Recent Changes in State Purchasing Policies August 24, 2004

1. State Purchasing Recent Changes in State Purchasing Policies August 24, 2004

2. Recent Changes in State Purchasing Policies Agenda • Welcome / Session Overview • Putting Procurement in Context • Roadmap to Excellence in Contracting Audit Report • Center for Efficient Government • Recent Rule Changes • Questions

3. Recent Changes in State Purchasing Policies Agenda • Welcome / Session Overview • Putting Procurement in Context • Roadmap to Excellence in Contracting Audit Report • Center for Efficient Government • Recent Rule Changes • Questions

4. Putting Procurement in Context The Lawyer’s View • Chapter 287 (Purchasing (also 255, 337)) • Chapter 120 (APA) • Chapters 119 and 286 (Public Records and Sunshine Law) • Chapter 215 (Payment and Audit) • Chapters 671 and 672 (UCC) • Chapter 112 (Ethics) • Chapters 838 and 839 (Criminal Misconduct)

5. Putting Procurement in ContextThe Business View (FYE 6/30/03) • $48.3 billion in expenses • We’d be 25th on the Fortune 500 list (by revenue) • Bank of America is just ahead of us • Just behind us are Pfizer, JP Morgan Chase, Time Warner, and Proctor & Gamble

6. Putting Procurement in ContextGov. Agencies’ FY 03-04 Spend ($ millions)

7. Putting Procurement in ContextFla. Financial Management Info. System (215.91, FS) • Primary means by which state government managers acquire and disseminate the information needed to plan and account for the delivery of services to the citizens in a timely, efficient, and effective manner. • Coordinate fiscal management information and information that supports state planning, policy development, management, evaluation, and performance monitoring. • Primary information resource that provides accountability for public funds, resources, and activities.

8. Putting Procurement in Context 21st Century Challenges Stand-alone legacy management information systems • LAS/PBS (Budgeting - EOG) • FLAIR (Accounting - DFS) • COPES (Personnel and Payroll - DMS) • SPURS (Purchasing - DMS) • CMS (Cash Management - DFS)

9. Putting Procurement in Context 21st Century Challenges • Lack of standards among subsystems • Lack of complete and efficient integration • Duplication of data input and maintenance • Insufficient management information to support decision making • Incomplete reporting capabilities • Lack of single chart of accounts • Complex external interfaces • High maintenance and modification costs • Inconsistent data

10. Putting Procurement in ContextOverview of Major FFMIS Initiatives Human Resources – People First DMS working with Convergys/SAP to modernize the personnel system, leave and attendance and benefits management (http://dms.myflorida.com/workforce/people_first_initiative) Purchasing – MyFloridaMarketPlace DMS working with Accenture/Ariba to integrate purchasing activities for all State buyers and for vendors doing business with the State (http://marketplace.myflorida.com) Financial Management – Aspire DFS working with Bearing Point/PeopleSoft to replace the legacy accounting and financial system (FLAIR) with an integrated enterprise resource planning system (http://aspire.dfs.state.fl.us)

11. Putting Procurement in ContextPre-FFMIS Purchasing Systems Manual Vendor Bid Agency Process for System contract Matching system (Bidding) Agency contract SPURS system View SPURS Web-based (Reporting) Registration (Purchasing) Agency contract system Agency Manual contract Process for system FLAIR Invoicing Agency contract system

12. Registration Purchasing Bidding Contracts Invoicing Matching Reporting Putting Procurement in ContextFFMIS Purchasing Subsystem Goals FLAIR / Aspire

13. Putting Procurement in Context Lifecycle of Spend • Minimize cost to track and transmit orders to suppliers • Capture company-wide spend • Adequate data integrity • Identify & monitor savings • Measure ROI of procurement • Fulfill reporting requirements • Apply negotiated pricing & terms • Track supplier performance ratings • Track rebate and volume agreement compliance • Manage contract renewals • Capture early payment discounts • Timely capture of payments information Planning & Analysis Source Contract Req’n Order Interact & Receive Invoice Payment • Standardized sourcing processes • Deep commodity & market knowledge • Disseminate best practices • Optimal pricing & terms • Decrease time and cost of complex negotiation • Facilitate multiple collaboration across the organization • Enforce compliance with contract pricing • Minimize time and cost to requisition, approve, receive & reconcile invoices • Automate payment and link P.O. to payment authorization in one record (Ariba Buyer)

14. Develop Selection Factors & Screen Vendors Profile Internally & Externally Prepare Value Proposition & Award Kick - - Off Screen Screen Shape & Shape & Conduct Competitive Event Kick-Off & Assess Opportunities Profile Profile Conduct Conduct Develop Strategy Implement Agreements Develop Develop & Suppliers & Suppliers & Negotiate Negotiate Implement Internally & Internally & Auctions & Auctions & Strategy Strategy Selection Selection Assess Value Value Agreements Externally Externally Opportunities Factors Factors Propositions Propositions Putting Procurement in ContextThe Sourcing Process Develop Value Proposition Around Options Prepare Fact Prepare Fact - - Level High High - - Fast Track to Value Fast Track to Value Fast Track to Value Measure Measure Measure Based Based Data Data Complete Complete Complete Results Results Results Negotiation Negotiation Collection & Collection & ITB/ITN/ RFQ/RFP & Trends & Trends & Trends Build Build Build “Packages” “Packages” Analysis Analysis Build Total Build Total Build Total Validate & Validate & Validate & Supplier Supplier Vendor Key Worksteps - and / or - Cost of Cost of Cost of Profile Profile Profile Selection Selection Selection Ownership Ownership Ownership Segment Segment Make Award Decision Category Category Category Decision Decision Decision Negotiate Negotiate Model Model Model Purchases Purchases Develop Vendors Develop Develop Matrix Matrix Matrix Value Value Conduct Conduct Conduct Propositions Propositions Form Form Auctions Auctions Auctions Conduct Conduct Conduct Develop Develop Develop Conduct Conduct Conduct Cross- Cross - Industry Industry Industry Category Category Category Supplier Supplier Vendor Functional Functional Analysis Analysis Analysis Strategy Strategy Strategy Analysis Analysis Analysis Sourcing Sourcing Teams Teams Value Propositions Benefits Category Profile TCO Model In-Scope Categories Selection Decision Matrix ITB/ITN/RFQ/RFP Typical Deliverables Realization Industry Profile Category Continual Vendor Improvement Strategy Auctions Award Decision (ITA) CFSTs (Cross-Functional Sourcing Teams) Ariba Analysis Ariba Contracts Ariba Analysis Ariba Sourcing Ariba Sourcing Ariba Contracts Ariba Analysis Tools

15. Recent Changes in State Purchasing Policies Agenda • Welcome / Session Overview • Putting Procurement in Context • Roadmap to Excellence in Contracting Audit Report • Center for Efficient Government • Recent Rule Changes • Questions

16. Roadmap to Excellence in Contracting EOG Inspector General Report No. 2003-03 • Reviewed approximately 100 audits conducted by seven agencies, AG, and OPPAGA, between July 1999 and June 2002 • Extracted 494 audit findings related to procurement, contracting, and outsourcing • Identified six core activities instrumental to outsourcing

17. Roadmap to ExcellenceDistribution of the 494 Findings • Performance monitoring (45%) • Procurement methodology (20%) • Contract writing (17%) • Payment (10%) • Needs assessment (7%) • Contract closure (1%)

18. Roadmap to Excellence Factors Contributing to Recurring Problems • Lack of statewide guidance • Lack of expertise in negotiating contracts • There is no statewide system to train or certify agency contracting personnel, nor are there incentives to encourage professional development • The state’s corporate culture does not foster the sharing of best contracting practices among agencies

19. Roadmap to Excellence Factors Contributing to Recurring Problems • Agencies’ use of different processes and procedures in awarding and managing contracts causes the contract documents to vary considerably in format and content • Inadequate systems exist for monitoring and rating vendor performance • A formal procedure for agencies to perform and document needs assessments has not been developed by DMS • Piecemeal statutes and rules

20. Roadmap to Excellence Recommended Solution to Recurring Problem Lack of statewide guidance We recommend that DMS accept the mantle of leadership bestowed by Florida Statute. Most deficiencies could be readily addressed and resolved by requiring that DMS embrace its statutory mandate.

21. Lack of GuidanceAction to Date • Reorganization of State Purchasing • New hires of experienced purchasing managers • All of the other actions listed!

22. Roadmap to Excellence Recommended Solution to Recurring Problem Lack of expertise in negotiating contracts We recommend that legislation be proposed similar to the Truth in Negotiations Act to assist contract negotiators in determining whether the contractor’s proposal is reasonable. We also recommend that DMS immediately begin to offer a negotiating training program for state employees.

23. Contract NegotiationsAction to Date • Bills introduced last session (HB 1819 / SB 2932) • DMS developed and delivered training and certification (more below)

24. Roadmap to Excellence Recommended Solution to Recurring Problem No statewide training or certification We recommend a statewide training initiative led by DMS be undertaken using the foundation developed in some agencies. In addition, we recommend incentives to encourage professionalism and certification for contract administrators, negotiators, monitors and managers.

25. Training ProgramAction to Date

26. Roadmap to Excellence Recommended Solution to Recurring Problem The state’s corporate culture does not foster the sharing of best contracting practices We recommend that DMS create and foster user groups of professional procurement staff that meet on a regular basis to share best practices and common problems.

27. Sharing Best PracticesAction to Date

28. Roadmap to Excellence Recommended Solution to Recurring Problem Agencies’ use of different processes and procedures in awarding and managing contracts causes the contract documents to vary considerably in format and content We recommend DMS, with the assistance of other agencies, develop standard contract formats for use by all state agencies.

29. Standardize Contract FormatsAction to Date • New forms PUR 1000 and 1001 • Also, MyFloridaMarketPlace will help drive processes and procedures

30. Roadmap to Excellence Recommended Solution to Recurring Problem Inadequate systems exist for monitoring and rating vendor performance We recommend a uniform vendor monitoring and rating system be created which incorporates links to contract monitoring reports, vendor websites, closeout evaluations, and a method for other agencies to access performance evaluations.

31. Vendor Rating SystemAction to Date • Surveyed existing agency systems • Exploring MyFloridaMarketPlace possibilities • Exploring third-party solutions • In the meantime, training on best practices and forms

32. Roadmap to Excellence Recommended Solution to Recurring Problem Piecemeal statutes and rules We recommend an initiative, led by DMS and a core group of procurement staff, to monitor outsourcing practices for inadequacies and inconsistencies, and propose improved legislative and regulatory changes. This process, over time, could replace the myriad of overlapping and conflicting statutes and guidelines with one unified, effective system of controls.

33. Piecemeal Statutes and RulesAction to Date • Ch. 2002-207 (eff. July 2002) • Bills introduced last session (HB 1819 / SB 2932) • Center for Efficient Government (more below) • Major rule revision (more below)

34. Recent Changes in State Purchasing Policies Agenda • Welcome / Session Overview • Putting Procurement in Context • Roadmap to Excellence in Contracting Audit Report • Center for Efficient Government • Recent Rule Changes • Questions

35. Center for Efficient GovernmentWeb Location

36. Governor’s Center for Efficient Government Authority and Oversight Board Authority Executive Order 2004-45 Oversight Board Members Secretary Bill Simon, DMS Dr. Jim Zingale, Department of Revenue Secretary José Abreu, Department of Transportation Dr. John Agwunobi, Department of Health Director Susan Pareigis, Agency for Workforce Innovation

37. Governor’s Center for Efficient GovernmentInitial Goals • Develop statewide outsourcing standards and a business case template applicable to any proposed outsourcing project. • Review existing outsourcing plans within the state agencies to ensure compliance with Center standards and business case, execution of effective contract language with vendors and implementation of successful change management. • Propose for the Governor’s consideration by July 1 an initial list of specific outsourcing projects and initiatives that can be developed over the next 3 years.

38. Governor’s Center for Efficient GovernmentProject Gate Management Process Current Projects Gate 1 Gate 2 Gate 3 Gate 4 Business Case Procurement Contract Management Change Management Post Implementation Monitor Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 New Projects

39. Recent Changes in State Purchasing Policies Agenda • Welcome / Session Overview • Putting Procurement in Context • Roadmap to Excellence in Contracting Audit Report • Center for Efficient Government • Recent Rule Changes • Questions

40. Recent Rule ChangesMajor Goals • Update – bring the rules into line with statutory changes • Single Subjects – create smaller rules that each focus on one subject • Reorganization – order the rules in a more logical manner • See separate materials, and see overview on web

41. Recent Rule ChangesOverview of Changes

42. Recent Rule ChangesOverview of Changes

43. Recent Changes in State Purchasing Policies Agenda • Welcome / Session Overview • Putting Procurement in Context • Roadmap to Excellence in Contracting Audit Report • Center for Efficient Government • Recent Rule Changes • Questions

44. Questions or CommentsContact Information http://dms.myflorida.com/purchasing Fred Springer Director, State Purchasing Fred.Springer@MyFlorida.com 487-1898 Rich Brown Operations Manager, Governance brownr2@dms.state.fl.us 488-3049 Al Dominguez General Counsel Al.Dominguez@MyFlorida.com 488-0229