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Talking Procurement at #SCS414

I recently had the pleasure of joining CfA’s Startups team, Lane Becker and Dharmishta Rood, at the first annual Smart City Startups (#SCS414) conference in Miami, Fla. Hosted by Urban.Us, the conference convened a hundred entrepreneurs, investors, and urban innovators from around the globe in the Wynwood Arts District of Miami for two action-packed days of knowledge sharing and problem solving.

The conference focused on three main challenges for startups operating in the civic space: Funding, Partnerships, and Procurement.  As a civic entrepreneur myself, I had the honor of participating in the Procurement panel alongside Story Bellows of Philadelphia’s MONUM, Ben Berkowitz of SeeClickFix, Tommy Lopez of SmartProcure, and Sascha Haselmayer of CityMart.

The format of the conference was oriented towards raising difficult, relevant questions, which fueled thoughtful (and lively) breakout sessions designed to help surface useful workarounds for the short-term, and models for success for the long-term, that could be shared back with the whole group. Several key challenges — and promising ideas for solutions — emerged from our discussions about procurement.

 

RFPs inadvertently limit innovation.

The Challenge

Even when a Request for Proposal (RFP) isn’t written with a specific vendor in mind already (which many of them are), any company hoping to bid on the contract still has to meet a lengthy checklist of criteria that are often unrelated to the quality of the solution they offer:

Been in business for 5+ years? Umm…

Have a million dollars in liability insurance? Errr…

And this is before you even get to the project description. As SmartProcure’s Tommy Lopez pointed out, most RFPs are written as a laundry list of criteria the proposed solution must meet, which unfortunately leaves very little room for innovation.

By proposing a specific solution complete with a detailed list of features, rather than simply stating the problem that needs solving, governments inadvertently miss the opportunity to consider more non-traditional, but potentially more effective, approaches. They’re often left with a very small pool of very large vendors offering outdated, bloated solutions that can fulfill all the requirements, regardless of whether those requirements are actually necessary to solve the problem or not.

As things stand now, the government contracting process favors companies who are willing and able to invest the most resources in building a large team of salespeople, proposal writers, and lawyers. And, like Eric Gundersen of Development Seed and Mapbox said so well, “why would I make a company like that?” Do we really want to incentivize civic entrepreneurs to divert resources away from building great tools so they can learn how to “play the procurement game”?

A New Approach

CityMart has been working with the Barcelona City Council to pilot the BCN Open Challenge, an experiment in “outcomes-based procurement”. Rather than starting with a set of strict technical requirements, the City has put forth six challenges which outline their desired outcomes (like “reducing bicycle theft in the city”) with loose guidelines of what they’re looking for. Providers are then invited to propose innovative solutions that would meet the desired outcomes. The City has committed to procuring and implementing the winning solutions.

In addition to helping re-frame RFPs around challenges instead of solutions, CityMart fills another crucial role in the procurement process for the municipalities they work with. They employ a team of researchers who identify companies who offer a solution that could be a good fit for their customer’s challenge, especially those who wouldn’t ordinarily consider bidding on a traditional RFP, and encourage them to consider participating. And they’re relentless: Sascha said it can take up to 5 pings before a company will acknowledge the opportunity and consider bidding, but he says the effort is worth it to ensure their customers receive proposals from the best talent possible.

 

Rethinking the “Home Team Bias”

The Challenge

City and county procurement laws often include provisions to give preference to small, local firms. The intention is straightforward enough: support local businesses and economic development by giving them priority in the bidding process for government contracts.

As well-intentioned as these provisions may be, Story pointed out that they can end up backfiring for startups and government alike. Municipalities can be pressured to choose a local provider, or be less inclined to thoroughly evaluate non-local bidders if they have to meet their quota of local providers anyway. This may mean they’re not getting the best possible option from the pool of potential solutions.

Meanwhile, civic startups often build products or services designed to solve common problems that exist across municipalities (think SeeClickFix or RecordTrac), which should theoretically allow these solutions to scale nationwide, or even worldwide. This is good for everyone: infrastructure costs for the company are lower than with custom solutions, which can translate to lower fees for the customer. But the odds are stacked against these companies in all but a handful of municipalities near their headquarters. This can mean that companies offering higher-quality, more affordable solutions have yet another hurdle to overcome in order to successfully scale their business, depriving government of better choices in the long term.

A New Approach

Through their FastFWD urban impact accelerator, the City of Philadelphia is working to support local ventures in a new way. Rather than simply prioritizing local businesses in the City’s purchasing process and calling it a day, Philly is partnering with local impact accelerator Good Company & UPenn’s Wharton Social Impact Initiative to mentor & accelerate local social impact businesses. Successful graduates not only get an opportunity to pitch their solutions to the City of Philadelphia, but to a large network of municipalities through national pitch events organized as a part of the program.

FastFWD’s emphasis on helping graduates identify potential customers beyond the Philadelphia area is critical. Serving as a positive reference for other potential municipal customers is an exponentially more effective way for local government to support homegrown startups than simply awarding them one local contract.

 

Mitigating risk in an inherently risky situation

Ultimately, all of the challenges surfaced at SCS related to procurement boiled down to the fact that governments have a mandate to minimize risk (we’re talking about taxpayer money here, after all). And as much as we startups intend to be in it for the long haul, working with a young company is inherently risky from a government perspective, despite the fact that these companies may offer superior products & services.

How can civic startups help government mitigate the risk involved with working with them? Could startups that promise government savings or increased efficiency adopt an ESCO-style business model, where, rather than charging an up-front fee, the company begins earning their fee only after the customer has begun reaping the benefits from the savings or efficiencies promised?

 

We need your input!

The challenges and strategies surfaced in just two short days at SCS were significant, but we know we merely scratched the surface of the issue, and we want to hear from you! Do these challenges ring true to you, or are there others that are even more pressing? Have you discovered any strategies or approaches worth sharing? Tweet @codeforamerica (#procurement) to join the conversation and help us create a procurement system that provides government with a broader and more competitive pool of tools and services at their disposal, to help solve today’s most pressing challenges.