A Cooperative Audit of the Procurement System of the State of Oregon

Published by the Government Accountability Office on 1977-01-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT    RESUME

01183   -   A0590937]

A Cooperative Audit of the Procurement System of the State of
Oregon. PSAD-77-15. January 10, 1977. 32 pp. + 2 appendices.

Staff study by Richard W. Gutmann,    Director, Procurement   and
Systems Acquisition Div.

Issue Area: Federal Prccurement of Goods and Services (1900);
    Intergovernmental   elations and Revenue Sharing (400).
Contact: Procurement and Systems Acquisition Div.
Budget Function: General Government: Other General Government
Organization Concerned: Oregon.
Congressional Relevance: Senate Committee on Appropriations:
    HUE-Independent Agencies Subcommittee.

         Oregon's procurement policies and practices were
reviewed, with an emphasis on procurements administered by the
Oregon Department of General Services.  Findings/Conclusions:
General Services has recognized its need for the following kinds
of information essential to requirements determination and
planning: historical usage and future requirements, inventories
of unused equipment, and lease versus purchase alternatives,
General Services is aware of the goals of contracting and
contract administration and is striving to increase competition
and reduce prices. provide better assurance that quality levels
are att-ined, and assure that items are provided on a more
timely basis.  Recommendations: General Services should: obtain
better data for determining State agency reguirements and for
planning procurements; improve cooperative arrangements for
purchasing for State and local governments and encourage
cooperation aons procuring local agencies; improve contracting
methods and contract administration; and improve procurement by
clarifying rules on delegation of purchasing authority. (RRS)

     LOCAL                                                                Ae
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                                                 Audit Of
                                        The Procurement
                                          System Of The
                                        State Of Oregon
                                            A Case Study
                               UNITED STATES GENE RAL ACCOUNTING OF FICE
                           PROCURME NT AND SYS   E MSACQUISITION   DIV ISI ON

     '3D1-j77-15           1-17 )JAN                         101977

      This case study reports the results of
                                             a GAO-Oregon
 Division of Audits review of Oregon's procurement
                                                   Policies and
 practices. We believe this study demonstrates
                                                benefits available
 to State and local governments through evaluation
 policies, procedures, and practices against       of procurement
 procurement principles.

      Presently there is much inteLest in improving
 local procurement programs. Many State and local State and
 are experiencing fiscal crises and need to conserveGovernments
 and increase productivity.                           funds
                             An effective, efficient procurement
 program is one way State and local governments
 own funds as well as Federal grant dollars whichcan stretch their
                                                   totaled about
 $58 billion n fiscal year 1976.


     State and local government procurement has
dramatically during the past decade, and it now increased
of the Federal Government.                      exceeds that
                            For example, from 1963 through
1973, Federal Government expenditures for goods
increased from $39 billion to $54 billion--a    and services
                                             38 percent
increase. In contrast, State and local expenditures
and services increased                               for goods
                       from $25 billion to $7E billion--or about
200 percent.

      Despite this increase, there hs been relatively
assessment of how efficiently and effectively           little
                                               State and local
governmients are spending grant money; for procurement
This study reports the results of such an assessment
                                                       in Oregon.

     This study is GAO's first cooperative audit of
procurement system.                                   a State
                      It was made with the close coordination
and cooperation of the Pacific Northwest Intergovernmental
Audit Forum, 1 of 10 regional forums established
                                                  to bring
together representatives of Federal, State, and
                                                 local audit
organizations. Through the Forum, Oregon expressed
to participate with GAO in this venture.             a desire
                                           Oregon's Congressional
delegation endorsed this audit as a positive
                                              step forward in
Federal-State relations.

     With rising costs and funding limitations
affecting all governmental levels, cooperative currently
avoid duplication in auditing programs of mutualefforts help
They also provide an opportunity for crosstraininginterest.
and sharing experiences necessary for evaluating manage-
ment performance of efficient, economical, and effective
programs. These performance audits go beyond the
of traditional financial audits and require broader
and training. We believe this study has given GAO
Oregon auditors new insight into the evaluation of
procurement systems, and how to work together in planning
and conducting performance audits. See appendix I
Oregon's comments on this review.
     We have included audit guidelines as appendix II so
that auditors as well a procurement managers can
the material presented in the report to the basic
used in the audit.

     This cooperative audit was directed at State procurement
of goods and services in Oregon, and dealt only
with procurement by counties, municipalities, or incidentally
governmental entities in the State. Sinc goods and
obtained with Federal grant funds are subject to the services
policies and procedures governing all State agency
we evaluated the procurement system as a whole rather
procurements made under specific grants.                than

     The review was concerned primarily with procurements
administered by the Oregon Department of General Services,
which is the central authority for procuring goods
services used by State agencies. Limited work was and
don, at'four State agencies, and a questionnaire was
to 41 State agencies.

     The review encompassed the major elements of program
management including organization, policies, procedures,
personnel, planning, management information systems,
and internal review. We briefly examined each of     reporting,
areas with more detailed work done only in those areas
where we noted significant opportunities for improvement.

     The basic procurement principles against which we
measured the Oregon procurement system were derived
the Council of State Governments' report State and from
Government Purchasing (March 1975) and GAO's experience
in auditing procurement operations.


     Oregon's Division of Audits has issued a report to the
Department of General Services on the results of our joint
review. The report discussed areas of potential improvement
and contains several recommendations for improving the State
procurement system.

     GAO is issuing this study to give the Congress, Federal
grantor agencies, State and local governments, and other
interested groups a.. example of the potential benefits
of performance auditing at State and local levels. While
it is not feasible to project the total dollar savings
possible through improvement of the Oregon procurement
system, our limited work indicated that significant savings
could be realized in procuring many items for the State.

                                 R. W. Gutmann
                                 Procurement and Systems
                                   Acquisition Division


FOREWORD                                                   i

  1        INTRODUCTION                                    1
                Need for strong central procurement
                Efforts toward more effective State
                  and local government                     1
                     Report of State and local
                        government purchasing              1
                     Model procurement code                1
                     Procurement standards for State
                        and local government               2
                Procurement expenditures administered
                  by the Department of General Services
                Procurement statutes and regulations       4
                Opportunities to improve requirements
                  determination and planning               5
                     Data on historical usage and
                       future requirements                 5
                     Data on unused equipment              8
                     Data on leasing and purchasing
                       alternatives                        8
                Recommendations made to General
                  Se-vices                                10
                Opportunities to improve contracting
                  and contract administration             12
                     Increasing competition               12
                     Insuring suitable uality levels      16
                     improving timeliness                 19
                     Insuring vendor performance          20
                Recommendations made to General
                  Services                                20

                Opportunities to improve delegation
                  of procurement authority                  22
                     Statutory exemptions                   22
                     Guidelines for exercising delegated    23
                     Monitoring and reviewing delegated
                       authority                            24
                Recommendations made to General Services    28
  6        CO')PERATIVE PURCHASING                          29
                Opportunities to improve cooperative
                  purchasing                                29
                     Cooperating to meet common require-
                       ments of State and loca' entities    29
                     Encouragina cooperation among local
                       entities                             31
                Recommendations made to General Services    32

             PRCCUREMENT ENTITIFS                          34

  Contract release    The form for ordering items
    order                                         covered by
                      price agreements previously
                                                  established     by
                      the Department of General Services.
                      See price agreement.

 Definite q  ntity    Consolidation of user's requirements
   volume buying      to (1) make a single bulk purchase,
                      (2) guarantee a minimum total
                      volume over a specific tiTne at
                                                       a pre-
                      determined unit price.

 Formal solici-       General Services   procedure
   tation             prospective vendors that the for  notifying
                                                     State wishes
                      to receive bids for providing
                                                      goods and
                      services.  Each formal solicitation includes
                      at least one newspaper advertisement,
                      of invit tion for bid forms             mailina
                                                    to vendors on
                      applicab   General Services bidders lists,
                      receipt of sealed bids, and public
                      of bids at a designated   ise.
 Indefinite           General Services' establishment
   quantity buying                                     of price
                      agreements which guarantee no
                      volume nor any volurie to the
                      However, the invitation for bid
                                                       form usually
                      includes an estimated volume
                                                    based on historical
                     purchase levels.     See   rice agreement.
Informal             The process of obtainirg oral or
  solicitation                                        written
                     quotes from vendors without formal
                     and receipt of sealed bids. General
                     procedures usually involve phoning   Services'
                                                        one or more
                     vendors to obtain oral quctes or
                     invitation for bid to one vendor sending an
                                                      for submission
                     of a return mail quote.
Price agreement      A contractual agreement established
                     Services which allows designated     by General
                                                       State agencies
                     and political subjivisions to order
                                                          at a pre-
                     determined unit price or at a specified
                     centage discount from the vendor's
                     during the period of the agreement list  prices
                     to 2 years). Most price ageenents
                     changes in unit prices and           allow
                                                discount percentages
                     or substitution of updated price lists
                     to General Services' approval, and      subject
                                                         may be can-
                     celed by either party with 30 days'
                     notice.                              written

Purchase order       The form used to order goods and services
                     not covered by a price agreement.
                           CHAPTER I
     The objective of a good procurement system is to obtain
goods and services in the most efficient, effective manner
at the lowest possible prices. This study evaluates Oregon's
system in light of the essential functions of a procurement
program, including determination of needs. contracting
practices and procedures, and contract administration.


     There are several significant efforts,-; which have been
completed or are currently underway, with the objectives
of improving State and local procurement practices. Some of
these efforts are discussed below.

Report onState and local
9overnment purchasing

     This report was published by the Council of State Govern-
ments in March 1975 and is the first comprehensive research
effort of its kind dealing with State and local government
procurement. It was prepared by the National Association of
State Purchasing Officials, and Peat, Marwick, Mitchell & Co..
with the financial support of the Law Enforcement Assistance
Administration (LEAA).  The report addresses the essential
elements of the purchasing process, including planning and
scheduling, specifications, competition, evaluation and award
of bids, and inspection and testing procedures.

     The report emphasizes the need for a strong central
procurement authority at the State and local government level
to assure that the principles of effective, efficient, and
economical procurement are met. The report also states t,at
delegations can and should be made when using agencies can
more appropriately or better perform certain procurement
functions and activities. The delegations, however. should
be made formally by the central procurement authority in
order to assure that proper controls can be established and
accountability maintained.

Model procurement code

     On February 26, 1975. LEAA awarded $328.000 to the
American Bar Association Fund for Public Education to
finance the development of   model procurement code for
State and local jurisdictions. The project's primary
objective is to develop, with the help of State and
local governments, an overall proposed procurement system for
States and localities adapted to meet tay's requirements.

     The code will consider:
     -- requirements for competitive bidding,
        including standards for sole source

     -- conflicts of interest and other ethical

     -- change orders and contract modifications;

     -- disputes and remedies;

     -- procedures rlating to weights and measures,
        standards, specifications, and testing; and

     -- warranties.

     A preliminary draft of the code was presented for
comment in June 1976.

Procurement standards for State
and local governments

     Standards for State and local government procurement
under Federal grants are included in Attachment O of
Federal Management Circular 74-7. These standards provide
general guidance for grant-related procurements. A task
force of interested Federal agencies, directed by
the Office of Management and Budget, has been established
to consider revisions to the attachment for the purpose
of clarifying and amplifying the standards to better
meet the needs of State and local governments.

     The results of our review are presented in chapters;
dealing with the essential functions involved in pro-
curement. These functions are:   requirements determi-
nation and planning (chapter 3), contracting and contract
administration (chapter 4), and delegation of procurement
authority (chapter 5). In addition, we have included
backaround data on the Oregon procurement system in
chapter 2 and information on the potential for coopera-
tive purchasing between the State and local entities in
chapter 6.

                         - 2-
                                   CHAPTER 2


        Oregon's budgeted expenditures total $3.8 billion for
   the 1973-75 biennium and $5.2 billion for the 1975-77
   biennium, of which about $0.9 billion (22.7 percent) and
   $1.1 billion (21.6 percent) are federally funded. Of these
   budgeted amounts. $537 million and $692 million. respectively.
   are specified for procurement of goods and services by
   State agencies.

        Under Oregon statutes. the Department of Generel Services
   is responsible for, or delegates authority for. procurement
   of most oods and services needed by State agencies. In most
   cases, these goods and services are obtained through one of
   three methods:

          1.   Purchase orders issued by General Services based
               on agency requests.

          2.   Purchase orders issued by using agencies under
               authority delegated by General Services.

          3.   Contract release orders issued by using agencies
               against price agreements previously arranged by
               General Services.

        The table below indicates the portion of expenditures
   made under General Services' purchase orders, agency purchase
   orders. and agency contract release orders during fiscal
   years 1974, 1975. and 1976.

                                   Table I

                       General Services          Agency    Agency contract
Fiscal     Total           purchase             purchase       release
 year     2urchases         order                 order         order


 1974     $ 97.8           $45.3                $31.5         $21.0
 1975      103.6            37.8                 39.0          26.8
 1976    a/116.2            47.6                 35.5          33.1

 a/For comparative purposes, this figure excludes a $19.3 million
 State insurance agreement contracted by General Services once
 every 3 years.

                                    - 3 -
      The expenditures shown in table I involved some 70 State
 agencies, commissions, or other State entities.     addition.
 General Services allows counties, municipalities,   hool
 districts, and other local public agencies to use its price
 agreements; it also makes a few purchases at the request
 of tese groups. These expenditures totaled only $2.7 million.
 $2.1 million and $2.0 million in fiscal years 1974. 1975, and 1976.

     Procurements administered by General Services during
fiscal years 1974 and 1975 totaled $201.4 million, or only
about 38 percent of the $537 million budgeted for procurement
of goods and services during that biennium. The remaining
funds involve several types of State agency procurements not
reported to General Services, such as utilities payments,
interagency purchases, personal-professional services contracts,
and items costing $25 or less.


     Effective January 1. 1976. a new public contracting law
was enacted for the State and local governments in Oregon,
repealing over 100 statutes and revising many others.
According to the Oregon Attcrney General, many repealed
statutes were in conflict or required the use of archaic
procurement practice;. The new law also created a Public
Contract Review Board to provide more detailed regulations.

     The new Oregon procurement law appears to be a positive
step toward improving procurement in the State. Among the
statutes it .eliminated, for example, were those allowing a
discretionary preference for materials and supplies manu-
factured in Oregon. Under these statutes, an Oregon vendor
could be awarded a contract even though his bid exceeded that
of an out-of-State vendor by up to 5 percent.

     Finally, the new law required the Oregon Attorney
General to prepare a manual of model procedures as a guide
for public contracting agencies throughout the State. The
model procedures published to date, although not bindiny
on the agencies, interpret statutory language and
Public Contract Review Board regulations. They also
offer specific guidance in complying with major provisions
of the new law.

     Procurement regulations are promulgated by both the Public
Contract Review Board and the Department of General Services.
The former apply to all governmental levels in the State,
whereas the latter deal with procurement by State agencies.
These rules cover various methods of acquiring goods and services,
and other topics such as reporting and disposing of surplus
and excess property.

                          - 4 -
                             CHAPTER 3

     In determining requirements for goods and services and
planning the most efficient, economical, and effective means
for acquiring them, management must answer a number of
questions, including:

      -- What is needed?

      -- How much or how many are needed?
     -- When is it needed?
     -- Is it already available in the form of
        unused equipment?
     -- Should it be purchased or leased?

     -- How should it be purchased (v3lume buying
        versus spot purchasing, etc.)?
To answer these questions, accurate information is needed on
il) historical usage and future requirements, (2) inventories of
unused equipment, and (3) lease versus purchase alternatives.

     Gene al Services has recognized its need for the kinds of
information essential to requirements determination and planning.
Through a management information system and other means, it is
obtaining some of this data. We identified a number of opportuni-
ties to improve requirements determination and planning by
obtaining better data. These opportunities are discussed in the
following sections.

Data on historical usage
and future requirements

     The use of personal experience and intuition in planning
future acquisitions is impractical because of the diversity and
volume of goods arid services provided through General Services.
Detailed historical data (e.g., the number, average, value, and
total dollar amount of purchases of each commodity) and agency
forecasts of specific future needs, estimated quantities, and
required delivery dates are essential for orderly procurement

                           - 5-
      Historical usage data

      Historical information on the number and dollar value of
 purchases is summarized monthly; however, little use is
 made of the data in procurement planning.  Purchase agents
 said that in many cases the data indicates usage for
 only broad commodity categories (e.g., hardware supplies)
 and purchase orders must be compiled and analyzed to obtain
 sufficiently detailed commodity usage data for specific
 (e.g. electrical fittings).

     Purchase agents told us that they generally lack enough
time to compile and analyze purchase orders by hand.   As a
result, they lack adequate historical data for decisionmakinq.
For example, one purchase agent was unaware of the large
of lawn mowers and related equipment he was buying throughnumber
separate purchase orders until it was pointed out during
review.  He said that he should pro.bably solicit a price agree-
ment for these items.  This would reduce the number of individual
solicitations and purchase orders processed,  and could eliminate
the wide range of prices paid for such items, as shown
table II below.  It could also result in lower unit prices
because orders could be consolidated.

                             Table II

         Lawn mower and related equipment purchases
  made by General Services between Aoril 1975 and March 1976

Total pucchase orders:          37
Total units purchased:          90
Total dollar value:        o14,983
        Item                             __                  Low
Power mowers--19 inch                   $210                $150
Power mowers--20 inch                    230                  89
Power mowers--21 inch                    394                 185

Push mowers--18   inch                    65                  44
Weed Eaters (same model)                300                 254
     General Services obtains some additional historical usage
data through periodic hand computation of the volume of
purchases made under individual price agreements. This
                                                        data is
used to give vendors an idea of possible future sales
                                                      volume when

                               - 6 -
soliciting updated price agreements, although no minimum
quantity is guaranteed. To make definite quantity volume buying
possible, General Services would need reliable information
on agencies' forecast usage of various commodities.

     Future requirements data

     General Services obtains short range forecast data for a
few commodities purchased on a scheduled basis every 2 to 12
months.  Scheduled purchase commodities include items such as
trucks, certain laboratory supplies, and some foodstuffs.
For the vast majority of items, General Services does not obtain
agency forecasts of future requirements, consolidate projected
requirements among agencies, or determine where definite
quantity volume buying is possible.  As a result, we found that
individual purchases are made as purchase requests are received
from the various agencies, and opportunities to obtain volume
discounts and to avoid price increases are lost. For example:

     -- General Services purchased identical video tape
        recorders requested by agencies on 10 separate
        occasions over a 12-month period.  Prices for the
        18 video recorders purchased ranged from about
        $1,295 to $1,400.  Consolidating all requirements
        to obtain them at the lower price would have saved
        about $700 in price fluctuations, and might have
        resulted in additional volume discounts.

     Even though General Services does not consolidate require-
ments among the various State agencies, each agency could forecast
and consolidate its own requirements.  We noted, however, many
instances where agencies failed to consolidate their requirements,
resulting in fragmented purchase reauests and loss of additional
opportunities for economy.

For example:

     -- One agency submitted separate requests for five identical
        scientific res.-arch evices over an 11-month period.
        Prices ranged from about $3,950 to $4,500.  If the
        purchases had been consolidated and made at the low
        price, the agency would have saved about $1,900 in price
        fluctuations, and may have obtained additional volume

      General Services could improve its requirements determination
and planning by obtaining etter historical and forecast usage
data.   Historical usage dta could be provided at a more detailed
commodity level.   Forecast data might be summarized from budgetary
information of each agency and updated forecasts obtained by
querying agencies on their requirements for selected commodities.

                                - 7 -
Data on unused   auipment
     Before purchasing or leasing items, the central procurement
authority should determine whether such items are already
available as unused equipment. Euipment inventories and
utilization information is needed to make this determination.

     General Services obtains data on unused equipment only
after State agencies report it as excess to their needs.
General Services plays no role in the identification process and
has issued no guidance to the agencies in carrying it out.

     None of the State agencies included in our review had
established adequate systems for periodically evaluating equipment
utilization, identifying unused or under-used items, determining
whether there are potential uses for the items within the
agency, and reporting excess equipment to General Services
on a timely basis. The agencies were relying on numerous
departments and field locations to identify and report excess
equipment, but had not provided guidelines to carry out this

     We found numerous examples of unused or under-used items
which were not reported to General Services for screening
against current and future requirements. These items
ranged from a $72,000 mass spectrometer to several automotive
tool sets valued at about $200 each. Many of the items were
idle or under-used from 1 to 3 years, while similar or
identical items ere being purchased by General Services and
State agencies.

     General Services could obtain better data on unused equip-
ment by providing written guidelines to agencies for timely
identification and reporting of such items. General Services
could also review agencies' identification and reporting proce-
dures and help them to correct any weaknesses identified,
as discussed in chapter 5.
Data on leasing and purchasin

     Before deciding whether to lease or purchase equipment,
information on benefits. -osts, and advantages and disadvantages
.f leasing and purchasing alternatives should be considered.

                                - 8 -
      Lease versus purchase data

     State agencies are required to prepare a detailed analysis
of the comparative costs to lease or purchase using a standard
form provided by General Services. However, agencies often
request General Services' approval of the leasing alternative
even though purchasing is shown to be far more economical.

     Typically, agencies request more expensive leasing
arrangements because of State budgetary constraints (i.e.,
lack of approved capital acquisition funds, but adequate
funds for leasing services), or because of constraints
on capital acquisitions imposed under Federal grants. Normally,
General Services approves these requests without obtaining
any specific information on the nature and extent of the
constraints involved, or on possibilities of modifying or
removing the constraints. For example, the possibility
of the agency requesting a budget revision is not explored.

     We noted many uneconomical leasing arrangements approved
by General Services including:

     -- A body scanner (x--ray device) was approved for a
        6-year lease/purchase contract at a total cost of
        $654,841.  Comparative analysis showed the direct
        purchase cost to be $495,000, or $159,841 less.
     -- Certain x-ray equipment with an estimated life of
        7 years was leased for 5 years at a total cost
        of $319,436.  The equipment could have been
        purchased for $212,957, or $106,479 less than the
        contracted lease payments. At the end of the lease,
        the equipment could be purchased for 15 percent
        of the original list price.
     General Services could improve its procurement planning by
requiring better information on reasons behind agency requests
for uneconomical leasing arrangements.  In addition, General
Services could strengthen its review of such requests and explore
possible solutions. Good data on purchasing constraints and
possible solutions could help General Services to assure that
the principle of maximum economy in purchasing is not sacrificed

     Purchase alternatives data
     Planning the best way to purchase a particular item
requires good data on the benefits, costs, advantages,
and disadvantages of various purchase alternatives, such as
spot buying, indefinite quantity buying (price agreements),
and definite quantity volume buying. According to a General

Services' official, only limited data on purchase alternatives
is obtained, and in some cases purchase agents must rely solely
on personal experience in choosing among alternatives.

     As mentioned earlier, General Services makes only limited
use of definite quantity volume buying due to:

     -- lack   f centralized warehousing facilities;

     -- widely scattered locations of using agencies;

     -- doubt that definite quantity buys would result
        in lower prices than current indefinite quantity
        purchasing (price agreements) for some commodities;

     -- lack of control over what agenci.  actually buy as
        opposed to what they might forecast, and resultant
        risk of overstocking.

Adequate information is not available t evaluate this situa-
tion.  For example, data on potential definite quantity
discounts for various commodities and reduced contracting
costs resulting from consolidation of small orders is not
available to compare with possible warehousing costs. General
Services could improve its planning p-ocess by obtaining
such data, and thereby help insure maximum economy of its


     We noted a number of opportunities for General Services
to obtain better data for determining State agency requirements
and for planning procurements. We recommended that General

     -- Expand and refine the existing management
        information system to provide greater detail
        data on individual commodity purchases.

     -- Establish a program to plan and schedule future
        requirements by utilizing agencies' forecasts of
        estimated needs or existing budgetary data or
        combinations thereof.

     -- Issue guidelines to using agencies to help them
        plan and schedule their own requirements and
        how to communicate these needs to central
        procurement in a timely manner.

                        -   10 -
-- Conduct studies to evaluate te merits of
   alternative purchasing methods.
-- Issue guidelines requiring agencies to identify
   and report their unused or excess property and its
   condition to General Services in a timely manner.
-- Periodically review and inspect how property is
   used at agency sites.

                     -   11 -
                         CHAPTER 4


     Cnce a decision to acauire an item is made, the
contracting and contract administration processes begin.
These processes should:

     -- produce full and fair competition among all
        qualified vendors

     -- provide items of a quality suitable for their
        intended use

     -- secure needed items in time to facilitate
        agency programs, and

     -- assure that items specified are actually
        provided by the vendor.

     General Services is aware of these goals and is striving
to meet them.  We found several opportunities for improvement.


     Improvements in contracting and contract administration
procedures could increase competition and reduce prices, and
provide better assurance that required quality levels are
atLained but not exceeded, that items are provided on a more
timely basis, and that items received from vendors are the
same as those contracted for.


     The degree  f competition obtained depends largely
on the solicitation method and the specifications used.

     Solicitation methods

     General Services, like other public contracting entities
in Oregon, must follow the Public Contract Review Board's rules
concerning solicitation of competitive bids.  For items under
$5,000, bids may be obtained either through formal advertising
or through solicitation of informal quotes.  Formal solicita-
tions are required for purchases of $5,000 or more except in
certain cases (e.g. emergency purchases).

                         - 12 -
     1.   Informal solications
     If the item is $500 or more,      a minimum of three quotes must
be documented; or if three quc'es      are not available, a record
must  e made of the actions taken      to obtain quotes.  For items less
than $500, competitive quotes are      to be obtained where feasible.

     In 1975, before the Public Contract Review Board requlations
   e issued, purchases between $500 anR $4,999 often were made
on the basis of a single quote.  Our sample of 37 informal
solicitations in this price range made during 1975 showed
that competitive quotes were obtained in only 1 case.

     In 1976 the procedures for obtaining competitive quotes
on informal solicitations between $500 and $4,999 improved
significantly.   Our review of 33 such solicitations made during
April and May indicated that in 21 of the cases (64 percent), a
minimum of 3 competitive quotes were obtained or the effort made
to obtain competitive quotes was documented.   While this
represents a major step in extending competitive practices to
the lower value items, we believe even further improvement
is possible.   Also, while 3 quotes are required as a minimum,
in only 1 of the 33 solicitations reviewed were more than
^ quotes obtained,

     While competitive quotes are required where feasible
on informal solicitations under $500, General Services seldom
obtains more than one quote.   Our review of 64 such solicitations
made in April and May 1976 showed that competitive quotes were
obtained in only 2 instances.   Purchase agents said that, un.der
current wvorkloads, they lack adequate time to call competing
vendors for quotes on these items.   While the dollar amount
of such purchases may be relatively small, the economic
benefits of increased competition often can justify the additional
administrative time required.   We noted several examples wherein
significantly lower prices were realized when competition was

    -- Five weed-cutting machines were purchased directly
       from a given vendor without competing bids or quotes
       at a price of $300 each.  Later, through competitive
       bidding, two additional machines were purchased
       for $254 each.  Five firms submitted bids on this
      procurement, including the original supplier who bid
       $15 less than his previous price.

    -- Six hundred boxes of ballpoint pens were ordered
       without competitive bids at a price of $1.87 a box
       About 2 months later, 840 boxes of the same
       pens  ere purchased competitively for 76 cents a
       box, a savings of $932 for the quantity ordered.

                          -   13   -
      -- Agency purchase requests for a certain brand name
         power mower routinely were ordered directly from the
         statewide distributor without competition. However,
         when competitive bids were solicited on subsequent
         acquisitions, the distributor was the highest bidder.
         In one instance, the low bid was $55 less than the
         distributor's bd for the same machine. In another
         instance, the distributor was the highest of eight
     Increased competition on informal solicitations could be
be obtained by:

     -- assuring that at least three quotes are obtained for
        items between $500 and $4,999 whenever three or more
        vendors are available;
     -- obtaining more than three uotes when readily available
        and w:ien it appears that additional competition could
        result in significantly lower prices; and

     -- providing clerical assistance to purchasing agents to
        get competitive quotes on items under $500 when
        justified by potential savings.
     2.   Formal solicitations

     General Services maintains lists of vendors interested in
bidding on various commodities.  Normally invitations to bid
are sent to each vendor on the applicable list and also published
in a newspaper.

     We found that formal solicitation using bidders lists does
not result in widespread competition. Our reviw of 12' ormal
tolicitations durina 1975 and 1976 showed that while inv.,ations
were sent to about 12.4 vendors per solicitation, only
about 4.3 bids were received (35 percent response).

     The procedures for establishing and maintaining bidders
lists appear to be a major factor in the low response rate.
The State could improve competition by seeking out additional
vendors for the bidders list, rather than waiting for new
vendors to request inclusion on bidders list, as now done.

     We believe General Services could reduce unnecessary
solicitation costs by subdividing bidders lists so that only
vendors interested or able to bid on the specific items
involved are solicited, and removing from bidders lists those
vendors who seldom respond.

                                 - 14 -

      We believe another factor that limits
 bidder response in formal solicitations is competition and
                                             the use of brand
 name specifications. Preparing specifications
 mum competition is difficult but essential      that promote maxi-
                                             to the contracting
 process. Types of specifications include
                                            design, performance.
 qualified products lists, and brand name designations.

     Oregon statutes prohibit using brand name
except where the Public Contract                designations
                                 Review Board has exempted
some products. The Board's rules state that,
                                               for other than
exempted products, brand name designations
only "if there is no other practical method should  be used
                                             of specification,
and should include an "or enual" designation.
                                                General Services
rules also state that 'brand name or equal"
the least preferable description for agenciesshould  be considered
                                               to use in submitting
purchase requests.
     Our review of 66 frmal solicitations made
January-April 1976 as a result of agency purchase
showed that 49 (74 percent) involved use of         requests
                                             brand name or
catalogue number designations. In addition,
                                               only 10 of
the brand name solicitations included the
or other statements showing that using the  or  equal" clause
                                            brand name was
not meant to restrict competition.

     During our review,
bids returned by vendors we noted several invitations for
                          with statements such as:

     -- No bid.   This item is nt of our manufacture.
     -- No bid.   We do not carry the brand specified.
     Brand names and catalogue numbers used in
solicitations are usually copied directly
requests without modifications, except where     agency purchase
                                              the purchasing
agent may insert 'or qual.' Purchasing
they generally lack time to develop alternative said that
specifications. They also said that they          item
"or equal" clause in most cases because    do not  add the
on the reverse side of the invitation forstandard language
                                           bid form states
that other brands may be offered. Our review
                                                of the

                          - 15 -
standard language involved showed that the following clauses
regarding the acceptability of alternative brands could appear
contradictory and confusing to some vendors:

     -- "The identific tion of an item by propriety name,
        trademark, or copyright is not intended to be
        arbitrarily restrictive, but is intended to define
        the characteristics and specifications required."

     -- "Any exception to bid specifications and/or bid
        requirements is cause for bid rejection.'

Better competition could be achieved by:

     -- Establishing procedures for developing and
        substituting alternative specifications for
        items requested by brand name or catalogue
        number wherever possible.

     --Requiring agencies to designate two or more
       acceptable brands whenever alternative
       specifications cannot be developed.

     -- Including an "or equal" statement on the front
        of the invitation for bid whenever a brand name
        is used.

Insurin9 suitable   uality levels

     The procurement authority is responsible for insuring
that items obtained are of a quality suitable for their
intended uses.  Items should be able to perform as required
and should be as durable as necessary, but they should not
include unessential frills or status features which can
increase their costs.

     In contracting, quality control depends on preparing
suitable specifications for the items needed. General
Services' ability to control item quality varies greatly.
For items obtained under price agreements, General Services
can control quality substantially since it prepares the
specifications used in soliciting the agreements. However,
for items requested by agencies, General Services has little
or no control over quality since it generally uses the agencies'
specifications.  We noted opportunities to improve quality
control of both types of items.

                             - 16 -
     Price areement items
     Standard specifications have been developed for some price
agreement items, such as vehicles, clothing, office supplies,
and paint. According to a General Services official, many of
the standard specifications were developed by committees which
no longer exist. The one staff member currently working in
in this area noted that there are many price agreements for
which standard specifications are needed to more adequately
control the quality levels of items obtained by agencies.

     Our review identified a number of price agreements
allowing using agencies to choose one of several brands or
models of functionally similar items. In such cases, there is
no control over unnecessary and costly features that individual
users may desire. For example, the price agreement for office
furniture allows users to select from more than 100 styles
of office chairs. We found that State agencies purchased
many different styles of office chairs in 1975 at a wide
range of prices as shown in table III.

                            Table III

                                   Number of
     Type of chair              styles purchased    Price rape
Fixed base, without arms                 5         $ 30 - $ 96
Fixed base, with arms                    7           52 -    177
Swivel base, without arms               15          50 -     130
Swivel base, with arms                  17          59 -- 324
    Aqency_recuest items

     A General Services official said that specifications
for agency request items are set by the users and the need
for specified quality is rarely questioned.

     The report on State and Local Government Purchasing dis-
cussed on page 3 points out that cooperation of the central
procuring authority and user agencies in determining suitable
quality levels is essential. Yet it also notes that:

    "Cooperation is often made difficult by an attitude
    concerning budgets which generally exists among using
    agencies. The agency point of view, oversimplified
    and perhaps overstated, is that it is authorized to
    spend to the limits of its budget. If funds permit,

                              - 17 -
     it feels it should be able to buy the most expensive
     product. Purchasing's point of view, on the other
     hand, is to refrain from buying better quality or
     greater amounts than are actually needed. This
     difference in attitudes is a persistent undercurrent
     even in calm waters."

     We noted instances where uestionable features were
specified by agency users. For example:

     -- In May 1976, General Services purchased a used
        1975 automobile for an agency at a cost of
        $4,250. Questionable features of this automo-
        bile included air conditioning, reclining drivers
        seat, tilting/telescoping steering wheel, AM/FM
        stereo radio, power door locks, and a number of
        appearance items such as a vinyl roof and
        custom upholstery. The basic functional features
        of the car--four-door, six passenger, power
        steering, power brakes, and automatic trans-
        mission--were available in a 1976 model
        covered by a price agreement for about $900
     Agency users said that specifying brand names is the
easiest way for them to get the uality level they want.
Users at one agency indicated that they always get the items
they want even if vendors offer lower priced alternatives.
They said they do this by rejecting the low bid item for
failing to incorporate some feature of the desired brand.
Justifications for such rejections are required, but we noted
that they. re normally quite brief and insufficient to insure
that suitable items are not disqualified.

     General Services could obtain beiter assurance that neces-
sary but not excessive quality levels are provided by:
    -- Increasing its efforts to develop standard
       specifications for all frequently used items
       covered by price agreements.

    -- Challenging agency requests whenever items of
       questionable suitability are specified.

    -- Requiring more complete agency justification for
       rejecting low-bid items.

                       - 18 -
Improving timeliness

     An important goal of the contracting process is timely
acquisition of items to facilitate agency programs.  Excessive
delays in the contracting process may disrupt agency operations
and/or cause agency users to circumvent the central procurement
authority in obtaining their requirements.

     General Services uses one of three contracting methods
to fill agency purchase requests:  (1) formal advertised bidding,
(2) return mail quotations, and (3) oral quotations.  We found
that the contracting method used has a major impact on the time-
liness of the acquisition.  For example, based on a sample of
purchases made in 1976, the median time betweei receipt of
the purchase request and issuance of the purchase order to
the vendor was 37 days for formal bids, 18 days for return mail
quotes, and only 5.5 days for oral quotes.

     Return mail quotes and oral  uotes can be used only for
informal solicitations of items urder $5,000.  Our analysis of
a listing of all informal solicitations made during 1976 showed
that the return mail method was used 52 percent of the time.
We found no reason why the faster oral  uote procedure could
not have been used in many cases.

      A sample of solicitations made in April 1976 showed that
the return mail method was used mostly on items under $500.
Purchasing agents indicated that they lack time for obtaining
oral quotes on these items, whereas return mail solicitations
are processed by cleric31l staff and require little of the agents'

     Some agencies responding to our  uestionnaire   entioned that
they experience excessive delays in obtaining requested items when
purchasing agents are away from their jobs.   A General Services
official told us that only one purchase agent is responsible
for each commodity area and no tormal  ackup system is available
during vacations, illness, or other absences.   He stated
that reorganizing to form three- or four-member buyer teams
responsible for broader commodity areas could provide the
needed backup.

     Improving the   timeliness of   contracting procedures could
be achieved by:

     --using the oral quote procedure on informal
       solicitations wherever possible, and

    -- reorganizing to provide backup systems so
       that processing purchase requests is not
       substantially delayed during the absence
       of any purchasing agents.

                         -   19 -
Insurin   vendor performance

     A major goal of the contract administration function
is to insure that vendors provide goods and services
ing to the specificatiors and terms of the contract.
is essential if user agencies are to receive full valueThis
for their money.

     Since General Services has no central receiving
housing space for commodities other than office sup or ware-
                                                       es crried
in its Central Stores operation, it has delegated r
for contract administration to the various State agencies.
It has issued guidelines to the agencies requiring
                                                   them to
verify that items received from vendors are as specified
                                                          on the
purchase order, and to file reports of any unsatisfactory
performance.  A General Services official said that unless
such reports or oher complaints are received, it assumes
that vendors are meeting contract specifications.

     We noted that agencies visited during our review lacked
detailed guidelines for their numerous field offices
departments to use in verifying that deliveries conform
specifications.   General Services could help to assure
vendor performance by providing guidelines, such as
and testing procedures to verify Quantities and qualities,
and accountability procedures to prevent pilferage and
related problems.


     We made several recommendations to General Services
in the areas of contracting and contract administration,
which if adopted, would help realize the benefits
in this chapter.  We believe that General Services should:

    -- Evaluate its contracting methods to identify ways
       of increasing competition for all procurements,
       including lower value items where possible.

    -- Establish a system of internal review whereby procure-
       ment management can assure itself that purchasing agents
       are obtaining and documenting competitive solicitations
       as required by Public Contract Review Board rules.

    -- Institute a program to update bidders lists by actively
       identifying and soliciting new sources of supply
       and removing vendors who repeatedly fail to submit

                          - 20 -
-- Challenge or reject agency requests for brand name
   products unless the use of brand name specifications
   is sanctioned by Public Contract Review Board rules.
   This probably will require expanding the General
   Services specification writing unit to assure that
   needed products are solicited by functional charac-
   teristics rather than by brand name.
-- Seek better control over the quality of commodities
   by using more standard specifications, reducing the
   wide variety of brands and prices available for many
   price agreement items, and requiring agencies to fully
   justify their requests for products with questionable
   features or embellishments.

-- Consider using more oral quotations than return
   mail quotes to reduce processing time when acquiring
   goods or services without formal competitive

                    - 21 -
                           CHAPTER 5

     A strong c.tral procurement authority does not require
that one organizational element carry out all procurement
functions. It does require that there be:

     --A statutory basis for acquisition of all goods and
       services by the central procurement authority with
       no blanket exemptions for particular commodities
       or user groups.

     -- Proper delegation of authority with written guide-
        lines to user groups where necessary.
     --Adequate monitoring and review of all delegated
       activities to determine compliance with applicable
       procedures and assure overall program effectiveness.

     While the General Services procurement system incor-
porates each of the above elements in varying degrees, we
identified opportunities to strengthen these elements, thereby
improving the overall basis for efficient, effective, and
economical procurement.   ',   opportunities are discussed
in the following sect2

Statutory exemptions

     While Oregon statutes give General Services authority
to procure most goods and services used in State opera-
tions, they exempt certain user groups and commodities.
Exempted user groups are:  the Legislative Assembly, the
State courts and their officers and staffs, the Secretary
of State's office (which includes the Division of Audits),
and the State Treasurer's office.

     The exempted user groups may choose to have General
Services procure items for them or they may follow the same
procedures as nonexempt groups which have been delegated
authority by General Services, but they are not required to.

                          - 22 -
Since they are exemF    General Services cannot review their
procurement activities to assure that they adhere to sound
procurement principles.

     Commodity areas exempt from General Services authority
are: school textbooks, liquor purchased for State liquor
stores, and personal-professional services.  These goods and
services are procured independently of General Services
under procedures adopted by the cognizant agencies.

     Exemption of personal-professional services has created
some confusion since no adequate definition has been developed
to distinguish them from other, nonexempt services. For
example, the State Executive Department (the agency responsi-
ble for approving personal-professional services contracts)
has authorized one agency to contract for its own janitorial
services up to $2,500. Yet General Services considers
janitorial services to be non-personal-professional and requires
that all such services exceeding $1,000 be contracted by its
staff. Such jurisdictional problems could arise for other
services that agencies may incorrectly classify as

     Centralization of accountability and responsibility could
be enhanced by bringing the exempted user groups and commodities
under General Services authority wherever feasible. Then,
in those cases where activities could be performed more
efficiently or effectively by the groups involved, General
Services could delegate the necessary authority but retain
overall responsibility for assuring that the principles of the
procurement program are upheld.

Guidelines for exercising
deleqated authority

     General Services uses its delegated authority to avoid
excessive workloads by permitting direct agency purchases of
smaller value items. It also solicits price agreements for
some frequently used items and allows agencies to make unlimited
direct purchases under these agreements.

     Guidelines for exercising delegated authority in effect
during our review were promulgated by General Services in
September 1974. In reviewing agencies' implementation of these
guidelines, we noted several problem areas, including the

    -- Questionable dollar limitations. Sixty-one percent of
       the agencies responding to our questionnaire thought
       the limitations were unsatisfactory. Many agencies
       said that the $200 limit for individual purchases of
       most items was too low.

                            - 23 -
     -- Inadequate definitions of items with higher limitations
        (i.e., greater than $200).  Since items such as
        "laboratory supplies' and 'necessary automotive
        products" were not defined, some agencies used the
        higher individual purchase levels authorized for
        these consumables to obtain capital equipment items.

     -- Misinterpretation of delegated authority.   One user
        group was given "unlimited" authority--for
        purchasing up to any dollar amount--but interpreted
        it to mean that it did not have to follow State
        purchasing laws for formal bidding, etc.   As a
        result, it failed to formally advertise several
        larger solicitations.

     -- Lack of recordkeeping requirements. Specific
        documentation and filing requirements were not
        included in the guidelines, and some agencies
        were not keeping records in a form suitable
        for General Services' review.

     In May 1976 General Services promulgated revised guidelines
for delegated buying.   The new guidelines should eliminate
some of the problems noted during the review.   For example,
they increase the individual purchase authorization for
most items to $500.   However, the new guidelines do not
include commodity definitions and recordkeeping requirements.
We believe these should be included in General Services'

     Some commodities for which special purchase authority
is given--notably wood products, advertisements, and
necessary automotive products--are still not defined.
This could allow agencies to buy furnished wood products,
for example, under the higher authority intended for wood-
building materials. Adequate recordkeeping requirements
still are not provided for.  This will continue to hamper
General Services' monitoring and review of delegated authority,
as discussed in the following section.

Monitoring and reviewing
delegated authority

     General Services has established procedures fo- both con-
tinuous monitoring of purchase orders issued under agencies'
delegated authority and for periodic reviews of purchasing opera-
tions at agencies. While this is an important and commendable
step, we noted a number of opportunities to make improvements

                           - 24 -
in the (1) priority given to monitoring and review, (2) scope
of the periodic reviews, and (3) followup efforts made to
assure compliance and effectiveness.

    Monitoring and review pority

     Purchases made by State agencies, either directly or
under price agreements, account for more than half of the
dollar value of all purchases administered by General Services.
This percentage could increase under the higher purchase
authority delegated to agencies in May 1976.  We believe
the substantial volume of agency purchases requires that
adequate priority be given to monitoring and reviewing
delegated authority.

      At present, General Services gives fairly low priority
to monitoring and reviewing delegated purchasing activities.
Only one staff member is assigned to agency reviews and another
is responsible for monitoring agency purchase orders
on a less than full-time basis.   As a result, only about one-
fourth of the State agencies can be reviewed during a given
year.   Also, some agencies--including the State's largest
purchaser--have never been reviewed during the 5 years General
Services has been making such reviews (fiscal years 1972-76).

     The low priority given monitoring and reviewing is also
reflected in the qualification requirements for the one
full-time staff position involved. The agency review
function s assigned to an entry-level stafr position
requiring no prior experience in the  rocurement field.

     General Services could give higher priority to
monitoring and reviewing delegated activities by assigning
additional, more experienced staff to this area.  This
would enhance control over these activities by allowing
more frequent and knowledgeable reviews of agency purchasing

    Scope of aency reviews
     The scope of General Services' agency reviews is limited
to certain aspects of purchasing  rocedures under the direct-
buying authority delegated.  Emphasis is placed on whether

                         - 25 -
 dollar limitations are observed, whether price agreements
 are used, whether discounts are taken, and whether
 commodity codes are used on purchase orders. Other
 important factors in the total procurement process
 covered only briefly or are not dealt with at all. are
 factors include:                                    These

      -- Extent of competition obtained by agencies
         in accordance with Public Contract Review
         Board rules.
      -- Adequacy of agency procedures for inspection
         and testing items received from vendors.
      -- Adequacy of agency procedures for identifying
         and reporting unused equipment.
     Under the new Public Contract Review Board rules,
agencies must obtain competitive quotes where feasible
for items under $500. and obtain and document at
three quotes (or the effort made to get quotes) for
costing more than $500 but less than $5.000.  The scope
of General Services' agency reviews does not include
evaluation of how agencies comply th these rules,     an
nor an assessment of how much competition is beina

     General Services' review of agency compliance
obtaining and documenting informal bids is limited in
the lack of rules covering agency recordkeeping.     by
are not required to document informal bids on their
p rchase orders or to file the purchase orders in
that facilitates review. Some agencies covered in manner
review had recordkeeping procedures that would make our
adequate reviews very difficult and time consuming.

     General Services' reviews do not include evaluating
agency inspection and testing programs to insure that
items received meet specifications. This appears
                                                   to be an
important omission since General Services has no central
inspection and testing program and relies on user
to perform this function. The report on State and agencies
Government Purchasing indicates that most aencies Local
assume that items conform to specifications, but
large numbers of nonconforming deliveries have been
after State and local goverrnients established their
inspection programs.                                  own

                          - 26 -
     The scope of General Services' reviews also fails to
include evaluating agency procedures for dentifying and
reporting unused equipment.  As with inspection and testing.
General ervices relies on the agencies to carry out this
function.  However, as pointed out in chapter 3, agencies
reviewed have failed to establish adequate procedures for
identifying and reporting unused equipment, and some equip-
ment has remained idle and unreported for extended periods.

     General Services could improve its control over procure-
ments made under delegated authority by incorporating all major
aspects of the procurement process. In particular, evaluating
agency procedures for obtaining competition, inspecting and
testing deliveries, and identifying and reporting unused
eqipment could help assure effectiveness of the overall
procurement program.

     After deficiencies in agencies' procurement operations
are identified, effective followup is required to make sure
they are corrected.  General Services' followup efforts are
limited to subsequent reviews, which means that often more
than 2 years will elapse before General Services knows if an
agency complied with its recommendations.

     We found that a number of deficiencies identified in
earlier Genetal Services reviews were still occurring at
agencies visited. Deficiencies we noted included failure

      -- observe dollar limitations for delegated purchases,

      -- use price agreements when appropriate,

      -- assure that price agreement discounts are received
         from vendors,

      -- document informal bids, and

      -- file purchase orders numerically to
         facilitate General Services review.

     Many of the problems we observed appeared to be due to
the decentralized structure of the agencies involved.   With
many people in different locations or departments issuing
purchase orders, differe. t practices and interpretations of
procedures have evolved. General Services lacks a followup
program to determine how unacceptable practices and procedures
can be corrected, and to assist the agencies in making

                       - 27 -
     A more effective followup program could eliminate
longstanding deficiencies in agency procurement operations.
General Services could conduct training sessions for agency
personnel to improve compliance with recommendations and
assure a more effective procurement program overall.


     To improve procurement under delegated authority,
we recommend that General Services:

    -- Seek the necessary statutory authority for ultimate
       acountability and responsibility to acquire
       all goods and services, including personal services.

    -- Clarify existing rules on delegation of purchasing
       authority to prevent misinterpretations and to insure
       compliance with procurement laws and regulations.

    -- Strengthen management control over delegated purchasing
       activities by broadening the scope and increasing the
       priority and timeliness of aaency field reviews.

                            - 28 -
                               CHAPTER 6
                        COOPERATIVE PURCHASING
    This chapter discusses opportunities for General Services
to cooperate with governmental subdivisions, such as counties,
municipalities, school districts, and other local governmental
entities, to achieve greater economy in purchasing at all levels
in the State.

     Cooperative purchasing refers to a variety of arrangements
whereby two or more governmental entities buy under te same con-
tract or purchase agreement to obtain lower prices through volume
purchasing. General Services allows local entities to buy uder
the same price agreements it establishes fot  tate agencies.
While this apparently has helped some local entities to buy
certain items more economically, we believe General Services
could save more at both the State and local levels.


     General Services could improve its cooperative arrangements
for purchasing common State and local requirements (e.g., police
cars, paper. paint, etc.).  It could also encourage cooperation
among local entities in procuring items only they require.
Cooperatinq to meet common requirements
of State and local entities

     General Services allows counties, muncipalities, and other
local entities to buy under most of the price agreements it
establishes for State agencies. The dollar value of local pur-
chases under price agreements is summarized in table IV below.

                               Table IV

                                              (000 omitted)
Multnomah County          $   625                $   463      $   598
City of Portland              635                    229          221
Other counties                467                    577          324
Other cities                  220                    231          221
School districts              146                    113           92
Other public agencies        171                    69           206
                          $2,264                $1,682        $1,662
a/ Multnomah County includes much of the metropolitan Portland area.

                                    - 29 -
      Use of State price agreements has saved more on
 purchases of some commodities. For example, Multnomah
 began buying vehicles under State price agreements
 an audit report showed that not using a price agreement
 for 1974 model police cars cost the county $15,000
                                                    in higher
 prices.  Despite the savings, we noted that:

      -- Price agreements are not always used by local
         even when the economic advantage is apparent.

      -- General Services does not encourage widespread
         use of price agreements by local entities.

      -- Price agreements are not always the most desireable
         form of cooperative purchasing.

     City of Portland and Multnomah County purchasing
officials said they used the State price agreements
there is an economic advantage.  Yet at the City of Portland
we noted instances where savings through State price
were not obtained.

     For example, the City

     -- bought five 1970 automobiles for $456 more than
        cost of nearly identical models available through
        a price agreement; and

     -- purchased two calculators for $685 while the State
        agreement cost of the same machines was $595, or
        percent less.

     Althbugh General Services allows local governmental
to use State price agreements, it does not actively
to do so.                                           encourage
           According to a General Services official, it does them
encourage local entities to use price agreements
                                                 that would
increase the agency's heavy workloads.

     We believe another factor limiting widespread use
price agreements is the requirement that all local
except the City of Portland and Multnomah County--send
for price agreement items to General Services, which
issues orders to vendors. A General Services official turn
the requirement is intended to prevent numerous
orders to vendors by allowing General Services to      quantity
orders where possible. or to refuse an order it does
consider a reasonable size. A Multnomah County
official said that some smaller governmental units
                                                    have complained

                             - 30 -
about the additional effort and delay involved in ordering
price agreement items through General Services.
     According to the report on State and Local Government Pur-
chasing, price agreements are not the most desirable
arrangement in many cases because they are:
     "...permissive-type arrangements whereby a third-party
     agency, such as a local government, can use a contract,
     such as a State's, if, when, and how it chooses. The
     State contract prices become, in effect, ceiling prices
     against which non-state agencies can bargain. Such
     practices place the successful bidders, who have won
     State contracts in open competition, in the position
     of having their contract prices presented as targets
     for others to negotiate with or play against. '

     The publication points out that more acceptable arrange-
ments have been used in some recent State-local cooperative
programs. These arrangements require the local entity to
estimate its requirements and commit itself to order accordingly.
This allows the State procurement authority to combine its
forecast requirements with those of the local entity to obtain
volume savings on definite quantity contracts.

     General Services could improve its cooperative arrangements
for purchasing common State and local requirements by:

     -- Surveying major local requirements to determine com-
        modities which could be included in definite quantity

     -- Combining local survey results with State agencies'
        forecasts and obtaining State and local agreement to
        enter definite quantity contracts.
     -- Actively encouraging local entities to use State price
        agreements where definite quantity contracts are
        not feasible.

     -- Developing procedures whereby entities can place orders
        directly with price agreement vendors as long as they
        avoid excessive use of small quantity orders.
Encouraging cooperation among
local entities

     Some items routinely purchased by local entities are not
required at the State level or are required infrequently and
in limited quantities. While State-local cooperative buying
is not feasible for such items, the State can encourage
local entities to cooperate for greater economy. This
could help conserve local funds as well as State funds to
local entities.
                           - 31 -
     An example of the potential
local entities is the purchase of for cooperative buying aong
                                   school buses. A total of
388 school buses were purchased by Oregon
in 1975. Overall cost figures were not     school districts
                                         available, but we
estimated that the total cost of the
                                      buses exceeded $4.3 ..
A State Department of Education official                    illion.
districts seldom cooperate with each      said that the school
                                      other in purchasing buses.
He indicated that although the State
                                      provides recommenced
bus purchasing guidelines, each district
specifications and solicits its own bids. prepares its cn

     The 388 buses purchased in 1975
makes (chassis types) and 9 different represented 10 different
                                          body types with an unknown
but potentially large number of chassis-body
Twenty-three different carrying capacities       comLinations.
from 1 2 -passenger to 8 4 -passenger buses.   were purchased, ranging
capacity was 6 6 -passengers, accounting      The most common
                                           for 214 (55 percent) of
the purchases.

     A limited review of bus purchases during
example of school districts paying different    1975 indicated an
buses. In this instance, the prices            prices  for similar
                                      paid by five school districts
for buses of the same size (6 6-passenger),
style ranged from about $10,300 to about     year, make, and body
     The opportunity for savings by consolidating
bus requirements among the 315 Oregon               school
chasing in volume appears significant. school  districts  and pur-
encourage local entities to look for     General  Services  could
money through cooperative purchasing. opportunities  to  save
and assist local entities in developing It could also advise
for major commodites purchased under     standard specifications
                                      cooperative arrangements.

    We recommend that General Services:
    -- Promote, design, and administer a cooperative
       purchasing program with other public
                                            bodies in Oregon.
    -- Promulgate guidelines and instructions
                                              for local entities
       governing their duties and responsibilities
       cooperative program.                        in the

    -- Survey local governments to determine
                                              their major
       requirements and combine these requirements
       forecasts of State needs in scheduling       with
                                               and planning
       future procurements.

    -- Assist and encourage local governments
       among themselves in the acquisition of to cooperate
                                              goods and
       services not required at State level.

                         -   32 -
   APPENDIX I                                     APPENDIX I

 Cly Myers

                                                    SALE M. OR EGO N

                               October 28, 1976

Mr. R.W..Gutmann, Director
Procurement and Systems Division
U.S. General Accountion Office
Washington, D.C. 20548

Dear Mr. Gutmann:

     Working with the General Accounting Office on a cooperative
review of the State of Oregon Department of General Services
procurement activities has been a pleasant and rewarding experience
for the State of Oregon. Our Audits Division Staff and I are
extremely grateful for the opportunity to have worked with GAO.
Further, the professional exchange and training between the state
and federal auditors is a plus for all of us.

     This review benefits all state agencies, and, in turn, the
Federal Goverment, because it evaluates the State's purchasing
policies. These policies cover the procurement of goods and
services exceeding 350 million dollars annually. A good share
of those are federal dollars made available to the state.
     This is an excellent Review. It was only ith the out-
standing cooperative efforts of our staff, the staff of GAO
and the people at the Department of General Services that it
was possible.  I am hopeful that this is just the beginning of
many other such cooperative efforts.



                           - 33-
APPENDIX II                                         APPENDIX II

                       GUIDELINES FOR AUDIT
                         STATE AND LOCAL
                       PROCUREMENT ENTITIES

                         I.   INTRODUCTION

     The objective of a good procurement system is to enable
goods and services to be obtained in the most efficient, and
effective manner at the lowest possible prices. The purpose
of this audit is to evaluate how well the procurement entity
is carrying out the functions which are essential to meeting
this objective. These functions include determining require-
ments and planning, contracting, contract administration, and
delegating procurement authority. In addition, the audit
addresses cooperative purchasing between State and local

     How effectively the above functions can be carried out
depends on a strong central procurement authority--the
concept of a central procurement authority does not mean that
central purchasing must carry out all functions, but rather
that there should be a centralization of responsibility and

     These guidelines are meant to give the user a general
area of inquiry; they do not include every audit step that
may be necessary to completely satisfy each area of inquiry.


     1.   Determine the total budget of the State or local
          body--including the amount of Federal funds involved--
          for recent budget periods (e.g. at least the two or
          three most recent periods).
     2.   Determine what portion of the budget was earmarked
          for goods and services during these periods.
     3.   Determine the dollar amounts of goods and services
          obtained by the procurement entity (e.g. Department
          of General Services, etc.) during these periods.

     4.   Determine the dollar amounts of goods and services
          procured by groups which have been delegated pur-
          chasing authority by the procurement entity during
          the periods in question.

                              - 34   -
APPENDIX II                                          APPENDIX II


     Review all applicable procurement statutes, regulations,
and procedures to determine the nature and extent of the
authority and responsibility vested in the procurement entity
and user groups. This review should cover such items as:
      1.   Is there clear statutory authority for the
           procurement entity to obtain all goods and
           services for all users, or are there exemptions
           for specific commodities or user groups?

      2.   Is the procurement entity given authority to
           delegate procurement functions to user groups?

      3.   Are major procurement principles, such as
           obtaining competition, limiting use of brand
           names, prohibiting local vendor preferences,
           etc., addressed by the statutes?
      4.   Are there any legislative initiatives underway
           which would substantially modify existing
           procurement statutes?

      5.   Does the procurement manual and/or other regula-
           tions and procedures cover the major procurement
           functions of requirements determination. contracting,
           contract administration, and dlegation of procurement

      6.   Are any efforts to revise existing regulations and
           procedures planned or underway?


      1.   Determine the position of the procurement entity
           within the overall organization of the State or
           local body, and its relationship to other units in
           the overall organization.

      2.   Determine the organizational structure of the pro-
           curement entity under audit.


      1.   Determine the number of personnel involved in
           each functional area of the procurement entity
           (e.a. specifications, contracting, etc.) their
           job classifications, general duties, and
           qualifications, and authority to obligate their
           governmental unit.
                                - 35 -
APPENDIX II                                         APPENDIX II

      2.   Determine the ate of turnover of key procurement
           personnel! such as purchasing agents.
      3.   Determine whether there is an active program for
           training and development of key personnel.
      1.   Determine whether the procurement entity obtains
           information on historical usage of goods and
           services, future needs, equipment inventories,
           and other data for procurement management.

      2.   Determine how this information is compiled,
           summarized, and used.
      1.   Determine whether the accounting systems of
           the procurement entity allow it to identify
           which procurements involve Federal funds.
     2.    Determine the nature and extent of any internal
           reviews of the operations of the entity or
           user groups which have been delegated purchasing
     3.    Determine whEt actions have been taken to imple-
           ment recommendations made by internal auditors.

     In determining requirements for goods and services
planning the most efficient, economical, and effective and in
for acquiring them, management must answer a number of means
including:                                              questions.

     --What is needed?

     -- How much or how many are needed?

     -- When is it needed?
     -- It is already available in the form of unused
     -- Should it be purchased or leased?

     -- How should it be purchased (volume buying
        versus spot purchasing, etc.)?

                              - 36 -
APPENDIX II                                        APPENDIX II

To answer these questions, accurate information is needed on
historical and forecast demand for goods and services,
inventories of unused equipment, and lease versus purchase


      1.   Determine if the management information system
           provides adequate information on historical and
           forecast demand. Adequate information would
           include data on the dollar volume and purchase
           quantities or number of purchases for specific
           items and for broad commodity groups.

      2.   If the management information system provides
           adequate data on historical and forecast demand,
           determine if the data is effectively used to
           estimate total requirements and to plan pro-
           curements. For example, are forecaF:s from
           various user groups consolidated ant used as a
           basis for definite quantity volume 1,uys?
      3.   If the management information syste does not
           provide adequate data on historical and fore-
           cast demand, (determine what other methods are
           used to plan procurements (e.g. periodic manual
           review of purchase orders)), and evaluate the
           effectiveness of these methods.

      1.   Determine if the procurement entity obtains
           information on inventories of unused
      2.   Determine if purchasing agents routinely
           screen information on unused equipment prior
           to making purchases.
      3.   Determine what role the procurement entity
           plays in the identification of unused equip-
           ment. Some considerations are:

                a.   Does the procurement entity evaluate
                     equipment use at agencies and identify
                     unused items itself or does it rely
                     on the agencies to identify and report
                     unused equipment?

                               - 37 -
 APPENDIX II                                       APPENDIX II

                b.   If the procurement entity relies on user
                     agencies, has it provided them with
                     adequate guidelines for periodically
                     evaluating equipment use, identifying
                     unused items, and reporting such items?

                c.   Does the procurement entity review the
                     agencies' compliance with the guidelines?
      1.   Determine how the procurement entity identifies
           opportunities for acquiring items through
           leasing rather than purchasing.

      2.   Determine what type of evaluations are made for
           lease versus purchase alternatives, and who
           makes these evaluations (e.g. procurement entity
           or user agency).
      3.   Determine the adequacy of lease versus purchase
      4.   Determine if the results of the evaluations are
           used to select the most economical acquisition
           method.  If the most economical methods are not
           always selected, determine why (e.g. budgetary
           constraints on capital acquisitions, or Federal
           grant constraints).

                          IV.   CONTRACTING
     Once a decision to acquire an item is made, the actual
contracting begins. This process should:

      -- Produce maximum competition among all
         qualified vendors.
      -- Provide items of a quality suitable for
         their intended use.

      -- Secure needed items in a timely manner
         to facilitate agency programs.

     The procurement entity is responsible for insuring
maximum competition in order to provide goods and services
at the lowest possible prices.

                          - 38 -
APPENDIX II                                       APPENDIX I]

     1.   Determine the extent (frequency or dollar value
          of purchase) to which the procurement entity
          uses the following methods to obtain bids from

               a.    Formal solicitation (usually involves
                     advertisement in at least one newspaper
                     or trade paper and formal bid opening
                     procedures, and may involve use of
                     bidders lists.)

               b.    Informal solicitation of oral or
                     written quotes.

               c.    Negotiation (may be with one or more
                     potential contractors.)

               d.    Other methods.

    2.    Determine the specific procedures used in each
          of the above methods.

    3.    Evaluate the degree of competition obtained
          under each solicitation method:

              a.     Obtain summary data indicating the
                     average number of vendors solicited
                     and average number of bids received
                     for each solicitation method.

              b.    Obtain data on the distribution of
                    solicitations and responses (if
                    already summarized, or available from
                    a contract log) such as:

                             Number of cases
                    Solicitations               Responses
                         Only 1
                         Over 50

              c.    Select a sample of purchase transactions
                    (representing a range of dollar values
                    and commodity types) and schedule data
                    such as:

                    1.   Purchase transaction number.
                    2.   Description of item/service

                               - 39 -
                                                        APPENDIX II

                       3.   Solicitation method (i.e. formal,
                            oral quote, etc.).
                       4.   Number of sources solicited, and
                            responding and their quotes.
                       5.   Vendor selected and dollar value
                            of order.
                       6.   Date requisition received by pur-
                            chasing office.
                       7.   Date of solicitation.
                       8.   Date of purchase order.
                       9.   Date item/service received and
                            conformance with terms of purchase
                            (if available in files.)
                    10.     Comments and evaluation (note any
                            irregularities and interesting or
                            unusual features of the purchase
                            request, solicitation, bid evalua-
                            tion and award, purchase order, or
                            product delivery.)

              (Note:      some of the above data will be used in
                          evaluating other aspects of contracting
                          and contract adminstration.)

    4.   For negotiated or single-source solicitations,
         determine how the procurement entity assures
         itself that vendor prices are reasonable (e.g.
         comparative price analysis or cost and pricing

    5.   If instances of inadequate competition are
         observed, some causes might include:

               a.      Inadeauate procedures for identifying
                       new vendors and adding them to bidders
                       lists, or other problems.

               b.   Overly restrictive specifications
                    (i.e. excessive use of brand names,
                    vendor catalogue numbers, or other
                    specifications that tend to limit
                    competition to a particular brand
                    or supplier.)

               c.   Failure to obtain competition on
                    informal solicitations due to a lack
                    of time or the attitude that competi-
                    tion is not warranted for lower value

                                 - 40 -
APPENDIX II                                          APPENDIX II

     The procurement entity is responsible for insuring
that the quality level of items obtained is suitable for
the intended use. Items should be able to perform as
required and be as durable as necessary but should not
include unessential frills or status features which can
increase their cost. Control over quality levels dends
on preparation of suitable specifications to describe
the needed items.

     1.   Determine the respective roles of the procure-
          ment entity and user groups in the preparation
          of specifications.
     2.   Determine the extent to which the procurement

               a.   develops new specifications by itself;
               b.   relies on users' specifications; and

               c.   uses existing Federal, State. or local
     3.   Determine whether the procurement entity has a
          standardization and cataloging program which
          adequately controls the types and quality levels
          of items provided to gency users. Relevant
          questions would includee

               a.   To what extent does the procurement
                    entity challenge the type and quality
                    level of items requested by user

               b.   How does the procurement entity prevent
                    the purchase of a wide range of quality
                    levels (i.e., different styles, models.
                    brands, and prices) to meet similar
                    needs of agencies?
     4.   If the procurement entity establishes standing
          agreements, such as term contracts, etc.. for
          agency use in obtaining common items, determine

               a.   agencies make full use of such agree-
                    ments, or avoid using them at their
                    discretion; and

                            - 41   -
APPENDIX II                                           APPENDIX II

                 b.    the agreements effectively limit the
                       variety of types and quality levels
                       of items a user may select.
     An important goal of the procurement entity is timely
acquisition of items to facilitate agency programs.
Excessive delays in the contracting process may disrupt
agency operations and/or cause agency users to circum-
vent the central procurement authority in obtaining their

      1.   Review any data maintained by the procurement
           entity on the average time lapse between receipt
           of an agency purchase request and issuance of
           a purchase order to the vendor for each of the
           major solicitation methods (see IV.A.1. p. 39).

      2.   If the procurement agency does not maintain
           such data, develop it from information compiled
           under IV.A.3.C. (see p. 39).
      3.   Identify reasons for any excessive time lapses
           associated with the various steps in the procurement

                      V.   CONTRACT ADMINISTRATION

     A major goal of the contract administration function
is to insure that vendors provide   oods and services in
accordance with the specifications and terms of the
contracts. This i essential if user agencies are to
receive full value for funds expended.

A.   Determine the role of the procurement entity in carrying
     out the contract administration function.

     1.    Does the procurement entity conduct centralized
           receiving, inspecting, and testing of goods, or
           are user agencies expected to perform these

     2.    Has the rocurement entity provided adequate
           guidelines to those w o are responsible for these
           functions? Adequate guidelines should include
           procedures for sampling and testing to verify
           quantities and qualities, and accountability
           procedures to prevent pilferage and related

                              - 42 -
APPENDIX II                                           APPENDIX II

B.   If feasible, determine through on-site observation how
     effectively the procurement entity and/or user agenies are
     carrying out the receiving, inspecting, and testing

C.   Determine whether using agencies request assistance
     from the procurement entity in handling problems with
     delivery schedules or nonconforming deliveries, and
     the adequacy of such assistance. If possible obtain
     user agencies' views on the assistance provided by
     the procurement entity.

D.   Determine whether the procurement entity effectively
     monitors user complaints to take appropriate action
     (e.g. removal from bidders lists) against vendors
     who fail to meet contract terms.

     The concept of the strong central procurement authority
does not imply that the procurement entity must actually
carry out all procurement functions. Rather it means that
there should be:
      --A statutory basis for acquisition of all goods
        and services by the procurement entity with no
        blanket exemptions for particular commodities
        or user groups.

      -- Proper delegation of authority from the procure-
         ment entity to user groups where necessary, with
         written policies and procedures for exercising
         the delegated authority.

      -- Adeauate monitoring and review by the procurement
         entity of all delegated activities to determine
         compliance with applicable procedures and assure
         overall program effectiveness.

      1.   Determine what commodities and/or user
           groups are exempted from the procurement
           entity's authority.

      2.   Determine the rationale, if any, behind
           these exemptions, and the major barriers
           to removing thes. Delegated authority
           from the procurement entity to user
           groups may be appropriate because:

                    a.   The user group can more readily carry
                         out the procurement function because
                                  - 43 -
APPENDIX II                                                APPENDIX II

                       of its special expertise, capabilities,
                       or staff resources (e.g. purchases
                       involving sophisticated technology, or
                       special commodity experience).

                b.     The procurement entity can avoid
                       unnecessary processing of numerous
                       small value purchases.

                c.     The user may be able to purchase goods
                       and services more effectively at field

      3.   Determine    if any problems arising from exemptions
           have been    documented (e.g. unsound procurement
           practices    of exempted groups, loss of opportunities
           for lower    prices through consolidation, etc.).

      4.   Consider visiting user groups with significant
           levels of exempted procurements to make limited
           evaluations of their purchasing operations in
           accordance with the concepts presented in this


           Determine whether the procurement entity has
           given user agencies adequate guidelines for
           exercising delegated authority.   If possible,
           obtain views of user agencies on the adequacy
           of the guidelines (e.g. the suitability of
           delegated dollar authority, etc.).


      1.   Determine if the procurement entity has provided
           adequate capability for monitoring and periodic
           review of user agencies' procurement operations.

                a.     Determine whether staffing is
                       sufficient for conducting reviews
                       annually or biannually.

                b.     Determine whether review staff has
                       sufficient experience in procurement
                       operations to evaluate user agency

                                -   44 -
APPENDIX II                                       APPENDIX II

      2.   Determine whether adequate guidelines have
           been provided for conducting user agency
           reviews. Guidelines should cover all major
           aspects of the procurement function presented
           in this guideline where applicable to the
           user agencies.

      3.   Determine whether adequate followup procedures
           exist to evaluate agency compliance with
           review, and recommendations and/or assist
           agencies in solving procurement problems.

      'he preceding sections deal with evaluating the procure-
ment ertity's effectiveness in carrying out the essential
functions of the procurement process. This section is
aimed at evaluating opportunities for cooperation among
States and governmental subdivisions to achieve greater
savings at all levels of government.

A.   Determine whether the procurement entity participates
     in any cooperative purchasing efforts with other
     Federal, State, or local entities.

      1.   Determine the extent of such purchasing (i.e.
           dollar value).
      2.   Determine the specific nature of the cooperative
B.   Determine what action the procurement entity has taken
     to foster or encourage increased cooperative purchasing
C.   Determine what problems confront the procurement entity
     in implementing cooperative purchasing arrangements
     with other governmental units (e.g. legal constraints,
     smaller units' fear of domination by larger procure-
     ment entity, etc.).

D.   If possible, identify specific examples of potentially
     significant opportunities for greater economy through
     cooperative purchasing. Examples of common requirements
     which are purchased independently in a range of prices
     might include vehicles (e.g. police cars, school buses,
     trucks, etc.), consumable supplies (paper, paint, etc.).
     office furniture and machines, etc.

                          - 45 -