Generalities of Purchasing Contracts
Purchasing contracts are necessary or highly sought after when a buyer needs to acquire repetitively used items or products . Establishing a purchasing contract has two major advantages. First, they are often an efficient mechanism for obtaining highly demanded products at a reasonable cost. Second, they limit the possible products for purchasing consideration to a reasonable number and help ensure quality and reliability of the products placed on the contract.
Purchasing contracts are not, however, without drawbacks. The most well-known drawback is a restriction on purchasing similar items not on contract when special needs arise. However, exceptions are sometimes made for extenuating circumstances or need. Another disadvantage is the cost of establishing a purchasing contract and implementing the process by which items are made eligible and evaluated for placement. The long-term savings of attaining items at a reasonable cost usually supersede the initial cost of contract establishment and implementation. In the end, the advantages of a purchasing contract often outweigh the disadvantages.
Purchasing contracts are common not only in business-to-business and business-to-client sales modalities within the private sector but also within government entities. The private sector has long been regarded as the savvier implementer of the purchasing contract when compared with government entities . Elemental drawbacks for government include the lack of centralization and integration and the necessity of guarding against unfair or corrupt use of powers by purchasing officials within government compared with private entities . Nonetheless, purchasing contracts are the most ideal mechanism for meeting the daily operational needs of large government purchasing entities .
Specific Federal Government Purchasing Contract in Audiology
A long-time U.S. Federal Government purchasing contract in audiology involves the purchase of hearing aids (HAs) by the Department of Veterans Affairs (VA). For the first two quarters of 2009, the Hearing Industries Association reported that the VA dispensed 18 percent of all HAs sold in the United States. In addition to those HAs dispensed by the VA, the Federal purchasing contract is also used by other Federal entities, such as the Department of Defense, Indian Health Service, Health and Human Services, and Bureau of Prisons, for procuring HAs. The contract allows the purchase of commercially available HAs at an approximately 67 percent discount on manufacturer-suggested retail pricing. The contract currently operates on a 1 year cycle, with four 1 year renewal options, for the possibility of a 5 year cycle. The initial 1 year cycle involves a lengthy application and evaluation process (~2.5 years) prior to and during consideration of HA brands and product options for purchase. At any one time, the VA contract for fiscal years 2004 to 2009 included 6 HA brands and approximately 100 HA product options. Product options are HA choices based on style, group, and technology level, all of which are specified in the purchasing contract. This article elaborates on a few details of these specifications. The latest award contract, effective from fiscal years 2010 to 2014, pending 1 year renewals, involves 9 HA brands and approximately 270 HA product options. The 5 year contract cycle's estimated value is >$1.5 billion.
Thus, substantial financial interests are at stake for both the U.S. Federal Government and the HA industry. In general terms, the U.S. Government is interested in obtaining the most effective and efficacious HA products at a reasonable cost to taxpayers. Concomitantly, HA companies have a fiscal responsibility to stockholders to ensure that their own brand products are dispensed as often as possible at a fair return on investment. With an adequate return on investment, these companies can spend millions of dollars tracking trends in the HA marketplace. …