By Phil Gerace
Fire departments nationwide continue to struggle with both budgets and the ability to provide timely and safe fire and EMS response. Apparatus are large capital investments that range from $100,000 to more than $1,000,000 per vehicle. However, the line-item purchase-order cost of the apparatus is only one element to consider in the total cost of the truck during its in-service life. Other considerations include the cost of future replacements, maintenance, spare parts, training, and, surprisingly, the acquisition’s administrative. Acquisition costs and the associated timelines vary greatly depending upon the methods used. Following are some points to consider before your next purchase.
Traditional Competitive Bidding Process
Large dollar purchases by public entities require high levels of accountability. In the past, this been accomplished by using invitations for bids (IFBs) and requests for proposals (RFPs), though certainly not exclusively. An entity uses IFBs when the requirements are clearly defined, negotiations are not necessary, and price is the major determining factor for selection. Entities generally use RFPs when factors other than price are to be considered like service, company stability, and cost of ownership. Although both these methods have a long history of use in public procurement, they also have significant drawbacks.
It’s impossible to say what the average administrative costs total for a public bid, but it’s safe to say that the costs are often quite substantial. The specification process usually takes technical personnel away from their duties for dozens if not hundreds of hours. Financial and legal staffs must review the bid before someone posts it publically. Prebid meetings or questions, addendum creation and distribution, and bid submission review expend more staff hours. Different truck manufacturers respond using a variety of formats and verbiage, so comparing each bid is often quite time consuming. The bid award and protest portion can also create unforeseen expenses. Lastly, while all the bid preparation is going on, prices often continue to increase because of outside economic factors.
Reverse Auction Contractors
Reverse auction companies have recently been popular with a number of public agencies, however they seem best suited for commodity type products. In my experience little attention is paid to specification compliance or overall best value, and the winner is the auction contractor, not the customer. In December 2013, the second time in two years, the Veteran’s Administration put a moratorium on reverse auctions. The decision came as lawmakers are growing more concerned about whether agencies are paying higher than necessary prices and not getting adequate competition. According to Daniel I. Gordon, formerly with the Office of Federal Procurement Policy, “These reverse auctions only make sense when all you care about is price.”
Three other acquisition methods: long-term purchasing agreements (LPTAs), cooperative purchasing contracts, and add-on/tag-on’s are growing rapidly in popularity and all share some common characteristics:
• Assurance of competitive pricing and audit accountability.
• Established pricing guidelines for future purchases.
• Minimized administrative costs and product price increases.
• Minimized training, service, and parts inventory expense.
• Allow for competitive bids at any time should the customer choose to do so.
Long Term Purchasing Agreements
An LTPA usually begins with a bid that establishes a fair and open specification. Those specifications and awarded pricing will be the baseline for all future purchases under the contract, usually for a period three, five, or 10 years. The LTPA then establishes how to make changes to future specifications, how to handle pricing, and the necessary documentation for each purchase.
Benefits for this purchase option include:
- Baseline specifications and pricing obtained through a competitive bidding process.
- Budgets for future purchases can be projected based on current contract pricing plus historical annual increases that are easily estimated via the Producer’s Price Index (PPI) for fire apparatus.
- Contract renewal periods can coincide with new budgets so that purchases made late in a particular year can be paid with the next year’s funds at the lower, previous year’s price.
Cooperative Purchasing Contracts
Group purchasing is one of today’s most popular methods used to acquire fire apparatus. These contracts contain multiple manufacturers offering a wide range of products. The costs of using these contracts range from free to several thousand dollars, though all are generally less expensive than a public bid. Examples include HGACBuy , Florida Sheriffs, and FCAM. Schedules generally satisfy state competitive bidding regulations, allow for price shopping between vendors, and also allow for a quick process without delays and high administrative costs.
Add-Ons & Tag-Ons
When other departments go through a bidding process, it is not necessary to reincur the same administrative expenses. Fire departments often use the first bid as justification for a similar purchase, and many manufacturers allow a limited number of changes to the specification. This is particularly useful when a local department obtains a multiunit purchase discount that is offered to other fire departments. In effect, a single unit purchase can get the benefit of pricing based on many units. Procedures on this process vary widely, but this continues to be an important process, and it is even possible for departments to “tag on” to their own previous purchase.
When using LTPAs, group purchasing, and add-ons, fire departments end up with common components and features across all apparatus. This strategy then offers additional benefits that include:
- Common operating and service parts and procedures that provide for:
- Increased driver safety.
- Increased fireground safety and efficiency.
- Decreased training expenses for both fire and maintenance personnel.
- Decreased parts-inventory-carrying costs.
- Decreased out of service intervals for maintenance and service.
- Simplified specification process for replacement apparatus.
- The personnel hours associated with this process when using a public bid are often in the hundreds of hours between prebid meetings and meetings with manufacturers.
Given today’s economic climate, it makes sense to pay attention to all costs associated with fire apparatus purchasing. Looking at acquisition methods is important because they can play a key role in the timeliness and overall cost.
PHIL GERACE is the Director of Sales and Marketing for KME.