STATE & LOCAL PROCUREMENT SNAPSHOT Q4 2016

Transcription

1 STATE & LOCAL PROCUREMENT SNAPSHOT Q4 2016

2 TABLE OF CONTENTS Letter from the Analyst Market Snapshot Total Project Counts Agency Snapshot Historical Trends Quarterly Growth Industry Ranking Industry Ranking by Level of Government Special Feature Glossary of Industries...13

3 LETTER FROM THE ANALYST Dear Reader, Thousands of businesses rely on the market trends and indicators covered in this unique report and we strive to present the most relevant, useful content that can help both vendors and government buyers better understand the direction of the $1.5T state & local government marketplace. We also understand readers have different needs for in-depth versus summarized or high-level findings. The following is a brief executive summary of the top emerging stories or insights we identified: Infrastructure picking up steam driven by upsurge in voter-approved projects, with noticeable growth vs. last quarter in both the construction as well as water & energy sectors State agencies slowing year-over-year in contracting growth rates, driven by weakness in revenues and budget struggles The overall market continues to show stability in bids & RFPs with potential for infrastructure-led growth in 2017 We want to thank you for making this series a success and hope you enjoy the timely reporting in our quarterly state, local and education Procurement Snapshot. Sincerely, Paul Irby Lead Market Analyst Sales & Marketing Tactics: Brent Maas of NIGP shares advice on selling to government buyers 3

4 MARKET SNAPSHOT In Q4 2016, the growth rate of contracting opportunities in the government SLED (State, Local and Education) market shows continued stability with a slight decrease in volume year-over-year and important differences by sector and agency type. ANNUAL RATE OF CHANGE -1.2% Q % Q % Q %Q1 16 CHANGE IN MARKET OPPORTUNITIES 99,384 Q ,585 Q4 15 Onvia s database shows formal procurements (bids & RFPs) published 16 decreased at an annual rate of -1.2%, similar to the decrease for Q2 and Q3. Including all quarters, 2016 was barely changed from 2015 (-0.2%). The nearly flat overall result for Q4 obscures a number of important differences and emerging trends by industry sector or level of government. ANNUAL GROWTH BY AGENCY TYPE (change from last year) State agencies, down -2.0% Education, down -1.0% Local agencies, down -0.9% STABILITY AND IMPROVEMENT IN LOCAL GOVERNMENT AND SCHOOLS Local agencies and schools appear to be relatively stronger in growth rates than state agencies. Yearover-year local agency growth improved from -2.4% last quarter to -0.9% currently. While still below zero, this is an encouraging trend in a submarket representing the majority of all SLED bids. SPECIAL FEATURE: Q&A -Selling to Government with Brent Maas, NIGP Our special feature includes an interview with Brent Maas, spokesperson for NIGP: The Institute for Public Procurement. Maas discusses important trends in contracting that can help prepare vendors for success in the state and local marketplace in In an engaging dialogue, he briefly addresses the following topics relevant to government contracting: How vendors should interact with government buyers ahead of time to strengthen their position and influence The ways vendors can market themselves to potential public sector clients Identifying some of the key issues and challenges facing buyers so vendors can be more informed as they compete Understanding the general environment for procurement and how conditions are changing 4

5 Meanwhile, school districts improved, moving from -1.5% to -1.0%. SLOWING IN STATE PURCHASES The recent trend of small increases in bid volume from state agencies has finally reversed this quarter, with total state agency bid volume down a full 2% year-over-year. Many states have run into difficulties balancing their budgets in a slow growth economy with fast rising Medicaid expenditures and less flexibility to raise revenue. Onvia s Forecast features Senior Economist Dan White from Moody s Analytics, who writes that the most recent quarter for which we have data shows an outright year over year decline in state tax revenues. EMERGING TRENDS BY INDUSTRY In order to examine very recent or emerging trends by major industry, this report ranks 12 defined industry groups by growth since last quarter, seasonally adjusted. The results on page 7 show a wide range of differences, from -6% to +6% in recent change in bid volume. As a preview, the top four industries are listed below in order: TOP GROWTH INDUSTRIES FOR Q4 VS. Q3 (change from last quarter) Construction, up 5.5% Healthcare, up 5.2% Water & Energy, up 4.8% Public Safety, up 2.8% SPOTLIGHT ON INFRASTRUCTURE This quarter s top growing industry sectors included construction and water & energy. The longerterm trend of under-funding in infrastructure appears to be reversing a finding discussed in Onvia s 2017 SLED Forecast. As part of that report, industry expert Mary Scott Nabers notes that even without counting possible impacts from the new administration s proposed $1 trillion plan for infrastructure, over $200 billion in tax initiatives for these types of projects was approved in the November election. The improving ranking of infrastructure suggests that many of these newly approved projects are already moving ahead. DOLLARS GROWING FASTER THAN BIDS Overall, the SLED market is somewhat healthier than the bid volume trends would suggest. The noticeable gap between slow positive growth in SLED spending on contracts and slightly declining bid volumes has to do with the continued pressures on state and local agencies to buy in more efficient ways, which we have discussed in our recent reports and articles. Vendors should learn about and consider the full range of opportunities including cooperative or multiple purchase contracts that can maximize revenue and reduce marketing expenses EXPECTATIONS Our 2017 Forecast report also makes several predictions about the coming year for the SLED marketplace. Total government purchasing in dollars will continue at a fairly slow pace, with continued moderate spending growth in IT and an uptick in infrastructure spending. Other areas are expected to remain low in their rates of growth. We are also looking at the strong possibility of improving growth rates for bids and RFPs - from a slight decline to slight growth during There does appear to be a potential for a cyclical small improvement in the growth rate for bid volume in 2017, past zero to slight positive territory. Onvia, 2017 SLED Forecast The wildcard is in infrastructure since it is difficult to predict how much of the proposed $1 trillion federal plan, which involves public private partnerships (P3s), will impact the market in 2017, and how quickly the $200 billion in newly approved projects translate into bids. But the Q4 results showing healthy infrastructure growth point to the potential for a much stronger year ahead for AEC contractors. 5

6 SLED PROJECT COUNTS OVER TIME TOTAL VOLUME AND ANNUAL RATE OF CHANGE IN BIDS & RFPs Onvia s database shows clear seasonality trends in the SLED market based on eight trailing quarters of activity. Because of seasonality, we measured growth for the overall market in competitive bids and RFPs by comparing same quarter year-overyear activity. The current annual growth rate of -1.2% is similar to last quarter s rate of -1.3% and continues the trend of slight declines since Q TOTAL VOLUME OF BIDS & RFPs 150, ,000 90, % Q4 15 Q ,000 30,000 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Source: Onvia s B2G Intelligence System, including state, local and educational agency contracting activity 6

7 AGENCY SNAPSHOT, HISTORICAL TRENDS ANNUAL GROWTH IN BIDS/RFPs BY QUARTER (vs. previous year same quarter) We examined bid/rfp volume by level of government and displayed annual growth rates (current quarter vs. same quarter previous year) in the chart below. State government bid volumes, which were growing at a faster rate than local government in recent quarters, have noticeably slowed. While the sub-market of education agencies has shown more volatility historically, it has recently been trending in a range similar to other types of agencies. ANNUAL GROWTH RATES OF BIDS & RFPS BY LEVEL OF GOVERNMENT 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 State Education Local 7

8 QUARTERLY GROWTH INDUSTRY RANKING Q SEASONALLY ADJUSTED GROWTH RATES IN BIDS/RFPs (Q4 16 vs. Q3 16) We looked deeper into activity by industry. This analysis divides the market into 12 distinct sectors, as defined in the glossary. Growth rates (ranging from +6% to -6%) are based on recent quarterly change 16 versus the prior quarter of Q3 16, and have been seasonally adjusted for comparability. CONSTRUCTION Analysis by level of government showed this sector was ranked #1 among state agencies, #3 among education and lower ranked in the case of local government. +5.5% ENVIRONMENTAL SERVICES +2.7% TRANSPORTATION +0.2% TOP 4 HEALTHCARE Further analysis showed Healthcare was ranked #2 among local government and was mid to low ranked at the state or education level. WATER & ENERGY This sector was highly ranked for state (#2) and local (#4) government and was midranked for education agencies. +5.2% +4.8% MID TIER ARCHITECTURE & ENGINEERING +2.2% EDUCATION +0.7% BOTTOM 4 TECHNOLOGY & TELECOM -2.3% PROFESSIONAL BUSINESS SERVICES -2.6% PUBLIC SAFETY Projects were highly ranked among state (#4) government and mid-ranked among local agencies. +2.8% OPERATIONS & MAINTENANCE +0.5% FINANCIAL SERVICES & INSURANCE -6.0% 8

9 INDUSTRY GROWTH RANKING BY LEVEL OF GOVERNMENT BASED ON SEASONALLY ADJUSTED GROWTH IN BIDS/RFPs (Q4 16 vs. Q3 16) To provide further insight into each of the three larger agency categories, we broke out the growth rates for the current quarter by industry and ranked the 12 industries to highlight areas of stronger growth or expansion within each type of agency. The results demonstrate obvious differences between the levels of government in purchasing and/or budgeting priorities, with generally low correlations across the levels. What is highest ranked in one type of agency is often lower ranked at other levels. Industry State Ranking Education Ranking Local Ranking Architecture & Engineering Construction Educational Products & Services Environmental Services Financial Services & Insurance Healthcare Operations & Maintenance Professional Business Services Public Safety Technology & Telecom Transportation Water & Energy

10 SPECIAL FEATURE: Q&A-SELLING TO GOVERNMENT BRENT MAAS, EXECUTIVE DIRECTOR FOR BUSINESS STRATEGY NIGP MEET THE EXPERT: Brent Maas is NIGP s Executive Director for Business Strategy and Relationships. He oversees the Institute s marketing, accreditation, consulting, partnership, and other non-dues enterprise programs. Prior to joining NIGP, Brent served in marketing & sales operations for start-ups, global technology firms and the Walt Disney Company. In order to help vendors gain insight into the world of the government buyer, we spoke to Brent Maas, Executive Director of Business Strategy & Relationships for the leading association NIGP: The Institute for Public Procurement. Maas discusses some of the challenges facing procurement agency staff as well as how suppliers can partner with them to solve problems and meet their goals. How should vendors come across as they interact with buyers to be appropriate and helpful? The best vendors approach specific government managers with the attitude that they must first understand the needs of the agency and can show they have an understanding about that organization s mission and goals. They can do that when they share something valuable with that agency besides their product their industry knowledge that speaks to a challenge or a specific issue that the agency struggles with. It s presenting themselves as a resource with no strings attached. Generally, established suppliers know how to approach and engage with agencies in a productive and professional manner. Still, there remain supplier representatives who will call on an agency without doing their homework or trying to understand their potential customer. All I know is that I want the sale. That s not someone that a buyer would want to seek out as a trusted source of industry or product information. Both the business development person and the agency buyer are coming together under the banner of we re both trying to do the right thing for the agency. Trust and respect go both ways, and suppliers need to extend professional respect to their potential government customers by giving them the same treatment that they d give to their important private sector enterprise clients (who, presumably, they d take time researching and understanding before they began interacting with them). How do buyers avoid conflicts of interest? Well it s certainly true that a buyer can t promise any future business in exchange for their industry knowledge or advice. There are some 10

11 fundamental principles to follow. It basically gets down to the question, Have you as a procurement department effectively communicated on your website about how you interact with suppliers? How opportunities are announced and awards made? In other words, you are up front about the policies and procedures your staff will follow. Doing this sets expectations for suppliers, and lets them know there is no question that all vendors will be treated in a consistent way. This is fundamental to maintain that sense of integrity with the public, the agency and the supplier. If there are no foundations or ways to define the environment in which you will conduct business then you run the risk of losing trust and participation. Other than supplying advice to a buyer, what else can vendors do to market themselves? One of the best things businesses can do is participate in various supplier expos, reverse trade shows and association conferences to meet agency staff and build awareness. We ve noticed that many mid to large size agencies will host some kind of vendor engagement event for suppliers, whether a traditional or reverse trade show. I also hear about some agencies promoting small business programs and providing sessions on the ABCs of how to do business with government. With the slow economy there seems to be a bit more interest in supporting suppliers in their community. Regardless of the type, many of these events are free if an agency sponsors it or are relatively inexpensive. NIGP has 73 chapters nationwide that are independent entities and host their own events that suppliers can attend within their regional markets. Also, each year the NIGP Business Council, which is comprised of business leaders with a history of working with the public agencies, author a whitepaper on topics related to buyer and supplier relationships. These white papers provide excellent insights to suppliers (and buyers) looking for a better understanding of how to work with public agency procurement departments. These can be found on the NIGP.org website under whitepapers. Can you describe the process buyers use to prepare for a new purchase? First of all and especially when there s no prior experience procuring a particular product or service category, it s important for the buyer to acknowledge when they re ignorant on a topic and reach out to their network of potential subject matter experts. These could be people in their department, end users or outside their agency. They may also reach out to neighboring agencies for advice or talk with suppliers and peer discussion groups, if they re a member of a professional association. Taking a network approach to learning more about product and service features, pricing and how to word the language in the solicitation, helps make sure the scope and objectives are as realistic as possible. Using RFIs prior to the RFP is another very good way for a buyer to publically and systematically collect input from the marketplace and gain a better understanding of a newer technology or tool. If a buyer doesn t have in-house history with a given type of purchase, they ve got to find a way to successfully do that. If a buyer doesn t have in-house history with a given type of purchase, they ve got to find a way to successfully do that. The last thing a buyer should do is try to manage a new procurement based on limited knowledge without taking the time to access all the information that s available. The principle holds true not just for emerging technologies but in other areas such as large scale infrastructure like a bridge refurbishment or new construction. What are those elements that contribute to a sound project overall both in the past at their agency and at others? The larger the procurement the riskier it is and therefore the more visibility and scrutiny buyers will face. They ll want to do enough due diligence throughout the process, including involving suppliers. In many cases, there s more than one way to approach a large project so they may need to look at the trade-offs and what s worked in other situations. 11

12 How does the importance of being prepared with enough information vary by the situation or buying scenario? I think it s especially important when it comes to first time procurements, when the buyer has never made that purchase or when the entire purchasing department has never seen one done before. In terms of categories, it can be particularly difficult for buyers to understand the nuances of emerging technology solutions. If you ve never been there before, it s just a lot harder to manage. Related to this is the dilemma of understaffed departments operating in a short-term reactive mode mentality rather than having the time to learn and plan ahead so they re better prepared for each purchase. It can be difficult for buyers to find a few free moments to contemplate what the next year, or even one quarter ahead, might be looking like. How would you describe the current situation for procurement in terms of resource limitations? Tight budgets and short-staffed procurement departments has really been the status quo since the recession. Procurement departments aren t staffing up to their pre-recession levels. On the whole, from a resource perspective, agency budgets are limited. Not that they weren t before, but it s even more so now. In general, overall budgets and revenue are experiencing only slow growth. Any substantial change would happen at the budget line item or business line level as part of shifts in resource allocation based on changing priorities. How hard is it for state and local governments to raise revenue? Some local agencies still have the ability to raise additional revenue in the form of special purpose voter-approved initiatives. For example, here in Virginia there were several tax initiatives approved for parks, education and infrastructure. But for general government there seems little public appetite for increasing taxes. I believe that for most services we re only looking at very small increases consistent with the growth of the economy. In this environment, how important is purchasing efficiency? I think it s an important concept. Internal customers are always looking for the quickest possible turn for making a purchase. That capacity to provide service to users as quickly and effectively as possible with high quality is what everyone s shooting for. In procurement, the practical issues around compliance with law and policy are very difficult for buyers to ignore. These are the absolutes that must be provided. Then there are those activities that relate more to soft skills around how to do procurement well, such as: Good communication and planning Project management Background knowledge in what is being purchased and best practices to do it Experience engaging with businesses Working with end users, stakeholders and budget constraints, etc. These things are particularly important when it s a project-oriented type of procurement over a few years, and better planning and research can really help drive the contract to minimize that risk. 12

13 GLOSSARY OF INDUSTRIES The following listing provides a brief description of each of the 12 industries profiled in this report. ARCHITECTURE & ENGINEERING CONSTRUCTION Educational EDUCATIONAL Products & Services ENVIRONMENTAL Environmental SERVICES Services Architectural and engineering related work including project design, planning, inspection and surveying The construction, expansion, replacement, or enhancement of roads, buildings, structures or landscaping Includes Products products and services and intended services intended specifically specifically for the educational for the educational market market such as such textbooks, as textbooks, education education software software and education and education consulting consulting services services Includes Testing and testing measurement and measurement services services such as: environmental such as: environmental consulting, consulting, environmental environmental testing, wildlife/ testing, wildlife/stream/soil assessments, assessments, scientific scientific research and research GIS mapping and GIS mapping FINANCIAL SERVICES & INSURANCE HEALTHCARE OPERATIONS & MAINTENANCE PROFESSIONAL BUSINESS SERVICES Products and services related to banking, investments, retirement, insurance, payroll, billing, accounting or auditing Healthcare services, supplies and equipment, as well as mental health and social services A broad range of 'operations' functions that are typically purchased in multiyear renewable contracts such as: cleaning, waste, infrastructure and grounds maintenance, uniforms, food, and facilities supply orders Services and consulting in areas such as administrative, employment, economic, legal, professional, business and printing/publishing PUBLIC SAFETY TECHNOLOGY & TELECOM TRANSPORTATION WATER & ENERGY Products and services specific to police, fire, emergency, security, corrections or military uses A broad range of technology and telecom. products and services such as hardware, software, wireless, cloud or IT consulting Vehicle purchases and equipment, as well as transportation services such as intelligent transportation systems equipment and consulting Construction or expansion of water or energy infrastructure, as well as consulting, equipment and supplies 13

14 2017 STATE & LOCAL GOVERNMENT CONTRACTING FORECAST INTERESTED IN MORE INFORMATION? Onvia connects private and public sectors in a more efficient B2G marketplace, assisting their expanded exchange of commercial opportunity. Learn more about how Onvia creates value for both business and government: Onvia is the leader in commerce intelligence at the core of business-to-government (B2G). Our B2G Intelligence System reconciles vast, fragmented government contracting information to make it all accessible, meaningful and actionable. Visit or click below to learn more about how Onvia can help equip your organization for success in the B2G marketplace. Doing business in 3 states or less? SEE EXAMPLE PROJECTS Selling in more than 3 states? REQUEST A LIVE DEMONSTRATION FOR BUSINESSES Onvia 7 or call (800) FOR GOVERNMENT Onvia Exchange DISCLAIMER The information contained in this Onvia publication has been obtained from publicly available federal, state and local government data sources. The analysis and opinions expressed herein are those of Onvia, Inc. and independent third party contributors and sources, and are subject to change based on market or other conditions. The content is intended for informational purposes only. While the information is deemed reliable, accuracy and completeness are not guaranteed and is provided on an as is basis. For any summaries, social sharing, reprints and images that you may wish to disseminate, we ask that you include appropriate attribution and linkage to Onvia, Inc. FOLLOW US & STAY CONNECTED