Public Sector Weighs Procurement Outsourcing
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Facing a shrinking workforce and a largely paper-based procurement processes, more state and local agencies are pushing routine purchasing tasks to third parties.
State and local government procurement shops face increasing pressure to streamline processes, reduce costs and comply with evolving cybersecurity and privacy regulations. As a result, more are turning to outsourcing, according to the report, “2023 ISG Provider Lens Procurement BPO, Transformation and Software Platforms,” published by Information Services Group last month.
A few factors are behind that trend, according to Nathan Frey, head of ISG’s U.S. public-sector business. They include a need to support a dwindling post-pandemic workforce, an urgent push to digitize largely paper-based procurement processes and greater acceptance of outsourcing by government overall.
The report shows that public-sector workers are more pragmatic about the fact that there are functions that a third party can provide more efficiently and less expensively, he said. Plus, although outsourcing has historically been seen as encroaching on government jobs, that’s not necessarily as true today.
Agencies say: “We’ve got positions and we got funding, but we can’t get people to do the work,” largely because of retirements, long hiring processes and the lure of better pay in the private sector, according to Frey. “That may be a different paradigm that opens the door to outsourcing because you’re not displacing government workers. You’re just saying, ‘Hey, I can’t fill these positions. Let me use a third party to do that,’” he said.
Another aspect is a desire to take off procurement officials’ to-do list those activities that are routine, standardized and repeatable processes, he added, freeing them to focus on tasks that require domain expertise. “That expertise and institutional knowledge about how to procure those goods and services are important to the transaction,” he said.
Outsourcing procurement isn’t without challenges, however. Frey said agencies should put in place safeguards to ensure transparency and protect against conflicts of interest with the third party. He advised agencies to build governance processes for outsourced contracts “in a way that you can monitor, you can manage those key decision points to keep the vendor aligned with the interest of government.”
In Aurora, Illinois, an algorithm-based procurement solution helped the city increase the number of requests for proposals it releases and significantly speed the time to market.
Since 2019, Aurora has worked with Marketplace.city on about 30 tech projects ranging from body-ruggedized police laptop computers to a managed phone service, e-signatures and citizen engagement analytics.
“Marketplace has the expertise around technology procurement, whereas [workers] here in the city, their expertise is more around commodity-based procurement,” Aurora Chief Information Officer Michael Pegues said.
One of their most recent collaborations was on a cloud-based, bidirectional grants management solution. According to the RFP, Marketplace.city “manages the process to provide the city with the market landscape of companies and solutions, comparable implementations, contracts and pricing options, and various procurement options.” From that information, Aurora then selects a solution, vendor and procurement vehicle that best meets their needs.
Marketplace.city Chief Operating Officer Andrew Watkins describes the company as “a managed service as it relates to technology procurements.”
Its Clearbox decision-support platform, released in 2019, uses historical transaction data plus insights such as scopes of work, solicitations, business models, pricing and references to understand the current market landscape and inform procurement decisions.
In its first year of working with Marketplace.city, Aurora realized more than $500,000 in cost savings, and the typical procurement cycle time dropped to about three months from 10 to 18. Additionally, the city saved 70 to 105 personnel hours per project.
That means “taking 1,000 hours that they can go and dedicate to other areas within the city,” Pegues said of employees. “We’re talking about continuous service improvement.”
Outsourcing options for procurement will only grow, Frey said. He’s seen major enterprise resource planning systems from CGI, Oracle and SAP integrate procurement functionality. Other companies, such as Marketplace.city, Bonfire, OpenGov and GovPilot, offer standalone procurement options.
Stephanie Kanowitz is a freelance writer based in northern Virginia.
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