Kelman: Purchase cards: Priceless

Feds mostly avoid buying at retail prices when a relevant contract is available

Those of us who like putting purchase cards into the hands of agency customers — and getting the government good deals from strategic sourcing — have often felt frustrated by the perception of how cardholders use their cards.

Purchase cards dramatically reduce the time and frustration involved in buying items that agencies use every

day, so the card has enhanced the quality of life for agencies and employees. The card also saves considerable administrative costs, which in the case of small purchases are a significant portion — often more than half — of the total cost of such items.

The fear has been that customers use their cards to buy items from stores at retail prices. It is absurd that the U.S. government — the largest single buyer in the world — should get no better pricing than you or I could get as an individual shopper at a local mall.

The accepted view among those who like purchase cards and strategic sourcing is that agency procurement people should negotiate contracts that capitalize on the government's buying power, and customers should use purchase cards to place orders — via Internet or phone — from those contracts.

To learn more about card usage, Ke Lu and Meghan Poe, two students at Harvard University's John F. Kennedy School of Government, recently conducted a survey of about 90 purchase card users at six agency locations. They chose program people, not contracting experts.

The results, overall, are better than I would have expected. Cardholders make significant use of agency contracts when they know about them. And educating employees about the existence of contracts has significant potential to increase their use.

The headline statistic in the students' survey is that only 8 percent of cardholders do not use an agency contract when they know that one exists. Further, 74 percent report that they buy using agency contracts nearly all the time or often. And 58 percent said they are aware of agency contracts for at least some of the items they buy.

Based on respondent reports, in most cases in which people are not aware of relevant agency contracts, it is because such contracts don't exist.

Not surprisingly, the knowledge and use of agency contracts are greater at headquarters than in the field. In the field, 16 percent don't know about those contracts, compared to 10 percent at headquarters. And a somewhat larger percentage report not using agency contracts even though they know about them.

The survey gives reason for some optimism about prospects for expanding contract use. Of those not aware of agency contracts, 63 percent said they would definitely use such contracts if they found out about them, and another 34 percent said they might, depending on the contract.

Negotiating more agency contracts, establishing policies for their use, and advertising the availability of good contract prices and fast delivery would be a good recipe for widespread, intelligent use of purchase cards. n

Kelman is a professor of public management at Harvard University's Kennedy School and former administrator of the Office of Federal Procurement Policy. He can be reached at steve_kelman@harvard.edu.

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