In recent years, the use of cooperative procurement contracts has become increasingly popular throughout the United States at all levels of government. When well executed, cooperative purchasing contracts can reduce the costs of products because of an increased aggregate and also reduce the amount of time and money spent to facilitate a solo procurement process.
While cooperative purchasing can produce significant benefits, the process itself is not without potential pitfalls and challenges. It is important for fire chiefs to understand the cooperative purchasing process so that they may make the best-informed procurement decisions.
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WHAT IS COOPERATIVE PROCUREMENT?
In simplest terms, cooperative procurement is sharing procurement contracts between organizations. Cooperative purchasing contracts are typically developed with the intention of meeting common needs among multiple organizations. Governmental purchasing cooperatives comprise various governmental agencies with common requirements for a product or service. Governmental purchasing cooperatives can comprise all levels of governmental agencies: local, state, and federal. A good example of this is purchasing a fire chiefs vehicle on a state-administered contract for vehicles.
Cooperative purchasing contracts have been around for many years. In fact, many fire departments have used them for common supplies like fuel, cleaning agents, paper products, and office supplies. More recently, however, the fire service as a whole has moved toward more frequent cooperative procurement contract use for more fire service specific items such as equipment, apparatus, tools, services, EMS supplies, and technology.
COOPERATIVE PURCHASING MODELS
There are a few common approaches to cooperative purchasing contracts, which include the definite quantity model, the indefinite quantity model, and the piggyback.
Definite quantity contracts reduce the risk to vendors by clearly defining the quantity of goods or services to be purchased. When vendors can bid on a guaranteed quantity, it allows them to keep costs low because they do not have to account for an unknown risk. Definite quantity contracts typically will provide the lowest pricing; however, this model may be more challenging for the participating departments. In the definite quantity model, all participants must be able to commit to specific quantities, schedules, and other common contract requirements, which may be challenging.
Indefinite quantity contracts seek out solicitations without citing specific purchase quantities. This is advantageous, as itmakes the solicitation process easier since participants do not need to define actual quantity commitments. While indefinite quantity contracts still produce price reductions, the savings typically are not as significant as definite quantity contracts because of the potential risk to the vendors. Although they may not produce as large a cost savings, indefinite contracts are far more flexible for participants and may allow for more variations in requirements.
Piggyback agreements are included in contracts that have been executed by an organization that allows other organizations to use the terms and conditions of its contract with a vendor. The initial contract must include piggyback language, and the vendor must agree to those terms. Piggyback contracts are often use by smaller fire departments but can also benefit larger departments by saving on overhead costs and by increasing pressure on vendors for lower prices. Fire chiefs should be aware if their organization allows for piggybacking, as some communities’ purchasing policies do not allow them.
Because the vendor cannot anticipate piggyback orders, cost savings may be somewhat limited. While piggybacks can reduce costs on goods, most of the cost savings are found on reduced overhead and time spent on procurement processes. The disadvantage of a piggyback contract compared with other models is that when a fire department jumps on a piggyback, it doesn’t get the advantages of leveraging volume, as the vendor cannot anticipate orders. Piggybacks may also produce some political strife, as local vendors may view them as unfair because they weren’t able to compete in the bid process of another community.
COOPERATIVE PROCUREMENT BENEFITS
Benefits of cooperative procurement include reduced prices, quality and compliance, time efficiency, and wider access.
Reduced prices: Through product, service, and contract requirement standardization, fire departments can benefit from economies of scale. Cooperative procurements are especially advantageous for smaller fire departments, as they can benefit from the market share leveraged by larger fire departments.
Quality and compliance: Cooperative purchasing contracts can aid in ensuring high-quality goods and services by using specialized specification writers, purchasing specialists, and a technical evaluation committee comprising representatives fromparticipating fire departments. Smaller departments that do not have dedicated purchasing specialists will benefit greatly by participating with a fire department that has access to trained purchasing professionals.
Time Efficiency: Let’s face it, cooperative purchasing contracts can be very convenient, especially for fire departments that do not have the support of professional purchasing specialists. Purchasing goods or services off of a cooperative contract eliminates the need to develop individual specifications, seek out quotes, or put out for proposals. If a cooperative contract can be found that meets the department’s need, a cooperative contract is much more efficient.
Wider Access: Cooperative purchasing contracts can lead to much wider access to a range of supplies and contracts. By participating in a large regional or national cooperative purchasing program, a fire chief can have hundreds of vetted vendors at his fingertips.
COOPERATIVE PROCUREMENT CHALLENGES
Challenges include legal compliance, contract control, local vendor participation, terms and conditions, and fees.
Legal Compliance: Although many communities have similar procurement laws and ordinances, there can be a variety of subtle differences. It is important for the fire chief to discuss cooperative purchasing possibilities with his legal advisors to ensure it can be used under the organization’s current ordinances. One challenge to cooperative purchase agreements that many communities have included in their purchasing policies is a “local business first” policy, which provides preferences or awards points for using a local vendor. Local business preference requirements may complicate or even prevent a fire department’s ability to participate in a cooperative contract. While the goal of supporting a community’s local vendors is admirable, it often can lead to higher prices, as local vendors can take advantage of preference points in their bids.
Contract Control: Depending on how a cooperative contract was written, it may limit an individual community’s ability to negotiate changes in terms or length of the contract. One way to minimize this risk is to seek out a separate deal with the vendor that references the contract but establishes terms specific to your agency.
Local Vendor Participation: While a smaller local vendor may be able to handle the goods and service needs of one or two fire departments, it may not have the capacity to fulfill the needs of a larger cooperative contract that includes many fire departments. This could lead to political challenges if local businesses within your community are no longer able to compete.
Terms and Conditions: The required terms and conditions for each organization’spurchasing contracts can vary greatly. The contract language typically used by one fire department may not meet the terms and conditions of another organization. There are various ways to meet these challenges such as standardizing conditions and terminology among participating organizations, including individual contract variations in the solicitations, and negotiating participation agreements between the organization and the supplier.
Fees: Many cooperative purchasing programs require membership fees to participate. Fee assessments may be a one-time entry fee, annual fees, or fees based on a percentage of purchases. Fire chiefs must ensure the savings they are to realize as part of a cooperative contract exceed the fees associated with membership.
Cooperative purchasing can provide a fire department with many benefits. By participating in a cooperative purchasing program, a fire department can leverage higher purchase quantities, which reduces the prices of goods and services. Using cooperative purchasing also aids in the efficiency of the organization, as it can reduce staff hours, administrative overhead, and other costs related to the purchasing process. Cooperative purchasing is especially helpful for smaller fire departments that do not have professional purchasing agents, as they can leverage the experience and expertise of purchasing specialists from other organizations.
Although there are many advantages to cooperative purchasing, the fire chief must be prepared to anticipate and address potential roadblocks. Existing organizational purchasing policies may not all align with the policies of the cooperative program. It is imperative that the fire chief works hand in hand with his legal team to ensure any purchasing policy conflicts are identified and addressed and that the terms and conditions of the cooperative contract are reviewed and understood. Cooperative purchasing may also pose legal or political challenges, especially in organizations that have policies that provide preferences to local vendors. Finally, it is also important that fire chiefs review the fees of cooperative contracts or cooperative programs to ensure the projected cost savings more than cover the expected fees.
Many fire departments today are faced with limited resources and are working with extremely tight budgets and limited personnel, which makes the purchasing process extremely challenging. Chiefs must continue to seek out innovative ideas, programs, and processes to alleviate these challenges while continuing to provide the best level of service possible. Cooperative purchasing can be a valuable tool in the fire chief’s toolbox to accomplish this.
JOSEPH MURRAY, Ph.D., is chief and emergency management coordinator for the Dearborn (MI) Fire Department.
