In recent memory, fewer issues have been more important than elevated fuel costs. Nearly everything we do is impacted by ever-higher petroleum prices, and public sector fleet management is right at the top of the list.
Whether for bulk supplies for fuel sites, wet hosing, or retail purchases, putting together a fuel management RFP is the first step in finding solutions to help manage this exploding cost. An RFP must be clearly written and concise, while covering all aspects of a fuel program. Preparation is the key, and these common mistakes can be avoided.
Establishing a Purpose
Many fleet managers in the public sector fail to do their homework when issuing an RFP for fuel management. Preparation should include not only the fleet department, but any other functions, agencies, or departments impacted by the choice. These areas might include drivers, fleet fueling/maintenance sites, and certainly those offices in the organization responsible for approving contract language and legal requirements.
In contrast to the private sector, government sector fleet operations commonly operate on-site fueling and purchase fuel in bulk. Both activities should be included in the RFP. They are the two major differences between government and private sector fuel requirements, but can be sources of difficulty in placing fuel management with a single vendor.
The point is that fuel management in a government fleet setting is generally more complex than in the private sector, and getting the basics together before issuance produces a more complete solution.
Rules, Rules, Rules
One frustrating aspect of the government procurement process is the set of sometimes arcane rules and regulations under which government fleet managers must live. So-called "boilerplate" language, not only in a contract, but also in the RFP itself, can limit the number of respondents, who become frustrated attempting to comply. Many large vendors have departments expert in responding to and complying with government requests for proposals, but many mid-sized and smaller suppliers do not. The more limited the response, the less likely the fleet will obtain the best solution.
Contract language can be almost comic: vendors not permitted to use wood-based products made from certain trees, vendors required to certify in writing compliance with some obscure international treaty. This kind of language can scare off potential vendors and sometimes results in the inability to negotiate a final contract.
Before the RFP is issued, discuss this language with the appropriate agency or department. Determine if the language can be waived or if the agency will consider removing clauses irrelevant to the provision of a fuel management program. Doing so can help make the process proceed more smoothly and increase the number of responses.
[PAGEBREAK]Too Much Focus on Price
Clearly, government fleets have a responsibility that private sector fleets don’t; their funds are provided by taxpayers, rather than investors. This difference can result in too great a focus on pricing and rebates than a total solution.
Keep in mind one overarching principle: the purpose of a fuel management program is to control and reduce fuel expense, not simply reduce the cost of fuel purchased. The two can be one and the same, but they can also be mutually exclusive. The budget’s fuel expense line includes any number of individual decisions that impact the final cost:
• Purchase of premium fuel.
• Purchase of full-service fuel.
• Non-fuel purchases (food, lottery tickets, cigarettes, etc.) made during a fuel stop.
• Purchase of fuel for vehicles other than government vehicles.
• Out-and-out fraud.
Certainly, a rebate on the total fuel volume is a direct cost reduction. However, the elimination of premium fuel purchases (up to 20 cents per gallon) and tracking and halting fraud also bear directly on the bottom line.
A vendor can operate on a shoestring, and return a major portion of its revenues as a rebate to the customer. However, the retail gasoline business is a high-volume, low-margin business. There just isn’t much to give away and still keep the doors open. What is valuable, and should be considered on a par with price, is the ability to mine the vast amounts of data that fuel purchases generate to find and eliminate fuel slippage.
This means data capture, storage, and reporting should be equally important to any fleet operation. Price and rebates are certainly part of the equation. However, the marketplace perceives government awards contracts are based on price alone. The low bid gets the business. It is important to make the case that value, not merely price, should be the guideline.
Another important criterion is coverage. Again, much of a rebate can be eaten up when employees must drive miles out of the way to find a merchant that accepts the card. A rebate equivalent to 4 cents per gallon can be quickly spent when a vehicle that costs 50 cents or more per mile is driven several miles to find a merchant.
Narrow Focus
Too narrow a focus in an RFP can leave money on the table. While the purpose of the RFP may be for a fuel management program, some vendors tie other payment solutions into their programs:
• Glass repair and replacement.
• Safety programs.
• MVR services.
• Maintenance and repair.
• Parts.
• Marine and aviation fuel.
• Replacement rental vehicles.
The private sector has become better and better at is leveraging spend through strategic sourcing: searching within the organization for "spend" and working toward leveraging that spend into discounts and savings. The bottom line is that public sector RFPs are often too narrow in focus. It becomes merely a "fuel RFP" and ignores the potential benefit of adding other spend to the contract.
Fuel management suppliers provide rebates to customers (if the volume is large enough). However, that rebate isn’t always limited to the purchase of fuel. All volume is subject to rebate, and adding other programs or services to the card allows the leverage of more spend, increasing the rebate. Although the private sector has become adept at leveraging non-fuel spend, the public sector can often better and more easily benefit from the process.
Private sector fleets more commonly use a traditional maintenance management program. They pay a monthly per-vehicle, per-month fee for the use of a nationwide network of merchants, toll-free access to certified technicians to discuss and manage repair activity, and data mining/reporting capabilities. These features are important to private sector fleets since they are often geographically spread and seldom have the technical expertise or other resources to handle authorization.
Government fleets, however, often have exactly the kind of expertise required to manage maintenance expense (in-house repair facilities and mechanics). Consider the possibility of using a fuel management program to purchase parts for both work and inventory. The resulting increase in volume on the fuel card will offer the chance to leverage more spend into greater discounts and rebates. The same holds true for the other payment capabilities listed earlier.
Government procurement and fleet managers should give serious consideration to allowing other purchases on the fuel card and benefiting from the resulting leverage into greater savings.
[PAGEBREAK]One Size Fits All
Another important difference between government and private sector fleets is the source of fuel. Nearly all private sector fleet fuel purchases are retail. Drivers are spread nationally, travel territories (sales and service), and buy fuel wherever and whenever needed.
Government fleets, however, more often require several sources of fuel:
• Fuel purchased in bulk for on-site fuel locations.
• Retail purchases.
• "Wet hosing" — fuel suppliers who come on-site to fuel vehicles.
Three different needs from three different sources. Seeking a single fuel management provider for all three needs has advantages: administrative ease, single billing, etc. However, as with any other fleet supplier, fuel management vendors have strengths and weaknesses, and it can be beneficial to exploit them. Here are a few:
• Fleet fuel management companies provide the best overall combination of acceptance, data capabilities, and the ability to bundle fuel with other programs. But that strength favors retail merchants over bulk fuel or wet hosing, although both are certainly part of the acceptance network.
• Credit cards provide a single overarching benefit: acceptance. Purchasing cards, T&E (travel and entertainment) cards, "one" cards, etc. are payment solutions only and do not provide the Level III data and fleet reporting capabilities so vital to a fleet manager. What they do provide — a payment solution — they do well.
• Fuel distributors/jobbers are excellent options for government fleets. These vendors are usually more local and/or regional in scope, and their strengths lie in the bulk fuel and wet hosing areas. Retail coverage depends upon the "platform" their products use, and sometimes reporting and data capabilities are inadequate.
• Cardlock vendors bring private fueling locations, sometimes bolstered with retail acceptance, and their greatest strength is security and control.
Not a comprehensive list, however, the strengths and weaknesses of each differ from one solution to another.
Since a government fleet must often deal with different fuel needs, looking for a "one size fits all" solution can often result in a program in which strengths and weaknesses are magnified. Thus, consider the possibility of choosing a different vendor for different needs, for example, a fleet fuel management supplier for retail and a local distributor for bulk fuel.
While flexibility in awarding a contract does have benefits, keep in mind the issues that must be considered:
1. Data. Having two to three vendors for different fuel needs should be bolstered by the consolidation of data into a single location. Many government fleets have an in-house fleet management system. If different vendors are used, they must all be willing and able to feed data into that system.
2. Process. Make certain a fleet fuel management card can be used at on-site fuel pumps. Provide the specific type of card readers and pumps your fuel sites use, even if the bulk fuel for these sites is purchased from a different vendor.
3. Additional merchants. The willingness and ability to add local merchants not currently in the network is important.
Using multiple vendors, if data and other process issues are addressed, can provide the most cost-efficient solution, both in fuel pricing as well as fuel expense management.
Flexibility is the Key
Mistakes government fleets make in issuing and analyzing fuel management RFPs are generally mistakes of omission, rather than commission. When flexibility is built into the process, a more effective solution can result, saving taxpayers money.
• Address the government’s sourcing and contract laws and regulations before issuing the document and simplify the process.
• Don’t award business simply on the basis of fuel price. Award based on value. Keep in mind a fuel management program’s focus is fleet fuel expense, not simply price, and the reporting and data capabilities of the vendor are every bit as important as rebates or other discounts.
• Widen the focus of the RFP. Fuel management vendors can offer payment solutions that go beyond fuel and enable the government to leverage spend to a greater extent.
• Avoid a "one size fits all" award. Government fleet fuel requirements often go beyond just retail purchases. Be willing to award portions of the business to vendors whose strengths fit the need.
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