Holding back on e-procurement saves money for councils

Not jumping on the e-procurement bandwagon too soon has potentially saved local government $5 million in set up costs.

Not jumping on the e-procurement bandwagon too soon has potentially saved local government $5 million in set up costs.

Local Government Online has selected Bank of New Zealand’s EDIS electronic trading system to provide e-procurement for the country’s 86 councils.

LGOL chairman and Hurunui District Council chief Paddy Clifford says two years ago the councils commissioned an independent report on e-procurement which found that it would cost $5 million to build a system and $1.5 million per annum to run it. The report also identified possible aggregated savings of $50 million per annum.

Put off by the demand for capital outlay, LGOL set about searching for a more cost-effective solution. In the interim it started setting up regional clusters of councils to aggregate procurement and has now chosen BNZ’s EDIS system. The proprietary system, which will be branded LGOL.Procure, will be free for councils and suppliers to implement and will be charged on a transactional basis. It will handle secure electronic trading with all the councils’ business partners regardless of size, system or transaction format and participants don’t have to be BNZ customers.

Clifford says the total cost of traditional paper-based procurement (including staff, postage, stationery etc) has been estimated at between $25 and $75 per transaction.

He says through e-procurement, order-processing costs can be reduced by up to 90%.

Fees are $1.40 per transaction for 100,000 transactions per annum; $1.20 per transaction fro 100,001 to 500,000 transactions per annum; $1 per transaction for 500,000 to one million transactions per annum; and $0.80 per transaction for more than one million transactions per annum.

For councils wanting to tie LGOL.Procure to their financial systems, LGOL has selected PricewaterhouseCoopers to provide integration services. Clifford says proposed integration costs are low - $3000 to $15,000 per council. The country’s two biggest local government application providers Fujitsu and Geac are also partners in the project, as is TelstraClear which will provide telecommunications links.

At a meeting in Wellington last Friday, Clifford presented the proposal to more than 50 council CEOs. Nine have said they want to go ahead.