Strategic Sourcing Rebate
A rebate is a patronage incentive for a Strategic Sourcing contract. The rebate percentage is determined and included in the request-for-proposals (RFP) that is distributed to suppliers.
Not all Strategic Sourcing contracts have rebates; no contract will have a rebate if it increases the price paid by the customer. If the Strategic Sourcing process does not reduce prices by at least 2% — which essentially covers the administrative costs of the Strategic Sourcing program — no rebate will be charged. Note that some industries are regulated and prohibit rebates by law.
The most common Strategic Sourcing rebate is 2% of sales. Suppliers have the opportunity to incorporate the rebate into their pricing as part of the cost of business at UCLA if they wish to do so. Suppliers know about the rebate in advance, so the playing field is level.
Federally funded projects do not pay rebates. The federal government expects procurement costs to be included in Facilities and Administration (F&A) or indirect costs, and those indirect costs have a cap. While rebate suppliers have a rebate cost built into their pricing and pay UCLA a quarterly rebate on all purchases, UCLA identifies rebates associated with federally funded purchases and returns rebates to those federal programs. In 2008-09, 14% of rebates received were returned to federally funded projects.
As of January 2009, Strategic Sourcing has established 100 strategic contracts, with about $90 million per year of purchases on those contracts. The contracts save UCLA customers about $13 million per year over prices previously paid, averaging about 12.5% savings, net of the rebate. In effect, the University is spending 2% for the program in order to save 12.5%.
The established rebate program at UCLA has enabled our Strategic Sourcing group to lead UC initiatives and offer the opportunity for savings across the University of California system.
Other campuses have adopted the Strategic Sourcing rebate program and have hired Strategic Sourcing staff in response to mandates from the Regents and Chancellor for accelerated cost savings in the goods and services we purchase. We look forward to working with campus customers and our colleagues throughout the UC system to establish contracts that meet our customers' requirements, maintain or improve service levels, and reduce cost to the University.