Inside school purchasing

Inside The School Purchasing Game

(Released to the web May 19, 2007)

Just as important as what is being purchased in a New Jersey public school district is how it is being purchased. The methods employed to purchase high-ticket items, and sometimes even the mundane low cost items, can make a very significant difference in how quickly budget dollars are depleted. First, let's look at the official rules and then we can examine what school districts can do to improve their purchasing power.

There are rules laid out by the state as to how schools can make purchases, including bidding rules for purchases over a certain threshold. That threshold is $21,000 or $29,000 if a Qualified Purchasing Agent has been appointed. There are various exceptions for specific types of purchases. Going out for bids can be avoided when a district purchases something for 10% less than the state cooperative contract price. What is that? State contract pricing is established when a vendor's bid for some specific item is accepted by a state agency, and that vendor is then put on a state contract list. The idea is that other state agencies can purchase from that list without needing to go out to bid all over again. New Jersey school districts piggyback on this system and, if a vendor will offer an identical item for 10% less than the state contract price, it can be purchased without triggering the bidding process.

The complexity of these rules and others is far greater than is being described here, but for our purposes the point is that under the bid threshold purchases are not highly regulated, and over the threshold purchases are subject to bidding rules or else must fall under state contract pricing rules. As one might imagine, these often bureaucratic rules are not necessarily helpful in getting the best price or the best vendor. Bidding is time-consuming and limiting. Some vendors can't be bothered to go through the bidding process, or chafe at providing bid-bonds which may not be returned for months. That limits participation. Vendors may not even know about a bid if they are not tuned in to the educational marketplace. Other vendors may be very tuned-in, and may find ways to short circuit the process, winning bids even though they are not the best value.

School districts are not powerless to affect outcomes, however.

Purchasing by New Jersey school districts is a game that can be played ruthlessly by sharp staff members if they desire. Many districts go no farther than to ask a vendor if it matches state contract pricing or to attempt to make purchases over two budget years to avoid bidding. Some districts, including Readington, make a practice of consulting engineers and other proclaimed experts about potential costs before going out to bid. The obvious problem with that approach is that potential bidders can easily find out what those projected costs are, since the information is public.

Smart school district players follow a different path in this game than the one laid out by the state, while not violating any rules. Some basic player tips include:

Seek out potential vendors first, before bringing in engineers or consultants. Use consultants to check accuracy in areas where school expertise is lacking, but otherwise allow the vendors to offer what they will without limiting them to arbitrary or unrealistic specifications by a consultant.
Discuss needs with potential vendors privately first, rather than at public presentations at board meetings. This encourages frank discussion and allows the district to keep its hand hidden from other vendors.
Play potential vendors against each other and seek out vendors who might not normally market to schools.
Let the potential vendors construct the product or service specifications themselves in the early stages. Setting out with specifications before working with the vendors only limits the school district and could result in a loss of quality or value because the specifications are not up to date or because they are unrealistic.
As information is gathered about potential vendors and their likely (or actual) pricing, make a decision privately about which ones are best for the district. When the time comes to go for bids, those vendors will be on the notification list and, in some cases, the bid specifications can even be tailored (legally) to favor those vendors because of unique features they offer.
Use public presentations at board meetings to both discourage and encourage potential vendors. A vendor with an inferior product, but who might win a bid because of inexpensive pricing, can be discouraged from bidding with a barrage of withering questions from board members. Softballs thrown to a potential vendor with a superior product can indicate a sympathetic board.
Play good cop/bad cop with the role of the bad cop played by the school board. (We love and want to have your product, but the school board is concerned about price...)

Of course, not all purchases merit attention this intense. Even for mundane purchases falling under bid limits, though, there are tips for getting the most value:

Avoid purchasing the same sorts of things from multiple vendors. Three paper suppliers will not help the district maximize attention on any one of these vendor's radar screens. Instead, buy similar items from a single vendor and make a point to evaluate pricing and quality every year by speaking with competitors. Use the threat of switching to another vendor to keep pricing low.
Use the annual budget process (and failed budgets) as leverage with contract vendors. Letting a vendor with an annual contract (maintenance, support, etc.) know that if it cannot reduce monthly fees by a few percentage points than the district might be forced to review the contract will often get the desired result with little fanfare.
Always ask for discounts for upfront payment and go that route if discount makes sense. Schools are normally slow payers, and vendors will often accommodate with a discount to help their own cash flow.
Stick with the same brands throughout the district. By purchasing the same brand of commodity items, the number of vendors is reduced and that increases clout and buying power with specific vendors.
Reduce the number of people working with vendors and placing orders. Familiarity with vendors will often result in preferential treatment by them and fewer people in the purchasing process also means a greater concentration of knowledge about pricing and features.
Get to know the fiscal schedule of vendors so that purchases can be timed to help salespeople meet goals or quotas. Try to always work with the same salesperson if possible.
Tie one purchase to another. Let vendors know when the district has an interest in another product they sell or when future purchases are likely. Let vendors know that good pricing now means more business in the near future.

Looking at the other side of the coin, what do the vendors themselves look for in a school customer? For larger purchases requiring bidding, you can bet that vendors regularly participating in the educational marketplace are doing their homework. Good salespeople know what their competitors will bid, what features they offer different then their own product or service, what questions the school district will ask, and how much the district can afford. Every salesperson selling to NJ schools has a copy of a directory listing school staff, financial information, enrollment, and much more. Vendor representatives are at public bid openings on a regular basis, copying down competitor information and scoping out features. News clipping services alert vendors when a bid is being advertised, in the event the vendor doesn't already know.

What influences vendor participation and pricing from their point of view? Districts with large amounts of state or federal aid are favored over others. Bigger urban districts are the most flush and the most lax about spending oversight. However, they are also the most competitive as far as bidding. Smaller suburban districts like Readington are not as high on the radar screen, but personal contact with staff there can make a difference. Districts with a reputation for not returning phone calls, or for unrealistic expectations, or for divided administrations or school boards are often shunned. At the annual NJSBA/NJASBO convention and similar events where vendors gather, there is plenty of down time for vendors to swap stories about school districts--how they pay, who is in charge, the size of their budget, the condition of their infrastructure, the best time to call, and where to park.

Vendors also will follow business administrators, superintendents and principals around as they job-hop from district to district. Administrators have favorite products and services, and they aren't shy about bringing vendors along with them for the ride. This can work both ways--the vendor can make out like a bandit by riding on the coattails of the administrator, but the administrator is also in a position to demand reduced pricing and stronger attention based on multiple installations of the product in more than one district.

Sometimes vendors will offer favorable terms to districts local to them, or to districts in an area targeted for growth. By agreeing to speak with neighboring districts about a product or service, purchasing agents in a district can gain advantage with a vendor who is eager for more business nearby. Vendors also pay attention to the title of the person calling. As a general rule, business administrators and superintendents will get preferential treatment if there is no prior relationship with the vendor. Once a relationship is established, other staff members can effectively be the point of contact--provided the vendor is not cut off from the business administrator or superintendent in the future. A salesperson cut off from higher level contact altogether reads that as snub.

In situations where really big money is involved, school board members can enter the picture too. Vendors will read who among the administration and the school board are convinced and unconvinced and will play one against another if it appears such a tactic will result in gains. Similarly, when third party engineers and consultants are involved, they can become part of the game by recommending their own favored vendors or by being pawns to the clever tactics of vendors playing them. When tens or hundreds of thousands of dollars are involved--not to mention the big money of school construction--vendors will use every tactic at their disposal to gain advantage. Vendors who have been playing the game for many years are generally far more knowledgeable and clever than their potential customers. The supposedly leveling bidding process is seen, correctly, as merely an inconvenience at the end of the game.

For products or services of a smaller scale, vendors look for districts who make it easy to do business: a consistent point of contact, low paperwork requirements, timely payment, a regular flow of orders, and realistic specifications. When a district pays poorly, demands crazy delivery schedules, places orders too late or infrequently, contradicts itself due to multiple points of contact, cancels orders, or pushes harder than its financial clout would warrant, vendors learn to steer clear. That means higher pricing to discourage or make up for the issues or avoiding the district altogether.

So, how does a school district win the purchasing game? Overall, it is a matter of paying attention to the process the same way that the private sector does. In spite of clumsy state-mandated rules which sometimes prevent better judgment, it is possible to work the system to the advantage of the district and taxpayers. Purchasing practice within the district must be streamlined and formalized. The specifications for purchases must be developed in-house with the cooperation of potential vendors before bringing in consultants or setting up presentations at public meetings. Strong relationships between vendors and agents must be encouraged but also cross-checked for favoritism--the overriding rule must be value for the district, not the purchasing agent. Vendors must be treated fairly to ensure fairness in return. A priority must be placed on the purchasing process so that the other demands of running a school do not overwhelm the players to the point where they cannot pay attention to how they are purchasing. Most importantly, every purchase small or large must be made as though it will exhaust the last budget dollar. Only with the strictest attention to detail does the balance of power shift from the vendors to the school district.