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What’s good for the goose… Why NIGP’s ownership is not just a public sector issue

What’s good for the goose… Why NIGP’s ownership is not just a public sector issue

For the last couple of weeks, Jon Hansen has been covering the unfolding story involving Periscope Holdings/BidSync and Perfect Commerce. You can access the entire string of posts here, but I’ll give you the Readers’ Digest version now…

In early 2015, the State of Missouri, awarded a contract for an eProcurement provider. Perfect Commerce and Periscope Holdings/BidSync were both in the running, but Perfect Commerce was selected. On March 11, Perfect Commerce received a letter from NIGP saying that their sublicense agreement for NIGP (the public sector categorization system) was being withdrawn. The problem here is that Periscope Holdings owns NIGP. In other words, the categorization structure is owned by one solution provider in the market.

For those of us in the private sector, this may not seem terribly interesting, and it might seem even less relevant. But it is an important story for all procurement professionals in all sectors to pay attention to. And here is why:

Anything that is considered a standard (NIGP in this case) should exist apart from competing solution providers.

Imagine what it would be like if Periscope Holdings owned UNSPSC, the taxonomy commonly used in the private sector. If you run a bid to select a new eProcurement solution provider, and they don’t get the contract, are they going to pull the license from whoever did? The result is an artificial constraint to competition that does not benefit either procurement or the solution providers who serve us.

In one of his posts, Jon asked the question about whether all this (presumably the negative press associated with his merciless coverage of the Periscope Holdings/BidSync story and the NIGP leadership’s reaction to it) was going to hurt customers of the combined solution. While I don’t know if there are any major downsides for those agencies/companies in the short term, there sure will be in the long term.

The reason is because this goes against every guiding principle procurement professionals should hold dear. NIGP is now effectively a custom spec. If using it requires you to work with one vendor, or if it discourages you from working with any others, it should be seen as a liability, no different than a custom chemical or non-standard part measurement. And such liabilities increase costs (including both direct costs and switching costs) by restricting qualified alternatives and freedom of choice.

The best available solution in any award scenario – or the supply partner you put in place – is to a certain extent limited by the quality of your next best alternative. Somewhat like a BATNA, which is the road you plan to take if you are unable to come to an agreement in a negotiation, your SBAS or ‘Second Best Available Solution’ (I completely just made that up. Do not bother Googling it…) keeps the suppler that won this time working hard so that they can win again next time. As a result, all of the options in a market get better, and buyers get more value for their dollar.

If Periscope Holdings can revoke a vendor’s access to the NIGP code for any discretionary reason - including losing business to them - they do great harm to that vendor’s value proposition to the public sector. Since solution providers are constantly performing cost/benefit analyses for each sector in which they might make a business development effort, this would have to be taken into account. Having a competitor own the standard taxonomy (and wield it like a weapon) makes it less promising to make other investments to meet public sector requirements. And the end of the day, the net net is that there will be less solutions that serve as qualified alternatives to Periscope/BidSync for the public sector. P/BS will become relatively stronger as a result: in the influence they hold, in how viable it is to switch, and in how much they charge.

If procurement professionals – whether public or private sector – understand anything, it is that more qualified alternative solutions always results in a better final agreement. Anything that artificially thins that field, such as Periscope/BisSync withholding or withdrawing vendor access to the NIGP taxonomy, diminishes the number of alternatives and hurts the long term health of the solutions serving the public sector.

Not only should procurement professionals in the private and public sector pay attention to this story, we should also watch for examples of the same thing happening within our own sector or industry.

And now for a few words from ISM CEO Thomas Derry....
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Comments 3

Guest - Jon Hansen (website) on Friday, 24 April 2015 09:39

Great perspective Kelly from a private sector point of view.

One of the first thoughts that came to my mind was why, if the government broke up AT&T for the reasons you have highlighted in your post, would they not step in to break up the NIGP?

Great perspective Kelly from a private sector point of view. One of the first thoughts that came to my mind was why, if the government broke up AT&T for the reasons you have highlighted in your post, would they not step in to break up the NIGP?
Guest - Kelly Barner (website) on Friday, 24 April 2015 10:25

AT&T was broken up for having too much control in the telecom space - both in the fact that they were the only service provider and that they had a major vertical integration advantage in that they also made the telephone hardware.

I think the main reason why no one is calling for the breakup of Periscope Holdings or their divestiture of the NIGP Code is because it is more of a de facto standard than a mandated one. Public sector agencies are not REQUIRED to use NIGP rather than UNSPSC - if they were, it never would have been allowed to be acquired by Periscope in the first place. UNSPSC has other uses that require it to be run by an independent entity. Companies being able to use it as an open standard is more of a side benefit than a deliberate requirement. Perhaps the main problem NIGP has is that it does not have much use outside of localized public procurement...

AT&T was broken up for having too much control in the telecom space - both in the fact that they were the only service provider and that they had a major vertical integration advantage in that they also made the telephone hardware. I think the main reason why no one is calling for the breakup of Periscope Holdings or their divestiture of the NIGP Code is because it is more of a de facto standard than a mandated one. Public sector agencies are not REQUIRED to use NIGP rather than UNSPSC - if they were, it never would have been allowed to be acquired by Periscope in the first place. UNSPSC has other uses that require it to be run by an independent entity. Companies being able to use it as an open standard is more of a side benefit than a deliberate requirement. Perhaps the main problem NIGP has is that it does not have much use outside of localized public procurement...
Guest - Jon Hansen (website) on Friday, 24 April 2015 11:02

All valid points Kelly.

But to be clear, I am not talking about breaking-up Periscope, what I am talking about in principle is the government stepping in to take control of the NIGP.

After all, and while not mandatory, 33 of the 50 States rely on the taxonomy, as well as countless municipalities etc The cost to move to another taxonomy for some are viewed as being a major barrier - in essence (and whether real or imagined), they are somewhat trapped.

In this regard, having the NIGP - Periscope tandem hold the power to maintain the code (or conversely to withhold the capability from a Periscope competitor such as they tried to do with Perfect Commerce in Missouri to do so), is a major threat to the public sector.

Add into the equation the NIGP consulting arm being controlled by Periscope, and the conflict that represents per my April 6th post "NIGP CodeGate’s Deep Throat reveals troubling conflicts of interest at the “non-profit” association" - including the questionable manner in which that contract was awarded to Persicope, and it is clear that the present NIGP leadership must be replaced. By the way, here is the link to the referenced April 6 post; https://procureinsights.wordpress.com/2015/04/06/nigp-codegates-deep-throat-reveals-troubling-conflicts-of-interest-at-the-the-non-profit-association-by-jon-hansen/

Of course the exclusive access that the NIGP's Enterprise Sponsor Program promises to pay to those companies that pony up $25 each so that they can block out their competitors in terms of accessing NIGP membership is the exclamation point.

It is this uncontested control over NIGP policy and practice that like an AT&T must be broken.

All valid points Kelly. But to be clear, I am not talking about breaking-up Periscope, what I am talking about in principle is the government stepping in to take control of the NIGP. After all, and while not mandatory, 33 of the 50 States rely on the taxonomy, as well as countless municipalities etc The cost to move to another taxonomy for some are viewed as being a major barrier - in essence (and whether real or imagined), they are somewhat trapped. In this regard, having the NIGP - Periscope tandem hold the power to maintain the code (or conversely to withhold the capability from a Periscope competitor such as they tried to do with Perfect Commerce in Missouri to do so), is a major threat to the public sector. Add into the equation the NIGP consulting arm being controlled by Periscope, and the conflict that represents per my April 6th post "NIGP CodeGate’s Deep Throat reveals troubling conflicts of interest at the “non-profit” association" - including the questionable manner in which that contract was awarded to Persicope, and it is clear that the present NIGP leadership must be replaced. By the way, here is the link to the referenced April 6 post; https://procureinsights.wordpress.com/2015/04/06/nigp-codegates-deep-throat-reveals-troubling-conflicts-of-interest-at-the-the-non-profit-association-by-jon-hansen/ Of course the exclusive access that the NIGP's Enterprise Sponsor Program promises to pay to those companies that pony up $25 each so that they can block out their competitors in terms of accessing NIGP membership is the exclamation point. It is this uncontested control over NIGP policy and practice that like an AT&T must be broken.
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