June 2026
PROBLEM
State governments buy almost everything they use to serve residents: roads, software systems, buildings, and even staff. The procurement process states use to identify, select, and contract with vendors determines both the cost and the quality of all these public services, yet it’s often treated as a back-office function rather than a strategic one. No single official is responsible for whether the state’s procurement process is generating the cost-effective, innovative deliverables that constituents expect. Evidence suggests that as a result, states spend more than they need to on the services they procure.
A key driver in this procurement inefficiency is the lack of competition: how many qualified firms bid on a given project? Competition is a mechanism for keeping prices reasonable and quality high. Without it, states pay more for the same or worse results.
A shrinking pool of the same contractors repeatedly winning state work plays out in IT systems, building construction and renovation, and everyday services like landscaping and waste management contracts, with significant cost impact. One recent study found that in state highway construction, where prices have risen by over 70% since 2020, even one additional bidder lowers the winning price by about 10 percent, yet one- and two-bidder auctions account for a third of all state highway contract awards.
State procurement processes with confusing registration portals and verbiage, requirements for specific yet hard-to-obtain insurance or bond amounts, and past-performance requirements that permanently lock out new contenders keep the vendor pool lean in the worst of ways. Even if a firm successfully starts working with the state, ongoing frustrations like poor search and/or notifications of new projects, slow payments, and complex reporting can cause them to exit the market – and warn all their colleagues that public sector work is not worth the effort. This is the epitome of ineffective government.
IDEA
States should take concrete steps to maximize the number of bidders in their contracting by simplifying their processes and making the number of bidders a metric that they prioritize. States do not need to rewrite their entire state procurement codes to fix this. They do need to decide that the size and health of their contractor pool are things state government is accountable for, the same way it is accountable for job numbers and test scores. They can accomplish this by:
Holding someone accountable for supplier base health and experience. Inside most agencies, plenty of people run procurements, evaluate bids, and manage contracts. But it’s no one’s job to make sure enough qualified firms show up to compete for the work in the first place. State governments need to designate an individual who is responsible for ensuring competitive bidding. This person needs the authority and resources to make changes, and to have a reasonable chance of their higher-level requests (e.g., legislative language) being considered. This person should be data-driven: tracking bidder counts by category, investigating declines, interviewing firms that drop out, running user research, owning the policy changes that make entry easier, and reporting publicly on a regular basis as to whether the state is gaining or losing bidders in each segment of its contracting portfolio and against its top goals. This could be the state’s topmost procurement official, reporting on progress to the Governor’s Office until process and milestones are sufficiently institutionalized. Or it could be someone else designated with this authority. But it is essential to have a single person who owns the process and the outcomes.
Conducting user research with vendors. Governments increasingly conduct user research with constituents to improve service experiences. This should extend to vendors where intimidating registration instructions that lock out new entrants make every project worse and more expensive for everyone. Any sufficiently motivated policymaker can, right now, without legislation and for essentially zero money, follow a company new to working with the state and watch their experience, from registering as a vendor, to reading procurements, to trying to submit a bid, to understand exactly what is going wrong in their state. Systematic user research would allow states to pinpoint exactly where their procurement systems are failing at attracting new competitive bids.
Researching and documenting every friction point. How many separate websites does a contractor have to register on? How many forms require a notary? How long does pre-qualification take? Which certifications cost money to obtain, and from whom? Where did confusing terminology prevent a vendor from moving forward? At what point in the process to website metrics show contractors get stuck, or drop out of the process? Is the insurance required readily available from Jake at State Farm, or does it require a costly custom policy? The goal isn’t to find bad actors, but rather to map and eliminate friction so more qualified companies can partner with the state.
Real clean energy procurement. Rather than purchasing clean energy certificates that do not change what is actually being delivered to the grid or the data center facility, they should contract for new, additional clean and firm generation before the facility comes online. This means the facility is causing clean capacity to exist that would not have otherwise.
Finding the bidders who don’t participate and addressing their needs. To expand the bidder pool, understanding which vendors who could participate in state contracting but do not is fundamental. We know that four groups account for most of this gap, and there are clear solutions to getting them into the pool:
- Design or revise a new registration and bidding process for firms with existing capabilities that can’t get through the process. This is the largest group of absent bidders, and the easiest to fix. They are existing contractors who have the capability but can’t justify the overhead of a state bid. The fix for them is to use the user research process to implement a logical and less cumbersome process that a new entrant can confidently navigate.
- Engage and address the concerns of firms with existing capabilities that won’t work with the state. These are the firms that have made a deliberate decision somewhere along the way that government contracting isn’t worth it, and usually for good reasons: lack of communication, disputes that take years to resolve, audits that feel punitive, horror stories from colleagues, or a general sense that the return on investment isn’t there. These are the vendors worth studying most carefully, and talking to. No one has ever systematically interviewed them; your state should. Their answers will be uncomfortable, but actionable.
- Change the procurement requirements to facilitate bids from firms in adjacent states. State procurement often has explicit or de facto in-state preferences, reciprocal licensing hurdles, and/or bond requirements that favor local incumbents. For a state with a small domestic contractor base, a fast way to add supply is to make it genuinely easy for a firm in a nearby state to compete. That may require revisiting requirements that are locally specific in ways that don’t actually serve a greater purpose, or making reciprocal licensing processes simpler and not simply a barrier to entry.
- Develop policies to support the creation of local vendors that don’t yet exist. This is the most interesting, and potentially most impactful. A state with a chronic bidder shortage, where rural counties don’t have paving companies because no one finds it profitable to start one, doesn’t have to stay that way. Targeted apprenticeship and training programs at community colleges; a small-project set-aside pilot designed specifically to build firm capacity; or mentor-protégé structures that let an established firm sponsor a new one are all tools states use in other contexts but rarely deploy for their own supplier base.
EXPECTED OUTCOME
If successful, expanded bidder pools would lead to significant savings to the state via more competitive pricing. For example, based on the research regarding highway bidding, each additional bidder is estimated to lower the price by 10 percent. This means there are potentially net savings on highway bidding alone on the order of billions of dollars annually. The same possibility applies to software systems, buildings, and other infrastructure as well. State and local governments collectively spend on the order of $1.5 trillion a year on contracted goods and services, roughly double the federal contracting market. Within that, enterprise IT alone is projected to reach $125 billion by 2026—so even a few percentage points of avoidable markup, spread across software, buildings, and everything else states buy, runs well into the billions.
More qualified and capable firms bringing expertise and new approaches to critical missions. Cost savings are only part of the return on investment here. When the U.S. Department of Veterans Affairs widened its pool of software vendors, it didn’t just pay less – it got firms that could update the website and co-design an intuitive user experience that the incumbents demonstrably could not. A state may be missing out on capabilities because no incumbent is suggesting them.
For taxpayers, the benefit is not only lower costs for the same work, but potentially much better and/or newer approaches to work and to the experience of government. For residents, a healthier pool of vendors can be set to compete against one another to design easy-to-navigate resident experiences that make it easier to access benefits. For the firms themselves, a navigable process lowers the cost of doing business with the state and widens the field of who can compete. This can also mean more employment opportunities with local firms, and more entrepreneurs.
CONSIDERATIONS
Benefits:
- Lower prices by expanding competition and making it harder for a single incumbent to set prices.
- Most of this work requires no legislation and essentially no money; it can begin immediately with existing staff, an energized sponsor, or executive action.
- You can make significant progress immediately even if a portion of changes ultimately requires higher-level legislative work; this is not an all-or-nothing project.
- A healthier supplier base improves quality across the entire contracting portfolio.
Costs and Risks
- Without a person explicitly responsible for the supplier base, and a significant degree of authority to make changes, progress will be limited. Creating the role but failing to put the right person in this role, or failing to give it sufficient authority, risks raising expectations without delivering the promised results.
- Reducing friction can feel like reducing protections; reforms that are poorly designed may open the door to bad or unqualified actors.
- It will take time to show results; a new contractor that can build a bridge is not going to appear overnight. Even smaller vendors may be hesitant to engage at first and require some trust-building. Consider whether there are “quick wins” to balance the longer-term improvements.
POLLING*
- Polling from The States Forum shows that, regardless of party, nine in ten voters say it is important for states to prioritize getting the best price for work and services that they contract out to companies using taxpayer dollars.
- Nearly two thirds of voters support state governments pursuing fixes to reduce contracting costs.
- And fifty-five percent of voters say someone in the state government should be explicitly responsible for growing the pool of companies that bid on public contracts.
FAQ:
Who is likely to support this idea?
- Taxpayers
- Advocates focused on the cost of public works
- Newer, smaller, and out-of-state businesses and entrepreneurs currently shut out of the process
- Procurement reformers and state capacity organizations
- Agency leaders frustrated by not being able to access the talent and resources they need to accomplish their goals
Who is likely to oppose this idea?
- Incumbent contractors
- Those who administer existing registration, licensing, and bonding requirements and/or those who benefit from the current complexity (such as consultants or local business associations that specialize in navigating it)
- Procurement or project managers who perceive more vendors as more work
Doesn’t making it easier to become a vendor mean lowering standards and disadvantaging local, experienced companies? data centers just move. to states without these requirements?
- No. The goal is to remove barriers that don’t serve any real purpose, like a confusing registration process, costly custom insurance policies, and pointless certifications. Standards for capability, safety, and financial responsibility would stay in place. More qualified local companies should emerge and win bids if this is successful.
*Polling data cited from a Data for Progress survey of 1,219 U.S. likely voters conducted July 10-13, 2026. The sample was weighted to be representative of likely voters by age, gender, education, race, geography, and recalled presidential vote. The margin of error is ±3 percentage points. For more information on methodology, visit dataforprogress.org/our-methodology.