Poor Procurement Practices Cost US Government Billions

Despite 10 years of procurement and contracting reform, US regulations are still so complex and procurement operations so fragmented that they are severely limiting governments’ ability to cut costs and streamline procurement operations.

And according to a recent Aberdeen-Government Computer News study, the failures are costing US taxpayers billions of dollars.

When the researchers examined supply management procedures, experiences, and intentions of more than 250 federal, state, county, local, and defence agencies they found government procurement operations in need of further streamlining, and called for more aggressive adoption of supply management automation.

And they found government priorities still differ drastically from those of their private sector counterparts. Survey respondents cited satisfying procurement regulations rather than reducing costs as the primary driver of supply management strategies in the public sector. The study found that where cost reductions are top of mind for supply management professionals in the private sector, satisfying procurement regulations is the primary driver of supply management strategies in the public sector. Less than half of public sector managers cited reducing prices paid for goods and services as a key goal of their procurement operations, and even fewer were concerned with reducing employment cost of procurement operations.

Purchasing cycles were naturally found to be longer in the public sector, and public sector organizations were found to have higher procurement operating costs. Creating, managing, and controlling compliance to the terms and conditions of supplier contracts are the biggest challenges facing government managers.

“These are issues that government agencies must reconcile quickly,” the report says. “Faced with declining tax revenues in recent years, most agencies - particularly those at state and local levels - are facing new mandates to improve procurement and better manage their spending. As a result, these agencies must understand and develop strategies and adopt technologies to rationalize procurement procedures and enhance spend visibility and control.”

The report warns in order to effectively manage the total cost of ownership of supply relations and delivering the best value for every tax dollar earned government agencies will be forced to emulate total cost management (TCM) strategies employed by private sector firms, overhaul complex procurement regulations, and create incentives for cost savings.

Chief procurement challenges cited by government managers included creating, managing, and controlling compliance to the terms and conditions of supplier contracts.

With procurement regulations so complex and procurement operations so fragmented, agencies have little incentive to cut costs and extend purchasing cycles. Aberdeen’s studies of private sector procurement operations suggest the failure costs the government billions of dollars in missed savings opportunities.

Government buyer’s biggest challenges are seen as creating, managing, and controlling compliance to supplier contracts, and the report suggests optimizing value from the procurement function will require government agencies to emulate total cost management (TCM) strategies employed by private sector firms.

“Although the government has done much to streamline procurement in the last decade, there is room to further overhaul complex procurement regulations and create greater incentives for cost savings.

“The US federal, state, and local governments constitute the single largest buying entity in the world. However, the government lags private sector firms in employing strategies and technology to streamline procurement operations and better control supply costs and performance. In fact, continued reports from the General Accounting Office (GAO) suggest that the federal government alone is wasting billions of tax dollars owing to underleveraged spend and underperforming procurement and supply management operations,” the report says.

The authors suggest the report, Supply Management in the Public Sector: Improvements Required, proves efficient procurement can drive improvements without negatively impacting the breadth or quality of government services. Its specific recommendations for improving public sector procurement include:

* Further update procurement policies, procedures, and incentives to remove unnecessary tasks and foster cost savings * Institute total cost management strategies that have been proven in the private sector * Assess the competency of your procurement-operating model against that of your peers and top performers * Continually measure and improve compliance and performance

“In the public sector bureaucracy is getting in the way of sound and efficient procurement and supply management practices,” the authors say. “Now, faced with declining tax revenues, most agencies face mandates to more efficiently manage their spending; hence, these agencies must develop strategies and adopt technologies to improve procurement procedures.”

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