Continuing on in our review of FedBid's experience with DPS, we'll conclude with an overview and analysis of FedBid's fee structure and the services they have provided as part of this engagement. Last, we'll offer final observations and recommendations regarding their position in the market.
Fees – Knowing how to work government budgeting and programs is as much art as science. FedBid has likely tailored related programs in the past compared with DPS to work with public budgets and similar grant type organizations. As such, they require no upfront fees to run the solution for DPS. Fees are collected from suppliers when awards are made. As mentioned in Part 1, the percentage fee calculations plateau once spends reach the $1 million level. Larger spend amounts are not taxed, so to speak.
Services provided – FedBid provides a fully supported marketplace. As part of this value proposition, they register, approve and train sellers (aka suppliers). They also perform quality control and audit functions as part of the supplier registration and RFP (aka "buy") management process. Initially, FedBid gathers common onboarding data points such as SAM (System for Award Management – a 'cute' moniker for a Federal solution comprising CCR, FedReg, ORCA, and EPLS that was rolled out in July this year), debarment etc. FedBid then maintains and updates that data on an ongoing basis as part of that supplier's profile. More client-specific requirements are rolled into the terms and conditions of events.
Spend Matters can see how this common denominator approach works as long as the same vendor isn't engaged too frequently in events – or worse, is invited to multiple concurrent events, since the data gathering then can become onerous and overly redundant if not carefully managed. This is a common challenge for pure-play sourcing platforms without deep SIM solutions embedded. It's not unique to FedBid.
Results – DPS operates under typical public procurement rules, where essentially all bids are visible to all suppliers. FedBid supports this open process, which makes it easy for DPS. So far – note that this has been accomplished since June this year – DPS has saved $5MM out of which the FedBid solution has contributed 50%, or $2.5MM. Not the largest numbers at first glance, but remember that the solution has only been up and running for 3-4 months and the organization only has around a $700MM total spend budget, so these are great savings coming from a smaller portion of the spend. The open market model has also helped DPS deliver business to local suppliers, while saving money, both of which are important to a local tax-payer-funded organization.
Conclusion – There is no doubt that the solution is working out great for DPS at the moment. It could serve as a model for other urban school districts looking to cut costs across likely very similar categories. We are looking forward to hearing how the year 2 and 3 activities turn out as the organization starts to work through their book of never-sourced categories. Even if the savings will not be as impressive as they are realizing at the moment across more "low hanging fruit" categories, the success at DPS should inspire many other public organizations across the country to try out the FedBid model and potentially others like it. After all, how can anyone turn down the opportunity to get savings for free?
- Public sector procurement organizations at the state and local level should consider marketplaces such as FedBid not just to drive savings, but also to improve diversity spending.
- DPS' success – and FedBid's in general – provides proof that supplier diversity initiatives do not have to be at odds with sourcing and supplier rationalization cost reduction programs. Supplier diversity professionals in the public sector should rally around FedBid like models to expand not only diversity spending, but contributing to delivering greater value for tax dollars, improving student outcomes (in the case of education) and managing to budgets which are more constrained than ever.
- There is no excuse in the public sector not to move quickly when it comes to sourcing-focused cost savings. No excuse. FedBid's experience proves this at DPS. In less than 12 months, DPS has moved more rapidly than many private sector organizations in its procurement transformation.
- Agencies and departments should take advantage of the "free" FedBid model as long as it lasts. We believe that ultimately, especially as sourcing events over time start to cut into supplier margins, that a buyer-driven fee structure – or a shared fee structure – will likely come to dominate. FreeMarkets went through a similar transformation in its business model, moving from supplier to buyer focused-fees (a topic which we'll explore in the future in more detail).
- FedBid is not an island in the marketplace world. Agencies and departments should also evaluate alternative models including Ariba, MFG.com and others. However, after doing a competitive scan, it is likely that public sector institutions will opt to take advantage of services delivering the type of supplier onboarding, quality control and market making that FedBid delivers (versus self-service marketplace environments).