Delaware’s Partner$ in Procurement

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Gloria Wernicki Homer
Secretary of Administrative Services, State of Delaware

Jack Markell
Delaware State Treasurer

Delaware’s Partner$ in Procurement, called “P2,” began as an effort to achieve bestin- class pricing and service quality in state purchasing contracts. Because they were not leveraging their “bulk purchasing power,”state agencies were spending too much for the items they needed and buying too many things they did not need (such as highend video packages for each new computer). Like most states, Delaware often awarded contracts for purchases after just the first round of bidding, instead of encouraging suppliers to compete to beat the lowest first-round price. Lacking deep industry expertise, the state’s purchasing agents also were not always able to negotiate best prices for contracts. Too often state employees would buy from non-contract vendors, incurring unnecessary costs. While the state’s decentralized buying system offered flexibility, its accounting system was unable to capture the needs of all agencies and therefore could not communicate total needs to the vendors and take advantage of volume discounts.

In January 2002, the state, with the help of Silver Oak Solutions, kicked off the initiative by conducting an opportunity assessment of Delaware’s expenditure data, purchasing practices, and the resulting statewide contracts. Silver Oak segmented and identified over $1.1 billion in addressable purchased goods and services across 175 categories for savings creation. The analysis included expense data from 22 agencies, 3 universities, and 19 K-12 school districts, with over 4.5 million transactions.

A few months later, the state selected 14 different categories of spending for the pilot project of the sourcing initiative. The collective annual spending across these areas was $44 million. The project team identified more than $4 million in annual savings and $15 million in total contract length savings, a 9 percent reduction. The savings achieved through the competitive bidding process represent unit price reductions on the same set of products and services purchased by Delaware prior to the project.

In late September 2002, the state targeted an additional 10 spending areas for renegotiations. This phase of work launched several new approaches for savings for the project such as “direct leveraged negotiations” with incumbent suppliers (offering current suppliers additional business in exchange for greatly reduced per-unit costs) and “right specification.” P2 created $1 million in annual savings during this phase.

Partner$ in Procurement was designed to produce $2.5 million to $10 million in savings. Among additional project goals were to redirect the purpose of the users and other buyers to concentrate on value; improve competition in the bidding process; enable agencies to capture savings in part for their own purposes; expand the vendor base without detrimental effect on in-state, minority- and women-owned businesses; and facilitate the use of state contracts by improving their value and benefits.

Partner$ in Procurement accomplished these goals and more. Delaware is now able to capture and track the savings created, reduce unauthorized (non-state contract) purchases, and monitor vendors to ensure they are pricing and billing correctly. This methodology completely replaced Delaware’s old contracting practices and saved the state more than $1.2 million in just seven months. The state expects to continue to reap savings as P2 best practices affect future contracts. Nine states have followed Delaware’s lead in optimizing state procurement practices.

About the Authors

Gloria Wernicki Homer became Secretary of the Delaware Department of Administrative Services in 2001, after serving two years as the department’s Director of Administrative Services. In addition to leading and co-authoring the state’s purchasing and contracting law, her accomplishments include establishing an automated statewide fleet system and the “Delaware Helpline.” She also has served as Director of Capital Budget and Special Projects for the state and as president of the Campus Community School Board of Directors, a school she co-founded in 1996. She did master’s degree work in city and regional planning at Ohio State University and received a B.A. with honors in sociology from the University of North Carolina at Chapel Hill.

Re-elected State Treasurer in 2002, Jack Markell has worked to make Delaware state government more responsive and efficient. He entered public service after a successful private sector career in senior management positions at Nextel and Comcast as well as posts as a consultant at McKinsey and Company, Inc., and as a banker at First Chicago Corporation. He brought to state government a fresh perspective on government spending and worked with Secretary Homer and the Department of Administrative Services to implement the “business-best” procurement strategy described here. Mr. Markell earned his bachelor’s degree from Brown University and an MBA from the University of Chicago.

 

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