CENTRALIZED PURCHASING — AN IMPORTANT COST-CUTTER FOR MUNICIPALITIES By Acting Director DENNIS R. WHETSTONE, DCCA

As Acting Director of the Department of Commerce and Community Affairs (DCCA), it is my pleasure to share this column with the readers of the Illinois Municipal Review. During my years with DCCA, particularly as Deputy Director of the Bureau of Program Administration, I have come to know many of the municipal leaders of Illinois as good friends. I look forward to a good working relationship as we continue to work toward making Illinois a great place to live, work and do business.

This month, I want to discuss with you a very important aspect of municipal government management — centralized purchasing. Municipalities face increasing demands. Centralizing purchasing operations, appointing an agent to serve as liaison between vendors and purchasing departments, and adopting written procedures for administering a municipality's purchasing policies can help ensure the efficient and cost-effective purchase of goods and services. In fact, volume buying and improved bidding and quotation procedures can produce savings between 15 and 20 percent — a considerable dollar return over a fiscal year.

Centralized purchasing includes the following essential principles: centralized authority over purchasing, the consolidation of requirements into bulk purchases to obtain quantity price breaks, standardization of specifications to assure the quality of goods, stimulation of competitive bidding to reduce prices, centralized control over supplies in storage, elimination of unnecessary paperwork, prompt payment of invoices to earn cash discounts, avoidance of late payment penalties, and centralized control over property excess to the municipality.

The major elements of a good centralized purchasing program include: standardization, centralization, accountability and openness. There are some legal requirements, but only two aspects of centralized purchasing are regulated in detail by state statute: bidding requirements

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State statutes do not require competitive bidding for materials and supplies, but they do provide for bid requirements to be set by local ordinance (111. Rev. Stat., 1989, Ch. 24. par. 8-9-2). For local public improvement contracts which exceed $10, 000, the statutes provide three rules that must be followed. First, a contract may be awarded to the lowest responsible bidder, after public advertisement for bids. Second, the governing body, by two-thirds vote, may direct the work to be performed by municipal employees, provided that the commissioner of public works or other designated officer shall supervise the project. All necessary materials with a value of $10, 000 or more shall be purchased via public advertisement and be awarded to the lowest responsible bidder as per ordinance. Third, the governing body may, by two-thirds vote, enter into a contract without competitive bidding. However, if any work or public improvement is paid in whole or in part by special area taxation or special assessment, all contracts of $500 or more must be let to the lowest responsible bidder (111. Rev. Stat., 1989, Ch. 24, par. 9-2-100 and par. 9-3-24).

To assist municipal officials in operating a smooth centralized purchasing program, a few guidelines should be considered. First, all purchases should be made by one individual. The appointed purchasing officer or agent is usually a person in finance or administration performing the job as an additional duty. Second, the purchasing agent or officer should stimulate vendor competition and make quantity purchases wherever possible. Third, all purchases should be made following standardized procedures. Fourth, items utilized by the community should be standardized and resupply points should be established so that purchases will be made at regular intervals.

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A logical extension of centralized purchasing is cooperative, or joint, purchasing. Cooperative buying was first recognized as a useful procedure more than 50 years* ago in the Chicago metropolitan area. However, cooperative purchasing must be fully supported and utilized if it is to be successful. Municipalities may participate in one or more arrangements with other municipalities, counties, regional councils or school districts. They may also participate in the State of Illinois joint purchasing arrangement which has been discussed previously in this column.

To operate an effective centralized purchasing program, even the smallest local government needs guidelines governing purchasing procedures. An operating manual that defines policies, purposes, procedures and responsibilities is recognized as an important tool in establishing a purchasing program. The manual can apply to persons within the organization as well as those outside it with whom municipal employees deal.

A purchasing manual makes the purchasing procedures known to all. The manual should be as comprehensive as municipal officials wish. It should, however, contain, as a minimum, the basic purpose of the manual, authorities and responsibilities, purchasing aims and objectives and standards of conduct. Additionally, the manual may cover inventory management, storage or warehousing, disposal activities, specification preparation, bidding procedures, contracting procedures, quality assurance guidelines, vendor selection, and planning.

In general, the purpose of a centralized purchasing program is to maximize savings through quantity purchases, to reduce time spent locating vendors and obtaining prices, and to eliminate individual purchasing efforts on the part of separate departments, scheduling and like standards. DCCA is happy to help answer any questions you may have. For further information, please call Oliver Bishop in the Office of Local Government Management Services at (312) 814-6696. •

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