Presented by: Bill Munch, CPPB Valley Schools/HPACT Michael Greene, CPPO City of Tempe
Presentation Summary How do we define local purchasing What is driving the local purchasing initiative What do the political solutions look like How effective are the political solutions Real strategies to increase local purchasing How can Procurement professionals take charge of this issue Example of local spend report 2
Defining Local Purchasing There are two parts to this definition Geographic location based on an area such as a school district, city, county, state or national Investment how invested is this business entity in the local area? 3
Defining Local Purchasing Local is truly in the eye of the beholder: Is it where the firm s principal business offices are physically located? Is it based on where the firm s key business functions being performed (financial, accounts payable, shipping, etc.) Is it based on where a firm pays taxes sales, license, property, etc. Is it based on the percentage of payroll in an area? Is it simply based on the firm having a business presence in the area 4
What is Driving the Local Purchasing Initiative Small Business Influence Small locally owned businesses lobby elected leaders in response to competition from big businesses/franchises A perception that a business residing in a particular political division (city/county/state) that is paying taxes to support that entity should have a preference for a portion of that government s dollars $$ 5
What is Driving the Local Purchasing Initiative Small Business Effect As a result, local business owners and their lobbyists apply pressure to local politicians to institute a benefit that will balance what they perceive as an unfair playing field against a larger business threat or a right to more business based on a return of tax and business investments over firms not located in that jurisdiction 6
What is Driving the Local Purchasing Initiative Political Leaders Influence Political leaders use the buy local theme as a means to sway voter sympathy Politicians recognize the true benefit of increasing tax revenues as a result of awarding contracts to locally based companies Politicians want to be recognized by local business leaders for their help in supporting long time business residents 7
What is Driving the Local Purchasing Initiative Political Leaders Effect Pressure is applied to procurement departments to drive more spend to local firms Preference policies are put in place to directly impact the ability of jurisdictions to award more local contracts 8
What is Driving the Local Purchasing Initiative Public Procurement Influence Procurement professionals (based on both policy and practice) promote and rely on a highly competitive environment to determine award outcomes with much less emphasis to location concerns Required to follow procurement rules that typically do not allow for any kind of preference or bias in determining award outcome Award outcomes can be made to a non-local firm based on the agencies rules/regulations 9
What is Driving the Local Purchasing Initiative Public Procurement Effect A perception can develop that public procurement officials do not care about supporting local business Suppliers might see rules/regulations as too complex and costly and drive off small business from participating in public bidding Politicians feel obliged to reach into process and apply a mechanism to counter the perceived rigid public bidding rules 10
What do the Political Solutions Look Like Preferences Typically grants a business that fits its locally based definition a bidding preference in the 2% to 10% range over other non-locally based businesses. Reciprocal preferences can be utilized as well when trying to counteract another state s decision to allow its in-state businesses a preference over out of state businesses. 11
What do the Political Solutions Look Like City of Tucson Implemented in June of 2012 a three tier system: Type A businesses have principal business offices that are physically located in Pima County receive a 5% preference over other businesses Type B businesses have principal business offices that are not located in Pima County but are located in Arizona receive a 3% preference over other businesses Type C businesses that operate a franchise within Pima County and are owned by a Pima County resident receive a 1.5% preference over other businesses 12
What do the Political Solutions Look Like Cities of Tempe, Chandler and Mesa These cities have implemented a local tax offset preference: Firms that have a tax license within the designated city do not have the local sales tax(1.5% to 2%) included in their bid when comparing other firm s bids that are based in other municipalities 13
What do the Political Solutions Look Like City of Phoenix Local Small Business Set-aside Program implemented in 2010 and is based on targeting qualified local businesses for awards under the formal threshold <$50K First vendor review is based on Maricopa County Second vendor review is based on Arizona Self certification process Separate registration process 14
How Effective are These Political Strategies City of Tucson In just over 2 years there have been 2 procurement events changed by preference City of Tempe In past 3 years there has been 1 procurement event changed by preference City of Chandler In past 2 years there have been 2 procurement events changed by preference City of Mesa In past 2 years there have been 4 procurement events changed by preference 15
What are Truly Effective Strategies to Increase Local Spend Recognize the value of working with local suppliers Actively participate in supplier outreach Develop a supplier education program Meet with and develop partnerships with local Chambers of Commerce Network with local trade associations Become an advocate for local business 16
What are Truly Effective Strategies to Increase Local Spend Further develop our internal web of support for doing business with local business ensure end-users are on board! Go beyond the registration process and help connect local business with internal customer contacts Look at raising your informal limit in order to increase the level of discretionary spending within your organization 17
How to Take Charge of the Local Purchasing Initiative First perform geographic spend analysis on your agencies spend to determine current state of affairs Establish your department s definition of local spend Remove all non-vendor spend from report Focus on four tiers City, County, State and Out of state spend Evaluate results 18
How to Take Charge of the Local Purchasing Initiative Second Develop a series of strategies that are reasonable and appropriate for your procurement team to accomplish that will further impact your spend report Third Combine steps one and two above into a legitimate local spend program that can be periodically measured, adjusted and reported Communicate the implementation/results of your local spend program to senior management and political leaders 19
How to Take Charge of the Local Purchasing Initiative We have a great story to tell we just need the data to show it! Thank you for your time today 20
Sample Spend Report City of Tempe Procurement Division Engineering Division Combined Supplier Spend Supplier Spend by Region Dollar Value Percent of Spend Dollar Value Percent of Spend Dollar Value Percent of Spend Tempe Spend $ 13,375,385 13.22% $22,738,935 58.16% $ 36,114,320 25.70% Maricopa County Spend $ 76,042,007 75.17% $38,951,119 99.63% $114,993,127 82.00% Arizona Spend $ 85,091,226 84.12% $39,081,281 99.97% $124,172,508 88.54% Outside Arizona Spend $ 16,065,324 15.88% $ 11,524 00.03% $ 16,076,848 11.46% Total Supplier Spend $101,156,550 $39,092,806 $140,249,356 21