By Phil Gerace
Fire departments continue to struggle with budgets and the ability to provide the expected fire and EMS response, especially for high-cost items like apparatus that range from $100,000 to over $1 million per vehicle. However, there are several methods to consider when purchasing an apparatus. Below are pros and cons and different strategies for each approach to consider prior to purchasing an apparatus.
Traditional Competitive Bidding
Large-dollar purchases by public entities require high levels of accountability. In the past, that’s been accomplished through the use of invitations for bids (IFBs) and requests for proposals (RFPs), though certainly not exclusively. IFBs are used when the requirements are defined clearly, negotiations are not necessary, and price is the major determining factor for selection. RFPs generally are used when factors other than price are to be considered like service, company stability, and cost of ownership. While both of these methods have a long history of use in public procurement, they also hold significant drawbacks.
- Administrative costs for a public bid often are quite substantial. The specification process usually takes technical personnel away from their duties, while financial and legal staff must be paid to review it before. In addition, there are other personnel costs throughout the process.
- Different truck manufacturers respond using a variety of formats and wording, so comparing each bid is quite time consuming. The bid award and protest portion also can create unforeseen expenses.
Reverse Auction Contractors
Reverse auction companies have become popular with a number of public agencies. However, they seem best suited for commodity type products. Often little attention is paid to specification compliance or overall best value, and the winner is the auction contractor, not the customer. Indeed, reverse auctions have been an issue in the past. In December 2013, for the second time in two years, the Department of Veterans Affairs 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. Daniel I. Gordon, formerly with the Office of Federal Procurement Policy, said “[t]hese reverse auctions only make sense when all you care about is price.”
Long-Term Purchasing Agreements
Long-term purchasing agreements (LTPA) are growing rapidly in popularity. An LTPA usually begins with a bid that establishes a fair and open specification. Those specifications are awarded pricing and will be the baseline for all future purchases under the contract, usually for a period three, five or 10 years. LTPAs will assure competitive pricing and audit accountability; establish pricing guidelines for future purchases; minimize administrative costs and product price increases; minimize training, service and parts inventory expense; and support competitive bids at any time should the customer choose to do so. The LTPA then establishes how changes can be made to future specifications, how pricing will be handled, and the necessary documentation for each purchase.
Benefits for this purchase option include baseline specifications and pricing obtained through a competitive bidding process, and 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 for fire apparatus.
In addition, contract renewal periods can be established to coincide with new budgets so 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 to acquire fire apparatus and share some common characteristics with LTPAs.
These contracts contain multiple manufacturers offering a wide range of products. Cost of using these contracts range from free to several thousand dollars, although 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 a quick process without delays and have high administrative costs.
Add-Ons and Tag-Ons
When other departments go through a bidding process, it is not necessary to incur the same administration 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 the following:
- Common operating and service parts and procedures
- Increased driver safety
- Increased fireground safety and efficiency
- Decreased training expenses for 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 labor hours associated with this process when using a public bid often is in the hundreds of hours. Given today’s economic climate, it makes sense to pay attention to all costs associated with the purchase of fire apparatus. Choosing the right acquisition methods can play a key role in the timeliness and overall costs.