Procurement reform may save millions
The state, along with counties and school systems, spends billions of dollars each year purchasing good and services via a process known as “procurement.” The issues surrounding procurement are dense, bureaucratic and hard to understand or explain, and so they rarely get attention from media or citizens, despite their importance. As a result, this is one of the most overlooked sectors of state government.
Here are some numbers for perspective. The state’s procurement budget is over $16 billion, so even small percentage gains in efficiency translate to large amounts of money saved. Just think: A 1 percent improvement at the state level would translate to $160 million in savings! A 2 percent improvement would result in savings of $360 million.
The procurement budget outlined above doesn’t include the budgets of the counties and local school systems (much of which are funded by the state) and the 20-plus agencies that are exempt from direct state procurement (such as the University of Maryland and Morgan State University). Factor in modest savings there as well and even more money can be saved without raising taxes or cutting programs.
Historically our Maryland procurement system has been dysfunctional, hard to navigate for businesses wanting to provide services to government, confusing to understand, wasteful and often duplicative and inefficient. There have been a number of reforms enacted over the past few years in the process, but it was time for a major overhaul.
Numerous procurement problems have been identified by the Office of Legislative Audits. For instance, the Department of Health did not follow standard procedures when replacing a computer system to process Medicaid payments, so that the cost “increased to more than $20 million.” In another case, a Department of Transportation audit found an “overpayment of approximately $10 million” and unnecessary payment of “$498,300 in excise taxes.” More recently, the State Board of Elections did not follow required procedural rules in awarding contracts that “were collectively valued at over $75.3 million.”
That’s why we were pleased to serve as the House of Delegates representatives on the bipartisan Commission to Reform Procurement, chaired by Lt. Gov. Boyd Rutherford. The process included stakeholders from the public and private sectors. There were eight formal meetings, three meetings held around the state solely for citizen input, and numerous subcommittee meetings as well.
The result of this effort was a series of enacted bills that will have a major impact on how Maryland’s government operates. Additionally, these will help Maryland businesses compete for and win more contracts, thereby keeping jobs and revenue in the state.
The most important reform creates what almost every other state has: a chief procurement officer. That job will encompass responsibility for all state procurement, coordinating and clarifying procedures, identifying and adopting efficiencies, applying consistent standards and training for procurement officers, and staying on top of the latest developments in procurement reform. The Department of Legislative Services reported that this approach in Georgia and Arizona “observed financial benefits of approximately 10%.” In Maryland, the annual cost of this office could be about $1 million, but the savings could exceed $900 million over the next five years, assuming these improvements are fully implemented.
Other reforms will eliminate the need for businesses to complete applications for each and every bid when their basic information is already on file. Veteran and minority businesses will be supported. Consortium purchasing has the advantage of volume discounts and will be encouraged, but now Maryland businesses will be able to better compete for these contracts. Flexibility will be added so that large contracts can proceed intact or be broken up into smaller ones if there will be cost savings. The bid process will be simplified. For example, the current system for architects and engineers routinely requires applications over 100 pages long. These application forms will be reduced considerably, likely to 10 pages or less, without sacrificing accountability, thus making it easier for smaller firms to compete.
There is more work to be done on the state’s procurement system, but in 2017 the administration and the General Assembly worked together to take giant steps forward. We anticipate that this effort will reap benefits for decades to come.
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