Innovators in Action (May 2015 edition): Implementing Best Value Procurement in Oklahoma

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Innovators in Action (May 2015 edition): Implementing Best Value Procurement in Oklahoma

The latest interview in Reason Foundation’s Innovators in Action 2015 series focuses on the state of Oklahoma’s use of a type of best value procurement known as the Performance Information Procurement System (PIPS), developed nearly two decades ago by Dr. Dean Kashiwagi and promoted by his team at Arizona State University’s Performance Based Studies Research Group (PBSRG). Oklahoma’s Office of Management & Enterprise Services has been working with PBSRG as a research partner on implementing PIPS, which is based on identifying and leveraging the knowledge of experts in the supplier community to provide clients with a plan to accomplish their objectives. Reason Foundation Director of Government Reform Leonard Gilroy recently interviewed Steve Hagar, Oklahoma’s State Purchasing Director, on the state’s use of best value procurement, the PIPS model, successes seen thus far and much more.

Here’s an excerpt:

Leonard Gilroy, Reason Foundation: Can you explain the difference between best value procurement and the more traditional low-bid procurement?

Steve Hagar, State Purchasing Director, Oklahoma Office of Management & Enterprise Services: There’s a contrast between a best value process and a more traditional low-bid environment with a specification driven by minimum requirements or qualifications. In a low-bid environment, the state will establish a minimum requirement where we know we will get at least this much, and we may get more than that because the suppliers trying to get our business will probably offer us more than we would expect based on the minimum.

From the supplier perspective though, knowing that it’s a price-based award, they will see the minimum requirement as more of a maximum they can offer without pricing themselves out of the competition. They understand that if they bring their best people to the project and offer everything they can offer, they will price themselves out. So what a low-bid procurement does is cause the supplier to compress their expertise-they’ll opt to use junior people over higher performing people in an environment where they’ll be told what to do by the client. They can just send their junior staff in knowing that the state is going to be managing, directing and controlling them, locking them in at the minimum price and telling them how it’s going to be done.

That’s at the opposite end of the spectrum from a best value environment, where we encourage suppliers to use their best people and tell them that we will pay for their best people because we know that if it’s done right the first time that it will be cheaper in the long run. It allows suppliers to bring in their best people knowing that they will be in charge of the process and won’t be told what to do. There’s nothing more frustrating than for an expert to come into an environment and not be able to use their expertise due to a client that’s very managing and controlling.

We want to create an environment through the best value process that allows them to come in and actually utilize their expertise, so that’s why we work to make sure that the clients-the state agencies-understand that the supplier should lead the way. They’re going to tell us how they’re going to get there, so ask any questions you want but don’t revert back to managing and controlling the supplier, because it will drive an expert crazy.

Check out the full interview here. Other articles featured in the Innovators in Action 2015 series are available here.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.