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The Power of the Purse: How to make government procurement a tool for innovation and growth in local economies by Manhattan Institute

The Power of the Purse: How to make government procurement a tool for innovation and growth in local economies by Manhattan Institute

According to Manhattan Institute, a think tank whose mission is to develop and disseminate new ideas that foster greater economic choice and individual responsibility, state and local governments allocate a significant portion of their budgets to procurement, with an average of $1 out of every $4 spent on goods and services each year.

Given recent and upcoming federal investments, it is crucial to enhance the government contracting process by adopting a user-friendly design and making procurement a means for innovation and problem-solving.

The Manhattan Institute has developed a guide for policymakers who aim to modernize state and local governments by redefining their purchasing tools and strategies.

📌  Utilize financing to maximize public procurement opportunities: The recent federal funding from the American Rescue Plan Act, Infrastructure Investment and Jobs Act (IIJA), and Inflation Reduction Act (IRA) has resulted in a significant increase in procurement spending by state and local government procurement offices. As a result, these offices need to update their systems to ensure better financial management and compliance with the associated conditions.

They require user-friendly technology that can offer better insights into crucial aspects like vendor performance. Furthermore, the legislation emphasizes evaluating outcomes, investing in new technologies like carbon capture monitoring, electric vehicles, and cybersecurity systems, and prioritizing projects that collaborate with Minority-Owned Business Enterprises (MBEs) and local entities.

📌  Persist in advocating for reforms that facilitate the betterment of local governance: The public procurement process poses significant challenges for procurement offices and contractors. However, it's worth noting that many regions face constraints that are beyond their control.

For instance, New York City's sources and methods are closely regulated by the state government, which limits the ability of local officials to manage projects efficiently and increases costs while hindering innovation. While New York City has proposed various regulatory reforms, they have yet to fully implement them.

📌  Empower leaders: It's crucial to recognize that acquisitions are strategic activities, not just administrative functions. Before implementing any reforms, local leaders must comprehend the impact of their actions and foster strategic partnerships with all local government agencies. They should understand the effort required, desired outcomes, government objectives, and the team they have.

📌  Utilize cooperative purchasing and umbrella contracts to their advantage: Cooperative purchasing can reduce administrative costs and help secure the best prices for products, while also expediting contract creation and delivery, promoting transparency and leading to lower prices. However, it can create challenges for local and small businesses in terms of competition. To address this, New York City has introduced umbrella contracts, which enable suppliers to contract with purchasing departments for a comprehensive range of goods and services under a single agreement.

📌  Promote agile acquisition and user-centric design: By adopting a user-centric approach, you can identify and prioritize features that users value, leading to greater profitability for all stakeholders. Agile procurement involves an iterative product development phase that incorporates feedback from diverse stakeholders, including end users.

Enable procurement officers to contribute to public policy on government procurement: Governors or mayors can appoint a procurement officer to a cabinet-level position or assign a management advisor for procurement to ensure that the objectives and outcomes of the procurement policy are clearly defined and accounted for from the inception of a new program.

📌  Introduce request for testing: Unlike RFPs which present pre-defined solutions, a Request for Testing outlines the problem and solicits solutions, broadening the scope of potential options that officials may not have previously considered.

📌  Track data and measure outcomes: Many governments do not monitor project outcomes for every new program, and even when they do, the data is not always shared with procurement teams. However, it is crucial to continue monitoring acquisitions after contract signing to ensure that the need has been met and the problem has been solved. New York State, for instance, utilizes tools such as employee and vendor surveys every six months, actual vs. estimated savings, and increased vendor engagement in contracts.

📌  Automate mundane tasks and focus on complex tasks: Procurement teams typically perform a range of administrative, technical, and managerial duties. However, automation can help streamline administrative tasks, freeing up time and energy to focus on more challenging assignments.

📌  Emphasize ongoing technical training for staff: Staff training is often overlooked, but it is vital. Procurement teams must receive continuous training to remain up-to-date.

📌  Enhance security controls: Given the rise in cyber attacks, governments must ensure the security of their transactions and credentials.

📌  Implement auditing and accountability: While cybersecurity aims to protect information from external threats, auditing focuses on ensuring that internal security measures are effective. Procurement officers must actively monitor the purchasing process for warning signs. A thorough and transparent audit process can also reduce bidding and protest challenges from suppliers who were not selected for contracts.

📌  Re-bid contracts: The Government Finance Officials Association (GFOA) cautions that engaging with a single vendor for an extended period can result in complacency, and suggests that procurement officers regularly review vendors. While renewing a contract with a reputable vendor may appear to be a safe option, over time it can foster a 'this is how we've always done it' mindset. 

📌  Regular inspection of orders is necessary: Managers should establish mechanisms to review open or umbrella contracts and routine purchases on a regular basis.

Procurement offices have come a long way in making the process more user-friendly and accessible, particularly with the accelerated digital adoption due to the pandemic. However, there is still more work to be done to ensure that governments can effectively utilize their purchasing power. By implementing the practices and ideas outlined in this brief, the Manhattan Institute hopes that state and local governments can harness the power of procurement to bolster local economies, increase efficiency through competition, and create sustainable and innovative solutions that benefit taxpayers.

Head over to the original article to discover a series of recommendations for New York City and other locations


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