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

2. 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.”

3. 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.

4. COST CONTROL MECHANISMS
HOW IS COST CONTROLLED?

5. 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.

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

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

8. 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?

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

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

11. 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.

12. 2. SPECIFICATIONS
DO SPECS AFFECT COST?

13. 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?

14. 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?

15. 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.

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

17. 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)?

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

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

20. COST CONTROL
II. EFFECT OF PURCHASING INSTRUMENTS ON COST CONTROL

21. 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

22. 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

23. 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?

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

25. COST CONTROL
III. PURCHASING METHODS

26. 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

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

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

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

30. 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

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

32. COST CONTROL
IV. Purchasing Organization

33. PURCHASING ORGANIZATION
CENTRALIZATION/DECENTRALI-ZATION AND COST CONTROL

34. 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.

35. 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.

36. THE CONCEPT OF BEST VALUE
V=Q/P