One of the decisions to make when starting a supplier diversity program is whether or not to pay a premium to use more diverse suppliers.

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I know for a fact that some purchasing departments will select a higher-priced diverse supplier if they are within a certain percentage of the low bid. What I don’t know is if these departments measure how much of a premium for diverse suppliers they pay on an annual basis. Are they making a $50,000/year investment in supplier diversity? A $250,000 investment? $1 million?

I don’t know.

I started thinking about this after reading this article in today’s Pittsburgh Post-Gazette. Basically, an employee of a prospective vendor – Westmoreland Electric (WE) – is suing the Pittsburgh Public Schools over losing a bid to a higher-priced competitor with more subcontracting dollars directed to diverse suppliers.

The article points out that the Schools are paying the successful bidder $200,000 more than WE’s bid. Reading closely, it’s not necessarily an issue of paying a premium for diverse suppliers but rather a matter of rules.

In government purchasing, rules are king. Bottom line benefit doesn’t matter as much as ensuring that rules are followed. And, based on what’s in the article (and not necessarily true), it appears that both sides may have failed to follow the rules.

The RFP required that 15% of the value of the contract be utilized to subcontract to diverse suppliers. WE’s bid fell 0.38% short of that goal, so their bid was disqualified. WE “said the district has the right to forgive minor problems with bids, especially if it means saving the taxpayers $200,000.”

But, you know what? Too bad.

Just because the Schools have the “right” to waive irregularities with bids, doesn’t mean that they have the obligation to. In government purchasing, a rule is a rule and setting the bar only to move it later would be unethical in my opinion.

Now in private industry, sure, $200k to the bottom line might be a more valid reason to waive the irregularity.

In my mind, the bigger issue is whether the school board broke a rule with regard to awarding “the bid without the waiting period it usually gives to disqualified bidders for objecting.” If this waiting period is a “rule” rather than a “customary practice,” then there is likely going to be a battle.

But, even then, I think that in government purchasing, you cannot waive a requirement even if it makes financial sense to do so. That’s just the nature of the beast.

You gotta be fair. You gotta follow the rules.

And I think that WE has to be the loser here, even if they could have saved Pittsburgh taxpayers $200,000.

But that’s just one small example of paying a premium for supplier diversity. How much of a premium is your organization paying for supplier diversity?

And, if that number was higher than expected, would your executive-level management make changes to your supplier diversity program? Or would they still consider it a worthwhile investment?

Food for thought, huh?

To Your Career,
Charles Dominick, SPSM
Next Level Purchasing, Inc.
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Charles Dominick, SPSM, SPSM2, SPSM3

Charles Dominick, SPSM, SPSM2, SPSM3 is an internationally-recognized business expert, legendary procurement thought leader, award-winning entrepreneur, and provocative blogger. Charles founded the Next Level Purchasing Association in 2000, oversaw its incredible growth, and successfully led the organization to its acquisition by the Certitrek Group in 2016. He continues to blog and provide advisory services for the NLPA on a part-time basis as he incubates his upcoming business innovations. Charles is also the co-author of the wildly popular, groundbreaking book, "The Procurement Game Plan: Winning Strategies & Techniques For Supply Management Professionals."

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