Creating a Common Market

The idea seems deceptively simple: Combine the information technology buying power of a group of states to create new economies of scale, ensure systems interoperability and streamline acquisition procedures. In the process, avoid costly duplication of effort, system incompatibility and acquisition gridlock.

Last year the Western Electronic Benefits Transfer Alliance-a consortium of six states, including Colorado, Alaska, Idaho, Washington, Arizona and Hawaii-put the idea into practice, awarding a seven-year contract to a team led by Citibank for the delivery of EBT services to welfare recipients across the region."The thesis is that states shouldn't reinvent the wheel 50 times," said Tom Singer, a research director at the Western Governors Association (WGA), a group representing 18 Western states that helped pioneer the Western EBT Alliance. "Most state applications are not unique. Although there is a need for flexibility, by and large states can share a whole lot of basic systems elements."

WGA developed the joint procurement through its SmartStates initiative, a program started by Gov. Michael Leavitt (R-Utah) to help streamline government, education, health care and supplier operations through cooperative IT acquisition and pooling of network requirements and resources. A $1 million federal EBT task force grant helped kick off WGA's EBT program in 1995.

During the planning phases, officials determined that a multistate procurement would help induce better service pricing, ensure interoperability of systems and provide cross-border access to benefits. "The goal is to lower individual state EBT costs," said Chris McKennon, a WGA program manager. "States will get significant savings while helping develop common system standards."

Consortia buying is currently a hot topic. "In terms of application areas, states should work together in setting requirements, designing specs for systems and in procuring and implementing systems to the extent that state cooperation is advantageous," Singer said.

Nationwide Initiatives

Though leading-edge, the Western EBT Alliance is not unique. Across the nation, cooperative state acquisition programs are in different stages of readiness, from exploratory to full swing. They include cooperatives for purchasing office equipment, paper, trucks and, more recently, computers and IT services.The Western States Contracting Alliance (WSCA), for example, an offshoot of the National Association of State Purchasing Officers, is experimenting with multistate acquisition of office equipment and paper-based services. Computers and other IT are the next step.

"We have opportunities within states to buy jointly using city, county and school district [resources]," said Cameron Birnie, a WSCA officer and administrator for transportation purchasing and print services for the state of Oregon. "But only recently have we looked at opportunities for states joining states in putting out [requests for proposals] for office machines and paper. Multistate [computer and software] procurements will be taking off soon."

Because it is network-based and requires many levels of government to work together, EBT is a natural candidate for a multistate acquisition plan. In addition to SmartStates, the Southern Alliance of States (SAS)-composed of Alabama, Arkansas, Florida, Georgia, Kentucky, Missouri, North Carolina and Tennessee-has been active in obtaining EBT services through Citibank. Similarly, the Northeast Coalition of States is developing a pilot EBT food stamp and public assistance program for seven states.

A Tangled Procurement Web

Despite general agreement on the need for cooperation, some thorny issues remain unresolved. "When it comes to [joint IT] buying, every state has different rules and regulations, and to create a common buying network that conforms to everyone's regulations becomes a problem right off the bat," said P.K. Agarwal, chief information officer for California's Franchise Tax Board. "Small states don't have buying power, so you have to establish an umbrella contract for them, and some states have preferences for stuff manufactured in their own states."

Even when states develop RFPs and contracts that do not prohibit other states from conducting separate joint procurements under the same contracts, other legal problems may crop up.

"What complicates matters is that states often have language [in their solicitation laws] that prohibits using other state [procurement] contracts," said Gary Lambert, deputy state purchasing agent for Massachusetts. "How [does one] do multistate cooperative purchasing? The trick is to figure out how to make multiple states work together so that specific state legal requirements don't become an impediment to success."

A tangled web of jurisdictional issues may also have to be sorted out before joint procurements happen. "We have to have an attorney general work at these issues and come up with specifications that meet all the different state laws," WSCA's Birnie said. "All states have different purchasing laws."

And political pressure to keep business local may wipe out the price advantages of a buying network, experts say. "There might be legislative or political pressure to keep these contracts in-state, as was done in the past," Birnie said. "That's the political obstacle, and we've also found in a couple of cases that when we put out for joint bids, the prices aren't necessarily better."

Finally, picking a vendor capable of servicing a contract across the network may also become a problem. Though Birnie's experience has been primarily in non-IT acquisition, he observed that in large procurements, "vendors aren't necessarily geared up to service another [geographic] area. But more often than not, we've found the prices to be lower."

Leaders Spur Adoption

Often the difference between success and failure in launching a common purchasing network comes down to a question of sheer market power. For example, Colorado was able to crash through state procurement barriers in developing the regional EBT system by taking a strong lead and setting up aggressive IT and networking goals.

In that case, the state was already developing an RFP for an EBT system when the Western Governors Association got a federal grant to design a system across several Western states.

Some states hadn't begun EBT planning at the time, so WGA hired a contractor to help expedite the process "and bring slower states up to where the faster states were," Singer said. "Halfway through, the Colorado legislature mandated that the state become EBT-compliant by March 1997. We knew we would lose Colorado if we didn't act quickly, so we shifted from a feasibility study to an actual implementation. With Colorado's blessing, we used its RFP as a vehicle for regional procurement."

The initial multimillion-dollar procurement for smart cards, readers and software acted as a blueprint for the other participating states and included enough legal leeway for states to negotiate their own separate financial terms with the vendor. "The states did a joint procurement for EBT services using the Colorado RFP so that the winning bidder priced the services based on an expectation that all the alliance states would also sign up," Singer explained. Under the contract terms, "the winning vendor [Citibank] had the right of first refusal, and any state had to deal with Citibank first."

Enough flexibility was written into the contract proposal so that states could finish individual negotiations at their own pace. "We provided options for the states either to pay for all the development costs up front that Citibank would have to incur or to include them in the cost per case month," said Mark Tandberg, Colorado's EBT coordinator. "Essentially the states are buying an electronic banking and transaction processing service."

The joint EBT program is only one of several SmartStates procurement initiatives under way. Other programs include the WGA Health Passport project, an expansion of EBT into health benefits distribution, and a virtual university and telecom acquisition, part of the Western Interstate Commission for Higher Education. The commission also has a program for using multistate procurement of telecom/ networking services for higher education.

"The only negative we've run into so far is overcoming traditional ways of doing business," Singer noted. "There is some resistance to the idea of a loss of sovereignty or flexibility, but [people recognize] that joint projects give states the resources to come up with approaches so they're not externally imposed."

To advocates of such programs, the benefits far outweigh the political and legal costs. "It's more than a question of acquisition vehicles," Tandberg said. "There's a belief that if you increase the number of cardholder accounts and the number of households participating in an [electronic benefits] project, there's a potential to receive a better price. Consistency [and interoperability of systems allow] major food retailers that have stores across state boundaries to hook up easily to the EBT processor."

For the contractor, there's another benefit: "What development they do in one state is consistent across the states," Tandberg added. "When states are talking to each other, it makes EBT [and other IT projects] look much more universal to all participants."

Arielle Emmett is a Wallingford, Pa.-based free-lance writer who specializes in computer and network technology. She can be reached via the Internet at [email protected]


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