Goodyear Tire & Rubber lets dealers offer U.S. General Services Administration pricing. As a result, Red Wing, Minn., deputy public works director Jay McCleary (right) gets the same low prices on tires for the city's 250 vehicles that federal agencies pay. “Public works is a business just like anybody else,” says director Denny Tebbe (left). Photo: City of Red Wing
Since 1990, the number of national purchasing cooperatives has increased dramatically, expanding the range of goods and services beyond what's available through state contracts. A public works department can get virtually everything it needs, from copy machine paper and telecommunications systems to road salt, dump trucks, and vehicle lifts to construction equipment.
In theory, the concept of group purchasing has wonderful potential for multitasking, time-pressured managers: better pricing while eliminating the bid process.
But as group-purchasing models evolve, the ramifications of buying off a contract negotiated by another party become complex. Cooperative purchasing substitutes a government agency's bid process with that of either another government agency or a third party. To prevent potential liability, the alternate process must meet the same standards as the original process.
For example, many public works departments buy equipment off state contracts, a process known as “piggy-backing.” This is an informal version of cooperative purchasing in which a contract between a government entity and a vendor already exists. Since they didn't originate the contract, local entities should make sure their governing body authorizes them to use the state's contract.
Formal cooperative purchasing programs, on the other hand, involve a contractual, legal membership process that automatically takes care of the approval process.
Every state except New Jersey and New York allows for “interlocal contracting” or “joint powers” authority through which local governments can buy off each other's contracts if they sign a “cooperative” purchasing contract. To join, members of national cooperatives such as HGACBuy must sign such a contract.
HGACBuy is a cooperative purchasing program available to local governments nationwide that was formed 30 years ago in Houston. Since it is a unit of local government, HGACBuy writes its own specifications, issues bids, and lets the contracts. Members then place orders for which an average administrative fee of 0.7% of the purchase price is assessed to cover the co-op's operational costs.