What you get at Mohave for 1%

Tom Peeler, Executive Director
Mohave Educational Services Cooperative, Inc.

Administration fees for cooperative purchasing programs have always been controversial. However, the debate has escalated over the past few years. I attribute the controversy to a growing number of public purchasing cooperatives and the manner in which administration fees are portrayed by each program. I want to discuss Mohave’s administration fee and what members get in return for that fee.

Mohave’s Administration Fee

There is a 1% administration fee on all purchases made under Mohave contracts. Mohave has always stated that the buying member pays the administration fee. We believe this to be true under our old process where the fee was added to contract prices, as well as under the current process that includes the fee in contract prices.

Mohave’s administration fee is the sole funding source for our cooperative purchasing program because we receive no direct government funding. That 1% fee must cover the cost of the personnel, facilities, equipment, taxes, insurance, and other requirements necessary for Mohave to operate.

Mohave’s administration fee is assessed in the same manner as the other commonly used cooperative purchasing programs. Mohave vendors take the fee into consideration and include it in contract prices. When a member receives a quote from a Mohave vendor, the administration fee is included in the quoted amount. There is no additional charge. Therefore, regardless of whether the cooperative states the vendor pays the fee, or let’s its members know that they are paying the fee as a cost of doing business, the net cost to the buyer is the same.

The following examples demonstrate how Mohave’s administration fee impacts the member. Note that the impact is the same, regardless of the commodity or service purchased.

Other than the amount retained by the vendor and the amount forwarded to the cooperative, the information above would be the same for other commonly used cooperatives. While some cooperatives have the same 1% administration fee as Mohave, others have administration fees of 1 ½%, 2%, or more. For cooperatives with higher fees, the amount paid by the buyer is the same, but the amount retained by the vendor is lower and the amount forwarded to the cooperative is higher.

What you get for 1%

The only thing we sell at Mohave is service. One of our guiding principles is that the service be of the highest quality. Therefore, our members get a lot for 1%. Below are a few examples.

With an approximate investment of 56 direct labor hours costing $1,500 per competitive sealed bid procurement, and 79 labor hours costing $2,900 per competitive sealed proposal procurement, members save a tremendous amount of internal resource time and cost every time a Mohave contract satisfies a procurement need. In 2008, the members using Mohave contracts used an average of nine contracts each. Using the information above, members obtained the benefits of the contracts and saved between 500 and 700 hours in staff procurement time. The time savings was worth between $13,000 and $26,000. This savings translates into more time for member staff to conduct those procurements best accomplished in house.

In 2008, as part contract administration, Mohave’s Contracts Team reviewed and approved approximately 3,000 contract price updates, amended 145 contracts to comply with new legislation, and helped two members work with a surety to complete two defaulted modular building projects.

The vast majority of the price reviews were complete before members needed them. Amendment of the contracts was transparent to members and complete when the legislation became effective. The work with the surety expedited completion of the projects.

In 2008, Mohave’s Procurement Team reviewed almost 11,000 member purchase orders. Approximately twenty-five percent of those orders had errors or omissions. On behalf of the members, the Procurement Team obtained the necessary corrections or additions for all of the problem orders, reducing delays and errors in order fulfillment. The Procurement Team conducts its reviews in a very efficient manner and forwards sixty-six percent of all member orders to the vendor on the day of receipt.

In 2008, Mohave’s Accounting Team audited purchases associated with forty-three contracts. The audits resulted in better contract documentation, correction of contract errors, and member credits totaling $12,220. In the large majority of instances, Members received the benefits of the audits with no staff resource investment.

Mohave’s large statewide membership enables us to obtain economical pricing on quality contracts. In 2009, we compared Mohave contract prices on a variety of supplies, services, equipment and construction to prices in other government contracts. Overall, Mohave prices provided a 5.4% savings on $1.8M in purchases. The savings was a “net” savings because Mohave’s administration fee was included in the comparison. Summarizing the comparison, members would have purchased the goods, services and construction, paid the 1% administration fee, and still saved approximately $99,000.

A member of Team Mohave recently heard a public purchasing professional tell a group of his peers that they should never pay an administration fee. While I can understand the sentiment, I trust I have demonstrated that Mohave’s 1% administration fee stretches limited staff resources and provides more time to conduct business best handled in house, provides quality contracting and contracting support, and saves money. That’s a good return for 1%.

Before closing, I want to mention that Team ASPIN provides similar service and cost savings through their food service purchasing program. Benefits for which a growing number of members are choosing to pay a reasonable maintenance fee in order to obtain a quality return.

Thank you for supporting Mohave Educational Services Cooperative, Inc. We exist solely to provide effective, efficient and economical contracts and services that help our members accomplish their essential government functions. I believe Team Mohave and Team ASPIN do a good job in achieving our purpose. I trust we have earned the same opinion from you.

JTP