Bargain Hunter

The Lone Star State goes it alone to secure better savings.

by / May 26, 2005
State purchasing directors from 15 Western states formed the Western States Contracting Alliance (WSCA) in 1993 as a cooperative multistate contracting venture to secure volume discounts on IT products.

Though WSCA has had tremendous success, the Texas Department of Information Resources (DIR) wondered if it could do better.

After Larry Olson became the state's CIO in 2004, the DIR began to feel out the major manufacturers in the state -- including Dell, Hewlett-Packard and IBM -- about how the state might secure savings beyond those available through WSCA.

"We didn't set out to leave WSCA," said Leslie Mueller, customer support manager at the DIR who oversees its IT purchasing initiatives. "We simply wanted to do the best we could for the citizens of Texas."

At its core, the WSCA idea is simple: Combine purchasing power so all government entities in member states can receive significantly lower prices on computer hardware and software -- the kind of prices previously given only to large state agencies or Fortune 500 companies.

Merging state and local purchasing power worked so well that cumulative purchases through WSCA have now topped $4 billion, and projected sales this year are $1.8 billion. Additionally WSCA's price-reducing contracts now include commodities and services such as wireless telecommunications and public safety communications equipment.

At one time, the DIR purchased all its IT hardware through WSCA. However, in seeking further savings, DIR officials considered two factors.

"For one thing, we felt it was important not to sit on a contract that is the same price for years to come," said Mueller. "The reality is that things change too quickly. So we do all our cooperative contracts now as a percentage off the standard price."

WSCA's contract prices typically are set for years, often three or more. To get better prices, the DIR began negotiating three-month contracts with vendors. Adopting shorter time periods meant manufacturers were more certain about their costs. They were not committing themselves to deliver a significant discount too far into the future.

But even more importantly, the DIR did not seek a blanket price reduction on a range of hardware. Instead, the department set out to negotiate for a single standard configuration in each hardware category.

"In essence, we went to our vendors and said, 'Your 10 or 12 percent discounts across the board are well and good, but we want to look at a standard configuration for PCs, printers, notebooks and servers, and talk to you about a special pricing offer based on those standard configurations,'" Mueller said.

To set these standard configurations, the DIR surveyed the largest agencies in the state to see what they were buying and talked to vendors to see what they were selling.

"The first contract done this way was for an HP desktop with a price decrease of $244 over the already reduced DIR price," said Mueller. "This brought the price for a standard configuration desktop from $906 to $662. And once HP stepped to the table, we had Dell, Gateway and IBM pretty quickly in line offering comparable savings for the same desktop configuration."

Mueller said that in defining standard configurations, the DIR didn't simply go for the cheapest units vendors were selling. Rather, the agency picked a model that would be an upgrade for most government entities.

"Our goal has always been not only to get the best price for our customers, but also the best value," Mueller said. "As it turned out, we met or beat WSCA in every single instance since last September, when we started this program."

Buyer Alerts
The actual program operates under the mantle of Buyer Alerts -- e-mail notifications to list subscribers outlining new cooperative contracts negotiated. Additionally a full list of negotiated contracts appears on the department's Web site. The DIR's customer service staff also contacts state agencies to help them understand how to use the contracts.

"We sometimes hear from very large organizations that they can get a better price or that they need different terms and conditions," said Mueller. "Texas agencies are free to negotiate with a vendor on terms and conditions as long as it does not weaken our contract. They can add these terms and conditions onto their [purchase order]. We do have to keep reminding them that our price is the maximum price for [one] item. If you're buying 5,000, you could probably get them a little cheaper still."

Texas state agencies, public colleges and universities, public school districts or other local government agencies can all make purchases through these contracts. The DIR has met the competitive bid requirements defined in the Texas Government Code, eliminating the need for customers to follow this process for each purchase.

"This can easily cut 60 to 90 days off any size procurement because agencies don't have to use the RFP process -- all of that's been done," Mueller said.

Directly to the Source
In Texas, the Buyer Alert program operates under GoDIRect -- a purchasing system that lets customers buy items directly from a DIR-contracted vendor.

"With GoDIRect, you quote our contract number and get the discounts," Mueller said. "But you are talking directly to the vendor. It's a direct ship and a direct bill from the vendor so items can be received quickly."

Resellers can be included in the procurement process, and vendors can, and have, named resellers that operate under the cooperative contracts.

"This gives state agencies not only the opportunity to receive their Historically Underutilized Business credits, but it also, in many cases, allows local governments to purchase locally," Mueller said.

For using their contracts, the DIR charges an administrative fee that averages three-quarters of 1 percent. The fee is actually based on volume.

"We are projected this year to run $614 million through our contracts, a 19 to 20 percent increase over last year," Mueller explained. "This volume will allow us to bring our administrative fee down. In the case of Dell, for instance, our contract has that administrative fee as one-quarter of 1 percent."

Out of State
The cooperative contracts the DIR negotiates are not limited to Texas.

"Other local governments and school districts across the country can buy off our contracts," said Mueller. "We need to have an interlocal agreement with them. But we can do a one-page interlocal pretty quickly."

The Texas contracts are not currently available to state agencies in other states, but according to Mueller, the Texas Legislature is now considering changes that might also open the contracts to such agencies. Mueller emphasizes that in doing this, there is no intention to compete with WSCA.

"We are just trying to do the best we can for taxpayers in Texas," she said. "That is really our only focus here."

However, Texas could have obtained the same results by working through WSCA, according to Vern Jones, Alaska's chief procurement officer and WSCA chairman.

"In fact, Alaska has negotiated standard configurations under WSCA and gotten similar price reductions to Texas," he said. "I talked to Dell directly about the Texas prices, and they assured me there is no better deal to be had than through WSCA.

"If you want to go through the process of doing an RFP, that's fine," Jones continued. "But you are not getting anything more than you could with a simple, fairly straightforward negotiation under WSCA. As well, there is an opportunity under WSCA to compete the major manufacturers against one another on a regular quarterly basis or whatever."

Jones emphasizes that WSCA, as a huge consortium, continues to engage in discussions with the major computer manufacturers to ensure that it continues to get the best pricing opportunities.

But clearly, pricing is always open to negotiation no matter what cooperative contract one operates under.
Blake Harris Contributing Editor