Innovative Procurement: Reforming a Traditional System
Nathan Myhrvold, the former Chief Technology Officer at Microsoft is not pleased; he once declared that “the prize for ultimate inefficiency goes to America.” And when considering the traditional procurement procedures used by most agencies, he may be on to something.
Traditional procurement is the process by which an agency:
- Identifies transportation needs
- Studies alternative projects and selects their preferred alternative
- Prepares for preliminary designing
- Completes preliminary designing
- Completes final design and engineering
- Purchases the right of way
- Constructs the project
- Operates and maintains the project
Building and improving infrastructure are no small undertakings by agencies, and each of the steps of traditional procurement, which can take from months to years, is critically important to the success of a project. But that doesn’t mean Nathan Myhrvold should give up on us just yet. Here are two innovative methods of procurement that transport agencies around the nation are implementing:
Innovative Procurement Policy: Unsolicited Proposals
An element of traditional procurement that agencies are challenging is the idea that design and construction are two distinct phases carried out by separate private firms. The sharp distinction between these phases can cause delays, so some agencies are piloting the new method of unsolicited proposals.
Unsolicited proposals are proposals submitted to a transit agency with the purpose of obtaining a contract that are not in response to a request by the agency.
The proposal is developed independently by the proposer without involvement by the agency and provides details about a project that will be cost effective and beneficial to the agency. The unsolicited proposals method has proven to be mutually beneficial to both the transport agency and the submitting company.
What it does for the transport agency:
- Reduces the time the agency needs to spend on one-off requests
- Creates unique opportunities
- Streamlines the first two stages of the procurement process
(especially when the submitting company also wins the bidding process)
What is does for the company:
- Allows them to introduce new ideas to the agency
- Creates new opportunities to expand their business
- Gives the competitive edge in the bidding process if their proposal is accepted
The unsolicited proposals movement is just beginning, but it is already gaining traction amongst several of the leading transit agencies in the nation, from
MBTA in Boston to the Denver Regional Transit District to Pierce Transit of Tacoma, Washington. And simultaneously, support for another outgrowth of the traditional procurement structure is growing as well: public private partnerships.
Public private partnerships (PPP) formed to address the concern that the state/agency shoulders much of the risk (and control) in traditional procurement, and the approach can take on different forms. The design-build (DB) and design-build-finance-operate-maintain (DBFOM) forms are most common and reflect different levels of delivery and revenue risk transferred away from the state agency.
Regardless of the amount of risk transferred, PPPs are effective measures for reducing the cost of a project, as the private company will optimize the finances of the design, build, and maintenance phases of the project. This practical form of the traditional procurement procedure reduces inefficiency without sacrificing a high level of performance. Because of the increased obligations placed on the private company, the project scrutiny and quality of service may even increase under this new system.
PPPs are much more prevalent in Europe, Canada, and Australia than in America, but one prime example of their potential is the I-595 highway in Florida. The toll road was constructed under a DBFOM public private partnership. The partnership between the Florida DOT and I-595 Express LLC, which lasts for 35 years, led to capacity improvements 15 years ahead of the schedule of traditional procurement. A value-for-money analysis estimated that by using a PPP, the Florida DOT was able to save $394 million on the $1.835 billion project. Other agencies like the Minnesota DOT are noticing the remarkable effectiveness of Florida’s PPP, and they are seeking to incorporate the same technique in their future projects. These agencies are all asking the same question: if they’re working well in Europe and Canada and Australia, why not here?
Moving Beyond Traditional Procurement
Procurement procedures are not going anywhere. With projects as big as entire highways, ports, and transit systems and costing billions of dollars, oversight and ensuring safety and quality are necessary precautions. But being thorough and implementing safeguards doesn’t mean there isn’t inefficiency in the traditional procurement system. Unsolicited proposals and public private partnerships are helping to clear some of the red tape. They’re modern takes on a long-established system, introducing new and improved ideas and lowered costs. While traditional procurement remains the dominant form of procurement in the country, innovative procurement has taken a foothold amongst American agencies, and it is only growing from there.
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