Lately we’ve been hearing from City Hall that when the council settled the city’s lawsuit against the university last May, it got UC to agree to buy more goods and services from Berkeley businesses.
If only it were so. What the university administration actually promised was to “develop and implement within a reasonable time a local-purchasing program for prioritizing the purchase of goods and services in Berkeley”—and here’s the catch—“to the extent permissible under existing law and UC practices” (settlement agreement, Sections V.B. and D). In fact, recent changes in the university’s procurement practices and policies mean that Berkeley vendors will be selling fewer goods and services to the campus.
The new reality began to dawn on one long-time independent Berkeley businessman and UC supplier this fall. In September, Gary Shows, the owner of the Alko office supply store in downtown Berkeley, sent UCB Associate Vice Chancellor Ron Coley a letter wondering why the campus’s Strategic Sourcing Program had “been actively encouraging and in some cases insisting that UCB Departments (our customers) buy supplies from OfficeMax instead of us” [emphasis in original]. Alko had been provisioning UCB for almost a century. But in the new program, the store’s “services apparently were not even considered. In my 35 years with ALKO,” Shows wrote, “I have never seen a single vendor so singularly supported the way [OfficeMax] is. I cannot believe that this policy reflects the will of the Regents of the University of California.”
But it does. Writing back in October, Coley told Shows that the contract with OfficeMax was established in January 2005, that it applies to all 10 campuses, and that it’s managed through the UC Office of the President (OOP) in downtown Oakland. The associate vice chancellor laid out the contract’s basic rationale: “As the amount of state funding continues to shrink from year to year, and in light of our obligation to state taxpayers to provide necessary resources to the campus at the lowest reasonable cost, the Regents of the University of California have initiated a strategic sourcing program that leverages the purchasing power of the entire system.” The contract with OfficeMax is “only one of many such … agreements.”
At the same time, Coley added, UC Berkeley still “recognizes its responsibilities to small, local vendors. ... Once our campus has achieved the level of business with OfficeMax described in the current agreement,” UC will try to figure out “how best to engage” the services of local vendors, including Alko.
The April 2004 request for proposal (RFP) that yielded the five-year OfficeMax contract is available from the OOP. The RFP says that a “cross-functional UC system-wide commodity team has been formed to develop and implement a world-class procurement program for office products at UC in accordance with the University Strategic Sourcing Initiative objectives.” The document stipulates that to qualify as a bidder, a supplier must have annual sales of at least $5 million and be able to deliver rush orders system-wide within four hours at no additional cost. According to one Berkeley office supplier, these two requirements can be met by only four companies: OfficeMax (which recently merged with Boise Cascade), Office Depot, Contract Express and Home Depot. All four are headquartered outside of California.
As for small business, the RFP states only that “the university will continue purchasing office products through its current Small Business Program.” It doesn’t say how such procurement will be facilitated or what “level of business” will go to small vendors.
Associate Vice Chancellor Coley told me that 40-50 percent of the Berkeley campus’ office supply business “goes to OfficeMax, and the rest to other vendors.” Purchasing agents for individual departments order directly from OfficeMax, which has built a special website just for UC with special, fixed pricing. UCB staff monitor those prices to “make sure that OfficeMax is honest.” In some cases, Coley said, the university is saving 25 percent by buying office supplies from this preferred provider. He also spoke of the increased efficiency achieved by dispensing with UCB’s warehouse and shifting responsibility for storage and delivery onto OfficeMax.
(The associate vice chancellor suggested that the savings from strategic sourcing could be used to lower student fees. The sentiment was noble but ill-timed: A few days earlier, the Regents had raised student fees 8 to 15 percent.)
Coley listed other goods that are or soon will be strategically sourced by the university: travel services, furniture, lab equipment, recreational equipment and appliances. Of these, he said, only office supplies and travel services are purchased by UCB in large amounts.
Seven years ago, Berkeley Travel Company owner May Ling took a group of independent Berkeley travel agents to a meeting with Cal administrators to protest the funneling of campus travel business to a big out-of-town provider. Their appeal was futile. Today, Ling says, half of her clients are affiliated with UC but don’t book through the university because campus rules have made it so difficult to get reimbursed for reservations made by independent agents.
The university claims that bypassing independents saves money. But Ling’s husband, Bob Barde, deputy director of UC Berkeley’s Institute of Business and Economic Research and a former part-owner of a travel agency, says that the university has no way of measuring the success of the travel company it’s currently using. For one thing, UC compares the ticket price it gets with the full price, which, in Barde’s words, “even your dead grandmother could beat.” For another, the university “[doesn’t] realize that getting the lowest price is different from getting the best price,” especially with travel, which, he observes, “isn’t so much a commodity as a service … What they don’t measure is what a good agent could have gotten them.”
But how about products like office supplies, where the merchandise if not the service is pretty much the same, no matter who’s selling it? Shouldn’t the university seek the best deal for the citizens of California and go for the lowest bid?
The problem is that, to paraphrase the title of the new film about Wal-Mart, at some point low prices have high costs. The Wal-Mart analogy was broached to me by Associate Vice Chancellor Coley. “The biggest proponents of [strategic sourcing],” he noted, “are large retail organizations—the ones that come to mind are Wal-Mart and Target.” (Later in our conversation, when I directly compared the university to Wal-Mart, Coley strenuously objected to the comparison.)
Critics most often attack Wal-Mart as a cutthroat retailer that hurts its employees and local competitors. But Wal-Mart is also a buyer whose vast purchasing power and take-no-prisoners tactics have damaged many entities—manufacturers, farmers, processors and wholesalers—who provide (or once provided) it with goods. Wal-Mart-style strategic sourcing drives small and medium-sized independent vendors to the wall, if not out of business altogether.
Next to Wal-Mart, the University of California looks like a midget. Wal-Mart’s annual revenues top $280 billion; the office supply RFP pegs the UC system’s operating revenues at $11.5 billion. But in the context of the local and regional economies with UC campuses, the university is an economic giant.
The RFP says that in fiscal year 2002, the university spent an estimated $25 million on the RFP-listed office supplies alone. When the Regents chose OfficeMax as UC’s preferred provider of office supplies, they not only put the squeeze on independent vendors; they also sent millions of taxpayer dollars outside out-of-state. That means lost profits, lost employment and lost opportunities for California businesses.
Unlike Wal-Mart, UC is a public institution with obligations to this state’s citizens. Besides cost-effectiveness, those obligations ought to include a commitment to economic democracy and a broadly prosperous California. Lip service aside, do they?