get the orders corrected. In those cases where suppliers have automated their order fulfillment processes, states sending paper or e-mail orders force these suppliers into manual order processing, thereby missing out on the automation efficiencies they have invested in. Repeated steps, back-and-forth communication, and manual processes can cause delays in supplying state and local governments with what they need—and delay suppliers from receiving payment for commodities and services. Compounding this difficult supplier experience, these practices are repeated with any local government entities where the supplier seeks to do business. The inefficiencies and missed opportunities embedded in these processes are costly to the

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public entity and the supplier. eProcurement systems were developed and have evolved to provide a new way of doing business that produces process improvements and efficiency for all participants across the procurement processes.

ePROCUREMENT AND OTHER STATE PROCESSES AND SYSTEMS Just as procurement is fundamental to all state and local government operations, it is also true that the processes for conducting procurements are interconnected with the processes of many of these other operations. As such, other stakeholders should be considered when moving to an eProcurement system. For stakeholders with systems that will need integration, eProcurement systems have been architected to provide standard integration capabilities that will usually address these data-sharing needs. However, understanding their needs is critical.

Directly Impacted Stakeholders2 Different aspects of procurement and purchasing processes directly impact the processes of the following stakeholders. Understanding the needs of each stakeholder and their system’s function is an important first step. Some directly impacted stakeholders are: • Finance: Financial processes for managing budgets and paying invoices are tightly interwoven with the buying procedures that result in purchase orders. This process begins with a requisition from a procurement perspective, with a finance office expecting an accounting code verification, budget check, financial approvals and, in some organizations, a pre-­encumbrance of funds. The purchase order that would result may also carry finance requirements of reconfirming accounting codes and budget with finance approvals and encumbering funds (relieving any pre-encumbrances).

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Additionally, processing invoices in finance offices typically requires the concept of a 3-way match of order-to-receipt-to-invoice before payment can be made. So, the eProcurement processes need to be set up to facilitate or support these financial processes. This typically means the eProcurement system should have multiple integration points with the financial management system. • Fixed asset management: A key aspect to taking possession (receiving) of certain types of commodities (e.g., lab equipment, computers, and vehicles) is that state and local governments are required to track these items as assets throughout their life cycle. This tracking begins when the item is received as a delivery from a purchase. eProcurement systems provide the functionality to record these receipts and capture fixed asset information (e.g., serial number and storage location). eProcurement needs to be considered for integration with the fixed asset management/ tracking system. • Inventory management: Some organizations in state and local government keep inventories of certain commodities (e.g., road maintenance materials and building maintenance parts/supplies), which require buying for replenishment, and the inventory items themselves are issued as a variation of a procurement’s requisition process. Therefore, the inventory systems’ buying, receiving, and issuing activities are potential processes that may be integrated with an eProcurement system. • State business licensing: In most states, there are certain professions or business types that the state should license to be able to do business with the state. This licensing is typically a supplier qualification requirement when soliciting and contracting certain commodities and services. eProcurement systems offer the capability to integrate with licensing systems to automate and expedite the solicitation and contracting processes.

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• Supplier certifications: Separate from licensing, many states have to manage their certification programs, such as with historically disadvantaged businesses (e.g., women-owned, minority-owned, veteran-­ owned, and small businesses). Many ePro­­curement systems leverage their integration capabilities to either initiate or validate these certifications as part of their supplier enablement functionalities. • Purchase card (PCard) management: In environments where individuals are issued PCards to help expedite purchases and reduce invoice workload, eProcurement systems provide the ability to incorporate PCards into the ordering functionalities. eProcurement systems’ capabilities vary from simply providing the PCard information to suppliers in order to process their payment, to including capabilities to process the PCard transaction and pay the supplier.

Indirectly Impacted Stakeholders The following stakeholders may have occasional roles or participation in procurement processes, may need information from resulting procurement activities, or may have policies or rules that impact procurement practices: • Technology agencies: Depending on state IT policies and technology, departments may be required to approve certain types of purchases (e.g., computers and software) and typically issue policies and standards governing what types of technology can be purchased. These approval processes, rules, policies, and standards need to be addressed in the configuration and setup of an eProcurement system. • Auditors (state and federal): Procurement typically should support occasional audits of purchasing activities and processes by both state and federal auditors. eProcurement systems provide a means to set up read-only user roles to support this need.

• Security: States have evolved complex security policies and standards, especially for systems deployed outside a state-­ controlled data center. eProcurement systems typically employ web/cloud-based architectures and adopt very stringent security practices and controls that can be more stringent than states require. • Human resources: When there is procurement or contracting for staff augmentation services or temporary labor support, state human resources organizations are often responsible for tracking the individuals brought on to perform these services. In some circumstances, HR may also be required to approve these personnel procurements. They should ensure that procurement processes capture the necessary information regarding those individuals and contracting services. Additionally, IT departments, security, and accounts payable offices will need similar information to set up these individuals in the state systems necessary in order to work and get paid. eProcurement systems vary in how they support these types of purchases. It is very important to carefully plan the system’s configuration to ensure that these informational and approval needs are addressed. • Economic development: Many states’ procurement offices interact with programs, initiatives, and organizations designed to grow some aspect of the supplier community. This may be a focus on supporting local or in-state suppliers, or growing supplier diversity with minority-­ owned, veteran-­ owned, women-owned, or small businesses. While public entities have a vested interest in leveraging spend to build up their local economies, many states have adopted specific policies and/ or regulations that attempt to guide state spending to specific categories of suppliers. eProcurement systems provide a variety of capabilities that can help procurement offices meet these goals and facilitate monitoring and reporting to help track

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compliance. Additionally, eProcurement systems can level the playing field by making it easier for small businesses to find and compete for contract opportunities by allowing them access to automated tools that simplify solicitation and transaction processes. • Public/tax payers: There will always be strong interest from citizens, watch groups, and the media in how state dollars are being spent. eProcurement systems provide transparency capabilities that can be leveraged to meet these expectations, but the functionalities available in individual systems can vary significantly. When selecting an eProcurement system, there should be a careful assessment of the need to tailor available transparency functionalities. • Public policy and lawmakers: For those responsible for setting state policies, drafting legislation, and passing laws, there is a need for illustrative information and data on state spending. Procurement officials commonly field requests for this data. eProcurement reporting functionalities provide strong spend analytics and the data mining and reporting necessary to meet these information needs. Dialogue with all stakeholders should start early and continue throughout the eProcurement process.

POTENTIAL OUTCOMES AND BENEFITS As noted in the introduction to this chapter, there are specific objectives that eProcurement initiatives target. The following sections will examine some potential outcomes and impacts that states can achieve through implementing an eProcurement system.

Manage All Spend

for more visibility and/or detail into their spend. This makes it difficult to answer questions like: • • • • • • •

What is being purchased? Who is doing the purchasing? When are they purchasing? Do we have the best available contracts? Do we need other contracts? Are we getting the best quality or prices? Are we getting the best value for public funds?

Organization-wide utilization of an eProcurement system for all procurement operations provides the necessary insight to address these questions and more.

Leverage Buying Power Not just knowing what you buy but also knowing when, who, why, from whom, and how gives insight into much more than just spend. These other dimensions provide the capability to step back and truly be strategic in assessing buying practices, outcomes, and trends to help predict future needs. The ability to track and measure purchasing activity can provide opportunities to consolidate some purchases, allowing the state to leverage volume and negotiate more and better contracts.

Monitor Compliance Transitioning the entire organization to the same eProcurement system creates the opportunity to monitor purchasing activities in real time to see if policies and best practices are being followed. Additionally, eProcurement systems provide the capability to guide users to buying sources like contracts or internal state sources. For organizations that use a PCard, eProcurement systems can provide the ability to manage/ guide PCard purchases up front, rather than rely on after-the-fact management when invoices are reconciled by cardholders.

One primary issue that drives an organization to pursue an eProcurement system is the need

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Spend Analytics Analyzing spend is important because it allows an organization to convert raw purchasing data into usable information that can deliver insights into an organization’s procurement activities and expenditures to uncover opportunities to lower overall costs to procure goods and services. Typically, states look to spend analysis exercises in order to: • Identify areas of opportunity to reduce costs • Improve supplier performance and manage supply risk • Streamline sourcing processes for better efficiency • Identify out-of-contract or unauthorized spending • Leverage or consolidate similar products or services • Diversify the supplier database • Identify opportunities for more sustainable procurement • Create more accurate budgeting and spend forecasts3 Spend analysis is one of the key levers that leading procurement organizations use to optimize their buying power. For comprehensive spend analysis to uncover improvement opportunities, data needs to be collected, cleansed, classified, and analyzed in multiple ways. eProcurement systems collect and organize this data, facilitating more efficient analysis. Spend analysis data provides spend visibility, that is, the picture behind the numbers. In various levels of detail, real-time management reports provide insights that can result in better supplier relationships and be utilized to forecast cash flows, set budgets, and realign spend categories. The benefits of analyzing spend can be summarized as follows:4 • Provides a window into spend patterns and buying trends across the whole enterprise

• Delivers improved data quality and reliability through cleaning, validating, and enriching the data for fact-based decision making • Creates opportunities for supplier consolidation and benchmarking; economies of scale can be explored within sourcing categories • Promotes contract compliance and limits supplier risk; spend analysis reduces the scope for invoice fraud and unauthorized and maverick spend by reporting on out-ofcontract spend • Identifies procurement process challenges and highlights areas to improve efficiency, such as shortening cycle times and removing redundant tasks • Provides input into the forecasting and budget process, giving direction for future strategic sourcing strategies • Establishes an enterprise’s sustainability profile and impact; results are used to set and track sustainability goals • Tracks historical spend for fact-based, realized savings reporting—against a preagreed baseline

Increased Administrative Efficiency Efficiencies come from transitioning from manual to automated processes and streamlining the purchasing process. Core to eProcurement systems is the concept of self-serve, where the stakeholders/users initiate and, in some cases, execute the procurement processes themselves. By streamlining existing processes, it expedites procurements across the board. The following are specific aspects of eProcurement systems that result in these efficiencies: • Standards and templates: Building in standard yet flexible processes and predefined templates provides consistency across the organization and simplifies creating and executing purchases across the organization. • Online/intelligent workflows: eProcurement systems provide the ability to route and manage work with intelligent business

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rule engines that allow an organization to build in the rules and automate the flow of work to the proper people for approvals or actions under specific circumstances. Only the necessary officials touch a procurement. • Single source: For state employees, an eProcurement platform becomes the one place to conduct all types of procurement. It also becomes the electronic repository for all activities associated with any particular procurement. This eliminates the need to search multiple places to buy or find information about what was purchased. Likewise, suppliers no longer have to hunt through multiple agency websites to find business opportunities or sales contacts, learn different ways to do business with individual agencies, or transact with the state to sell and get paid. The eProcurement system gives suppliers a single portal to interact consistently across the whole of government organization. • Electronic transactions: The automation of procurement processes with an eProcurement system brings with it the opportunity to move away from traditional paper documents and carry the concept of transacting electronically to its full potential, all while still allowing for the exceptions where paper and e-mail will still have to be allowed for: $$ Purchase orders can automatically be routed to suppliers via e-mail or as true electronic transactions (e.g., EDI, cXML) that feed directly into a supplier’s systems for fulfillment. $$ Receiving can benefit from accepting an advanced shipping notice—an electronic transaction that the supplier can send to the eProcurement system that mirrors the information on the shipping document that goes with delivery and that pre-loads the eProcurement receiving screen’s record, which will expedite the recording of receipts. Additionally, many eProcurements systems now support the use of hand-held

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receiving devices that scan bar codes on packages for the entry of receiving information. $$ Invoice entry transitions to automated invoice submission that expedites a state’s invoice processing and provides suppliers the means to speed up their work to get invoices into the process. Invoices can come as an eInvoice transaction that feeds directly from a supplier’s backend system, or they could come as an attachment to a dedicated e-mail account where OCR/ scanning technology transforms it into digital data, or suppliers can log into their eProcurement account and create an invoice directly from the Purchase Order they received (called the PO flip). • Internet simplicity: Using common internet in-screen designs and visual processes provides familiarity and ease of use to the tools officials use for procurement. For example, usage within the Commonwealth of Virginia’s eVA platform system has delivered $18.9 million in savings from increased administrative efficiency through the electronic processing of purchase orders in fiscal year 2022. There has also been a documented reduction in sourcing cycle time. Internal tracking found that from publish to award, 87.5 percent of invitation for bids (IFBs) and request for proposals (RFPs) were awarded in less than 180 days, with an average of 102 days. Separately, IFBs averaged 74 days, and RFPs averaged 166 days.

Increased Competition With open and fair competition being one of the core mantras of public procurement, eProcurement systems expand these concepts multifold. Open—by more effectively providing public posting of solicitations with e-mail notifications to suppliers and making it easy for existing suppliers to participate in these business opportunities. Additionally, states may see an increase in supplier registrations to gain access to these opportunities. This translates into new potential

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sources of supply, more competition, and ultimately cost savings for the state. Incidental to this expansion of open and fair competition, the use of eProcurement system technologies brings related benefits that also help translate into more competition: • Centralization of solicitations: eProcurement systems provide comprehensive features using definable templates and integration with office automation tools (e.g., MS Word & Excel) to address every type of solicitation (RFXs, bids, and quotes) for any commodity or service (RFX is short for RFB, RFP, and RFI [request for information]). Many of these systems even provide a project concept to group solicitations or sourcing events under an umbrella that fits complex multiphase buying scenarios such as construction or IT projects. This translates into the capability to make all state business available in a single public place rather than only providing access to the more common RFP and bid opportunities. This single place for all solicitations increases exposure to interested suppliers and encourages participation. • Leveling the field: Without the supplier-­ side tools of an eProcurement system, suppliers have to make their investments in systems to benefit from online procurement capabilities. Large businesses have the capacity to make these investments, but small or disadvantaged businesses may not have the necessary resources. The comprehensive features on the supplier side of eProcurement provide significant means for smaller enterprises to compete for opportunities. These suppliers can participate in online marketplaces with catalogs of their own, get their purchase orders electronically, and create/submit e-invoices for expedited compensation. eProcurement solutions can enable market access, increase efficiency, and ultimately lower costs for suppliers. Saving suppliers money in their operations can allow them to offer lower bids and prices.

• Supplier collaboration: Many of the eProcurement systems have solicitation tools that allow suppliers to communicate not only with the relevant buyer but also with each other. These solutions increase the efficiency of supplier/buyer communications, which should be carefully managed for compliance with rules/policies. Providing supplier-to-supplier communication can also be beneficial to the state. These tools can help small businesses seek partners for bidding on large procurements or promote themselves as potential subcontractors to a prime contract. For large businesses, these tools can aid in finding subcontractors to fill specific areas of scope or meet state interests in directing portions of a project to local, small, or diverse suppliers. In the case of Virginia’s eVA system, access to business opportunities improved, enabling more suppliers to participate, which increased competition. Suppliers can register once to make their commodities and services visible to state user agencies and to many local government procurement offices that also use the system. Suppliers’ costs are reduced by decreased travel and administrative time spent at numerous procurement offices. In 2022 there were 10,208 new vendor registrations bringing the total of active vendors to 183,975 that are available to do business with the Commonwealth. This increased competition has resulted in reduced prices of commodities and services.

State Policy Adaptability Public sector procurement often has to adjust to address new executive orders, policies, and legislation. Most eProcurement system providers structured their systems to be highly configurable and to provide the flexibility to evolve/ adapt for these types of situations. With built-in business rules and the introduction of some artificial intelligence capabilities, these systems avoid the heavy software customization that has plagued the technology industry in the past.

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Transparency and Accountability A natural by-product of an eProcurement system is the transparency of the process, which supports accountability. The progress of any procurement transaction (purchase requests, requisitions, purchase orders, solicitations, contracts, and invoices) can be readily viewed by users. Additionally, many eProcurement systems allow administrators to selectively make procurement information and data publicly viewable, including solicitations and outcomes, contracts, purchase orders, and the various policies/rules that govern these procurements.

Other Cost Reductions and Savings With the many direct benefits of implementing an eProcurement system already discussed, there are several other areas for potential cost savings and added value: • Retiring redundant systems: The state may have different siloed information systems in each agency and procurement office to facilitate their work. Implementing a commonly shared solution will allow the state to retire those siloed systems, saving the associated licensing, hardware, maintenance, and staff costs. • Cloud storage: The movement away from paper toward digitizing documents and digitalizing processes presents a new challenge: how to manage/control the storage of these documents in a manner that ensures proper structure and access, information integrity, security, and record retention requirements. eProcurement systems have incorporated cloud storage to resolve the challenges around electronic document storage/management in a manner that addresses public sector legal and policy needs. • Centralized support: The adoption of technology solutions, such as an eProcurement system, requires change management considerations since the staff has to transition from manual/fractured

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practices to electronic/common processes and tools. Fundamental to this is having effective help desk support. Successful implementation of an eProcurement system depends on planning for and providing this support to both state users and suppliers. In most cases, eProcurement system providers offer a help desk service or the training services necessary for the state to start up internal help desk resources. In either approach, the benefit of having a single source for this type of support helps to ensure that both state users and suppliers get the benefits of using the system. • Collaboration to consolidate buying: Mentioned in the Managing All Spend section earlier was the central procurement perspective of consolidating spend for better contracts. Collaboration features of an eProcurement system will let agencies and/or political subdivisions (local governments) find partners that are needing the same goods/services so they can consolidate procurements. This can increase efficiency while also leveraging buying power. • Political subdivision/local government gains: Consider allowing political subdivisions and local government entities (e.g., cities, towns, counties, public schools, higher education institutions, etc.) to use the system. The immediate benefit is a potential increase in the usage of statewide contracts. The broader impact is that these government entities would not need to invest in their eProcurement system. They get access to modern technology with minimal-to-no resources spent, and suppliers get more access to their contracting opportunities.

Innovative Technologies The eProcurement system industry leverages modern technologies providing the state with multiple technical benefits: • Cloud-based: eProcurement leverages the internet to provide software environments that offer multiple upgrades annually National Association of State Procurement Officials

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with the option to customize new features and hardware environments that automatically adapt to demand when increased system use requires more resources. • Secure: eProcurement systems are designed for continuously adaptive security and privacy protections demanded by the private sector, federal, and state security policies. States may move away from directly providing these protections and move into a more strategic role of monitoring and directing to provide the levels of protection required for compliance. • Configurable: eProcurement solutions are adaptive for establishing and applying standards, policies, and rules. They provide the necessary flexibility to address exceptions or exemptions and can be tailored for new practices as organizations and processes mature. These systems provide the state with the option to self-administer data inputs, user accounts, budget codes, and core configuration options. However, they

also provide the potential to externalize these tasks and contract for such services with the eProcurement system provider or one of their system integrator partners. Chapter 18 (Procurement of Information Technology) provides a greater discussion on the procurement of information technology and security.

ACTUAL STATE OUTCOMES The following are examples of outcomes reported by Montana and Nevada procurement officials in October 2022 on the use of their respective eProcurement systems after recent implementation. Montana The electronic Montana Acquisition and Contracting System (eMACS)5 is a central location for several critical functions, and the state has realized several benefits from its use (see Figure 14.1).

FIGURE 14.1 | FUNCTIONS AND BENEFITS OF MONTANA’S ePROCUREMENT SYSTEM (eMACS) Functions of eProcurement System

Benefits from eProcurement System

• Purchasing from the state, statewide, and cooperative term contracts • Lists of vendors/suppliers registered to participate in the bid submission process and supplier management • Complete contract records of all agency contracts • Notification and posting of bidding opportunities with the state for all formal solicitations, with the ability to add limited solicitations • Additional contract management tools

• Control and flexibility of the aspects of the procurement process, which includes requisition management, sourcing management, contract management, and supplier management • Reduced costs to the state and the vendor community • Reduced time to conduct solicitations and award contracts • Transparency in the entire process—solicitation, contract, and spend • Allowed the state to track contract spend • Increased productivity • Elimination of “hard copy” paperwork and documentation • Reduced time spent on “shopping” for goods by standardizing the buying process • Centralized reporting on the procurement process • Electronic signatures speed up the contract signing process • Review and workflow approval minimize errors from appearing in procurement processes • Secured processes

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Nevada The text below is a comment from Gideon Davis, a Purchasing Officer III from the State of Nevada Purchasing Division, on the benefits of

NevadaEPro,6 Nevada’s eProcurement system. As of January 2018, the state began posting all solicitation opportunities on NevadaEPro.

The biggest benefit of eProcurement is transparency and access to information. Staff, vendors, auditors, media, and the public can all access solicitation, award, proposal, contract, and purchase information easily online. It has dramatically changed the time and effort spent by the public information office in responding to records requests related to State Purchasing—­most documents needed are already available online, so the volume of requests have decreased, and the ones still submitted are easier to respond to—often with just a link to the site. State executive branch and legislative branch auditors use the system to easily access solicitation and contract information. Next is streamlined processes. When conducting a solicitation, having an eProcurement system has decreased the human touchpoints, allowing for less technician-level staff involvement and allowing them to focus on tasks that require some level of critical thinking. Each solicitation used to require both a purchasing officer to run the solicitation and a purchasing technician to manage the documentation for posting, advertising, questions, amendments, proposal submission, revisions, award notification, and contract execution. The work related to formal solicitation previously done by the purchasing technician is now done solely by the purchasing officer using the eProcurement system. By eliminating touchpoints, it also increased the speed to market for a solicitation because we no longer had to go through a webmaster and system nightly cycles to post a solicitation. State Purchasing used to stagger the deadlines of RFPs just due to the amount of mail we would receive—each proposal required a box with 5–10 copies of a proposal in it. Now there can be several proposal deadlines simultaneously without issue. Having an eProcurement system has allowed us to make processes more consistent across solicitations and, in turn, decrease the actual size of the RFP document template by removing several pages of language about how the physical copies were to be formatted and packaged for submission. As an order placement system, for requisitions, purchase orders, and receipts (including state-hosted catalogs and punchout eCommerce catalogs with vendors), the eProcurement system has created efficiencies. Many state executive branch agencies have eliminated their paper requisition process and moved their purchase approval workflow to the eProcurement system. Like with solicitations, this minimizes touchpoints, which decreases errors and increases processing speeds.The value of eProcurement for contract ordering is felt by using agencies, especially for those vendors with punchout. Ease of use also leads to increased compliance—agencies are happy to purchase from the contract when that is also the easiest way to buy. The eProcurement system allows the central purchasing office to have more visibility into individual agency purchasing, and to find places additional value can be found through consolidation and solicitation while shortening the time between request and delivery.

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ePROCUREMENT SYSTEM MODULES AND COMPONENTS

service codes throughout the system to categorize, manage, and report. The following are some specific example uses:

Figure 14.2 shows the various components of an integrated eProcurement system and the related workstreams.

• • • • • • • •

Commodity/Service Codes Foundational to all eProcurement modules/components is using a set of standard commodity/

Categorize suppliers Workflow routing Categorize contract catalog items Categorize requisition items Solicitation supplier invitation lists Approval rule definition Organizational/user buying restrictions Spend analysis and reporting

FIGURE 14.2 | ePROCUREMENT WORKSTREAMS FOR PUBLIC PROCUREMENT

eProcurement Workstreams Conceptual Model BUYER ACCESS

SUPPLIER ACCESS STATE USER

Vendor Enablement/Management Workstream

Receive Order Fill Order, Invoice

POLITICAL SUBDIVISION USER

Need to Pay Workstream

Marketplace Catalog Content

Catalog Management Workstream Catalog Content

Solicitation Response

Sourcing/Bid Management Workstream Award

Contract Administration

Contract Management Workstream

Compliance, Fulfillment & Feedback

Integration

Data from all Components

Integration

Functions of eProcurement System

Spend/Data Analytics & Reporting Workstream

HIGHER ED. USER

SUPPLIER USER

Integration

Benefits from eProcurement System

Finance—ERP System

ERP BI/Reporting

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In public procurement, there are currently three commodity/service code industry standards available:

are in common use, some states have elected to develop their own homegrown commodity/ service code standards (see Figure 14.3).

• NAICS Codes: The North American Industry Classification System (NAICS) is managed by the Federal Office of Management and Budget (OMB) for use by Federal Statistical Agencies to classify businesses to provide a high level of comparability in business statistics. This replaced the Federal Standard Industrial Classification (SIC) system. • NIGP Codes: Managed by the National Institute of Governmental Purchasing (NIGP), the NIGP code is a “universal taxonomy for identifying commodities and services in procurement systems.”7 • UNSPSC Codes: The United Nations Standard Products and Services Code (UNSPSC), managed by GS1 US for the United Nations Development Programme (UNDP) (a not-for-profit international organization), “is an open, global, multi-sector standard for efficient, accurate classification of products and services.”8

Most eProcurement systems can accommodate a state’s commodity or service code standard. However, some systems have standardized only one of the industry codes. Therefore, a state should decide before soliciting for an eProcurement system whether a specific commodity or service code standard (industry or homegrown) will be specified or if the state is open to whatever the selected eProcurement system can support.

According to the NASPO 2022 State Practices Survey, of the 42 survey participants, almost an equal number of states use the NIGP or the UNSPSC code sets.9 While these standards

The adoption of a standard commodity and service code structure is widespread across all states. According to the NASPO 2022 State Practices Survey, 41 states identified that they had adopted a commodity/service code standard as a foundational component of their automation efforts, as shown in Figure 14.3.

Public, Buyer, and Supplier Portals A public portal provides a web presence to post public content and can serve as the foundational hub for supplier and public entity users. The public portal may include solicitations, contracts, procurement policies and manuals, training materials, and transparency reports. It also provides a

FIGURE 14.3 | COMMODITY AND SERVICE CODE ADOPTION BY STATE

10

Commodity/Service Codes (41 States–Puerto Rico) State Codes, 1 UNSPSC, 18

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NAICS, 2

NIGP, 21

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center for secure login access for state and supplier users to access their respective portals. The buyer portal provides a personalized single point of entry (login and landing page) to initiate procurement transactions of all types. User accounts are role based, with defined authorizations to control which system components the user can access. Most eProcurement systems can integrate with state single-sign-in functionalities. Then, similarly, there should be a supplier portal that provides a single point of entry (login and landing page) to access all supplier-facing functions. The supplier should also have the ability to incorporate access to other applications or services, such as certifications, invoicing, and online interactions with the participating entity. Supplier portal functionality should be tailored to deliver valuable content upon logging in and be personalized to the supplier and for the specific user logged into the system.

Supplier Engagement and Management In conjunction with the supplier portal, supplier engagement and management support all supplier procurement activities. When determining how a procurement office will develop its portal and supplier engagement plan, consider the following: • Establishing and maintaining an account that captures all data elements and documents required to process procurement and financial (e.g., payment) transactions— this includes commodity/service codes that define what they sell and key financial information, such as tax ID, remit-to-address, banking information, and W9 data/forms • Capturing and validating state certifications, licensures, and diversity classifications • Defining role-based user accounts with specified authorizations to control actions users can take on behalf of the supplier • Accessing and responding to/bidding on solicitations

• Accessing purchase orders and awarded contracts • Submitting contract deliverables such as sales reports and subcontract usage reports • Submitting advanced shipping notices • Creating or submitting invoices • Addressing supplier performance issues Typically, this component either interfaces or is integrated with the state finance system to establish and maintain supplier payment records needed for accounts payable processing.

Supplier Performance Supplier performance management measures, analyzes, and manages a supplier’s performance to cut costs, alleviate risks, and drive continuous improvement. The ultimate intent is to identify potential issues or risks and their root causes so that they can be resolved to all parties’ benefit as early as possible. This functionality typically captures supplier performance information and data including, but not limited to, delivery/ receipt dates, pricing accuracy, contract milestone completion, cure letters, and customer surveys. Additionally, most eProcurement systems provide improvement planning, reporting, data dashboards, and data analysis features.

Sourcing and Bid Management Sourcing and bid management provides functionality to automate the entire solicitation process for both the buyer and the supplier. All types of solicitations can be created leveraging standard and/or agency-specific templates and libraries. Other key functionalities include: • • • • • • •

Initiating solicitations from a requisition Automated building of supplier/bidder lists Approvals Public posting Supplier notifications Revising solicitations Establishing evaluation teams and scoring criteria • Supplier question/answer

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• Evaluation of bids/proposals • Making the award • Automated public posting of solicitation results and documentation Sourcing and bid management components can be integrated with other solution components to automate the creation of catalogs, purchase orders, and contracts. Many eProcurement systems have integrated with MS Word to author solicitation documents and with MS Excel to create and load line-item details. Suppliers can receive solicitation notifications and respond or bid on solicitations within the system, including attaching documents, submitting alternate bids, and revising responses or bids. Simplified quoting for small dollar procurements is the most frequent form of solicitation that occurs in a state. Often referred to as 3 bids & a buy, quick quote, or phone quoting, most of this type of sourcing activity happens outside of the procurement office. It is often overlooked when setting up the sourcing functionality of an eProcurement solution. eProcurement systems vary significantly in how they provide for these types of procurements, with either a scaleddown version of an unsealed bid solicitation template or by allowing quote requests to be initiated directly from a requisition. Most of the previously described functionalities are available in each case as part of the configuration.

Contract Management Contract management encompasses all aspects of contract development, tracking, authorizations, and administration. More information on contract management can be found in Chapter 10 (Contract Management and Administration). Contract document authoring is automated via templates, libraries, and integration with MS Word to provide consistency across the organization. Workflow functionality provides oversight by automating the review and approval processes. eProcurement enables key contract administration functions, including:

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• Management of subcontractors • Identification of authorized resellers (dealers, distributors, etc.) • Tracking and managing supplier sales reports • Defining/managing deliverables • Assessing contractor performance/compliance • Creation of amendments • Contract renewals

Need to Pay (Procure to Pay) Fundamental to an eProcurement system is the concept of self-service, as the process begins with the actual individual that needs a purchase. This concept is provisioned in the eProcurement system by allowing users to initiate any procurement action with configurable business rules to route it to the appropriate procurement method. Frequently, this would enable the user to control the ordering process, from the purchase request (requisition) through the payment authorization for the resulting order. Key components include: • Purchase requests • Catalog and punchout shopping to drive spend to existing contracts • Potential to access external online retail marketplaces • Intelligent workflow engine to apply agency and statewide business rules • Online approvals • Electronic order dispatch • Receipt with fixed asset data capture • Electronic and paper invoicing • Invoice matching for payment authorization • Three-way match for payment authorization • Integration with a finance system throughout the process to support chart of account checking, budget checking, pre-encumbrances, encumbrances, invoice/voucher processing, and payment tracking Many eProcurement systems provide capabilities to support purchases from preestablished

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service contracts (e.g., professional services, contingent labor, and healthcare services) that may include characteristics such as deliverable-based-fee services. This specialized type of purchasing would address the following: • Scope/need definition (scope of work) • Contract supplier submission of quotes with attachments (e.g., resumes, specifications) • Quote evaluation/selection • Order generation • Receiving concepts (e.g., recording of time­ sheets, deliverables acceptance, milestone completions, and expenses)

Catalog and Punchout Management Catalog and punchout management provides access to contract catalog content in the system’s shopping component (or marketplace). Catalog content can be hosted within the system or made available by punching out to the supplier’s shopping website. Access to the content can be restricted to specific agencies or groups of users. Hosted catalog content could be generated or updated from the contract management component of the system or by uploading catalogs via templates. Suppliers can set up, manage, and maintain their catalogs with access controlled through user role definition and assignment. Workflow functionality can automate the state review and approval of catalog content before making it available for purchases. Some eProcurement solutions also have the capability to provide access to noncontract catalogs and punchouts while allowing the state to restrict such access to specific agencies or groups of users.

Spend/Data Analytics and Reporting Spend/data analytics and reporting functionality can provide comprehensive query and analysis

with options to export data to external tools such as Excel. The reporting capabilities typically offer options to include interactive charts, dashboards, and tabular formats with the capability to examine transactional details. eProcurement systems typically come with standard report formats and custom report-building capabilities. These reports provide insight into spend and other strategic, operational, and organizational dimensions. Publishing public reports to support transparency initiatives is also a key feature of some eProcurement systems.

ePROCUREMENT SYSTEM OPTIONS Finance and Enterprise Resource Planning (ERP) Systems So far, this chapter has emphasized the benefits of eProcurement systems as tools outside of an organization’s finance/ERP system. It is important to note that, with very few exceptions, finance/ERP systems provide modules that have basic procurement functionalities, such as supplier (Payee) accounts, requisitioning, ordering, receiving, and invoicing, in order to meet the core requirements of budget management, accounts payable, and financial reporting. These functionalities generally lag behind the capabilities of eProcurement systems that have been developed specifically for procurement. Therefore, eProcurement systems may provide a state or public procurement entity greater benefits. Functionalities common in eProcurement tools but typically not available in these finance/ERP systems include: • Supplier self-registration and certification • Personalized supplier and buyer portals • Complex catalog/punchout hosting and shopping capabilities • Sourcing (including reverse auctions, online supplier bidding, and team-based bid/ proposal evaluations) • Supplier access for contract performance

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• Supplier performance management • Solicitation and contract public posting and transparency Additionally, due to their licensing models, finance/ERP systems do not typically provide a means to allow use by local governments, integration with social media, or support for mobile device access. Despite these differences, an organization should still consider utilizing the procurement modules/ functionalities of their finance/ERP system when lacking support or funds for an eProcurement project. Finance/ERP systems can provide some of the gains discussed in this chapter by automating many manual and fractured procurement processes across the organization. The challenge comes from the gaps in those functionalities and processes. In these cases, it is recommended that the central procurement office looks at those gaps holistically (across the entire state) to establish consistent practices rather than allow individual organizations to set up their own processes and tools.

Automation of at least some procurement processes is common among all states, with a significant number moving to full eProcurement solutions. The NASPO 2022 State Practices Survey found that of the 24 states using a finance/ERP system, two are actively working to move to an eProcurement system. Five additional states indicated that they might also make similar transitions. Figure 14.4 illustrates the prevalence of the procurement systems discussed, and Figure 14.5 shows the types of systems used in state governments as of 2022, in conjunction with data interpretation from NASPO staff.

FULL VERSUS PARTIAL ePROCUREMENT SOLUTIONS Most of the eProcurement systems available offer the option of deployment as a full solution—meaning to implement all the functionality areas discussed in the previous eProcurement System Modules and Components section or deployment as a partial solution where 11

FIGURE 14.4 | PREVALENCE OF PROCUREMENT SYSTEMS IN STATES State Procurement Systems (50 States–Puerto Rico–D.C.) In-House Systems/Tools, 4

eProcurement Systems, 24

Finance/ERP Systems, 24

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12

FIGURE 14.5 | TYPE OF PROCUREMENT SYSTEM BY STATE

WA

ND

MT

VT

MN SD

OR

ID

WY

IL

UT

CO

KS

MO KY OK

NM

AZ

PA

OH

IN

CA

NH MA RI CT NJ DE MD DC

NY

MI

IA

NE NV

ME

WI

WV

TN

VA NC

AR SC MS

TX

LA

AK

AL

GA

FL

HI

PR

Finance/ERP System eProcurement System In-House System/Tools

only specific modules and components are implemented. While it is always recommended that a state focus on a full solution approach to address all aspects of its procurement operations, there are situations (such as limited funding) where a state may need to focus on specific areas that require attention first. In those cases, the state should consider whether moving to a full solution is part of the future vision. If so, it is critical to consider: (1) whether a partial solution selected can later evolve into a full solution; and (2) whether there is a need to build into the contract the provisions to incorporate additional components at a later time. Another critical aspect of a full or partial solution is the finance/ERP system integration. Throughout

this chapter, there have been many references to the need for and value of this integration to ensure that financial processes are facilitated and protected. The state should be able to manage budgets and pay the bills—procurement is fundamental to those processes. This is commonly referred to as procure-to-pay. As an organization is considering eProcurement system alternatives, a critical decision will be whether to deploy a stand-alone system or to fully integrate with the finance/ERP system. States should consider whether the selected system has the technology to integrate with the organizations’ finance/ERP system. Deploying as a stand-alone system still needs to meet the requirements of the state’s financial processes. This means the entity would need to adopt double-entry practices for finance/ERP

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system data entry to reflect procurement activities conducted in the eProcurement systems. This extra work creates inefficiencies and introduces the risk of data errors and discrepancies that will have to be audited and corrected continuously. While not an optimal situation, there may be cases that this approach is necessary, such as when an organization does not have a compatible finance/ERP system that allows for automated integration or the integration work cannot be accommodated at the time the eProcurement system is being implemented.

ePROCUREMENT PROJECT CHALLENGES AND CONSIDERATIONS As with any significant transformational technology initiative, many challenges can put the project at risk. With an eProcurement project, the following section presents the core areas that should be considered to achieve success when implementing a new eProcurement system.

Initiating an eProcurement Project Executive-level approval may be required to launch or update an eProcurement project. Approvals often require concurrence from various internal government departments, such as finance, technology, and administration. A business case is often required. Chapter 4 (Procurement Planning) discusses in detail the steps a project implementation requires. Historically, little data was available for the development of a business case before eProcurement implementation. With eProcurement projects im­ plemented by many state and local governments, obtaining data to support the business case and developing a return-on-investment (ROI) strategy based on actual state and local government experience is easier. Typically, a technology procurement request with a business case assessment is submitted to the technical authority within a public entity

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for approval. Those departments have explicit requirements that should be met and documented before the request can proceed. The time, investment, and resources needed to justify the request can be sizable.

Costs and Funding Options and Models The cost components of an eProcurement system can generally be divided into three groups: • Licensing: The licensing models vary from named users to unlimited users, covering both supplier and state users. These are typical costs that incorporate maintenance agreements, system performance commitments with service level agreements, and future releases/upgrades of the system. • Implementation: These cost categories are typical of any large system implementation—design/configuration planning sessions, hardware/software environment setup, configuring/testing the system, planning/implementing integration with state systems, process conversions, change management, training, and help desk support. • Ongoing support: Post-implementation, a state can internalize or use contractor services for the ongoing support work not typically covered by the maintenance agreement. Examples are system administration, business analysis, help desk, change management, training, and testing. Internalizing incurs staffing costs and requires identifying and developing personnel with the appropriate skills. Utilizing contract services means additional ongoing annual costs that should be funded. Funding of eProcurement projects should address the one to two years of implementation costs plus the perpetual, ongoing support costs as system utilization expands statewide. There are at least three different approaches to the funding of an eProcurement system: (1) traditional direct government funding, (2) self-funding

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$$ Contract administration fees are typically

through the use and collection of fees, and (3) the use of a public/private partnership. A traditional funding approach occurs when funding is obtained as a part of the procurement operational budget or as a project-specific appropriation. Usually, this requires legislative action or a special budget re-allocation; approval for this funding source tends to be highly dependent on the business case mentioned previously. Cost savings, cost avoidance, and other ROI components of the business case should demonstrate the value of using state funds. When obtaining an appropriation, it is recommended that the language should also stipulate that the funds will be used only to fund the eProcurement solution. This kind of limiting language is important to ensure that the funds cannot be diverted to other uses at the risk of being unavailable to cover the eProcurement system costs.

•

• A self-funded approach depends on generating revenue by establishing fees to be paid for use of certain parts of the system. The following are common fee models: • Supplier fees: The three typical fees charged to suppliers are registration fees, contract administration fees, and transaction fees. The perception of supplier fees is that they are easier to establish as the cost of doing business for suppliers over the long term. However, there are examples where these supplier fees can result in higher prices for some goods and services if poorly implemented. $$ Registration fees are usually a fixed, annual amount to address the cost of the state supporting and maintaining supplier registrations in the system. Historically, this was a common practice. However, in recent years some states have moved away from this model as eProcurement systems largely rely on supplier self-service entry and maintenance of their accounts.

•

•

associated with statewide and cooperative contracts. Awarded contractors are required to submit sales reports, usually monthly or quarterly, and should pay the state a percentage of the sales for that period. An annual cap sometimes limits the amount a contractor should pay. $$ Transaction fees are also a percentage fee applied to each order received by the supplier or to each invoice submitted by the supplier. There may also be a cap set to limit the number of fees that can be charged on an individual order or invoice. Agency fees: This model is typically implemented as either a direct charge to each state agency or a percentage based on the usage of specific contracts or transactions (purchases) processed through the system. Pcard rebates: Many states with PCard programs have arrangements with the card provider to receive a rebate amount based on card usage. Typically, these rebates go into a state’s general fund but consider allocating some portion of the rebate to pay for the eProcurement system costs. State law: It is essential to ensure that existing state law permits this approach, as it may be considered an unauthorized tax under certain circumstances. Slow revenue buildup: There will be high early costs in implementing an eProcurement system, and any fee model based on usage is unlikely to generate the necessary revenue until the use of the system grows. In these cases, a state may need to look for short-term funding options, such as diverting funds from existing budgets or acquiring a treasury loan to cover the early revenue gap.

A public/private partnership13 approach typically has little-to-no cost to the state for implementation and use of the system. The system is paid for through supplier transaction fees that

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the eProcurement system provider charges. In some cases, the collected revenue is split with the state, providing yet another variation of self-funding. Commonly, the eProcurement system provider receives all of the revenue to offset the costs to implement and support the system. As noted before, with supplier fees, this funding model may result in higher prices. Some states that currently utilize a self-funded fee-based model to pay for their ongoing use of an eProcurement system initially funded it using a public/private partnership strategy. In such cases, modifying or renegotiating contracts was necessary based on experiences with the public/private partnership model.

PREPARING FOR ePROCUREMENT Implementing an eProcurement system can only begin with properly preparing your organization and tailoring a contract. The following are critical steps and considerations that any organization should take to prepare for an eProcurement project. • Organizational readiness: It is impor­ tant to assess any changes that need to be made in order to be ready to adopt an eProcurement system. A Current State Assessment looks at the structure of the organization, policies, procedures, rules, laws, staff skills, and even organizational culture. This assessment can be critical to implementing a system and adopting it statewide. Suppose a state does not leverage the automation of an eProcurement system. In that case, it will likely bring old or outdated processes/practices into the system and miss out on many benefits.

According to the NASPO 2022 State Practices Survey, most states receive some state funding for their procurement systems.14 Some states fund their system through a combination of state funding, fee-based models, and contract rebates. Funding model practices for the states vary greatly between general appropriations and various self-funded fee models, as shown in Figure 14.6.

15

FIGURE 14.6 | FUNDING MODELS FOR PROCUREMENT SYSTEM BY STATE

Procurement System Funding Methods (39 States–Puerto Rico) User/Agency, Supplier fees User/Agency Surplus Property Sales Supplier fees State appropriations, User/Agency, Contract rebates State appropriations, User/Agency State appropriations, Supplier fees State appropriations 0

214

2

4

6

8

10

12

14

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• Requirements gathering: It is not uncommon for an eProcurement initiative to focus solely on the needs of the central procurement office, resulting in implementing a system that serves only a small part of state operations. A key aspect of preparation is identifying performance requirements across all state levels and stakeholder groups that were mentioned earlier in this chapter. • RFP for the eProcurement system: Selecting an eProcurement system is a significant financial investment for the state. States should consider choosing a system capable of serving their needs for 10 to 20 years. It is important to ensure that offerors are given plenty of time to prepare comprehensive proposals. It is vital to place function over cost in evaluating proposals. There should be adequate subject matter expert participation to fully comprehend and evaluate each proposal’s aspects. It is critical to use negotiations to identify and resolve all offeror assumptions and reveal any unforeseen costs or limits applied (e.g., number of contracts allowed or number of purchase orders per year) that could later result in increased costs to the state.

SUCCESS: IMPLEMENTATION AND ADOPTION The success of any eProcurement project needs to be measured from at least two perspectives: successful system launch and broad system use. Successful launch of an eProcurement system requires an implementation to be managed closely to keep it within scope, budget, and schedule. The project’s overall success and obtaining the system’s potential benefits depends on how broadly the system is used. The system should promptly become the way the state conducts business. A longer adoption period can allow staff to continue old practices and hinder buy-in. Another risk when using a self-funding model is that slow adoption and

low use may result in too little revenue to pay for the system. The following are some of the significant areas of focus for achieving a successful eProcurement project: • Project team: Building on gathering requirements across all stakeholders, project teams should include adequate representation from each key stakeholder group to make setup/configuration decisions that will work for everyone. Chapter 18 (Procurement of Information Technology) offers guidance on developing teams for these types of complex technology projects. • Executive sponsorship/support: Having senior leadership declare and demonstrate that they support the eProcurement project is key in ensuring later adoption and use of the system. They can also provide the support necessary to give the project the resources to succeed. Support should be both top-down and bottom-up if the project is to succeed. There should be strong backing from state executives and cabinet officials who have direct connections to the governor and the legislature. Advocacy for the project is a key role of senior leadership as they work with others at their level to solve problems and continually promote the business case for eProcurement. • Project ownership: Just as the eProcurement system is an extension of the procurement office, so too the eProcurement project needs to be owned by the Chief Procurement Officer (CPO). The CPO needs to be the ultimate authority guiding the project and should be ready to make the decisions that reach all levels of the organization. • Decision making: eProcurement projects often fall into the trap of design paralysis, where the project team is either afraid to make decisions because they do not fully understand the ramifications of the new

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system or they over-engineer to account for every variation of procurement, situation, or exception. The project team needs to be encouraged, empowered, and guided to make decisions quickly, knowing they can adjust later in most cases. They need to focus on the 80/20 rule, identify the most common or productive processes, and prioritize them. In other words, focus on getting things good enough to launch instead of trying to be perfect. To protect the project from anomalies and exceptions, the project team needs to set up and configure simple versions of processes that can be leveraged when the new system features do not meet specific criteria. • Preparing the data: Simply setting up staff user accounts and distributing logins does not make the system usable. They have to be able to execute purchases, to shop, and to buy things. Suppliers, contracts, catalogs, and accounting codes should already be in the system when the first users log in. This data entry work should be planned and executed much earlier in the project, before launch. • Change management and training: The first guiding principle for your change management is to remember that you cannot achieve the benefits from the system if it is not used properly and broadly. A project leader should understand who will be using the system, what they will be doing in the system, and how that differs from their current processes and practices. This perspective is key to determining what should be done in process changes, policy changes, and training to prepare staff for the transition from the old to the new. One fundamental to achieving change is communication. Each level of the organization needs to learn what eProcurement means for their organization and themselves. Beyond the changes, they need to understand how it will benefit the organization and them directly. The central procurement office will need to institute a robust marketing, training, and

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information campaign, along with maintaining communications with all stakeholders concerned. Additionally, the office should create means to gather feedback as the project proceeds to further grassroots support. • Post-implementation support: As noted earlier, launching an eProcurement system doesn’t guarantee its success; there will be key areas of support to complete and continue transforming. As noted earlier in this chapter, this support includes system administration, business analysis, help desk, change management, training, and testing. It also means planning early for either the staffing necessary to internalize or contracting for the services.

CONCLUSION Many states are now considering, or soon will be considering, whether to transform their procurement systems, retire their legacy systems, integrate new eProcurment functionalities into their state’s ERP systems, or deploy a separate eProcurement system. These decisions involve considerations that transcend traditional procurement activities. They involve analysis of business processes, managing the change that comes with implementations of this size, and reexamining the relationship between procurement and accounting, as well as between suppliers and user agencies. Each public entity is different, and the best eProcurement solution for one public entity will not necessarily be an ideal solution for the next. Information such as that in this chapter assists CPOs in choosing the best solution that effectively addresses their public entity’s needs. Successful implementation of an eProcurement system is not just launching the system. Success is achieved when the system becomes the way the organization does business. The benefits discussed in this chapter can emerge once all procurement activities have been transitioned to or integrated with the eProcurement system—from executive leadership to the front-line purchasing official.

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ENDNOTES 1. “e-Procurement by Local Governments in Tennessee,” Tennessee Advisory Commission on Intergovernmental Relations, last modified January 2020, https://www.tn.gov​ /content/dam/tn/tacir/2020publications/202​ 0eProcurement.pdf. 2. Chapter 18, Information Technology Procurement, of this Practical Guide discusses what the term stakeholder means in large information technology projects. 3. “An Introduction to Spend Analysis: What Is It and Why Is It Important?” Sievo, accessed May 2, 2023, https://sievo.com/blog/what​ -is-spend-analysis-and-why-is-it-important. 4. “An Introduction to Spend Analysis: What Is It and Why Is It Important?” Sievo. 5. “eMACS Resources,” Montana Department of Administrative Services, accessed February 1, 2023, https://spb.mt.gov/eMACS​ -Resources. 6. “Welcome to Nevada EPro,” Nevada Purchasing Division, accessed February 1, 2023, https://nevadaepro.com/bso/. 7. “NIGP Code,” NIGP, accessed February 1, 2023, https://​www​.ni​gp​.org​/our​-pr​o​f​e​s​s​i​on​/ni​ gp​-code.

8. “Welcome,” United Nations Standard Products and Services Code (UNSPSC), accessed February 1, 2023, https://www.unsp​ sc.org/. 9. “2022 Survey of State Procurement Practices Report,” NASPO, last modified January 31, 2023, https://​www​.na​s​po​.org​/pr​a​c​t​i​ c​al​-gu​i​de​-re​s​o​u​r​ces/. 10. “2022 Survey of State Procurement Practices Report,” NASPO. 11. “2022 Survey of State Procurement Practices Report,” NASPO. 12. “2022 Survey of State Procurement Practices Report,” NASPO. 13. Public/Private partnerships in the context of public infrastructure are discussed in Chapter 16, Procurement of Construction and Related Services, of this Practical Guide. Some of the same considerations apply to any public/private partnership. 14. “2022 Survey of State Procurement Practices Report,” NASPO. 15. “2022 Survey of State Procurement Practices Report,” NASPO.

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RECOMMENDATIONS AND CONSIDERATIONS • For long-term viability, sustainability initiatives should be established and/or supported by an exercise of authority, such as a governor’s executive order, legislation, or administrative rule or regulation. • Sustainable procurement programs and training should be developed with the cooperation and input from a wide range of stakeholders, including agency customers, organizations that certify commodities and services as sustainable, and suppliers. • Foundational to a program is a policy that clearly outlines its purpose, the legal authority establishing that policy, the commodities and services covered, and the external verification tools used to make it credible. The policy should also identify the roles and responsibilities of the staff responsible for implementing it and the conditions under which waivers from the program will be granted. • Reporting on the public entity’s usage of sustainable commodities and services is critical, either through available expenditure information or, if not, through reports that contractors provide. The program’s effectiveness should be tracked and measured using techniques such as total cost of ownership and life-cycle costing.

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For many states, sustainable procurement’s role in its operations continues to evolve due to federal, state, and local initiatives. This chapter offers insights and guidance on implementing state and local government sustainability programs in public procurement. This chapter also provides tools and resources to assist public procurement officials in carrying out sustainability mandates. NASPO’s 2022 State Practices Survey measured the prevalence of states that have implemented green purchasing programs or initiatives, as seen in Figure 15.1.1 Well over half the states implement some form of sustainable purchasing initiative. This chapter focuses on commodities and services rather than construction projects, discussed in Chapter 16 (Procurement of Construction and Related Services). To explain sustainable purchasing for commodities and services, this chapter introduces foundational concepts and public policy support for sustainable procurement. The chapter then considers

creating, drafting, and implementing sustainable procurement programs. It concludes by discussing the importance of measuring and maintaining a sustainable procurement program. Additionally, the NASPO website2 contains several helpful resources for sustainable procurement: • A sustainable purchasing resources page with examples of state policies and links to program information • Procurement Pulse articles on sustainable procurement topics • Procurement U courses on sustainability

KEY TERMS AND CONCEPTS To begin this chapter’s discussion, it is essential to define critical terms. Over recent decades, environmentally preferable procurement has evolved to become part of what is known as sustainable procurement. The term sustainable procurement is broader than the term environmentally preferable procurement and the

FIGURE 15.1 | STATES IMPLEMENTING GREEN PURCHASING PROGRAMS

Has your state implemented any of the following green purchasing programs or initiatives? (Select all that apply.) Statewide contracts offering green products/services

28 20

Green purchasing policy or program Exec. Order mandating green purchasing/sustainability initiatives or goals

15

Set-asides or price preferences for green products/services

8

Other green/sustainable purchasing initiatives

13 0

Total surveyed: 44 Respondents: 34 Non-respondents: 10

220

10

20

30

Respondents Count

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commonly used term green purchasing. Sustainable procurement is generally defined as purchasing products or services with a lesser or reduced negative effect or increased positive impact on human health and the ecological environment compared to competing products that serve the same purpose. Sustainable procurement includes environmentally-preferable procurement along with social and economic factors that protect human health and minimize environmental impact throughout the life cycle of the product or service, ranging from the extraction of raw materials to end-oflife disposal. The minimal harmful effects of these products and services suggest they can be created, used, and safely disposed of in perpetuity. For this chapter, the broader term sustainable procurement will be used.

Sustainability Frameworks Two popular frameworks for examining and understanding sustainability concepts and practices are the triple-bottom-line and environmental, social, and governance (ESG). The triple-bottom-line refers to three separate but interdependent bottom-line measurements for organizations, commonly described as people, planet, and profit or as equity, ecology, and economy.3 The first line refers to the impact an organization’s practices have on its various stakeholders, community, or society. The second line refers to its effects on the natural environment. The third line refers to its local, national, or global economic impact. This includes job creation, industry innovation, employee compensation, and the payment of taxes. This framework requires the measurement of social and environmental impacts beyond fiscal performance. ESG represents a sustainability metric considering an organization’s environmental impact, social responsibility (diversity, human rights, consumer protections, etc.), and governance practices (business ethics, accounting, transparency, etc.).4 Beginning as a U.N. initiative, it adds the

concept of corporate responsibility alongside ecological and societal considerations. Beyond sourcing, it is also commonly used in capital investment and community development. The language of the authorizing statute or state or local government mandate that establishes a dedicated purchasing program (executive order, rule, regulation, etc.) should determine whether the program is strictly environmentally focused or is focused on the broader tent of sustainability.

Sustainable Commodities and Services State and local governments that mandate the purchase of sustainable commodities and services have determined that doing so provides environmental, social, and economic benefits. That determination also recognizes that sustainability programs protect human health and the environment over the course of the commodity or service life cycle, ranging from the extraction of raw materials to end-of-life disposal of a commodity. A sustainable service or commodity has a lesser or reduced negative effect on human health and the environment than competing commodities or services. Examples include commodities or services that: • • • • • • • • •

Conserve energy or water Contain recycled or reused materials Minimize waste Consist of fewer toxic substances Reduce the number of toxic substances disposed of or consumed Lessen the impact on public health Protect open space Are socially responsible Lower greenhouse gas and/or CO2 emissions

Sustainability Criteria Focused on Social Considerations Public and private entities are increasingly procuring commodities that are not only environmentally preferable but have also been produced

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in a socially responsible manner. In a global supply chain, the public procurement official’s sourcing decisions can affect individual lives and communities locally and far from the point of purchase. Social sustainability describes the production, use, and disposal of commodities and services in a manner that considers equity and justice for the people impacted in the life cycle. Socially sustainable commodities and services are generally free of forced labor, human rights violations, and economic and social exploitation. Transparency throughout supply chains is still an aspiration rather than a reality. Pressure is being applied to supply chains by stakeholders, such as investors, customers, employees, and citizens, who are increasingly expecting that public and private entities take steps to ensure that their procurement decisions do not enable human rights abuses. Resources are available to assist public purchasers with questions to ask suppliers regarding how they address harmful labor and human rights impacts and to determine what constitutes credible supporting documentation from a supplier. State and local governments interested in learning more about addressing these issues can look to several sustainability-focused organizations. An example is the Global Electronics Council’s Purchaser Guide for Addressing Labor and Human Rights Impacts in Technology Procurements.5 Several other resources that highlight the application of socially responsible procurement tools are available on the websites of the Sustainable Purchasing Leadership Council,6 the International Labour Organization,7 and the Responsible Business Alliance.8

PUBLIC POLICY SUPPORTING THE PROCUREMENT OF SUSTAINABLE COMMODITIES AND SERVICES Laws and executive orders may mandate sustainable procurement goals and guide all state 222

agencies and political subdivisions. In many cases, procurement of sustainable services and commodities is a good practice with various potential short- and long-term benefits and can be encouraged throughout all government entities. Purchasing sustainable commodities and services: • Saves money or reduces costs • Promotes the more efficient use of government resources • Protects the health and well-being of populations who work in or visit government (or government contractor) facilities • Creates new opportunities for partnerships with suppliers • Influences the growth of the market with high-volume purchasing The buying power of governments can convince manufacturers and service providers to produce or offer reasonably priced sustainable commodities or services that do less harm to public health and the environment. Leadership from state executive offices and state procurement officials can set an example for other government entities, localities, nonprofits, and private-sector organizations. Some critics of sustainable procurement assert that sustainable commodities are more expensive than their non-sustainable counterparts. While this is true sometimes, many sustainable commodities have reached price parity with their traditional counterparts. They are either cost neutral or save money when considering the total cost of using or owning them. Total cost of ownership (TCO) is the comprehensive accounting of the full costs of a commodity over the course of its life cycle. TCO includes initial costs, energy and operational costs, longevity and efficacy of service, and disposal costs. TCO may also include a life-cycle assessment or analysis for environmental impact. Through this lens, sustainable commodities may have a short payback period, after which they provide significant ongoing cost savings in the form of

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reduced maintenance, operation, and disposal expenses. A simple example is a durable good, such as an LED lightbulb, that may be more expensive. Still, it lasts significantly longer and consumes less electricity than a lower-priced traditional bulb. Sustainable commodities are increasingly competitive and widely available in high-volume markets such as: • • • • • •

Information technology Janitorial supplies Personal care products Paints Lighting Appliances

Beyond the initial purchase cost, savings can be realized through reductions in the purchase of protective equipment used with hazardous materials, energy use, and nonrecyclable waste. Sustainable commodities also offer the added value of reducing toxins introduced into the environment through manufacturing, use, or both. Some examples of direct and indirect cost-saving opportunities that the purchase of sustainable commodities offers include reductions in the following: • Material and energy consumption • Operational costs through energy savings from more efficient equipment

• Disposal costs of hazardous and solid waste • Repair and replacement costs when using more durable and repairable equipment • Employee safety and health concerns • Hazardous materials management costs through the use of less toxic commodities The Commonwealth of Massachusetts provides a great example of an environmentally preferable purchasing program that reports the benefits of purchasing sustainable commodities and services. Table 15.1 from Massachusetts’s Environmentally Preferable Products (EPP) Procurement Program Annual Report 20219 demonstrates the measured savings derived from sustainable purchasing. The report and many other sustainable purchasing resources can be found on their website.

CREATING A SUSTAINABLE PROCUREMENT PROGRAM When developing a sustainable procurement program, the public entity should engage stakeholders in critical positions, create benchmarks, and formulate reporting practices that make user agencies and suppliers accountable for sustainable procurement goals. This section outlines core questions, considerations, and steps that public entities take when laying the foundation for a procurement program focused on sustainability.

Table 15.1  Massachusetts Sustainable Purchasing Savings Savings From . . . 

Resources Saved  . . . 

Energy efficient lighting (LEDs)

Energy and maintenance labor

EPEAT registered equipment

Energy and packaging

Remanufactured toner cartridges

Plastic, ink

Fuel efficient vehicles (executive fleet only)

Fuel

Total estimated savings

FY 2021 $ Savings

Lifetime Cost Savings (includes FY21 savings)

$433,942

$5,207,304

$1,767,478

$8,130,398 $469,655

$35,000

$280,000

$2,236,420

$14,087,357

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Participation of Key Stakeholders Like all purchases, procuring sustainable commodities and services also relies upon cooperation and input from internal and external stakeholders. Key participants to consider are: • Public procurement officials: play a prominent role in developing a sustainable procurement program. Procurement officials should coordinate procurements among various user agencies within a state or local government to optimize supply chain performance and cost efficiency. Procurement officials frequently work with user agency personnel to build sustainable specifications. Finally, they can encourage current or new suppliers to improve the sustainable performance of their operations, commodities, or services. • Public entity program managers and other user agency personnel: largely determine the specifications for commodities and services they need. They frequently manage the budget that will pay for those commodities and services. These individuals look to public procurement officials for critical information and education regarding sustainable commodities and services. • Manufacturers, suppliers, and contractors: can be encouraged to change the design, manufacturing processes, and supply chain of current commodities or services to minimize environmental impacts. They can provide labeling to identify the sustainable goods and services available or be encouraged to seek certification from an outside organization (see Understanding External Sustainability Standards later in this chapter). Suppliers may provide feedback regarding new and innovative approaches to sustainable commodities and services. Contractors that provide required reporting on the types of sustainable commodities and services purchased by a public entity, the volumes purchased, and the dollars spent offer significant data for

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measuring the program’s success and future planning. • Environmental or sustainable subject matter experts (SMEs): within state and local governments are also SMEs on priorities and strategies. They may advise on environmental laws that should be followed throughout the procurement process. They may assist user agencies in identifying and assessing more sustainable alternatives to currently used commodities and services. • External organization certifiers and standard setters: play a role in the process since they provide product specifications, standards, and certifications. Eco­ labels (nongovernmental organizations or government labeling programs) show that a commodity is manufactured according to recognized environmental and/or social standards as determined by an unbiased accrediting authority. It is also essential that there be a person designated as the sustainable procurement program advocate to lead the effort—most likely from the stakeholder group. The law establishing the program may specify the user agency tapped to lead the program, which will narrow the search for the right person to be that advocate; whether the law provides guidance or not, the person designated as the advocate should have effective leadership skills as well as the backing of the entities’ executives.

Building Stakeholder and Executive Buy-In When enlisting the support of the stakeholders, the program advocate should recognize that sustainability is one of a multitude of topics vying for stakeholders’ attention. To launch the program successfully, they should educate and advocate to the stakeholders about why they should invest their time and energy into establishing and incorporating sustainable procurement considerations into their procurement process. This knowledge can be institutionalized

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by creating sustainable purchasing leadership positions or green teams that contribute to each governmental entity’s purchasing group. Some tips for preparing to engage with sustainable procurement stakeholders include: • Consider how sustainability requirements for a commodity or service might overlap with existing laws, regulations, policies, and strategic goals of the public entity’s internal programs and users. If none exist, create a plan detailing the resources needed to implement the program and a business case demonstrating the potential value added. • Quantify benefits whenever possible. Use benefit calculation tools highlighting program effects, such as reduced or eliminated environmental impact, enhanced benefits to human health, and realization of cost savings. Benefit calculation tools are discussed later in this chapter. • Emphasize the value a sustainable procurement program can add to the public entity’s image, character, and reputation in the community.

Educating versus Mandating Sustainable procurement programs effect change through a combination of laws and efforts that encourage state and local government personnel to implement sustainability directives. While legislation mandating the procurement of a specific sustainable service or commodity may be the most effective way of jumpstarting or growing sustainable procurement programs, enacting a law can be a long process and difficult to achieve. At the state and local government level, the issuance of executive orders by governors, mayors, and others is likely to be a more rapid method to guide all government entities, establish clear goals, and keep them current. Executive orders do not have the same legal weight as law, but they provide high-level

directives, guidance, and support that serve as a foundation for initiating action. In the absence of a law, executive orders can be implemented into policies and procedures for consistent practices throughout the state. The success of a sustainable procurement program can be attributed in part to comprehensive education and outreach to public procurement officials within the state or local government. That effort should include information about the sustainability issues associated with specific commodities and services, detailing both economic and sustainability benefits that can be achieved and providing readily available tools for measuring and quantifying impacts. While educating and reaching out may take more time than imposing a mandate, the program may do a better job of engaging both the user agencies and the suppliers in the process by providing them with a sense of ownership. Once the benefits are clearly understood and the performance of the sustainable commodity or service is demonstrated, sustainable procurement becomes the preferable choice. For example, New Mexico has implemented a training program for public procurement officials. New Mexico has a network of approximately 600 certified state and local chief procurement officers.10 A foundational educational program must be completed with a renewal requirement every two years to certify as a chief procurement officer. The curriculum includes a sustainability class that illustrates the value of purchasing sustainable goods and services at all levels within the state.

Drafting a Policy for a Sustainable Procurement Program Any sustainable procurement program should be outlined and available in a single document that lays out all authorizing statutes, rules, and mandates. Many state and local governments maintain sustainable procurement policies included in procurement manuals and available online.

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For example, see Oregon’s sustainable purchasing policy outlined in its website manual.11

template for cities/local governments from the Responsible Purchasing Network.13

Environmental Factors and Other Sustainable Considerations A helpful step in establishing a sustainable procurement program policy is identifying the environmental or societal issues that the program seeks to address in preparing and using specifications for sustainable commodities and services. Though public entities may choose to emphasize or focus on specific sustainability impacts, policies often address some or all of the following sustainable considerations:

• Clear statement of purpose: Most policies begin with stating why the state or local government is developing a sustainable procurement policy, a brief statement establishing program principles, and identifying the internal stakeholders that the policy will involve and affect. This statement should always address environmental and sustainability considerations as previously described, which may include social factors such as sweatshop labor or local sourcing options. • Defined goals using the SMART method: Specific, measurable, attainable, relevant, and time-based (SMART) goals inform procurement decisions and provide the basis to monitor and measure impacts. • Performance metrics: Measuring performance and progress toward goals is essential. Metrics can demonstrate when initiatives are working, or adjustments need to be made. They can be compiled and distributed both at the agency level to acknowledge effort in a positive way (or to shame nonperformers) and at the state level. Spotlighting high-performing agencies through publications or directly by the executive can motivate and encourage participants. For more information on measuring performance, refer to Chapter 2 (Procurement Leadership, Organization, and Value). • Legal authority and relevant laws, regulations, and policies: A policy will have added weight and authority if it is supported by existing laws, executive orders, rules/regulations, and mandates already in effect in a state and local government. References in the policy to relevant laws and rules/regulations will provide an impor­ tant context and stimulate the user agencies’ efforts to comply with the policy’s directives. • External standards, certifications, and ecolabels for commodities and services: External standards, certifications,

• Pollutant releases • Toxicity (especially the use of or release of persistent bio-accumulative toxic chemicals, carcinogens, and reproductive and developmental toxins) • Waste generation and waste minimization • Disposal considerations (such as reusability, recyclability, or compostability) • Greenhouse gas emissions • Energy consumption, energy efficiency, and the use of renewable energy • Water consumption • Depletion of natural resources • Impacts on biodiversity • Environmental practices that manufacturers and suppliers have incorporated into their production processes or operations • Minimized packaging • Social responsibility (including efforts to address labor rights, human rights, and community engagement across the life cycle of the commodity) Writing a Sustainable Procurement Policy The following points identify and describe impor­ tant elements that should be included in most sustainable procurement policies. For examples of sustainable purchasing policies, including structure and language, see the sample policy templates from the Sustainable Purchasing Leadership Council12 and the sample policy

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and ecolabels are a key element of any sustainable procurement policy. They are discussed later in this chapter. Using these tools allows a state and local government to easily identify the important sustainable attributes of a commodity or service, then substantiate and verify them. Additional information about the importance of external sustainability standards appears later in this chapter in the Understanding External Sustainability Standards section. Policies should reference specific external standards or certifications that a state or local government recognizes. • Identifying the types of commodities and services to target: Although the goal should be a policy that establishes sustainable criteria for almost every type of commodity or service, prioritizing those routinely used or representing large expenditures is important at the outset of the program. Examples of common high-volume commodity categories might include: $$ Appliances $$ Automobiles $$ Cleaning products $$ Computers $$ Copier/multifunctional devices $$ Food products $$ Furniture $$ Industrial supplies $$ Landscaping $$ Lighting $$ Mobile phones $$ Office supplies $$ Paper and paper products $$ Playground equipment $$ Printing services $$ Transportation and fleet maintenance products $$ Servers • A description of roles and responsibilities: The policy should define the roles and responsibilities of all program stakeholders. This facilitates the implementation of the policy and avoids confusion as the policy is implemented. Depending on how a procurement office is structured

and its relationship to the sustainability program stakeholders, it is important to spell out the process by which sustainable specifications are developed and enforced, the scope of the application of sustainable specifications, available training or other tools, and how implementation and benchmarking, including cost savings, will be tracked. • Price preferences and waivers: A state or local government may wish to use price preferences and waivers in its sustainable procurement program. The conditions for the use of those should be spelled out in the policy.

A NOTE ON ECOLABELS Due to the wide range of the use of ecolabels and the ongoing proliferation of green marketing claims, policies should also include general guidelines and common criteria that standards, certifications, and ecolabels should meet to be deemed credible. The United States Federal Trade Commission publishes Green Guides to provide guidance on green claims.14 Similarly, many policies require that credible standards, certifications, and ecolabels be developed in accordance with resources such as the United States Environmental Protection Agency’s Recommendations of Specifications, Standards, and Ecolabels for Federal Purchasing15 or the ISEAL Alliance, Credible Sustainability Standards.16

Price Preferences Public entities may employ the use of a price preference to give sustainable commodities and services leeway to be purchased at a higher cost than their non-sustainable competitors but still be the commodity or service selected to be bought. Public entities may employ the use of a preference to give sustainable commodities and services leeway to cost more to purchase than

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their non-sustainable competitors but still be the commodity or service selected to be bought. This is often applied in low-bid situations. A percentage preference allows a business offering sustainable solutions to bid a higher price than the bid of another business but still be considered the lowest bid if their bid is no more than a certain percentage higher (such as 5 or 10%) than the actual low bid. State preferences differ in their language and application. Due to the disparate nature of commodities and services, only some commodities or services to be purchased based on low price require the application of a price preference. Therefore, in instances where the law authorizes preferences, policies should provide a procurement office with the flexibility to apply preferences on a commodity- or service category-specific basis. A request for proposal’s (RFP) process where price is not the only or most important contract award factor permits the public procurement official to establish evaluation criteria that favor sustainable commodities or services. In those situations, the solicitation establishes a minimum specification favoring sustainable commodities or services along with evaluation criteria offering the greatest number of points for sustainable commodities or services, corporate practices, and solutions proposed by the supplier. For entities that require awards to be based on the lowest bid, the requirement of sustainable products in the request provides the ability to accept the lowest bid containing a sustainable option. Waivers Due to the dynamic nature of the sustainable commodity and service marketplace and the unique needs of user agencies, sustainable procurement program policies should outline scenarios in which the purchase of a sustainable commodity or service is not necessary. Waivers should be documented and incorporated into purchase expenditure reports and future programmatic decisions. Policy language tends to identify the following as viable justification for a waiver from the sustainable procurement policy: 228

• The sustainable commodity does not meet the required form, functionality, or utility. • The sustainable commodity is prohibitively expensive or cannot be competitively priced. • An emergency or compelling public health or safety reason requires purchasing a specific non-sustainable commodity. For additional examples of state approaches for creating a sustainable procurement policy, see the Minnesota Department of Administration and Minnesota Pollution Control Agency’s Sustainable Procurement Charter17 and Chapter 6 (Environmentally Preferred Purchasing) of California’s Public Contract Code.18

USING THE POWER OF THE PROCUREMENT PROCESS AND THE CONTRACT Sustainability considerations should be an essential part of the early stages of a procurement process. State or local governments can use that process to encourage or require competing suppliers to offer sustainable commodities or services or to follow sustainability practices. The following list describes some potential strategies for utilizing the power of the procurement process and the contract to support a sustainable procurement program: • Incorporate sustainable specifications and utilize ecolabels: In addition to mandating minimum sustainable specifications for commodities or services, as already discussed, explore other options, such as specifying in the solicitation that suppliers should provide a sustainable alternative along with a conventional commodity or service. Consider stating a scoring preference in the evaluation criteria under an RFP, which may increase the number of sustainable options available to the public entity. Also consider packaging requirements, including cardboard containing

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•

•

•

•

•

recycled content or bar polystyrene foam use. Require reporting on sustainable purchases and practices: Require suppliers seeking contract awards to offer reporting on the volumes and types purchased and dollars spent by the public entity for sustainable commodities or services. Provide additional points in evaluating suppliers’ proposals to see if they can supply those types of reports. Allow suppliers to recommend alternative solutions: Encourage suppliers to submit information identifying all environmental attributes of the requested commodity or service, even when such attributes have not been required. Public entities may use this information to develop specifications in the future that incorporate sustainability criteria. Ask suppliers to provide a sustainable alternative (or replacement) for their conventional commodity wherever possible. Such requests serve to reveal new sustainable commodities in the marketplace. Evaluate suppliers’ sustainability programs: Include a supplier sustainability questionnaire in solicitations, allowing suppliers to describe their sustainable operations. Consider providing additional evaluation points for suppliers’ proposals that can prove they have programs in place. Doing this sends a clear message to the suppliers that the public entity considers sustainability when awarding contracts. Write contract language to allow the substitution or addition of sustainable commodities in an existing contract: Include language in solicitations that permits the public entities to negotiate with the contractor during the contract term to substitute and add sustainable commodities when such commodities become available at a competitive price, are readily available, and satisfy the buying entity’s performance needs. Green the market basket: A market basket is a representative sample of routinely

purchased generally high-volume commodities for which the formal solicitation asks competing suppliers to provide discounted pricing. This market-basket pricing is used to evaluate suppliers’ pricing in their bids or proposals. To obtain discounts for sustainable commodities, ensure they are among the commodities listed in the market basket on the pricing sheet that suppliers should submit during a formal competition for a contract. Online catalog systems require that sustainable items be identified and properly labeled. Automatically including sustainable options without requiring the purchaser to search for them can simplify the process and encourage more frequent selection. • Write the contract to permit sustainable planning: Incorporate language that requires potential contractors competing under a formal solicitation to agree to work with the public entity to explore the feasibility of implementing a sustainability plan. This requirement encourages suppliers to incorporate sustainable practices in their business operations and market them. It also allows the public entity to motivate contractors to expand their sustainability initiatives or add new initiatives during the contract term, depending on the interests of the public entity.

IMPLEMENTING A SUSTAINABLE PROCUREMENT PROGRAM Specification Development and Use As discussed earlier in this chapter, employing a collaborative process for creating a sustainable procurement program, including developing specifications, is important. Successful sustainable procurement programs start with broad input to develop specifications that can be effectively measured and communicated for a core group of commodities and services.

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The following are suggestions to consider when developing and using sustainable specifications: • Review what the public entity is already buying. Often, sustainable commodities or services are already being purchased, but the data has not been centrally collected and reported. Take credit for good work that is already being done. • Compare what other state and local governments do, particularly the sustainable specifications used. Federal agencies, such as the Environmental Protection Agency (EPA), nonprofits, and sustainability certification organizations, also offer specification examples. • Solicit input from the supplier community but do not show a preference. Create an open and neutral mechanism to gather information about available sustainable commodities and services on the market. Hold sustainable product fairs or focused public meetings on sustainability. • Trust and value input. Be prepared to waive the use of specifications for sustainable commodities or services if, following investigation, a sustainable commodity or service will not perform adequately or cost too much.

Selecting Targeted Commodities and Services When building a sustainable procurement program, it is important to be strategic about the commodities or services that the program stakeholders choose to concentrate on first. Procuring commodities easily found in the marketplace, credibly addressing environmental issues, and saving money at the point of purchase, are cost neutral. These commodities and services represent the most significant opportunities for early success. Some commodities that are ideal as the focus of a sustainability program are: • Energy efficient commodities and appliances: Two United States government entities, the EPA and the Department of Energy, sponsor the Energy Star program. 230

It is a common and credible means of verifying a commodity’s energy efficiency. The Energy Star program covers numerous commodity categories, including office equipment, computers and IT equipment, lighting (including traffic), air conditioners and heating, ventilation equipment, and significant electronic appliances. Public procurement officials commonly reference the EnergyStar™ standard in their solicitations, which reduces electricity consumption.19 This, in turn, reduces the pollution related to energy and could provide significant cost savings. • Computers, IT, and imaging equipment: Procuring technology products that are energy efficient, less toxic, pollute less, protect human and labor rights, and can be disposed of responsibly can reduce the overall environmental impact of an organization’s day-to-day activities. Public procurement officials frequently use the EPEAT, Electronic Product Environmental Assessment Tool20 ecolabel of the Global Electronics Council, to ensure they obtain sustainable commodities. The free online EPEAT registry lists thousands of commonly purchased information technology products from many manufacturers. EPEAT-registered commodities conform to criteria that examine the entire life cycle of products to ensure they address environmental and social issues. Another popular internationally recognized ecolabel for IT is TCO Certified.21 • Environmentally preferable paper: Although many governments have switched to primarily paperless options using electronic communication and records storage, paper continues to be used. Paper production substantially impacts forests, water, and energy consumption. The EPA has established the Comprehensive Procurement Guideline program, which set recycled content requirements for various paper types.22 Many state and local governments seek paper with even higher levels of recycled content. Third-party commodity certifications are available to assist in creating

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specifications for these commodities, such as those offered through the Forest Stewardship Council.23 Depending on the volume of paper purchased and the region of the country, many public procurement officials can procure environmentally preferable paper without increasing costs. Many public entities have implemented source-reduction activities that reduce the need for paper, such as switching to electronic communications and storage or double-sided printing, to name a few. Another sustainable procurement best practice requires suppliers of contracts that print publications and other items to use chlorine-free, recycled content paper to the maximum extent possible. • Sustainable cleaning products: Many common cleaning chemicals contain hazardous, corrosive, flammable, and/or toxic properties, which pose health considerations when used. There also may be safety, health, and cost concerns in the handling, storage, and disposal of these chemicals. Some chemicals may not cause immediate injury but are associated with cancer, reproductive disorders, respiratory problems, skin damage, and other health conditions.24 As a result, many public entities, including schools, require less toxic but equally performing cleaning products. Some tools for locating these commodities are available through third-party organizations such as Green Seal, EPA’s Safer Choice, and UL’s ECOLOGO Product Certification (UL is global safety science company headquartered in Northbrook, Illinois, that is composed of three organizations: UL Research Institutes, UL Standards & Engagement, and UL Solutions). • Post-consumer recycled content commodities: Requiring post-consumer recycled content in specifications for commodities strengthens markets for recyclable materials, reduces waste disposal, and works to create economic development opportunities within emerging industries. Usable post-consumer content includes paper, plastics, metals, and petroleum-based

products. Commodities using these materials include: $$ Office papers and envelopes $$ Packaging $$ Plastic $$ Lumber $$ Traffic cones $$ Re-refined motor oil $$ Antifreeze $$ Toner cartridges • Services suppliers: Public procurement officials may establish sustainability requirements in service contracts by specifying that the materials the contractors use to perform the contract meet established sustainability standards. The contracts may also mandate using processes or methods less harmful to the environment. Some examples of services that can use sustainable practices include landscaping, custodial, pest control, and printing. To illustrate, printing contracts may require water- or vegetable-based lithographic ink to the maximum extent practicable, which will reduce the amount of volatile organic compounds released into the environment. • Green building and construction components: Efficient HVAC, lighting, water controls, and building materials, such as reflective glass, can contribute to sustainability goals and provide long-term financial savings for permanent construction projects. Sustainable versions of most building materials are now available and should be automatically specified as options in all plans for construction and renovation upgrades.

Selecting Contractors Using Total Cost of Ownership or Life-Cycle Cost Factors In evaluating suppliers’ submissions to a solicitation, public procurement officials increasingly use methods focused on selecting commodities and services through source selection methods that allow for considering factors other than the low purchase price. Chapter 7 (Proposal Evaluation and Award) discusses these methods,

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including the idea of best value. Some non-price factors are often taken into consideration when evaluating the sustainability of a commodity or service, including: • • • • • •

Quality Risk Performance Durability Local production Environmental impacts

Pertaining to sustainability, the best value is closely tied to the TCO, and the aforementioned factors are included in a life-cycle cost assessment or analysis. The Sustainable Purchasing Leadership Council defines life-cycle assessment as: A method for assessing environmental (or other) impacts associated with all the stages of a product’s life, from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling.25 The life-cycle assessment results describe a product’s actual life-cycle cost, including financial expenses and environmental and/or social impacts. With the rising costs of fuel and electricity, maintenance and repairs, handling of toxic substances, pollution remediation, and insurance claims, some state and local governments require contractors to take responsibility for the safe operation and end-of-life management of their commodities. Therefore, a slightly higher purchase price may easily represent the best value when it provides an opportunity for significant cost avoidance throughout the entire life of the commodity. Even if a public entity’s laws require a contract award to a low bidder, sustainable requirements within the specifications founded on a TCO mean that the responsive bidder submitting the lowest price will meet those requirements. Depending on the language of the public entity’s law, an invitation for bids seeking the lowest price 232

commodity may include factors such as a supplier’s healthy work environment and resource conservation. Public entities should consider using the TCO of sustainable commodities over the life of the commodity to determine their true cost. For more information on the total cost of ownership, refer to Chapter 4 (Procurement Planning).

Purchasing Sustainable Commodities and Services Through Cooperative Agreements Cooperative agreements and cooperative purchasing are essential and valuable tools for public procurement officials. Chapter 17 (Cooperative Purchasing) discusses this topic in more detail. Cooperatives encourage competitive pricing on a wide range of commodities and services due to the promise of large business volumes for suppliers awarded contracts. To encourage the procurement of sustainable commodities and services, public procurement officials should ask cooperatives to make information easily available about the sustainable commodities and services offered through their contracts. Some questions to ask include: • Are third-party certifications required or desired in this contract? • Are suppliers required to label products that include third-party certifications, post-­ consumer recycled content, and/or are free of chemicals of concern? • Are suppliers able to provide spend reports for sustainable or environmentally preferable products?

USING CREDIBLE STANDARDS, THIRD-PARTY CERTIFICATIONS, AND ECOLABELS Understanding External Sustainability Standards As noted earlier in this chapter, under the heading Writing a Sustainable Procurement Policy,

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external standards, ecolabels, and certifications can assist public procurement officials in locating commodities and services that have met rigid testing requirements along with the specifications for those commodities. Using third-party certifications is one way to outsource environmental reviews of products and services and simplify specification development to ease the burden on limited procurement staff and finite resources.

Avoid Greenwashing

The most credible, respected standards and certifications have been developed in a balanced, open, transparent process by organizations that do not have a vested interest in the outcome. They may focus on a single attribute of a product or process or on a balance of multiple sustainability attributes or considerations throughout a commodity’s or service’s life cycle.

Characteristics of modern greenwashing are:

Some standards and certifications require comprehensive third-party audits, while others may simply permit manufacturers to determine or self-certify whether they comply with a standard. Both can be valuable and effective, but public entities must recognize the distinction and perform the appropriate research to ensure that criteria and claims match their needs. The following are resources for research on this topic: • International Organization for Standards (ISO) Standard 14024:2018, Environmental labels and declarations—Type 1 environmental labelling—Principles and procedures26 • United States Office of Management and Budget Circular A-119, Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities27 • ISEAL Alliance, Defining credible practice28 • The EPA and the Department of Energy sponsor the Energy Star program, a common and credible means of verifying a commodity’s energy efficiency. The Energy Star program covers numerous electronic commodity categories.

Sustainable commodities are a rapidly growing market, and suppliers have responded with green marketing, touting the environmental benefits of what they are selling. But sometimes, what companies think their sustainable claims mean and what consumers understand are different. This practice is commonly referred to as greenwashing.

• Fibbing: false claims that a commodity meets a specific standard • Unsubstantiated claims: commonly known as just trust us, occur when manufacturers are unable to prove their environmental claims • Irrelevance: making factually correct environmental statements that are no longer current • Hidden trade-off: making claims about a single environmental attribute, leading consumers to think that this single attribute is the only environmental one of concern associated with the use of the commodity or service • Vagueness: broad environmental claims such as 100% natural, earth smart, and ozone safe • Relativism: a commodity, as compared to other commodities of the same type, may be environmentally friendly, but still a poor choice Incorporating requirements such as the following into solicitations and contracts can clarify how suppliers label commodities, which in turn, can assist in the consistency of and benefits from the sustainability reports that contractors should supply: • Environmental benefit claims concerning commodities or services should be consistent with the United States Federal Trade Commission’s Green Guides.29

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• Contractors providing sustainable commodities or services should explicitly identify the industry standard, certification, or ecolabel that those commodities or services meet in the paper and online catalog descriptions available to public entity agencies and departments purchasing from those catalogs. For example, all Energy Star commodities should be labeled with the Energy Star logo and the words Energy Star. • The solicitation and contract should include language that authorizes public entities to remove green labels and claims that constitute greenwashing or are determined to be weaker than the standard, such as vague claims that something is recyclable or biodegradable. • Solicitations and contracts should require the suppliers to provide copies of the certifications they claim upon request if the public procurement official cannot otherwise verify them.

EPA Recommendations for Standards and Ecolabels The EPA maintains guidance to assist federal government purchasers in sorting through hundreds of ecolabels and identifying credible and effective standards and ecolabels that best fit their needs. That guidance is titled Recommendations of Standards and Ecolabels for Use in Federal Procurement,30 and it covers six broad categories of commodities with many subcategories. The EPA assesses ecolabels against the guidelines.

MEASURING AND MARKETING EFFECTIVENESS Establishing strong metrics is not unique to sustainability or environmentally preferable purchasing programs, but it is good business practice with all contracts. Earlier, this chapter discussed the need for SMART goals that account for how a program will define success and

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measure impact. Measuring success highlights both the environmental and cost-saving benefits of sustainable procurement efforts. It starts with getting reliable purchasing data directly from suppliers, agency reports, or through internal means, such as an eProcurement system. Credible data creates opportunities to recognize and reward outstanding achievers, identify problem areas that may need correction, and meet reporting and recordkeeping requirements. State and local governments should consider sharing and documenting achievements and challenges by issuing annual reports and distributing them to other public entities. This also allows for discussing progress and potential barriers to specific commodities and services. When drafting an annual report or an assessment of a program, the following are considerations for tracking, measuring, and communicating results: 1. Identify key metrics: Metrics may include an annual increase in purchase volumes or in dollars spent involving sustainable commodities or services, the number of contracts and items involving them, costs and savings, energy reduction, and other environmental benefits. Performance measures for contractor services (such as timely delivery or response time for complaints) may also contribute to how public procurement officials assess high- and low-performing contractors. 2. Establish a current baseline on which to measure future progress: The information to be used in calculating the baselines will depend to some degree upon the metrics established for the sustainable procurement program. The baseline generally will include such data as the type and number of commodities or services currently purchased, the cost of those commodities or services, the total spend or percentage of overall spend on qualifying purchases, and environmental data and impacts associated with those

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purchases. Environmental data used in a baseline may include the percentage of recycled content, the current process and cost to dispose of or recycle a commodity, and the commodity’s energy and water requirements. Baselines can also include contractor performance. 3. Establish goals based on those metrics: Goals for the future can be defined based on the desired metrics. Remember, these goals should be SMART. Examples include an increase in new sustainable commodities and services available on statewide contracts, energy use or waste reduction, fiscal savings, or expenditure targets on sustainable purchases. 4. Determine the means of recordkeeping used to document measurements: State and local governments that maintain a central single accounting system through which all transactions are processed offer a reliable means of collecting expenditure data. In those cases, the central procurement office should identify the sustainable commodities or services within that system to break the information out for reporting purposes. Many state and local governments have eProcurement systems or B2G software solutions that may include the means of tracking expenditures on sustainable commodities and services. Many state and local governments rely upon supplier reports if this reporting is unavailable. However, since not all contractors are as timely in submitting their reports as others, it is helpful to have assistance in following up with the contractors. To ensure that contractors provide complete and comprehensive information in a user-friendly format for analysis, states may want to provide a template for contractors to use when submitting this data. 5. Publicize and reward achievers: When data are available and show good results, reward internal participants and publicize success. Recognition can be as simple as a thank you letter, credit toward an

employee’s performance review, or more publicly via a special awards program. Piggybacking on the annual meetings of various organizations (such as school business managers and public procurement officials) and offering a sustainable procurement award at annual events can be one way to increase visibility. In addition, featuring the success story of an agency or department in a case study can be an excellent peer-to-peer example of how to implement sustainable procurement. A great example of measuring, marketing, and reporting can be found in the Annual Report of the Maryland Green Purchasing Committee, which is available online.31 For more information on measuring and communicating the performance of the procurement officials, refer to Chapter 2 (Procurement Leadership, Organization, and Value).

Benefits Calculators Benefits calculation tools may be used to build the case for pursuing sustainable commodities and demonstrating project success to management, coworkers, and stakeholders outside of the public entity. Benefits calculators are most valuable when they are credible and easy to use. Some calculators can convert hard-to-understand metrics, such as kilowatt hours or greenhouse gas emissions, into vivid equivalents like the number of cars removed from the road or energy consumption for a given number of households. Some examples of benefits calculators include: • EPEAT Benefits Calculator, Global Electronics Council: uses metrics such as energy use, greenhouse gas emissions, water consumption, and fiscal costs to determine and demonstrate the impact, benefits, and savings of certified electronics purchases.32 • COOL Climate Calculator, University of California at Berkeley: an online decision-­ making tool that helps public entities

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estimate greenhouse gas emissions or carbon footprints from purchases of home or business commodities.33 • EPA Waste Reduction Model (WARM): tracks greenhouse gas (GHG) emission reductions from several waste management practices and calculates and totals GHG emissions from baseline and alternative waste management practices, including source reduction, recycling, anaerobic digestion, combustion, composting, and landfilling.34 • Energy Star website: contains several calculators created to estimate potential savings and payback of energy-efficient commodities.35 For detailed information on the metrics and methods used by these calculators, visit their websites as listed in the endnotes of this chapter.

MAINTAINING YOUR SUSTAINABLE PROCUREMENT PROGRAM Sustainable procurement programs are successful in the long term when proper resources are dedicated to them and steps are taken to promote and highlight their successes. Successful and effective programs result from the work of dedicated staff. Some specific examples of steps that individual states can take to maximize the success of a sustainable procurement program include the following: • Create a dedicated sustainable procurement resource that features statutory language, publicizes sustainable specifications, demonstrates the benefits of purchasing sustainable commodities and services, and provides other appropriate

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guidance for purchasers and suppliers. Massachusetts’ EPP Program website is an example of an effective resource hub.36 Ensure that procurement training tools and curricula include core competencies relating to the sustainable procurement program and sustainable commodities and services, such as lessons on drafting specifications for those sustainable items. Highlight the achievements of public entity individuals, agencies, departments, or divisions who embrace sustainable procurement efforts through newsletters, press releases, and other forms of recognition. Use benefits calculators to convert sustainable procurement activities into understandable environmental or human health impacts—and publicly share the results. Incorporate sustainability considerations into the regular solicitation and evaluation process. Empower a designated sustainable purchasing leader or office to assist procurement officials with incorporating sustainability into their purchasing and meeting established goals. They should be up-todate with state or local requirements, executive orders, and national industry trends. Tie sustainable procurement efforts to individual and organizational performance metrics and key performance indicators.

CONCLUSION Taking steps to ensure that sustainable purchasing considerations are a part of the procurement process is an increasing priority among procurement divisions across the states and public entities. Understanding sustainable procurement concepts and utilizing the tactics and tools described in this chapter can increase a procurement office’s ability to be a responsible member of the local and global community.

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ENDNOTES 1. “2022 Survey of State Procurement Practices Report,” NASPO, last modified January 31, 2023, https://​www​.na​s​po​.org​/pr​a​c​t​i​ c​al​-gu​i​de​-re​s​o​u​r​ces/. 2. “Sustainable Purchasing,” NASPO, accessed February 20, 2023, https://​www​.na​s​po​.org​/ pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 3. Timothy F. Slaper and Tanya J. Hall, “The Triple Bottom Line: What Is It and How Does It Work?” Indiana Business Review 86, no. 1, (2011). 4. “Glossary of Terms,” Sustainable Purchasing Leadership Council, accessed February 20, 2023, https://​www​.su​s​t​a​i​n​a​b​l​e​p​u​r​c​ h​a​s​i​ng​.org​/gl​o​s​sary. 5. “Purchase Guide for Addressing Labor and Human Rights Impacts in Technology Procurement,” Global Electronics Council, last modified April 2021, https://​gl​o​b​a​l​e​l​e​c​t​r​o​ n​i​c​s​c​o​u​n​c​il​.org​/wp​-co​n​t​e​nt​/up​l​o​a​ds​/GEC​ _LHR​_Pu​r​c​h​a​s​er​_Gu​i​de​_20​21​.pdf. 6. “Getting Started,” Sustainable Purchasing Leadership Council, accessed February 20, 2023, https://​www​.su​s​t​a​i​n​a​b​l​e​p​u​r​c​h​a​s​i​ ng​.org​/ge​t​t​i​ng​-st​a​r ted. 7. “Sustainable Enterprises,” International Labor Organization, accessed February 20, 2023, http://​www​.ilo​.org​/em​p​e​nt​/Pu​b​l​i​c​a​t​i​o​ ns​/WC​MS​_14​2​8​73​/la​ng​--en​/in​d​ex​.htm. 8. “Public Procurement,” Responsible Business Alliance, accessed February 20, 2023, https://​www​.re​s​p​o​n​s​i​b​l​e​b​u​s​i​n​e​ss​.org​/fo​c​us​ -ar​e​as​/pu​b​l​ic​-pr​o​c​u​r​e​m​ent/. 9. “EPP Procurement Program Annual Report FY 2021,” Massachusetts Operational Services Division, accessed February 20, 2023, https://​www​.fl​i​p​s​n​a​ck​.com​/os​d​s​o​c​i​a​l​m​e​d​ia​ /20​21​-epp​-an​n​u​al​-re​p​o​r t​-ve​r​s​i​on​-2-3​-1-22​ .html. 10. N.M. Code R. §1.4.1.94 (2022). 11. “Sustainable Procurement,” Oregon Department of Administrative Services, accessed February 20, 2023, https://​www​.or​e​g​on​.gov​ /das​/OPM​/Pa​g​es​/su​s​t​a​i​n​a​b​le​.aspx.

12. “Model Sustainable Purchasing Policy,” Sustainable Purchasing Leadership Council, accessed February 20, 2023, https://​as​s​e​ ts​-002​.no​v​i​a​ms​.com​/no​vi​-fi​le​-up​l​o​a​ds​/sp​lc​ /pd​fs​-and​-do​c​u​m​e​n​ts​/Mo​d​el​_Su​s​t​a​i​n​a​b​le​ _Pu​r​c​h​a​s​i​ng​_Po​l​i​cy​.docx. 13. “Sustainable Purchasing Policy Template,” Responsible Purchasing Network for the Urban Sustainability Directors Network, last modified June 2018, http://​re​s​p​o​n​s​i​b​l​e​ p​u​r​c​h​a​s​i​ng​.org​/pu​r​c​h​a​s​i​ng​_gu​i​d​es​/pl​a​y​b​o​ ok​_for​_ci​t​i​es​/rpn​_us​dn​_su​s​t​a​i​n​a​b​le​_pu​r​c​h​ a​s​i​ng​_po​l​i​cy​_te​m​p​l​a​te​.docx. 14. “Green Guides,” Federal Trade Commission, accessed February 20, 2023, https://​ www​.ftc​.gov​/ne​ws​-ev​e​n​ts​/to​p​i​cs​/tr​u​th​-ad​v​e​ r​t​i​s​i​ng​/gr​e​en​-gu​ides. 15. “Recommendations of Specifications, Standards, and Ecolabels for Federal Purchasing,” United States Environmental Protection Agency, accessed February 20, 2023, https://​www​.epa​.gov​/gr​e​e​n​e​r ​p​r​o​d​u​c​ts​/re​c​ o​m​m​e​n​d​a​t​i​o​ns​-sp​e​c​i​f​i​c​a​t​i​o​ns​-st​a​n​d​a​r​ds​ -and​-ec​o​l​a​b​e​ls​-fe​d​e​r​al​-pu​r​c​h​a​sing. 16. “Defining Credible Practices,” ISEAL Alliance, accessed February 20, 2023, https://​www​.is​ e​a​l​a​l​l​i​a​n​ce​.org​/de​f​i​n​i​ng​-cr​e​d​i​b​le​-pr​a​c​tice. 17. “Statutory Requirements and Goals,” Minnesota Pollution Control Agency, accessed February 20, 2023, https://​www​.pca​.st​a​te​ .mn​.us​/bu​s​i​n​e​ss​-wi​th​-us​/st​a​t​u​t​o​r y​-re​q​u​i​r​e​ m​e​n​ts​-and​-goals. 18. Cal. Pub. Cont. §12400-404 (2003). 19. “ About Energy Star,” Energy Star, accessed February 20, 2023, https://​www​.en​e​r​g​y​s​t​ar​ .gov​/ab​o​ut​?s=​mega. 20. “ About EPEAT,” Global Electronics Council, accessed February 20, 2023, https://​www​ .epeat.net/about-epeat/. 21. “ About TCO Certified,” TCO Certified, accessed February 20, 2023, https://​tc​o​c​e​r​t​i​f​i​ ed​.com​/tco​-ce​r​t​i​f​i ed/. 22. “Comprehensive Procurement Guidelines for Paper and Paper Products,” Environmental Protection Agency, accessed February 20, 2023, https://​www​.epa​.gov​/smm​/co​ m​p​r​e​h​e​n​s​i​ve​-pr​o​c​u​r​e​m​e​nt​-gu​i​d​e​l​i​n​es​-pa​p​ er​-and​-pa​p​er​-pr​o​d​u​c​ts​#01.

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23. “Certification,” Forest Stewardship Council, accessed February 20, 2023, https://​us​.fsc​ .org​/en​-us​/ce​r ​t​i​f​i​c​a​tion. 24. “Identifying Greener Cleaning Products,” Environmental Protection Agency, accessed February 20, 2023, https://​www​.epa​.gov​/gr​ e​e​n​e​r​p​r​o​d​u​c​ts​/id​e​n​t​i​f​y​i​ng​-gr​e​e​n​er​-cl​e​a​n​i​ng​ -pr​o​d​ucts. 25. “Glossary of Terms,” Sustainable Purchasing Leadership Council, accessed February 20, 2023, https://​www​.su​s​t​a​i​n​a​b​l​e​p​u​r​c​ h​a​s​i​ng​.org​/gl​o​s​sary. 26. “ISO 14024:2018,” International Organization for Standardization, accessed February 20, 2023, https://​www​.iso​.org​/st​a​n​d​a​rd​ /72​4​58​.ht​ml​#:~:​t​e​x​t​=​I​SO​%20​1​4​0​24​%3A​2​ 0​18​%20​e​s​t​a​b​l​i​s​h​es​%20​t​he​,for​%20​a​s​s​e​s​s​ i​ng​%20​a​nd​%20​d​e​m​o​n​s​t​r​a​t​i​ng​%20​c​o​m​p​l​i​ ance. 27. “Circular No. A-119—Federal Register (Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities),” Office of Budget and Management, accessed February 20, 2023, https://​ob​a​m​a​w​ hitehouse.archives.gov/omb/circulars_a1​ 19_a119fr. 28. “Defining Credible Practices,” ISEAL Alliance, accessed February 20, 2023, https://​ www​.is​e​a​l​a​l​l​i​a​n​ce​.org​/de​f​i​n​in ​ g​-cr​e​di​ ​b​le-​ pr​a​ c​tice.

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29. “Green Guides,” Federal Trade Commission. 30. “Recommendations of Specifications, Standards, and Ecolabels for Federal Purchasing,” United States Environmental Protection Agency. 31. “Maryland Green Purchasing, Annual Reports,” Maryland Department of General Services, accessed February 20, 2023, https://​dgs​.ma​r ​y​l​a​nd​.gov​/Pa​g​es​/Pu​b​l​i​c​a​t​i​o​ ns​/gr​e​en​_pu​r​c​h​a​s​i​ng​_an​n​u​al​_re​p​o​r​ts​.aspx. 32. “EPEAT Benefits Calculator,” Global Electronics Council, accessed February 20, 2023, https://​ep​e​at​.net​/ca​l​c​u​l​a​tors. 33. “Cool Climate Network,” Berkeley, accessed February 20, 2023, https://coolclimate.berk​ eley.edu/calculator. 34. “Waste Reduction Model (WARM),” Environmental Protection Agency, accessed February 20, 2023, https://www.epa.gov​/warm. 35. “Energy Star Best Value Finder,” Energy Star, accessed February 20, 2023, https://​ www​.en​e​r​g​y​s​t​ar​.gov​/be​st​-va​l​ue​-fi​n​d​er​?s=​ mega. 36. “Environmentally Preferable Products (EPP) Procurement Program,” Massachusetts Operational Services Division, accessed February 20, 2023, https://​www​.ma​ss​.gov​/en​v​i​ r​o​n​m​e​n​t​a​l​ly​-pr​e​f​e​r​a​b​le​-pr​o​d​u​c​ts​-epp​-pr​o​c​u​ r​e​m​e​nt​-pr​o​gram.

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CHAPTER 16: PROCUREMENT OF CONSTRUCTION AND RELATED SERVICES RECOMMENDATIONS AND CONSIDERATIONS • The responsibility for procurement of all construction should be separate and independent from the user agency and under the authority of the Chief Procurement Officer (CPO). • Public procurement officials, under the leadership of the CPO, should be trained and prepared professionally to conduct procurements using a wide range of project delivery methods and contract types for the construction or renovation of public infrastructure. • While there are helpful starting points for contract language in contract forms prepared by the construction industry, the public entity should prepare its contract forms to ensure that the contract terms are fair and balanced and contain the key important terms to that public entity.

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The American Society of Civil Engineers projected that between 2021 and 2039, repairing the country’s aging infrastructure would cost nearly $13 trillion. That figure represents a funding gap of $2.6 trillion.1 Even without addressing all of those needed repairs, public construction spending is significant in state and local government budgets. These figures suggest that the procurement of public construction and how to pay for it will continue to be a critical area of focus for state and local government procurement offices across the country, especially with the passage of the 2021 Infrastructure Investment and Jobs Act. This chapter provides an overview of state and local government procurement for construction and related services. The chapter begins with project delivery methods and the kinds of solicitations used to purchase construction and related services. It then introduces the types of contracts used in construction procurement and concludes with the range of collaborations possible with the construction contractor.

KEY TERMS AND CONCEPTS The American Bar Association Model Procurement Code for Public Infrastructure Procurement (Model Procurement Code for Public Infrastructure) defines construction as follows: Construction means the process of building, altering, repairing, improving, or demolishing any public infrastructure facility, including any public structure, public building, or other public improvements of any kind to real property. It does not include the routine operation, routine repair, or routine maintenance of any existing public infrastructure facility, including structures, buildings, or real property.2 Typical public construction projects or public works involve the building or renovation of

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public infrastructure. The following are examples of such projects: • • • • • • • • • • • • • •

Highways Bridges Dams Commuter rail Prisons Shipyards Office buildings Schools Canals Tunnels Wastewater systems and sewers Power generating systems and lines Pumps and wells Water treatment facilities

Construction activities include planning and budgeting, architectural and engineering design, project management, actual construction, and construction management. To reflect common terminology within the construction industry, the term contractor will be utilized in this chapter in place of supplier. This will refer to businesses that have or are seeking a construction contract with a government entity. At times, determining whether a project meets a law’s definition of construction can be difficult. That determination is important because construction contracting requires, for instance, that the contractor obtain performance and payment bonds. Hiring a remediation contractor to remove some asbestos in a wall is an example of a project that might fall into a gray area. If the contractor needs to demolish the wall to do the job, that may qualify as construction under the definition. A fix for this type of ambiguity might be to add the words routine demolition to the category of activities considered outside the definition of construction in the law or regulation. Construction and professional services licensing statutes and ordinances may also help distinguish what qualifies as construction and design services.

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AUTHORITY TO CONDUCT CONSTRUCTION PROCUREMENTS State and local laws governing the procurement of infrastructure facilities and related services are often different and separate from other public procurement laws. Procurement of construction may be the responsibility of the CPO, or it may be within the purview of a separate public works division or highway department. It may also be divided among various state or local government agencies. In Arizona, the CPO, who is housed in the Department of Administration, is responsible for all construction services except for the construction of public highways, which is under the authority of the transportation department.3 Many public works projects involve blending federal funds with state and other sources. Federal funds require compliance with a variety of federal laws and regulations, including procurement of architectural and engineering design services using the Brooks Act selection process, which is discussed later in this chapter, along with payment of prevailing wages, use of disadvantaged business enterprises, compliance with the federal Buy America provisions, and other requirements. As with public procurements for commodities and services, the National Association of State Procurement Officials (NASPO) recommends that the responsibility for procurement of all construction be separate and independent from the user agency and under the authority of the CPO. Because of the complexities of contracting for construction and related services, the best approach is to place this type of procurement under the authority of a single procurement official with the expertise and project management team to conduct competitions for and administrate these contracts. At the state level, the procurement official who is authorized to oversee contracting and management of the construction of highways has nearly

always been separate from the procurement official who conducts procurements for other types of construction projects, with entire state departments devoted to transportation issues. One of the reasons is the significant role that federal funding plays in those procurements, with many federal requirements flowing down with those funds.

SELECTING THE APPROPRIATE CONSTRUCTION PROJECT DELIVERY METHOD In the construction industry, various methods exist for delivering a completed project from start to finish. They are better understood as designations of what the contract requires the contractor to do and are called project delivery methods. The term alternative project delivery methods means a method other than the standard and long-used one called design-­­bidbuild. Design-bid-build is where a public entity initiates a competition for and contracts with an architect or engineer for a design. Based on that design, the public entity subsequently competes for a contractor to build the project. Contract award is made to the lowest price bidder. Conceptually, project delivery methods may be divided into two categories that relate to the type of commitment that the public entity requests of the contractor—short-term and long-term. Both are based on the length of the relationship between the public entity and the contractor. There is no long-term relationship with the project delivery contractor in a short-term delivery method. Instead, the focus is on the initial delivery or completion of the project. However, long-term delivery methods reach beyond the initial delivery of the project and can be considered long-term delivery strategies, often with different phases. Long-term strategies may also embrace funding mechanisms in which the public and private sectors share the project’s cost, or the private sector bears the entire cost.

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Short-Term Project Delivery Methods There is a wide range of project delivery methods; some are used more frequently than others. Short-term project delivery methods are those where the contractual relationship between the public entity and the contractor only lasts until construction is complete. Types of Common Short-Term Methods The most common short-term project delivery methods are: • • • • •

Design-bid-build Job order contracting Construction manager at risk Design-build Integrated

There must be some authority under state or local law, such as a statute or local ordinance, to allow the public entity to use a specific project delivery method—regardless of type. Given the historical and consistent use by public entities across the country of the design-bid-build approach, the authority to use this method likely already exists. Relatively speaking, public entities have only recently advocated the use of other methods. However, they are out of reach without the legal authority to use them. The Model Code for Public Infrastructure Procurement provides statutory language authorizing the aforementioned methods. Still, it does not separately treat the job order contracting method, which it considers a type of design-bidbuild or design-build method, as the case may be.4 The Model Code for Public Infrastructure Procurement is a resource for those searching for statutory language to authorize these methods. The following are descriptions of the standard project delivery methods in which the contractor does not continue its relationship with the public entity once it completes its work on constructing or renovating a public infrastructure project (short term).

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Design-Bid-Build Design-bid-build is “the traditional delivery method where design and construction are sequential and contracted for separately with two contracts and two contractors.”5 Under the design-bid-build method, the public entity competes and awards a contract to the architect or engineer to perform design services. The completed design is used to solicit bids under an invitation for bids for a contractor to build from that design. The construction contract is awarded to the responsible bidder who submits the lowest responsive bid. During construction, the architect or engineer assists the public entity with the administration of the construction contract. Job Order Contracting Job order contracting (JOC) is a variation of the design-bid-build method that may be used for smaller construction projects, such as remodeling or repairs. In JOC, the contract functions as an umbrella contract, under which various smaller construction tasks are used to support scopes of work for projects. For instance, if a building is planning the renovation of several offices over a period of time, it may require someone to hang drywall, someone to paint, someone to install doors, and someone to install new fixtures. Once a scope of work is established for the project, those tasks can be located on the JOC to create the job order. Job order contracts are typically established to handle recurring or repetitive work and when execution requires expediency. Often, these contracts are multiyear contracts where each task has a maximum allowed dollar amount per year. The Center for JOC Excellence defines a Job Order Contract as: A competitively bid, fixed price, multi-year construction contract based on established or published unit prices via a unit price book (UPB) or a price list with a multiplier (termed coefficient) applied to the unit prices. The unit prices are used to

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price construction tasks associated with the scope of work.6 Construction Manager at Risk The Water Design-Build Council defines construction manager at risk (CMAR) as follows: A collaborative delivery method in which the owner retains an engineering firm and a CMAR firm under two separate contracts; one for design and one for construction. CMAR project delivery is most often chosen when the owner wants to capture some of the benefits of designbuild delivery, while maintaining direct control of project definition and design.7 There can be variations in the role of the construction manager under this method. The Dallas Area Rapid Transit (DART) uses a construction manager/general contractor delivery method. Under this method, DART selects the construction manager/general contractor through a request for proposals (RFPs) solicitation. The construction manager is paid a fee for services up to the completion of 65 percent of the design process.8 Suppose DART and the construction manager/general contractor cannot agree on the fees for the remainder of the project. In that case, DART uses the project design to seek competitive bids for construction. Design-Build Under the design-build project delivery method, a single contractor is responsible for design and construction services. Essentially, “[d]esign-build means combining design and construction in a single contract with one contractor.”9 Several design-build variations are generated in the design and construction industry. Under the progressive design-build approach, the designbuilder is selected during the earliest stages of the project. Price and schedule are determined as the design progresses. The DesignBuild Institute of America describes progressive design-build as follows:

While a project design is usually 35 percent complete (or more) by the time a designbuilder is procured in the traditional twostep design-build process, [Progressive Design-Build] adds the design-builder to the [public entity]’s team even earlier in the design phase. When the design is somewhere between 50 and 75 percent complete, the design-builder issues a Guaranteed Maximum Price (GMP).10 Integrated Project Delivery Some may view the integrated project delivery (IPD) method as another design-build variation. However, it deserves its own category. On its home website, Associated General Contractors of America defines IPD as: IPD as a Delivery Method is a delivery methodology that fully integrates project teams in order to take advantage of the knowledge of all team members to maximize the project outcome. Integrated Project Delivery is the highest form of collaboration because all three parties ([public entity], Architect, Constructor) are aligned by a single contract.11 There is a great deal of enthusiasm around this method in the construction industry. In fact, the Lean Construction Institute exists to promote this delivery method as Lean Construction.12 The National and California Councils of the American Institute of Architects offer a comprehensive document entitled Integrated Project Delivery: A Guide.13 Another helpful resource is a document entitled Integrated Project Delivery for Public and Private Owners,14 which was published by a group of construction and architectural industry organizations. That document describes the philosophy and principles behind IPD, among other things. Under this project delivery method, the public entity, the architect, and the contractor are all parties to one contract. The contract contains behavior principles to which all parties agree, such as mutual

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respect and trust, willingness to collaborate, and open communication. The contract also follows these principles: • Key participants bound together as equals • Shared financial risk and reward based on project outcome • Liability waivers between key participants • Fiscal transparency between key participants • Early involvement of key participants • Intensified design • Jointly developed project target criteria • Collaborative decision making A Snapshot of the Risks and Benefits of Short-Term Project Delivery Methods Before selecting a short-term project delivery method for a particular project, the public entity should first determine which delivery method works best. They should consider the following: • • • •

Budget and schedule Technical requirements and complexity Environmental factors, project risks Business and political environment and other factors

Design-build or construction manager at risk might work best for a complex wastewater facility project with a very tight schedule. Table 16.1 lists some of the advantages and disadvantages to consider for each approach.

Long-Term Project Delivery Methods In addition to short-term delivery methods, various long-term delivery methods involve an extended contractual relationship between the public entity and the contractor. Given the complexities of these types of approaches, this chapter will only highlight some of them to illustrate how they differ from the ones discussed as short-term delivery methods. Long-term project delivery methods are similar to when a state or local government leases out

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the operation and management of some complicated technology, placing the responsibility and cost on the contractor to update the software and hardware and train its employees to run the system. Many project delivery methods require careful planning and detailed fiscal analyses. In addition to materials available from the National Council for Public Private Partnerships and other organizations promoting these types of approaches, technical articles and books are available for those who are interested. The following section discusses some of the common long-term delivery methods. Operations and Maintenance (O&M) A public entity contracts with a private partner to provide and/or maintain a specific service relating to the upkeep of a public facility. Under the private operation and maintenance option, the public entity retains ownership and overall management of the public facility or system. Design-Build-Operate-Maintain (DBOM) The DBOM model is an integrated procurement model that combines the design and construction responsibilities of design-build procurements with operations, maintenance, or both. These project components are procured from the private sector in a single contract with financing independently secured by the public entity. This project delivery approach is known by several names, including turn-key procurement and build-operate-transfer (BOT).15 Public-Private Partnerships The term public-private partnerships (P3s) is often used to describe the contractual relationship that occurs due to some types of long-term project delivery methods that were previously described. There is no universally accepted definition, and some may focus solely on whether the contractor/private partner is providing some sort of financing for the infrastructure project. Generally, a public-private partnership is a contract where the investment of a private sector

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Table 16.1  Advantages and Disadvantages of Delivery Methods Advantages

Disadvantages

Design-bid-build

•P  referred or only authorized project delivery method for some states •D  esigner serves as the public entity’s advocate during the construction •C  ompetitive pricing based on completed design

• No or little opportunity for contractor input into the design • Slow linear process • Award based on price only • Greater risk of disputes between public entity, designer, and contractor • More opportunity for change orders and claims

Job order contracting

•N  eeds can be responded to in a justin-time and as-needed manner • Work needs and outcomes are not subject to interpretation or negotiations • Increase in flexibility to meet staffing resource needs for priority or emergency work •P  redicted types of work can be outsourced, thus reducing full-time staffing requirements and costs

• Poorly defined performance outcomes or measures • Possible higher unit bid prices, escalation costs for materials, labor, and equipment • Uses of the contract for inappropriate projects • Workflow or labor shortage conflicts • Potential bonding capacity impacts for the contract term

Construction manager • S  election of contractors through comat risk petitive proposals •C  ombined expertise of contractor and designer during the design •F  aster concurrent schedule with some opportunity for fast-tracking •P  roponents claim higher quality and lower price

•R  equires an advanced level of public entity expertise and administration • Can result in higher total cost • If the guaranteed maximum price is not a selection factor, there is no assurance that the price is fair and reasonable •F  ewer contractors may be capable of competing for construction manager at-risk contracts

Design-build

• Selection of contractors through competitive proposals • Combined expertise of contractor and designer during the design • Single source of responsibility for design and construction • Faster concurrent schedule, ability to fast-track, and elimination of construction contractor sourcing process • Proponents claim higher quality and lower price

• Public entity has less control over design • Requires an advanced level of entity expertise and administration • Public entity does not have the benefit of an independent designer during construction • If the guaranteed maximum price is not a selection factor, there is no assurance that the price is fair and reasonable • Fewer contractors may be capable of competing for design-build or integrated project delivery contracts

Integrated project delivery methods

• Same as design-build

• Same as design-build

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investor supports the delivery of public services, such as the design and/or operation of a road or a bridge, through a partnership and shared risk with a public entity. P3s are commonly used when public services are needed and funds are unavailable. Public entities leverage finances and experience by establishing partnerships with private sector entities willing to share the risk. An example of this might be a section of highway needing extensive repairs. A public entity might partner with a company from the private sector where that company would make a significant initial investment in return for a portion of the tolls collected on that highway for a prescribed length of time. Note that the aforementioned description of P3s includes instances in which a state or local government outsources or privatizes some of the services it provides. Chapter 6 (Development Techniques for Purchasing Goods and Services) discusses outsourcing or privatizing state or local government services. In the case of privatizing public infrastructure, the design-build project delivery method forms the foundation for a P3, as can be seen in the definitions of long-term project delivery methods described in this chapter. Other elements may be combined, including financing, operation, and maintenance. Combining a financing element for a P3 is commonly employed to facilitate project completion when other traditional forms of financing may not be available. The financial element could take the form of private investment, loan or lease, or other vehicles. They may be combined with state or local government financing sources, such as appropriations, bonds, and grants. Adding operation and maintenance elements to a P3 over a specified period serves as a form of extended warranty. It can provide the contractor with a revenue stream to recover its investment in the project.

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There is a wide variety of publications and information about P3s, including a joint report by NASPO, the National Association of State Facilities Administrators, and the National Association of State Chief Administrators entitled Considerations for Public-Private Partnerships.16

SOURCE SELECTION METHODS FOR ARCHITECTS AND ENGINEERS The source selection method for awarding contracts to architects and engineers relating to the construction of public infrastructure is controversial. As the American Bar Association drafted the Model Procurement Code in the 1970s, this issue received the most public input and outcry from the various constituencies—public procurement officials and architect and engineer professional organizations. Federal procurement laws and most state procurement laws require the Brooks Act method to procure architectural and engineering services. This is the approach that professional organizations representing architects and engineers prefer. The Brooks Act requires the selection of the architect, engineer, land surveyor, and other related services based only on qualifications. Comparison of competing prices or fees is not permitted under the Brooks Act. A fair and reasonable price is negotiated only with the most qualified firm. Suppose the state or local government and the selected firm cannot agree upon a fair and reasonable price. In that case, the state or local government may terminate negotiations and proceed to negotiate with the next most qualified firm in succession until an agreement is reached. Additionally, the procurement official may not negotiate again with firms for which negotiations failed the first time. Some procurement professionals have differing views on this approach. They believe that it is

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problematic not to consider fees as one of the criteria for the selection process. A small rebellion against the qualification-based approach is found in the state of Florida law, which exempts some contracts for services with construction professionals from its version of the Brooks Act.17 Even in states with laws similar to the Brooks Act approach, many award indefinite quantity/ indefinite delivery requirements contracts to architects and engineers for small-dollar projects. Specifically, the public entity awards contracts to more than one architect or engineer. The contract does not specify any projects or promise the suppliers on the contract that the public entity will use them. The contract essentially creates a master list from which user agencies may select an architect or engineer when small projects arise. This approach avoids the need to compete each of those projects separately. To comply with the mandate to award to the most qualified firm, the procurement official awards contracts to perhaps three or four firms within a particular architectural or engineering specialty and advises user agencies to discuss each project with the top-ranked firm first— unless it is not available.

SELECTION METHODS FOR PROJECT DELIVERY METHODS The following paragraphs include short descriptions of the selection processes that are generally used for specific short-term project delivery methods.

Design-Bid-Build Method Most state laws require the selection of the design architect or engineer through a qualification-based selection process. The contractor is typically procured through competitive bids. However, some state laws permit contractor sourcing through competitive proposals, including negotiation.

Construction Manager at Risk Method Like design-bid-build, the design architect or engineer is procured through a qualification-based selection process. Depending on specific state laws, the construction manager (CM) may be procured through either a qualification-based selection as in the Brooks Act or through competitive proposals with price as a selection factor. The CM receives a fixed fee for work as the design progresses. The CM may be invited to submit a guaranteed maximum price or fixed price for construction when the design is sufficiently defined (50–65% complete). The public entity may accept the price, negotiate, retain the contractor for CM services, or terminate the CM contract and seek bids. Under the CM/General Contractor variation that DART uses, as discussed earlier, a not-to-­ exceed or guaranteed maximum price is part of the initial proposal and is a factor in selection. This price is refined as the design progresses, and the public entity may retain any savings or share savings with the designer and CM.

Design-Build and Integrated Project Delivery Method The public entity procures both the designer and the builder under one contract. The public entity’s requirements may be stated as a performance-based specification or a preliminary design (10–30% complete). Design-build contracts are most often sourced through an RFP, and price is a factor in the selection decision. Depending on the applicable laws, integrated project delivery contracts are procured through an RFP or a qualification-based selection method, such as that found in the Brooks Act.

TYPES OF CONTRACTS A wide range of contract types are used in construction contracting, although some are used less frequently in public construction than others. The key to categorizing them is to consider

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how those forms treat pricing. Chapters 4 (Procurement Planning) and 5 (Solicitation Methods) discuss contract types in more detail. The best practice for a public entity is to avoid verbatim adopting any of these forms. Instead, they should carefully consider the language and ensure it protects public investment. While the contract language does not need to shift risks to the contractor unfairly, it should ensure that procedures for items such as modifying the design or submitting accurate progress schedules are spelled out so that the entity has something to enforce if things go wrong. Additionally, many organizations provide form contracts and training for construction contracting: • American Institute of Architects • Design Build Institute of America • Construction Owners Association of America These organizations can be good starting points. However, they are drafted with the private sector in mind. In places within the contract text, they can tend to favor their particular constituency.

BONDING REQUIREMENTS Bid bonds have historically been standard fare in invitations for construction contractor bids. These have also been criticized because they hinder small and disadvantaged businesses. Construction is an area where participation by these types of companies is low for several reasons. Often, the bid bond should equal a certain percentage of the bidder’s bid price. The purpose of the bond is to ensure that if the lowest bidder balks at entering into a contract for some reason, the public entity will still get the dollar benefit of that low bid by calling on the bonding company to pay the difference between the low bidder’s bid and that of the next lowest bidder. Generally

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speaking, a procurement official should reject a bid that fails to provide a bond. Performance and payment bonds issued by surety companies are also mandatory in public construction contracting, usually by law. These types of bonds apply only to the winning contractor. A payment bond is for 100 percent of the contract price and assures that there is a mechanism to pay subcontractors and suppliers on the project if the contractor does not pay them. A performance bond is for the protection of the public entity. It also is for 100 percent of the contract price. Under a performance bond, the public entity may ask or demand that the surety step into the contractor’s shoes if the contractor defaults or struggles to complete the work.

CONTRACT ADMINISTRATION One significant difference between contracts for commodities or services and those for construction is that laws generally direct the management of a public construction contract while saying nothing or very little about commodities or services contracts. For instance, they often require that the public entity promptly pay the contractor, which is usually defined as the number of days after the entity approves a payment request. Because a public project is constructed over many months, the law usually authorizes progress payments to the contractor for work performed and material purchased and delivered to the site. That law also permits the public entity to retain a certain percentage of each progress payment to ensure the completion of the work. The public entity pays the contractor that accumulated retention after accepting the contractor’s work at the end of construction. The public entity also requires different types of insurance for construction than it does for commodities and services suppliers. A contractor providing design services should have errors and

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omissions coverage. A contractor’s commercial general liability policy should include the builder’s risk insurance and completed operations coverage to guarantee recovery of damages to the work in progress during construction. For large construction projects, state or local governments may elect to insure the project themselves through a special owner-­controlled insurance program (OCIP) that provides umbrella coverage to contractors and subcontractors. Through an OCIP, they may benefit from a better insurance program and lower costs by requiring contractors and subcontractors to exclude insurance from their bids. One frequent challenge for a public entity is receiving bids much higher than the independent cost estimate or budget. If the state or local government cannot negotiate down to the original estimate or budget, design revisions and new bids may be required, incurring considerable delay and additional cost. To mitigate the impact of such a situation, the public entity should include a provision in the designer’s contract that requires the designer to redesign for no additional cost or fee. Changes to the design can occur during construction due to unforeseen site conditions— as required by the public entity or as recommended by the designer. Even though design changes are only addressed in this paragraph, this should not be interpreted to suggest that they are rare. They occur regularly in public construction work and are often fodder for disputes. These changes may require adjusting the price or time to perform the contract. Changes are issued to the contractor through change orders, providing uninterrupted work performance while the contract modification is being negotiated. Chapter 10 (Contract Management and Administration) details this topic.

CONCLUSION Construction and finding the means to pay for it will be a significant focus of public procurement in the foreseeable future. Public procurement officials should meet the challenge by being professionally prepared for project delivery methods and contract types that speed up the construction process through collaboration, reduce costs, and share some of the cost of infrastructure construction and renovation with the private sector.

ENDNOTES 1. “Deteriorating Infrastructure and Growing Investment Gap Will Reduce U.S. GDP By $10 Trillion in 20 Years: Economic Study,” American Society of Civil Engineers, last updated January 1, 2021, https://​www​.as​ce​ .org​/pu​b​l​i​c​a​t​i​o​ns​-and​-ne​ws​/ci​v​il​-en​g​i​n​e​e​r ​i​ ng​-so​u​r​ce​/so​c​i​e​ty​-ne​ws​/ar​t​i​c​le​/20​21​/01​/12​ /de​t​e​r​i​o​r​a​t​i​ng​-in​f​r​a​s​t​r​u​c​t​u​re​-and​-gr​o​w​i​ng​-in​ v​e​s​t​m​e​nt​-gap​-wi​ll​-re​d​u​ce​-us​-gdp. 2. Model Procurement Code for Pub. Infrastructure Procurement App. A (8). (Am. Bar Ass’n 2007). 3. Ariz. Rev. Stat. §§41-2501-J, 41-2511-C-1 (2022). 4. Model Procurement Code for Pub. Infrastructure Procurement §5-101. 5. Federal Acquisition Regulations, FAR 36.102 (2022). 6. “What is JOC?” Center for JOC Excellence, accessed February 7, 2023, https://​jo​c​e​x​c​e​l​ l​e​n​ce​.org​/wh​at​-is​-joc/. 7. “Glossary,” Water Collaborative Delivery Association, accessed February 7, 2023, https://​wa​t​e​r​c​o​l​l​a​b​o​r​a​t​i​v​e​d​e​l​i​v​e​r y​.org​/gl​o​s​s​ ary/. 8. “Doing Business with DART,” Dallas Area Rapid Transit, accessed February 7, 2023, https://​da​r t​.org​/ab​o​ut​/do​i​ng​-bu​s​i​n​e​ss​/pr​o​c​ u​r​e​ment.

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9. FAR 36.102. 10. “The Emergence of Progressive Design-­ Build,” Design-Build Done Right (blog), Design-Build Institute of America, last updated June 13, 2016, https://dbia.org/the​ -emergence-of-progressive-design-build/. 11. “Integrated Project Delivery,” Associated General Contractors of America, accessed February 7, 2023, https://​www​.agc​.org​/in​t​e​ g​r​a​t​ed​-pr​o​j​e​ct​-de​l​i​very. 12. “About,” Lean Construction Institute, accessed February 7, 2023, https://​le​a​n​c​o​n​s​ t​r​u​c​t​i​on​.org​/ab​out/. 13. “Integrated Project Delivery: A Guide,” The American Institute of Architects, last updated 2007, https://​www​.aia​.org​/re​s​o​u​r​c​es​/64​1​46​ -in​t​e​g​r​a​t​ed​-pr​o​j​e​ct​-de​l​i​v​e​r y​-a-g​uide.

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14. “Integrated Project Delivery: Resources,” Associated General Contractors of America, accessed February 7, 2023, https://​www​.agc​ .org​/in​t​e​g​r​a​t​ed​-pr​o​j​e​ct​-de​l​i​very. 15. “Design Build Operate Maintain (DBOM),” Center for Innovative Finance Support, U.S. Department of Transportation Federal Highway Administration, accessed February 7, 2023, https://​www​.fh​wa​.dot​.gov​/ipd​/al​t​e​r​n​a​t​ i​ve​_pr​o​j​e​ct​_de​l​i​v​e​ry​/de​f​i​n​ed​/new​_bu​i​ld​_fa​c​ i​l​i​t​i​es​/db​om​.aspx. 16. “Considerations for Public-Private Partnerships” NASPO, last modified September 16, 2016, https://www.naspo.org/practical-guide​ -resources/. 17. Fla. Stat. §287.055-4(c) (2018).

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RECOMMENDATIONS AND CONSIDERATIONS • Understanding the nature of the various cooperative participants ensures that legal authority exists for the cooperative purchase and that the requirements for participation are satisfied. • Use a lead public entity, when possible, but involve other participating states and entities in the market research for each cooperative procurement, solicitation planning and development, and evaluation to add expertise and to better ensure the use of an accepted, compliant procurement process that promotes best value through full and open competition. • Minimize administrative fees to those essential in covering the costs of administrating the cooperative purchase program and reimbursing lead agencies and other participating entities. • Analyze the terms of piggybacking opportunities to ensure that they represent best value and effectively leverage volume to achieve favorable pricing.

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This chapter is designed to provide public procurement professionals, elected officials, suppliers, and citizens with an introduction to cooperatives.1 The chapter begins by defining types of cooperative procurements, the characteristics of each, and the legal authority necessary to participate. The chapter also explores considerations for assessing cooperative contracts and concludes by explaining both the challenges and benefits of cooperative purchasing for public entities.

KEY TERMS AND CONCEPTS In simple terms, the most common type of cooperative purchasing involves public entities sharing their contracts with other public entities. This can be structured in different forms but includes multiple public entities collaborating on a single solicitation for a commodity or service in order to obtain benefits such as lower pricing, reduced staff workloads, efficiency, etc. According to the American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code), cooperative purchasing is defined as “procurement conducted by, or on behalf of, one or more Public Procurement Units [a Local Public Procurement Unit, an External Procurement Activity, a State Public Procurement Unit, and any not-for-profit entity comprised of more than one Unit].”2 The section of the Model Procurement Code that provides statutory language to authorize cooperative purchasing also authorizes the sharing among public entities of procurement officials and of informational, technical, and other services. Other examples of shared activities may include specification development, joint training programs, and advice or assistance on technical evaluation committees. Those types of cooperation are not addressed here.

Piggybacking The definition of cooperative procurements contemplates that public entities pool their needs for 252

commodities or services before a procurement. Then, one of those public entities conducts the procurement for a contract from which the participating public entities may buy. Piggybacking, on the other hand, occurs when public entities that did not participate in the procurement process purchase commodities or services from an already established cooperative contract. Generally, language within the established contract allows terms and pricing to be extended to other entities that wish to use the contract. For a contract to permit piggybacking, it must explicitly say so. The public entity competing for and awarding the contract must place language in the solicitation and contract that states that other public entities may purchase from the contract at the discretion of the contractor. It is not uncommon for a local government or public university to establish, through the procurement process, a contract for itself and insert piggybacking language in it. This is particularly common when the contract is not for a project but is instead an indefinite quantity/indefinite delivery contract 3 for commodities or services. Other local public entities looking for a contract vehicle with good pricing may take advantage of that language to buy commodities or services from that contract and avoid the need to conduct a separate procurement. Piggyback contracts represent the most immediate cooperative purchasing resource, especially for smaller public entities. Such contracts can benefit larger public entities by saving administrative costs and by creating pressure for lower prices. Yet, there are drawbacks to piggybacking. Due to the lack of a solid estimate of the expected quantities to be purchased, there is the potential loss of the benefits and leverage that accompany competition for a contract. Contractors may offer minimal discounts under the contract and subsequently benefit from windfall profits when participation and usage exceed estimates. Local suppliers may view piggyback contracts as

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unfair because they did not have an opportunity to compete. Finally, there are some restrictions on piggybacking when a public entity is using certain federal funds to buy a commodity or service. This chapter discusses those restrictions later on.

Types of Purchasing Cooperatives Public sector purchasing cooperatives may be comprised of similar or different levels of government with common requirements. Examples of different types of purchasing cooperatives are: • State procurement cooperatives serving multiple state and local governments • Consortia of same-level governments (state-to-state and city-to-city) sharing similar requirements • State and local governments participating in federal contracts • Cooperative purchasing supporting specific government programs (for example, law enforcement or hospitals) • Governments located within defined geographic areas • Groups of higher education institutions The purest form of cooperative purchasing occurs when two or more public entities combine their procurement requirements and compete them through a single solicitation. The National Association of State Procurement Officials (NASPO) refers to this form as a true cooperative. NASPO ValuePoint is an example of this type of cooperative. Another type is third-party aggregator cooperatives. Those occur when a third party that is not necessarily a public entity brings together multiple entities (both public and private) to conduct a procurement and manage the resulting contract or contractor. The E&I Cooperative Services discussed later in this chapter is an example of this type of cooperative. Most early cooperative purchasing efforts involved the purchase of bulk commodities using

standard specifications, such as cleaning supplies, fuel, or services such as the collection and disposal of hazardous waste or used oil. Examples of commodities that are currently found on cooperative contracts include: • • • • • • • • • •

Office supplies and furniture Digital copiers and printers Carpeting Computer hardware Industrial lab supplies Infant formula Electronic defibrillators Smartphones Drones Fleet vehicles

Additionally, more complicated requirements, including information technology and cloud services, software, and consulting are often targeted today for cooperative purchasing contracts.

LEGAL AUTHORITY FOR COOPERATIVE PURCHASING If the law of a state or local government specifies that the government must award procurement contracts through competitive methods such as competitive sealed bidding and competitive sealed proposals, cooperative purchasing among public entities may not satisfy those legal requirements—even if a cooperative contract is formally competed by another public entity. A government’s law must authorize cooperative purchasing and piggybacking as exceptions to the mandate to compete.

Foundational Legal Authority A comprehensive law addressing cooperative purchasing does the following: • Defines the types of public entities and other entities such as consortia of public entities or not-for-profit organizations with

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which the public entity may engage in cooperative purchasing • Authorizes the public entity to participate in, sponsor, conduct, or administer a cooperative procurement so long as the procurement is conducted through full and open formal competition • Authorizes the public entity to purchase from a formally competed cooperative contract of another public entity or consortia of public entities, even if the public entity was not an original participant in the procurement for the contract • Authorizes the central procurement office to collect reasonable administrative fees from public entities or other approved entities that make purchases from cooperative contracts NASPO’s 2022 State Practices Survey indicates that virtually all states have legislation providing some authority for cooperative purchasing, although the specific requirements vary.4 Some laws limit the nature of participation in cooperatives, either as a participating public entity purchasing from another public entity’s contract or as a lead government conducting the procurement. Other states restrict or regulate the scope of cooperatives to exclude cooperative purchasing from the contracts of the federal government or nonprofit organizations, or they impose administrative requirements that must precede participation in a cooperative. It is often difficult to locate state laws authorizing cooperative purchasing. The Model Procurement Code includes an article entitled Intergovernmental Relations in which the authority for cooperative purchasing resides.5 Some state statutes treat cooperative purchasing under names such as joint powers or intergovernmental agreements.

Other Limitations In cases where a state’s statutes grant legal authority for cooperative purchasing, there may be limits on the types of entities with which a public entity may cooperate, such as limits on

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the specific commodity or service purchased or on the nature of the process used by the other entity to award the contract. Moreover, some statutes require that the contract be competitively awarded by the lead public entity using procedures substantially the same as those of the entity wishing to use the contract, which excludes purchasing from the United States General Services Administration schedule contracts. This chapter discusses those schedules in more detail later. Even states considered to have enacted statutes based on the Model Procurement Code may have added specific procedural requirements, such as the publication of notices of intent to use a cooperative contract. Finally, some laws require that the public entity seeking to purchase from another public entity’s contracts first have in place an overarching written agreement with the public entity offering the cooperative contract, such as an intergovernmental agreement or joint powers agreement. Finalizing that agreement is a precursor to engaging in cooperative purchasing. Public procurement officers should be familiar with the laws in their own state or local government.

AN OVERVIEW OF COOPERATIVE PURCHASING ALLIANCES AND TRENDS Today, cooperative purchasing has become a standard tool for most public procurement offices. The following brief account discusses how states and other public entities are organizing to carry out cooperative purchasing.

Statewide Contracts Statewide cooperative contracts, sometimes referred to simply as statewide contracts, are generally established by a state’s central procurement office and are often indefinite quantity/indefinite delivery contracts for commodities and services that user agencies regularly need. These

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contracts aggregate the volumes across all user agencies to increase value and reduce cost. A state’s user agencies under the control of its central procurement authority may be required to purchase from the statewide contracts, or such purchases may be optional. If the use of the statewide contract is discretionary, it lessens the value of the contract because volume estimates provided to suppliers are not as firm. Statewide contracts do not necessarily fit the definition of a cooperative contract if they are used only by the state’s user agencies. Where that state’s procurement law authorizes cooperative purchasing, statewide contracts are made available to cities, counties, universities, other public entities, and nonprofit organizations that enter into a cooperative purchasing agreement with the state central procurement office. Use of statewide contracts by those other public entities is typically optional. However, many states make efforts to communicate to other public entities the availability and value of utilizing their statewide contracts. Their consistent use of statewide contracts over time allows states to track usage and volumes, enabling them to leverage those volumes with suppliers to increase pricing and other supplier-offered benefits to both the state and the participating entity.

NASPO ValuePoint Cooperative Purchasing Program As the chief organization representing state procurement since 1947, NASPO plays a critical role in promoting government excellence by facilitating public procurement solicitations and agreements using a Lead State™ model. Through the Lead State™ model, the solicitation, competitive evaluation, and award are led by a state with the inclusion of a multistate sourcing team that includes state and other government procurement professionals. The resulting contracts allow state and local government agencies to benefit from lower costs and contractual protections.

Though originally founded in 1992 as the Western States Contracting Alliance—which was the Western region plus two states—the utilization, and eventually administration, spread to all states with regional leadership (see Figure 17.1). To acknowledge the growing national landscape, in 2013, NASPO created a limited liability company (LLC), the NASPO Cooperative Purchasing Organization—wholly owned by NASPO. This maximized and consolidated cooperative procurement program resources among the states under one umbrella. On March 30, 2015, the Cooperative’s brand was launched as NASPO ValuePoint. Since that date, purchases from NASPO ValuePoint cooperative contracts have reached billions of dollars annually. In 2019, it was determined to dissolve the LLC and merge NASPO ValuePoint with the NASPO organization, centralizing support of all aspects of public procurement excellence. As a nonprofit, NASPO ValuePoint acts as a resource to state central procurement as well as to state agencies, cities, counties, special districts, institutions of higher education, and other political subdivisions. The role of NASPO ValuePoint in the cooperative process is to: • Perform market and technical research in the industry marketplace to determine commodity and service opportunities to benefit governmental purchasing • Utilize analytics and metrics on current portfolios to determine the next steps and improvement in any re-solicitations • Provide technical and procurement expertise and support Lead States™ and sourcing teams • Identify and support volunteer sourcing teams • Collect and manage administrative purchasing fees from participating suppliers for the NASPO organization • Provide ongoing education to Lead States™ and Teams

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FIGURE 17.1 | NASPO REGION MAP MIDWESTERN REGION EASTERN REGION

ND WA

MT

MN SD

OR

ID

WY

NY

WI

UT

CO

KS

NH MA RI CT

IL NV

PA

MI

IA

NE

ME

VT

NJ

OH

IN

DE

MO

MD DC

CA AZ

WV

KY

NM OK

TN

AR

VA NC

SC

WESTERN REGION TX

LA

MS

AL

GA

AK HI

SOUTHERN REGION

FL PR

• Conduct supplier development and training programs to assist in understanding government procurement and/or NASPO ValuePoint Cooperatives There are no costs or fees for public entities to use NASPO ValuePoint contracts. A small fee is collected from the supplier to help fund NASPO and ValuePoint operations and reimburse costs related to development and administration.

Minnesota Multistate Contracting Alliance for Pharmacy Cooperative purchasing has dramatically reduced the prices that state and local governments pay for pharmaceuticals and medical supplies and services through the Minnesota Multistate Contracting Alliance for Pharmacy (MMCAP), established in 1985.6

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MMCAP is a free, voluntary, group purchasing organization operated and managed by the Office of State Procurement within the State of Minnesota’s Department of Administration. MMCAP’s mission is to ensure best value for pharmaceutical and healthcare products and services to state and local government facilities providing healthcare services across the nation. MMCAP’s offerings include pharmaceuticals, clinical pharmacy services, medical supplies, influenza and routine vaccines, dental supplies, drug testing products and services, prescription filling services, pharmaceutical repackaging, emergency preparedness/stockpiling services, and more. MMCAP has over 13,000 participating facilities in all states. A list of MMCAP’s current services and suppliers is available on its website.7

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Other Cooperative Purchasing Alliances In June 2018, the National Joint Powers Alliance cooperative announced the launch of its new brand name, Sourcewell.8 The alliance was originally founded in 1978 as an educational cooperative service unit under the laws of Minnesota for a five-county region. Sourcewell is a self-funded agency governed by locally elected municipal officials and school board members.9 Its initial focus on education and schools has continued as it has expanded to serve other government entities and nonprofits in Minnesota and across the country. In 2018, OMNIA Partners acquired the National IPA and the U.S. Communities Government Purchasing Alliance (U.S. Communities),10 which was originally founded in 1996 as a partnership between the Association of School Business Officials International, the National Association of Counties, the National Institute of Governmental Purchasing (NIGP), the National League of Cities, and the United States Conference of Mayors.11 OMNIA Partners now serves the private sector, public sector, nonprofits, and multifamily housing. E&I Cooperative Services, which focuses on the education community, is another example of a cooperative.12 E&I Cooperative Services, and other cooperative purchasing organizations like it, conduct the procurements themselves, which is different from the process that NASPO ValuePoint and MMCAP uses, in which public entities conduct the procurements and award the contracts. Cooperative purchasing is growing. In addition to the increasing use and choices, the organizations are beginning to rebrand, acquire, and aggregate with other cooperatives. There has also been a trend toward specialization with cooperatives focusing on specific market areas or entities.13

CONSIDERATIONS FOR INITIATING A COOPERATIVE PURCHASE Using best practices and sound business processes is important when initiating a cooperative purchase. Adherence to these practices improves the value of contracts and makes them easier to use. Based on experience, NASPO suggests considering the following practices listed in this section as a way to help public procurement professionals avoid some common pitfalls with cooperative purchasing contracts. This is not an exhaustive list, but it is based on NASPO’s insights into how successful cooperatives have worked at the state and local government level.

Joining a Cooperative and Pre-Issuance of a Solicitation • Require public entities who wish to join the cooperative to sign an agreement consenting to the terms under which the cooperative operates. • Develop a standard set of solicitation general terms with member input. • Develop a standard set of contract terms in which all of the cooperative members can agree to leave aside the unique terms that a particular cooperative member’s law requires. • Identify the types of commodities or services to be procured through market research and surveys of cooperative members, including historical buying patterns and estimated requirements of the particular commodities or services. • Designate a lead state or local government procurement office to conduct the procurement using qualified procurement and technical staff with expertise in the commodities or services to be procured. • Determine which of the cooperative members wish to participate in the specific procurement and have those members sign

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•

•

•

• •

258

what NASPO ValuePoint calls an Intent to Participate to the contract. The Intent to Participate should: $$ Include contract terms that the particular participating public entity requires in addition to those that are the cooperative’s standard contract terms. $$ Become part of the solicitation. $$ Advise the competing suppliers of the specific contract terms of each participating public entity. Determine whether an administrative fee will be assessed under the particular contract based on the volume of purchases made and what the assessment will be to the contractor to reimburse the administrative expenses of the cooperative organization, the lead agency, and other procurement/sourcing team participants. The fee should be stated in the solicitation and often cooperatives require one of the following: $$ The contractors add a specific, small percentage to their prices for each order and forward it to the cooperative, such as NASPO ValuePoint. $$ The lead government collects that fee from the contractor but must generally be authorized under its law to assess and collect that fee. Invite cooperative members, including technical specialists and subject matter experts, to participate in the development of specifications or scopes of work for the procurement. Circulate draft solicitations for comments and suggestions among the public entities participating in the procurement, including prospective contractors. Permit suppliers to offer value-added services beyond those requested in the solicitation. Utilize, generally, the competitive sealed proposal source selection method to conduct the competition and use best value and similar evaluation tools, as the lead public entity’s law allows.

Issuing the Solicitation • Notify all suppliers registered with the participating public entities of the procurement and the solicitation. • Advertise the procurement according to state laws through the lead public entity and all participating public entities. NASPO ValuePoint uses a process that informs all state directors of the issuance of a solicitation so they can provide notice of solicitation that may be required by their individual laws. • Designate one point of contact in the lead public procurement office for communication and supplier inquiries.

Evaluating and Negotiating Offers • Invite representatives from the lead public entity and all participating public entities to participate in technical evaluations. • Negotiate supplier terms and conditions that conform to the legal requirements of each participating public entity, or permit negotiation of more specific terms and conditions by each participating entity. • Evaluate the proposed contractor’s ability to service all cooperative members. • Evaluate and award the number of contracts needed for free and open competition and to provide best value to the participating public entities and the cooperative organization.

Contract Award and Administration • Notify all participating public entities of contract awards and provide them and the contractors with electronic copies of the entire contract. • Permit each participating public entity to administer contractor performance and handle routine administration. • Require that disputes relating to any specific purchase from a cooperative contract be handled by the public entity making the purchase.

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• Provide that disputes relating to the master agreement/contract should be handled by the lead public entity. • Establish a contractor performance reporting system for participating members. • Require that the contractor provide periodic contract sales reports. • Invite participating public entities to comment on proposed contract extensions. • Negotiate deeper volume discounts in contract prices if actual purchases under the contracts exceed estimates. • Provide plenty of time to compete for replacement contracts.

Purchasing from Cooperative Contracts • Review the cooperative contract for conformance with applicable laws and ensure that the cooperative contract produces best value. • Contact the cooperative’s lead public entity to verify eligibility and the procedures for buying off of a contract. • Compare what is offered under each contract if there are multiple contracts awarded for the required commodity or service. • Verify whether the contract permits the negotiation of additional price concessions when buying large quantities; in many NASPO ValuePoint master agreements, the contract prices are considered ceilings, and public entities are permitted to seek quotes that may offer more favorable pricing depending on the nature and timing of the requirement. • Confer with legal counsel to determine whether the cooperative contract alone is acceptable if a written agreement with the cooperative contractor is required, as may be the case for piggybacking purchases.

COSTS OF ADMINISTRATION Developing and administering a cooperative procurement usually involves added time, staff, and other resources for the lead public entity.

In some cooperatives, the lead public entity charges and collects from suppliers an administrative fee based on each sale made under the contract to cover the expenses of the cooperative, the lead agency, and others participating in procurement/sourcing teams. The fee is disclosed in the solicitation and collected either by the cooperative organization or by the lead public entity, if legally authorized, on behalf of the cooperative organization. Fees vary widely, from one-twentieth of one percent to three or more percent by some cooperatives. Higher fees can negatively affect the suppliers’ final pricing, reducing the benefit of the cooperative purchase. Cooperatives should routinely review their administrative fees to ensure that revenues meet needs but do not reduce the value of the commodities and services in the eyes of potential buyers from the contracts. In many cases, a state central procurement office will charge a fee for each purchase from a statewide contract. As stated earlier, there generally must be some authority in the state’s law to allow that office to make such an assessment.

BENEFITS AND CHALLENGES OF COOPERATIVE PURCHASING There are both benefits and challenges to engaging in cooperative purchasing. The benefits outweigh the negatives, but the challenges should not be ignored. The brief discussion that follows lists some of those benefits and challenges.

Benefits Most of the benefits of cooperative purchasing have historically revolved around saving time and money, as previously noted. However, there are several other potential benefits that can be obtained: • Cooperative contracts generally produce lower prices due to the greater volumes purchased under them. Cooperative contracts

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•

• •

• •

•

are especially advantageous for small public entities because they benefit from the market share leveraged by larger ones. Cooperative contracts often provide greater assurance that commodities and services purchased under them will be of high quality. That results from using the bestsuited, specialized specification writers, public procurement officials, and technical evaluation committee members through public entities’ sharing their talents. Again, this is particularly helpful for small public entities. Cooperative contracts play a key role today in providing complex information technologies. Cooperative contracts enable the use and/ or sharing of public procurement officers among public entities allowing for the re­ allocation of internal resources. Cooperative contracts reduce administrative costs by spreading them across multiple governments. Cooperative contracts are convenient. Instead of seeking quotes, bids, or proposals, public entities simply select commodities and services from the cooperative contract catalog, saving considerable time and effort. Cooperative contracts benefit citizens through lower total cost of government, better application of resources, and more efficient government operations.

Challenges Although there are many examples of successful government cooperative purchasing programs, there are pitfalls and challenges.

Legal Compliance Most governments operate under some form of procurement law intended to: achieve best value for citizens; protect against fraud and abuse; ensure fairness, equity, and transparency; and maintain public trust. Although most procurement laws are similar, there are often subtle

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but significant differences between them. Some public entities require strict compliance with their specific procurement laws when using cooperative contracts awarded by other public entities. Communication and active participation in the procurement process by cooperative members helps the cooperative achieve universal compliance.

Buy-Local or State Preference Laws Many public entities have laws that favor or give preference to local suppliers. These laws may interfere with the ability of a public entity to develop and award a cooperative contract, or they may prevent it from using a cooperative contract. See NASPO’s State Preference Repository for more information.

Open Competition Many public entities’ procurement programs maintain lists of suppliers who register with them to compete for contracting opportunities. Their laws often require them to notify those suppliers of procurement opportunities and to post public advertisements when solicitations are issued. To ensure compliance with such requirements, the public entity should take those steps where it wishes to participate in a cooperative procurement being led by another public entity. Small Business Participation Some small businesses may be able to handle business for one state or local government but may not be able to deal with the combined requirements of multiple governments. Encouraging local delivery and service networks and utilization of small business subcontractors under a cooperative contract provides opportunities for small businesses to continue to serve the members of the cooperative. Cherry-Picking The existence of multiple cooperative contracts for similar commodities and services among multiple cooperative organizations permits public

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entities to shop for those contracts until they find one with their preferred suppliers or brand names. That activity skirts around free and open competition. In addition, public entities may compare different cooperatives and their contracts for the same commodity or service and choose the cheapest one. This can pose a challenge to contractors when customers buy only bargain items in large quantities. Battle of the Forms/Terms Although most are similar, public entities use unique contract terms and conditions and purchase order terms. A cooperative contract awarded by one public entity may not conform to the terms and conditions of another. There are several methods for addressing contractual differences, including the development of standard terms and conditions among cooperative members, the inclusion of public entity members’ term variations in the solicitation, and the negotiation of participation agreements between the public entity and the contractor. Pricing Although most cooperative contracts generate considerable cost savings for public entities, not all cooperative contracts achieve best value. Potential purchasers should be attentive to situations such as the following: • If estimates in the solicitation are inaccurate, price may be based on an estimate that is much lower than actual usage. Pricing is much more likely to be unfavorable in contracts where significant piggyback purchasing occurs because usage is difficult to estimate beforehand. • Contractors may offer a high price because many of the cooperative members are small or located in remote areas. • A contractor may price the contract high because of administrative costs associated with the cooperative, including the collection of the cooperative’s administrative fees.

Time and Resources It takes more effort to award a contract that serves multiple public entities than it does for a contract that serves only one entity. In theory, the time and resource investments for a cooperative procurement for the lead public entity are likely recovered when that public entity in turn uses other cooperative contracts for which it is not the lead. Time and resource requirements can also be reduced by using procurement and technical experts from other public entities to assist with the cooperative procurement. Fees As noted earlier, many cooperatives charge a fee on each purchase made from a cooperative contract. If these fees are too high, it reduces the incentive to use the contract.

FEDERAL GOVERNMENT COOPERATIVE PURCHASING ISSUES Piggybacking Restrictions In 2013 revisions were made to the regulations governing federally funded programs. These regulations, known as Uniform Guidance for Federal Awards (2 CFR 200) or the Office of Management and Budget (OMB) Super Circular,14 intend to streamline government resources by integrating a variety of OMB circulars and federal agency regulations known as the Common Rule.15 The following is a summary of the requirements affecting procurements and contracts funded with federal funds as they relate to cooperative purchasing. The Common Rule prescribes specific standards for procurements of commodities and services by state and local governments using federal grant funds. Its provisions are discussed in other chapters of this Practical Guide, including Chapter 5 (Solicitation Methods) and Chapter 6 (Development Techniques for Purchasing Goods and Services).

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While the Common Rule was intended to create one set of compliance requirements for all federal grants, there may be additional requirements. Those prescribed by the Federal Transit Administration (FTA) are one example. The FTA imposes some restrictions on the practice of piggybacking. Where local governments are not part of a state government’s cooperative procurement program, procurements by local governments are commonly characterized as piggybacking and are treated as assignments under FTA regulations. Assignments are only permitted where the state’s original solicitation reflected current and reasonably expected needs, but some amount of the published estimate is no longer needed. The FTA permits the assignment of that unneeded contract requirement to another government; this is more restrictive than piggybacking. On its frequently asked questions web page, the FTA states the following: “Piggybacking” is defined as “the postaward use of a contractual document/process that allows someone who was not contemplated in the original procurement to purchase the same supplies/equipment through that original document/process.” The circumstances when piggybacking is permissible: • The solicitation and contract include an assignability clause that allows for the assignment of all or part of the specified deliverable items. • The quantities to be ordered were included in the original bid and evaluated as part of the contract award decision. Note that “piggybacking” is not permissible when the action would call for an increase in quantities that were not originally bid on and not originally evaluated as part of the contract award. Such an order for additional quantities would constitute a non-­ competitive procurement. This practice is sometimes referred to as “tag-ons.” Such

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non-competitive procurements would have to be processed as such and approved through the grantee’s official approval chain. • The contract being accessed by the piggybacking procedure must contain the clauses required by Federal regulations. FTA Circular 4220.1F, Appendix D, defines the required contract clauses by type and dollar value of procurement.16 The FTA publishes a Best Practices Procurement Manual that explains the permissible use of piggybacking. The FTA requirements emphasize the importance of being familiar with the laws relating to purchasing with federal funds, in addition to the Common Rule.

A Word about GSA Schedules The United States General Services Administration (GSA) maintains a large list of multiple award purchasing schedules. Contractors are selected for GSA multiple award schedules through an open and continuous qualification process instead of using formal competition methods—competitive sealed bids or competitive sealed proposals.17 If a public entity’s law authorizes cooperative purchasing only where the cooperative contracts are competed through a formal competitive process, the legal authority to use GSA contracts is doubtful. To avoid that legal issue, some states have adopted specific laws permitting the use of GSA schedules. One is Arizona, whose law is as follows: Notwithstanding sections 41-2533 and 41-2534 [requirements for competitive sealed bidding and competitive sealed proposals], the director or the director’s designee may evaluate general services administration contracts for materials and services. The director or the director’s designee may authorize a purchasing agency to make purchases under a con-

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tract approved by the director or the director’s designee without complying with the requirements prescribed in sections 41-2533 or 41-2534 if the director or the director’s designee determines all of the following apply: 1. ​The price is equal to or less than the contractor’s current federal supply contract price 2. ​The contractor has indicated in writing that the contractor is willing to extend the current federal supply contract pricing, terms, and conditions 3. ​The purchase order adequately identifies the federal supply contract on which the order is based 4. ​It is cost-effective and in the best interests of this state18 If legal authority exists, public entities using GSA schedules generally seek competition from multiple GSA contractors by obtaining quotations. GSA requires most favored customer pricing, which means that GSA expects its schedule contractors to extend the price advantages they offer to the federal government to state and local governments based on federal purchasing volumes. Many states strategically use GSA pricing as benchmarks in their specific negotiations with suppliers. GSA contractors may offer discounts for large volumes. Still, public entities having the authority to use GSA schedules should carefully analyze the GSA terms and prices and compare them to other available procurement vehicles, including contracts established by other cooperatives. A GSA supplier is not obliged to honor a state or local government request to buy from it. A state or local government’s purchase from a GSA schedule contractor may also require separate contracting arrangements between the supplier and government entity to accommodate unique legal requirements.

CONCLUSION Cooperative purchasing is a very effective tool that public procurement officers can use to obtain effective, best-value solutions for public entities and the taxpayer. Aggregated volume creates significant price breaks—sometimes in double-digit percentages. Partnering with a lead entity can reduce time, administrative overhead, and other costs while taking advantage of the experience and expertise of those with specialized knowledge in a sector. Knowing and paying attention to best practices and challenges can result in a contract that is beneficial for all participants through cost savings and efficiencies. Not only are savings achieved by combining requirements into cooperative contracts, but further cost savings are realized through a reduction in administrative expenses. Cooperative contracts may also serve as a forum for professional development and the exchange and sharing of resources and technical information. With state and local government budgets being stretched to the limit, Chief Procurement Officers should look for innovative ways to utilize taxpayer dollars efficiently and effectively. Cooperative purchasing is a logical and practical way to do this. By establishing solid cooperative purchasing processes and procedures, maintaining clear channels of communication, and working together closely, state and local governments can create a win-win situation for taxpayers and suppliers.

ENDNOTES 1. There is a type of construction contract called job order contracting that is often a cooperative contract, and it is covered in Chapter 16, Procurement of Construction and Related Services.

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2. The ABA Model Procurement Code uses the term Public Procurement Unit generally to refer to the state, any political subdivision of the state or other public entity in that state, other states and their political subdivisions, federal government agencies, as well as to a not-for-profit entity comprised of more than one of those public entities. Model Procurement Code for State & Local Gov’t §10-101 (Am. Bar Ass’n 2000). 3. Indefinite delivery, indefinite quantity (IDIQ) contracts provide for an indefinite quantity of service for a fixed time. They are used when GSA can’t determine, above a specified minimum, the precise quantities of supplies or services that the government will require during the contract period. IDIQs help streamline the contract process and speed service delivery. IDIQ contracts are most often used for service contracts and architect-engineering services. Awards are usually for base years and option years. The government places delivery orders (for supplies) or task orders (for services) against a basic contract for individual requirements. Minimum and maximum quantity limits are specified in the basic contract as either number of units (for supplies) or as dollar values (for services). “Indefinite Delivery, Indefinite Quantity Contracts,” Government Services Administration, last modified November 9, 2020, https://www.gsa.gov/small-business​ /register-your-business/explore-business​ -models/indefinite-delivery-indefinite-quan​ tity-idiq?_gl=1%2Am61rp4%2A_ga%2AN​ DIyMzQ1ODkxLjE2ODc0NDA5NTQ.%2A​ _ga_HBYXWFP794%2AMTY4NzQ0MDk1​ NC4xLjEuMTY4NzQ0MTA3NS4wLjAuMA. 4. “2022 Survey of State Procurement Practices Report,” NASPO, last modified January 2023, https://​www​.na​s​po​.org​/pr​a​c​t​i​c​al​ -gu​i​de​-re​s​o​u​r​ces/. 5. Model Procurement Code for State & Local Gov’t §10-101.

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6. “MMCAP Infuse Group Purchasing Organization for Government,” MMCAP, accessed January 9, https://www.infuse-mn.gov/. 7. “Products and Solutions,” MMCAP, accessed January 9, 2023, https://infuse-mn​ .gov/products/index.jsp. 8. “National Joint Powers Alliance is now Source­well,” Sourcewell, accessed January 9, 2023, https://​ne​ws​.so​u​r​c​e​w​e​ll​-mn​.gov​/ na​t​i​o​n​al​-jo​i​nt​-po​w​e​rs​-al​l​i​a​n​ce​-is​-now​-so​u​r​c​ e​w​ell/. 9. “About Sourcewell, Common Questions,” Sourcewell, accessed January 11, 2023, https://www.sourcewell-mn.gov/about. 10. “OMNIA Partners Announces Purchase of U.S. Communities,” OMNIA Partners, accessed January 9, 2023, https://​www​.om​n​ i​a​p​a​r ​t​n​e​rs​.com​/re​s​o​u​r​c​es​/in​-the​-ne​ws​/om​n​ ia​-pa​r ​t​n​e​rs​-pu​r​c​h​a​s​es​-us​-co​m​m​u​n​i​ties. 11. “Who We Are,” OMNIA Partners, accessed January 9, 2023, https://​www​.om​n​i​a​p​a​r ​t​n​e​ rs​.com​/who​-we​-are. 12. “E&I Cooperative Services,” E&I, accessed January 9, 2023, https://www.eandi.org/. 13. Stephen Goldsmith and Scott Becker, Cooperative Procurement: Today’s Contracting Tool, Tomorrow’s Contracting Strategy, (Ash Center for Democratic Governance and Innovation, 2018), 11. 14. 2 C.F.R §1-299 (2022). 15. 2 C.F.R §200.319 (2022). 16. “Piggybacking,” Federal Transit Authority, accessed January 9, 2023, https://​www​.tr​ a​n​s​it​.dot​.gov​/fu​n​d​i​ng​/pr​o​c​u​r​e​m​e​nt​/th​i​rd​-pa​ r​ty​-pr​o​c​u​r​e​m​e​nt​/pi​g​g​y​b​a​c​king. 17. The qualification process is described in “Get a GSA Schedule,” FEDSched, accessed January 9, 2023, https://​gsa​.fe​d​e​r​a​l​ s​c​h​e​d​u​l​es​.com​/get​-a-g​sa​-sc​h​e​d​ule/. 18. Ariz. Rev. Stat. §41-2558 (2016) http://az.el​ aws.us/ars/41-2558.

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RECOMMENDATIONS AND CONSIDERATIONS • Thorough market research should be conducted and, where possible, include the insight of suppliers and industry groups. Suppliers assisting with research and/or specifications should not be allowed to submit proposals for those same solicitation documents. • Solicitation documents for information technology (IT) projects should not be overly prescriptive and should encourage suppliers to bring innovative, creative solutions to the table. • When statute allows, a public entity should use pilots and demonstration projects to test the technology being procured. • Contract terms and conditions should not be allowed to reduce competition. A risk-based approach to negotiating terms and conditions should be used, and public procurement officials should understand where flexibility is possible. • Sound supplier management practices should be established for contractors under long-term or high-risk contracts to ensure that successfully negotiated terms can be leveraged to ensure the success of large IT implementations. • Cybersecurity should be planned and budgeted for at the beginning of the acquisition process.

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Public procurement officials support the needs of the user agencies they serve, and those needs frequently involve technology. As demands on state and local governments change, public procurement is also expected to reinvent sourcing policies and processes to encourage the innovation, creativity, and flexibility required to purchase effectively in technology markets. What is sought includes an agile culture and a process that allows user agencies to take advantage of supplier expertise to deliver solutions that propel public services forward. This chapter describes new approaches and processes around which the public procurement community, public chief information officials, and IT suppliers should rally to ensure that the public sector’s increasing use of technology is seamlessly and successfully planned, procured, and implemented. To do this, the chapter begins by making a case for the call to reform the purchasing of IT. It demonstrates the importance of planning with cross-functional teams, including risk management and market research. After discussing the planning for IT procurement projects, the chapter provides considerations for procuring IT throughout the procurement cycle, including drafting terms and conditions. It concludes with examples illustrating innovation and reform within state IT procurement.

KEY TERMS AND CONCEPTS At the outset, it is helpful to put IT and its role in a government structure into context. IT is a tool for collecting, analyzing, and processing information. It plays a significant role in managing state contractors for large government and public entity programs such as Medicare and mental health programs. In this chapter, the term program means the specific activity that a law or executive order directs the government to sponsor or provide,

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for example, Medicaid or highway construction. It also can mean those activities under the authority of the public entity’s Chief Information Officer (CIO), who is responsible for the public entity’s IT infrastructure. While the term program also has a specific IT meaning as well, the term is not used in that way in this chapter. As used in this chapter, a project means all the activities related to determining the best IT solution for supporting or implementing a governmental program. The purchase of standard, commercial IT commodities, such as laptops, desktop computers, and other commercial hardware and software, is not addressed in this chapter. Finally, the project sponsor, a term that is used regularly in this chapter, means the public official who is responsible for the program for which the IT project is being initiated.

CALLS FOR COLLABORATION ON REFORM More than two decades prior, the State Procurement Administrator of Arizona articulated a fundamental conflict inherent in the procurement of IT, and it still exists today: Today, state government officials are still trying to cope with the immediate need to buy the tools necessary to operate faster, better, and cheaper, while adhering to a procurement process that maintains the traditional safeguards of ensuring both integrity and a fair opportunity for all interested vendors. [. . .] In fact, the traditional role of the procurement official—to ensure that the process is fair and eliminates favoritism—often runs headlong into the role of the state information systems planner—to ensure that the state promptly obtains the most current technology, thus permitting state programs and services to operate effectively.1

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Great strides have been made and are still in progress to reconcile the two often competing interests to create an innovative process that fulfills the goals of both parties. For example, in 2019, California Governor Gavin Newsom signed Executive Order N-04-192 that directed the state to develop a new approach to technology procurement called Request for Innovative Ideas (RFI2). RFI2’s approach outlines the problem to be solved instead of prescribing a product or service, allowing suppliers to respond with (potentially) innovative solutions. This order was initially motivated by wildfire emergencies and the need to procure better fire safety technologies. However, calls for collaboration on the reform of the public procuring of IT remain. For instance, groups, such as the National Association of State Chief Information Officers (NASCIO), in collaboration with the National Association of State Procurement Officials (NASPO), have published briefs containing forward-looking recommendations for reform in IT procurement aimed at delivering improved results.3 Adding to the imperative for change are cost pressures driving many public entity IT leaders to consider and implement shared services delivery models where outsourcing replaces services traditionally delivered by public entities. To meet today’s challenges, IT procurement in the public sector should strike the proper balance between transparency, the fairness essential to public procurement, and the agility necessary to meet the requirements and expectations of multiple stakeholders.4 IT procurement cannot be viewed solely as a project to be managed or a procurement that is completed at award. Successful procurements require the expertise, knowledge, and active engagement of cross-functional teams that go beyond IT technical and procurement staff. In addition, success also depends on the engagement of these teams using a shared roadmap with clearly articulated government business goals. Cross-functional teams often include:

• • • •

Executive leadership Risk management officers (legal counsel) Project management professionals Subject matter specialists (CIO and/or Chief Information Security Officer (CISO)) • Financial experts

FOUNDATIONAL PLANNING It seems obvious that the groundwork of a successful comprehensive IT procurement begins with planning. Often, however, planning is either deficient or incomplete. Planning is key to driving successful outcomes, which in IT means optimizing business value for the public entity. Chapter 4 (Procurement Planning) discusses planning in general. That chapter also provides information on structuring larger procurements, such as new IT systems or services as a formal project that includes a project charter and other elements.

Using an Integrated Procurement Strategy An integrated procurement strategy provides a roadmap for the procurement activities associated with an IT project. This strategy document can be a part of the presolicitation analysis. The procurement strategy is refined as the project details emerge, resulting in a procurement plan. For complex system procurements, an effective procurement strategy aligned with the presolicitation analysis will help the procurement and contractor selection process to answer key questions to attain the best contract solution possible. It ensures the sourcing methodology works with the project rather than against it. The procurement strategy outlines the objectives of the procurement and addresses the following key elements: • Constraints impacting the procurement • User agency goals and requirements (such as replacing an old system or purchasing a new one)

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• Procurement team roles and responsibilities • Executive and stakeholder oversight

Managing Risks IT procurement-related risk depends on the circumstances of the individual procurement. Factors affecting risk include the technology’s stability, application size, ability to articulate a desired solution or outcome, security and privacy, and experience of the procurement team members.

Possible risks should be identified at the earliest point in an IT project. This list may then be used to initially draw up a risk register, a tool used to document project risk in an easy-to-­ understand format. A skilled team comprised of procurement experts, finance, legal, security, technology, and business ownership are key to collaboratively identifying risk (see Table 18.1). In concert with other project team members, a public procurement official should continuously evaluate risks throughout the procurement

Table 18.1  An example of a risk matrix from NASCIO’s IT Procurement Modernization Series Part III entitled Procurement: Avoiding Risky Business5 Event Severity Likelihood of Event Extreme Occurrence Level X Event

Moderate Level 2 Event

Minor Level 1 Event

Remote

• ​Targeted terrorism • ​Loss of life (workplace violence)

• ​Major supply chain • ​Minor supply chain disruption disruption • ​Major natural event (hurricane, tornado, earthquake) • ​Internal sabotage • ​Cyberterrorism

Low Probability

• ​Severe brand damage • ​Political instability • ​Level 1 terrorism • ​Loss of key sponsors

• ​Transportation infrastructure disruption • ​Telecom infrastructure disruption

• ​Kidnap and ransom • ​Facility fire • ​Major flooding • ​Minor natural event

• ​Feature creep (incorporation of additional features during the project) • ​Failure to understand and document business processes related to the procurement

High Probability

• ​Major hazmat incident

• ​Worksite accident • ​Loss of life (limited) • ​Delays associated with subcontractors or third-party stakeholders

• ​Attrition of key personnel • ​Knowledge of capital loss • ​Telecom outage

• ​Attrition of nonessential personnel

• ​Power outages

• ​Minor flooding

Anticipated • ​Major natural event (hurricane, tornado, earthquake) • ​Epidemic

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Major Level 3 Event

• ​Impact if the risk occurs on normal operations • ​Failure to document all requirements at the beginning of the procurement/project

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process by employing the appropriate tools, methodologies, benchmarks, and other mitigation techniques. Chapter 4 (Procurement Planning) discusses the importance of risk and how to manage risk in many procurement decisions, along with providing insight into risk assessment tools. It is essential to recognize risk during the negotiation of effective price and terms and conditions, as well as an effective contract management plan in the risk register. Security and privacy are generally critical risks that need to be registered, and the proposed contractor’s systems should be thoroughly scrutinized. Throughout the negotiations, the outstanding items for negotiation should be tracked along with appropriate negotiating positions.

The risks of not addressing cybersecurity in the procurement process are plentiful for the state and the procurement official. They can include:10

Cybersecurity

One tool in the cybersecurity fight is StateRAMP, a 501(c)(6) organization that was founded to help state and local public entities locate vetted IT products/services.11 StateRAMP engages with third party assessment organizations (3PAOs) to assess the security of infrastructure as a service (IaaS), software as a service (SaaS), and/ or platform as a service (PaaS) solutions to give procurement officials confidence in the data security capabilities of a supplier’s solution.12

Cybersecurity is “protecting networks, devices, and data from unauthorized access or criminal use and the practice of ensuring confidentiality, integrity, and availability of information.”6 Cybersecurity is crucial to the IT procurement process because any product, platform, device, or system that connects to state systems is a potential backdoor for a cyberattack. The stakes are high when allowing third parties to access state systems. Procurement officials should be proactive in vetting suppliers and solutions for cybersecurity vulnerabilities.

• Monetary risk—such as ransomware attacks and the cost of rebuilding systems • Political risk—such as exposing personal identification information • Physical risk—such as damage to transit systems or healthcare systems • Operational—such as project failure or delay • Reputational risk—such as to agencies or individuals • Environmental risk—such as damage to water treatment facilities or dams

In 2021, NASPO and NASCIO issued a joint report entitled Buyer Be Aware: Integrating Cybersecurity into the Acquisition Process13 that covers this topic at a high level. Some of the recommendations from this report are as follows:

A few examples of cybersecurity threats include: • Spyware: software secretly installed in a system to gather information without the owner’s knowledge7 • Malware: software created to intentionally cause damage (sometimes called a “virus”)8 • Ransomware: a type of malware that infects a network or steals confidential data and then demands payment for the return of control9

• Educate the budget office on the importance of cybersecurity and the potential risks for the state; cybersecurity is a life cycle and not a project with a start and end. • Ensure that cybersecurity is planned into and budgeted for at the beginning of the acquisition process. • Cross-educate all stakeholders to ensure an understanding of cybersecurity concepts, priorities, objectives, and defined roles and terminology.

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• Ensure alignment between the acquisition process and the state’s cybersecurity standards and architectures. • Suppliers and contractors should be required to provide an attestation that their security practices align with the state’s cybersecurity practices as a requirement to bid on a state contract. Vendor attestations should be verified, and the state CISO should oversee this process. The U.S. Department of Energy also developed the Cybersecurity Considerations for Procurement Process decision tree to provide a highlevel overview of key questions regarding when experts should be consulted in the procurement process.14

Conducting Market Research As technologies rapidly change, it is essential for regular and thorough market research to be conducted. Market research is typically conducted by technical staff from the office of a public entity’s CIO when planning a technology procurement. Public procurement officials should understand and validate that research to ensure the correct procurement process is selected. Especially for emerging technologies, there may not yet be a stable market in which there is normal competition, and a traditional competitive sealed proposals process will not yield successful results. This is where researching the market for alternatives, such as using cooperative contracts (discussed later in this chapter) and reseller distribution contracts—generally contracts under which a distributor provides manufacturers’ commodities—is recommended. The procurement official cannot be expected to be an expert on all forms of technology. However, by conducting market research and engaging experts, they can gather the information that can provide a stronger foundation for a solicitation. Chapter 4 (Procurement Planning) discusses the market research process and potential sources in more detail.

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SOURCING AND PROCUREMENT ISSUES Complex IT projects need effective partnerships in order to succeed. Successfully carrying them out takes the appropriate sourcing vehicle, which is why the sourcing strategy and procurement plan are important to IT procurements. With a move to the more rapid adoption of implementing IT projects (and procurements) in an agile fashion, it is time for public procurement offices to begin considering that there is more than one way to approach buying different categories of technology solutions.

Bimodal and Modular Sourcing Bimodal sourcing encompasses a two-pronged approach for acquiring IT: (1) the first type focuses on traditional IT characterized by stability and efficiency, and (2) the second type aims at creating an experimental, agile public entity focused on time-to-market, rapid application evolution, and tight alignment with user agencies.15 Bimodal sourcing is not a new concept. As it applies to public procurement of IT, it offers an opportunity to fit a more traditional procurement process to the projects where it is most suitable. It also helps to account for a more flexible, agile process where appropriate, such as new or niche solutions or solutions that require services from multiple suppliers to create one common solution. For example, in the case of categories that offer the most standardization potential—laptops, desktops, and other peripherals—a more traditional or legacy approach to procurement or sourcing may be effective and still produce value. As these IT products become standard commodities, the procurement process will likely resemble non-IT commodity purchases. Cooperative contracts are often a good source to leverage for these purchases. Conversely, for highly complex systems, a more agile selection process, typically consisting of

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multiple contractors, may be a more effective method. It focuses on managing the final sourcing solution, like a project where requirements are more fluid and delivery is done in sprints, such as for Maintenance Management Information Systems16 and other large software solutions. This approach can also be referred to as an iterative process, that is, a process for reaching a desired result by means of a repeated cycle of operations, with each repetition bringing the project closer to the desired outcome. It is carried out through frequent interaction of a core, cross-functional team to test, accept, and implement large systems under a contract. Modular procurement also offers effective strategies for breaking up large and complex technology procurements into smaller increments. For more guidance on the importance of adopting a mindset, skill set, and practical tools for modular procurement, NASPO issued a paper entitled Modular Procurement: A Primer17 that includes a description of the steps used in this process.

Components of the Procurement Process The Scope of Work The scope of work is the key component in IT procurement solicitation and contains the important elements of the procurement’s objectives. Chapter 6 (Development Techniques for Purchasing Goods and Services) also addresses the critical nature of a scope of work. The Virginia Information Technologies Agency offers a statement of work template and related tools.18 For IT procurements, the scope of work should be developed in consultation with all stakeholder groups in the IT project. One of the biggest drafting mistakes made by public entities is being overly prescriptive in defining the specifications for a solution and how to deliver the solution. Being prescriptive transfers the risk and responsibility for addressing the problem to the public entity. While the solution delivered

may meet the specifications, it may not solve the problem. Overly prescriptive solicitations impede a supplier’s ability to propose the most effective technology solution. A request for proposal (RFP) should contain a statement of what problem the IT project is trying to solve. This gives the supplier community the information it needs to be innovative and propose comprehensive solutions. Suppliers should be encouraged to offer alternatives. An alternative may provide a better solution than that contemplated by the project team. Discussions and Negotiations During Evaluation Best practice allows for discussions or negotiations during the evaluation. The law of the public entity should authorize discussions and negotiations as part of the proposal evaluation process when RFPs are issued. The American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code) permits discussions and negotiations. Chapter 9 (Negotiations) discusses the legal authority for discussions and negotiations in more detail, including the Model Procurement Code language. Through discussions during the evaluation process, including discussions regarding price, the likelihood is increased that both the public entity and the offeror will be satisfied when the award is made to the most optimal solution in response to the RFP. Procurement processes where technical and price proposals are separated, with a contract award being made to the offeror submitting the technically acceptable, lowest price offer, will unnaturally disconnect the two critical factors in the selection process and are highly unlikely to yield the best outcome. Flexibility and Innovation The procurement process is the place to be innovative. A report prepared by NASPO and NASCIO, Designing for Agility: Advancing IT and Procurement Modernization, emphasized

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the importance of forging true partnerships between state CIOs and Chief Procurement Officers (CPOs) and the value of embracing innovation in the shared goal of improving IT procurement.19 The report highlights case studies of success in California through their use of agile development techniques in system redesigns and in Ohio through IT optimization and harmonization. Most important, the report highlights four key dimensions for which it recommends changes: • Establish a governance and organizational structure through collaboration and creativity and select the key individuals who will serve on cross-functional technology boards or equivalents to oversee IT procurement projects. • Encourage more teaming and role clarity through more regular education and communication between procurement and IT. • Reform the way IT and procurement staff and leadership interact by establishing rules of engagement. • Improve budgeting and forecasting by acknowledging that close partnerships between, and innovative approaches of, CPOs and CIOs can reduce waste and enhance efficiencies. Multiple-Round RFPs Some states, including the Commonwealth of Massachusetts, California, and Oregon, use multiple-round RFPs or multistep RFP evaluations. The details of the procurement plan can vary, but generally, the RFP expresses that the selection and award of the contract will be made in multiple stages. The first stage usually describes evaluation criteria for selecting proposals deemed suitable for award. After the first round of selection, and in some cases after a protest period, the selection process moves into a second round. Second-round selection factors may be included in the initial

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RFP, or the request may describe selection factors generally, with specific factors developed after the first-round selection. The second round allows scoring and evaluating demonstrations, transition plans, or project-specific plans. During second-round evaluations, the evaluation committee can assess the differentiators that should help separate the offerors best suited to meeting the project’s overall needs. While two evaluation rounds are typical, additional rounds may be warranted if the RFP contemplated more than two rounds and the complexity of the project warrants. Best Value Evaluation Methodology Best value is an evaluation method that allows flexibility in the procurement process by evaluating offers on factors other than technical acceptability and lowest price. When put into the context of critical, multimillion-dollar IT solutions, it is obvious that the cheapest option is not necessarily the best. Therefore, evaluation criteria should reflect the scope of work and allow for the selection of a proposal that meets the full needs of the end user. Best value as the standard for evaluating proposals and awarding a contract is highlighted in Chapter 5 (Solicitation Methods) and Chapter 7 (Proposal Evaluation and Award).

PILOT PROJECTS OR DEMONSTRATIONS Pilot or demonstration projects can provide a wealth of information and improve solutions for public entities. Chapter 5 (Solicitation Methods) generally discusses pilot projects. Pilot projects are appropriate when uncertainty exists as to whether an IT commodity or process will effectively operate as promised.20 Typically, a supplier delivering a pilot solution is precluded from responding to subsequent, related solicitations.

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An alternative to pilot projects is to incorporate demonstrations through a phase during the procurement process. Such a demonstration enables the project team to see how a proposed solution addresses the organization’s needs.

documents drive suppliers to provide solution-­ based proposals, and the proposals and proof of concepts are evaluated on their overall benefits. Full details on this project can be found on NASPO’s Cronin Awards webpage.21

Michigan’s Competitive Proof of Concept (CPC): A Case Study

Test driving potential solutions have endless possibilities for helping to address the challenges facing state and local government IT clients. That, in turn, introduces a different model of conducting a competition.

The CPC is a formal competitive solicitation process that asks for proposals from prospective suppliers to perform a proof of concept for a good or service with the option, at the state’s discretion, to enter a full implementation contract after the completion and evaluation of the pilot. The state may select one or more of the submitted proposals and award a contract(s) to cover the proof-of-concept period. Once the proof of concept(s) is evaluated, negotiations with the selected vendor may be conducted for a new implementation contract. The CPC solicitation itself is a much smaller document than is typically issued. Lengthy statements of work or requirements are discouraged to save time and, more important, give potential suppliers room to provide their best solutions. Since there is a period when end users get to test the solution in their everyday work, there is minimal downside. Detailed statements of work may still be included in any full implementation contract. Still, because the competition portion is completed, the supplier can assist in drafting them without running afoul of conflict-of-interest policies. The criteria used to judge the proposals and the finished proof(s) of concept(s) are also different. Rather than a score based on how well a supplier answered each section of the solicitation, proposals are evaluated in a more holistic manner. Though subjective evaluation is often avoided in public procurement in favor of elaborate point systems, as long as the rationale is sound and well documented, it can produce a better outcome. The CPC is a very different type of public sector solicitation. The competition and final contract development are farther apart in time, the

COOPERATIVE PURCHASING Cooperative purchasing offers public entities access to procurement resources beyond what their own resources can deliver. By taking advantage of contracts established and made available by other public entities and cooperatives, the public procurement official can access contracts that leverage multiple organizations’ buying power. In addition, using these contracts reduces the need for repeating the procurement activities already performed by others. This increases access to suppliers and streamlines the procurement process without increasing headcount. Chapter 17 (Cooperative Purchasing) provides additional information about cooperative purchasing resources.

OUTSIDE TECHNICAL ASSISTANCE Outside technical assistance through third parties is a valuable resource for public entities. Contracting with a firm with expertise in the type of procurement, solution, or technology needed can help educate the IT project team, improve the written solicitation, and enhance the overall procurement process. What is learned during one procurement can often be applied to many more, spreading the benefit of the expenditure over many projects. However, procurement staff

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should ensure that any third party that provides outside technical assistance for the IT project team be precluded from providing offers for any solicitations or projects to which they supported the agency in order to avoid the appearance of unfair advantage or favoritism. The use of outside advisors can provide a knowledge base to a project team that may otherwise lack specific experience with the solution sought. Finding the right advisor can be as easy as consulting colleagues who have implemented similar solutions with third-party assistance.

ALTERNATIVES TO BUYING IT HARDWARE AND SOFTWARE Sometimes, the IT solution is not to buy hardware or software but to take a different approach. Some of these are discussed in the following paragraphs.

Lease versus Purchase Leasing is an alternative to the outright purchase of technology. A NASPO paper entitled Tech Next: Leasing vs. Owning Hardware and Software highlights the issues that arise in each case by comparing the two approaches to acquiring the technology.22 Leasing and seat management, discussed later in this chapter, have been used as feasible, cost-effective alternatives to purchasing IT hardware, particularly in desktop and laptop computers. When considering procurement options, public entities should compare the advantages of purchasing information technologies outright, leasing the hardware (no permanent ownership), or seat management/managed services contracts (a managed service form of contracting for IT). It can be challenging to compare leasing, seat management, and outright purchasing due to the unique costs or services that each option

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presents. There are risks and benefits with all three procurement options. A direct purchase can be the simplest way to obtain an IT asset, but additional costs should be considered to determine the total cost of ownership.23 As part of the evaluation process, the terms and conditions of the purchase should be carefully examined to identify potential additional costs. Some of the questions that should be asked include: • Are the hardware warranty terms clear, especially the length of the warranty and the conditions describing how and where maintenance will be performed and by whom? • Will additional commodities need to be procured to maintain productivity while a hardware unit is being serviced? • Is the user agency responsible for shipping hardware to be repaired? Public entities should consider the value of expending additional monies for an extended maintenance contract. It is not unusual for the annual cost of maintenance contracts to reach 20% of the original purchase price. The useful life of most IT equipment is currently five-plus years. That equates to spending double the original equipment cost over five years and does not consider any technology refresh due to changes in technology capabilities. Not all leases are created equal. The public entity should carefully evaluate lease agreements, including a review by its attorneys, and add language to the agreement to protect the user agency and the public entity. Supplier standard lease agreements typically favor the lessor. Lease/lease-purchase contracts are another beneficial option if a public entity has a limited budget for purchasing hardware. Spreading technology procurements into consistent annual or monthly payments can improve the public entity’s ability to acquire needed technologies. Government executive management

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and finance personnel can best determine the proper accounting practice based on relevant statutes and the public entity’s practices. As in the case of a purchase, in-depth research is required to ensure that the public entity is acquiring the correct tool set to satisfy its business needs. The terms and conditions of warranty coverage are just as important for leases as for purchases. For example, the lease should allow for financial relief if a warranty repair by the manufacturer takes too long to complete. Also, the public entity should consider the value of the warranties and extended maintenance agreements available within the contract. Chapter 10 (Contract Management and Administration) discusses warranties in more detail. Leasing usually provides the advantage of allowing for refreshing the technology. Negotiating a three-year lease will generally allow public entities an easier path toward staying current with technology changes. However, long-term planning is required to determine future cycles of lease renegotiation, change management, and training. Another critical point to consider in the case of a lease is what will happen to the equipment at the end of the lease. Technically, the contractor leasing the equipment (lessor) still owns it. Public entities desiring to negotiate a lease buyout at the end of the lease term should be careful to obtain a reduced fair market or residual value. It is important in the original lease agreement to negotiate the expense of returning the equipment to the lessor at the lessor’s cost. Properly packing and shipping retired equipment can add significant costs for one party or the other in a lease. Many of the same considerations that exist when purchasing equipment are still present, such as: • Who maintains operating system monitoring and patching? • Is there a budget for hardware upgrades? • Can those upgrades be included under the lease?

• If no maintenance contract is purchased, who supports these hardware units? • What is the annual cost of maintenance support? • Does the public entity have the expertise to provide such support? • What is the estimated useful life of the hardware units? • How many backup hardware units should be purchased and stocked to keep affected staff productive?

Seat Management/Managed Services Contracts Seat management and managed services contracts go beyond simply leasing IT assets. They encompass outsourcing the complete management of assets, from inventory to software distribution to enterprise-wide technology updates. Seat management is a managed service form of contracting for IT that is structured around the functional requirements of organizations. This creates an environment where the supplier manages the technology supporting the public entity so that the public entity can concentrate on supporting its constituencies and core mission. Seat management contracts often require challenging negotiations and reviews. Some seat management agreements are like leases with additional hardware support built into the agreement. Others may provide hardware and a whole suite of services, such as productivity software and help desk support. These types of agreements also help public entities, particularly small ones, face challenges in recruiting, training, and retaining skilled IT staff. These costs should be considered as potential cost avoidance factors when estimating the total cost of ownership of seat management contracts. Transferring these responsibilities to a contractor may be the public entity’s best solution for acquiring reliable IT hardware and software to conduct daily business.

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Negotiations with a supplier should include the specific technology offered, the roles and responsibilities of all parties, and service levels of support. Service levels are discussed in Chapter 10 (Contract Management and Administration). Significant research on specific public entity requirements should be undertaken in preparing to negotiate an agreement with a contractor. Like lease/lease-purchase agreements, seat management/managed services contracts can allow public entities to divide high-dollar IT purchases into smaller, consistent annual or monthly amounts. Warranty, maintenance, and service level agreements (SLAs) are crucial considerations in developing a seat management contract. Transition planning is also required to address the role of suppliers and the public entity staff’s role in properly handling equipment at the end of the agreement. Seat management tends to be the most expensive IT procurement strategy over time due to the broader range of services supplied under the agreement. In evaluating seat management contracts, public entities should consider any savings or cost avoidance that might be achieved through outsourcing. When calculating savings and cost avoidance, the analysis should consider existing and future employee costs, training, and maintenance.

Cloud Services Services provided through the cloud include: • SaaS: a software distribution model in which a third-party provider hosts applications and makes them available to customers over the Internet. SaaS delivers applications such as e-mail, customer relationship management, and collaboration software. • PaaS: a cloud computing model in which a third-party provider delivers hardware and software tools—usually those needed

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for application development—to users over the Internet. It delivers an application framework that supports design and development, testing, deployment, and hosting. PaaS enables public entities to develop custom applications on one platform, which then easily deploy to many hosting environments that support the same platform based on various pricing and SLA models. • IaaS: a structure that delivers computing hardware, storage, networking, and other managed services such as backup, monitoring, and virtual private network.24 • Cloud broker: a third-party individual or business that acts as an intermediary between the purchaser of a cloud computing service and the sellers of that service. The broker helps to normalize the multiple services available, creating an apples-toapples comparison in pricing and functionality as much as possible. In addition, the cloud broker can provide a single, unified web interface so that end users can design, procure, provision, monitor, and govern the services. There are currently four different deployment models for cloud computing: 1. Public cloud: the provider delivers common IT capability in a shared environment with great scalability.25 Demands from multiple customers with similar requirements are pooled together to optimize physical resources. Access is via an on-demand public network capability, such as the Internet. 2. Private cloud: IT resources are dedicated and customized with the capabilities, resources, and administration required by a specific organization. Access is generally through a secured or managed network. Private clouds require a data center location, IT physical resources, virtualization, and operations team support. A virtual private cloud is characterized by

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having a specific capacity in a public cloud carved out and dedicated to a particular organization and made available through a securely managed virtual network. 3. Hybrid cloud: the provider blends private and public cloud features, with combination preferences usually driven by a particular market niche or consumer group based on an application or system with partial needs for highly secure or nonvirtual resources. 4. Community cloud: a specific community of consumers from organizations that share the same concerns. It is vital to research the deployment models available for cloud computing. Knowing the options for deployment will maximize the capabilities of the solution. There are also different types of cloud suppliers: • Direct service provider (DSP): the supplier maintains the supplier-designed, supplier-built data center. There are basic DSPs that offer basic services and boutique DSPs that offer enhanced and flexible services. Boutique DSPs often provide more flexibility regarding SLAs and customer protections. Basic DSPs generally provide access controls (such as a selfserve portal), but customers are responsible for their own related services (such as encryption and backup). • Reseller: the third-party provider that offers DSP(s) access via an already established contract with DSP(s). Resellers generally provide enhanced support for their DSP services and typically provide access to a single DSP. • Cloud broker: similar to resellers, except they generally offer multiple DSP options in addition to value-added services such as aggregated billing and a service portal to various DSPs. Cloud brokers can also provide online tools to facilitate supplier comparisons, establish contracts with cloud service suppliers, and provide systems to help agencies manage and operate the

cloud services from multiple service suppliers simultaneously. DSPs can also serve as cloud brokers. Public entities should review their workload and place it in the most appropriate cloud environment. Development and testing records or data without personal identifying information are good candidates for the public cloud. A hosted private cloud offers physical separation of data, which may be more appropriate for applications that include confidential data. Potential users should consider starting with a pilot project—for instance, putting a single application or public data with no personal information in the public cloud as a first step. Comparing cloud pricing models can be difficult due to variables in product and pricing offerings. Some suppliers offer complete IT solutions, such as hardware and software infrastructure, middleware platforms, and application system components, while others only provide pricing for each service. Various pricing models include: • On-demand or pay-as-you-go pricing models: provide hourly-based pricing for virtual resources based on various combinations of central processing units (CPUs), memory, storage, and network capacity. The resources are billed after they have been provided and allocated for a designated time. • Subscription pricing models: also known as monthly package pricing or reserved instance pricing, involve a prepayment for some fixed capacity. This may be a monthly or yearly subscription for the fixed capacity, whether it is used or not. The advantage is lower per-hour or per-capacity pricing than the on-demand model since it is prepaid. • Reserved capacity: also known as virtual private dedicated capacity or utilized capacity, pricing models define a specific total amount of CPUs, memory, storage, and network capacity that is dedicated

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and always available to the customer. The advantage is that it provides consistent pricing on a month-to-month basis. It is best to understand the type of data used in the application and determine which applications are appropriate for the cloud. Cloud services may be a good fit for some applications within the public entity but may not be suitable for others. In general, cloud services should be considered for applications that: • Require rapid deployment • Need technology refresh and/or the end of contractual obligations to a legacy environment • Have variable storage needs • Need bursting capability that allows cloud services to exceed planned or allocated thresholds when capacity is maximized • Use virtual services rather than physical servers • Use federal funding with cloud-first recommendations26 The public entity should consider any specific application requirements or compliance regulations they entail. It is essential to identify all applications’ compliance requirements, such as security, privacy, or accessibility. The application being considered for the cloud will determine the level and type of security required. Compliance requirements may exist depending on the type of data being stored. Comparing Costs for Various Approaches There are many different methods for comparing various IT solutions. Hard costs for hardware, software, and maintenance are relatively simple to calculate. Other measures, such as cost avoidance, are more difficult to quantify. A decision matrix can be a helpful tool for comparing IT procurement options. It presents a side-to-side comparison of procurement options and factors for consideration. A decision matrix should only be considered a starting point for IT procurement deliberations.

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CONTRACT TERMS AND CONDITIONS Terms and conditions define the relationship between the parties and, ideally, allow both parties to understand the risks of the contract and manage them to the point that is known and acceptable to both parties. IT terms and conditions have several key elements that make them more complex than other, more mature types of contracting. To protect their interests, public entities have typically applied a single set of consistent terms and conditions across all contracts to frame the relationship between the state or local government and the supplier, and to protect the public’s interests. But these terms and conditions have not kept pace with dynamic IT issues, such as intellectual property ownership. Another factor affecting terms and conditions in IT contracts was the passage by Congress in 2002 of federal legislation known as the Sarbanes-­Oxley Act of 2002 (SOX).27 SOX is aimed at reducing the possibility of fraudulent accounting activities by publicly held corporations. Publicly held IT contractors have a fiduciary duty to shareholders and legal reporting requirements for assets and liabilities, including their contracts. Under Section 302 of SOX, an executive of a publicly held company is required to have systems in place to identify material information that should be disclosed to investors and other third parties who rely on the financial statements of publicly traded companies. Since most IT suppliers with which public entities deal are publicly held, SOX requires them to understand and quantify the risks and potential liability under a public entity’s terms and conditions. IT suppliers tend to resist terms that, for instance, require them to accept all costs related to a data security incident. This is typically

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included in a limitation of liability clause, which will be discussed later in this chapter. Sourcing methods that require mandatory compliance with all terms and conditions and prevent discussion or negotiation of terms will typically restrict competition. Contractors with good solutions and strong expertise may be prevented from executing contracts because of terms and conditions they cannot accept. Lack of competition is unhealthy, and awards to contractors that cannot meet contractual responsibilities result in marginal outcomes and a false sense of protection of the public entity’s interest. For major IT system procurements, it is unlikely that a standard template of terms and conditions will fit without extensive modification. A complete risk assessment and mitigation framework should be completed before developing the terms and conditions. This will help the state understand the likelihood of risk for the type of work being completed. It also allows the project team to decide how risk will be managed, for example, by asking whether the risk will be accepted, mitigated, or transferred. Any approach to risk management has trade-offs. A thorough understanding of the risks and tradeoffs is a prerequisite to establishing or negotiating terms and conditions. Both California and Oregon reviewed their IT terms and conditions in collaboration with the industry. These efforts resulted in more market-reasonable terms and conditions for both parties. The first step in reviewing the viability and practicality (feasibility) of a public entity’s terms and conditions is to identify all the stakeholders within the public entity who have decisional authority over terms and conditions. The next step is to assess how viable the terms and conditions are in the marketplace and whether they affect securing top-notch IT responses, realizing that the public interest should still be protected. If changes are needed, an effective procedure would be to examine what works well within other public entities or, if undertaking a

review and rewrite, to engage industry trade associations and public entity stakeholders to review and revise the terms and conditions to make them more market-reasonable.

Key IT Terms and Conditions Intellectual Property Many public entities believe, or want to believe, that they are legally required to own the intellectual property (IP) of the software and processes used in systems they purchase or cause to be designed and installed at the public entity’s cost. Contractors typically use third-party software for which they cannot give IP rights to the public entity because they do not own the IP. Even if they did, they often refuse to give this right away for the life of the system or contract. One best practice for resolving this issue is for the contractor to grant a license to use the IP for the purposes intended under the contract. This allows the public entity to obtain the performance it needs under the contract and enables the contractor to retain or pass through the license. A second element of dealing with IP is that the public entities need to be indemnified against an action or claim by an outside party that the contractor providing the software or process does not have the right to offer it to the public entity because it is the IP of that outside party. A best practice is to require the contractor to indemnify the public entity from those thirdparty IP claims. Limitation of Liability IT project implementations through contracts can be high risk. A major IT project failure is always highly visible. As a result, parties to an IT contract should understand their own and the other parties’ responsibilities for the success of the contract. The performance deliverables and measures of successful performance should be clear. What are their liabilities to the public entity if the contractor fails in some fashion? There are essentially three types of failures in IT contracts:

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1. Failure to perform as the contract requires (contract default) 2. Failure to take reasonable care in performing the contract (negligence) 3. Failure to protect information or access to information that is confidential by law (data incidents or breaches) If the contract is written correctly, such failures will also constitute a failure to perform the contract’s material terms. In IT contracts, damages for data incidents or breaches are generally treated separately from other contract defaults or contractor negligence, even if the incident or breach is due to contractor negligence or default. Contract damages, damages for negligent behavior, and damages due to data incidents or breaches are all considered separately. IT contractors will invariably want to limit their damages for contract default to what is known as direct damages and to be immune from responsibility for the cascading effects and damages of that default on the public entity—damages such as consequential, incidental, or punitive damages. Additionally, IT contractors will generally not agree to unlimited liability in cases in which their action or inaction causes authorized access—actual or suspected—to information that is confidential by law. Damages in these situations come in the form of costs to the public entity of forensic services to detect the problem, breach notification to the victims, call center services, credit monitoring, and legal fees. IT contractors do not generally balk at liability for direct contract damages, but they will want the public entity to waive any entitlement to anything but direct damages. They will also want a cap on liabilities relating to data incidents or breaches and perhaps even on negligence; for example, one of their employees on-site at the public entity negligently injures one of that entity’s employees. Given the refusal of the most experienced and seasoned IT contractors to take on unlimited amounts of liability, the public entity will have to assess the likelihood of the

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risks and arrive at a reasonable amount to protect the public entity’s interest. For major IT projects, determining the risk and potential costs can be difficult, and in some cases, impossible, for either the public entity or the IT contractor to quantify. From the public entity’s viewpoint, the simplest solution is to require the contractor to assume unlimited liability. A good compromise is setting a cap on some types of liabilities. The cap amount should be sufficient to reasonably address the risk of the type of damage on which the cap is placed. This often means that both parties give something up in terms of maximum protection. A commonly used cap is twice the amount of the fees to be paid under the contract. Approaches like this seem to be a fair and reasonable way to apportion risk and mitigate damages in the event of a breach or negligence and provide a known definite amount on which both parties can agree. It is important to remember that this protects the state only when a contractor fails to perform or executes below-standard acts. It does not protect the state from actions or inactions attributable to the public entity’s obligations under the contract. A public entity should conduct rigorous project management throughout the project to exercise and document its timely decision making and fulfillment of its contractual obligations. Beyond standard contract terms, IT involves complex challenges in understanding and negotiating software licensing agreements and subscription terms and conditions. However, licenses should be negotiated with the same prudent diligence as any other contracts to mitigate risks, particularly related to data protection and audit issues.

CONTRACT MANAGEMENT Suppliers should be held accountable for their performance. Contract management goes beyond project management. Contract monitoring, acceptance, change order management, and

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dispute resolution all fall within the realm of contract management. At times, program staff or project managers may not have the incentive to enforce contract terms because of potential negative impacts on the project schedule or the risk of missing project milestones. However, those risks are too high; thus, contract management should be vigorous, as discussed more broadly in Chapter 10 (Contract Management and Administration). California’s Office of System Integration’s website contains a wealth of information about the project management life cycle, including a contract management plan and an array of tools that may be tailored to meet the needs of state and local government.28 The keys to effective contract administration are discipline, documentation, and timely, effective communication. Often, program staff will have considerable contract administration responsibility. Training may be needed so that the contract is clearly understood and the roles and responsibilities explained so that a systematic, consistent approach to contract management is achieved. Properly training contract administrators and using automated systems with template management, document storage, and retrieval and approval workflow is key to effective contract management programs that drive success and contract savings, especially in IT. Timely decisions are essential when managing large, complex contracts. Governance also plays a key role in contract management, especially when issues need to be escalated for resolution. Earlier portions of this chapter and Chapter 10 (Contract Management and Administration) provide helpful information on contract management.

Quality Assurance Quality assurance planning is a key component in any IT project. Chapter 10 (Contract Management and Administration) discusses this topic. There are several approaches to quality assurance for procurement. Independent observers may be contracted to provide oversight and assurance that the procurement is being conducted in a way that meets the statutory requirements of the public entity, or an internal quality assurance team may be formed. Independent verification and validation (IV&V) ensure that a project, service, or system meets specifications and requirements and fulfills its intended purpose. The Maryland Department of Information Technology publishes an enterprise policy that addresses the rigors of IV&V as well as goals and methods for procuring IV&V services.29 An internal quality assurance team can be used effectively to ensure that the procurement is conducted ethically and in accordance with public procurement laws and regulations and that all interactions with potential offerors are conducted fairly and ethically. Using such a team also sends a clear message to the suppliers, evaluators, and other stakeholders that the state is dedicated to ensuring an ethically conducted procurement. Responsibilities may include weekly team member meetings throughout the procurement duration to address any procurement-related issues such as conflict of interest, procedural concerns, and other issues affecting the handling of the procurement. Team meetings may also include a key member of the IT project team to discuss specific issues. All team actions should be documented and placed in the procurement file to support how and why decisions were made.

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CONCLUSION IT procurements are challenging for any large entity, even private ones, because of their complexity and the opportunities they present for something to go wrong. They are even more of a challenge in the public sector because traditional methods of purchasing commodities and services, as they have been practiced for a long time, do not always work well in the case of large-scale IT procurements. The innovation, groundwork, and teamwork needed to successfully conclude a major IT procurement require public procurement officials to be at the table during the planning stages. As this chapter has shown, they also require those officials to think creatively, using their full legal authority to generate processes within the law that permit full consideration of innovative contractor solutions.

ENDNOTES 1. Margaret McConnell, “The Process of Procuring Information Technology,” Public Contract Law Journal, 25, no. 2 (1996): 379– 392, http://www.jstor.org/stable/2575​4218. 2. “Executive Order N-04-19,” Executive Department State of California, last modified January 9, 2019, https://​www​.gov​.ca​.gov​/wp​ -co​n​t​e​nt​/up​l​o​a​ds​/20​19​/01​/1.8.19​-EO​-N-04​ -19​.pdf. 3. See “Procurement: Avoiding Risky Business,” National Association of Chief Information Officers, last modified September 4, 2013, https://​www​.na​s​c​io​.org​/re​s​o​u​r​ce​ -ce​n​t​er​/re​s​o​u​r​c​es​/pr​o​c​u​r​e​m​e​nt​_av​o​i​d​i​ng​ _ri​s​ky​_bu​s​i​n​ess/. 4. Stakeholders, as used in this chapter, means anyone who is involved in or affected by a course of action. Since IT within a public entity affects so many—citizens, user and user agencies, suppliers, media, legislative bodies, government executive leadership such as governors and mayors, public procurement personnel, and public IT personnel, to name some of those affected, this chapter

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uses the term stakeholder to encompass all of whom rely on or who are touched by a state or local government’s IT system. 5. See “Procurement: Avoiding Risky Business,” National Association of Chief Information Officers. 6. “What’s the Difference Between Cybersecurity and Information Security?” The University of Alabama at Birmingham, accessed May 2, 2023, https://​bu​s​i​n​e​s​s​d​e​g​r​e​es​.uab​ .edu​/bl​og​/wh​a​ts​-the​-di​f​f​e​r​e​n​ce​-be​t ​w​e​en​-cy​ b​e​r​s​e​c​u​r​i​ty​-and​-in​f​o​r ​m​a​t​i​on​-se​c​u​r​i​t​y/​#:~:​t​ e​x​t​=​As​%20​d​e​f​i​n​ed​%20​by​%20​t​he​%20U​.S.​ ,%2C​%20​a​nd​%20​a​v​a​i​l​a​b​i​l​i​ty​%20​of​%20​i​n​f​ o​r​m​a​t​i​on​.%E2​%80​%9D. 7. “Glossary,” National Institute of Standards and Technology, accessed February 22, 2023, https://csrc.nist.gov/glossary/term/sp​ yware. 8. “What Is Cybersecurity?” CompTIA, accessed February 22, 2023, https://​www​.co​ m​p​t​ia​.org​/co​n​t​e​nt​/ar ​t​i​c​l​es​/wh​at​-is​-cy​b​e​r​s​e​ c​u​rity. 9. “What Is Cybersecurity?” CompTIA. 10. Cliff Nilson (CPO Florida), Risk Is Inevitable presentation, presentation (2022). 11. “Who We Are,” StateRAMP, accessed February 22, 2023, https://​st​a​t​e​r​a​mp​.org/. 12. “StateRAMP Frequently Asked Questions,” StateRAMP, accessed February 22, 2023, https://stateramp.org/faqs/. 13. “Buyer Be Aware: Integrating Cybersecurity into the Acquisition Process,” Center for Internet Security, NASCIO and NASPO, last modified May 2021, https://​www​.na​s​po​.org​/ pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 14. “Cybersecurity Considerations for Procurement,” Federal Energy Management Program, accessed February 22, 2023, https://​ www​.en​e​r​gy​.gov​/ee​re​/fe​mp​/cy​b​e​r​s​e​c​u​r ​i​t y​ -co​n​s​i​d​e​r​a​t​i​o​ns​-pr​o​c​u​r​e​ment. 15. Bernard Golden, “What Gartner’s Bimodal IT Model Means to Enterprise CIOs,” CIO, last modified January 27, 2015, https://​www​ .cio​.com​/ar​t​i​c​le​/25​1​1​39​/wh​at​-ga​r ​t​n​er​-s-b​i​ m​o​d​al​-it​-mo​d​el​-me​a​ns​-to​-en​t​e​r ​p​r ​i​se​-ci​os​ .html.

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16. A Maintenance Management Information Systems is a mechanized claims processing and information retrieval system for Medicaid that is required by the federal government. 17. “Modular Procurement: A Primer,” NASPO, last modified September 2023, https://​www​ .na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 18. “Procurement Policies,” Virginia IT Agency, accessed February 22, 2023, https://​www​ .vi​ta​.vi​r​g​i​n​ia​.gov​/su​p​p​ly​-ch​a​in​/scm​-po​l​i​c​i​es​ -fo​rms/. 19. “Designing for Agility: Advancing IT and Procurement Modernization,” NASCIO and NASPO, last modified September 2023, https://​www​.na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​ u​r​ces/. 20. “ What Is the Difference Between a Pilot Project and a Trial Implementation?” KAI Partners, last modified April 19, 2017, https://​ ka​i​p​a​r ​t​n​e​rs​.com​/di​f​f​e​r​e​n​ce​-pi​l​ot​-pr​o​j​e​ct​-tr​i​al​ -im​p​l​e​m​e​n​t​a​t​ion/. 21. “George Cronin Awards for Procurement Excellence,” NASPO, accessed February 22, 2023, https://​www​.na​s​po​.org​/pr​a​c​t​i​c​al​ -gu​i​de​-re​s​o​u​r​ces/. 22. “Tech Next: Leasing vs. Owning Hardware and Software,” NASPO, last modified September 2023, https://​www​.na​s​po​.org​/pr​a​c​t​i​c​ al​-gu​i​de​-re​s​o​u​r​ces/. 23. A comprehensive total cost of ownership analysis is defined in Chapter 15, Sustainable Procurement. 24. “A virtual private network (VPN) is a technology that creates a safe and encrypted

connection over a less secure network, such as the internet.” Alexander Gillis, “What is a VPN,” Tech Target Network, last modified September 2021, https://​se​a​r​c​h​n​ e​t ​w​o​r​k​i​ng​.te​c​h​t​a​r​g​et​.com​/de​f​i​n​i​t​i​on​/vi​r ​t​u​al​ -pr​i​v​a​te​-ne​t ​work. 25. Scalability “is the ability of a computer application or product (hardware or software) to continue to function well when it (or its context) is changed in size or volume in order to meet a user need. Typically, the rescaling is to a larger size or volume.” “Scalability,” Tech Target Network, last modified June 2021, https://searchdatacenter.techtarget​ .com/definition/scalability. 26. See Federal Government’s Cloud First Policy, “Federal Cloud Computing Strategy,” Office of the Chief Federal Information Officer, accessed February 22, 2023, https://​ www​.wh​i​t​e​h​o​u​se​.gov​/wp​-co​n​t​e​nt​/up​l​o​a​ds​ /20​19​/06​/Cl​o​ud​-St​r​a​t​e​gy​.pdf. 27. Sarbanes-Oxley Act, Pub. L. No. 104-204 §116 Stat. 745 (2002). 28. “Information and Resources,” State of California Office of Systems Integration, accessed February 22, 2023, https://​www​.osi​ .ca​.gov​/In​f​o​r​m​a​t​i​on​_and​_Re​s​o​u​r​c​es​.html. 29. “DoIT Independent Verification and Validation (IV&V) Master Contract,” Maryland Department of Information Technology, accessed February 22, 2023, https://​do​it​.ma​r​ y​l​a​nd​.gov​/ep​mo​/Pa​g​es​/MI​T​DP​/ivv​.aspx.

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RECOMMENDATIONS AND CONSIDERATIONS • State and local government officials and the central procurement office should support professional certification and encourage public procurement officers to qualify for it. • State and local government officials and the central procurement office should promote a culture of lifelong learning by encouraging and supporting public procurement staff participation in training programs and in membership or affiliation in one or more procurement professional associations. • The central procurement office should maintain a current library of and subscriptions to procurement materials such as those addressing technology, contract law, management theories, and procurement theory. • The central procurement office should provide career paths within the public procurement profession by offering continuing management and administrative experience for public procurement officers.

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Procurement laws, policies, and organizational structure should provide the framework for a coherent public procurement process that is transparent and responsive to the public’s highest expectations of integrity. However, the process will succeed only through the efforts of the public procurement professional. This chapter discusses the nationally recognized standards for assessing the readiness of an individual to serve as a public procurement professional. The role of state training and certification programs is also explored. Finally, the chapter addresses professional development trends and available resources.

THE CASE FOR PUBLIC PROCUREMENT AS A PROFESSION The Oxford English Dictionary defines profession as follows: An occupation in which a professed knowledge of some subject, field, or science is applied; a vocation or career, especially one that involves prolonged training and a formal qualification.1 Publications like this textbook, the development of academic degrees in public procurement, and the increasing recognition of the importance of public procurement certifications have moved public procurement careers closer to meeting that traditional standard of a profession. And, most proudly, it is the practitioners of this career, rather than legal or other outside mandates, who are the driving force in advocating for and creating structures to establish public procurement as a profession. Professions are built around bodies of knowledge and competency like those maintained by the Universal Public Procurement Certification Council® (UPPCC®). UPPCC has developed two bodies of knowledge and competency: one

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applicable to the Certified Public Procurement Officer® (CPPO®) certification,2 and another that applies to the Certified Public Procurement Buyer® (CPPB®) certification.3 These are discussed in more detail later in this chapter. Uniformity of criteria is especially important if the practitioner’s work is to be recognized as a unique discipline, and the UPPCC bodies of knowledge and competency are accepted standards in state and local government public procurement. All who practice the profession, regardless of the place in which they may be practicing, should uphold those principles and standards consistently. Principles of public procurement differ in significant ways from those that apply to the procurement process within commercial entities. Public procurement involves spending taxpayer dollars. Thus, there is a broader and higher level of stewardship that public procurement officers must exercise.

PROFESSIONAL CERTIFICATION According to the Human Resource Management Institute (HRMI), the establishment of a certification program is a voluntary action by a professional group to institute a system for granting recognition to professionals who have met a stated level of training and work experience. Certified individuals have demonstrated that they have met the standards of the credentialing organization. Those who are certified are entitled to make the public aware of their credentialed status by adding the certification initials after their name in all forms of address, as well as their professional resume.4 Certification—both national- and state-­specific— can have many benefits for the procurement office, its staff, and the profession itself. For the procurement office, encouraging—or in some cases requiring—certification demonstrates a knowledgeable and capable procurement staff.

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Supporting professional certification has been an ongoing priority for the National Association of State Procurement Officials (NASPO) since 1978 when it helped charter the UPPCC as an independent entity formed to govern and administer the CPPO and CPPB certification programs. The UPPCC is composed of a governing board as well as a Board of Examiners whose primary responsibility is to develop and administer exams.

Benefits of Certification Table 19.1 shows the potential benefits of certification to both the public procurement official and the public procurement office.

Certification by the Universal Public Procurement Certification Council UPPCC Certifications The UPPCC certifications signify that the certified person demonstrates a standard of competency in public procurement. They also indicate to the public that, having mastered a body of knowledge and competency, the certified person

should be able to make sound decisions that reflect maximum value for the taxpayer’s dollar. With over 14,300 professionals certified in the United States, Canada, and other countries, the CPPO and CPPB programs are highly respected among procurement professionals and employers involved in public procurement. It is not unusual today to see a CPPB or CPPO certification as a required, or at least desired, qualification in job announcements for public procurement officials at a state, county, or municipal government level. When the individual meets the UPPCC eligibility requirements and successfully passes the exam, the UPPCC issues a credential to the newly certified person that is valid for a period of five years. After that term, the certified person must renew the credential for an additional fiveyear period through the UPPCC recertification process. The UPPCC programs are designed specifically for state and local government public procurement professionals. Only those individuals who have government-specific procurement

Table 19.1  Potential Benefits of Certification Benefits to the Public Procurement Officer

Benefits to the Public Procurement Office

• ​Professional recognition • ​Personal satisfaction • ​Increased knowledge and skills • ​Continued professional development opportunities and a defined path for growth • ​Increased credibility with suppliers • ​Demonstrated commitment to the profession • ​Portability of professional certifications, which are earned by the individual and go with them wherever their professional path may take them • ​Prominence of professional certifications on resumes—often a factor in hiring and salary decisions

• ​Increases the professionalism, skills, and accountability of procurement staff • ​Helps foster ethical behavior of staff • ​Produces better purchasing and contracting outcomes in the state central procurement office and agencies by improving competencies of employees with purchasing and contracting responsibilities • ​Promotes responsible expenditure of public funds that complies with state purchasing laws and rules • ​Ensures the skills and competencies of employees • ​Promotes recognition of staff as purchasing professionals • ​Provides professional development opportunities to staff and a defined path for continuous growth • ​Provides objective benchmarks for evaluating skills

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experience are eligible. There are three essential components for eligibility:

are allotted a maximum of 3.5 hours in which to complete the examination.

1. Formal education and degree from a certified institution 2. Public procurement experience 3. Coursework/training in procurement

The UPPCC website provides a wealth of helpful information about the examination process, including a list of books and other reading materials that will assist the applicant in preparing for the appropriate exam.7

Unlike most procurement certification programs, the UPPCC requires substantial work experience within the public sector. This work experience must be complemented by coursework/training specifically within the field of procurement.5 Eligibility Requirements The minimum eligibility requirements for UPPCC certification are listed in Table 19.2.6 Testing and Bodies of Knowledge and Competency UPPCC exams measure professional competence and the understanding of the bodies of knowledge surrounding public procurement. Each exam consists of 175 multiple-choice questions (160 scored questions and 15 pretest or unscored questions). The exams are administered in a network of professional testing centers in a computer-based format. Candidates

Other National Certifications While the UPPCC certifications are highly recognized as the premier independent certifications in public procurement and are often given significant weight in hiring or salary decisions, there are other national certifications of value to procurement professionals, although they are less specifically oriented toward state and local procurement. The Institute for Supply Management (ISM) and the National Contract Management Association (NCMA) offer well-regarded professional certification programs. Institute for Supply Management Founded in 1915, the ISM has over 50,000 members across 100 countries, and its mission is to “advance the practice of supply management to drive value and competitive advantage,

Table 19.2 Certified Public Procurement Officer (CPPO)

Certified Public Procurement Buyer (CPPB)

• ​Completion of a 2-year, post-secondary educa• ​Bachelor’s Degree tion program that results in a degree, diploma, or • ​96 contact hours of procurement-related coursecertificate (optional ) work/training completed within the previous 10 • ​72 contact hours of procurement-related training/ years from the application submission date education completed within the previous 10 years • ​5 years of procurement experience completed from the application submission date within the previous 10 years from the application submission date, of which a minimum of 3 years is • ​5 years of procurement experience completed within the previous 10 years from the application in a management or supervisory position. A minisubmission date (if 2-year, postsecondary degree mum of 50% of required years’ experience must be held, minimum requirement is 3 years of procurein the public sector (remaining experience may be ment experience). A minimum of 50% of required from either public or private sector) years’ experience must be in the public sector (remaining experience may be from either public or private sector)

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and contribute to a prosperous, sustainable world.”8 Its primary focus is on commercial procurement and supply management. ISM offers two certifications, the Certified Professional in Supply Management (CPSM®) and the Certified Professional in Supplier Diversity (CPSD™).9 The CPSM® is intended for professionals with supply management experience. Applicants must meet the eligibility requirements set forth by ISM and must pass three exams. The certification exams focus on critical concepts in procurement and sourcing, negotiating, contracts, and leadership.10 The CPSD™ is more specialized than the CPSM® and is focused on the growing area of supplier diversity, which is also an important topic in public procurement. ISM describes supplier diversity as follows: Supplier diversity is a procurement practice that requires the purposeful inclusion of diverse suppliers in bid opportunities to increase their representation in sourced spend. It adds that: . . . building a culture that supports supplier diversity is action-oriented, requiring rethinking processes, measuring potential to include diverse suppliers, quantifying their contributions, and determining the economic impact on communities.11 Eligibility requirements for both certifications, along with exam descriptions, may be found on the ISM website.12 National Contract Management Association The NCMA was founded in 1959 and is dedicated to the professional growth and educational advancement of procurement and acquisition personnel worldwide.13 Much of what the NCMA concentrates on revolves around federal government procurement and contract management,

and its members include federal contractors, federal acquisition officials, and federal contract managers. The NCMA offers four certifications: the Certified Professional Contract Manager™, the Certified Federal Contract Manager™, the Certified Commercial Contract Manager™, and the Certified Contract Management Associate™.14

State Certification Programs The UPPCC bodies of knowledge and competency provide foundational elements in which all public procurement officials should be competent. Achieving the CPPB or CPPO designation demonstrates an individual’s comprehensive mastery of public procurement competencies and is a nationally recognized achievement. Many states, however, have also identified the need for their own internal certification programs that incorporate elements specific to practicing procurement in that state. State procurement officials, legislators, educators, and others are recognizing the need both to train the procurement workforce and then to assess their abilities. A well-developed training program in conjunction with certification through assessment allows for this. Although state certification has been in existence for several years, it is still a growing trend in state procurement offices. In response to the NASPO 2022 State Practices Survey, 25 states indicated they are responsible for administering a state certification program. These programs are tailored toward the role and expectations of a public procurement officer in that state. Certification in conjunction with ongoing training programs allows states to develop public procurement officials with specific knowledge about the laws and policies of a particular state. The body of knowledge being taught and assessed within most state certification programs is heavily influenced by the laws, rules/regulations, and policies of that particular state. However, UPPCC bodies of knowledge and competency can be utilized as the foundation from

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which to build a state training and certification program that incorporates national best practices as well as state-specific elements. State certification programs can be established through several different means, including legislation or internal office policy. As governors and state legislatures recognize the need for qualified public procurement professionals, legislation mandating training and certification programs becomes a popular course of action. There may also be mandates within the legislation or executive order that govern the creation of the program. The development and implementation of the actual program then typically becomes the responsibility of the central procurement office. State of Florida There are states with well-established certification programs, and still more in the process of developing or improving their programs. One model of a state-specific program is the Florida Certified Contract Manager (FCCM) curriculum.15 In 2012, the Florida Legislature implemented a statutory requirement for the Florida Department of Management Services (DMS) to develop a certification program for contract managers. The law currently mandates that contract managers responsible for managing contracts in excess of $100,000 annually become certified within six months after being assigned responsibility for such contracts.16 A needs assessment in June 2014 initially revealed that 2,400 state employees required this certification. To meet this task, the DMS, Division of State Purchasing, created a Professional Development Team (PDT) to develop and administer the new program. As of June 2021, Florida has over 5,200 active FCCM certifications and has awarded over 10,000 total certifications. To achieve their goal, the PDT utilized a blended training approach, including online modules, live instruction, and a final assessment. Certification

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now requires the successful completion of eight self-paced online training modules, a three-day instructor-led training, and a final assessment with a minimum score of 80 percent. The result of the PDT’s efforts was the creation of a new FCCM designation and the ability to certify up to 1,600 state user agency employees a year. Commonwealth of Virginia Another model program is the Virginia Institute of Procurement (VIP).17 It is an educational program for public procurement officials that offers certifications in two procurement specialties— purchasing and contract administration. The purchasing program offers three certification levels: (1) Virginia Contracting Associate, (2) Virginia Contracting Officer, and (3) Virginia Contracting Master.18 The contract administration program currently offers the Virginia Contract Administration and Risk Management certification.19 Participation in all programs is voluntary and open to employees of the Commonwealth of Virginia and employees of other public entities that meet the eligibility criteria of the certification they wish to pursue. The VIP is sponsored by the Virginia Department of General Services, Division of Purchases and Supply.

SOURCES OF PROCUREMENT EDUCATION Formal curricula to prepare individuals to be public procurement professionals are becoming more readily available as the importance of professionalism in public procurement is increasingly recognized. There is a rapidly emerging trend for institutions of higher education to offer public procurement certificate programs and even degrees.20 NASPO is partnering with several nationally recognized supply chain management21 programs at academic institutions to further support the development of these programs and degrees.22 In many cases, public procurement professionals have come to their careers unintentionally,

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with little or no prior training or education. The absence of an explicit discipline leading to a college degree in public procurement, however, does not mean there is no opportunity to obtain an education in public procurement.

Sources for Procurement Training There is no question that the experience of day-to-day operations contributes substantially to the growth of knowledge and expertise of a state or local government procurement official. As valuable as this experience is, it represents at best an unstructured form of education. It needs to be accompanied by formal training and instruction programs. In recent years, states have revised and strengthened their internal training programs. These training programs are often tied to state certification programs. State central procurement offices with their own certification and training programs are frequently responsible for providing training to their own staff and to user agencies as well. All 38 states responding to the NASPO 2022 State Practices Survey indicated that they provide procurement training to other state agencies. To meet these demands and provide effective curricula, states provide training on a variety of topics in multiple formats. Many states are increasingly implementing online elements for their training. In addition to the training provided in the central procurement office, professional procurement organizations are an excellent source of public procurement training and education. In early 2014, the NASPO Board of Directors undertook a strategic planning initiative. As a result, it recognized the need to create innovative strategies in education and professional development. To achieve this goal and deliver these needed resources to its membership, NASPO initiated Procurement U.23 Today, Procurement U includes multiple initiatives focusing on the promotion of national certification, development of higher education degrees/programs, educational

publications, and the delivery of public procurement courses. Utilizing a learning management system, Procurement U offers online courses open to all public procurement professionals.24 In January 2022, NASPO took the goal of creating accessible procurement courses for all public procurement professionals even further by making all NASPO-designed courses free to everyone.25 Procurement U courses cover many foundational procurement-focused topics as well as timely and emerging topics. The intent of these courses is to provide quality training in a flexible and accessible format. Self-study tools and resources designed to help with UPPCC certification exam preparation are also available at no cost through Procurement U.26

NCMA and NASPO Create a Contract Management Training Program In addition to the core catalog of courses and training offered by Procurement U, NASPO helped co-create a unique, collaborative training program with NCMA that was designed to improve the competence and capabilities of the state public procurement workforce. The Contract Management Organizational Capability (CMOC) program explores the NCMA Contract Management Standard™27 and the Contract Management Body of Knowledge® (CMBOK® )28 through the flow of the CMBOK Competency System and is augmented by state procurement best practices and Procurement U courses from NASPO. In early 2022, Procurement U and NCMA ran a pilot of the CMOC program with the Washington, D.C. Office of Contracting and Procurement and has since started introducing the program to other state central procurement offices around the country. The program consists of instructor-led training paired with online courses and materials, discussion board interaction, assessments, and a final exam, offering those professionals that successfully complete the program requirements the opportunity to

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earn a minimum of 45 continuing education contact hours in addition to their professional certificate of completion. These hours can be applied toward an individual’s goals of achieving professional certification from UPPCC or NCMA. NASPO and NCMA plan to continue growing this program to all interested states nationwide.29 In addition to everything offered through NASPO and Procurement U, there are other notable national associations that provide procurement training as well, including NCMA and ISM. ISM, for example, focuses on commercial procurement issues and training, and although NCMA’s training programs tend to be more federally focused, many of their resources may also be useful for state and local government procurement professionals.

Technology and Learning Effectiveness Public procurement officials should make decisions about how to develop and deliver professional development opportunities. These decisions require an understanding of the essential principles of adult learning, an entire field of study, in and of itself. The increased prevalence of media and online training, however, does not eliminate the need to use other accepted approaches to effective teaching. A good public procurement training program and an individual’s decisions about the format for their training should take these considerations into account. The subsequent paragraphs will summarize just a few key elements of adult learning for public procurement professionals to consider. Benefits and Considerations in Using E-Learning Tools According to the Association for Talent Development, e-learning is defined as a “structured course or learning experience delivered electronically and may sometimes be used more broadly as a catchall for any learning content

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delivered electronically.”30 There are important benefits and considerations to using e-learning tools for teaching public procurement officers. In their helpful guide for developing training, Telling Ain’t Training, Harold D. Stolovitch and Erica J. Keeps emphasize that technology helps extend the reach of training and improves efficiency.31 However, it is not a complete substitute for the application of learning to real-life situations and experiences. Telling Ain’t Training underlines the importance of providing immediate, practical skills and resources. While e-learning platforms can be interactive, other training approaches may better foster practical, active learning for some on-the-job procurement topics. For example, small group activities or peer-to-peer training can be designed for students or giving students tasks such as developing practical checklists (like procurement planning checklists) or action plans relevant to the student’s needs.32 E-learning platforms offer advantages in sequencing and dividing up formal courses, par­ ticularly for novice learners. They can be on-­ demand learning resources that permit students to engage the content at their own speed. Further, these systems can be used after completion of training to refresh learning about specific topics. Effective training also takes into account the experience of adult learners who want some autonomy in learning and expect tailored training that recognizes their past experience and knowledge. An e-learning platform that helps assess initial knowledge and supports the adaptation of content to account for existing expertise is beneficial. One approach is to use micro-learning. This consists of typically short (5–10 minute) videos or modules focused on one or two key learning objectives. They are meant to provide quick, easily accessible learning on key topics.

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E-learning systems are superior platforms for managing testing as an assessment tool. Ideally, they are also configurable, so a public entity’s unique laws, rules/regulations, and practices are part of the test. They permit a combination of types of test questions from simple recall to application-based answers and are configurable to support the assessment of different levels of learners. The use of e-learning platforms should be dependent on their ability to support the essential elements of learning: readiness and motivation, autonomy, a variety of action-oriented learning activities, and feedback and assessment. Effective training is a pillar of any professional development program.33 Training During the COVID-19 Pandemic Technology played a crucial role in delivering training during the Covid-19 Pandemic. E-­learning and video-conferencing platforms were utilized heavily by states to continue to deliver educational opportunities to their procurement staff. Prior to the pandemic, many states were only delivering training in-person. To safely deliver learning, they had to implement new technology and transition their curriculum to an online format. Although some states have returned to in-person delivery, many are still utilizing technology to fully deliver or augment their curriculum. Non-Technology-Based Procurement Education As noted before, learning is more effective when a variety of methods of engagement with topics are used. This is called blended learning. E-learning platforms can provide part of the training experience for a public procurement official, but they should not be the exclusive delivery method. There is still room for other creative approaches that can constitute training—­ such as peer-to-peer training, co-presentations with experienced public procurement officials,

organized panel discussions, negotiation simulations, organized lunch-and-learn sessions, and small group training that better utilizes inquiry-based learning models. Feedback and assessment are critical to effective training as well. Feedback conversations with other public procurement professionals can be a useful part of any training plan. For example, when a procurement official invites a trainee to a pre-bid meeting or supplier debriefing, it can be an especially rich training opportunity; or peers can participate in an after-the-fact review of a procurement—a discussion of what worked and what might have been improved. These kinds of activities can be recorded on individual professional development plans and may prove to be useful supplements to the online testing that computer-based training typically supports.

CONCLUSION The highly complex service, management, policy development, and consulting roles that are responsibilities of a public procurement official today are becoming increasingly complex. The essential need for continuing professional development in the field of public procurement is expanding along with these growing responsibilities. It is imperative that each professional not only increase their own knowledge and skills, but also support the professional development, certification, and lifelong learning of others.

ENDNOTES 1. Oxford English Dictionary, 2nd ed., s.v. “Profession.” 2. “2021 UPPCC Body of Knowledge and Competency (BoK-C): Certified Public Procurement Officer® (CPPO®) Certification,” Universal Public Procurement Certification Council, accessed March 2, 2023, https://​ up​p​cc​.org​/Po​r ​t​a​ls​/0/20​21​_UP​P​CC​_Bo​KC​ _CP​PO​_Cr​o​s​s​w​a​lk​.pdf.

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3. “2021 UPPCC Body of Knowledge and Competency (BoK-C): Certified Public Procurement Officer® (CPPO®) Certification,” Universal Public Procurement Certification Council. 4. Human Resource Management Institute, “ About HRMI’s Credentials,” accessed March 2, 2023, https://​hr​mi​.org/. 5. Universal Public Procurement Certification Council, “Guide to Applying and Testing for Certification,” accessed March 2, 2023, https://​up​p​cc​.org​/Po​r​t​a​ls​/0/Cu​r​r​e​nt​%20​U​P​P​ CC​%20​C​e​r t​%20​G​u​i​de​%20​07​_19​_22​.pdf. 6. “UPPCC CPPO CPPB Certification,” UPPCC, accessed March 2, 2023, https://​ uppcc.org/Certification. 7. “UPPCC Website,” UPPCC, February 22, 2001, https://​up​p​cc​.org/. 8. “Institute for Supply Management: ISM,” ISM World, accessed March 2, 2023, https:// www.ismworld.org/. 9. “Institute for Supply Management Certification,” ISM World, accessed March 2, 2023, https://​www​.is​m​w​o​r​ld​.org​/ce​r ​t​i​f​i​c​a​t​i​on​-and​ -tr​a​i​n​i​ng​/ce​r ​t​i​f​i​c​a​t​ion/. 10. “Institute for Supply Management CPSM,” ISM World. 11. “Institute for Supply Management CPSD,” ISM World. 12. “CPSM®, CPSD™ and APSM™ Exam Overview,” ISM World, accessed March 2, 2023, https://​www​.is​m​w​o​r​ld​.org​/ce​r ​t​i​f​i​c​a​t​i​on​-and​ -tr​a​i​n​i​ng​/ce​r ​t​i​f​i​c​a​t​i​on​/cp​sm​-ex​ams/. 13. “Empowering Problem Solvers, Shaping the Future,” National Contract Management Association, accessed March 2, 2023, https://​ nc​m​a​hq​.org. 14. “Certification,” National Contract Management Association, accessed March 2, 2023. https://​nc​m​a​hq​.org​/Web​/Web​/Ce​r ​t​i​f​i​c​a​t​i​on​ /Ce​r ​t​i​f​i​c​a​t​i​on​.as​px​?hk​e​y​=​c​9​9​3​9​0​0e​-78​8b​ -41​d8​-a2​c2​-cb​2​9​b​b​8​2​8462. 15. “Florida Certified Contract Manager / Public Procurement Professional Development

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/ State Purchasing / Business Operations / Florida Department of Management Services—DMS,” Department of Management Services, accessed March 2, 2023, https://​ www​.dms​.my​f​l​o​r ​i​da​.com​/bu​s​i​n​e​ss​_op​e​r​a​ t​i​o​ns​/st​a​te​_pu​r​c​h​a​s​i​ng​/pu​b​l​ic​_pr​o​c​u​r​e​m​e​ nt​_pr​o​f​e​s​s​i​o​n​al​_de​v​e​l​o​p​m​e​nt​/fl​o​r​i​da​_ce​r ​t​i​f​ i​ed​_co​n​t​r​a​ct​_ma​n​ager. 16. “Florida Certified Contract Manager / Public Procurement Professional Development / State Purchasing / Business Operations / Florida Department of Management Services - DMS.” 17. “VIP Home,” Virginia Department of General Services, accessed March 2, 2023, https://​dgs​.vi​r​g​i​n​ia​.gov​/pr​o​c​u​r​e​m​e​nt​/VIP​ _Ho​me​/home/. 18. “VIP Home,” Virginia Department of General Services. 19. “VIP Home,” Virginia Department of General Services. 20. “ Academic Initiatives—NASPO,” NASPO, last modified August 25, 2022, https://​www​ .na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 21. Advanced Solutions International, Inc. “SCM Definitions and Glossary of Terms.” Council of Supply Chain Management Professionals, accessed March 2, 2023, https://​cs​c​mp​ .org​/CS​C​MP​/Ac​a​d​e​m​ia​_and​_Aw​a​r​ds​/SCM​ _De​f​i​n​i​t​i​o​ns​_and​_Gl​o​s​s​a​ry​_of​_Te​r​ms​/CS​C​ MP​/Ed​u​c​a​te​/SCM​_De​f​i​n​i​t​i​o​ns​_and​_Gl​o​s​s​a​ ry​_of​_Te​r​ms​.as​px​?hk​e​y​=​6​0​8​7​9​5​88​-f6​5f​-4a​ b5​-8c​4b​-68​7​8​8​1​5​e​f921. 22. “ Academic Initiatives—NASPO,” NASPO. 23. “Procurement U—NASPO,” NASPO, last modified September 14, 2022, https://​www​ .na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 24. “Courses Available—NASPO,” NASPO, last modified November 30, 2022, https://​www​ .na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 25. “ All NASPO-Developed Courses Offered Free—NASPO,” NASPO, last modified January 27, 2022, https://​www​.na​s​po​.org​/pr​a​c​t​i​ c​al​-gu​i​de​-re​s​o​u​r​ces/.

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26. “Certification Support—NASPO,” NASPO, accessed March 2, 2023, https://​www​.na​s​ po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/. 27. “Contract Management Standard,” National Contract Management Association, accessed March 23, 2023, https://​nc​m​a​hq​.org​ /Web​/Web​/St​a​n​d​a​r​ds​---P​r​a​c​t​i​c​es​/Co​n​t​r​a​ct​ -Ma​n​a​g​e​m​e​nt​-St​a​n​d​a​rd​-Pu​b​l​i​c​a​t​i​on​.aspx. 28. “Contract Management Body of Knowledge,” National Contract Management Association, accessed March 23, 2023, https://​nc​m​a​hq​ .org​/Web​/Web​/St​a​n​d​a​r​ds​---P​r​a​c​t​i​c​es​/Co​n​t​r​ a​ct​-Ma​n​a​g​e​m​e​nt​-Bo​dy​-of​-Kn​o​w​l​e​d​ge​.aspx. 29. “NCMA and NASPO Develop Contract Management Organizational Capability Program to Maintain Public Trust—NASPO,” NASPO, last modified June 20, 2022, https://​www​.na​ s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​u​r​ces/.

30. “What Is E-Learning? | ATD | ATD,” Association for Talent Development, accessed March 23, 2023, https://​www​.td​.org​/ta​l​e​nt​ -de​v​e​l​o​p​m​e​nt​-gl​o​s​s​a​r y​-te​r ​ms​/wh​at​-is​-e-l​e​ a​r​ning. 31. Stolovitch, H. D., Keeps, E. J., and Rosenberg, M. J. Telling Ain’t Training (Alexandria, VA: ASTD Press, 2011). 32. Stolovitch, H. D., Keeps, E. J., and Rosenberg, M. J. Telling Ain’t Training (Alexandria, VA: ASTD Press, 2011). 33. Stolovitch, H. D., Keeps, E. J., and Rosenberg, M. J. Telling Ain’t Training (Alexandria, VA: ASTD Press, 2011).

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APPENDIX B: CHECKLIST FOR STATUTORY COVERAGE The procurement statute/ordinance should: □□ Address in one place all elements of a comprehensive procurement system, including organization and leadership, contractor selection methods, contract administration, dispute resolution, and property management and disposal, based on the American Bar Association Model Procurement Code for State and Local Governments. □□ Establish, as the lead procurement authority, a centrally located procurement office headed by a Chief Procurement Officer (CPO) whose sole and full-time responsibility is the public entity’s procurement system. □□ Establish the central procurement office and the CPO at a high management level to ensure leadership, sufficient authority, and independence to implement the goals and objectives of the procurement program. □□ Clearly and concisely announce the legislative intent of the public entity’s procurement law while authorizing administrative discretion for the CPO. The statute or ordinance should not be so detailed and definite as to be unduly restrictive. □□ Define the applicability of the law over all of the public entity’s procurements. Exclude blanket exemption for any executive agency or department and transfer any prior rights and powers relating to procurement and supply management from departments and agencies to a CPO. If exclusions are considered necessary, define them narrowly by the types of commodities or services sought and not so broadly as to exclude all the procurements of certain agencies or departments. □□ Establish requirements of professional qualification and prior experience for the position of the CPO and provide for performance-based tenure. □□ Enumerate in a broad, nonrestrictive fashion the responsibilities and authority of the CPO and the central procurement office. □□ Authorize the CPO to establish rules or regulations and high-level procurement policies. □□ Authorize the CPO at their discretion to delegate, and monitor the delegation of, authority to conduct procurements and related functions under the law. □□ Define keywords and phrases and any words having special meaning. □□ Provide for increased public confidence in the procurement process by requiring the publication of all procurement laws, regulations, and policies. □□ Grant discretion to the CPO to determine the types, formats, and distribution of manuals addressing the procurement process. □□ Address all elements of a comprehensive procurement system: leadership, organization, supplier selection methods, contract administration, dispute resolution, property management, and disposal. □□ Leave operational details to separate implementing rules or regulations and guidelines. □□ Allow for flexibility in the procurement system to be agile and responsible and for the public entity to respond to ever-changing needs.

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□□ Authorize the CPO to promulgate rules or regulations to: • Prescribe the conditions, manner, and documentation by which the CPO may delegate procurement authority to other departments or agencies. • Define additional key terms not defined in a statute or ordinance. □□ Authorize the CPO to have sole authority to establish procurement procedures and manuals, forms, and documents, such as solicitations and contracts, including specifications and contractual terms and conditions. □□ Require that all agencies, institutions, and departments with delegated or limited procurement authority publish their internal procurement procedures consistent with the central procurement office’s procurement manuals and, after review and approval by the CPO, ensure that a current copy is on file with the central procurement office.

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RECOMMENDATIONS AND CONSIDERATIONS • Surplus property should be managed through a single office within a public entity. • The surplus property office should have standard sales terms and conditions that disavow retailer-type responsibility for every sale or transfer and specify that a sale or transfer is as is. • No employee of the user agency transferring the surplus property to the surplus property office or of the surplus property office should benefit from access to information about the property.

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In former editions of this Practical Guide, a chapter was dedicated to the management of surplus property. Because surplus programs do not always fall under the authority of the procurement office, it was determined that the surplus property chapter should be included in this edition as an appendix. When procurement offices do manage an existing surplus program, or in the event that one is being developed, this appendix can provide information about common components of such a program, as well as best practices in maintaining one. Within the procurement process, surplus management falls under the retirement phase where publicly owned items are appropriately reused or disposed of. If surplus management is a function of the procurement office, the procurement professional should ensure there is no misuse or waste, leading to transparency in not only the management of the surplus property but also the procurement process as a whole.

DEFINITIONS OF KEY TERMS • Surplus property: excess supplies, nonexpendable supplies, obsolete supplies, and surplus supplies. • Expendable: “supplies or equipment that are normally consumed during use and have a very short life cycle.”1 The definition of the term expendable supplies in the American Bar Association Model Procurement Code for State and Local Governments (Model Procurement Code) provides more specificity by placing a dollar limit on the acquisition cost and limiting the useful life of the commodity to one year or less.2 All but a public entity’s expendable commodities should be managed as surplus property through a single office.

AUTHORITY OVER SURPLUS PROPERTY The Model Procurement Code contains a simple set of statutory provisions for the management of surplus property: 302

§8-201 Supply Management Regulations Required. The [Chief Procurement Officer] shall promulgate regulations governing: the management of supplies during their entire life cycle; the sale, lease, or disposal of surplus supplies by public auction, competitive sealed bidding, or other appropriate method designated by regulation, provided that no employee of the owning or disposing agency shall be entitled to purchase any such supplies; and transfer of excess supplies.3 §8-301 Allocation of Proceeds from Sale or Disposal of Surplus Supplies. Unless otherwise provided by law, the Chief Procurement Officer shall be empowered, pursuant to regulations, to allocate proceeds from the sale, lease, or disposal of surplus supplies.4 State laws may take a broader approach to define that particular state’s surplus property program. For example, the state of Georgia has several statutory provisions establishing its program that are spelled out in its comprehensive Georgia Surplus Property Manual.5

THE DISPOSITION PROCESS Disposition by User Agency Cannibalization Instead of transferring the commodity to the surplus property office, a user agency may decide to disassemble it so that its components may be used to repair or maintain a similar commodity. However, disassembly of the commodity should occur only after that agency determines that there is a greater potential value and benefit to taking the commodity apart than by trading it in or selling it. Additionally, the user agency should notify the surplus property office and obtain its authorization before disassembly. The user agency should transfer any leftover material that remains after the cannibalization to the surplus property

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office for sale or disposal as scrap via one of the methods described below for disposal of other surplus property. Trade-In A user agency may also wish to negotiate a trade-in with the manufacturer or dealer of the commodity being disposed of. However, the outright sale of the commodity through the surplus property office may bring a higher return than a trade-in. In instances where a user agency seeks a replacement commodity, such as a copier, it may be able to purchase the replacement from an existing contract or, if one does not exist, initiate a formal procurement for that replacement. If the user agency wants the option of receiving some reduction in price for the replacement by trading in the old one, it should ask suppliers for prices both with and without the trade-in. If a solicitation is issued for a replacement, it should state that the contract award may be made based either on pricing reduced by the trade-in value or without the trade-in value.

Disposition by Surplus Property Office If the user agency does not dispose of the surplus property, the next step is for the user agency to notify the public entity’s surplus property office that the commodity is available. Overview The process starts when a user agency gives notice to the office responsible for surplus property that it has property that it no longer needs. The following example, taken from the Georgia Surplus Property Manual, demonstrates how that exchange of information might work.6 Once a state agency decides that property is no longer needed, Surplus will work with the agency to ensure that the selected disposal method returns the most value to the state. The disposal process for all the transaction types is comprised of four general steps:

1. The state agency completes and e-mails a property transfer form, signed by an authorized property signor, with market-quality photos of the property to Surplus 2. Surplus reviews the submission and determines the best disposal method 3. The state agency releases/disposes of property 4. Surplus e-mails the finalized property transfer form to the state agency to remove the unwanted property from the agency’s inventory Here, the user agency transfers the piece of property to the office that is responsible for surplus property. The surplus property office then authorizes the user agency to remove the piece of property from their inventory in order to assure a proper accounting in the user agency’s property inventory system. Today, most public entities require user agencies to report surplus property electronically. It is then up to the surplus property office to dispose of the property via one of the following methods. Transfer One disposal method is to transfer the surplus property to another user agency that has a use for it. Transfer can be an especially effective technique when ingenuity finds new uses for commodities. For example, an excess fire engine pump might be transferred to a user agency for use in dust control (watering dirt roads). Plexiglas drums originally purchased for lottery drawings might be useful to prison shops where the material could be used for security windows, nameplates, and shelving. If the property does not have any use within the public entity that owns it, that entity’s laws should permit the sale or transfer of the property to other public entities or charitable organizations without requiring that the property be offered for purchase to the entire universe of potential purchasers.

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Sale A public entity’s law should authorize a surplus property office to use a full range of methods for selling surplus property and grant it the discretion to choose which approach is best. To reduce opportunities for deception and to help avoid any appearances of impropriety, it is best to prohibit the sale of surplus property to any employee of the surplus property office or of the user agency that owns and is releasing the commodity. The following are some of the sales methods that state and local governments employ: • Live and electronic auctions: Auctions are widely used to sell surplus property. Today, many of those auctions occur online. Various state and local governments provide websites displaying surplus property offered for online auction. There are several suppliers that provide online auctioning or marketing services that are utilized by state and local governments. • Retail stores: Public entities often have a location or locations where potential buyers may shop for surplus commodities. • Sealed bids: Another sales method is sealed bids. This method operates much the same as it does when the public entity is purchasing something through competitive sealed bidding. The surplus property office issues a solicitation for the sale of the commodities and provides suppliers with notice of their availability. Bids are received and opened in the surplus property office. Award is made to the highest bidder. • Commercial markets: Some types of surplus commodities, such as antiques or art pieces, are best sold through established commercial markets. The surplus property office sells the commodity through the services of a commercial seller who specializes in the sale of those commodities. • Posted prices: For commodities for which there is no regular market, demand is

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erratic, or prices received on competitive bids or auctions are unacceptable, a posted price approach offers another method of sale. In this case, the surplus property office establishes a price and the commodity is posted for purchase at that price. Conditions of Sale To avoid being considered a retailer of the surplus property sold and thus subject to laws that cover retailers, a surplus property office should have standard sales terms and conditions for every sale or transfer that disavow retailer-type responsibility. It should also include in all notices and other sales information and announcements the known condition of the commodities being offered, including defects. The following is a short list of terms and conditions for sale that are examples of subjects that are important to cover: • It is the buyer’s responsibility to remove the commodities within a stipulated time after the purchase. • The public entity makes no guarantees or warranties for the commodities. • The commodities are sold as is. • The obligation to inspect a commodity rests solely with the buyer. • All defects not listed are unknown and the public entity takes no responsibility regarding them. • All sales are final and the sale will not be invalidated if the buyer discovers defects in the commodity after the sale. • The public entity assumes no responsibility once the commodities are sold. Finally, the sale terms and conditions should also specify the acceptable types of payment. The terms and conditions should be easily accessible. The best practice is to post them online and in all advertisements, solicitations, notices, and sales paperwork.

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ALLOCATION OF SALES PROCEEDS In general, proceeds from the sale of surplus property can go to the user agency that supplied the property, to the surplus property office for its operations, or into the public entity’s general fund. The most successful surplus property programs authorize the surplus property office to determine how much of the proceeds the user agency receives and how much is kept by the surplus property office.

FEDERAL SURPLUS PROPERTY The federal government transfers what is called federal surplus personal property and excess personal property to state agencies that it designates. The property is called surplus property in this discussion. In many cases, those state agencies are the same ones that state law makes responsible for managing and disposing of state surplus property. The United States General Services Administration (GSA) is responsible for managing a program called the Federal Surplus Personal Property Donation Program.7 The program allows certain nonfederal government organizations to obtain surplus property that the federal government, other than the Department of Defense (DoD), no longer needs. The Federal Property and Administrative Services Act of 1949, as amended,8 provides for the transfer of surplus personal property to agencies that the GSA designates as State Agencies for Surplus Property (SASP). The following entities and activities are eligible to receive donations of federal surplus personal property through the SASPs: • Public agencies • Nonprofit educational and public health activities, including programs for the homeless

• Nonprofit and public programs for the elderly • Public airports • Educational activities of special interest to the Armed Services • Other approved activities Surplus property of the United States DoD is handled through the Defense Logistics Agency (DLA) Disposition Services.9 The SASPs may withdraw DoD property from the DLA website for the direct issue to their customers who qualify. The National Association of State Agencies for Surplus Property is a nonprofit organization that “maintains active leadership in establishing and promoting ways and means of acquiring and distributing equitably federal personal property to public agencies and other eligible entities.”10 The organization’s mission is to save taxpayer dollars by extending the useful life of federal government surplus property.

ENDNOTES 1. “Dictionary of Procurement Terms,” NIGP, accessed January 23, 2023, https://​www​.ni​ gp​.org​/ho​me​/fi​nd​-pr​o​c​u​r​e​m​e​nt​-re​s​o​u​r​c​es​/ di​c​t​i​o​n​a​r y​-of​-terms. 2. Model Procurement Code for State & Local Gov’t §8-101(2-3) (Am. Bar Ass’n 2000). 3. Model Procurement Code for State & Local Gov’t §8-201. 4. Model Procurement Code for State & Local Gov’t §8-301. 5. “Georgia Surplus Property Manual,” Georgia Department of Administrative Services, last modified January 2021, https://​do​as​.ga​ .gov​/as​s​e​ts​/Su​r ​p​l​us​%20​P​r​o​p​e​r ​ty​/NE​A​D​o​c​ u​m​e​n​t​L​i​b​r​a​r y​/Ge​o​r​g​ia​%20​S​u​r ​p​l​us​%20​P​r​o​ p​e​r ​ty​%20​M​a​n​u​al​.pdf. 6. “Georgia Surplus Property Manual,” Georgia Department of Administrative Services.

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7. “For State Agencies and Public Organizations,” U.S. General Administrative Services, accessed January 23, 2023, https://​www​ .gsa​.gov​/buy​-th​r​o​u​gh​-us​/go​v​e​r ​n​m​e​nt​-pr​o​p​ e​r ​ty​-for​-sa​le​-or​-di​s​p​o​s​al​/pe​r​s​o​n​al​-pr​o​p​e​r ​ty​ -for​-re​u​se​-sa​le​/for​-st​a​te​-ag​e​n​c​i​es​-and​-pu​b​ l​ic​-or​g​a​n​i​z​a​t​i​o​ns​#:~:​t​e​x​t​=​T​he​%20​F​e​d​e​r​al​ %20​S​u​r ​p​l​us​%20​P​e​r​s​o​n​al​%20​P​r​o​p​e​r ​ty​,Ce​r​ t​a​in​%20​n​a​v​al​%20​v​e​s​s​e​ls​%3B​%20and. 8. Federal Property and Administrative Services Act, Pub. L. No. 152 Ch. 288, 63 Stat 377 (1949).

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9. “DLA Disposition Services,” Defense Logistics Agency, accessed January 23, 2023, http://​www​.dla​.mil​/Di​s​p​o​s​i​t​i​o​n​S​e​r​v​i​c​es​.aspx. 10. “About NASASP,” National Association of State Agencies for Surplus Property, accessed January 23, 2023, http://www.na​ sasp.org/about.html.

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APPENDIX D: STUDYING FOR CERTIFICATION

USING THE PRACTICAL GUIDE TO PREPARE FOR THE CPPB OR CPPO EXAM The Universal Public Procurement Certification Council (UPPCC®) was first established in 1978 as an independent certifying body for public procurement professionals. The functions of the Council are as follows: To establish, monitor, and revise requirements for certification; to continue research efforts relating to the certification of public buyers and procurement officers; to coordinate . . . in order to further the certification of public procurement officers; and to do all things . . . to promote . . . professionalism in public procurement.1 The UPPCC offers two professional certifications—the Certified Professional Public Buyer®

(CPPB®) and the Certified Public Procurement Officer® (CPPO®)—which are attained based on a particular number of years of experience, a certain number of hours of training, and successfully passing an exam. For a public procurement professional preparing for either the CPPB or the CPPO exam, this Practical Guide is a meaningful resource. In the following table, the six domains represented in the UPPCC’s Body of Knowledge and Competency (BoK-C) for both certifications are listed. Each domain has a number of competency statements, which are different for each certification. The parenthetical percentages listed represent the weightings of the domains on the exams, which are different between the CPPB and the CPPO exams. In the third column, recommended readings for each domain are listed by chapter and by section within that chapter, if relevant. Additionally, the full BoK-C, including competencies, can be viewed at uppcc.org.

UPPCC BoK-C: Certified Public Procurement Buyer (CPPB)

UPPCC BoK-C: Certified Public Procurement Officer (CPPO)

Domain I: Legal Framework (14%)

Domain I: Legal Framework (15%)

Recommended Reading in the Practical Guide, 4th Edition • ​Chapter 1 (The Model Procurement Code for State and Local Governments) • ​Chapter 2 (Drafting a Comprehensive Procurement Law; Procurement Rules and Regulations) • ​Chapter 3 • ​Chapter 8 • ​Chapter 11 • ​Chapter 12 • ​Chapter 13 (Federal Law and Directives) • ​Chapter 15 • ​Chapter 17 (Legal Authority for Cooperative Purchasing) • ​Appendix B

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UPPCC BoK-C: Certified Public Procurement Buyer (CPPB)

UPPCC BoK-C: Certified Public Procurement Officer (CPPO)

Domain II: Procurement Planning and Analysis (18%)

Domain II: Procurement Planning and Analysis (17%)

• ​Chapter 4 • ​Chapter 7 (Price and Cost Analysis) • ​Chapter 10 (Measuring and Paying for Performance) • ​Chapter 13 • ​Chapter 19 (The Case for Public Procurement as a Profession; Sources of Procurement Education) • ​Appendix A

Domain III: Sourcing and Solicitation (23%)

Domain III: Sourcing and Solicitations (20%)

• ​Chapter 5 • ​Chapter 6 • ​Chapter 7 • ​Chapter 8 • ​Chapter 9 • ​Chapter 11 • ​Chapter 12 • ​Chapter 16 (Selecting the Appropriate Construction Project Delivery Method; Source Selection Methods for Architects and Engineers; Selection Methods for Project Delivery Methods) • ​Chapter 17 • ​Chapter 18 (Pilot Projects or Demonstrations, Cooperative Purchasing) • ​Appendix A

Domain IV: Contract Development and Management (21%)

Domain IV: Contract Development and Management (17%)

• ​Chapter 10 • ​Chapter 11 • ​Chapter 15 (Using the Power of the Procurement Process and the Contract; Using Credible Standards, Third-Party Certifications, and Ecolabels; Measuring and Marketing Effectiveness) • ​Chapter 16 (Types of Contracts; Bonding Requirements; Contract Administration) • ​Chapter 18 (Contract Terms and Conditions; Contract Management) • ​Appendix A

Recommended Reading in the Practical Guide, 4th Edition

continued

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UPPCC BoK-C: Certified Public Procurement Buyer (CPPB)

UPPCC BoK-C: Certified Public Procurement Officer (CPPO)

Domain V: Leadership (11%)

Domain V: Leadership (18%)

• ​Chapter 2 • ​Chapter 3 • ​Chapter 4 (Planning with Users and User Agencies) • ​Chapter 19

Domain VI: Business Principles (13%)

Domain VI: Business Principles (13%)

• ​Chapter 2 (Creating Tools for Public Employees and Suppliers; Staffing for Strategic Procurement Services) • ​Chapter 4 (Devising Procurement Strategies) • ​Chapter 5 (eProcurement Systems) • ​Chapter 14 • ​Appendix C

For more detailed information about the individual competencies in both the CPPB BoK-C and the CPPO BoK-C and the related sections of this guide, along with any updates made to the BoK-C after the publication of this guide, please visit https://​www​.na​s​po​.org​/pr​a​c​t​i​c​al​-gu​i​de​-re​s​o​ u​r​ces/.

Recommended Reading in the Practical Guide, 4th Edition

ENDNOTE 1. “ About the UPPCC,” Universal Public Procurement Certification Council, accessed May 19, 2023, https://uppcc.org/About​ -UPPCC.

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309

INDEX

accountability, eProcurement, 202 administrative efficiency, eProcurement, 199–200 administrative process/procedures for protests, 121, 122–123 components, 125–128 debriefing, 130 model, 125 risks, 122 stages, 128–129 stopping contract performance, 129–130 value, 122–123 alternative dispute resolution (ADR), 168–169 alternatives and optional items, 89–90 American Bar Association Model Procurement Code for State and Local Governments, 5, 8, 10, 20, 28 competitive sealed bidding/proposals, 69, 70–71, 72, 75–76, 79, 105 construction, 240, 246 cooperative purchasing, 252, 254 cost or pricing information, 61–62, 112–113, 115 debarment or suspension, 169, 170 delegating procurement authority, 11–12 discussions and negotiations, 135, 271 emergency procurements, 177–178 ethics contract clauses, 43 length of contracts, 63 protest, 125, 126, 128, 129 quality assurance, 156 rules or regulations, 12–13 services descriptions, 94–95 sole source procurement, 176 specifications, 86 types of contracts, 58 unsolicited offers, 180 anticompetitive practices, 30–31 awareness, 30 combating, 30–31 favoritism, 30 antitrust, 28, 29; see also competition; ethics/ethical behavior combating, 30–31 federal laws, 31, 32, 33 state laws, 31, 32, 34 Assessing State PPE Procurement During COVID-19: A Research Report (NASPO), 184 assessment, 293 assessment of risks, 64–65

Association for Supply Chain Management, 21 Association for Talent Development, 292 Association of Supply Chain Management (ASCM), 52 award, 38; see also contract(s); evaluation alignment with law and solicitation, 103 competitive sealed bidding, 70–71 competitive sealed proposals, 76 considerations and requirements, 115–116 multiple source, 116–117 awareness, for combating anticompetitive practices, 30 Balanced Scorecard Institute, 22 barriers to prequalification, 35 best value, 232, 272 bid(s); see also competitive sealed bidding; competitive sealed proposals evaluation (see evaluation) late, 34, 72 mistakes, 72–73 protests (see protests) public opening, 71–72 receipt and control, 71 responsible, 70 responsiveness, 70 rigging, 34 bid bonds for construction contractor, 248 bidder(s); see also competitive sealed bidding; competitive sealed proposals conferences, 81–82 defined, 69 request for modifying or withdrawing, 71 responsible, 69, 70 bidding systems, 37–38 bimodal sourcing, 270–271; see also modular sourcing blended learning, 293 brand-names, 35–36, 91–92; see also specifications bribes, 42 broker, cloud services, 276, 277 business case planning, 50 buyer portal, 207 California Project Management Office (CA-PMO), 50 catalog, 209; see also eProcurement systems central procurement office manuals, 14–16 responsibilities, 13–14

State and Local Government Procurement: A Practical Guide, 4th Edition

311

INDEX

certification, 14, 286–290 benefits, 287 ISM, 288–289 national, 288–289 NCMA, 289 state, 289–290 UPPCC, 286, 287–288 Certified Professional in Supplier Diversity (CPSD™), 289 Certified Professional in Supply Management (CPSM®), 289 Chief Procurement Officer, 8–10 delegation of authority, 11–12 quality assurance (see quality assurance) rules and regulations, 12 tasks of, 9 circumvention, 42–43; see also unauthorized procurement claim resolution provisions, 166–167 remedies, 167–168 claims vs. disputes, 164–165 Clayton Act, 32, 33, 34 closeout activities, 152 cloud broker, 277 cloud services broker, 276, 277 deployment, 276–277 IaaS, 276 PaaS, 276 pricing models, 277–278 SaaS, 276 suppliers, 277 collaboration disadvantaged business, 18 procurement office, 20 collaboration on reform of IT procurement, 266–267 commercial product preference, 89 committees, evaluation, 74–75, 103–105 independence and impartiality, 104–105 instructions to, 109 commodity codes, 80 commodity/service codes, 205–206 NAICS, 206 NIGP, 206 UNSPSC, 206 Common Rule, 88, 96, 97, 153, 175, 261–262 communication, 35 community cloud, 277 competition, 28–39 activities diminishing, 34–37 effective, 29 encouraging, 37–38 eProcurement, 200–201 importance, 29–30

312

laws promoting, 31–34 limited (see noncompetitive and limited competition) practices and laws restraining, 31 competitive sealed bidding, 69–73 bidders request for modifying or withdrawing, 71 competitive sealed proposals vs., 73 confidentiality, 71–72 content, 70 contract award, 70–71 evaluation, 105, 106–109 late bids, 72 mistakes, 72–73 receipt and control of bids, 71 competitive sealed proposals, 69, 73–76 competitive sealed bidding vs., 73 contract award, 76 discussion and negotiation, 75–76 evaluation, 74–75, 105, 109–112 proprietary or confidential information, 74 complaints resolution, 44 conferences, 81–82 kickoff, 150 pre-award, 81 pre-solicitation, 81 questions and answers, 81–82 confidentiality, 36, 40 competitive sealed bidding, 71–72 competitive sealed proposals, 74 conflict of interest defined, 41 laws, 34, 41 connected and automated vehicle (CAV), 79–80 construction, defined, 240 construction manager at risk, 243, 247 construction manager (CM), 247 construction projects, 240–249 authority, 241 bonding requirements, 248 contract administration, 248–249 delivery method, 241–246 source selection method, 246–247 types of contracts, 247–248 contingency plan, 188 continuity of operations plan (COOP), 188 contract(s) closeout activities, 152 cost or price, 61–62 disputes (see dispute resolution) factors deciding selection, 59–60 governments, 179 integrity, 43–44 length, 62–63 leveraged state, 19 non-standard terms, 146 risk analysis, 60–61

National Association of State Procurement Officials

INDEX

standard terms, 145–146 stopping, 129–130 types, 58–63 contract administration team, 150 contract administrator, 147–149 contract file, 150–151 contract management/administration, 38, 144–160 concept, 144–145 construction projects, 248–249 eProcurement, 208 focus, 146–147 IT procurement, 280–281 non-standard contract terms, 146 plans, 116, 149–150 roles of administrator, 147–149 standard contract terms, 145–146 steps, 150–152 terms, 145–146 Contract Management Organizational Capability (CMOC), 291 contractor complaints, resolution of, 44 COOL Climate Calculator, University of California at Berkeley, 235–236 cooperation with authorities, 44–45 cooperative agreements, 232 cooperative procurements, 252–263 alliances and trends, 254–257 benefits, 259–260 challenges, 260–261 considerations, 257–259 costs of administration, 259 IT procurement, 273 legal authority, 253–254 piggybacking, 252–253 statewide cooperative contracts, 254–255 sustainable commodities and services, 232 types, 253 cost; see also price and cost analysis contract types, 61–62 cooperative procurement, 259 evaluation, 103, 106 IT procurement, 278 cost-plus-a-percentage-of-cost contracts, 58 cost-reimbursement contracts, 59 cost savings, 51–52 Covid-19, 3, 14, 24, 184, 188 education and training, 293 labor market, 23 OECD on, 184–185 criteria, evaluation, 74–75 Critical Success Areas and Key Performance Indicators for State Central Procurement Offices (NASPO), 22 cronyism, 45 cybersecurity, 269–270

data collection and analysis, 52–54 external, 53–54 internal, 52–53 dealers warranties, see manufacturers and dealers warranties debarment, see suspension and debarment debriefing, 115, 130 decision, protests, 128–129 supplier appealing, 129 delegation of authority, 11–12 deliverables, 152–153 delivery methods for construction project, 241–246 construction manager at risk, 243, 247 design-bid-build, 242, 247 design-build, 243 design-build-operate-maintain (DBOM), 244 integrated project delivery, 243–244 job order contracting, 242–243 long-term, 244 operations and maintenance (O&M), 244 public-private partnerships, 244, 246 selection processes, 247 short-term, 242–244 delivery of goods, 157–160 demonstrations, 180–181, 272–273; see also pilot projects design-bid-build delivery methods, 242, 247 design-build delivery methods, 243; see also construction projects Designing for Agility: Advancing IT and Procurement Modernization (NASPO and NASCIO), 271–272 design specifications, 91 direct service provider (DSP), 277 direct supplier marketing, 88 disadvantaged business, 16–19 challenges and criticisms, 19 collaboration, 18 defined, 16–17 education, 18 engagement, 18 evaluation points, 18 outreach, 18 percentage preferences, 18 set-asides preference, 18 subcontracting plan, 18 unbundling contracts, 18 Disadvantaged Business Enterprise (DBE) Program, 17 dispute resolution, 152 provisions, 165–166 remedies, 166–167 disputes vs. claims, 164–165 diversity of supplier, 16–19 documentation emergencies preparedness and procurement, 190–191

State and Local Government Procurement: A Practical Guide, 4th Edition

313

INDEX

evaluation, 103, 106, 110–111 post-disaster financial, 191 ecolabels, 227, 228–229, 230, 232–234 education and training, 13–14, 290–293 COVID-19 Pandemic, 293 disadvantaged business, 18 e-learning, 292–293 NASPO and, 291, 292 NCMA and, 291–292 technology, 292 e-learning, 292–293; see also education and training emergencies preparedness and procurement, 14, 184–191 contingency plan, 188 documentation, 190–191 federal law, 186 GSA Disaster Purchasing Program, 190 noncompetitive and limited competition, 177–178 NRF, 186–187 purchase orders and cards, 190 state plan, 186 supplier resources, 190 emergency management process, 187–190 Energy Star, 236 engagement, disadvantaged business, 18 environmentally preferable paper, 230–231 Environmental Protection Agency (EPA), 230–231 EPA Waste Reduction Model (WARM), 236 EPEAT (Electronic Product Environmental Assessment Tool), 230 Benefits Calculator, Global Electronics Council, 235 eProcurement, 19, 77, 194–216 actual state outcomes, 203–204 challenges, 212–213 full vs. partial solutions, 210–212 implementation and adoption, 215–216 modules and components, 205–209 other state processes and systems, 196–198 outcomes and benefits, 198–204 practices without, 195–196 preparation, 214–215 system options, 209–210 ESG (environmental, social, and governance), 221 ethics/ethical behavior, 38–43 delegated authority review, 43 laws addressing unethical behavior, 40–42 standards, 39–40 unauthorized acts review, 42–43 evaluation, 35, 38; see also award best value, 272 bids (see competitive sealed bidding) committees, 74–75, 103–105, 110 disadvantaged business, 18 methods, 111

314

negotiations, 135 (see also negotiations) price and cost, 106, 112–116 principles and concepts, 102–103 proposals (see competitive sealed proposals) sequence, 111–112 exemptions from laws, 11 reducing, 11 external data collection and analysis, 53–54 fairness, 20, 28; see also ethics/ethical behavior Federal Acquisition Regulation (FAR), 59, 160 Federal Emergency Management Agency (FEMA), 186 federal funds, 97–98, 175 federal laws, see laws Federal Trade Commission Act (FTC Act), 32, 33 Federal Trade Commission (FTC), 30–31, 32 Federal Transit Administration (FTA), 262 feedback, 293 file, contract, 150–151 filling protests requirements, 126–127 standing, 125–126 timeliness, 126 firm-fixed-price contract, 59 fixed-price contracts, 59 Florida Certified Contract Manager (FCCM), 290 Florida Department of Management Services (DMS), 290 formal competition, 68, 69 gifts, 40 Government Finance Officers Association, 21 government-produced services or commodities, 178–179 governments contracts, 179 property, 179 The Great Resignation, 24 green building, 231 green purchasing, see sustainable procurement greenwashing, 233–234 Harvard Business Review, 8 Homeland Security Act, 186 Homeland Security Presidential Directive 5 (HSPD-5), 186 honesty, 20 hybrid cloud, 277 IaaS, 276; see also cloud services identical bids, 45 impartial evaluators, 103; see also evaluation incentive contracts, 59 informal competition, 68, 69

National Association of State Procurement Officials

INDEX

innovation, 79–80 eProcurement, 202–203 IT procurement, 271–272 innovative procurements, 79–80 Institute for Supply Management (ISM), 288–289 integrated project delivery, 243–244 integrity, 38–39 contracts, 43–44 ensuring, 43–44 intellectual property, 279 internal data collection and analysis, 52–53 invitation for bids (IFB), 69–70; see also competitive sealed bidding content, 70 IT procurement, 50, 266–281 alternatives to buying, 274–278 best value, 272 bimodal and modular sourcing, 270–271 cloud services, 276–278 collaboration on reform, 266–267 comparing costs, 278 contract management, 280–281 cooperative purchasing, 273 cybersecurity, 269–270 discussions/negotiations, 271 flexibility/innovation, 271–272 foundational planning, 267–270 integrated strategy, 267–268 issues, 270–272 lease vs. purchase, 274–275 managing risks, 268–269 market research, 270 multiple-round RFPs, 272 outside technical assistance, 273–274 pilot or demonstration projects, 272–273 request for proposal (RFP), 271, 272 scope of work, 271 seat management/managed services contracts, 275–276 terms and conditions, 278–280 job order contracting, 242–243 Keeps, Erica J., 292 key performance indicators (KPI), 21–22, 96–97 critical success factors/areas, 22, 23 defined, 22 vanity metrics vs., 22 kickbacks, 42 kickoff conference, 150 late bids, 34, 72; see also bid(s) laws addressing unethical behavior, 40–42 conflict of interest, 34, 41

consistency, 20 delegation of authority, 10–11 drafting, 10–12 evaluation alignment, 102–103 exemptions from, 11 promoting competition, 31–34 restraining competition, 31 whistleblower, 44–45 leadership, 8–10 lease/lease-purchase contracts, 274–275 leasing vs. purchasing, 274–275; see also IT procurement length of contract, 62–63 leveraged state contracts, 19 leverage in negotiations, 138, 139 liability, limitation of, 279–280 life-cycle assessment, 231 life-cycle costing, 52 limitation of liability, 279–280 limited competition, see noncompetitive and limited competition lists, rotation of, 36 little-Sherman Acts, 32, 34 long-term contracts, 36 long-term delivery methods for construction project, 244 malware, 269 managed services contracts, see seat management/ managed services contracts management; see also Supplier Management contract (see contract management/administration) risk (see risk management) specifications and scopes of work, 85–86 manuals, 14–16 operations or procedures, 15 quality assurance, 157 supplier, 15–16 manufacturers and dealers warranties, 155 market aberrations, 45 market basket, 229 market efficiency, 40 marketing, 88 market research, 37, 50–54 cost savings, 51–52 data collection and analysis, 52–54 defined, 51 IT procurement, 270 micro-learning, 292 milestones, 153 mini-Clayton Act, 32, 34 Minnesota Department of Transportation (MnDOT), 79–80 Minnesota Multistate Contracting Alliance for Pharmacy (MMCAP), 256, 257

State and Local Government Procurement: A Practical Guide, 4th Edition

315

INDEX

Minnesota Office of State Procurement (OSP), 160; see also Right Step Program Minnesota’s Office of State Procurement (OSP), 79–80 minority business enterprise (MBE), 17 mistakes in bids, 72–73 Model Procurement Code, see American Bar Association Model Procurement Code for State and Local Governments modular sourcing, 270–271; see also bimodal sourcing Montana Acquisition and Contracting System (eMACS), 203 most-favored-customer pricing, 36 multiple-round RFPs, 272 multiple source awards, 116–117 NASPO ValuePoint, 5, 253, 255–256, 258, 259 National Association of State Chief Information Officers (NASCIO), 267 National Association of State Procurement Officials (NASPO), 1, 8 leadership, 8, 9 State Preference Repository, 18 Supplier Diversity Snapshot: 8 States in Review, 17–18 supplier manuals, 16 Top 10 Priorities for State Procurement, 24 National Contract Management Association (NCMA) certification, 289 education and training, 291–292 National Incident Management System (NIMS), 186 National Response Framework (NRF), 186–187 negotiations, 134–140 competitive sealed proposals, 75–76 concept, 134 determining need, 135–136 IT procurement, 271 leverage, 138, 139 outcomes, 139–140 price/cost, 113–114 receipt and evaluation, 135 (see also evaluation) research and plan, 137 steps, 134–140 strategy meetings, 137–138 tactics, 138, 139 team, selection of, 136–137 NevadaEPro, 204 noncompetitive and limited competition, 29, 174–181 emergency procurements, 177–178 government-produced services and commodities, 178–179 governments’ property, 179 other governments’ contracts, 179 other governments’ property, 179

316

pilot or demonstration projects, 180–181 sole source procurement, 176–177 unsolicited offers, 179–180 non-price evaluation criteria, 107 non-standard contract terms, 146 North American Industry Classification System (NAICS), 206 notifying suppliers, 80–81 offeror, 69 conferences, 81–82 Office of Management and Budget (OMB), 261 OMNIA Partners, 257 on-demand pricing, 277 openness, 20 operations and maintenance (O&M), 244 optional items, see alternatives and optional items Organisation for Economic Co-operation and Development (OECD), 183–184 outcomes, negotiations, 139–140 outreach disadvantaged business, 18 supplier, 37 outside technical assistance, 273–274 PaaS, 276; see also cloud services pay-as-you-go pricing models, 277 payment bond for construction contractor, 248 percentage preferences, for disadvantaged business, 18 performance bond for construction contractor, 248 performance measurement, 20–23 key performance indicators (KPI), 21–22 performance measures, 153 performance specifications, 93–94; see also specifications piggybacking, 252–253 restrictions, 261–262 pilot projects, 78–79; see also demonstrations IT procurement, 272–273 noncompetitive and limited competition, 180–181 plan(s) contingency, 188 contract management/administration, 116, 149–150 negotiations, 137 project, 57–58 subcontracting, 18 planning, 48–65 contract selection, 58–63 project management, 56–58 risk management, 63–65 strategies, 49–50 users and user agencies, 48–49 policy for sustainable procurement program, 225–226

National Association of State Procurement Officials

INDEX

post-award changes, 36, 45 post-bid changes, 36, 45 post-disaster financial documentation, 191 pre-award conferences, 81 prequalification, barriers to, 35 pre-solicitation conferences, 81 price and cost analysis, 106, 112–116 price discounts, evaluation of, 107–108 price/performance evaluation, 106–107 pricing models, cloud services, 277–278 private cloud, 276–277 private sector jobs, 19–20 Procurement Technical Assistance Center (PTAC), 20 Procurement U, 291–292 profession, defined, 286 professional certification, see certification professional development, 286–293 certification, 286–290 education and training, 290–293 Professional Development Team (PDT), 290 professional ethics, see ethics/ethical behavior project charter, 56–57 project management, 56–58 project plans, 57–58 property, governments, 179 proposals, see competitive sealed proposals proprietary information, 36–37 protests, 38, 120–130 administrative process/procedures, 121, 122–123, 125–130 (see also administrative process/ procedures for protests) filling (see filing protest) preventing or defusing disputes, 123–125 response to, 124–125 tips for avoiding, 123–124 prototype, 98 provisions claim resolution, 166–167 dispute resolution, 165–166 Public Assistance (PA) Program, 186 public cloud, 276 public interest, 39 public opening of bids, 71–72 public policy for sustainable procurement, 222–223 public portal, 206–207 public-private partnerships (P3), 244, 246 public records, 38 punchout management, 209; see also eProcurement systems qualified product list (QPL), 92–93; see also specifications quality assurance, 156–160 delivery of goods, 157–160

IT procurement, 281 manuals, 157 Quality Assurance Program (QAP), 156 questions and answers, 81–82 RACI (Responsible, Accountable, Consulted, and Informed) chart, 57 ransomware, 269 remedies claim resolution, 167–168 protestor, 127–128 report/reporting suspicious behavior, 45 request for information (RFI), 51, 77–78 Request for Innovative Ideas (RFI2), 267 request for proposal (RFP), 271 multiple-round, 272 research, negotiations, 137 reseller, 277 reserved capacity, 277–278 responsibility bidder, 69, 70 determination, 103, 108–109, 115 restraint of trade, 28, 29 reverse auction, 77 revolving-door restrictions, 42 rigging bids, 34 Right Step Program, 160 risk analysis, 64–65 contract types, 60–61 risk management, 63–65 IT procurement, 268–269 risks for protests, 122 Robert T. Stafford Disaster Relief and Emergency Assistance Act, see Stafford Act rotation of suppliers or lists, 36 rules and regulations, 12–13; see also laws SaaS, 276 samples and site visits, 98–99 Sarbanes-Oxley Act of 2002 (SOX), 278 scopes of work, 35 competition, 37 IT procurement solicitation, 271 management, 85–86 objectives, 84–85 procedures, 86–88 services descriptions, 94–95 seat management/managed services contracts, 275–276 self-service, 208 sequence of evaluation, 111–112 service description, 94–96 service level agreements (SLA), 153–154

State and Local Government Procurement: A Practical Guide, 4th Edition

317

INDEX

service levels, development of, 154 service warranties, 156 set-asides preference, for disadvantaged business, 18 Sherman Act, 32, 33, 34 short-term delivery methods for construction project, 242–244 construction manager at risk, 243, 247 design-bid-build, 242, 247 design-build, 243 integrated project delivery, 243–244 job order contracting, 242–243 simultaneous price increases, 45 single source, 177, 200 site visits, see samples and site visits slow pay, 36 small purchases, 76–77 SMART goals, 226, 234, 235 socioeconomic programs for supplier, 16–19 sole source, 35, 176–177 competitive strategy, 37 solicitation competitive sealed bidding, 69–73 competitive sealed proposals, 69, 73–76 conferences with bidders/offerors, 81–82 evaluation alignment, 103 notifying suppliers, 80–81 small purchases, 76–77 source selection, 77–80 source selection, 77–80 innovation, 79–80 pilot projects, 78–79 request for information (RFI), 77–78 reverse auction, 77 specifications, 35–36, 84–99 brand name (see brand names) competition, 37 considerations, 97–99 design, 91 management, 85–86 performance, 93–94 procedures, 86–88 qualified product list (QPL), 92–93 services descriptions, 94–95 types, 90–94 spend analytics, 199 spyware, 269 staff development, 13–14 staffing, 23–24 for future, 24 Stafford Act, 186 stakeholders eProcurement, 196–198 sustainable procurement, 224–225

318

standard contract terms, 145–146 standardization of specifications, 99 State and Local Government Conflict of Interest Act, 41 state laws, antitrust, 31, 32, 34; see also laws State Practices Survey (NASPO 2022), 5 certification program, 289 cooperative purchasing, 254 eProcurement system, 206, 210, 214 green purchasing, 220 suspension and debarment, 170–171 training, 291 State Preference Repository, 18 StateRAMP, 269 statewide cooperative contracts, 254–255 stay of procurement process, 129–130 Stolovitch, Harold D., 292 strategic sourcing, 49–50 strategy meetings, 137–138; see also negotiations subcontracting plan, disadvantaged business, 18 subscription pricing models, 277 supplier appealing protest decisions, 129 communication, 35 complaints, resolution of, 44 diversity and socioeconomic programs, 16–19 identifying risks, 65 information review, 109 manuals, 15–16 marketing, 88 notifying, 80–81 outreach, 37 qualifications, 35 registering, 80–81 rotation of, 36 selection, 38 Supplier Diversity Snapshot: 8 States in Review, 17–18 Supplier Management, 54–56 contract administration, 148 fair and ongoing engagement, 88–89 performance management, 96–97 supplier portal, 207 suspension and debarment, 169–171 suspicious bidding patterns, 45 sustainable cleaning products, 231 sustainable procurement, 220–236 commodities and services, 221 developing program, 223–228 effectiveness, 234–236 frameworks, 221 implementing, 229–232 maximizing success, 236

National Association of State Procurement Officials

INDEX

public policy, 222–223 social considerations, 221–222 standards, 232–234 utilizing power of procurement process, 228–229 tactics, negotiations, 138, 139 team contract administration, 150 negotiations, 136–137 Telling Ain’t Training (Stolovitch and Keeps), 292 timelines, evaluation, 103 timeliness, filling protests, 126 tools, 14–19 Top 10 Priorities for State Procurement (NASPO), 24 total cost of ownership (TCO), 222, 232 training, see education and training transparency, 20, 28, 29 eProcurement, 202 triple-bottom-line, 221 unauthorized procurement category, 42 review, 42–43 unbundling contracts, disadvantaged business, 18 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, see Common Rule

Uniform Commercial Code (UCC), 155–156; see also warranties Uniform Guidance for Federal Awards (2 CFR 200), 261 United States Department of Justice (DOJ), 32 United States General Services Administration (GSA), 190, 262–263 Disaster Purchasing Program, 190 Universal Public Procurement Certification Council (UPPCC), 286, 287–288 unsolicited offers, 179–180 U.S. Bureau of Labor Statistics, 24 users and user agencies, 48–49 bids or proposals evaluations, 106 identifying needs of, 86–90 Utah Procurement Code, 11 value, 19–20 protests, 122–123 vanity metrics, 22 Virginia Institute of Procurement (VIP), 290 warranties, 154–156 manufacturer and dealer, 155 service, 156 UCC, 155 whistleblower laws, 44–45

State and Local Government Procurement: A Practical Guide, 4th Edition

319