1% solution: Pay to play with VA

Two weeks after signing a contract to provide arcade games for the UVA student center, Lee Coleman found out that he was expected to pay back one percent of his invoices.

"I went through two years of lengthy negotiations to get the contract, and now they tell me I've got to give one percent of my proceeds to someone who had nothing to do with the bidding process?" Coleman asks incredulously.

Coleman's company, Roanoke-based Shenandoah Amusement, received faxes stipulating that the contract could be canceled if he didn't sign on to UVA's new purchasing system, dubbed eVA.

"I'm an old country boy," says Coleman. "I don't respond well to threats."

Mandatory eVA participation for university vendors went into effect October 1, but Coleman has joined 96 other vendors on the "eVA refusing vendors" list. That means that– unless UVA is "compelled" to do so– it can no longer place orders with those companies.

The statewide program was begun under former Governor Jim Gilmore. The reason? "It was really embarrassing before when we were asked what the state spends," says state procurement director Ron Bell. "We didn't know what individual agencies spent."

The Commonwealth spends $5 billion a year– the equivalent of a Fortune 300 company– and localities spend another $5 billion. The idea is to leverage that buying power rather than have 171 different agencies all ordering their widgets separately.

In two years of voluntary usage, eVA has already saved Virginia $114 million, Governor Mark Warner announced December 6, and he thinks that's just the beginning.

So far, 23,437 vendors have registered. They can tap into eVA and see what supplies state agencies are buying at what cost from whom. By registering, a vendor becomes an approved source. "It's a real boon," says Bell.

Who gets the one percent? A multi-national company called American Management Systems won the bid for the eVA contract and gets the one percent fee, which is capped at $500. According to Bell, it's all perfectly justified.

"The General Assembly told us to self-finance," he says. "On the front end, AMS gets the lion's share of the fee because they made a $40-million investment. For every billion dollars we run through the system, we get more, and they get less. It's a good deal for the Commonwealth."

Still, not every vendor is happy about saving Virginia's taxpayers the cost of developing an electronic purchasing system.

"To some, it's a principle that the government should pay everything," says Bell. "Some people don't want to pay any fee at all."

"I don't think there's been a big outcry," says UVA spokesperson Carol Wood. "We've been communicating with vendors trying to address their concerns."

A few may have slipped through the cracks. One UVA administrator says only one or two of the eight freelancers she uses received notification from the university. "No one wants to pay one percent," says the administrator, who requests anonymity. "They're paying a tax."

She notified her freelancers that if they don't register with eVA, she can't give them work.

There are, however, 25 exceptions– for instance, if the supplier is the only source. Wood cites other examples, such as the farmers who sell Virginia Tech its hay or writers whose style university editors like.

"We can use that person," says Wood. "The university pays the penalty and has to absorb the one percent cost."

Wood also emphasizes that the university, which pays its suppliers over $100 million a year, is not receiving the one percent fee. "But it makes it much easier if everyone is in the database," she says.

A concurrent statewide purchasing change was created to favor small, woman, and minority-owned businesses– SWAM, in state acronym speak.

Over 90 percent of the businesses in Virginia are small businesses, and Governor Warner wants to increase the percentage of state business they receive. A recent study shows Virginia is the worst state in the country in supporting SWAM-owned businesses.

Between the two major changes, it's not surprising that there's been some confusion.

On the state level, Bell is pretty adamant that all suppliers need to sign on to eVA. "We can't have some businesses saying I'll play or I won't play," he says.

And he points to another reason to register with eVA: "If you're not computer literate and doing business over the Internet, unless you have a special niche, you're probably going to get eaten alive.