Purchasing Directors’ Meeting

January 16, 20048:30 A.M.

State Purchasing

2

Purchasing Directors’ Meeting Purchasing Directors’ Meeting January 16, 2004 Agenda January 16, 2004 Agenda

Welcome / Meeting Overview

Operational Issues

State Updates in Performance-based Service Contracting

Best Practices in Competitive Outsourcing

Break

Making the Transition to Performance-based Contracting

Lunch

Implementing a Framework for Developing and Managing PBCs

Next Meeting Location / Time

3

Operational Issues

• Bureau Chief Position – Open until Jan 23

• Rule Development Workshop – Jan 23 at 1:30 pm

• Purchasing certification survey – respond by Jan 21

• Florida-based training instructors – contact Russ by Jan 21

• Office Consumables contract – one more week grace period

• State Purchasing Memo No. 2 – State Purchasing Agreements / SNAPS II

• MFMP Agency Catalog Loading (see Dec 10 Roundtable materials) – respond by Jan 21

4

Purchasing Directors’ Meeting Purchasing Directors’ Meeting January 16, 2004 Agenda January 16, 2004 Agenda

Welcome / Meeting Overview

Operational Issues

State Updates in Performance-based Service Contracting

Best Practices in Competitive Outsourcing

Break

Making the Transition to Performance-based Contracting

Lunch

Implementing a Framework for Developing and Managing PBCs

Next Meeting Location / Time

5

State Updates in PBCStarting Points

• What is Competitive Outsourcing?

• What is Performance Based Service Contracting?

6

What is Outsourcing?A Very Imprecise Glossary

• ** Contracting Out ** • Privatization• Managed Competition• Strategic Sourcing• Asset Transfer• Public-Private Partnership• Downsizing• Spend Management• Spend Analysis• Efficiency Studies• Reinventing• Restructuring• Re-engineering

7

Performance Based Service ContractingWhat is a Service?

• The rendering by a contractor of its time and effort rather than the furnishing of specific commodities. 287.017(9), F.S.

• 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. ABA Model Code

• Work performed to meet a demand, especially work that is not connected with a manufacturing process. Council of State Govts.

8

Performance Based Service ContractingTaxonomy of Contractual Services

• Personal: unique, technical, and/or infrequent functions, usually performed by individuals with broader skill-set (e.g., translation, technical editing, technical appraisal)

• Professional: unique, technical, and/or infrequent functions performed by individuals or entities with specialized skills (e.g., medicine, performing arts, management and systems consultation)

• Proprietary: functions usually performed by entities where the process is more important than the product, if any (e.g., janitorial, custodial, security)

• Client: services procured on behalf of clients, usually requiring prequalification or licensing (e.g., day care, halfway houses, vocational rehabilitation, counseling)

• Management: managerial/ministerial functions performed by entities assuming governance of the service delivery, the real and personal property, and sometimes the personnel of government functions (e.g., management of hospitals or airports)

9

Contracting OutHistorical Perspective

• 18/19th century – private sector performs most services

• 19/20th century – government takes over and controls public services to strengthen public accountability and to balance equities; eventually, only personal or support services contracted out

• Today – public services returning to private sector to address concerns of escalating costs and inefficiencies

10

Contracting OutRecent Federal Background

• Government Performance and Results Act of 1993

• Clinger-Cohen Act of 1996

• Federal Activities Inventory Reform (FAIR) Act of 1998

• President’s Management Agenda (FY 02)

• Services Acquisition Reform Act of 2003

11

Recent Federal BackgroundPMA Excerpts

“Government likes to begin things – to declare grand new programs and causes. But good beginnings are not the measure of success. What matters in the end is completion. Performance. Results. Not just making promises, but making good on promises.

“[T]here is an understandable temptation to ignore management reforms in favor of new policies and programs. However, what matters most is performance and results. In the long term, there are few items more urgent than ensuring that the federal government is well run and results oriented.”

12

Recent Federal BackgroundPMA Excerpts

Government should be:

• Citizen-centered, not bureaucracy-centered

• Results-oriented

• Market-based, actively promoting rather than stifling innovation through competition

13

Services – Make or Buy?The Critical Questions

(1) Is there a real need?

(2) If so, what is the most feasible method to meet it?

14

Make or Buy Is there a real need?

• Assess program goals (citizen related)

• Assess program objectives (quantitative benchmarks toward reaching goals)

• Summarize strong and weak points using sound management criteria

15

Make or BuyMost Feasible Method?

• Consider all the options

• Include the right people – Purchasing manager (process expert)

– Project manager (program expert)

– Financial expert

– Staff with hands-on experience

16

Make or BuyOutcome = Need Statement

• A concise hard-copy summary of the findings of the process:

– the need– the vehicle for delivery– quantitative and qualitative results

• Roadmap for developing Statement of Work (or Performance Work Statement)

17

Performance Based ContractsKey Differences

• You don’t tell the contractor how to do it; they tell you - huge cultural shift

• Program managers must be involved early

• Requires great discipline to understand the requirements, describe the requirements (outcomes), and meaningfully measure performance (metrics)

18

Performance Based ContractsMore Key Differences

• Path of least resistance– Ballpark things and correct as you go– Feel-good outputs unrelated to business requirements– Require vendor to give best effort and eventually get what

you want (T&M)– Throw more money at problems if expected results missed

• Performance based contracting– Understand and contractually mitigate risks– Greater sophistication in outcomes and metrics– Failure to achieve results means vendor’s process failed– When performance isn’t met, principled consequences

19

Performance Based Contracts Challenges to Success

• General misunderstanding (62%)• Cultural change among purchasing officials (51%)• Difficulty in writing statements of objectives (47%)• Proper training (45%)• Converting current contracts (45%)• Difficulty in managing contract (41%)• Sense of losing control over systems (37%)• Lack of senior leadership/direction in agency (20%)• Lack of central purchasing leadership/direction (9%)• Other (11%)

20

Contracting OutRecent DMS Examples

• IT Services for Retirement• Custodial Services/Facilities Management• Maintenance and Rental Vehicles• Workforce Collective Bargaining• Supply Rooms• Local Construction Management• Field Security• HR Processes (PeopleFirst)• Purchasing Processes (MyFloridaMarketPlace)

21

Additional Resources

• Office of Federal Procurement Policy (www.whitehouse.gov/omb/procurement)

• Seven Steps Guide (www.arnet.gov/Library/OFPP/BestPractices/pbsc)

• Government Procurement Oct 03 article (www.govpro.com)

• www.govexec.com/outsourcing (current news)

22

Purchasing Directors’ Meeting Purchasing Directors’ Meeting January 16, 2004 Agenda January 16, 2004 Agenda

Welcome / Meeting Overview

Operational Issues

State Updates in Performance-based Service Contracting

Best Practices in Competitive Outsourcing

Break

Making the Transition to Performance-based Contracting

Lunch

Implementing a Framework for Developing and Managing PBCs

Next Meeting Location / Time

23

Purchasing Directors’ MeetingPurchasing Directors’ MeetingNext MeetingNext Meeting

Time: 3:00 to 5:00 p.m.

Date: Tuesday, February 17, 2004

Location: Tallahassee Civic Center

(NIGP Vendor Meeting)