PUBLIC PURCHASING IN FLORIDA COST CONTROL IN PUBLIC PURCHASING (REV. 05/08)

COST CONTROL: MISSION SPECIFIC MISSIONS OF GOVERNMENT PROCUREMENT VARY WITH… ADMINISTRATIONS, CIRCUMSTANCES, NEAR-TERM OBJECTIVES

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

COST CONTROL MECHANISMS HOW IS COST CONTROLLED?

COST CONTROL Is the answer competition? What is the relationship between “low bid” and “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 four mechanisms: 1. PURCHASING CYCLE (6 steps) 2. PURCHASING INSTRUMENTS (3 types) 3. PURCHASING METHODS (8 methods) 4. PURCHASING ORGANIZATION (2 types)

1. Purchasing Cycle Contains Six Component Units: BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGIES TERMS AND CONDITIONS COMPETITION ADMINISTRATION

1A. Buy/Don’t Buy What Factors Influence this Decision? NEEDS/WANTS RESOURCE AVAILABILITY COST AND BUDGET QUALITY SCHEDULE RISK FLEXIBILITY ACCOUNTING RULES FEDERAL SPENDING REQUIREMENTS POLITICS

1B. SPECIFICATIONS Do Cost Considerations Affect Specifications? Do Specifications Affect Costs?

1B. SPECIFICATIONS Factors That Influence Cost: TOO RESTRICTIVE UNCLEAR TOO BROAD AWARD CRITERIA NEGOTIATION STRATEGIES UNNECESSARY REQUIREMENTS

1C. SOURCING STRATEGY SPEND ANALYSIS INTERNAL PROFILE EXTERNAL PROFILE ITEMS OF BID PROCUREMENT METHOD TERM AWARD FORMULA

1D. Terms and Conditions GENERAL CONDITIONS SPECIAL CONDITIONS MUTUAL OBLIGATIONS RISK (What’s this got to do with purchasing?)

1E. 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)?

1F. ADMINISTRATION CONTRACT MANAGEMENT DISPUTE RESOLUTION (Is there one right answer?) RENEGOTIATION LESSONS LEARNED PLANNING FOR THE FUTURE

2. PURCHASING INSTRUMENTS Which Instrument is Best? PURCHASING CARDS PURCHASE ORDERS CONTRACTS

Pcards/PO’s/Contracts Considerations: 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

3. PURCHASING METHODS SMALL DISCRETIONARY PURCHASE INFORMAL BID (RFQ’s) FORMAL ITB, RFP AND ITN’S SINGLE SOURCE EMERGENCY PURCHASE OTHER (Exempt, required by Statute, etc.)

FOR ALL METHODS CONDISER: 3. PURCHASING METHODS FOR ALL METHODS CONDISER: BUY/DON’T BUY SPECIFICATIONS SOURCING STRATEGY TERMS & CONDITIONS PRICE COMPETITION ADMINISTRATION

5. PURCHASNG ORGAINZATION CENTRALIZATION VS DECENTRALIZATION MEASURE YOUR EFFECTIVENESS

5. PURCHASING ORGANIZATION CENTRALIZATION VS DECENTRALIZATION Can the office utilize: P Cards? Purchase Orders/Contracts? Local Purchase Orders? Cost of qualified staff? Do they measure their effectiveness? 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.

5. PURCHASING ORGANIZATION WAYS OF MEASURING PERFORMANCE Do your customers get what they need when & where they need it? Do they get it at the lowest overall cost? Did the vendor perform? Did your agency perform? 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