Pennsylvania Initiative Aims to Trim Cost of Supplies

Feb. 27--"Volume! Volume! Volume!"

It's the secret to all those low, low prices at discount warehouse stores, and Gov. Ed Rendell is betting that what works for Sam's Club can work for Pennsylvania, too.

In a policy switch from the Ridge/Schweiker era, the state has begun bundling its shopping lists for a number of commodities into mega-contracts, hopefully resulting in single suppliers who will give Pennsylvania their best prices for goods ranging from ball-point pens to desktop computers and frozen food.

"Our state buys $3.1 billion in goods and services every year," Rendell said Thursday as he opened online bidding for a statewide office-supplies contract. "If we were a private business, we'd be a Fortune 50 company at that level of purchasing. ... But until this year we had never wielded our full purchasing power in the marketplace."

By bundling 20 to 30 commodity contracts this year, administration officials project their new "strategic sourcing" initiative will save the state $100 million that could be spent on public schools, libraries or drug- and alcohol-treatment programs.

But what sounds like a no-brainer for a state still trying to shake off the effects of the 2001-02 recession is worrisome to small and mid-sized businesses. They are concerned that bundling of contracts will effectively end their ability to compete, costing sales and jobs.

"It's very discriminating toward the small businesses," said Rob Meier of Mechanicsburg-based LAM Systems.

Meier said his small computer business probably won't be able to bid for an upcoming computer hardware contract, jeopardizing sales he now makes as a state-authorized vendor through piggyback contracts with school districts and local governments.

"They're basically looking to have the four largest computer vendors in the world ... shoot it out on an online auction," Meier said.

The policy is a change from the Ridge and Schweiker administrations, when many of the contracts Rendell is looking to bundle had been decentralized.

"My philosophy of sharing the common wealth' and recognizing that small business is the backbone of Pennsylvania's economy drove me in a different direction," said Gary Crowell, general services secretary to former Govs. Ridge and Schweiker. "This was about opportunity, and that it ought to be shared in Pennsylvania."

But Rendell officials, who came into office staring at major budget deficits, believe there is a better way.

A hired consultant, Accenture, helped DGS Secretary Don Cunningham identify which of 275 major commodities contracts the state could best consolidate. Those identified for bidding in the first half of this year are: desktop computers, generic computer software and hardware maintenance, office furniture and supplies, copiers, custodial supplies, road materials, vehicles and food.
Cunningham acknowledges that some small businesses may be hurt in the transition. But he argues that the losses, in most cases, will be relatively small. Some affected firms, meanwhile, will be able to recoup business as subcontractors to eventual contract winners.

Cunningham points to the example of office supplies, for which the state hosted the online auction Thursday.

Until now, the state maintained a list of authorized vendors from which individual office managers could buy, a process that records show led to purchases from more than 2,700 outlets last year, the secretary said. Total buys at more than 1,800 of those businesses was less than $1,000, but the prices were likely full retail.

"If I have people buying office supplies at retail prices to supply a government worker to do his or her job, then I feel as secretary I am not doing my job," Cunningham said. "It's irresponsible for the commonwealth not to go to the marketplace and say: 'Give us your best price.'"

Based on preliminary figures, the auction Thursday yielded a cost savings of about $9.5 million in the typical $25 million spent by the state for office supplies. The low bidder was not identified, and no formal contract will be finalized until bid managers weigh delivery and service considerations, Cunningham said.

One local businessman who participated in the bidding Thursday was Peter Phillips, president of The Phillips Group based in Middletown. Phillips currently does about $6 million annually in sales of office furniture, equipment and supplies to the state -- about 10 percent of the firm's total sales.

Phillips hoped to hang onto his share of the state's office-supply purchases through a newly formed consortium with 11 other mid-sized dealers across the state. But he is concerned the winner-take-all aspect of the proposed contract could see all business go to a national giant like Massachusetts-based Staples.

"Realistically, we might find ourselves without any business with the state as a result of this process," he said.

Generic software for desktop computers has been single-sourced to date. That contract was awarded to ASAP Software of Chicago at an estimated annual savings of $4 million on what had been a $40 million expense.

Frank Kane, DGS press secretary, noted that 80 percent of the state's software purchases were already going to out-of-state vendors.

© 2004, The Patriot-News, Harrisburg, Pa. Distributed by Knight Ridder/Tribune Business News.