Since March, the COVID-19 crisis had produced an unprecedented strain on the global supply chain for personal protective equipment and sanitation supplies. The pressure was particularly pronounced in the U.S., where 36% of healthcare institutions surveyed in an April TIME Magazine poll reported running out of at least one critical item. Against the backdrop of surging infection rates and a shrinking stockpile, governments across the country set out to do all they can to procure PPE – galvanizing the private sector, sole-sourcing emergency contracts, and even bidding against another for the critical supplies.
While the shortage of medical supplies persists in many parts of the country, since June, the containment of COVID-19 in much of Asia and Europe coupled with an exponential growth of PPE manufacturers and importers had significantly alleviated the strain on the PPE supply chain. In fact, in China alone, 70,802 new companies registered to make or trade face masks this year, while exports of medical equipment and supplies rose 89 percent between March and May. In June, reduced demand and increased scrutiny for product quality had significantly elevated competition for PPE manufacturers. Consequently, prices for all forms of PPE have been steadily on the decline for months after an initial surge, some decreasing by as much as 90%. This is particularly true for civilian use products such as non-medical disposable face masks, for which retail prices have even returned to pre-COVID levels. Indeed, such market changes are crucial to advancing the mission of affordable protection for all.
For all levels of government and public sectors agencies such as school and hospital districts, these market trends present a promising development. With reduced prices, improved quality, and expedited delivery, the PPE industry is increasingly turning towards a buyer’s market, especially for general-use products. What’s key to accessing these favorable market conditions are transparent, competitive bids that make PPE procurement opportunities widely available to the public.
Indeed, most public entities have legal requirements to host bids for purchases that exceed a certain monetary threshold. However, due to the initial supply and logistics chain disruptions brought on by the pandemic, many of those requirements were waived, resulting in sole-source contracts with vendors who could promise expedited delivery. While reasons exist for public sector agencies to continuing procuring from vendors with established relationships, the benefits of open-market competition largely outweigh the potential complexities of organizing a bid.
Compared to sole-source emergency contracts, bids strongly incentivize sellers to reduce their profit margins to a minimum, something that stands in stark contrast to the prolific practice of price-gauging that characterized the growth of the industry. Simply put, only the lowest responsible bidder will be awarded a contract, and anyone who aspires to make a handsome margin from such transaction will not see their hopes materializing. Since June, public municipalities across the country have held hundreds of open-market bids that not only yielded some of most competitive prices available, but also served to continuously drive down market rates for the commodity. For instance, in August, an open-market bid organized by Placer County, California, drew over 100 vendors and yielded winning bids for face masks and face shields at respectively $0.10 and $0.48 in unit price for a 16,700 piece order. Similarly, the City of Litchfield Park was able to procure face masks at $0.11 per unit and gloves at $0.074 per unit for two senior homes within its limits in a bid that attracted 113 submissions. In the same timeframe, municipalities that procured through no-bid, emergency contracts easily paid four or five times as much for identical products. One municipality in Virginia, for instance, paid $0.80 per mask in a sole source contract when the market prices went down to as little as $0.10 for the same mask. While there may certainly be circumstances that would justify an emergency purchase, the same dollar spent on this sole source contract could, in fact, have offered protection to eight times the number of people.
Another equally important benefit from competitive bids is the simultaneous gain in the scrutiny and quality of products yielded. Most well-constructed bids require extensive paperwork, including proof of financial capability, product specifications and certifications, questionnaires on delivery ability, and personnel qualifications. The task of putting together such a bid, in of itself, greatly enhances the prospect that only legitimate vendors with demonstrated competencies in commodity logistics will participate. In fact, municipalities, such as Jefferson Parish, have disqualified the apparent lowest bidder when product specifications and quality couldn’t be sufficiently demonstrated. Additionally, given the legal provisions for bid transparency, all submissions from vendors are released to the public and oftentimes scrutinized by the press. With reputation being a key element of success for any business, the prospect of public disclosure of inauthentic, questionable information is a significant deterrence for bad actors.
As we approach another “surge season,” while the pressures of time may favor the most convenient procurement options, it is more important than ever that buyers, especially public entities, make the choice to host competitive bids as much as possible for the greater good. Ultimately, each dollar spent on PPEs could spell a magnitude of difference in the number of people protected if not wisely used. Governments, occupying some of the most powerful purchasing positions in the country, have the unique ability to attract only the most qualified, competent vendors with high ethical standards. Exercising this power, especially against the prospect of a resource-constrained economy, is both the most judicious and responsible course of action.