States wrestle with e-commerce policy

States wrestle with e-commerce policy

What's happening in e-commerce?

  • 18 percent of states' Web sites provide users with acquisition information.


  • 9 percent let users search for information based on unique criteria.


  • 33 percent allow users to search for and buy products and services.


  • 7 percent have e-commerce systems that are integrated with existing business processes.


  • 1 percent have developed new processes that support e-commerce activities.


    Source: Accenture and EC3

  • Illinois CIO Mary Reynolds says states themselves should fund electronic- procurement projects.

    Despite debate over how to fund projects, one thing is certain: The public hates to pay transaction fees

    BY WILSON P. DIZARD III | GCN STAFF

    LAS VEGAS'States' electronic-commerce policies are like a box of chocolates: You never know what you are going to get.

    While Forrest Gump might have approved of the variety of approaches states take to electronic procurement, policymakers at the recent National Electronic Commerce Coordinating Committee (EC3) conference were looking for trends.

    The diversity of e-procurement and electronic-government initiatives displayed at the conference seemed to point out that policy issues, not technology puzzles, are the main problems governments face as they adopt e-commerce.

    Even on the basic issue of whether states should pay for e-procurement hardware and software or shift the costs to the private sector, opinions diverged. One approach is the state-funded system, in which a state typically charges use fees to pay a vendor to run the system.

    It's on us

    According to an EC3 survey released at the conference, California, Delaware, Florida, Idaho, Massachusetts, Minnesota, Ohio, Vermont, Wisconsin and Wyoming have adopted some form of state-funded e-procurement system. Tennessee also plans to use the state-funded method.

    An alternative approach is the self-funded or reverse-revenue model, in which a vendor retains transaction or bidding fees to recapture implementation and operation costs. This approach prevails in Arizona, Colorado, Connecticut, Maine, Maryland, Michigan, South Carolina, Texas, Washington, Utah and Virginia.

    Illinois chief information officer Mary Reynolds opposes transaction fees. 'Electronic procurement is an enterprise-wide project, and the state itself should pay for it,' she said.

    Some states'including Louisiana, New York and South Dakota'that are now designing procurement systems haven't decided on a funding method.
    States that adopted the self-funded model have been required to make only a small outlay.

    Mark E. Kysiak, deputy director of the Maryland General Services Department's Procurement and Contracting Office, said his state has saved about $10 million by turning its e-procurement work over to Science Applications International Corp. of San Diego.

    'We haven't had any objections to fees' charged to vendors, Kysiak said. Maryland charges vendors up to $225 annually to link to its electronic bidding system, or $3.50 for each order from the state's catalog.

    Maryland started its e-procurement project in 1998. Kysiak observed, as did many other attendees at the conference, that charging vendors for participating in the system 'is a much easier model' than charging the public for accessing state services through the Web.

    Jerry Johnson, senior policy analyst for the Texas Information Resources Department, agreed.

    'We've already observed that when we charge transaction fees [for services to the public], transactions flatline rather than increase,' he said. 'Rather than people accepting the new way of doing business, they ask, 'Why am I paying more?''

    The choice of payment method'credit card or electronic funds transfer'also poses policy challenges.

    Speakers at the conference noted that state laws often restrict them from paying fees that credit card companies demand, which range up to 2 percent of a transaction.

    'We're still very unhappy with the fee differential we have to pay to credit card companies,' said Claudia Boldman, senior analyst in the Massachusetts Information Technology Division's Strategic Planning Group. 'I think the credit card companies do not differentiate between the commercial and government markets. It is a disincentive to put services on the Net.'

    'In the government-to-citizen arena, we are hard-pressed to find an example of an area where we would be comfortable charging fees,' she said. On the other hand, vendors and law firms that do business with the state are willing to pay fees, Boldman said.

    Time to pay up

    Arizona state controller Robert Roca noted an additional complication: Credit card companies vary the schedules for crediting transactions to sellers'in this case, state governments or their agents.

    Visa and MasterCard approve transactions within 24 hours, Roca said, while Diners Club and American Express process transactions in 48 hours, and Discover holds on to a seller's cash for 72 hours.

    By contrast, 'cash and checks will be taken as good money the same day,' Roca said.

    'Our treasury will not recognize a transaction unless it becomes cash on the same day,' Roca said. 'So it involves a lot of accrual accounting.'

    Johnson of Texas said states should allow users to make informed choices about what type of payment method to choose.

    'There will be some people who want to use a credit card because they get frequent-flyer miles or want to finance the transaction,' he said. 'But it has to be an informed choice, not because we've forced them into that decision.'

    Pioneer states, such as perennial digital pathfinder Washington, pointed to the importance of planning as a part of crafting an e-commerce strategy. William Joplin, the state's manager of procurement and e-commerce, emphasized the importance of building a business case for an e-procurement policy.

    'We used our business case throughout the process of implementing our electronic-procurement systems,' Joplin said.

    Washington imposes a 0.5 percent supplier transaction fee, which is supplemented by state funds. In June, it awarded a contract to American Management Systems Inc. of Fairfax, Va., to provide its e-procurement system. Washington has integrated its procurement catalog with the state's accounting systems, a step that fewer than 10 states have made.

    Washington negotiated with its suppliers for six months before deciding that the 0.5 percent fee on transactions was reasonable and would be accepted, Joplin said.

    'Medium and small suppliers have no problem with it at all,' he said. Integration with the state procurement system helps smaller suppliers get recognition from manufacturers because they can show they have a big customer, he added.

    A difficult fit

    The hurdle is often with the big companies that have their own back-end systems and thus are less receptive to e-commerce because the state procurement system creates new integration work for them, Joplin said.

    He emphasized that Washington worked to secure the backing of other stakeholders in the design of the e-procurement process, including the state's accounting agencies, procurement and budgeting officials and political subdivisions.

    Washington's integration of its e-procurement system to other financial systems in the state is unusual, according to the EC3 survey. For some processes, such as receipt of bids and publishing of bid abstracts, manual processes still dominate, the EC3 study reported.

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