Child Care Administrator’s Improper Payments Information Technology Guide

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D. Innovative Procurement Practices

This section examines some promising and innovative procurement practices, including electronic bidding systems, commoditization of certain IT products and services, solutions-based solicitation, and performance-based contracting.

1. Procurement Solutions

Many States have implemented web-based procurement systems enabling vendors to browse IT orders and submit bids. The tool is proving to be an important strategy for many States. States have achieved savings through the competitive bid process and the automation of processes formerly dependent on paper, mail, and staff resources.

For example, Wisconsin implemented the first fully electronic, Internet-based bidding service. The service handled $4 billion dollars in contracts in 2001. This solution enabled the State to eliminate paperwork and save money. In fact, States tout one-stop shopping capabilities for their staff and bidders because the site serves as the State’s business hub to display and post new project opportunities. This practice increases the bidding pool and competition.

2. Commoditization of IT Products and Services

As standards for hardware, software, and telecommunications continue to evolve, more products and services can be purchased as commodities, enabling a simpler, more efficient procurement process. This process is similar to the purchase of office products from State-approved product lists. Purchasing IT products and services from a list of approved vendors and previously negotiated prices can, under the right circumstances, save significant time and money by avoiding a more traditional bid process.

Similar to hardware and software, States now maintain a list of qualified and approved vendors with set prices in order to facilitate the rapid and efficient acquisition of IT services.

3. Solutions-Based Solicitation

Some solicitations have embraced a procurement approach that simply articulates the problem or challenge and asks vendors to propose one or more solutions. This flexible and simplified process enables vendors to analyze the business problem and propose solutions that fit their core capabilities.

This approach reduces the overall time, and cost of the RFP process and can lead to more creative, innovative proposed solutions. States spend scarce resources exploring the solutions presented in the proposals instead of writing the RFP.

The former Chief Information Officer (CIO) of Michigan states the solicitation process can be achieved in five steps:

• Determine business problem;
• Have vendors identify possible solutions;
• Pick the best solution;
• Purchase the right solutions; and
• Document the decision.

4. Performance-Based Contracting

Performance-based contracting vehicles are emerging around the country. Share in Savings (SIS) contracts require all or most of the initial systems development and implementation investment to be borne by the vendor, and the savings and possibly the revenue from that investment is shared between the State and the vendor for a specified period of time. SIS contracts allow States to implement and expand their technology with little up-front investment. States then make payments to the vendors based on sharing future savings and revenue or meeting particular project milestones.

If structured properly, this approach can provide incentives to contractors to become more effective and efficient by making them more of a partner with the State. States can reduce their capital outlay and risk by sharing that risk with the contractor. Embracing this approach can foster a true partnership between the State and contractor. For example, if an Agency runs an older legacy system on a mainframe hosted by a third party, which charges the Agency on a per-transaction basis, then the operation for this fixed-capital investment may be significant. An SIS contract could be developed where a third party develops a next-generation, web-based system to replace the existing legacy system and agrees to absorb the cost of development and implementation in return for a share of the future savings for a period of years. This would benefit both the Agency, which gets a better system with no out-of-pocket costs, and the contractor, who makes money in the long run.