The pros and cons of using a shareable contract
Working in public procurement isn’t easy. According to a 2018 survey of state and local procurement professionals, over 40% of procurement staff feel overworked. A county-level procurement administrator summed up trends that have made procurement work more challenging: “We’ve been struggling for the past decade with budget reductions and staff cuts, while the amount of work is increasing.”
Faced with limited time and resources, local public entities are increasingly buying through shareable contracts – known in the industry as cooperative, piggyback, or intergovernmental contracts. Today, about 20% of local government spend goes through shareable contracts. Here are some of the pros and cons of buying from a shareable contract.
Using a shareable contract reduces the administrative burden of purchasing and expedites the purchasing process. When you use a shareable contract, you’re relying on the work another entity has already done to run a competitive solicitation process. That process includes market research, writing the solicitation, advertising the solicitation, receiving and evaluating proposals, and negotiating a contract. Running a competitive solicitation process typically takes 4–24 months; an internal audit of Philadelphia’s procurement practices found it took 2.5 months to create the solicitation, not to mention collect and evaluate proposals or negotiate and award the contract. Reducing the amount of time that purchasing staff spend managing new solicitations and generating new contracts, especially for products or services that don’t require too much customization, saves months of administrative time and effort.
In addition, in technology categories especially, local entities are branching out into unfamiliar territory. These new tech-based solutions or services are even more difficult to research and scope. In 2018, it is estimated the cities in the United States spent nearly $25 billion in support of “smart city” initiatives. Cooperative procurement, and a general ethos of collaboration, can help public entities identify best-in-class products, share research findings, and expedite purchases without requiring additional operating budgets or staff time. Sharing contracts also shortens the sales cycles considerably for smaller firms, like startups, that may not otherwise be able to access the government market.
Pavilion can help you maximize the time saving benefits of buying from a shareable contract, by reducing the time you need to spend finding contracts and ultimately, running fewer competitive solicitations when compliant, competitive options for your need already exist. Procurement teams report saving an average of 20 hours a week with Pavilion.
Using a shareable contract can help entities achieve more competitive pricing by aggregating government purchasing power.
The Kansas City Regional Purchasing Cooperative (KCRPC) has helped its members achieve over $14M in savings by fostering more collaboration in procurement. A 2017–2018 San Mateo County Civil Grand Jury Report identified potential cost savings of between 5% and 15% for San Mateo County and its 20 cities if they worked more collaboratively to share contracts or run joint solicitations. If those savings were realized, the 21 entities could have as much as $108 million to reinvest into other priorities each year, just by collaborating better at a local level.
Smaller governments can achieve price-saving advantages from purchasing off a contract created by an entity with greater purchasing power. The cost-saving advantage of using a shareable contract is particularly salient for smaller jurisdictions or public entities that are not able to buy goods or services in large quantities. If those entities are able to utilize a contract negotiated by a larger entity, or pool demand with other small, neighboring groups, they will often be able to achieve better pricing than they could on their own. For example, the Texas Department of Information Resources estimates that in FY18, the Department’s shareable contracts for technology saved public education entities and local governments in the state more than $120 million just in product pricing alone.
When a supplier is awarded a contract that includes shareable purchasing language, that supplier can now turn that successful contract award into multiple contracts, especially with other public entities in the region. When you use an existing contract instead of running a new competitive solicitation process, you can reduce the cost of doing business with public entities for your suppliers. This is especially meaningful for small-, women-owned- and disadvantaged businesses, which may struggle to navigate the high costs of selling into the government sector. Consider adding shareable language to your contract templates to support these businesses.
Leveraging a shareable contract takes less time than generating a new contract through competitive solicitation. However, finding a shareable contract can feel like finding a needle in a haystack. We’ve heard from public buyers who know that a contract likely exists, but cannot devote months to calling peer entities to track down the contract and supporting documentation for diligence. Pavilion aggregates shareable contracts from local entities, states, and national and regional purchasing cooperatives to reduce the time that public buyers have to spend searching for relevant contracts and tracking down due diligence materials.
Shareable contracts provide a price ceiling, but not always the most competitive price. While shareable contracts nearly always save time, there are instances, particularly for large state and local public entities, where running a new solicitation will yield a lower unit price due to the entity’s purchasing power. Even if you’re not a large entity, you may still seek to negotiate the pricing in a shareable contract, particularly if your entity is buying a much larger volume than the contract creator. We’ve also heard from public procurement staff who essentially compete suppliers available through shareable contracts as the final step before making a purchase. If you have several suppliers available via shareable contracts, Pavilion can help you make sure you’re getting the best possible price by reaching out to suppliers to see if they can provide any additional discounting to your entity.
Before you decide to use a shareable contract, you should assess whether you’ll need to make a one-time purchase before the current expiration or if you expect to need to make ongoing purchases over a longer period of time. If this is only a one-time purchase, as long as the current contract and solicitation met your requirements, you likely will not need to worry about future amendments or changing any other terms or conditions in the contract.
However, if you plan to utilize the contract for a multi-year term or more than once, or if you need to make sure certain additional terms and conditions are met, you may consider creating your own agreement (also known as a “participating agreement”) with the supplier that references the existing shareable contract. This is because once an entity moves forward with a shareable contract, it is largely at the mercy of the contract creator; changes to terms might be negotiated, or the length of the contract might prevent the piggybacking entity from utilizing it for as long as is necessary to deliver the good or service in question. Having a separate agreement with the supplier will ensure you’re kept up to date on any changes.
Local and diverse suppliers are not always readily available through shareable contracts, but if you’re intentional, you can use shareable contracts to help achieve your entity’s equity in contracting goals. Pavilion helps you find diverse businesses available on shareable contracts with diversity filters, and can show you suppliers that are near you to help you work with local businesses, too.
Using a shareable contract does not preclude public entities from working with businesses in their communities or diverse businesses. It can be challenging to find local and diverse businesses on shareable contracts, especially if the contract is available through a national cooperative. But if you need to keep public dollars in your community, you can seek out contracts awarded directly to local, minority-owned, women-owned (MWBE) or other types of businesses, purchasers can achieve the efficiency of cooperative purchases while maintaining a commitment to working with traditionally underserved businesses. In fact, shareable contracts can be a powerful tool to promote the growth of small and diverse businesses, especially within a region, if an entity decides to make that a priority. In addition, even national shareable contracts will often allow for local subcontractors or resellers, so with a little bit of research, purchasers can balance local or diverse business preferences with a need to get things done.
Using a shareable contract isn’t a silver bullet for all procurement challenges, but leveraging the expertise, experience, and procurement work of tens of thousands of public entities across the country with Pavilion can help you save time, achieve cost savings, and even access local and diverse suppliers, faster.
