Federal government procurement policies are complex, stringent and increasingly require more transparency. Because government services are funded by taxpayer dollars, due diligence is a necessary component to ensure optimal and appropriate use of available funding. In recent years, the Department of Defense (DoD) has made significant progress in adopting custom purchase and payment programs to help streamline complex procurement of commercial products and services. This paper will address the rationale and advantages behind custom purchase and payment program adoption and the options that should be considered to achieve further cost saving enhancements. It will address closed-loop, private procurement and payment solutions and why they are advantageous over traditional off-the-shelf solutions in specific industries in the domestic and overseas marketplace.

1. Critical Mission Support Achieved
through Custom Procurement Solutions

2. Federal government procurement policies.
Historically procurement has been a paper-based process resulting in
manual and decentralized oversight. In recent years, the Department of
Defense (DoD) has made significant progress in adopting custom
purchase and payment programs to help streamline complex
procurement of commercial products and services.
This paper will address the rationale and advantages behind custom
purchase and payment program adoption and the options that should
be considered to achieve further cost saving enhancements.

3. The rationale for payment programs.
The general purpose of a payment program is to capture the
required transaction and vendor information which, in turn, will
help streamline administrative procurement processes and
promote efficiencies. A fully-functional program will help
minimize management and oversight costs and maximize
purchase value.

4. Purchasing programs bring valuable
administrative savings.
The National Association of Purchasing Card Professionals (NAPCP) estimates that
a traditional transaction initiating with a purchase order (P.O.) and closing with a
payment made by check can cost the buyer $50 to $250 in administrative
expense.1 These figures do not include ongoing costs associated with qualifying
suppliers or managing and auditing contract use and payments.
Up to 60 percent of these purchasing and payment costs can be saved through
the implementation of compliant payment programs2, and a well-implemented
program will provide the consolidated spend oversight program that financial
managers require.
1National Association of Purchasing Card Professionals. Purchasing Card
Essentials. 2008. pg 8.
2Indian Institute of Materials Management.
http://www.iimm.org/knowledge_bank/2_purchasing-cards-e-procurement.htm

5. Spend oversight and the transaction and
payment data.
A major reason for the increased popularity of card-based payment programs
among procurement professionals is the ability to capture more detailed
transaction information. The more detailed the transaction and payment data
available, the better the oversight. There are three generally recognized levels
of transaction data:
- Level I data
- Level II data
- Level III data

6. Ensure that your payment program can
track the data points you require.
• Level I data is basic transaction data received by consumers on a consolidated
monthly credit card bill which includes total purchase amount, the date of
purchase, the merchant’s name, the date the charge or credit was processed by
the vendor.
• Level II data includes all level I data and has the potential to add sales tax
amount, additional merchant information, purchase order information and other
basic data elements.
• Level III data includes levels I and II data and has the potential to provide line-
item detail which includes unit cost, quantities, unit of measure, product codes,
product descriptions, ship to and from zip codes, shipping costs, VAT amounts,
order date, discount, purchase order number, and other data elements. Level III
data provides the management team with a clearer understanding of how
funding is utilized within an organization and the opportunity to leverage total
spend with a supplier for more advantageous product pricing as well as
recovering taxes and unauthorized charges.

7. Supplier network considerations.
Whether a payment program will be facilitated through a physical charge card,
virtual account number or an electronic order management system, procurement
personnel must consider how widely the payment method must be accepted
among merchants, what data will be required to facilitate spend oversight, and
whether the merchant and its processor can supply required data.
- Acceptance vs. Non-Acceptance
.

8. Network acceptance among broad retail
establishments.
• Purchase cards are currently the most widely adopted form of payment program 3,
because they offer a standardized payment platform with broad acceptance
worldwide. Because purchase cards function within VISA ®, MasterCard® and
American Express® Interchange networks, any merchant capable of accepting VISA ®,
MasterCard® or American Express® could accept a purchase card.
• This open-loop Interchange network (meaning across all traditional bank card
networks) is highly valuable to procurement managers with responsibility over a broad
range of purchases and a large number of suppliers, many of whom may only do
business with the government once or twice within a fiscal year. An open-loop
network, however, creates challenges within specific procurement processes and with
certain vendor communities both domestically and internationally. The aviation and
marine fuel sectors offer prime examples of significant challenges
3PayStream Advisors. P-Cards: Purchasing Cards Management Market Analysis
Report. 2007.

9. Non-acceptance with specialized suppliers.
• While open-loop networks provide broad acceptance among many retail suppliers,
there are any number of specialty suppliers that do not accept purchase charge cards
despite conducting regular business with the Federal government.
- Very few Fixed Base Operators (retail style establishments) that accept PFT
cards to support unscheduled general aviation fueling outside the United
States.
- Most marine fuel suppliers do not accept bank or general purpose cards for
large delivery or contract bunker transaction processing. From the practical
standpoint, there is no point-of-sale mechanism to accept a payment card
on a commercial air strip outside the United States or industrial marine
dock.
• With both aviation and marine fuelings, government transactions are typically
negotiated and priced with a corporate central office and not at the actual merchant
location.

10. When a POS devise is not available, PFT
purchasing controls cannot be verified.
• PFT charge cards have risen in popularity because they allow procurement managers
to implement purchasing controls according to:
- Supplier categories,
- Transaction limitations and
- Spend limitations at the user-level.
• With many card programs, the physical existence of a PFT card may replace the
need for a P.O. at the point of sale because purchasing controls can be verified
electronically by the merchant at the point of sale; however, when a POS device is
not available for transaction processing, purchasing controls cannot be verified.
• Instead, industry-specific payment programs are needed to prevent fraud and misuse
by limiting the merchant network.

11. Data captured at transaction is supplier-
dependent.
In standard payment programs, merchants are provided a POS device by their merchant
acquirer (the bank that facilitates payment for cards accepted). Though an issued
payment card may have broad acceptance anywhere consumer credit cards are
accepted, the level of data available on transactions will vary based on each
merchant’s POS device, the transaction processor’s capabilities, and the type of card
presented. Within a closed-loop network, a buyer can ensure that level III transaction
detail are captured and itemized within the transaction process.

12. True spend oversight relies upon data from various
points in the procurement process.
Beyond transaction data, the value of electronically tying requisition information, contract
details, purchase orders and approvals, confirmation of goods received, and invoice
verifications into a streamlined payment program should be considered.
- Contract processing
- Approvals and workflows
- Specialized billings

13. Contract processing: leveraging supplier
relationships.
• The value of a volume-discount can only be guaranteed if a payment program is
capable of ensuring that the price charged for the product correlates with the price
contracted.
• Between 2008 and 2009 alone, nearly one million U.S. dollars in erroneous product
pricing were flagged prior to invoice processing within the U.S. Government AIR
Card® program.
• When a government negotiates supply and pricing with a supplier, the government
guarantees exclusivity at a particular location for a particular product type and selects
pricing escalators based upon specific pricing indices. When using a closed loop,
private network, purchasers can be directed to contracted suppliers over non-
contracted suppliers.

14. Approvals and workflow documentation:
maximizing efficiencies.
• Where a pre-negotiated contract is not already in place, requisition must initiate with a
bidding process to ensure the lowest price, technically acceptable (LPTA) purchase.
• In an open-loop payment program documentation of this process is tracked manually
and later matched with final transaction data.
• With some technical considerations, a payment program can streamline requisition
and approval procedures within a closed-loop network of suppliers.
- The U.S. Government SEA Card® program incorporates a custom order
management system, which connects government vessels with eligible
bunker fuel suppliers. This order management system ensures proper
approvals from accountable officers and confirmation of goods received
prior to invoicing.
- Since 2006, there have been zero known instances of fraud or misuse
within the SEA Card® system.

15. Specialized billings: ensuring accurate
fulfillment.
• With a typical PFT card or purchasing program, transactions are easily assigned to a
cost-center at the user-level or the merchant-level. However, decentralized billings
still assume that a single transaction will always be charged to a single cost-center.
Within government purchasing, splitting a single transaction into multiple billings may
be required.
- In the case of the Federal government, for example, the cost of fuel is billed to
the DESC while the costs of other aviation-related services within the same
transaction are charged to the DoD branch of service.
• Split billings are only possible when level III transaction data is guaranteed throughout
the entire merchant network.

16. Achieve strategic objectives.
• Compliance to government policies cannot be sacrificed in order to streamline the
procurement process. Payment programs should provide back-end support for front-
end purchasing strategies:
- Supplier relations
- Contract management
- Data compilation
- Compliance
- Invoice verifications
- Transaction processing
• By identifying requirements prior to program adoption, the Federal government and
other eligible program users can ensure meeting their broad strategic objectives while
providing critical mission support and improving upon cost avoidance and savings.

17. Multi Service. Innovation Where it Matters.
Multi Service specializes in the design, implementation and management
of custom billing and payment solutions. The company collaborates
with clients to isolate specific commercial credit and payment issues,
identify measurable business goals, and design tailored private label
payment solutions.
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