Report 2002-112 Summary - March 2003

State Procurement Practices: Proposed Reforms Should Help Safeguard State Resources, but the Potential for Misuse Remains


Our review of the State's California Multiple Award Schedules (CMAS) program and sole-source and emergency procurement practices revealed the following:


State departments spend billions of dollars each year using the California Multiple Award Schedules (CMAS) program, master service agreements (MSAs), sole-source contracts, and emergency purchase orders. However, until an Executive Order required extensive reforms, many departments ignored the guidelines the Department of General Services (General Services) developed to ensure that state resources were not wasted. Specifically, departments did not always compare prices or evaluate other factors when selecting vendors from the list compiled by the CMAS program—vendors that have agreed to sell specific products and services at approved prices throughout the terms of specific contracts. In addition, departments frequently misused sole-source contracts and emergency purchases. While state departments are responsible for complying with laws and policies governing purchasing, many of the problems with their purchasing practices were exacerbated by inadequate oversight and administration of those practices by General Services, which is responsible for setting guidelines for using the CMAS program, approving CMAS and noncompetitively bid contracts, and performing periodic audits of certain CMAS transactions and vendors and noncompetitively bid contracts.

The Bureau of State Audits has issued a number of reports pointing out weaknesses in the use of the CMAS program and noncompetitively bid purchases, the most recent of which was our April 2002 report titled Enterprise Licensing Agreement: The State Failed to Exercise Due Diligence When Contracting With Oracle, Potentially Costing Taxpayers Millions of Dollars. Attempting to eliminate the faulty practices of purchasing departments, the governor issued an Executive Order in May 2002 requiring departments to adhere to interim guidelines created and implemented by General Services. In August 2002, responding to the Executive Order, the Governor's Task Force on Contracting and Procurement Review (task force) recommended sweeping changes to the State's contracting and procurement procedures. General Services provided staff support to the task force and developed the recommendations for the task force's consideration and is responsible for implementing those recommendations.

One example of making a CMAS purchase without comparing prices or determining the best value is the Department of Corrections' purchase of $4.6 million in computer hardware maintenance services. Another significant example of using the CMAS program without comparing vendors' prices occurred in the project that developed the state Web portal—an award-winning Web site from which California's citizens can access information on various state services. For this project, the Stephen P. Teale Data Center (Teale Data Center), the Health and Human Services Data Center, and two units within General Services, largely at the request of two former officials of the Governor's Office, purchased more than $3.2 million in goods and services from one CMAS vendor. Further, General Services and the Health and Human Services Data Center purchased $8.4 million in consulting services for the Web portal using CMAS and an MSA. However, despite General Services' own recommendation to compare vendor prices when using the CMAS program and the terms of the MSA, neither General Services nor the other state entities involved in purchasing goods and services for the Web portal did so.

Moreover, the State purchased $2.5 million in goods and services from private companies that played roles in defining the conceptual approach and specific architecture for the Web portal. Because, as in the case of most other purchases for the Web portal, these companies' products were selected without price comparison, questions of fairness exist. Additionally, even though General Services was responsible for the administration of the project, the former officials of the Governor's Office directed many of the purchases used to develop the Web portal, resulting in a lack of accountability over the project. Consequently, estimated project costs given to administrative control agencies and the Legislative Analyst's Office were sometimes inaccurate and potentially misleading. The Teale Data Center is now responsible for the management, maintenance, and support of the Web portal project and has achieved some reductions in cost through competitive bidding.

Another defect in state procurement practices that occurred frequently before the Executive Order was departments' misuse of emergency purchase orders and sole-source contracts—contracts in which only one vendor is selected because only that vendor can meet the State's needs. These alternative procurement practices, when misused, call into question the reasonableness of prices paid for goods and services and the possibility of unfairly restricting competition. For instance, eight of 23 requests for sole-source contract approval we reviewed did not demonstrate that they met statutory requirements. Similarly, for 17 of 25 other purchase requests we reviewed, departments did not sufficiently document that the situations warranted emergency purchases, departments' poor planning resulted in the need for quick purchases, or departments believed that they had special needs. In one instance, the Department of Motor Vehicles, on behalf of the California Complete Count Committee, purchased $125,000 in teddy bears for the Census 2000 campaign, stating that it needed the bears to entice citizens to complete their census forms. While the purchase did not fall within the exceptions to competitive bidding requirements, General Services approved the department's purchase request.

Insufficient monitoring and oversight by General Services has contributed to an environment that has allowed these purchasing practices to continue virtually unabated. Specifically, General Services has not adequately reviewed requests for sole-source contracts and emergency purchases before approving the requests. Only 15 of the 23 sole-source contract requests we reviewed included documents justifying the departments' requests. Nonetheless, General Services approved all 23 requests.

General Services' inability to properly administer and monitor state purchasing practices is also evident in the failure of its Procurement Division to conduct consistent and prompt compliance audits of state departments' contracting and purchasing practices. Moreover, since fiscal year 1998-99, Audit Services completed only 19 audits of the 40 departments it includes in its rotational audit plan, and General Services has not fulfilled its responsibility to review current CMAS vendors. Further, General Services' procedures for adding new vendors and products to the CMAS list are weak, relying too heavily on the strength of contracts between the vendors and other government entities. Specifically, General Services needs to take additional measures to ensure that local governments and other states that award multiple-award contracts—contracts on which CMAS contracts are based—truly compare prices of goods and services to those offered by competitors. In one instance, a contract established by the Merced County Fast Open Contracts Utilization Services program was used as the basis for a CMAS contract with the StateStore Incorporated (StateStore), a vendor repeatedly used to make purchases for the state Web portal. However, we found that Merced County does not have procedures to competitively assess all contract amendments. As a result, General Services could not ensure that the costs of the goods and services purchased through the StateStore's CMAS contract were fair and reasonable.

General Services also needs to improve its information technology (IT) systems for the CMAS program. Several departments we visited complained that the current system was too cumbersome and did not contain the information needed to make efficient CMAS purchases. For instance, access to vendor product and pricing information is severely limited. Additionally, unlike similar departments in some states, General Services does not have copies of CMAS contracts online, although it directs departments to document certain portions of the contracts when making purchases. Many departments contend that it is difficult to obtain copies of the contracts from General Services or the vendors, making it hard to comply with General Services' direction.

Further, General Services IT systems for the CMAS program contain inaccurate expenditure data. According to reports prepared from General Services' Procurement Information Network (PIN) system, which captures data on CMAS purchases, departments spent $889 million purchasing goods and services from CMAS vendors in fiscal year 2000-01. In comparing data in the PIN system to data at departments, we identified several transactions in which wrong amounts had been entered and others that were entered more than once. To recoup the cost of administering the CMAS program, General Services charges each state department a fee for purchasing goods and services from CMAS vendors. The fees are based on the purchase amounts recorded in the PIN system. Therefore, errors in the PIN data result in over- or undercharges to the departments. For the 10 billings we reviewed, General Services overcharged departments more than $219,000 for its services. However, General Services' PIN system did not contain records of some purchases made by departments, leading us to believe that not all departments are reporting their purchases as required.

Prompted by the May 20, 2002, Executive Order, General Services issued interim guidelines on May 28 that establish new restrictions on purchasing. In addition, the task force proposed changes in the State's contracting and procurement procedures that should address most of the weaknesses we identified. However, since the task force made its recommendations in August 2002, only a few have been fully implemented and these few recommendations have not been running long enough for us to measure their effectiveness. Nonetheless, if properly implemented, the policy changes would place stricter requirements on the use of multiple-award contracts by California departments than do the policies of several other states. The task force's goal in recommending the changes was to ensure that state departments use open and competitive bidding whenever possible. In line with that goal, one of the most notable reforms requires state departments to obtain three price quotes before purchasing from a CMAS vendor. Another critical recommendation is to prohibit the use of CMAS contracts or MSAs for acquisitions related to large IT projects. This prohibition, if enforced, relates directly to purchases made in developing the state Web portal. The task force agreed that MSAs and the CMAS program were not designed to be used for such complex projects and acknowledged that stringing a series of CMAS or MSA purchases together to implement a large IT system circumvents the controls and oversight built into the State's IT acquisition process.

In response to other task force recommendations, General Services has placed significant restrictions on the use of noncompetitively bid contracts (that is, sole-source contracts and emergency purchases) and plans to increase its level of audits and legal reviews for all contracts and other purchasing vehicles. Unfortunately, because of limited resources and other restrictions, the effect of many of the task force's recommendations will likely not be felt for several years. For instance, the task force acknowledged that upgrading General Services' existing IT system and developing a comprehensive training program for state purchasing personnel are long-term projects.


Ensuring that the State receives the best value when acquiring goods and services requires all state departments to make changes in their purchasing procedures, including the following:

The Teale Data Center, which has assumed responsibility for the management, maintenance, and support of the state Web portal project, should continue to competitively bid purchases for the project and maintain accurate and clear accountability over project cost estimates and expenditures.

As the administrator of the State's contracting and purchasing procedures, General Services should take the following actions:


General Services and the Teale Data Center agree with our recommendations. Accordingly, both departments stated that they would take the necessary actions to address the recommendations. In fact, General Services indicated that it has already begun to implement many of the recommendations in our report.