January 12, 2010

Intergovernment purchasing agreements save money, but may hurt small suppliers

Print More

By Andy Rosen
Andy@ MarylandReporter.com

Maryland has increasingly turned to large, multi-state collectives to buy basic necessities such as auto parts and office supplies. Officials say it saves money and makes purchasing more efficient, and many businesses agree.

But some small suppliers are concerned that these broad purchasing agreements are denying them a chance to compete.

The staff of the Board of Public Works, Maryland’s spending control panel, recently released a report that said these “intergovernmental cooperative purchasing” agreements should be broadened. This would allow local and state government bodies to harness savings based on volume, according to the report.

However, the study also focuses on the practice’s effect on small businesses. Intergovernment agreements often originate in other states and counties and generally require the state to only use those sources for supplies. The savings are often hard to quantify because the Maryland rarely has a local price to compare when it enters into the agreement.

The BPW report acknowledges that there are conflicting goals in state procurement: to get a good price, and to use state spending to support small and minority-owned businesses.

“In cooperative purchasing, these goals can sometimes be at odds,” the report says. “The tension runs along a spectrum from entering into the most efficient process on one end and affording all businesses a chance to bid on every purchasing opportunity at the other.”

The report recommends that the Department of General Services, Maryland’s main commodity purchaser, should change its policy to allow some purchases to go to small firms that would otherwise not fall under the purchasing agreements.

DGS has about 200 exclusive supply contracts, and only six of them are intergovernment agreements. The state’s intergovernmental agreements are valued at nearly $223 million. The state also participates in two intergovernment rebate programs for food and infant formula that could bring nearly $63 million.

Ellen Valentino, Maryland director of the National Federation of Independent Businesses, said she appreciates the focus on small business. But she calls for a change that is not included in the report — advance public notice that the state plans to enter into such an agreement. That would offer small businesses a chance to compete, she said.

“We understand the state’s need to save money,” said Valentino. “The issue with way that these co-ops have been structured is that the small business community doesn’t even get a chance to respond to the bid.

Mike Haifley, the DGS purchasing chief, said it is important to help small businesses, but he also said there is an element of risk in buying outside of an exclusive purchase agreement.

“I would say that we want to help small businesses, but we want to be careful that we are saving money,” he said.

Mary Jo Childs, a BPW staff member that led the work on the report, said that would effectively amount to a bid for each project, which undermines part of the benefit of cooperative purchasing.

“The value is that the comparison’s already been done by another [jurisdiction],” Childs said.

Del. Dan Morhaim, D-Baltimore County, sponsored the bill that led to the study, with the idea of expanding intergovernment purchasing. He said the state spends billions on purchases, so even small percentage reductions can amount to a lot.

“The report is a series of positive steps about being smart in an area of state spending that is often overlooked” he said.