The government’s e-marketplace experiment
To serve government buyers, a provider must balance between commercial efficiency and public accountability.
The internet has clearly changed the way the federal government buys goods and services.
While the government buys F-35s and missiles, it also buys staplers and paper towels like other ordinary consumers, and often for amounts under $10,000 (the government’s micro-purchase threshold). Just like private citizens, government buyers look online for these commodities. Online channels such as e-marketplaces facilitate purchases by lowering transaction costs, diversifying suppliers, optimizing user experience, and expediting order fulfillment. Thus, for lower-dollar purchases, the government acts almost like any other commercial buyer. It wants quality products, fair prices, and ease of purchasing and delivery.
However, the government has needs and challenges of its own. It must protect taxpayer dollars, prevent improper purchases, and comply with legal requirements such as competition. Furthermore, the government is not a monolithic buyer. It has over a million purchase cards with over 60 million transactions. This further compounds the buying challenges for the government in the commercial marketplace. Nevertheless, individual agencies have embraced e-marketplaces.
Over the past decade, agency purchase cardholders often make purchases online using individual accounts. However, it was not until two years ago that Congress passed legislation mandating that the General Services Administration (GSA) establish a program for government-wide use of commercial e-commerce portals. Pursuant to its statutory mandate, GSA engaged with industry and identified in its market research three business models for e-commerce portals: the e-commerce model, the e-procurement model, and the e-marketplace model.
The three models vary in degrees of competition, user experience, capability for fulfilling compliance requirements, and administrative complexity. Currently, GSA has chosen the e-marketplace model for a pilot procurement that will implement the statutory program. Under the e-marketplace model, a provider, such as Walmart or Target, offer products from both third party sellers and the provider as a retailer. E-marketplaces mimic the consumer shopping experience by providing functions for searching, comparisons, and product or supplier reviews.
Under the e-commerce model, a platform provider sells its own proprietary products directly to the buyers and fulfills product orders. Under the e-procurement model, the platform provider does not sell products, but aggregates data from e-commerce and e-marketplace sites for price and product comparisons, while third-party sellers process the orders.
To serve government buyers, a provider must balance between commercial efficiency and public accountability. Of the three models, the e-marketplace model strikes a good balance. On the one hand, the e-marketplace epitomizes the market at large: multiple suppliers, multiple buyers, diverse products, and dynamic competition. On the other hand, the e-marketplace allows the government to centralize its account management, compliance procedures, and spend management. E-marketplaces also offer approval workflows, graphic displays, and analytics tools to enhance control and visibility into public sector spend.
Importantly, the relationships that e-marketplaces have with multiple suppliers promote many of the government’s policy objectives. For example, e-marketplaces facilitate price competition by showing offers from multiple sellers on a single page. E-marketplaces can also give government buyers unique access to a range of credentialed small and disadvantaged businesses that do not otherwise sell to the government. Finally, e-marketplaces offer user-friendly interfaces that mirror the consumer shopping experience and promote the use of commercial buying practices.
For the limited purposes of the GSA pilot program, the e-marketplace can satisfy most of the government’s basic requirements. GSA has appropriately recognized the role and value of the e-marketplace model for the pilot program authorized by Congress. Although some critics of GSA have insisted that the government must conduct the pilot with all three models, such criticism is not justified.
A pilot program is by definition intended to be an experiment. The three models delineated by GSA are merely potential business options to try out, not ironclad requirements. At this early stage, GSA has the discretion to try only one model and assess its benefits. To try all three models at the same time would largely defeat the purpose of a pilot program. A pilot should be the starting point for innovation and education, not the final outcome.