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®6®61tt Of `6.1.13. - Page 4 �OT B►n'�� COOPERATIVE PURCHASING—A ROADMAP TO MORE EFFECTIVE CITY PROCUREMENT Issue I Summary I Glossary I Background I Discussion I Findings Recommendations I Requests for Responses I Methodology I Bibliography I Responses ISSUE How can cities in San Mateo County save taxpayer money by adopting cooperative procurement practices? SUMMARY The 20 cities in San Mateo County (the Cities) spent $425 million and the County of San Mateo (the County) $300 million on goods and services in FY 2015-16, for an estimated total in purchasing of $725 million. 12 The Cities and the County could spend millions less – without increasing costs – by increasing the use of "piggyback 3,, contracts and cooperative purchasing agreements. The Cities and the County could save the most money, an estimated annual savings between 5 and 15 percent, through cooperatively purchasing goods and services with the County's Procurement Division for a total annual savings between $35 million and $108 million. All of the Cities procure goods and services through decentralized purchasing systems in which individual municipal departments are authorized to identify the need for a good or service, conduct the appropriate selection process, and place a purchase order, under the supervision of their city's finance department and or city manager. Decentralized purchasing systems successfully allow cities to procure goods and services at fair market prices while minimizing labor costs associated with centralized procurement departments by assigning purchasing functions to -individual departments. However, the Grand Jury found that while city employees receive training on municipal purchasing guidelines and policies, many employees who conduct purchasing operations as a secondary responsibility are not trained and or instructed to negotiate optimum prices by leveraging market power.4 Further, in exchange for minimizing labor and related costs, the Cities have forfeited the benefits associated with a centralized purchasing system. Under a centralized purchasing system, trained and experienced purchasing agents, located in a central purchasing department, are responsible 1 California State Controller's Office, Schedule of Total City Expenditures by Major Object Classification, Accessed On: October 2017 httDs://bvthenumbers.sco.ca.eov/City-Expenditures/Schedule-of-Total-Citv-Expenditures-bv- Mai or -Obi ec/a 6Dc-n5bD. 2 San Mateo County Civil Grand Jury, "San Mateo County Procurement Division Recommendations Follow -Up" Superior Court of California San Mateo County, June 21, 2017: 2. <htto://www.sanmateocourt.orQ/documents/erand iury/2016/mocurement.1)df> 3 A form of intergovernmental cooperative purchasing in which an entity will be extended the same pricing and terms of a contract entered by another entity. Generally, the originating entity will competitively award a contract that will include language allowing for other entities to utilize the contract, which may be to their advantage in terms of pricing, thereby gaining economies of scale that they would otherwise not receive if they competed on their own. a Clifford McCue, Jack Pitzer "Centralized vs. Decentralized Purchasing: Current Trends in Governmental Procurement Practices" Journal of Public Budgeting, Accounting, and Financial Management (Vol 12, Issue: 3) 2000: 400. httDs://www.emeraldinsieht.com/doi/odfblus/10.1108/JPBAFM-12-03-2000-13003. 2017-2018 San Mateo County Civil Grand Jury