Bank of America Corp. is angling to get first dibs on a huge untapped market with the creation of a company that will offer electronic procurement and payment services to state and local governments.
The Charlotte, N.C., company teamed up with NIC Commerce, a provider of electronic commerce software for the public sector, to establish Banc of America Purchase Street LLC. The founders will share transaction-fee revenues generated from helping state and local government agencies place orders for goods, request price quotes, process transactions, initiate payments, and reconcile transactions online.
The initiative, which was announced Thursday, builds on Bank of America's role as one of five banks selected last year by the General Services Administration to provide purchasing card services to 150 entities in the federal government.
In expanding into state and local government business, Bank of America is taking aim at a much bigger market. Procurement spending at the state and local levels amounts to $380 billion a year, compared with federal government spending of $260 billion a year, including defense purchases, according to the National Institute of Governmental Purchasing in Herndon, Va.
Online procurement also is a "natural extension" of Bank of America's position as a leading provider of purchasing and treasury management services for state and local governments, said Jack Radzikowski, senior vice president of commercial card services at Bank of America.
Bank of America already has purchasing card programs in 12 states and at more than 1,000 local governments. It provides treasury management services to more than 1,000 cities, counties, states, and universities.
The new company plans to market the service aggressively to Bank of America's state and local government customers, as well as to prospects. It already has signed a five-year contract with the Houston-Galveston Area Council of Governments to help its 1,100 local government members, which purchase $150 million worth of equipment a year, bring their procurement online. The service will be piloted within 90 days and formally introduced in January.
Stanley Anderson, president of Anderson & Associates in Arvada, Colo., said the average government entity spends $75 to $100 per purchase on administrative fees, because the transactions are so paper-intensive. Electronic methods will reduce their procurement costs 50% to 60%, he said.
In the arrangement with NIC Commerce, a three-year-old company in Reston, Va., Bank of America will provide services such as purchasing cards and automated clearinghouse transactions. NIC supplies electronic procurement software, manages catalogue content, and provides secure hosting services.
The company has a similar arrangement with Citigroup Inc. in federal procurement, said Robert Main, president of NIC Commerce. It provides procurement software under the brand CitiMark to Citigroup's federal agency clients.
The relationship with Bank of America is NIC's entry into the state and local government sector. NIC also counts the U.S. Army, Navy, Air Force, and NASA among its clients, Mr. Main said.