Cooperative Contracts: Everything You Need to Know
Cooperative contracts — also known as cooperative procurements or cooperative agreements — are agreements between the government and businesses, created in order to lower the costs of procuring goods or services that multiple entities commonly need.3 min read
Updated November 6, 2020:
Cooperative contracts — also known as cooperative procurements or cooperative agreements — are agreements between the government and businesses, created in order to lower the costs of procuring goods or services that multiple entities commonly need.
What Is a Cooperative Contract?
Many of the earliest cooperative efforts involved bulk goods with standard specifications, such as the following:
- Gasoline and fuel
- Cleaning supplies
- Pick-up and disposal of hazardous materials or waste
Today, there are more complex requirements due to the increase in technology, so cooperative contracts may include information technology services, consulting, and software.
More examples of items in cooperative agreements include the following:
- Digital copiers
- Office supplies
- Office furniture
- Computer hardware
- Wireless radios
- Cell phones
- Fleet vehicles
- Industrial lab supplies
- Infant formula
- Electronic defibrillators
Cooperative Purchasing Models
There are various purchasing models, with distinct pros and cons to each.
Definite Quantity and Delivery
A direct economic relationship exists between risk and price. The lower the risk, the lower the price. In definite quantity contracts, cooperative members and respective requirements are clearly identified. These contract types also specify schedules and delivery locations.
The pros of this purchasing model include the lowest possible prices due to guaranteed demand.
Disadvantages include the inability to predict and commit to specific schedules and requirements. It may also be hard to agree on common requirements in the contract. Being able to fulfill commitments to contractors is another challenge.
Indefinite Quantity and Delivery
In this purchasing model, governments may be able to cut down on administrative costs and achieve economies of scale. It's clear who the participants are. Requirements are estimated, and there's no commitment to specific purchases. Bidders' confidence in estimates is often determined by the price.
Pros of this model include the following:
- Solicitation may be easier since participants don't have to commit to definite quantities.
- Contracts offer more flexibility for members, which allows room for negotiations in terms and conditions or variations in requirements.
Cons include the following:
- Higher prices may result from uncertainty.
- Bidders may not offer their best prices due to a lack of confidence in requirement estimations.
When a government entity allows other jurisdictions to use a contract it's already established, it's known as “piggybacking” on the contract's terms and prices. Specific piggyback terms must be included in the contract, and the vendor has to agree.
These are the most immediate purchasing resources, particularly for smaller communities. Large communities may benefit as well due to the pressure for lower prices to be created, leading to savings in administrative costs.
Pros of piggyback contracts include the following:
- They're easy to administer.
- A wider variety of participants is possible due to the wider variety of contracts.
- Administrative costs are lower.
- Smaller governments can save money.
Cons include the following:
- The cost savings could be minimal because participation can't be predicted.
- Local vendors may see these contracts as unfair.
- Contract users don't get the full benefits if other entities join after the fact.
How Cooperative Contracts Benefit Governments
Cooperative contracts result in lower prices. When products and services are standardized, governments benefit from the combined efforts of multiple organizations. This is particularly beneficial to small governments because they can enjoy the market share that larger governments leverage.
The quality of goods and services increases when cooperative contracts are used because the following are used to create better contracts:
- Procurement professionals
- Specialized specification writers
- Technical evaluation committees
When large government agencies combine resources, small governments gain benefits as well. Sharing procurement professionals among entities allows for the reallocation of internal resources.
One contract and one procurement process serve multiple entities. Because the preliminary work has been completed for more than one agency, administrative costs are lower.
Cooperative contracts are convenient because customers can choose goods and services from one contract instead of seeking bids, quotes, or proposals from various outlets. This saves time and effort.
Due to so many advantages of cooperative contracts — including a better application of resources and lowered total cost of government — these types of agreements are beneficial to citizens of large and small governments. They may not work for every type of business relationship, but they're worth considering for certain industries.
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