How can public entities share contracts? A cooperative purchasing overview
Maybe you’ve heard of cooperative purchasing, shareable contracts, or piggybacking. Here, we cover an overview of these concepts, plus joint solicitations, interlocal agreements, and participating agreements, too.
Cooperative purchasing is an established legal best practice that helps governments significantly shorten purchasing timelines and achieve cost savings. Already, about 20% of local government purchasing spend flows through shareable contracts. This procurement method and the term “cooperative” have been popularized by many national purchasing cooperative organizations; to make sure we’re being inclusive of contracts created by national purchasing cooperatives as well as state and local public entities, we generally refer to any contract that another public entity can use to purchase as a “shareable” contract.
Since public entities spend taxpayer dollars, the way they spend these dollars is highly regulated. Above a certain dollar threshold, as low as $5,000 or $6,000 in some jurisdictions, governments must purchase from contracts created through a formal competitive solicitation process or seek a formal exemption for this process. Although most public entities default to creating their own contracts by running their own competitive solicitation process, they don’t have to. Generally, there are two (not mutually-exclusive) ways that public entities can collaborate with each other on purchasing: joint solicitations and piggybacking.
In this case, multiple entities pool their demand up-front and run one single competitive process that includes all of their individual requirements. Usually, one entity usually takes the lead and handles the administrative burden of managing the competitive solicitation process. In many cases, coordination across multiple entities can be quite challenging, particularly if specifications differ, or if there are a number of different terms and conditions specific to each government that have to be included in the solicitation and contract. That being said, there are examples of groups that are comprised of multiple entities running joint solicitations, including the Kansas City Regional Purchasing Cooperative, the Bay Area Chemicals Consortium, and the Southeast Florida Regional Purchasing Cooperative.
The joint solicitation process can help entities save time and money. Since one entity is conducting a process on behalf of many others that will participate, there are administrative time savings to participating governments. In addition, since joint solicitations aggregate demand from many governments up-front, public entities are often able to achieve significant cost savings through the joint solicitation process. The drawback of this process, at least for now, is that the burden to coordinate can be high, especially on the lead entity.
Piggybacking is sharing work that's already been done across public entities. More often, instead of coordinating needs up-front, public entities will share contracts via “piggybacking.” Piggybacking is when one public entity uses the contract that another public entity has created to purchase from the same supplier on the same terms. In this situation, the piggybacking entity is able to satisfy the competitive solicitation requirement and complete a purchase above its purchasing threshold by utilizing the work that another public entity has done instead of generating a new contract via a new competitive solicitation process on its own.
Typically, in order for a contract to be shareable or “piggybackable,” the original solicitation and contract must include language that permits other public entities to use the contract on the same terms. States and local governments also have different rules that govern the use of shareable contracts; in most cases, the buyer has to make sure the contract meets basic requirements to be able to issue a purchase order. (This basic diligence checklist for public entities can help you get started.)
Piggybacking on another entity's contract generates administrative cost savings and expedites the purchasing process. However, depending on the contract, direct price savings may or may not be achieved. Note that for many contracts, additional discounts for larger volume purchases may be achieved with some negotiation.
While many entities associate “cooperative” or shareable contracts as those created by national purchasing cooperatives or consortiums, local and state entities can also create contracts that other public entities may utilize. In some, but not all of these cases, the public entity requires an intergovernmental (“interlocal”) agreement to be signed between the lead entity and the piggybacking entity.
In some cases, when another public entity decides to piggyback on a contract, that entity will complete a participating agreement or addendum. This is a contractual document that binds the contracted supplier and the piggybacking entity to the terms and conditions of the initial agreement, plus generally includes additional terms and conditions to meet the unique needs of the piggybacking entity. Some cooperative organizations, like NASPO Value Point, require states to sign a Participating Addendum (PA) before the state or local entity from the state can piggyback on the contract. Many local public entities, like the City of Portland, OR, sign a Participating Agreement with the contracted supplier that includes terms and conditions that are specific to their local entity before piggybacking on a shareable contract.
