You can't look at an e-procurement system the same way you can other government facilities, such as a library, a wastewater treatment plant or a courthouse. But if someone were to choose a public building that best reflects the state of e-procurement today, it might be a convention center. Not just any convention center, but one of those that sits silently downtown somewhere, built with high hopes that it would revitalize the urban core, but never quite achieving its original purpose. Its marquee lists just a handful of events. Meanwhile there's little traffic in or out of the gleaming, modern but eerily quiet building.
Some would argue that e-procurement hasn't reached white elephant status yet, but something is clearly wrong. A number of systems have been turned off for lack of business. Others launched with great expectations and lots of money - both public and private - have been either scaled back or have yet to reach their targets in terms of usage and revenue.
The dark rumblings have grown louder in recent months with the termination of South Carolina's e-procurement system in June, followed by the announcement from NIC Inc., that it was exiting the e-procurement business in the U.S. Then there was the report issued by Virginia's auditor of public accounts that found only 1.5 percent of the state's purchases were transacted using a state-of-the-art $14.9 million procurement system.
These problems follow on the heels of pilot project shutdowns in Massachusetts, Indiana and Michigan. Last year, the city of Los Angeles' new $11 million procurement and inventory management system ran into a series of glitches resulting in billing problems and late payments to suppliers as well as inventory shortages.
The extent of these difficulties is reflected in the latest survey on e-commerce by the National Institute of Governmental Purchasing, which revealed a significant slowdown in e-procurement projects. The survey, released in April, showed the percentage of government purchasing agencies using some form of e-commerce remained virtually unchanged between 2001 and 2002. More troubling was the fact that e-catalog purchasing in government dropped 19 percent in 2002.
Transaction Fee Trouble
Right now, transaction fee systems face the biggest difficulties. These e-procurement applications rely on fees from suppliers to pay for operations. Typically, a supplier pays an annual fee to use the system and another fee for each transaction. But many suppliers have balked at paying these charges. As a result, purchasing officials have run into trouble recruiting suppliers to use their e-procurement systems.
Many of these systems were rolled out just as the economy sank, reducing tax revenue quickly and significantly. In turn, states and localities have slashed spending to avoid red ink, which has had a negative impact on fee-based procurement systems, said Gary Lambert, senior consultant with AMS. "As budgets go soft and revenue goes down, the result is fewer transactions and reduced income for e-procurement vendors, such as NIC," he said.
Lambert also pointed out that a number of states signed contracts that promised to make up the difference if minimum revenue targets from transaction fees weren't met. "Not hitting those numbers means the state has to come up with the revenue from public coffers," he added. That could be a real problem for some states that have such clauses in their e-procurement contracts.
But are suppliers and the economy solely to blame? A different view on the problem comes from NIC, the e-government firm that announced its withdrawal from the government e-procurement market. The problem isn't with a soft economy or skittish suppliers, but with weak government policies, said Christopher Neff, NIC's director of integrated marketing.
"E-procurement's problem lies with government's inability to muster the political will to mandate the use of e-procurement by both agencies and suppliers and its unwillingness to manage institutional change as procurement systems are