Recent Changes in State Purchasing Policies August 24, 2004 State Purchasing

2 Recent Changes in State Purchasing Policies Agenda  Welcome / Session Overview  Putting Procurement in Context  Roadmap to Excellence in Contracting Audit Report  Center for Efficient Government  Recent Rule Changes  Questions

3 Recent Changes in State Purchasing Policies Agenda  Welcome / Session Overview  Putting Procurement in Context  Roadmap to Excellence in Contracting Audit Report  Center for Efficient Government  Recent Rule Changes  Questions

4 The Lawyer’s View Putting Procurement in Context The Lawyer’s View Chapter 287 (Purchasing (also 255, 337)) Chapter 120 (APA) Chapters 119 and 286 (Public Records and Sunshine Law) Chapter 215 (Payment and Audit) Chapters 671 and 672 (UCC) Chapter 112 (Ethics) Chapters 838 and 839 (Criminal Misconduct)

5 Putting Procurement in Context The Business View (FYE 6/30/03) $48.3 billion in expenses We’d be 25 th on the Fortune 500 list (by revenue) –Bank of America is just ahead of us –Just behind us are Pfizer, JP Morgan Chase, Time Warner, and Proctor & Gamble

6 Putting Procurement in Context Gov. Agencies’ FY Spend ($ millions) Other Structures/Improvements1,700 Independent Services not classified1,500 Engineering754 Consulting246 Medical Services206 MRO Services240 Medical Supplies204 Construction179 IT Services166 Telephone142

7 Putting Procurement in Context Fla. Financial Management Info. System (215.91, FS) Primary means by which state government managers acquire and disseminate the information needed to plan and account for the delivery of services to the citizens in a timely, efficient, and effective manner. Coordinate fiscal management information and information that supports state planning, policy development, management, evaluation, and performance monitoring. Primary information resource that provides accountability for public funds, resources, and activities.

8 Putting Procurement in Context 21 st Century Challenges Stand-alone legacy management information systems LAS/PBS (Budgeting - EOG) FLAIR (Accounting - DFS) COPES (Personnel and Payroll - DMS) SPURS (Purchasing - DMS) CMS (Cash Management - DFS)

9 Putting Procurement in Context 21 st Century Challenges Lack of standards among subsystems Lack of complete and efficient integration Duplication of data input and maintenance Insufficient management information to support decision making Incomplete reporting capabilities Lack of single chart of accounts Complex external interfaces High maintenance and modification costs Inconsistent data

10 FFMIS Putting Procurement in Context Overview of Major FFMIS Initiatives Human Resources – People First DMS working with Convergys/SAP to modernize the personnel system, leave and attendance and benefits management ( Purchasing – MyFloridaMarketPlace DMS working with Accenture/Ariba to integrate purchasing activities for all State buyers and for vendors doing business with the State ( Financial Management – Aspire DFS working with Bearing Point/PeopleSoft to replace the legacy accounting and financial system (FLAIR) with an integrated enterprise resource planning system ( )

11 Pre-FFMIS Putting Procurement in Context Pre-FFMIS Purchasing Systems Vendor Bid System (Bidding) SPURS (Purchasing) FLAIR SPURS View (Reporting) Manual Process for Matching Web-based Registration Manual Process for Invoicing Agency contract system Agency contract system Agency contract system Agency contract system Agency contract system

12 FFMIS Putting Procurement in Context FFMIS Purchasing Subsystem Goals FLAIR / Aspire Registration Purchasing Bidding Contracts Invoicing Matching Reporting

13 Putting Procurement in Context Lifecycle of Spend Planning & Analysis SourceContractReq’nOrder Interact & Receive InvoicePayment Capture company-wide spend Adequate data integrity Identify & monitor savings Measure ROI of procurement Fulfill reporting requirements Standardized sourcing processes Deep commodity & market knowledge Disseminate best practices Optimal pricing & terms Decrease time and cost of complex negotiation Facilitate multiple collaboration across the organization Apply negotiated pricing & terms Track supplier performance ratings Track rebate and volume agreement compliance Manage contract renewals Minimize cost to track and transmit orders to suppliers Enforce compliance with contract pricing Minimize time and cost to requisition, approve, receive & reconcile invoices Automate payment and link P.O. to payment authorization in one record (Ariba Buyer) Capture early payment discounts Timely capture of payments information

14 Putting Procurement in Context The Sourcing Process Fast Track to Value Validate & Profile Category Conduct Industry Analysis Build Total Cost of Ownership Model Develop Category Strategy Conduct Supplier Analysis Build Supplier Selection Decision Matrix Conduct Auctions Complete Prepare Fact- Based Negotiation “Packages” Negotiate Value Propositions Category Profile Industry Profile TCO Model Category Strategy Value Propositions Benefits Realization Develop Measure Results & Trends High-Level Data Collection & Analysis Fast Track to Value Segment Purchases Validate & Profile Category Conduct Industry Analysis Build Total Cost of Ownership Model Develop Category Strategy Conduct Supplier Analysis Build Supplier Selection Decision Matrix Conduct Auctions Complete Prepare Fact- Based Negotiation “Packages” Negotiate Value Propositions Auctions Form Cross- Functional Sourcing Teams Develop Measure Results & Trends High- Data Collection & Analysis Fast Track to Value Segment Purchases Validate & Profile Category Conduct Industry Analysis Build Total Cost of Ownership Model Develop Category Strategy Conduct Vendor Analysis Build Vendor Selection Decision Matrix Conduct Auctions Complete ITB/ITN/ RFQ/RFP Develop Value Proposition Around Options Make Award Decision In-Scope Categories CFSTs (Cross-Functional Sourcing Teams) Selection Decision Matrix ITB/ITN/RFQ/RFP Continual Vendor Improvement Profile Internally & Externally Develop Strategy Screen Suppliers & Selection Factors Conduct Auctions & Shape & Negotiate Value Propositions Implement Agreements Assess Opportunities Profile Internally & Externally Develop Strategy Screen Suppliers & Selection Factors Conduct Auctions & Shape & Negotiate Value Propositions Kick-Off & Profile Internally & Externally Develop Strategy Develop Selection Factors & Screen Vendors Conduct Competitive Event Prepare Value Proposition & Award Implement Agreements Kick-Off & Assess Opportunities - Form Cross- Functional Sourcing Teams Develop Vendors Measure Results & Trends Tools Ariba Contracts Ariba Analysis Ariba Sourcing Ariba Contracts Ariba Analysis Award Decision (ITA) Ariba Analysis Typical Deliverables Key Worksteps - and / or -

15 Recent Changes in State Purchasing Policies Agenda  Welcome / Session Overview  Putting Procurement in Context  Roadmap to Excellence in Contracting Audit Report  Center for Efficient Government  Recent Rule Changes  Questions

16 Roadmap to Excellence in Contracting EOG Inspector General Report No Reviewed approximately 100 audits conducted by seven agencies, AG, and OPPAGA, between July 1999 and June 2002 Extracted 494 audit findings related to procurement, contracting, and outsourcing Identified six core activities instrumental to outsourcing

17 Roadmap to Excellence Distribution of the 494 Findings Performance monitoring (45%) Procurement methodology (20%) Contract writing (17%) Payment (10%) Needs assessment (7%) Contract closure (1%)

18 Roadmap to Excellence Factors Contributing to Recurring Problems Lack of statewide guidance Lack of expertise in negotiating contracts There is no statewide system to train or certify agency contracting personnel, nor are there incentives to encourage professional development The state’s corporate culture does not foster the sharing of best contracting practices among agencies

19 Roadmap to Excellence Factors Contributing to Recurring Problems Agencies’ use of different processes and procedures in awarding and managing contracts causes the contract documents to vary considerably in format and content Inadequate systems exist for monitoring and rating vendor performance A formal procedure for agencies to perform and document needs assessments has not been developed by DMS Piecemeal statutes and rules

20 Roadmap to Excellence Recommended Solution to Recurring Problem Lack of statewide guidance We recommend that DMS accept the mantle of leadership bestowed by Florida Statute. Most deficiencies could be readily addressed and resolved by requiring that DMS embrace its statutory mandate.

21 Lack of Guidance Action to Date Reorganization of State Purchasing New hires of experienced purchasing managers All of the other actions listed!

22 Roadmap to Excellence Recommended Solution to Recurring Problem Lack of expertise in negotiating contracts We recommend that legislation be proposed similar to the Truth in Negotiations Act to assist contract negotiators in determining whether the contractor’s proposal is reasonable. We also recommend that DMS immediately begin to offer a negotiating training program for state employees.

23 Contract Negotiations Action to Date Bills introduced last session (HB 1819 / SB 2932) DMS developed and delivered training and certification (more below)

24 Roadmap to Excellence Recommended Solution to Recurring Problem No statewide training or certification We recommend a statewide training initiative led by DMS be undertaken using the foundation developed in some agencies. In addition, we recommend incentives to encourage professionalism and certification for contract administrators, negotiators, monitors and managers.

25 Training Program Action to Date

26 Roadmap to Excellence Recommended Solution to Recurring Problem The state’s corporate culture does not foster the sharing of best contracting practices We recommend that DMS create and foster user groups of professional procurement staff that meet on a regular basis to share best practices and common problems.

27 Sharing Best Practices Action to Date

28 Roadmap to Excellence Recommended Solution to Recurring Problem Agencies’ use of different processes and procedures in awarding and managing contracts causes the contract documents to vary considerably in format and content We recommend DMS, with the assistance of other agencies, develop standard contract formats for use by all state agencies.

29 Standardize Contract Formats Action to Date New forms PUR 1000 and 1001 Also, MyFloridaMarketPlace will help drive processes and procedures

30 Roadmap to Excellence Recommended Solution to Recurring Problem Inadequate systems exist for monitoring and rating vendor performance We recommend a uniform vendor monitoring and rating system be created which incorporates links to contract monitoring reports, vendor websites, closeout evaluations, and a method for other agencies to access performance evaluations.

31 Vendor Rating System Action to Date Surveyed existing agency systems Exploring MyFloridaMarketPlace possibilities Exploring third-party solutions In the meantime, training on best practices and forms

32 Roadmap to Excellence Recommended Solution to Recurring Problem Piecemeal statutes and rules We recommend an initiative, led by DMS and a core group of procurement staff, to monitor outsourcing practices for inadequacies and inconsistencies, and propose improved legislative and regulatory changes. This process, over time, could replace the myriad of overlapping and conflicting statutes and guidelines with one unified, effective system of controls.

33 Piecemeal Statutes and Rules Action to Date Ch (eff. July 2002) Bills introduced last session (HB 1819 / SB 2932) Center for Efficient Government (more below) Major rule revision (more below)

34 Recent Changes in State Purchasing Policies Agenda  Welcome / Session Overview  Putting Procurement in Context  Roadmap to Excellence in Contracting Audit Report  Center for Efficient Government  Recent Rule Changes  Questions

35 Center for Efficient Government Web Location

36 Governor’s Center for Efficient Government Authority and Oversight Board Authority Executive Order Oversight Board Members Secretary Bill Simon, DMS Dr. Jim Zingale, Department of Revenue Secretary José Abreu, Department of Transportation Dr. John Agwunobi, Department of Health Director Susan Pareigis, Agency for Workforce Innovation

37 Governor’s Center for Efficient Government Initial Goals Develop statewide outsourcing standards and a business case template applicable to any proposed outsourcing project. Review existing outsourcing plans within the state agencies to ensure compliance with Center standards and business case, execution of effective contract language with vendors and implementation of successful change management. Propose for the Governor’s consideration by July 1 an initial list of specific outsourcing projects and initiatives that can be developed over the next 3 years.

38 Business Case Gate 1 Procurement Gate 2Gate 3Gate 4 Change Management Contract Management Post Implementation Governor’s Center for Efficient Government Project Gate Management Process Stage 1Stage 4Stage 5Stage 3Stage 2 Monitor Current Projects New Projects

39 Recent Changes in State Purchasing Policies Agenda  Welcome / Session Overview  Putting Procurement in Context  Roadmap to Excellence in Contracting Audit Report  Center for Efficient Government  Recent Rule Changes  Questions

40 Update – bring the rules into line with statutory changes Single Subjects – create smaller rules that each focus on one subject Reorganization – order the rules in a more logical manner See separate materials, and see overview on web Recent Rule Changes Major Goals

41 Recent Rule Changes Overview of Changes

42 Recent Rule Changes Overview of Changes

43 Recent Changes in State Purchasing Policies Agenda  Welcome / Session Overview  Putting Procurement in Context  Roadmap to Excellence in Contracting Audit Report  Center for Efficient Government  Recent Rule Changes  Questions

44 Questions or Comments Contact Information Fred Springer Director, State Purchasing Rich Brown Operations Manager, Governance Al Dominguez General Counsel