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CENTRALIZED PURCHASING —
AN IMPORTANT COST-CUTTER
FOR MUNICIPALITIES
By Acting Director DENNIS R. WHETSTONE, DCCA
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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
March 1991 / Illinois Municipal Review / Page 7
and conflict of interest limitations.
Conflict of interest laws generally prohibit the award of
any purchase contract (materials, supplies, equipment
or services) to any firm which a board member owns
wholly or in part. Exemptions to this restriction do exist,
but are very limited (111. Rev. Stat., 1989, Ch. 24, par.
3-14-4 and par. 4-8-6).
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.
Page 8 / Illinois Municipal Review / March 1991
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. •
March 1991 / Illinois Municipal Review / Page 9