Connecting state and local government leaders
COMMENTARY | There’s a lot wrong with the way governments purchase goods and services. But there are also ways to bring creativity and efficiency to procurement, harnessing it for innovation and economic growth.
Over the last two years, the federal government has dedicated nearly a trillion dollars in increased funding that will make its way through state and local coffers in the form of grants, formula funds and rebates. For local governments in particular, this money is an opportunity to build a more sustainable future and address systemic inequities, among other important goals.
But even the most well-thought-out or straightforward programs can lose their effectiveness if the process for procuring the goods and services needed to run them isn’t designed or executed well.
For too long, government purchasing has been treated as a back-office function, and the contracting process has been an afterthought to program design. Policy energy directed at procurement has mainly been about adding controls or requirements to reduce the risk of fraud. Meanwhile, departmental staff and purchasing officers suffer through a cumbersome process to contract with vendors, businesses too often find city procurement too confusing to bother with bidding, and taxpayers see more of their money squandered.
In today’s economic environment, procurement offices face even more threats to their effectiveness. Inflation remains high, and while some pandemic-era supply chain challenges have eased, labor shortages still threaten to stall production. As major projects like broadband expansion or electric vehicle charging station installations get underway, governments may once again find themselves competing to secure goods and services. And they’ll do this while also dealing with outdated systems and public-employment shortages.
The solution to these threats is not to create more rules. It’s to untie the hands of purchasing and contract officers so that they can do their work effectively. Over the last few months, I’ve spoken with local officials about their challenges and priorities in these areas and have developed five key principles around streamlining procurement to become a tool for innovation and local economic growth.
Make It User-Centered
The first is to redesign the system to make it user-centered. The entire procurement process—from concept to request for proposals (RFP) to contract to payment—should be based on input from staff and vendors regularly using the system.
Long Beach, California, has embraced this concept and has spent the last few years revamping its procurement process based on extensive survey work and feedback from staff across all city departments, along with current vendors and would-be vendors. The changes that resulted included creating RFP templates for city staff, regular “office hours” for new vendors, and conducting training sessions across all city departments, all with the aim of making the system more accessible and increasing competition.
So far, it appears to be making a difference: Nearly all of the city’s RFPs in a sampling of health and human services and economic recovery-related projects in 2022 had more than three bids, and there was an average of 15 vendors per request—a dramatic increase in competition over the previous year.
Focus on Outcomes and Results
Second, purchasing and contracting should focus on outcomes and results. That includes not only incorporating performance measurements into contracts such as results-driven contracting but also being more creative in identifying and selecting vendors than the traditional RFP process allows. Competitive proof-of-concept requests, for example, state a problem and ask for solutions, opening up a larger world of potential solutions to the complex problems governments face.
Such a profound change to the traditional procurement process will need buy-in from policymakers and elected officials. Procurement offices must have a voice at the highest levels in government to ensure that the right connections are made among program design, contracting and performance measurement.
New York City, for example, has mounted an aggressive procurement reform program after previous administrations largely ignored issues that increased costs and delayed projects. Under Mayor Eric Adams, officials who had previously evaluated or been on the receiving end of the city's procurement shortcomings have been placed in procurement leadership positions. Along with City Comptroller Brad Lander, these officials are pushing hard for changes aimed at transparency, efficiency and a better experience for vendors.
Automate the Paperwork
The third principle: Elevate procurement work to incorporate more problem-solving and less paperwork. One local procurement officer told me he spent roughly 70% of his time doing paperwork. In an age of smartphones and ChatGPT, this time commitment seems decades out of date. Automating back-office functions and paperwork frees up staff time for tasks that require critical thinking, creates more opportunities for training, and overall makes the work more meaningful. This can make procurement an attractive proposition to recruit purpose-minded young professionals and help reduce staff burnout and promote retention.
Put Cybersecurity Controls in Place
Fourth, policymakers and practitioners must consider the potential vulnerabilities in their procurement process both from without and within. As procurement becomes more digitized, cybersecurity controls are a must-have protection against external threats. Within government, independent auditing and public transparency tools are key to combating waste, fraud or corruption.
Audit for Accountability
And finally, keep vendors accountable through regular inspections and re-bidding. Governments, for example, should not be paying for supply quantities that were not ordered, prices above the agreed-upon contract or quote, or defective items. With inflation eating into budgets and many economists warning of a potential recession this year, purchasing officers can realize real cost savings now by regularly re-bidding contracts and inspecting ongoing purchase orders.
The Government Finance Officers Association has noted that procurement officers “focusing on this strategy have found a surprising percentage of orders that contained unneeded or unusable materials.” Here too, digital tools are available to help identify anomalies or flag suspicious transactions.
Many of these changes and improvements are fairly straightforward. But that doesn't make them easy. For many places, the act of fortifying procurement offices for the coming blitz will require a change in mindset. and it will most certainly require relationship-building between procurement officials and the rest of government.
Those of us in and around local government have been talking for years about what’s wrong with procurement. As more federally funded projects come on line, these next few years could throw an unwelcome spotlight on those problems. Now is the time to seize an opportunity to harness these investments to turn government purchasing into a vehicle for innovative ideas and local economic growth.
Mark Funkhouser, president of Funkhouser & Associates, is a municipal finance expert who has spent decades in government service and is a former mayor of Kansas City. That experience, his long tenure as an auditor and his most recent post as the publisher of Governing magazine have made him a trusted and credible advisor to government officials across the country.