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Procurement 101

Picture this: you’re the founder of a civic technology startup that has created a software product that will help local government reduce their costs, save time, and deliver better service to residents. Your team has validated  the product with exhaustive user testing. It’s scalable and solves a real problem relevant to cities big and small. You’re ready to begin selling your product to municipal governments across the United States.

One obstacle stands in your way: the complex process of government procurement. Even though you’re selling a quality product that offers real value and cost savings, it can be enormously difficult for new providers to enter the government technology market. This system has frustrated technologists and government officials alike. It’s considered by many to be a main barrier to growing the market for civic innovation.

What is Procurement?

Procurement is the way governments (either federal, state, or local) purchase products or services from private vendors. These can be something tangible, such as a stoplight or street sweeper, or something intangible, such as consulting services or technology development.

The series of rules and regulations behind procurement were created to promote fairness, prevent unethical behavior, and ensure accountability. They were created, in fact, to protect taxpayer money. Public procurement can be vulnerable to nepotism, corruption, and cronyism.  In the past, too many stakeholders took advantage of the system — which led policymakers to start adding more and more checks and balances to prevent government funds winding up in the hands of unethical or unqualified contractors.

The point is that these rules are here for a good reason. They were put in place by people concerned about the public interest who cared about promoting fair competition.

But over time, these policies have begun to work against the very values they were put in place to preserve. Small tech companies that would be a great fit for many government projects lack the resources or bureaucratic know-how to navigate the lengthy procurement process — or fail to meet lists of requirements that don’t actually relate to their ability to do the job well. These regulations that initially protected the public interest have become a barrier to entry for new entrants into the civic technology sector, dampening competition and raising prices for government.

The result is that too often, procurement actually prevents governments from engaging with new companies offering modern technology products and services, missing opportunities for cost savings and innovation. As Derek Eder from DataMade notes from his observations from the procurement practices of the City of Chicago: “All of the government sites took months to build and cost hundreds of thousands of dollars. [Their open-source equivalents] were all built by one to two people in a matter of days, for no money.”

Be part of the Solution

The good news is that things are beginning to change. At Code for America, we are actively working with a handful of startups and government partners to rethink procurement policy and process so that it once again works for government, instead of against it.  An important step is to help current and potential civic entrepreneurs get up to speed on the basics of procurement, why it works the way it does, and how you can be part of the solution:

What are the basic steps of the competitive procurement process?

  • Defining a need:  The government must first identify what exactly they need. Clay Johnson believes that if governments were able to define their business needs better, they would better be able to dramatically cut down on costs by cutting out features they don’t need.
  • Writing an RFP:  Once a government has identified its business needs, they then write a Request for Proposals (RFP) that describes the problem, the ideal solution for that problem, and invites companies to submit proposals for how they could fill the need.
  • Soliciting bids: Once the RFP is written, the government then posts it on their website for the public to bid on. They may do additional outreach to solicit bids. This is known as a competitive bidding process, because more than one company is invited to bid on this contract. This process can be open, where the bids are available for the public to view, or closed, where only authorized personnel are allowed to open these bids.
  • Selecting a vendor
  • Contracting
  • Execution of contract

Who makes purchasing decisions within local government? This varies from municipality to municipality. There are two basic models:

  • Centralized Purchasing is when the government has one purchasing department that makes all of its purchasing decisions. Centralized purchasing is usually preferable because there will normally be a standardized procedure to accompany the purchasing decisions. There will also usually be a centralized record of all purchases made by that government.
  • Decentralized Purchasing is when individual departments must make their own individual purchasing decisions.

What are some challenges with procurement as it exists today? There are a wide variety of problems with the current system.  We’ve listed some briefly here:

  • Complexity – government documentation surrounding procurement tends to be incredibly nuanced and complex, which can be overwhelming to new startups that are just beginning to learn about selling services to government.
  • High Variability – part of this complexity lies in the variation in both procurement thresholds and the types of ways vendors must sell to government.
  • Low Visibility – The information on how to maneuver through this highly complex system fraught with high variability is scattered in remote places on government websites, and sometimes may not be available on the internet altogether.

**What are the consequences of some of these challenges?</p>

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  • Smaller vendors unfamiliar with the rules surrounding government procurement are unable to sell their services to government, creating an entry barrier for companies intending to enter the civic technology market
  • More established,  and older companies that are more familiar with navigating the procurement process are favored.  (Usually these companies run on, older, outdated, waterfall software development practices, which leads to software that is also older, and outdated)
  • The lack of competition prevents governments from receiving new technology, resulting in many governments possessing software that is complex, unusable, and bloated with too many features, while smarter solutions are readily available

**What are some of the ways cities and startups are addressing this?</p>

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  • 2014 Multi City Innovation Campaign:This is an online campaign sponsored by the cities of Nashville, Raleigh, Boston, and Palo Alto, that encouraged developers to develop solutions to problems facing these four cities, where the winning company would be able to sign a contract with all four cities.
  • SmartProcure: One of the companies in the 2013 Code for America Accelerator, SmartProcure aims to both increase government transparency and provide local businesses with procurement information, enabling businesses from small startups to enterprise companies make smart pricing decisions.
  • **ProductBio</strong>: One of the companies in the 2014 Code for America Accelerator, ProductBio leverages vast amounts of government data to provide a comprehensive history of individual products, so that businesses and governments understand which products are sustainable.</li>

    • CityMart: CityMart is a virtual marketplace that connects cities looking for solutions with a marketplace of 1,000 businesses, social enterprises, and entrepreneurs.
    • The Department of Better Technology: The department of better technology is an organization created by Clay Johnson of the Sunlight Foundation that builds software for government entities. Their application, Screendoor.io builds forms that are simple, easily accessible, and easy to construct.</ul>