States ponder how to pay for e-commerce

Robert J. Sherry

Even though federal-state cooperative procurement hasn't gone anywhere, collaborative procurement practices among state and local governments are finding widespread favor and visibility. Last month I outlined interstate efforts to create electronic malls for a variety of products and services, including information technology.

The prospects for cooperative procurement activities in cyberspace are limitless. Participation in this and similar purchasing programs will skyrocket in the next few years as online buying sites gain functionality.

Wise program and technology managers should follow these electronic commerce developments closely. E-commerce is a partnership between government and industry. Periodic exchanges between you and your vendors are crucial to advancing public-sector e-commerce. That is why events such as the Annual Conference on Electronic Commerce in the States, held last month in San Diego, are critical.

The National Electronic Commerce Coordinating Council's conference draws together a vast array of industry and public officials with vital interests in the growth and efficacy of public-sector e-commerce. NECCC members and partners include the National Association of State Procurement Officials; the National Association of State Information Resource Executives; and the National Association of State Auditors, Comptrollers, and Treasurers. Other affiliates include the National Automated Clearinghouse Association and the IT Association of America.

The NECCC conference agenda was ambitious. It included sessions on e-commerce transactions, procurement, payment and funding. This last area, I am certain, is paramount in the minds of many state and local officials. Industry partners and taxpayers alike are expecting'sometimes even demanding'electronic access to government contracting opportunities and services. Someone has to pay for the front-end work of designing and implementing the systems to support these services.

So how do governments pay for it? Actually, there are a variety of possibilities. In the procurement arena, vendor funding is a primary method. This involves payment of what is essentially a rebate by a contractor to a government agency, usually measured as a percentage of sales in a given period.

Some states are experimenting with an intriguing funding method called benefits funding, also called performance-based contracting. As reported in GCN/State & Local last month, this process involves paying a contractor from revenues or documented savings derived from a system once it is up and running. Hawaii, for example, recently contracted for a system to streamline its taxation process and to identify tax underpayments. Once the state realizes new revenue from the system, the contractor will receive an agreed-upon portion of the new revenue as payment.

Robert Sherry is a partner in the law firm of McKenna & Cuneo LLP. He heads the government contracts practice in the firm's San Francisco office, counseling information technology companies on federal, state and local issues.

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