Over the past few years, the popularity of cooperativepractices has increased dramatically and has transformed the landscape of government procurement permanently. Last spring, American City & County explored government co-ops, offering a primer on their function and importance. This article will go a step further, examining the trends currently shaping the practice that will impact how procurement is done now and into the future.
How did we get here?
Cooperative purchasing, as a concept, dates back to the ‘30s, but the rise of modern co-ops really has its roots in 2008’s Great Recession. During this period, government staffing took a huge hit, one from which procurement departments never really recovered.
“[At that time] governments at all levels were gutted,” says David Yarkin, president of Government Sourcing Solutions. “When the economy rebounded, the departments that were more citizen-facing gradually came back and their staff numbers increased. But it never happened for procurement. There was no one protesting outside of city hall to bring back procurement jobs.” Procurement, in a sense, missed the recovery.
With skeleton crews, procurement departments were ubiquitously being asked to do more with less. As agencies came back, the demands of the procurement office came back in full force. “You had an increase in the demands of the procurement office with fewer resources,” Yarkin says. “So that, in turn, led to procurement officers leaning on cooperative purchasing because they had no choice.” The cost and time savings offered by this practice made it possible to provide the service necessary with greatly diminished resources.
Gary Link, senior vice president of the contracts and consulting group with E&I Cooperative Services agrees with Yarkin’s assessment. “Public entities have been strapped financially, they’ve had staff reductions, and they’ve had to turn to alternative methods to meet their codes, their statutes and their procurement laws and requirements.” To Link, co-ops provided a very important service during a time of increased austerity. When governments were asked to do more with less, cooperative purchasing was the innovative solution. “We have found ways to meet [governments’] needs in times of struggle.”
To understand cooperative purchasing, there are two key ideas that must first be understood – joint solicitations and piggybacking. AC&C’s May 2016 article, “Stronger Together,” explores these concepts in detail, but for the purposes of this article, cooperative purchasing will be understood to mean government agencies increasing their buying power through the economies of scale achieved when many agencies utilize the same contract.
Cooperative programs offer contracts structured to allow use by multiple agencies, and promote their benefits to procurement departments that will save time and money, and to vendors who will increase their bottom lines through increased order volumes. But as they’ve grown in popularity, co-ops are now going through the growing pains of adolescence, so to speak. Brent Maas, the executive director of business strategy and relationships for NIGP: The Institute for Public Procurement, says co-ops are coming into their own, in a sense, establishing their ongoing presence in the procurement world and understanding how they can best serve their customers. There are several trends emerging right now, he says, that will be important in the years to come.
1 - Contract Complexity
In decades past, governments used to participate in what was almost line-item contracting, Link says, and soliciting these highly specific contracts was extremely labor intensive. Rather than writing a request for proposals (RFP) for a contract for automotive parts and accessories, they would request automotive batteries specifically. Due to the reductions in manpower, this type of contracting became impossible, and RFPs became more general. Co-ops were able to step in and provide contracts for “office supplies” rather than a specific type of pen.
In the beginning, however, it was really the most “commoditized of commodities” that governments were cooperatively purchasing, Yarkin says. These contracts had very low risk and very low complexity. Now, he says, there is an emergence of commoditized service contracts in the cooperative space. These contracts are continuing to evolve, becoming more complex to encompass everything from technology to construction.
“It’s interesting that in the early stages [cooperative purchasing] started off with the most simple categories,” Yarkin says, “but now it’s being used for virtually any category that’s broad enough to work for multiple governments.”
2 - Inclusivity and flexibility
Times change, and so do priorities. Responding to an increased focus on inclusivity and fairness in all aspects of culture, co-ops, and procurement officers in general, have increased their attention to small businesses – particularly those run by women, minorities, the disabled or veterans.
“In many cases, a cooperative contract established for members of a co-op nationally is held by a national company,” Yarkin says. “The cooperatives have gotten smarter and have made those contracts flexible enough to allow the national companies to work with smaller, local and regional companies – often as subcontractors.” This adds value not only in the human sense but also helps bolster local economies. By becoming more flexible, co-ops are helping the procurement practice become more equitable and allowing government to use its funds to directly support the local economy.
This is extremely important to Jamie Rhee, chief procurement officer for Chicago. “We have a vibrant and thriving women- and minority-owned business community here,” Rhee says. “We look at every contract as an opportunity for these smaller businesses to participate in government contracting and build capacity.” She adds Chicago has over a dozen programs to build this capacity among smaller, local businesses.
Co-ops, Rhee says, are picking up on this increased focus on local business. “We insist there are participation goals placed on our [cooperative] contracts to ensure a local component,” Rhee says. “You can have the national-level contract through co-ops and still get the local presence through the use of subcontracting.” Because Chicago and other cities have made this a priority, Rhee says co-ops are becoming more flexible, allowing local subcontracting to add value to local economies.
Conversely, co-ops that are not as flexible are less likely to be utilized in today’s marketplace. “We’ve had discussions where we thought we were going to be able to utilize a co-op, and we just couldn’t come to terms because they couldn’t make commitments to the local vendors,” Rhee says. “We had to go elsewhere.”
An unintended consequence of this growing flexibility in cooperative contracts and the growing prioritization of small business is that small local suppliers are suddenly able to operate in new jurisdictions. “It’s actually increased opportunities at a national level for our small, minority- and women-owned businesses, that might not have had that opportunity,” Rhee says. “I think there are definite benefits on that side as well.”
Link agrees that this increased focus on inclusivity is helping small businesses. “What we’ve been able to do in the industry is really help small businesses,” he says. “If an institution or entity needs a diversity or small business provider, within our contracts, we’ve incorporated elements that allow for that to happen without negatively impacting the client. This is making cooperatives more effective today than they were in the past. We were just looking at the best ways to aggregate volume, now we’re looking at how we can be a better value-added service.”
3- Increase in Options
Another emerging trend, according to Yarkin, is an increase in the scope of where procurement professionals are looking for solutions. “There was a time a while back where a government would only look at one cooperative to solve their problem,” Yarkin says. However, this exclusivity is quickly going by the wayside. The procurement officer of 2017 has myriad challenges they are trying to solve, and the complexities of these challenges have forced modern procurement officers to go beyond their traditional, fallback solutions.
The driving force behind these broadening horizons is twofold: an increase in the overall number of co-ops, as well as a drive to differentiate themselves from their competition.
“I think one way that cooperatives are differentiating themselves is largely on the basis of the categories they are procuring for their members,” Yarkin says. “One cooperative might look at the landscape and recognize that everyone has a cooperative widget contract. So instead of creating another one, they look for a unique service to create a contract vehicle with wide application for a broad array of governments across the country.”
As more options are becoming available, transparency is another differentiator, according to Jeremy Schwartz, director of cooperative contracts and procurement for the National Joint Powers Alliance (NJPA). “An important attribute is transparency,” he says. “When someone wants to look and see how a procurement process was conducted, they should be able to access all the necessary documentation to validate it was conducted competitively, and to validate how pricing was originated and how decisions were made. Transparency is a basic expectation.”
The trend of transparency is also improving the types of contracts being offered. “The greater transparency that is being required in the public sector is going to have an impact on anyone that is doing business with government,” Link says. “Because of this, we are looking at other contracts – pricing, service capabilities, attributes other contracts may have – so that we can enhance, improve or change ours to differentiate ourselves.”
Additionally, as more and more contracts become available, service is quickly becoming another differentiating factor. “Regardless of how you conduct your competitive procurement process, there will always be the opportunity to differentiate yourself with service and responsiveness,” Schwartz says.
A third differentiator, according to Link, is analytics to help organizations achieve their goals – cost savings, process, or otherwise. “Analytics plays a major role in what we do,” he says. “This is an area that is a differentiator for us in that we focus an incredible amount of time on understanding our members’ spend… Data and information analytics have become a very integral part of what we do in understanding what our members are doing and projecting where they’re going in terms of spend. This has and will affect cooperatives and government entities as they move forward.”
4 - Cooperative Cooperatives
As partnerships are forged and networks grow, Yarkin says we’re starting to see co-ops being cooperative with each other. “One cooperative will establish a contract and another cooperative. They’ll decide rather than creating a unique contract in a particular category, they’ll essentially piggyback off of another cooperative’s contract to make it available to their members.”
Schwartz agrees that teamwork among cooperatives is becoming a priority. “Although there are a lot of options out there, we think highly of our public procurement peers as well as those that are providing alternate options,” he says. “We believe we are best when we collaborate and communicate with others. We believe a collegial, professional dialogue... will help us provide a higher level of service across the board.”
This is a trend that’s just starting to emerge, Yarkin says, “but I think it’s a great development for procurement officers that cooperatives are trying to find ways to solve problems for their members instead of being competitive with one another.”
Better Utilizing Co-ops
For procurement officials looking to expand their utilization of cooperative purchasing, Yarkin says it’s important to first look at all the options with an open mind. “It’s easy to fall into the trap of thinking that your organization can do any contract better than anyone else can,” Yarkin says. “It’s good to have pride in the abilities of your team, but when engaging in cooperative purchasing, you have to back off of that thinking a little bit and realize that there are other organizations that can do contracts well, too.”
It’s also important to ensure that the legislative bodies involved understand cooperative purchasing – its goals, its benefits and its function. “To the layperson, it might seem confusing and they might think you’re not conducting a bid,” Yarkin says. “When in truth, someone else has done the bid on your behalf, and you’re leveraging competition that already took place.” That’s why educating legislators on the fundamentals of cooperative purchasing is important from the beginning.
Yarkin also advises to not let the perfect become the enemy of the good. There are many cooperatives out there today, and there are a wealth of very good contracts. It would be impossible to go out and look at every single contract in a particular product category offered across the country, he says. The procurement officer’s job is to find the best value for taxpayers, and time savings should be factored into this equation. If a cooperative contract will add value to your department, it should be utilized rather than fretted over.
What Does This Mean For Me?
Granted, unless you work in the procurement office, co-ops aren’t going to be on your radar that often, but Schwartz says it’s important that local leaders invest time in educating themselves regarding the practice. “If you aren’t aware of cooperative purchasing as a strategic sourcing option, you should invest some time in getting to know it,” he says.
Also, Schwartz adds, that local government leaders should be aware of how many options are available to them on the cooperative purchasing marketplace. “How many of us, when we need to go to the hardware store only ever go to the same one?” He asks. “We typically know two or three options – cooperative purchasing isn’t that much different. It’s good to know the options out there, and the strengths of the different options.”
Rhee adds to the idea of a multitude of options, saying it’s important to view co-ops as one tool in the government’s overall procurement portfolio. It’s important to understand, however, that it shouldn’t be the only one. “Otherwise you’re giving up a lot of local control,” Rhee says. “I think it needs to be balanced.”
Link says mayors, councilmen and the like should have a keen interest in the return on investment of their procurement operations, specifically on how to maximize ROI. When it comes to that, many government leaders, he says, have no idea. He advises these individuals to simply ask. “‘What kind of ROI do we get from [the supply chain], and how?’ – To me, that’s a critical aspect. I would alert [leadership] to the ever-changing regulations that are becoming more challenging with fewer resources. Therefore your return on investment becomes more critical.”
However, it’s important, Yarkin says, to let procurement officers do their jobs without too much meddling. “Go out and hire the very best people, give them all the support they need and trust them to do their jobs,” he says.
For the past 10 years, the arrow has only been pointed in the direction of more cooperative purchasing. Yarkin does not expect this to change anytime soon. He foresees a relaxing of state and local regulations that currently limit the use of co-ops, and with this increased freedom, a steady growth in cooperative purchasing’s popularity.
Additionally, Yarkin expects to see an increase in what he calls the democratization of co-ops, with an increasing number of the types of contracts available, as well as an increased number of providers. Ultimately, this will create even more savings for governments, and by extension, taxpayers.
Standardization in practice will also becoming important in the coming years, but won’t come easily, due to the complex nature of cooperative purchasing and procurement in general. “It’s like any industry when you have thousands of public procurement professionals trying to find some common themes they all agree are must-haves, versus having 100 perspectives on must-haves and none of them really meshing,” Schwartz says. “That is the challenge – collecting those subject matter experts and having them agree.”
This idea of standardization leads to the question of accreditation, but who will be the accrediting body, and what will its processes be? NIGP has created an accreditation program already, but acceptance isn’t universal. The problem, Link says, is that there are so many different co-ops in existence, which have all been working to differentiate themselves from the others. It’s exceedingly difficult to come up with a standardized list of criteria for accreditation while taking into account the overwhelming complexities of the marketplace.
Regardless of these challenges, Maas says that over the next five years, local government leaders can expect uninterrupted use and sustained growth of cooperative programs as they continue to evolve to meet the diverse needs of the thousands of agencies who take advantage of them. “The good news for procurement professionals,” Maas says, “is that cooperative programs committed to sustaining the integrity of cooperative practice continue to adopt and implement a standard of practice that aligns more consistently with the transparency, reporting and procedural requirements of public entities.”
For more information on co-ops and the procurement industry as a whole, watch AC&C's exclusive interview with Brent Maas below. And to learn even more, download NIGP's Public Procurement Guide for Elected and Senior Government Officials here.