Protecting the Public through Strategic Contracting
March 22, 2021
By Stephen B. Gordon
Certified Public Procurement Officer and Fellow, NIGP: The Institute for Public Procurement
The nightmare of the COVID-19 pandemic has opened a door for public procurement officials to demonstrate that they can play a more strategic role in their organizations. Will they seek to seize this opportunity? Will their superiors support them if they do?
In early 2019 as COVID-19 began to spread, hospitals, first responder agencies, and other organizations began to run short of the personal protective equipment (PPE) their line and support staff needed to do their jobs without placing themselves at undue risk. The horrific, multiple-order consequences of these shortages are now well-known: death, suffering, grief, lasting health effects, business failures and loss of income, to name a few.
So, why did PPE, which the organizations had assumed always would be available, suddenly become unavailable? In a nutshell, the cause was the unanticipated and unplanned-for collapse of the national supply agreements that these organizations were using when demands for PPE spiked around the world. These agreements failed because, in the interest of keeping their prices as low as possible, the manufacturers and distributors who held them had built global supply chains – supply chains that evaporated when countries where PPE was being manufactured decided to keep what they had to meet their own needs.
The fact that the agreements had been “just-in-time”” agreements – another cost-avoidance strategy -- meant that there were no reserves on hand for either customer organizations or suppliers to draw upon.
Pre-pandemic, public procurement officials, knew, without having to be told, that it was important to avoid as much cost as possible. As a result, they were content with using the aforementioned supply agreements. The prices in those agreements were at least good enough, and all an end-user had to do to get needed supplies was to place an order with the expectation, based on years of experience, that it would be fulfilled timely. What could be simpler for the procurement office or the end-user?
Then, against all expectations, the global supply chains collapsed, and there were few Plan Bs. Good prices, low inventory costs, and optimal efficiency were great until there was no PPE to be had. Then, the chaos began.
Recognizing the opportunity that only a crisis can create, fourteen public procurement thought leaders have come together under the umbrella of The Continuity of Supply Initiative (CoSI). This loosely-knit group of volunteers is advocating through every available means the creation of what it calls “resilient” supply contracts for any categories of goods or services that government cannot afford to be without under any circumstances.
CoSI’s premise is that the combined four trillion dollars spent by the U.S. public sector, an amount equal to 19 percent of gross domestic product, -- can be leveraged in a variety of ways: to incentivize suppliers to enter into resilient contractual agreements; honor those agreements in all circumstances; and mitigate risks for public sector organizations and their stakeholders.
Harnessing their enormous clout in the marketplace will require governments to be more proactive in how they, plan form, and administer contracts for the goods and services that must always be available. This means, as CoSI advocates, that most government, will need to cease simply from “riding” existing contracts that someone else has created without their input. Instead they’ll have to seek out opportunities to combine their requirements in terms of specific needs and estimated quantities with those of other governmental to create new resilient contracts through joint-solicitation (or “true”) cooperative procurement.
Participating in true cooperative will require front-end planning, coordination, and collaboration, but the resulting strategic benefits will far exceed the additional level of effort.
In order to achieve as much resiliency as possible as quickly as possible, the governments that lead the creation of the true cooperative contracts will have to shift from contracting for essential goods and services on a “low bid” basis to a “best value” basis, in which the resilience of the contemplated contracts will be of very high importance.
That will mean outcome-based scopes of work and contracts refined and formed through negotiated procurement. These value-added strategies will require the lead agencies, which coordinate the true cooperative contracting actions, assign procurement professionals who possess the necessary general competencies, contracting competencies, personal traits, and values to lead those actions.
CoSI is currently working with a large national cooperative contracting organization that has agreed to do a “proof of concept” for the approach it is advocating. That cooperative contracting organization intends to issue its solicitation for that proof of concept sometime within the next year to a year and a half. The proof of concept will involve PPE, but CoSI is advocating the use of its recommended approach for any category of goods and services that must be available without interruption.
To learn more about CoSI and how you can get involved in this initiative, contact stephenbgordon@gmail.com.