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 (806). 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) 00 co FEDFAL STATE LOCAL Ae COOPERATIVE EFFORTS /= 1859 IA 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 FOREWORD 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 established 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 PROCUREMENT 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 purposes. This study reports the results of such an assessment in Oregon. COOPERATIVE EFFORT 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. staff and sharing experiences necessary for evaluating manage- ment performance of efficient, economical, and effective programs. These performance audits go beyond the scope of traditional financial audits and require broader skills and training. We believe this study has given GAO and Oregon auditors new insight into the evaluation of procurement systems, and how to work together in planning and conducting performance audits. See appendix I for Oregon's comments on this review. We have included audit guidelines as appendix II so that auditors as well a procurement managers can relate the material presented in the report to the basic guidelines used in the audit. SCOPE OF 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 other governmental entities in the State. Sinc goods and obtained with Federal grant funds are subject to the services same policies and procedures governing all State agency procurements, 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 also don, at'four State agencies, and a questionnaire was sent 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, these 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 Local Government Purchasing (March 1975) and GAO's experience in auditing procurement operations. ii REPORTING 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 Director Procurement and Systems Acquisition Division iii Contents FOREWORD i CHAPTER 1 INTRODUCTION 1 Need for strong central procurement authority 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 2 BACKGROUND ON PROCUREMENT IN OREGON 3 Procurement expenditures administered by the Department of General Services Procurement statutes and regulations 4 3 REQUIREMENTS DETERMINATION AND PLANNING 5 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 4 CONTRACTING AND CONTRACT ADMINISTRATION 12 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 Page CHAPTER 5 DELEGATION OF PROCUREMENT AUTHORITY 22 Opportunities to improve delegation of procurement authority 22 Statutory exemptions 22 Guidelines for exercising delegated 23 authority 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 APPENDIX I COMMENTS FROM OREGON'S SECRETARY OF STATE 23 II GUIDELINES FOR AUDIT OF STATE AND LOCAL PRCCUREMENT ENTITIFS 34 GLOSSARY 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, or (2) guarantee a minimum total purchase 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 opening of bids at a designated ise. Indefinite General Services' establishment quantity buying of price agreements which guarantee no mimirm volume nor any volurie to the vendor. 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 advertising 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 per- centage discount from the vendor's during the period of the agreement list prices (usually 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 INTRODUCTION 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. EFFORTS TOWARD MORE EFFECTIVE STATE AND LOCAL PROCUREMENT - PROGRAMS 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 procurement; -- conflicts of interest and other ethical problems; -- 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 BACKGROUND ON PROCUREMENT IN OREC.)N 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 (millions) 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. PROCUREMENT STATUTES AND REGULATIONS 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 REQUIREMENTS DETERMINATION AND PLANNING 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. OPPORTUN11TES TO IMPROVE REQUIREMENTS DETERMINATION AND PLANNING 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 planning. - 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 items (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 our 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 in 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 Unit_price Item __ Low Power mowers--19 inch $210 $150 Power mowers--20 inch 230 89 Power mowers--21 inch 394 185 (self-propelled) 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 agency 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 discounts. 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 function. 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 9 alternatives 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 unnecessarily. 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 -9- 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; and -- 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 operations. RECOMMENDATIONS MADE TO GENERAL SERVICES 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 Services: -- 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 CONTRACTING AND CONTRACT ADMINISTRATION 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. OPPORTUNITIES TO IMPROVE CONTRACTING AND CONTRACT A9MINISTRATION 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. Increasing_competition 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 obtained; -- 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 bidders. 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 - Specifications 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 during 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 formal solicitations are usually copied directly from requests without modifications, except where agency purchase the purchasing agent may insert 'or qual.' Purchasing agents 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 less. 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' time. 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 accord- 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 -ponsibility 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 and departments to use in verifying that deliveries conform to specifications. General Services could help to assure vendor performance by providing guidelines, such as sampling and testing procedures to verify Quantities and qualities, and accountability procedures to prevent pilferage and related problems. PECOMMENDATIONS MADE TO GENERAL SERVICES We made several recommendations to General Services in the areas of contracting and contract administration, which if adopted, would help realize the benefits outlined 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 bids. - 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 bidding. - 21 - CHAPTER 5 DELEGATTON OF PROCUREMENT AUTHORITY 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. OPPORTUNITIES TO IMPROVE DELEGATION OF PROCUREMENT AUTHORITY 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 personal-professional. 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 following: -- 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' guidelines. 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 activities. 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 correct 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 least three quotes (or the effort made to get quotes) for items 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 obtained. General Services' review of agency compliance obtaining and documenting informal bids is limited in the lack of rules covering agency recordkeeping. by Agencies are not required to document informal bids on their p rchase orders or to file the purchase orders in a 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 simply assume that items conform to specifications, but that large numbers of nonconforming deliveries have been uncovered 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. Foljowuefforts 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 to: -- 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 improvements. - 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. RECOMMENDATIONS MADE TO GENERAL SERVICES 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. OPPORTUNITIES TO IMPROVE COOPERATIVE PURCHASING 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 Purchases (000 omitted) a/ 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 local purchases of some commodities. For example, Multnomah County began buying vehicles under State price agreements after 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 entities 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 whenever there is an economic advantage. Yet at the City of Portland we noted instances where savings through State price agreements were not obtained. For example, the City -- bought five 1970 automobiles for $456 more than the cost of nearly identical models available through a price agreement; and -- purchased two calculators for $685 while the State price agreement cost of the same machines was $595, or 13 percent less. Althbugh General Services allows local governmental entities to use State price agreements, it does not actively to do so. encourage According to a General Services official, it does them not encourage local entities to use price agreements that would increase the agency's heavy workloads. We believe another factor limiting widespread use of price agreements is the requirement that all local entities-- except the City of Portland and Multnomah County--send requests for price agreement items to General Services, which in issues orders to vendors. A General Services official turn said the requirement is intended to prevent numerous small orders to vendors by allowing General Services to quantity consolidate orders where possible. or to refuse an order it does not consider a reasonable size. A Multnomah County purchasing 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 contracts. -- 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 $13,500. 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. RECOMMENDATIONS MADE TO GENERAL SERVICES 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 SECRETARY OF STATE 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. rSinceey, CM:lv - 33- APPENDIX II APPENDIX II GUIDELINES FOR AUDIT OF 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 entities. 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 accountability. 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. II. PROCUREMENT SYSTEM BACKGROUND A. BUDGETARY AND FINANCIAL DATA 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 B. PROCUREMENT STATUTES, REGULATIONS, AND PROCEDURES 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 authority? 6. Are any efforts to revise existing regulations and procedures planned or underway? C. ORGANIZATIONAL STRUCTURE 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. D. PERSONNEL 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. E. MANAGEMENT INFORMATION 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. F. ACCOUNTING AND INTERNAL REVIEW 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 authority. 3. Determine whEt actions have been taken to imple- ment recommendations made by internal auditors. III. REQUIREMENTS DETERMINATION AND PLANNING 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 equipment? -- 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 alternatives. A. INFORMATION ON HISTORICAL AND FORECAST DEMAND 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. B. INFORMATION ON INVENTORIES OF UNUSED EQUIPMENT 1. Determine if the procurement entity obtains information on inventories of unused equipment. 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? C. INFORMATION ON LEASE VERSUS PURCHASE ALTERNATIVES 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 evaluations. 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. A. ASSURING MAXIMUM COMPETITION 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 vendors: 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 2-3 4-10 11-50 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 purchased. - 39 - APPENDIX II 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 data.) 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 items. - 40 - APPENDIX II APPENDIX II B. ASSURING SUITABLE QUALITY LEVELS 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 entity; a. develops new specifications by itself; b. relies on users' specifications; and c. uses existing Federal, State. or local specifications. 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 agencies? 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 whether: 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. C. ASSURING TIMELY PROCUREMENTS 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 requirements. 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 process. 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 functions? 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 problems. - 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 functions. 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. VI. DELEGATION OF PROCUREMENT AUTHORITY 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. A. STATUTORY BASIS FOR CENTRAL PROCUREMENT 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 locations. 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 guideline. B. PROPER USE OF DELEGATED AUTHORITY 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.). C. MONITORING AND REVIEWING 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 performance. - 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. VIII. COOPERATIVE PURCHASING '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 arrangements. B. Determine what action the procurement entity has taken to foster or encourage increased cooperative purchasing arrangements. 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 -
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)