Auditor General Jack Wagner said today his department has uncovered systemic problems with the state’s $4-billion-a-year procurement process that, if corrected, would provide hundreds of millions of dollars in sustainable savings.
Wagner cited several examples of structural flaws in the contracting process discovered in his audits, including:
-- An October 2009 special performance audit of the Department of General Services’ procurement of information technology contracts found that the state paid one company $592 million over four years through 59 contracts. The contracts were originally worth a total of $382 million, but increased by 55 percent due to change orders, sole source contracts, and emergency contracts. Of the 59 contracts, 34 were not bid competitively.
-- An August 2009 special investigation determined that the sale of the Pittsburgh State Office Building, which was sold after DGS received only one bid, cost taxpayers almost $55 million rather than saving money, as asserted by DGS.
-- An April 2009 special investigation of the Pennsylvania Liquor Control Board’s employee training contract determined that, while the PLCB did not violate state law, it did exercise poor judgment in awarding a $173,820 contract, after receiving only three bids, to the relative of a PLCB regional manager. The variance in the three bids was a clear indication that rebidding the contract would have been in the best interest of taxpayers.
-- A no-bid contract recently awarded to former DGS Secretary James Creedon for stimulus oversight includes a provision for two one-year renewals even though it was widely reported the contract would only last the duration of the stimulus funding.
-- A December 2010 special performance audit of the Pennsylvania Gaming Control Board uncovered that the Board failed to adhere to state procurement procedures and failed to comply with the Sunshine Act in the awarding of $7 million in contracts for legal and other professional services through competitive sealed bid, emergency, and sole-source contracts.
-- Numerous legal contracts awarded by state government and agencies without competitive bidding.
“The Commonwealth’s contracting process urgently needs structural reform,” Wagner said. “Tightening this process would create transparency and save taxpayers at least $200 million a year if we could realize savings of only 5 percent.” Over four years, the savings would approach $800 million.
Under the Procurement Code, DGS is responsible for the procurement of all supplies, services, and construction needed by state agencies, ranging from office supplies to computers to real estate. The Procurement Code specifies that contracts must be competitively bid, but it provides for the use of emergency and sole-source contracts under certain exceptional circumstances.
A review of DGS’ contract data illustrated that the current procurement process has too many no-bid contracts, sole source contracts, emergency contracts, and change orders, which eliminates competition in the bidding process, Wagner said.
Wagner’s analysis found that from June 2008 to December 2010 the commonwealth awarded 511 sole-source contracts and 272 emergency contracts worth more than $250 million.
“Competition is the key to American enterprise,” Wagner said. “It generates new ideas and it’s the best way to assure taxpayers that they are getting the best price available on goods and services.”
Adding these savings with proposals offered at previous media briefings, Wagner has suggested savings totaling $1.31 billion for fiscal year 2011-12. Previous press conferences highlighted potential savings of $225 million in charter and cyber-charter school funding; $436 million by eliminating eligibility errors in the Medicaid program, $201 million by offering state employees an early-retirement incentive, $250 million by consolidating commonwealth prescription drug purchases, and $3 million through a moratorium on a scheduled 1.7-percent cost-of-living increase for approximately 1,500 leadership positions in state government.
“With Pennsylvania facing its greatest economic crisis since the Great Depression, and with the Commonwealth facing a potential $5 billion budget deficit next year, we must do all that we can to save taxpayer money without compromising necessary services and programs,” Wagner said.
