Many fleet professionals expected spending to decline significantly during the pandemic, with the predicted recession expected to take a huge chunk out of purchasing budgets. The numbers are in, and while that has happened, fleet procurement is back on the rise.
The effects on procurement funds have been varied. Some fleet managers reported no decreases in funds, while those in specific areas had slashed funding — these include agencies in places dependent on tourism and travel, universities that went fully remote (and with fewer higher-paying international students), and those entities relying on sales taxes.
Bid Volume Slips in 2020
In March 2020, Paul Irby watched government purchasing drop. COVID-19 had been declared a pandemic, and lockdown had started. Just about everybody expected reduced budgets.
Irby tracks government bid volume as part of his job as principal research analyst at GovWin IQ from Deltek. The company operates a government contracting intelligence platform, and Irby and Research Analyst Brent Mital pulled data that shows how fleet procurement fared during the pandemic and as the U.S. pulls out of it.
In the first quarter of 2020, Land Vehicle* bids were strong in comparison to the overall state, local, and education (SLED) market, but as the second quarter (and pandemic) began, vehicle bids dropped even more than other SLED bids (see “Bids in Comparison to 2019” on page 11).
By the fourth quarter, however, “the vehicle market caught up with the pace and positioning of the overall SLED market, which is kind of a picture of health for the vehicles,” Irby said. “It shows that, on average, the typical state and local government is feeling a little more confident issuing those bids, knowing their revenue over the next 12 months will be robust enough that they’ll be able to afford them.”
Still, the annual total for the year is much lower than the prior year, with SLED bids declining 15.4%. Not surprisingly, within this category, Transportation* bids declined by 20.9%, slightly more than overall SLED bids, “suggesting that governments found it somewhat easier to delay these types of purchases in the short term compared with others,” according to Irby and Mital (see Government & Transportation Bids on page 12).
In the first quarter of 2021, SLED bids were still down by 9% and Land Vehicles were at negative 5% compared to 2020, lower than what Irby had expected. He attributes this to the Capitol insurrection in January, which “introduced a sense of uncertainty, which kept state and local governments from releasing a normal amount [of funding].” By March, bids had increased, bringing up the quarterly average.
Forecasting for 2021 and Beyond
For 2021, GovWin IQ forecasts growth of 13.2% in SLED bids and another 1.8% in 2022, which still puts total bids at below pre-pandemic levels. Within transportation, the company expects an 18.7% increase in bids in 2021, “a strong rebound,” according to Irby, and an additional 4.4% growth in 2022. While these numbers also don’t reach pre-pandemic levels, the share of funding expected to go to Transportation (9.8% in 2022) is equivalent to 2019 levels (see Government & Transportation Bids above).
GovWin IQ’s data shows that Land Vehicles* within the Transportation category did slightly better than overall Transportation, maintaining a constant share of total SLED bids while Transportation lost ground slightly (See Land Vehicle Bids table above). For 2021, GovWin IQ expects Land Vehicle bids to improve by 13.6% and a rise another 2% in 2022.
6 Changes in the Way Agencies Purchase
The pandemic led people to work from home, many for the first time, as government agencies closed their doors. Some workers took an early retirement, and others were furloughed or took sick time, making it more difficult to conduct business as usual. As a result, public procurement offices explored different ways to purchase, according to Tammy Rimes, a procurement consultant and former purchasing agent for the City of San Diego.
- Streamlined Purchasing: “Many of the antiquated or manual procurement processes have been moved online or streamlined to continue serving operational needs. It was well overdue for some agencies,” she said. “COVID forced their hand.”
For example, many legal departments reviewed their previous requirement for “wet” signatures and are now allowing electronic signatures on documents. Other agencies moved to automated e-procurement systems rather than relying on the usual paper process. Pre-bid meetings moved online instead of the former face-to-face meetings. Less paper and moving to automation can create greater efficiency, Rimes said.
- Increased Use of Cooperative Procurement: Rimes said although the number of bids and RFPs decreased during the pandemic, the overall dollar amount spent was just slightly lower for general government purchases and was flat including capital investments. This means that rather than using the usual bidding process, government entities turned to cooperative purchasing to obtain supplies and equipment — using contracts from a nearby municipality, a state contract, or a national cooperative organization.
As people were stuck at home, many didn’t have all the needed procurement tools or contract files readily available, Rimes said. As a result, many made the choice to use an already solicited and awarded contract from cooperatives or other government agencies. According to Rimes, “some thought, ‘why spend the time to put this out to bid when a contract is already available to piggyback upon?’ That allowed them to quickly get the product needed, and move on to the next project.”
- Partnering with Vendors: Another benefit Rimes is seeing is purchasing is becoming more of a partnership between the public entity and the vendor rather than just a transactional relationship. That means buyers are having conversations with vendors about what they need, or the problem to solve, rather than just saying, “I need 10 of this product.”
“Suppliers really stepped up during COVID to help. Yes, they were ultimately selling, but they were offering their expertise to solve a lot of problems,” Rimes said.
- Increased Use of Financing: With restricted budgets being an issue, financing is also being considered by many for the first time, a change from the usual method of paying full purchase price upon delivery, according to Rimes. This is particularly true for large purchases such as heavy equipment and fire trucks.
“In our personal lives, we often finance things — vehicles, appliances, homes — that cost a lot of money. Governments are now starting to say, ‘We’ve got to get these fire engines; however, now we want the vendor to come forward with a financing option so we can pay for these over the next five years,’ ” she said. “Financing is entering the scene in a big way.”
- More Leasing and Renting: Leasing and renting equipment is also on the rise, Rimes said.
“Government was all about ownership in the past. We buy it, own it, have it for 20 years, and when it breaks down, replace it,” she said. “Now fleet directors are starting to look at equipment purchases in light of their tighter budgets, saying, ‘OK, how do I stretch these dollars a little further?’” she said. “That’s where leasing and rental options come in. You may have the same number of pieces of equipment on the property, but you don’t necessarily own and have the pink slips for all of them.”
- More Focus on Remarketing: Fleet managers are paying more attention to surplus equipment, turning to online property disposal companies to get the best value, rather than relying on a local auctioneer or trading in at a dealership.
“I believe people are looking more at it as an additional source of revenue — not only just getting rid of stuff,” Rimes explained.
The Projection for Electrification
There is a big emphasis on electrification these days, but Andy Campbell, supplier development supervisor for Sourcewell, said getting actual vehicles into fleets takes longer than most people anticipate.
“The chatter is off the charts. The inquiries are very brisk,” he said. “What people are finding out, though, is when they actually start getting quotes for things, they’re kind of taken aback, going, ‘Whoa, I didn’t realize it was going to cost that much,’ or ‘OK, yes, we can afford that, but wow, we didn’t realize all the infrastructure needed.’”
But with federal funding included for electric vehicles in President Biden’s proposed infrastructure plan, Ben Vaught, president & CEO of DemandStar, an e-bidding software company that helps local governments publish bids, is optimistic that government entities will be able to electrify soon.
The plan dedicates $174 billion to the EV market, includes a goal to replace 50,000 diesel transit buses with electric vehicles, and a goal to replace 20% of school buses with EVs.
“We see this plan as transformative,” he said.
He added he is already seeing public agencies looking to partner with private companies regarding smart cities and infrastructure updates. As part of this, some public entities have put out bids for charging infrastructure partnerships.
A Vehicle Shortage
It’s not just budgets keeping fleet departments from getting the vehicles they need. Various factors are in play that have made it harder for public agencies to get the vehicles they need in the usual amount of time, according to Campbell. These include the pandemic, which led OEMs to temporarily shut down factories; the semiconductor shortage, which has led to further factory pauses; and the high and unstable cost of steel.
“It is very difficult to source trucks and vans right now,” Campbell said in April.
The instability will also lead to price increases, which Campbell has already seen with various vendors.