Consortia Models

Implementing an upgrade, whether it’s a Category 1 or Category 2 project, can be a significant upfront investment. However, school districts looking to make this investment decision are not alone. There are a number of school districts around the country that are looking to upgrade; finding and working together with neighboring districts can provide significant benefits. Not only can you share skills and the workload of finding providers and vendors, but you can also use consortium principles to negotiate better prices for services by purchasing at scale.

When managed correctly, purchasing consortia can negotiate better prices for many services because of their ability to buy in bulk. Many districts have found that these consortia have been effective purchasing vehicles.

In addition, most recent changes in the E-rate order now prioritize the review of E-rate applications from state and district led consortia. However, it is important to remember that if a district’s RFP process is handled well and there is competition for the bid, the district may be able to get similar pricing on its own.

A K-12 purchasing consortium can operate in one of three manners.

Group Pricing:

The consortium solicits bids and aligns contracts to leverage group buying power. In this model, the consortium must form a legal entity to solicit bids for all services, and issues an RFP to select provider(s). The districts then individually enter contracts using group-negotiated pricing and issue E-rate Form 471s individually. This type of procurement often does not result in pricing much lower than tariff because providers are not guaranteed business, so they are not incentivized to deeply discount their services.

Group Procurement:

The consortium directly procures on behalf of districts. In this model the consortium forms a legal entity to solicit bids and buy on behalf of districts. The consortium issues an RFP, and selects provider(s) as if the consortium is a massive district. A governance model determines individual district’s discount rates and handling of the E-rate Form 470s and 471s. This type of RFP tends to result in lower prices, because the service providers and vendors know how much business they will be awarded as a result of the RFP, and therefore can lower their prices based on their own volume tiers.

Reseller:

The consortium resells services to districts. In this model, the consortium forms a legal entity, and applies for an E-rate eligible Service Provider Identification Number (SPIN). The districts themselves act as customers only, they have no involvement in governance or operations. The consortium issues an RFP, selects provider(s), and resells the service to districts. The districts individually enter contracts with the consortium based on preferences. This type of consortium tends to result in lower prices, because the consortium can buy service in bulk at a low rate, then resell to districts with a very minimal margin.

Keep in mind that forming and operating a consortium is not a trivial task and requires a significant amount of time and effort. Forming the consortium, gathering and maintaining the proper paperwork, running the RFP, and managing relationships are all required from leaders of these types of consortia. It is critical that districts think about the trade-off between time (and therefore cost) of creating a consortia vs the procurement cost-savings. There are times when this can really pay off, and times when this doesn’t make sense, and whether to go down the consortia path will in the end depend on the individual district situation.