February 3, 2008 By Andy Opsahl
Negotiating contracts can be time-consuming and stressful, especially for local governments with limited experience bargaining with vendors; many lack the resources to develop that expertise. Consequently many cities and counties get the most out of contracts by letting the Texas Department of Information Resources (DIR) do the majority of the work.
The Texas DIR uses what it calls "knowledge-based" practices to negotiate with powerful vendors such as IBM, Dell and Northrop Grumman. These practices include systematic market research, analytics and pricing benchmarks. The DIR hired several experts in October 2006 to fortify its knowledge-based practices.
The process offers local governments hundreds of prenegotiated deals with vendors for hardware, software and contracted labor. If a local government wants to pursue an even better deal, it can use a relevant DIR contract as a starting point when examining new offers, according to Cindy Reed, deputy executive director of operations and statewide technology sourcing for the DIR.
"We developed a contract that provides all the services by defining a base service and allowing other services to be purchased as options," Reed said. "By taking this approach, we were able to define pricing, which allows customers to compare vendors on an apples-to-apples basis."
Vendor sales representatives face formidable negotiations with Texas due to that process, said Reed. The DIR reduced some of its base-service costs by 63 percent by the end of 2006 using its knowledge-based procurement process.
In addition to the knowledge-based practices, the DIR has taken steps to make it easier for public entities to use the contracts to meet their needs.
Knowledge and Details
Stories are endless in state and local government about contracts that failed to deliver because paperwork didn't specify exactly what an agency needed. The DIR remedies that problem by using knowledge-based practices to specify what it needs from a contract.
For example, in past negotiations, agencies listed computer software they wanted without knowing whether the software offered all of the necessary functionality. Now the DIR organizes internal state work groups to establish standard descriptions of state process and information system requirements to submit to vendors.
"So far, we've awarded 16 [contracts] for business IT government software, and those products will be listed on our DIR Web site by functionality, as opposed to, 'Here's X,Y, Z software.' That provides our customers with assurance that if they need a specific type of functionality, they can come look at all the groups of software that fit within that particular area of functionality before purchasing it," Reed said.
The In Crowd
Reed said vendors often complain that state contracts are closed off to newcomers. In response, the DIR's contracting experts re-engineered the department's contracts with vendors that provide in-house IT staff. The new set of contracts includes previously seldom-used vendors. The outcome produced wider vendor participation, as well as a cost reduction. The DIR increased its number of participating vendors by 4 percent, and increased its staff from those seldom-used vendors by 76 percent, said Reed.
In Tarrant County, Rob Cox, the county's assistant purchasing agent, said using the contracts helped the county avoid lengthy bidding processes when the county already knows a certain vendor is the only one for the job. The expanding variety of vendor choices saves Tarrant County from a formal bidding process to find companies to do what a project's primary vendor can't do.
"Few companies possess all of the skills we might need for a particular project. We're able to leverage DIR by coming up with different resources through their contracts. This way, we can do a complete project without having to do multiple bids to try to find these people. They're already in place," Cox said.
Tarrant County saw the hourly rates it paid the in-house
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