PUBLIC PURCHASING IN FLORIDA COST CONTROL IN PUBLIC PURCHASING (REV. 09/06/05)

COST CONTROL: MISSION SPECIFIC MISSIONS OF GOVERNMENT PROCUREMENT VARY WITH ADMINISTRATIONS, CIRCUMSTANCES, AND NEAR-TERM OBJECTIVES STATE PURCHASING’S MISSION NOW IS “To deliver innovative, resource-saving purchasing services in order to provide effective program support to all state agencies.”

COST CONTROL: MISSION The underlying mission of governmental purchasing is AT ALL TIMES to provide the jurisdiction customers what they need, when and where they need it, at the lowest overall cost, considering both prices and program administration.

COST CONTROL MECHANISMS HOW IS COST CONTROLLED?

COST CONTROL IS THE ANSWER “COMPETITION?” WHAT IS THE RELATIONSHIP BETWEEN “LOW BID” & “LOWEST OVERALL COST?” WHAT AFFECTS THE COSTS? WHAT ARE SOME OF THE CONSIDERATIONS IN DETERMINING LOWEST OVERALL COST? PURCHASE PRICE, OPERATION COST (ENERGY, CONSUMABLES), MAINTENANCE, PERFORMANCE (!), LABOR/ADMIN COSTS, DISPOSAL. WHAT AFFECTS COST: NEXT SLIDE.

COST CONTROL Cost control is impacted by Each step in the Purchasing Cycle Purchasing Instruments Purchasing Methods Purchasing Organization

I. IMPACT OF STEPS IN THE CYCLE BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION

HOW DOES EACH WORK TO CONTROL COSTS? BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION WHERE IS MOST OF THE COST DETERMINED? OF COMPETITION, WHAT’S A TYPICAL SPREAD BETWEEN BIDDERS?

WHAT FACTORS INFLUENCE THIS DECISION? 1. BUY/DON’T BUY WHAT FACTORS INFLUENCE THIS DECISION? RESOURCE AVAILABILITY, COST, QUALITY, SCHEDULE, RISK, FLEXIBILITY, POLITICS

BUY/DON’T BUY NEEDS/WANTS RESOURCE AVAILABILITY, IN & OUT COST QUALITY SCHEDULE RISK FLEXIBILITY POLITICS

DO COST CONSIDERATIONS AFFECT SPECS? 2. SPECIFICATIONS DO COST CONSIDERATIONS AFFECT SPECS? REMEMEBER VALUE ANALYSIS: LOOK FOR LOWEST COST ELEMENTS IN A SPEC OR SOW THAT WILL ATTAIN DESIRED RESULTS.

2. SPECIFICATIONS DO SPECS AFFECT COST?

3. SOURCING STRATEGY SPEND ANALYSIS INTERNAL PROFILE EXTERNAL PROFILE ITEMS OF BID PROCUREMENT METHOD TERM AWARD FORMULA HOW DOES APPLICATION OF THIS METHODOLOGY AFFECT ULTIMATE COSTS?

3. SOURCING STRATEGY How do different procurement methods affect price and cost? How do contract terms affect price and cost? How do award criteria and formulas affect price and cost?

4. TERMS & CONDITIONS GENERAL & SPECIAL CONDITIONS MUTUAL OBLIGATIONS RISK (WHAT’S THIS GOT TO DO WITH PURCHASING?) TERMS & CONDITIONS, AND EVEN TYPE OF SPEC (DESIGN & QPL VS. PERFORMANCE) ASSIGN RISKS.

5. PRICE COMPETITION NOW WE KNOW WHAT WE’RE TALKING ABOUT!

5. PRICE COMPETITION How does competition lower prices and costs? How much? How does it compare to the other factors (buy/don’t buy, specs, strategy, terms & conditions, administration)?

6. ADMINISTRATION What elements are involved here, and how does each affect cost?

6. ADMINISTRATION CONTRACT MANAGEMENT DISPUTE RESOLUTION (Is there one right answer?) RENEGOTIATION LESSONS LEARNED PLANNING FOR THE FUTURE

COST CONTROL II. EFFECT OF PURCHASING INSTRUMENTS ON COST CONTROL

PURCHASING INSTRUMENTS Refer back to slide 6 and consider: Purchasing cards Purchase orders Contracts BUY/DON’T BUY, SPECIFICATIONS, SOURCING STRATEGY, TERMS & CONDITIONS, PRICE COMPETITION, ADMINISTRATION

Purchasing cards BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION HOW DO THESE TYPICALLY OPERATE? HOW CAN YOU IMPROVE THEIR OPERATION? E.G. CONTRACTS, POLICIES, LIMITS IN THE CARD

Purchase orders BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION HOW DO THESE TYPICALLY OPERATE? HOW CAN YOU IMPROVE THEIR OPERATION?

Contracts BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION

COST CONTROL III. PURCHASING METHODS

EFFECT OF PURCHASING METHODS ON COST CONTROL Refer back to slide 6 and consider: SMALL DISCRETIONARY PURCHASE INFORMAL BID FORMAL ITB, RFP AND NEGOTIATIONS SINGLE SOURCE EMERGENCY PURCHASE GO TO NEXT SLIDES FOR THE DISCUSSION

SMALL DISCRETIONARY PURCHASE BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION

INFORMAL BID BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION

FORMAL ITB, RFP AND NEGOTIATIONS BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION

SINGLE SOURCE BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION SOMETIMES A SINGLE SOURCE REALLY JUST REFLECTS IMPERFECT COMPETITION. COMPARE TO WHAT OTHER CUSTOMERS ARE DOING, MGT OBJECTIVES. TERM AND TIMING CAN STRENGTHEN BARGAINING POSITIONL

EMERGENCY PURCHASE BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION

COST CONTROL IV. Purchasing Organization

PURCHASING ORGANIZATION CENTRALIZATION/DECENTRALI-ZATION AND COST CONTROL

CENTRALIZATION/DECENTRALIZA- TION AND COST CONTROL Refer back to slide 6 and consider: P Cards Purchase Orders/Contracts Local Purchase Orders Cost of qualified staff DOES YOUR ORGANIZATION ESTABLISH A BALANCE BETWEEN CENTRALIZED AND DECENTRALIZED PURCHASING PROCESSES? THIS BALANCE ALSO AFFECTS COST CONTROL. TAKE A LOOK AT DHSMV MEASURES IN HANDOUT FOR SECTION 8.

TWO WAYS OF MEASURING YOUR PERFORMANCE DO YOUR CUSTOMERS GET WHAT THEY NEED WHEN & WHERE THEY NEED IT? DO THEY GET IT AT THE LOWEST OVERALL COST? WHAT’S THE RELATIONSHIP, WHO CARES, AND WHY? BY “WHAT’S THE RELATIONSHIP” WE MEAN WHAT COMES FIRST? THE CUSTOMER CARES, BECAUSE THE FIRST AFFECTS THEIR PERFORMANCE DIRECTLY AND IMMEDIATELY, AND THE LATTER AFFECTS FINANCIAL RESOURCES FOR OTHER GOALS & RESPONSIBILITIES.

THE CONCEPT OF BEST VALUE V=Q/P