Performance-based contracting is starting to take root in small and mid-sized cities.
This story was produced with support from the City Accelerator program.
When cities contract with the private sector for goods and services, they tend to go with the lowest bidder—at least, that’s what they’ve done historically. But performance-based contracts, in which governments also look at how well a contractor delivers on their promises, can help ensure higher-quality contracts and a better value in the long run.
Performance-based contracting has been widely accepted as a best practice for years, and it’s become standard practice in the nation’s biggest cities. New York, Los Angeles and Seattle, for example, all consider performance when awarding contracts. (At times, big cities have even been criticized for not adopting a performance-based approach quickly enough: A 2014 audit in San Francisco, for instance, dinged the city for continuing to award contracts to poor performers.)
Now the practice is spreading from big cities to mid-sized and small municipalities. But implementing such a shift isn’t easy.
That’s been the experience of Taylor Adams, the chief procurement officer for Virginia Beach, Va. With a population of more than 452,000, Virginia Beach is the largest city in the state. But when Adams took office in September 2015, the city was still handing out contracts the traditional way, by mostly angling for the lowest price. Subsequently his team conducted a top-to-bottom assessment of Virginia Beach’s procurement practices; by December, it was clear that if the city wanted better procurement, it needed better data.
“We had to build a more consistent output before we started addressing the quality issue,” Adams says.
So Virginia Beach has embarked on a $2 million, five-year effort to overhaul its purchasing processes. The city’s new electronic procurement system will allow it to better track transactions and maintain records—something most cities already do with an e-procurement tool. But Adams envisions a program that helps the organization make decisions, too. “There are a lot of cities deploying e-procurement tools now, but most use them for just a tactical function,” he says. “We, on the other hand, want to manage data to help make decisions. It moves procurement from an order-and-payment function to a strategic one.”
Utilizing purchasing data that way would put Virginia Beach at the forefront of municipal purchasing efforts. In the 2017 Governing Institute “Equipt to Innovate” survey, one-third of respondents said they are not using any form of evidence-based procurement to develop their own economic initiatives. Virginia Beach, along with other locales such as San Jose, Calif., are among a minority of cities adopting the practice.
“There’s not a great deal of precedent or references for us to follow within the market,” says Adams, “because there’s not a lot of cities that have done it this way.”
Even smaller cities are implementing electronic purchasing platforms. For example, the South Florida town of Tamarac—population 65,200—was testing a new e-procurement tool this fall and planned to fully implement it last month, according to purchasing manager Keith Glatz.
Generally, though, smaller cities have been slow to fully embrace e-procurement and purchasing analytics. Part of that is because it can be tough to know what to do with the data once you have it, says Joshua Steinfeld, the director of a public procurement and contract management certificate program at Norfolk, Va.’s Old Dominion University. “It’s one thing to have the data. It’s another thing to use the data in a meaningful way,” Steinfeld says. “That requires somebody who may have a masters in business or administration. And there’s not a lot of graduate programs in procurement and contracting, at least not in the U.S.”
Another hurdle for adopting performance-based contracts is that cities must be willing to make tough choices when a contractor fails to meet performance targets, Steinfeld adds. “Local governments are always looking at how many jobs are created, and when you evaluate and find poor performing programs, are you going to terminate the contract? What will you do? How will you do it? And who will you blame or hold accountable for a program’s failure? I suspect that could be a reason why some cities may not want to get into this.”
Part of the reluctance to implement new procurement technology and methodologies is the fear that it might actually drive away some potential contractors. “There is sometimes the belief that procurement offices don’t have the expertise to use these tools,” says Michael Bevis, the purchasing agent for Arlington County, Va., and the former chief procurement officer for Naperville, Ill., where he oversaw efforts to better analyze the city’s purchasing. “There is always the concern that the more sophisticated you get, the more chances of driving away local businesses.”
But Adams, the Virginia Beach procurement officer, says he’s confident that more sophisticated data will not only improve partnerships with small businesses in the community, but will even help the city better engage with women- and minority-owned enterprises by creating historical data points specific to those firms.
“Equitable and diverse spending is the reality of 2017, not just in the public sector but in the private,” he says. “Any performance metrics going forward will include that.”
Julian Wyllie joined Governing as a City Accelerator Fellow. This story was produced with support from City Accelerator, a joint initiative of the Citi Foundation and Living Cities. This story was originally published on Governing.