If you missed our webinar “Questions You Should Be Asking When Bidding on Government Contracts” with Brent Maas of NIGP, then you missed out on a great question about Co-ops. We found Brent’s answer to be worthy of a second look.
In public sector, “cooperative purchasing programs” or “co-ops” are organizations that aggregate market need to increase competition for the greater business opportunity the aggregated need represents. (In the private sector, these organizations are known as GPOs – Group Purchasing Organizations.) The model is based on the economic principles that the greater the demand for a product or service, the greater the number of providers. The greater the number of providers, the more competition. The more competition, the better the product and price. Principally, you’ll find in public sector two forms of cooperatives. In one form, the cooperative organization is a public entity able to solicit and award contracts that can then be “piggybacked” by other entities. Not only are they responsible for the creation and management of contracts and suppliers, they also promote the use of their contracts to other public entities. An example of this model is NJPA (National Joint Powers Alliance). In the second form, there is a cooperative management company that manages business operations including promotion of contracts but is dependent upon public agencies to conduct the solicitation and award of contracts. The coop management personnel may also provide varying levels of contract and supplier management support. Examples of this model include AEPA (Association of Educational Purchasing Agencies), National IPA, NASPO Value Point, and U.S. Communities.
The typical financial model supporting these programs is an administrative fee paid by the awarded contractor to the cooperative organization. The fee is based on a percentage of sales volume. The percentage is typically within the range of .2-2.5%. Though increasingly an exception, a cooperative may also charge an administrative, participation or membership fee to those agencies wishing to utilize contracts available from a cooperative. Administrative or use fees are also usually calculated by applying a percentage to the transaction total, though occasionally they’ll charge a nominal flat fee per transaction. Membership fees can range from $1 to $80,000, though if charged at all most frequently range from $1 - $250.
Note that a solicitation for a contract that will be promoted as a ‘cooperative contract’ should include a statement to that effect and any cooperative program-specific terms and conditions the awarded supplier(s) will need to agree to (in addition to the contract terms of the contracting agency. From the supplier’s perspective, when a cooperative contract is awarded they will sign two agreements: a master agreement with a cooperative program and an agreement with the contracting agency. When agencies wish to piggyback on the cooperative agreement, both the agency and supplier will sign a participating addendum to the agreement.