Government procurement moved to the spotlight last week when New York City Comptroller Scott Stringer announced he is closely monitoring the state's eProcurement project following reports of surging costs.
The New York Daily News reported last week that the city's contract with source-to-pay technology firm Ivalua has seen its price tag increase from $30.5 million in 2016 to $47 million today, according to a report by the Checks and Balances Project, which concluded "New York City taxpayers were ripped off."
Brian Utley, chief executive officer of public sector procurement technology company Periscope Holdings, told PYMNTS in a recent interview that a key detail in the New York City saga is the fact that the company New York City decided to work with had never worked in public sector procurement before. It's not the same as the private sector, he warned.
"One of the biggest challenges in this space is that you have people come in from the private sector world," he said. "Businesses come in to help run government, and they're selecting options that come out of the private sector."
These technologies are often designed to address the particular needs of companies within the supply chain that procure materials and goods in order to sell their own products. That's a far cry from the public sector's procurement goals, Utley said.
"Government procurement is built on laws and statutes," he noted. "That has to be the core of the system, to be able to manage procurement."
In the public sector, transparency is essential, considering buyers are using taxpayers’ money. That means functionality like price comparison between co-ops, state and local contracts and other purchasing platforms are instrumental. At the same time, while the private sector may choose a few dozen vendors with which to work, governments must work fairly with small and medium-sized businesses, minority-owned businesses, women-owned businesses and local firms – which means on top of finding the best price, the public sector also has to balance supporting a supplier base that private sector companies often look past.
And it all must be done in compliance with the law.
"You're trying to squeeze a private sector solution into a public sector transparent environment," said Utley. "You're seeing a lot of serious problems with it."
That's not to say there isn't a place for the private sector or large conglomerates in government procurement, however.
Amazon Business Steps in – With Controversy
One of the largest companies that falls into these categories is Amazon Business, which has introduced a new focus on digitization of procurement within government entities, as well as controversy over its possible dominance in the space.
Last year, the Institute for Local Self-Reliance (ILSR) published a report criticizing government procurement's increasing use of Amazon Business, which secured local government contracts via the U.S. Communities government purchasing co-op. According to the ILSR, as more jurisdictions adopt the contract, Amazon Business may undercut competition through its use of dynamic, not fixed, pricing, adding that Amazon Business is also enticing vendors to join its platform to connect with government buyers.
"Amazon is thus leveraging its growing relationship with local governments to induce more businesses to join its marketplace, fortifying its position as the dominant platform for online commerce and taking a cut of every purchase," the ILSR said in an announcement at the time.
Yet Utley said the addition of Amazon Business to the government eProcurement landscape is a beneficial shift. Last week, Periscope Holdings announced it has integrated Amazon Business into the eProcurement platform designed for the State of Nevada, the NevadaEPro system, a move Utley noted is designed to give government buyers more choice when making purchases, thus promoting efficient use of taxpayers' money, wider vendor choice and overall transparency.
"When we think about public sector procurement, we think about a fair playing field," he said.
Digital, Faster Payments
As the government procurement field continues to evolve, the public sector is certainly taking a page out of the private sector's book in terms of boosting efficiency, the use of electronic documents and payments and the ability to seamlessly move through the procure-to-pay process.
In the public sector, Utley said he's actually seeing very few paper checks in use, as government entities embrace ACH and government purchasing cards to pay their vendors. That adoption of electronic payments similarly promotes transparency and speed in ways that enable the public sector to influence the private sector, too.
Utley pointed to the ability of electronic payments to enable three-way matching between invoice, payment and receipt of an order to ensure governments pay for the correct order, and only pay for what they have received. That three-way match also supports accelerated payment approval so vendors can receive money faster, another critical part of government procurement that must adhere to rules of timely supplier payments.
"When you dig into the payment side of government, it's just a little bit different than businesses," he said. "A lot of governments pay in 30 days."