Professional Purchasing: A Catalyst For "Reinventing Government" (A Case Study)
Constance Cushman, J.D., C.P.M.
Constance Cushman, J.D., C.P.M., Executive Director/Counsel, NY City Procurement Policy Board, New York, NY 10007, 212/285-3225
79th Annual International Conference Proceedings - 1994 - Atlanta, GA
INTRODUCTION. New York City's purchasing system is undergoing sweeping change in the wake of amendments to the City Charter adopted in 1989. Some change was directly called for by the new Charter, but more fundamental changes are the result of initiatives, not Charter mandated, to develop and deploy a strong professional purchasing capacity in City agencies. This case study illustrates the impact reforming the purchasing function can have in a local government setting, as well as the difficulty of effecting such reform.
BACKGROUND. New York City is a vast and complex local government, embracing five distinct counties or Boroughs, with a total population of 7 million and an annual budget of $31 billion. Until 1989, its elected officials (Mayor, Comptroller, City Council President, and five Borough Presidents) comprised a body called the Board of Estimate--a body with both legislative and executive powers that included the responsibility for City contract awards.
A Supreme Court ruling in 1988 declared the Board of Estimate's voting structure unconstitutional, as it violated the principle of "one person, one vote." At the same time that case was being vigorously contested in the Courts, the City's entire contracting system was coming under fire in the aftermath of several notorious corruption scandals. Various independent studies described the system as costly, chaotic, fragmented and leaderless. The Charter Revision Commission empaneled to design a new structure for New York City's government as a result of the Supreme Court case had to develop a new contracting system as one key part of its overall government reforms.
The Charter Revision Commission drew on three main sources in its creative efforts.
- First was the legacy of the old way of doing business. Unless the broad contours and core provisions remained as they had been under the Board of Estimate, the City would lose its precious autonomy and right to self-govern concerning its contracting rules; it would become fully subject to the New York State legislature for its governing law.
- Second was the American Bar Association's Model Procurement Code for State and Local Governments. The product of ten years of labor by attorneys, purchasing professionals, and contractors, and already the foundation for revised laws in a number of states and cities, this progressive document was the basic blueprint for reform.
- Third, of course, was politics. Each of the powers that had formerly played a role in contract decision making needed some role in the new system. The particulars changed, but each retained some influence.
The new Charter created a Procurement Policy Board (PPB) with three Mayoral and two Comptroller appointees, to establish "policies, rules and procedures" governing all procurement of "goods, services and construction" by the City. The Charter detailed much of what those rules should include. It did not call for changes in the ways the agencies would be organized and managed; it gave the PPB power only to "recommend" such changes to the Mayor.
An opinion of the Corporation Counsel in the Fall of 1990 ruled that less than half of the City's contracting business was actually subject to the new Charter system; the rest is done by so-called "off-budget" agencies that are governed by state law and their own rules.
THE NEW YORK CITY CONTRACTING ENVIRONMENT. The part of the City's government that is subject to the new Charter procurement system spends between $7 billion and $9 billion each year on goods, services, social services and construction in about 10,000 bid contracts and another several thousand small purchases annually. Authority to award and manage contracts is decentralized to approximately 40 individual agencies. Central purchasing exists only for goods and some construction. About 1500 employees perform contracting functions more than 50% of their time; another 1500 or so do so less than 50% of their time. Purchasing cycle times range from three to eighteen months or longer.
The City's brush with contracting scandal was a defining experience for every City worker and elected official. Fear of corruption haunts the City to this day. At the same time, City personnel at all levels have had limited exposure to the professional discipline of purchasing. The skills, tools, and ethics support systems of the profession have until very recently been virtually a foreign language. Procurement (or purchasing) is experienced as a process, not a professional discipline or separately managed function.
The years since the 1989 Charter changes have been marked by recession, severe budget deficits, an increasing burden of mandated social services, the costly legacy of deferred maintenance of the physical infrastructure (roads, bridges, tunnels, pipes, buildings), and an out-migration of the tax base (business and residential). Budget pressures are all the more acutely felt because the City will be placed in State receivership if its budget does not balance for any given fiscal year.
These severe fiscal pressures have led to many calls to "re-invent the City's government"--to downsize a "bloated bureaucracy," to "privatize" many government services, and to rethink whether the City can afford to provide some of its cherished social welfare programs.
Against this backdrop, the Procurement Policy Board in 1990 set about charting policy and promulgating rules for the City's contracting, the mayor set about implementing the new system, the other elected officials energetically explored the opportunities present in their redefined powers over contracting, and the special interests tried to identify and influence the new decisionmakers.
CHANGE STRATEGIES: 1990 THROUGH 1993. The foundation for reform was put in place, while different participants maneuvered to define their new roles. The following are selected highlights:
HIGHLIGHTS: 1990. The PPB issued the core body of rules governing the procurement cycle from needs definition through contract administration and payment. A Mayoral oversight office, the Mayor's Office of Contracts (MOC), was charged to lead the implementation effort. The Comptroller began a program of vigorous screening of contract awards for "corruption" (broadly defined), which continued throughout the next three years.
HIGHLIGHTS: 1991. The PPB developed separate rules for client services (social services), and guidelines for prompt payment, and took the first steps toward a dispute resolution system. It also adopted a mission statement and recommended to the Mayor to "professionalize, consolidate and computerize" contracting; made a detailed proposal for a Procurement Training Institute; and sponsored City-wide memberships in NAPM and NIGP. MOC ascertained how many employees are involved in contracting; conducted some training; issued many memoranda to implement the new rules; and reviewed many agency contracting decisions on a case-by-case basis. With the PPB, MOC co-chaired a Task Force to design a City-wide computer system; held vendor information seminars and prepared written vendor guides. A new City Council law imposed comprehensive disclosure requirements on vendors, partly to assist the Comptroller in screening for corruption.
HIGHLIGHTS: 1992. The Mayor launched a Procurement Improvement Initiative to consolidate and professionalize the purchasing function in ten largest contracting agencies. Funds were appropriated for professional "chief contracting officers" in each agency, for the Procurement Training Institute (PTI), and for the City-wide computer system. Construction agencies, and the major social services agency, vigorously resisted consolidation efforts. Some agencies encouraged attendance at professional development seminars and C.P.M. certification. MOC continued its oversight activities, implementation memoranda and interpretations of the rules. The first annual conference for 1600 contracting employees was held.
HIGHLIGHTS: 1993. The Office of Management and Budget sponsored a value Analysis project to examine the glacially slow consultant contract award process (minimum, 280 to 400 days). In response to a Prompt Contracting Task Force Report, some "delegation of oversight" review occurred. The PTI provided basic training to about 1000 contracting employees, and a second conference for 1600 contracting employees was held. Some agencies developed innovative contracting techniques, but experienced difficulty getting permission to use them.
ASSESSMENT: YEAR-END, 1993. The City Charter requires the Procurement Policy Board "at least once every three years" to "review all of its rules, policies and procedures and make such revisions as the [B]oard deems necessary and desirable." The picture, at year-end 1993, includes achievements, shortcomings, roadblocks to change, and opportunities.
ACHIEVEMENTS. Procurement reform is on the map. From Mayor to Comptroller to City Council to Borough Presidents, from agency staff to vendors to good government groups, and including the Procurement Policy Board, there is a chorus of voices calling for more or different reforms, or claiming credit for the steps already taken. These are the highlights of what has been achieved:
- One set of rules (which contain many procedural elements) is on the books as a visible standard. (Yet the substance of the rules is not yet well understood or followed, and its provisions have been reduced to extensive process requirements.)
- Some consolidation of the purchasing function has occurred in some agencies. (Yet this covers mostly routine purchases, not the "big-ticket" items such as social services and construction where professional purchasing would yield high returns.)
- Some upgrading of top purchasing personnel has occurred in many agencies, with a uniform job description adopted for the senior contracting officer in each agency. (Yet no uniformity of job descriptions exists for the balance of the contracting staff.)
- Five days of introductory training has been provided to over 1000 contracting employees through the Procurement Training Institute, and of these, some 300 have achieved buyer-level professional certification through the National Institute of Governmental Purchasing. A handful of City contracting staff have achieved C.P.M. certification. About 50 to 75 City employees participate regularly in professional purchasing association activities.
- Computerization of the purchasing function City-wide is officially underway, with a consultant conducting a workflow re-engineering study as a first step in the design phase.
- Savings of over $43 million have been recorded in the first year of the Procurement Improvement Initiative.
SHORTCOMINGS. Measured by a number of standards, there remain shortcomings in the reform effort. The most telling indicator is whether the ingredients of what we can call "basic professional purchasing" are in place. These include the capacity to perform: competent market analysis; forecasting and planning; make-or-buy analysis; specification writing; bid and proposal development and evaluation; cost and price analysis; negotiation; contractor evaluation; and contract administration.
Most contracting staff have not mastered (or been taught) these skills; the Procurement Training Institute is not adequately staffed and is often diverted to side projects from its core mission of developing these skills. The value-adding activities of professional purchasing are not yet performed routinely in most agencies. Instead, cumbersome processes are followed, and the PPB Rules are seen as the reason things do not work.
By other measures the desired results have not yet been achieved.
- Consolidation has not progressed far: professional purchasers do not yet manage the purchasing function in most agencies; users, or even outside influences are still making most of the basic decisions of purchasing, with purchasing staff mainly processing paper (LOTS) or serving as internal agency "oversights" or watchdogs. More watchdogs outside the agencies review and approve many transactions.
- Information needed for sound purchasing is still not available: computerized data about transactions are not in place to support planning, negotiating, cost reduction, and the like. Information that should be readily available to the public is sometimes more obscure than it was before the Charter changes.
- Purchasing's customers are not satisfied. Many say the situation is worse than ever. Vendors say that their experience has not changed; there is no real improvement in (for example) specifications, contract terms, dealings with agency personnel generally, and payment. Agency users' cycle times are increased; it is harder for them to get things done; decisions are burdened with oversight yet no clear point of responsibility exists. Taxpayers see taxes still going up and services still declining.
- We do not succeed in "corruption prevention." Scandals still occur, though sometimes these are bungled procurements made (by the press) to look like scandals. Contracting staff still feel pressures from elected officials and lobbyists; they still are blamed for the problems, even though they have no authority for the decisions. Vendors think the City treats them all as though they are corrupt, and the best prefer to do business elsewhere.
- We still spend far too much to receive far too little value.
ROADBLOCKS TO CHANGE. Several barriers stand in the way of real change.
- There continues to be a political tug-of-war over fundamental policy issues, leadership responsibility, and socioeconomic policy concerns, among decisionmakers throughout the system. The net result is political paralysis that prevents commitment to procurement reform.
- The features of truly professional purchasing, what it involves and what good it can bring, are still not well understood.
- The old culture and complex bureaucratic apparatus remain solidly embedded; the new rules have been implemented without changing the old environment. The structural incentives built into the budget system and personnel system reward wasting money, not saving, or buying value.
OPPORTUNINTIES (YEAR-END, 1993). Opportunities exist to leverage the accomplishments and learn from the shortcomings of the last four years. In January, 1994 a new Mayor and a new Comptroller take office. Both campaigned on platforms of changed management, renewed leadership, and procurement reform. An unprecedented budget crisis, of disaster proportions ($2 billion on $31 billion) looms; every crisis contains an engine for radical change. Business leaders already talk of seizing the energy of this crisis to accomplish fundamental reforms.
One of the boroughs, Staten Island, has voted to secede from New York City. Rumblings of discontent are heard from Queens and Brooklyn as well. The ultimate customer (Jo Citizen) is dissatisfied, and senses that there are alternatives. This energy can fuel improved service delivery efforts with purchasing as a strategic participant.
Public procurement reform is almost a household word. Vice President Gore has put the topic in the spotlight, taken it to the talk shows. Privatization as a sort of fiscal miracle drug is a hot topic, touted by business and fiercely opposed by powerful City unions (though few understand how to judge the true benefits and risks of the public sector's counterpart to the "make-or-buy decision).
STRATEGIES TO ACHIEVING TRUR PROFESSIONAL PURCHASING: LOOKING AHEAD. Since the strategies of the past four years have not yet yielded success, those wishing a more rapid rate of change in the direction of true professional purchasing are being forced to devise new strategies. For example:
COMMUNICATE THE BENEFITS OF PROFESSIONAL PURCHASING VIVIDLY. Case studies from successful settings, public and private, could be held up as examples. These must be concrete. Performance audits could dissect last year's contracts, or selected contracts, and explore what opportunities might have been overlooked. A value analysis exercise for a high-priority item could play out alternative approaches. These steps are needed to motivate leaders to make the hard changes discussed below.
Part of the message must be how strategic areas can be targeted for rapid progress and payback. The Pareto principle and other analytic tools will help identify targets of opportunity, where agencies that have more muscular or agile teams can move rapidly ahead and where their independence can yield high returns. Contracting out government services to the private or nonprofit sectors is but one alternative to explore. The City's information technology purchases, its huge construction budget, or its even more gigantic social services portfolio, each present a wealth of opportunity. In each of these strategic areas, re-examine all aspects of contracting seeking more high returns: specifications or statements of work, contract terms and conditions, invoicing and payment systems, inventory, transportation and delivery arrangements, dispute resolution mechanisms, vendor qualification processes, vendor notice methods .... then use Pareto analysis and other techniques to target the most fruitful.
TACKLE THE ROADBLOCKS DIRECTLY. The last four years have revealed barriers not previously understood, built in to the budget, personnel, and control systems of the City.
- The budget system rewards bad procurement practices. In the City's annual expense budget cycle, savings this year only reduce the agency appropriation for next year. The "use it or lose it" premise stimulates unnecessary spending during the last fiscal quarter or hasty completion of negotiations against a June 30 deadline. This does not promote cost-effective procurement. Agencies must be able to retain, and apply to accomplishing their own missions, some part of the savings they realize from good procurement. Savings in one year should trigger benefits, not penalties, in the next.
- The New York City budget is also not based on realistic forecasts of needs drawn from actual data. It is based on what has been spent before, described in the most general terms, somewhat as though one were driving a car with only the information in the rear view mirror. With more specific information about what is bought and what is used, and with the informed analysis of trends and emerging needs that takes place when professional procurement staff team up with program staff, agencies could effectively and accurately chart their future.
- Similarly, the personnel structure will need overhaul in order to enable professional skills to be cultivated and used. Today real contracting civil service titles and job descriptions are the exception, not the norm. Staff analysts, engineers, attorneys, social workers, community relations specialists, all do procurement. Whatever they may learn as professional purchasers, there is no path to follow to advance in that profession. Much less is there any direct personal reward for saving money through sound decisions. Gain sharing, recognition, respect, and promotion possibilities do not exist in City purchasing. No change to these systems is possible without cooperative problem solving in which the municipal unions, and the front line workers they represent, participate.
- Current control systems are also counterproductive. By their "Mother may I" approach to each decision, with different "mothers" for each facet and phase of the purchasing decision, they preclude true management control. To get a decision, any decision, becomes more important than to get a cost-effective result. There is no point of accountability, there is no sense of the whole decision, there is no connection between action and result, and so true control is impossible. Further, the budget and personnel changes alluded to above will be meaningless without overhauling the agency structures that scatter purchasing decisionmaking responsibility throughout the each agency. Consolidated authority for purchasing in an agency in a professionally managed central unit alone will empower agencies to regularly use the professional skills that add value.
PROVIDE VIGOROUS MAYORAL LEADERSHIP: COMMITMENT FROM THE top. The Mayor, acting alone, can provide the political will that has been lacking thus far. His leadership is crucial. These roadblocks can only be tackled from the top, by a coordinated approach to personnel, budget, control and contracting. So too, only the Mayor, charged by Charter with responsibility for the organization and management of the procurement system, can clarify the lines of authority/accountability. And only the mayor can make the rapid investment in training a high funding priority.
A strategic Mayoral first step would be to clarify the lines of authority/responsibility for purchasing, so that professionals can be empowered to do their jobs. The role of the PPB should be to chart the course, as policymaker, teacher, auditor/monitor, communicator of the requirements. The City's central purchasing authority (the purchasing and public works functions in the Department of General Services) should have clear responsibility for overall execution and implementation. Purchasing authority and responsibility should be delegated from this central point, with agency purchasing professionals empowered to execute categories of contracting decisions within the PPB rules. Central purchasing should buy for the whole City to leverage economies of scale; but agencies--through their own professional purchasing staff--should also be able to execute their own transactions where that makes more sense.
BUILD THE CRITICAL "PEOPLE" RESOURCE FAST. Even with these roadblocks removed, City employees need much more training and education in the skills and tools of the profession. A rapid forward thrust is needed in building these professional skills, far beyond the foundation of the past four years. Precisely what the training needs are should be assessed with diagnostics such as NAPM's FOCUS. In the short term, an infusion of new purchasing personnel with years of experience in a well-managed purchasing environment will be needed to provide the on-the-job guidance and coaching that course-work cannot provide alone.
Developing specialized purchasing expertise and consolidating authority does not mean usurping the proper role of other decisionmakers. The best thinking in professional purchasing circles today stresses the importance of developing cross functional teams in which purchasing is one participant. In all these changes, whether rules development, rethinking agency organization, developing career paths or gain-sharing incentives, key team members will include unions, elected officials, vendors, agency staff and commissioners, and the Budget office and Personnel Department. So too, in planning and executing purchasing decisions, purchasing is a critical team member but not the only player. Other team members include policy makers, the public, users, and program staff.
BUILD IN INCENTIVES FOR PERFORMANCE, AND GET OUT OF THE WAY. For each desired goal --cost reductions, cost avoidances, cycle time reductions, quality improvements, increased customer satisfaction-- metrics must be developed and progress, or the need to change, evaluated. Demonstrated results must be rewarded with money, recognition, and respect. The money incentives could be in the form of gain-sharing for workers or teams of workers, or retained savings to be plowed back into the agency to use in the agency's mission. The latter will be a powerful motivator; City workers care deeply that their agencies be effective. Recognition and respect will flow from promotion and career growth opportunities, and from a sense of identification with a respected profession --purchasing-- and from publicizing achievements widely.
With the skills in place, the incentives and organizational systems in place ... then this work force must be freed from micro-management and allowed to use their skills. Controls must be system management controls, not bureaucratic hurdles to decisionmaking.
EMPHAsize CUSTOMER SERVICE: LISTEN AND RESPOND. Not a concept confined to purchasing, but its emphasis in the current thinking and discussions among professional purchasers makes this a valuable strategy. Customers will be identified to include vendors, agency users, and, finally, taxpayers --the ultimate customer. The final message will be that purchasing seeks continual improvement.
Mechanisms can be built into the purchasing cycle to provide community and borough-based input into the definition of needs, scopes of work, and performance assessments of contractors. Appropriately placed and managed, these will not impede contract decisionmaking and will improve results. Information, accessible and available, will support this process and will enhance the credibility, and responsiveness, of every agency.
THE DESIRED FUTURE SITUATION: GOVERNMENT REINVENTED. The result of these strategic changes will be a purchasing function that is smaller, more cohesive, and much more flexible to focus on results than what we have today. It will be an enabler, a facilitator, of a broad array of government service options. Whatever the programmatic choices, purchasing can help assure that the decision whether to provide services directly, to contract with others to provide them, or to develop joint ventures in an entrepreneurial mode, is a sound one, one that keeps government accountable for the results. Wherever contracts are awarded, purchasing can help assure that the requirements are clear and the best value obtained. Purchasing, with its networks in the vendor community and the user communities, can help government stay responsive to community needs.
These strategies will precipitate a chain reaction helping New York City to be, in the words of Osborne and Gaebler, "catalytic, community-owned, competitive, mission-driven, results oriented, customer-driven, enterprising, anticipatory, decentralized and market-oriented." Not only will the City's purchasing function be transformed. Purchasing will be a catalyst for reinventing government.
- Do you think these strategies can yield results on the order of $2 billion a year on a $31 billion budget? On a $9 billion procurement budget?
- How can we measure and communicate results?
- What could we have done differently, given the realities of people, environment, culture, etc.?
- Are there other strategies we should be thinking about?