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Buying Groups

School Purchasing Association, Cooperative (coop), Government Purchasing Organization (GPO) or State Sponsored Cooperatives, and Group Purchasing Organization (GPO)

 

  • Coming together is a beginning; keeping together is progress; working together is success. -Henry Ford
  • Alone we can do so little; together we can do so much. -Helen Keller
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What is a Buying Group?

A buying group is the coming together of organizations, such as schools, that share a common goal and interest, leverage their combined purchasing power, share core competencies, and spread out the administrative burden of managing multiple and sometimes large, complex awarded contracts. Buying groups also bring market efficiencies to regional supply chains by reducing the number of different product lines needed to compete in that region.

Importance of Competition

Competition is an essential element of any procurement. Competition is the goal of all Federal and State procurement requirements because competition will lead to the acquisition of higher-quality goods and services at the lowest possible price. All Federal and State procurement requirements exist to achieve this goal by fostering a competitive procurement environment.

The preceding requirements apply when a school seeks the services of an entity such as a School Purchasing Association, Cooperative (coop), Government Purchasing Organization (GPO) or State Sponsored Cooperatives, and Group Purchasing Organization (GPO), or any entity offering to facilitate access to those types of entities. This applies even if the services are offered at no charge. Schools are strongly encouraged to seek input from Randy Jones before deciding to use any services without conducting a competitive procurement.

Types of Buying Groups

When planning to join a buying group a school should first consider the type of buying group it would like to participate. Federal and State procurement requirements may vary from one type of buying group to another.

When considering participation in a buying group, a school should first determine if the buying group consists of only schools, governmental organizations and/or non-governmental organizations. Federal and State procurement regulations are always required, but depending on the makeup of the buying group, Federal and State procurement regulations will apply differently. 

The following are a list on some, but not all, types of buying groups with corresponding descriptions and procurement requirements:

  1. School Purchasing Association: this type of buying group is an informal association of schools, governmental organizations, and/or non-governmental organizations that have come together to purchase products or services, collectively. After the purchase the contract is normally held independently of each participant and the supplier, distributor, or vendor. This is different from a coop or GPO contract in that the contract is held by the buying group, supplier, distributor, or vendor and not by its members.
    • Schools should review the procurement of this type of buying group to make sure it complies with Federal and State procurement regulations
  2. Cooperative (coop): this type of buying group is an autonomous association of organizations that voluntarily cooperate in purchasing practices and sharing of resources for their mutual economic benefit. Conducting a competitive procurement is not required if a school elects to participate in a cooperative comprised solely of other schools who joined together to increase purchasing power. A school would not need to undertake the procurement process because the coop is designed to act on its own behalf which is a collective of schools. A coop would comply with Federal and State procurement regulations when procuring goods and services for its members.
    • A coop that is comprised solely of schools procuring as a collective group of schools must procure in the same manner as an individual school. Schools should practice due diligence to assure that a coop is comprised solely of schools that act on their own behalf and that the coop is following all required Federal and State procurement regulations.
    • Schools should review procurement requirements of the coop to make sure it complies with Federal and State procurement regulations
    • If the coop contains a third party member that is not a school or governmental organization, the school may join the coop but all purchases through the coop would require the school to conduct a competitive procurement for that purchase.
  3. Government Purchasing Organization (GPO) or State Sponsored Cooperatives: this type of buying group is created to leverage the purchasing power of a group of schools and possibly of other governmental organizations. This type of buying group may obtain additional volume discounts from manufactures, suppliers, distributors, and vendors. This type of buying group is normally funded by a combination of Federal or State funding and membership fees. These fees may be paid directly to the buying group, from manufactures, suppliers, distributors, and vendors contracted by the buying group; or they may be paid directly to the buying group, by its members.
    • Cooperative Educational Service Agency (CESA) is a state sponsored coop that was formed for the benefit of schools located in WI and is divided into 12 districts. CESA is grated its authority from Chapter 116, Wis. Stats. As such, schools can elect to become a member of CESA without needing to competitively procure membership or goods and services purchased through CESA. Schools and the State of WI contribute funds to the administration of the CESA. All profits including rebates, discounts, and credits are accounted for in the administration of CESA and accrue for the benefit of schools who are members.
    • Schools do not have to competitively procure membership in this type of buying group.
    • School should review procurement requirements of the buying group to make sure it complies with Federal and State procurement regulations
    • If the buying group contains a third party member that is not a school or governmental organization, the school may join the buying group, but all purchases through the buying group would require the school to conduct a competitive procurement for that purchase.
  4. Group Purchasing Organization (GPO): this type of buying group is an entity that is created to leverage the purchasing power of a group of public/private organizations and government/non-government organizations including schools. A GPO may obtain additional volume discounts from manufactures, suppliers, distributors, and vendors. GPOs are normally funded by administrative fees. These fees may be paid directly to the GPO, from manufactures, suppliers, distributors, and/or vendors contracted by the GPO; or they may be paid directly to the GPO, by its members.
    • Schools do not have to competitively procure membership in this type of buying group if membership fees are negligible.
    • A purchase through this type of buying group would require the school to conduct a competitive prcurement for that purchase.  

Summary of Buying Groups

Type of Buying Group
Ownership
Buying Group Members
Procurement

School Purchasing Association

None

N/A - No membership required

Yes - School should review procurement to make sure it complies with Federal and State procurement regulations

Cooperative (coop)

Coop

Only Schools

Purchases from coop do not need to be competitively procured.

School should review procurement requirements of the coop to make sure it complies with Federal and State procurement regulations

Cooperative (coop)

Coop

Schools and other government organizations

Purchases from coop do not need to be competitively procured.

School should review procurement requirements of the coop to make sure it complies with Federal and State procurement regulations

Cooperative (coop)

Coop

Schools and other non-schools/non-government organizations

Purchases from coop will need to be competitively procured.

Government Purchasing Organization (GPO)

Or

State Sponsored Cooperatives

Government Organization

Schools and other government organizations

Purchases from GPO do not need to be competitively procured.

School should review procurement requirements of the GPO to make sure it complies with Federal and State procurement regulations

Group Purchasing Organization (GPO)

GPO

Schools and other non-schools/non-government organizations

Purchases from GPO will need to be competitively procured.

Procurement Fees

Many schools contract with contractors for purchasing goods and supplies for use in the food service operation. All discounts, rebates, and applicable credits received by the contractor when purchasing goods on behalf of the school must be returned to the school’s nonprofit school food services account.

Any fee charged to the school that correlates to the amount of discounts, rebates, and applicable credits that the contractor is required to return to the school is an unallowable nonprofit school food service account cost and undermines the intent of the Federal and State regulations referenced above.

A fee structured in this way is clearly intended to return some or all of the discounts, rebates, and applicable credits to the company with whom the school has contracted for services rather than to ensure that they accrue to the nonprofit school food service account.

Some examples of a fee that is directly tied to the amount of discounts, rebates, and applicable credits could include the following:

A contractor purchases a food product from a distributor on behalf of a school. The distributor offers a 10 percent discount on the cost of the product. The contractor charges the school a 10 percent procurement fee for the service of purchasing the food product. (This practice also violates the cost-plus-a-percentage-of-cost contract prohibition in Title 7, Code of Federal Regulations, Section 3016.36[f][4]).

A contractor purchases a food product from a distributor on behalf of a school at a cost of $1 per item. The distributor offers a 10-cent-per-item rebate, which the contractor passes along to the school. The contractor then charges the school a 10-cent procurement fee per item purchased from this distributor vendor.

These fees are unallowable charges to the school’s nonprofit food service account.

The school may, however, develop solicitations in a way that allows for management and/or administrative fees that include fees for procurement services. The procurement fee could be a separate fee or part of another contract fee, as long as it remains fixed.

The USDA required that all contracts comply with all aspects of the final rule by November 2009, including procurement fee limitations. See memo: Allowability of Procurement Fees in SFA Contracts  (SP 15-2008) (March 12, 2008)

Intergovernmental Cooperation and “Piggybacking”
While intergovernmental agreements can benefit schools, a school may only enter into an intergovernmental agreement with a state agency or local government agency which allows the school to join or “piggyback” onto a state agency or local governmental entity when that agreement was procured and awarded consistent with Federal and State procurement regulations.

Careful review of the solicitation issued by the state agencies or governmental agency will ensure compliance with applicable Federal and State procurement regulations, while ensuring that the additional scope in services does not create a material change.

Material changes to the existing contract may arise as a result of the “piggybacking” because the parties to the existing contract may not have anticipated the increased quantity of goods and services necessary to fulfill the needs of the school. Consequently, a state agencies or local governmental entity may have to rebid at the next juncture because of these material change issues.

Buying Groups Policy Guidance Memos

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