Procurement Reform Needed to Reduce Government Spending

Tax-supported institutions are ripe for reform so tax dollars can be saved. Officials, elected and appointed, acknowledge this, but seem stumped on how to move beyond rhetoric to action. This is true not only in the United States but worldwide.

According to the Center for International Development at Harvard University, government procurement accounts for a substantial part of the global economy – 10% to 15% of GDP (gross domestic product) in developed countries and up to 20% in developing countries. Reducing government procurement costs would definitely help Greece, Italy and other economies where the government has been living beyond its means. At home, lowering the cost of government spending without reducing its purchasing power would in itself be an economic stimulus.

There are, however, major stumbling blocks:  Bureaucracy is no doubt the largest. Another is decentralization.  Apathy is a third.  Resistance to change is fourth. Fear of losing control or power is fifth. The sixth, and perhaps the most important, is a lack of knowledge about new procurement options that should replace traditional procurement methods that have outlived their usefulness.

Traditional procurement methods are limited in scope and design, lack competition and transparency and rely too much on cronyism and sometimes involve graft.  Relationship dependency, negotiated pricing, spot bidding and reverse auctions are some of the most widely used traditional procurement methods.

Constraints imposed by various government policies limit the ability of tax-supported institutions to adopt new procurement technology and tailor their purchasing needs. For instance, in the United States, some state governments require the awarding of institutional contracts—such as the purchase of furniture from state correctional industries—when, considering costs and quality, other sources would be better choices.

“Progressive state, county and local governments should allow institutions flexibly to adopt procurement solutions to meet individual organizational needs,” said William Gindlesperger, chairman and chief executive officer of e-LYNXX Corporation, a leading procurement technology firm. “For instance, with the adoption of a print procurement management program powered by new procurement technology, an organization can realize a reduction of 25% to 50% in its costs for procured print -- publications, packaging, labels, commercial print, direct mail, marketing collateral, etc.”

Cost reductions of this magnitude occur because the buyer adopts a set of proven business practices and manages each project through an innovative web-based software system.  When coupled with a pre-qualified vendor pool and competitive bidding among the vendors deemed most qualified to do the work, the buyer is able to tap into vendor production gaps or what would otherwise be downtime and no revenue for the vendor. To fill production gaps, vendors submit discount pricing.  Low bid typically wins because the buyer already knows that, due to the rigorous prequalification process, each vendor in its pool is going to deliver a quality job on time.

In addition to cost reduction, Gindlesperger said the buyer gains total transparency during the process as well the documenting and archiving of every detail from conceptualization of the project to planning, production, delivery and invoicing.  Full accountability also is assured.  Access to the web-based and secure communications and workflow system is controlled by the buyer so only those with a need to know are allowed in the system.

“Federal, state, county and local governments would be wise to embrace new procurement technology such as the one just described,” Gindlesperger emphasized. “Given the significant savings gained with new procurement technology, government officials owe it to taxpayers to adopt new and proven cost-reduction tools that are not part of traditional “government issue” solutions that do not produce significant savings. This is critical at a time when funding is being sought for programs and people.  Does it really make sense for jobs to be axed and programs slashed when savings are readily available through procurement reform?”