Report 97015 Summary - October 1998
The State Can Do More to Save Money When Acquiring Goods and Services
RESULTS IN BRIEF
According to the Department of General Services (DGS), the State's departments spent nearly $5 billion in fiscal year 1997-98 on the procurement of goods and services through the California Multiple Award Schedules (CMAS) program and through contracts approved by the DGS's Office of Legal Services. Under the CMAS program, vendors contract with the DGS to sell specific goods and services at prices discounted from their commercial price list. The above figure does not include those acquisitions not subject to DGS approval, those made under a department's delegation authority, or those made through other procurement methods such as master service agreements.
Because the State spends so much money on procuring goods and services, the DGS must properly administer and oversee the various procurement methods it establishes. However, the DGS has not done so in several ways. First, because the DGS does not require departments to compare value and because it does not adequately facilitate comparing value, the State has missed opportunities to obtain goods and services at a better value. In addition, the absence of sufficient DGS controls has allowed two state agencies to waste money on unnecessary administrative fees by inappropriately using vendors as fiscal agents.1 Further, weaknesses in its administration and oversight of the CMAS program have led to some departments not obtaining best value when using the program. These weaknesses have also led to the DGS not performing sufficient reviews of CMAS vendors to identify noncompliance with CMAS requirements and not adequately or promptly resolving those instances of vendor noncompliance that it has identified. The DGS has also not reviewed departments' use of master service agreements to identify improper management of such contracts, and, as of this report, has yet to develop and distribute a comprehensive list of services available through master service agreements. Thus, the State cannot take full advantage of its collective buying power. Finally, inconsistent advice from the DGS has the potential to create delays in a department's procurement process.
The DGS needs to take several actions to increase the value of the goods and services that departments acquire through its various procurement methods. For instance, rather than merely encouraging departments to compare prices, the DGS should require them to do so when the cost of the good or service exceeds a predetermined amount. The DGS should also require departments to negotiate a lower price when applicable. Finally, the DGS should provide departments with sufficient, easy-to-use tools to help them determine value. Such tools could include improved Internet resources or catalogs organized by product that include price.
Also, to avoid the further waste of money, the DGS should prohibit departments' use of vendors as fiscal agents.
Regarding weaknesses in its administration and oversight of the CMAS program, the DGS has argued that it does not have sufficient staffing to improve its process for reviewing vendors. To address this concern, the DGS should consider alternatives such as providing more resources to the unit currently responsible for conducting vendor reviews, moving responsibility for those reviews to a unit with more experience in reviewing program operations, or hiring a contract auditor on a contingency-fee basis to conduct vendor reviews and any necessary follow-up. The DGS should then take the following actions:
- Increase the number of vendor reviews it conducts annually.
- Use the results of the federal government's reviews as part of a risk-based assessment to choose vendors for review.
- Include within the scope of its reviews an examination of a vendor's compliance with the "price-reduction clause" of the vendor's contract to identify and correct those instances when vendors do not sell goods to the State at the appropriate or best price.
- Communicate the results of its vendor reviews to applicable departments. Appropriate instances include when the DGS identifies departments paying vendors more than the contracted list price for a product or service.
- Develop and implement sufficient procedures that enable effective follow-up on the results of the vendor reviews. These procedures should include demands that vendors promptly refund or credit any overcharges for purchases made and that vendors cease selling to state departments items that the DGS has not approved.
- Develop and implement administrative penalties against vendors that do not comply with applicable procurement requirements.
In addition, the DGS needs to improve its communication with the departments. To avoid hindering a department's ability to efficiently acquire necessary goods or services, the DGS should supply clear and consistent guidance on all state contracting and purchasing issues. The DGS should also provide a complete and accessible list of master service agreements to departments to enable them to take advantage of the State's collective buying power by using such agreements more often and more effectively.
Finally, because of the concerns we identified related to the CMAS program and to master service agreements, the DGS should include a review of the usage of these procurement methods as part of the scope of its existing evaluations of departments.
The DGS agrees with some recommendations in our report, disagrees with others, and, for the remaining recommendations, states that it will either consider the feasibility of implementing them or will review its systems to determine if it should make changes. For example, the DGS agrees with our recommendations that it provide departments with sufficient, easy-to-use tools to help them determine value, and that it include a provision in its upcoming purchasing guidance manual that prohibits the use of any vendor as a fiscal agent. On the other hand, the DGS disagrees with two of the three recommendations concerning ways to increase the value of purchases made through the CMAS program; it states that it will determine whether actions need to be taken to ensure that users of the CMAS program are aware of their responsibilities. Finally, concerning our recommendations related to improved oversight of the CMAS program, the DGS states that it will form a team of DGS staff that will consider the feasibility of specific actions we recommend.