E-procurement gets new look

More than a half dozen states are poised to start online purchasing projects in the new state fiscal year that begins July 1, according to analysts and industry officials. These states will be using lessons learned from several successful projects around the country, including those in Florida, Maryland and Virginia, which all struggled through some missteps but now boast either a partially or fully implemented statewide e-procurement system. Hawaii, Oregon and Texas are expected to make awards for end-to-end e-procurement systems this summer, according to market research firm Input Inc., Reston, Va. Other states looking to build e-procurement solutions, often as part of financial system upgrades, in the next fiscal year are Colorado, Illinois, Ohio, South Carolina, South Dakota and Utah, analysts and industry officials said. These states are expected to use a revenue-sharing business model, now in vogue, in which the contractor pays to develop and implement the system and receives compensation from fees charged to vendors or suppliers that use it. Integrators that provide end-to-end e-procurement solutions take a small percentage, usually 1 percent, of each registration or transaction fee to recoup their costs.The latest round of projects are surfacing following a pronounced slump in e-procurement the past two years. Once touted as a can't-miss business opportunity, e-procurement thus far has failed to develop into a consistent government market. While four-fifths of the states have implemented some part of an e-procurement system, few have complete end-to-end systems that allow state agencies to handle online everything from the vendor registration and solicitation posting to contract award and supply requisition.Partial e-procurement systems include functions such as electronic bidding, reverse auctions and e-catalogs, but do not enable agencies and departments to conduct the purchasing process online from start to finish.By moving purchases online, states can gain access to a wider selection of vendors and operate in a streamlined, paperless environment. E-procurement is a way for state governments with revenue shortfalls and budget deficits to save money not only on administrative costs but also on purchasing prices, said Rob Berton, managing partner with the East Coast Client Group of Accenture Ltd., Hamilton, Bermuda. The market infancy and the number of alternative funding models associated with e-procurement make it difficult to predict the size of the market in dollars, analysts and industry officials said."The e-procurement market needs more time to mature before an accurate forecast is possible," said Rishi Sood, principal analyst with mark-et research firm of Gartner Data-quest, Stamford, Conn. An end-to-end e-procurement project's value varies widely. In 2000, AMS signed a five-year, $26 million contract to develop a statewide e-procurement system for Virginia, known as eVA. In October, Accenture signed a five-year, $92 million contract to provide a statewide e-procurement system for Florida, Berton said.Science Applications International Corp. of San Diego is the prime contractor and BearingPoint Inc., McLean, Va., is a subcontractor on Maryland's e-procurement project. The companies declined to disclose their specific compensation.In April, BearingPoint won a revenue-sharing contract from Massachusetts, estimated at up to $6.5 million, said Larry Herman, managing director of state and local government alliances and solutions. Negotiations are continuing between the state and company officials over the scope of work and the revenue-sharing arrangement, he said.One important lesson learned from the early projects is that a successful e-procurement system hinges on widespread participation by both state agencies and suppliers.In the early days of e-procurement, state officials erroneously believed that if an online purchasing system was built, both agencies and suppliers would flock to use it, but that has not been the case. Indeed, one of the most nagging problems associated with e-procurement is not the lack of available state funding, but adequate supplier participation, Herman said. Many small businesses have been gun shy of e-procurement and complained to their legislators about it, Herman said. "If you haven't implemented Internet techniques, you are very reluctant to have your state go in an e-catalog fashion, because you feel locked out," he said.Consequently, states have found they must require agencies to participate as well as enlist contractors' help to drive adoption by suppliers.In Virginia, for example, then Gov. Jim Gilmore issued a memo to agencies requiring them to use eVA, said Gary Lambert, senior consultant with the public-sector practice at American Management Systems Inc., Fairfax, Va. Having learned from that experience, the Texas legislature has passed a law requiring state agencies to use the new procurement system when it goes online, Lambert said. John Kost, vice president of global public-sector research for Gartner Inc., said that in order for e-procurement to succeed, it requires that the government using it has already undertaken procurement reform. Because e-procurement is a tool designed to improve efficiency by enabling just-in-time inventory management and eliminating unnecessary process steps, it is useful only if a government has made concurrent policy decisions to eliminate those steps. "It is a waste of time if governments haven't evaluated and reformed the decision making, delegation of authority and process steps that underlie the [e-procurement] process," Kost said. *Staff writer William Welsh can be reached at wwelsh@postnewsweektech.com.