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Regional Purchasing for Agencies and Vendors: Pros, Cons and Questions

Regional Purchasing for Agencies and Vendors: Pros, Cons and Questions

Buying agencies and local vendors alike benefit when a county or municipality adopts a regional purchasing policy...right? In reality, the answer isn't always so black-and-white. While regional purchasing policies, as a general rule, tend to be very beneficial for agencies and vendors within a given area, there are some situations where the drawbacks of local purchasing regulations can outweigh the benefits. Of course, regional purchasing laws are adopted for good reason, and once in place must be respected by the entities and companies that fall under their jurisdiction. But it's also worth exploring the exceptions to the rule that make a compelling case for purchasing policies that aren't hemmed in by geographic restrictions. 

 

What are Regional Purchasing Laws?

Regional purchasing laws make it mandatory for government agencies within a county or municipality to source goods and services from vendors located in the same region, or at least from vendors based in the United States. The goal is to ensure that services provided to the government, wherever possible, are delivered by local businesses in an effort to provide economic support for the community that the government is there to serve. By keeping government purchasing local, regions can nurture higher rates of employment and improved social and economic well-being among their constituents.

One example of a robust regional purchasing law is the Missouri Domestic Products Procurement Act. The Act specifies that products and services sourced at a cost of more than $25,000 must be manufactured or produced in the United States and does not require that they be sourced from a particular state or county.

In spite of these regulations, revisions have been passed that can render them toothless. In August 2015, several exceptions to the MDPPA came into force, including one that states that the purchasing law does not apply in cases where “obtaining the specified products manufactured or produced in the United States would increase the cost of the contract by more than ten percent”. This threshold is low enough that nearly any product or service could be provided by a foreign competitor at a cheaper price.

Only contracts that require on-the-ground personnel, like janitorial or landscaping services agreements, can normally be provided exclusively by local vendors, while premade products and manufacturing services are often outsourced at a much lower cost than producing them in the U.S.

Scenarios

The potential problems that arise from one-size-fits-all regional purchasing laws become clear when we consider that a vendor may be in the position of servicing one area or county, while living in another. For example, imagine that a vendor is contracted to provide snow removal because his business is based in the same county where the work will be done. But if the vendor lives two counties over, and must drive to work every day to complete the snow removal job, then the fuel costs of his daily travel will be added onto the total cost of the contract; in this case the buying county will end up paying more than is necessary because the vendor was selected according to regional purchasing laws. It may be that a competing vendor, who services the same area but is based in another county or state, could provide the same service for a lower price.

Fundamental Benefits

Complications aside, procurement regulations that favor businesses in a given region or nation have proven to be a boon to communities and the larger economy. A study by the Sauder School of Business in British Columbia, Canada revealed just how beneficial local purchasing can be; locally-owned businesses tend to invest more in their communities via local sourcing, completing the circle of community-focused commerce.

The study, titled The Power of Purchasing: the Economic Impacts of Local Procurement, analyzed a locally-owned office supply company and found that they re-circulated 33.1 percent of their total revenues to individuals and businesses in the province, compared with between 16.6 and 18.7 percent of revenues for multinational companies offering similar services in the region. In other words, the locally-owned business delivered double the economic benefit to the region than did a multinational corporation, largely due to the local company’s investment in their home community. The locally-owned business also donated five times the amount of charitable contributions (as a percentage of revenue) than their multinational competitors did. The takeaway is that locally owned businesses are more inclined to procure locally-sourced goods and services, benefitting businesses, suppliers, citizens and government.

As the study points out, economic sustainability is a primary motivator behind regional procurement laws: Local businesses tend to employ people who live in the region, and these people are deeply invested in their community and together form a strong social fabric that in turn supports related businesses, charities and services in the area. In the long-term, investments in local economies and communities lay the foundations for stability and prosperity in the future.

As the study succinctly concludes, “There is a real economic advantage to purchasing from local suppliers.”

Some Exceptions

Typically, real estate purchases and leases made by a county or municipality are exempt from procurement laws. Regional procurement laws also set a threshold for the dollar amount that a contract must exceed in order to require competitive bidding; the Missouri Domestic Products Procurement Act only applies to contracts that are worth more than $25,000.

Architects, engineers, certified public accountants and lawyers are usually exempt from competitive bidding processes. For example, in Texas, the Professional Services Procurement Act regulates the sourcing of professional services like these.

As well, some jurisdictions have additional regulations stipulating that government purchases may not be broken up into smaller parts for the purpose of avoiding the competitive-bidding threshold.

Protecting Local Economies and Communities

Ultimately, local procurement laws are intended to support the people and businesses that form the foundation of both state and national economies. Without incentives to source goods and services locally, economic pressures can and do drive companies to do their purchasing wherever their dollar can stretch the furthest. The problem with this 'race-to-the-bottom' approach is that citizens, businesses and governments all suffer the consequences of fewer job opportunities, shrinking revenues, and lower tax receipts.

There are other ways that government can ensure that they are receiving the most value for their procurement spend. In particular, the use of technology to make the purchasing process more efficient is a reliable way to reduce costs and improve procurement outcomes for local governments. SourceSuite includes many features which contribute to a more-level playing field for vendors while ensuring that government agencies can find the right vendor for the job. For example, the purchasing group model allows many participating agencies to publish solicitations to one central location, providing a strong incentive for more local vendors to self-register for a shared vendor database. With thousands of local and national vendors to choose from, buying organizations are better able to weigh the value and benefit of supporting local business with the potential cost savings of purchasing elsewhere. Advanced vendor tracking is also helpful for public agencies to do their due diligence in regions where local procurement laws are present. In the end, regardless of whether a region has mandating regulations or not, these types of procurement options are key contributors to cutting costs and maximizing value for buying agencies.

The reality is that there are a limited number of tools that state and local governments have at their disposal to promote economic stability in their regions. Until future minds develop new systems of commerce that incorporate on-the-ground realities into economic models, local procurement laws are the best tools we have to ensure the stability of economies and communities in an uncertain world.

Nathan Munn | SourceSuite.com

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