How you can discourage off-contract purchases

Topics: Administration and Finance, Procurement, Diverse and Local Suppliers, Procurement Dashboards, Strategic Sourcing, Vendor Negotiation

John Workman

John Workman, Practice Manager

Jan. 30, 2014

Often cited as the one of the largest cost savings opportunities for universities, procurement remains a key area of focus for most business leaders.

For many, the greatest barrier to realizing purchasing savings is the inability to convince customers to utilize negotiated contracts. At most institutions, 60% or more of total spend never sees the central procurement office.

Universities Trapped in a Vicious Cycle of Off-Contract Spending

High rates of off-contract or “maverick” purchases are common, as faculty incentives emphasize speed and convenience over price. However, this creates a vicious cycle. Low rates of on-contract purchasing limits volume, weakens procurement’s leverage to negotiate better contracts and lower pricing, and makes procurement’s value-add less obvious – likely leading to further maverick spend.

Many universities have tried to curb off-contract purchases by implementing policies and guidelines for faculty and staff. However, these mandates are “in name only,” as decentralized customers feel empowered to purchase as they please from their own allocated grant or budget dollars.

Four Proven Methods to Curb Off-Contract Purchases

Rather than ratchet up enforcement of mandates, savvy purchasing departments are using customers’ desire for simplicity to drive customers to approved channels. In particular, these four strategies have been effective in curbing off-contract spending by making such purchases difficult and time-consuming.

  • Limit lab access to preferred vendors. Citing safety risks, Princeton University partnered with environmental health and safety and public safety to limit vendor access into laboratories with hazardous materials. Only preferred vendors who guarantee to sell using the university’s best contracts receive access to facilities.

  • Subject repeat maverick purchasers to internal audits. The University of Pittsburgh linked non-compliance with preferred contracts to possible internal audits, finding that even the threat of prolonged administrative distraction promotes compliance.

  • Require faculty to submit written requests for exemptions. Emory University utilizes a minor administrative burden as a “nudge” disincentive, requiring customers to write letters of explanation for big-ticket, off-contract purchases for department chair sign-off. They have found the extra effort and scrutiny usually preempts unjustifiable one-off purchases.

  • Implement staff-only mandates. Many organizations are wary of mandating contract compliance for faculty, but overlook the sizable savings opportunity of standardizing non-faculty purchases. For example, Notre Dame created a computer and printer purchasing policy mandate specifically for administrative staff. The school estimates $500,000 in savings the first year alone.

Learn More

Access our study, Disciplining University Spend, to learn 17 best practices for increasing on-contract spend, securing better prices, and achieving meaningful savings.