Chapter 15

Public Supply Management

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Government Purchases of Goods and Services($ billions)

Year Federal State and Local Total

1933 $ 2.0 $ 6.0 $ 8.0

1941 16.9 7.9 24.8

1950 18.4 19.5 37.9

1970 96.2 123.3 219.5

1985 353.9 464.7 818.6

1990 424.0 674.1 1098.1

1995 439.2 694.7 1133.9

1996 445.3 726.5 1171.8

1997 456.9 766.5 1223.3

1998 453.7 808.4 1262.1

1999 470.8 855.0 1325.7

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The Objectives of Government Supply are Basically the Same as the Private Sector

• Assurance of continuity of supply• Avoidance of duplication and waste through

standardization• Maintenance and improvement of quality standards• Development of a cooperative environment between

supply and the agencies and departments served• Obtaining maximum savings through innovative supply

and application of value analysis techniques• Administering the supply function with internal efficiency• Purchase at lowest like cycle cost

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Characteristics of Public Purchasing

• Source of authority established by law• Budgetary restrictions/limitations• Outside pressures• Greater support of public service programs• Perceived absence of interest costs• Little formal inspection• Longer time required to modify the organization• Lower salary levels at senior ranks• Lack of confidentiality• Importance of specifications• Acquisition procedures determined by established dollar thresholds• Emphasis on bid process• Difficulty recognizing past performance

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Acquisition Procedures Determined by Established Dollar Thresholds

1. Small-dollar purchases for item below the threshold for competitive bids or quotes

2. Request for quotations (RFQ) for items below the threshold for issuing a formal bid solicitation but high enough to require competitive quotes

3. Invitation for bids (IFB) for items above the threshold to issue formal bid solicitation, normally for a product or contractual (nonprofessional) service

4. Request for proposal (RFP) for professional services or high-tech needs when formal bid solicitations are required

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Acquisition Procedures Determined by Established Dollar Thresholds

5. Emergency purchases for unplanned needs to protect public health, life or property

6. Sole-source purchases for high-tech or mechanical needs where compatibility is required, to purchase a unique item or service

7. Negotiated acquisition, usually part of an RFP or sole-source purchase, or to acquire exempt services such as utilities, power or landfills

Source: Ron Gauthier, “Purchasing in the Fishbowl”, NAPM Insights, March 1990, p. 21-22.

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Three Types of Bonds

• Bid (or Surety) Bond: Guarantees that if the order is awarded to a specific bidder, it will accept the purchase contract

• Performance Bond: Guarantees that the work done will be done according to specifications and in the time specified

• Payment Bond: Protects the buyer against liens

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Trends in Public Purchasing

• Centralization- centralized: 35%- centralized/decentralized: 37.5%- virtual centralization: 22.5%

• Privatization or Outsourcing- reduce costs, gain shorter implementation times, better quality

services

• Commercial Practices- payment processes, contract types, electronic procurement and

investment recovery programs

Source: Center for Advanced Purchasing Studies, Purchasing Performance Benchmarks for State/County Governments 1999,” www.capsresearch.org, February 27, 2001.

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Issues in Federal Government Purchasing

• Small business favoritism• Labor surplus area favoritism• Buy American Act• Preference for environmentally preferable purchases• Renegotiation to recover “excess profits”• The General Services Administration• Military Purchasing

- firm fixed price contract, cost plus fixed fee contract, cost no fee contract, cost plus incentive fee

• U.S. Postal Service - a quasi-governmental organization

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Issues in State and Local Government Purchasing

• Prison-made goods

• Cooperative Purchasing- Joint buying- Formal, separate cooperative buying agency

• Local-bidder preference laws

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Advantages and Disadvantages of Cooperative Purchasing

Advantages• Lower prices• Improved quality through improved

testing and supplier selection• Reduced administrative costs• Standardization• Better records• Greater competition

Disadvantages• Inferior products

• Longer lead times

• Limited items available

• More paperwork

• Inability of small suppliers to compete due to larger quantities