Report 99500 Summary - August 1999

Department of General Services:

The California Multiple Award Schedules Program Has Merit but Does Not Ensure That the State Gets the Best Value for Its Purchases

RESULTS IN BRIEF

The Department of General Services (department) created the California Multiple Award Schedules (CMAS) program from legislation enacted in 1993 to streamline the purchase of information technology goods and services by state agencies while preserving reasonable price protections. It was envisioned that the program would enable state agencies to purchase information technology from any prequalified vendor with assurance that they were paying fair and reasonable prices.

Although the CMAS program appears to have accomplished the goals of reducing the administrative cost of procurement, standardizing contractual provisions in state purchasing contracts, and screening out irresponsible vendors, it has not been as successful in ensuring that the State receives the best value for its purchases. CMAS prices are merely ceiling prices that a vendor is not to exceed-not the best prices available. The department does not contractually require CMAS vendors to give state agencies the lowest price they offer to comparable commercial customers, as a similar program managed by the federal government does.

Because the CMAS program was not designed to ensure that customers receive the lowest available price, we found numerous examples where vendors charged state departments more than other customers. In one case, the State paid $15,700 for a computer component that the vendor sold to a commercial customer approximately two weeks earlier for $13,600.

The department has not implemented our prior recommendation that it require state agencies to compare prices offered by different CMAS vendors because it believes that such "process-driven" requirements are contrary to legislative intent and best-procurement practices. It designed the CMAS program to support value-based purchasing, where buyers assess a product's total value and not just the price, by establishing processes that it thought would result in fair and reasonable prices. But the program's evolution and the dynamic nature of the information technology market have reduced the likelihood that state agencies using CMAS will receive fair and reasonable prices.

The department's assertion that CMAS prices are fair and reasonable is based on the assumption that prices paid for CMAS purchases match, or are less than, prices that have been competitively assessed by the federal government or other entities-typically a state or county. However, this assertion was undermined when it began allowing vendors without their own contracts to obtain CMAS agreements by simply agreeing to provide the same products and prices as the companies holding the original base contracts. This arrangement, known as "piggybacking", permitted the department to greatly expand the number of CMAS vendors. But the prices of the piggybackers we reviewed did not always accurately mirror those of the underlying contracts, and with piggybacked contracts comprising 80 percent of the more than 2,000 CMAS contracts, we have concerns that state departments are placing imprudent reliance on CMAS prices.

The department's assertion that CMAS prices are fair and reasonable also assumes that sales representatives will offer items at or below the agreed-upon CMAS price, and that buyers will be able to verify the price. However, these assumptions are flawed. Because the bases for the department's assertions are faulty, we found several instances in which CMAS vendors overcharged state departments. For example, one vendor agreed to charge state departments prices resulting in 1 percent to 5 percent profit margins, but in fact charged the State prices resulting in profit margins as high as 25 percent.

State agencies therefore cannot effectively evaluate value-based purchases by placing CMAS orders with the first vendor they call. Like the architects of the federal program on which CMAS is partially modeled, we believe that comparison shopping and value-based procurement go hand-in-hand. State agencies that do not take advantage of CMAS's rich competitive environment through comparison shopping defeat the purpose of value-based procurement.

RECOMMENDATIONS

The department strongly encourages state agencies to comparison shop to optimize the benefits of the CMAS program. However, to ensure that the State receives the best value for goods and services purchased through CMAS, the department should require state agencies to determine the latest available federal program price, whenever practical, and then comparison shop by obtaining three "value quotes" from competing CMAS vendors for all purchases with an extended price (quantity ordered multiplied by item price) of $2,500 or more. To further ensure that CMAS purchases are value-based, state agencies should negotiate for the best value available.

AGENCY COMMENTS

The department disagrees with our recommendation that state agencies be required to comparison shop. Rather, it believes that additional auditing, training, and educational activities, as well as the development and implementation of the California Statewide Procurement Network, would address the concerns noted in our report.


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