The Perils of the Purchasing Process

Originally published on Insurance Thought Leadership | June 9, 2021

Most public entities and many private companies have switched to a procurement model for all contracts and purchasing. This model means a centralized department is responsible for all these decisions, ranging from office furniture and supplies to purchasing insurance and risk management services. Risk managers and service providers are often challenged to demonstrate the value of such services beyond simply price, and pricing alone is not the best comparative measure of such services.

The latest Out Front Ideas with Kimberly and Mark webinar brought together two risk management and procurement teams to discuss how they work together to achieve the overall goals of their entities and how vendors seeking contracts can best differentiate themselves from their competition. Our guests were:

• Amber Feldman – purchasing agent and contracts administrator, state of Colorado
• Chelsea Gilbertson – contracts and procurement director, state of Colorado
• Rick Graham – chief risk officer, Southeastern Pennsylvania Transportation Authority
• Julie Mileham – director, State Office of Risk Management, state of Colorado
• Cristal Swift – risk management administrator, Southeastern Pennsylvania Transportation Authority

Framing the Issues

Public entities are often scrutinized over vendor choices because of procurement guidelines they need to adhere to and federal and state oversight. If government partners believe funds are being used inappropriately, consequences can result in reduced funding. Additional funding sources, like pass-throughs and grants, can be added to one project, making adherence to statutory requirements even more complicated, with multiple sources to track. These inherent challenges are precisely why the vendor selection process is extensive and thorough.

Transparency throughout the process is also vital to maintaining public trust, especially when taxpayer dollars are involved. When the solicitation process begins, the process must remain competitive and fair, as to even the playing field for all vendors, including those currently contracted with the entity.

Evaluating Third-Party Vendors

From the beginning, program needs should be extremely comprehensible to vendors, making the language in the request for proposal (RFP) critical. Transparent language also clarifies what is being asked of vendors and will ultimately help develop the final contract. RFPs should also include all mandatory minimum requirements and the scope of work, so expectations are unambiguous. Including the evaluation criteria and the entire selection process in the RFPs will further clarify the entity’s needs and allow vendors to know what they’re getting into. Additionally, consider a debriefing process after contracts are awarded so that vendors are aware of what they can improve on the next time, regardless of whether they were chosen or not.

Risk Management Purchasing

When seeking risk contracts, procurement teams should consult with their risk managers to appropriately develop the RFP. This allows risk managers to manage vendor risks and identify what can be transferred appropriately between parties within a project. Risk managers should also independently evaluate all bids, which is critical to identifying exposures and understanding coverage. One project may require pollution liability coverage while others may not, so it’s essential not to use a one-size-fits-all approach. With projects differing in size and scope, using scalable solutions can help ease the process.

Communicating early and often with the procurement team will also ensure that they consult with their risk management team for all future projects. Inviting all parties to a roundtable discussion can assist in keeping the lines of communication open and concrete relationships while verbalizing any concerns. Timeliness is critical in contract decisions to properly coordinate with vendors and keep the project goals on track. Remember that, throughout the vendor selection process, it is crucial to choose what’s best for the entity and not just easiest for the transition.

Advancing Your Purchasing Processes

Many entities expect vendors to be intuitive about their needs, but expectations should be made clear to make program goals a reality. And while there are a multitude of ways to make the procurement and purchasing process less painful, our guests offered a few critical elements to pay attention to.

Start the RFP Process Early. The earlier this process begins, the better. Applications should be submitted early, and the underwriting data should be flawless. Take the time to understand the process and ask concise questions when writing a submission. Establishing the program needs early will help vendors better understand the scope of work and requirements.

Look Beyond Cost. Often the price is viewed as the most crucial factor when choosing a vendor, when the actual value can be found elsewhere. This methodology can also prevent growth within a program. Consider the other values that a vendor may bring to elevating a program, looking at cost last. Additionally, examine preemptive challenges, like if a vendor comes back with several changes to a contract, this could be an early indicator of how they’ll work within the project.

Avoid Silos. Collaboration and communication in the planning stages can be crucial to your program goals, and bringing in additional departments to review RFPs can bring a fresh perspective to your evaluation process. Considering department input, like budgeting and accounting, can clarify implications around the solicitation process. Also, speaking with risk managers early can help identify associated risks that can be communicated to vendors.

Know Your Risks. Risk implications are involved with everything regardless of if it’s directly related to risk management. Discuss your concerns regarding coverage with brokers and ensure that complex issues are addressed. Use them to review coverage language and ensure that coverage in contracts and bids is appropriate for the risks your organization is willing to accept. If you’re unsure of risks, ask yourself what taxpayers should really be liable for.