Bid system called unfair
By Sean Hao
Advertiser Staff Writer
State agencies increasingly are turning to the Internet for their supply needs, including to an online procurement site named SuperQUOTE, and that trend worries some local businesses.
Online procurement systems, which can save agencies time and money, make it easier for Mainland companies to compete for local work. But the out-of-state businesses often don't employ local workers and aren't subject to Hawai'i's 4 percent general excise tax.
"Our income at least goes back into our economy," said John Scalera, Pacific Rim manager for Technology Integration Group .
The San Diego-based company, which has 10 employees in Honolulu, refuses to participate in SuperQUOTE, the online quote-gathering system used by the state, because of the fees involved and the increased Mainland competition it creates.
The system was developed by New York-based CommercePoint Inc., which was founded in Hawai'i. It is used by the University of Hawai'i, the state Department of Education, TheBus and the state Judiciary.
Although the system appears to address government's need to save money, it also raises questions about government's role in supporting local businesses.
UH began using SuperQUOTE early last year, and the automated, paperless bid solicitation is saving money and creating a more open and competitive bidding process, said Russell Miyake, UH controller.
He said the bidding can't be limited to local companies because federal financing prevents the university from discriminating against out-of-state businesses.
"It's open competition," Miyake said. "You don't have to know anybody. You don't have to be on a sellers list" to participate.
However, Miyake acknowledged that support for the system hasn't been universal among vendors and UH purchasers.
"It's basically just a resistance to change," he said. "What SuperQUOTE does is it opens (the bidding process) up to everybody that signs up as a vendor on the system."
SuperQUOTE allows buyers to solicit bids for goods and services such as a projector or box of highlighters via the Web at www.commercepoint.com.
Based on the category of the item sought, an e-mail then goes out to notify registered vendors of the bid request.
When the request expires after a period of days or weeks, all bidders are notified of the lowest bid. If the bid is accepted, the winning company pays a half-percent fee based on the value of the transaction to CommercePoint. Miyake said companies are encouraged to include the fee in their bids.
However, Scalera, who sells computer hardware, software and services, said the fee is an unneeded, added cost of doing business in a state that's already too expensive for commerce.
In addition, companies that Technology Integration Group competes with on the Mainland don't have to pay local taxes — a key advantage in an industry with typically thin margins on product sales.
Early results of SuperQUOTE indicate that Mainland companies are doing better than local companies in winning their percentage share of business.
As of April 30, 78 percent of the 1,233 vendors participating in the SuperQUOTE system were local, and 22 percent were on the Mainland, CommercePoint reported. However, 72 percent of the transactions were won by local companies and 28 percent by Mainland firms. Those figures include bid requests placed by UH, the DOE, the Judiciary and TheBus.
The debate over how much business goes to Mainland companies versus local companies highlights the need for businesses to remain competitive in a global economy, said William Wang, CommercePoint's founder.
Miyake could not immediately say how much money the system saves UH overall. However, the university estimated that the savings range between $125 to $250 per transaction. The university puts up anywhere from 30 to 50 items for bid at any one time.
Use of SuperQUOTE by UH departments is voluntary and limited to items and services valued at less than $25,000. But that could change. Miyake said he'd like to see the system become mandatory and the $25,000 ceiling lifted.
UH isn't alone in turning to the Internet for its purchasing needs.
Giga Information Group in March reported universities in Arizona, Michigan, New Mexico and Indiana are using electronic procurement systems as well.
In trying to grab a larger share of the procurement market, CommercePoint is taking on far larger and well-known competitors such as Ariba, Oracle, Peoplesoft SAP and Sciquest. Sciquest charges large universities $150,000 to $200,000 a year for its service, according to Giga Information.
CommercePoint does not charge an upfront fee i only the half-percent fee on each transaction, Wang said.
He hopes to use the company's success in Hawai'i to penetrate the Mainland market, but he knows that won't be easy.
"Not only are we introducing a new technology, we're introducing a different way" of doing business, he said.
Under the traditional buyer/seller relationship "vendors are bringing you doughnuts and manapua — you don't want to give up that."
For Technology Integration Group's Scalera, the adoption of SuperQUOTE comes down to whether the state is willing to discriminate against local companies. He's concerned the system will put some local computer and electronics suppliers out of business.
The system also raises the question of whether Mainland companies should bother to invest in local distributors, Scalera said.
"We set up here. We hired local people," he said. "And then we have to compete with companies on the Mainland.
"Why do we even exist here as a distribution channel?"
Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.
Correction: Technology Integration Group was misidentified in a previous version of this story. A procurement system named in the story is spelled SuperQUOTE.
