Is Your Procurement Program Sending Money Down the Drain?
“Lowest responsible bidder” practices present a major barrier to innovation and advancement in the water industry, and they cost ratepayers, municipalities and states money every day.
In contrast, value-based procurement, also known as “total cost of ownership procurement,” encourages improvements and can result in significant savings. Value-based procurement means going beyond low-bid criteria to weigh in factors such as long-term value, return on investment, evolving technologies and manufacturers’ service capabilities.
Business and industry have long based their purchasing decisions on such wide-ranging considerations, and many government purchasing departments have begun to follow suit. According to the National Assn. of State Procurement Officials’ “2011-2012 Survey of State Procurement Practices,” 34 states use life-cycle costing in determining awarded vendors and 18 states have awarded contracts based on ROI.
One municipality that has made total cost of ownership a formal component of its Sustainable Procurement Policy is the city of Raleigh, N.C. The city’s policy allows for certain fiscal factors to be considered when making purchasing decisions, including product performance, quality and durability; impact on staff time and labor; life-cycle cost assessments; and others.
Paula Thomas, manager of Raleigh’s Office of Sustainability and a former wastewater treatment plant operator herself, said that in the few years the new policy has been in effect, the city has seen significant progress and savings. One example is the city’s new solar-powered trash compactors.
“These compactors are substantially more expensive than the traditional open receptacles found on city streets,” Thomas said, but the initial expense for this innovation is quickly being recouped. “The head of our solid waste services department used to send a truck and a crew out twice a day to these locations to pick up the trash, and that has been reduced to once every two weeks. So that saves on labor, it saves on fuel, it saves on greenhouse gas emissions and it provides for a much cleaner city.”
The city estimates that within 12 to 16 months the capital outlay for the compactors will be offset and the city will begin realizing actual savings. “Under our old purchasing style, we would not have been allowed to even consider them,” Thomas said.
Making the switch to a value-based procurement model takes work, but it is worth it.
Thomas offers this advice to municipalities:
Actively involve the purchasing department as well as department heads. Seek the purchasing department’s input to ensure legal compliance with state laws and get buy-in from all who will be affected by the change. “That collaboration, that education, that cooperation is an essential piece to having the new policy embraced as a practice that becomes standard operating procedure,” she said.
Integrate capital budgeting and operating budgeting processes. “Traditionally in local governments, the capital budget and the operating budget are reviewed, analyzed and appropriated entirely separately,” she said, “so you have to encourage your finance and budgeting departments to look at those two processes as a whole.”
WWEMA offers several resources regarding value-based procurement on its website at www.wwema.org/procurement_resources.php.
We encourage water treatment providers to share this article and these resources with their state and local government officials to encourage them to review and improve their procurement policies.
Dawn Kristof Champney is president of the Water and Wastewater Equipment Manufacturers Assn., a Washington, D.C.-based trade organization that has represented the interests of manufacturers serving the water supply and wastewater treatment industry since 1908. Kristof Champney can be reached at [email protected].