What Works: Hospital Procurement Strategies That Support Small Businesses

Objective: This case study highlights how state legislation sparked substantial growth in an anchor institution’s procurement spending with historically disadvantaged small businesses.

Major Participants: University of Texas MD Anderson Cancer Center (MD Anderson); State of Texas; Small Business Administration (SBA); several external partners such as the Houston Minority Business Council, the Asian Chamber of Commerce and the Women’s Business Enterprise Alliance.

Background: In response to new state legislation that established new programs to assist historically underutilized businesses (HUB) access new contracting opportunities, the University of Texas MD Anderson Cancer Center – one of the nation’s top cancer hospitals – launched an aggressive effort to increase procurement dollars with HUBs. While it was revamping its procurement policies, MD Anderson decided to go above and beyond the new Texas requirements, and also included Federal Small Businesses. The joint effort is known as the Historically Underutilized Business and Federal Small Business (HFSB) Program.

How it Works: MD Anderson has committed to including HFSBs in all phases of procurement opportunities. Specifically, the anchor has honed in on the following five procurement categories: building construction; special trade construction, professional services, other services and commodities.

In order to meet the anchor’s lofty goals, MD Anderson uses the following strategies:

• Solicits bids and proposals from HFSBs on a consistent basis, including through external advocacy groups and small business organizations.
• Promotes opportunities at HFSB networking events outside of MD Anderson.
• Whenever an HFSB contacts MD Anderson, the hospital provides the company with a package of information about how to do business with them, how to get registered as a vendor, and relevant contacts within Supply Chain Management.
• Proactively approaches HFSBs and frequently presents to the supplier community about procurement opportunities with the hospital. Similarly, provides on-campus training for certified HFSBs that details the RFP process and provides information on needs of procurement officials.
• Invites HFSBs to deliver technical and business presentations that demonstrate their capability to do business with MD Anderson.

MD Anderson also offers a mentor-protégé program to foster operational development of HUBs with the potential for promoting long-term relationships between prime contractors and HUBs.  This also increases the capacity of HUBs to do business with other large institutions, like the State of Texas.  Since the inception of its mentor-protégé program, MD Anderson has worked with more than 30 HUBs to provide these mentoring services.

Results for Local Economy: The most recent data (2013) indicates that in its five target procurement categories , MD Anderson has spent the following amounts with HUB firms:

• Building construction: $14.1M (24.1% of total building construction spend)
• Special trade construction: $7.7M (14.7%)
• Professional services: $9.7M (66.1%)

• Other services: $27.6M (11.7%)
• Commodities: $34.1M (4.89)

In total, MD Anderson spent $93.1M, or roughly 8.6% of its total procurement spend, with HUB firms in 2013. The hospital expects to increase this number to $107.1M, or 9.03%, in 2014. MD Anderson’s approach to working with HFSBs has won the hospital many awards, specifically for its emphasis on goals, subcontracting compliance, mentoring and reporting back to state and federal authorities.

Remaining Challenges: While MD Anderson has projected an increase in spending with HUBs, the projections still fall below the State of Texas HUB Good Faith Effort Goals. This is likely due to a few inherent challenges that arise when working with HFSBs. First, MD Anderson has found that few HFSBs have the capacity to fulfill orders for large volumes of products or services. Second, HFSBs have a difficult time competing on price with larger national firms. Third, many of MD Anderson’s contracts have strict delivery requirements that smaller vendors often have trouble meeting. Finally, few of the local HFSBs supply the highly specialized products and services that are unique to a large cancer institute.

In order to combat these obstacles, MD Anderson has implemented group purchasing agreements that provide more leverage for smaller companies, allowing the hospital to obtain high quality goods from HFSB vendors at a competitive price.

Lessons Learned: When measuring success, it is important to have a broad assessment of program activities—one cannot simply look at the hard numbers to ascertain whether a program is working. For instance, in the case of MD Anderson, the hospital has set lofty goals which are sometimes difficult to reach. But as part of its assessment, MD Anderson analyzes other factors such as the demand for goods and services for which no HFSB suppliers are available. Understanding where there are gaps allows the hospital to then conduct outreach to HFSBs and engage them in the Mentor-Protégé program, so that HFSBs are well-qualified to fulfill future contracts.