Colleges Link Up to Cut Costs

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Credit-Card Program Leads to More Savings

The National Association of Independent Colleges & Universities reports similar gains. The average increase in tuition for the upcoming academic year for NAICU's members will be 5.7%, lower than last year's 6.1% average increase. "The procurement agreements have shown immediate results," group spokesman Pals said. "The joint purchasing agreements have been able to help institutions better control their costs."

The Coalition for College Cost Savings is also growing at a rapid clip. It was informally started in 2004 by David Jones, a retired procurement officer from Vanderbilt University who now serve as CCCS's executive director. He wanted to see if he could find a more efficient and cost-effective way for schools to use procurement cards, the credit cards typically issued by a university to staff for everyday purchases.

He was able to negotiate a deal with JPMorgan Chase (JPM) for a procurement card that would allow schools to electronically track their purchases and earn rebates on purchases. There are now 18 state college associations with memberships in the coalition. The 476 private colleges represented through these state associations spent $30 million last year through the procurement card program and they are expected to spend $50 million this year, Jones said. Since that time, he has negotiated two new agreements for consortium members, including a computer hardware leasing contract and a partnership with Provista, a national group purchasing organization based in Irving, Tex.

"We really hit a nerve with the opportunity around the procurement card contracts," Jones said. "We discovered there was a real appetite for this collaboration."

More Group Deals on the Horizon

Indeed, the demand for the services that these coalitions offer has grown more quickly than most anticipated. Responding to the need are businesses like the Horizon Resource Group, a for-profit group purchasing organization based in Brentwood, Tenn., that has 1,500 member schools, about half of which are public universities.

Horizon's founders are former executives from a group health-care purchasing organization who saw a need for a similar type of service at colleges and universities, said Ward Brown, Horizon's chief operating officer. The group negotiates purchase agreements that are utilized by members. Horizon, meanwhile, is paid fees by the suppliers in their contract portfolios.

"The business model is a proven one and we saw a need in higher education where no one was focused on helping these institutions nationally," said Brown, who helped launch the organization in 2001. "We've had pretty steady growth since we started, but it has really started to pick up momentum in the last few years."

The higher education consortia do face some hurdles. Vendors could see them as a threat to their profits, and state schools can be bound by government regulations. But backers hope to form more consortia in coming years. "It is still not the universal panacea, but it does make a difference," said Wisconsin's Wegenke. "Any dollar that you can avoid spending helps you."

Damast is a reporter for BusinessWeek.com.