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Tuesday, January 11, 2011

Procurement: Cost or Benefit analysis?

This is a tale of two contrasting news items:

First, EU procurement rules increase costs for councils
A Local Government Association survey of local authorities has found that the 2004/18 EU directive on procurement is proving a strain on their purchasing operations.

Two-thirds of councils report that procurement process costs and administrative burdens have increased as a result of the law, which was introduced in 2006.

Over half (54 per cent) of the councils said the directive has made procurement processes more complicated.

Second, Pennsylvania Auditor General Jack Wagner Says State Contracting Reform Could Save Millions of Dollars
Auditor General Jack Wagner said today that his department has uncovered systemic problems with the state's $4-billion-a-year procurement process that, if corrected, would provide hundreds of millions of dollars in sustainable savings.

"Tightening this process would create transparency and save taxpayers at least $200 million a year if we could realize savings of only 5 percent." Over four years, the savings would approach $800 million.

Wagner's analysis found that from June 2008 to December 2010 the commonwealth awarded 511 sole-source contracts and 272 emergency contracts worth more than $250 million.

"Competition is the key to American enterprise," Wagner said. "It generates new ideas and it's the best way to assure taxpayers that they are getting the best price available on goods and services."

Wagner cited several examples of structural flaws in the contracting process discovered in his audits, including:

* An October 2009 special performance audit of the Department of General Services' procurement of information technology contracts found that the state paid one company $592 million over four years through 59 contracts. The contracts were originally worth a total of $382 million, but increased by 55 percent due to change orders, sole source contracts, and emergency contracts. Of the 59 contracts, 34 were not bid competitively.

* A December 2010 special performance audit of the Pennsylvania Gaming Control Board uncovered that the Board failed to adhere to state procurement procedures and failed to comply with the Sunshine Act in the awarding of $7 million in contracts for legal and other professional services through competitive sealed bid, emergency, and sole-source contracts.

* Numerous legal contracts awarded by state government and agencies without competitive bidding.

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