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Can Strategic Sourcing Efforts Streamline Procurement?

Despite the New York state comptroller’s rejection of a $7.5 billion IT staff augmentation consulting contract, the State CIO/Office for Technology stands by its cost methodology.

The battle in New York state over a contract aimed to aggregate IT staff augmentation services boils down to a single question: Can an effort to save money cost too much?

The New York State Chief Information Officer and Office for Technology (CIO/OFT) didn’t think so in January when it awarded a $7.5 billion contract to Tapfin Process Solutions, a subsidiary of Comsys. The idea was that a statewide pool of subcontractors would help the state save $40 million by leveraging its buying power and preventing agencies from searching separately for IT staff augmentation consulting services.

But last week, New York State Comptroller Thomas P. DiNapoli pulled the plug on that plan, stating that the contract is bloated and a waste of taxpayer dollars that “warrants greater consideration given the state’s ongoing fiscal constraints.”

DiNapoli’s office announced plans to investigate the OFT’s procurement process, but the OFT believes the comptroller’s assessment is flawed. First, the $7.5 billion is not the total cost of the contract, but a cap, a “not-to-exceed” number, said Angela R. Liotta, spokeswoman for the CIO/OFT. The contract offered a pay-as-you-go model, meaning state agencies would get consultants as needed.

“We’ve been trying to look at what we can do across the enterprise,” Liotta said. “By leveraging the buying power of the state, we would be able to negotiate contracts that provided more efficient services at a lower cost. We believe the cost methodology was appropriate.”

As states struggle with declining revenue and attrition, policymakers and procurement specialists across the country have had to rethink government purchasing practices. Strategies aimed to leverage buying power, in theory help agencies save money by consolidating services, reducing processing times and improving operations, said Michael Kerr, senior director of state and local government for TechAmerica.

“The goal is to rationalize and streamline procurement, pick preferred partners and save money by increasing volume,” Kerr said. “It’s a common thrust right now. Sometimes the private sector can get things done faster.”

With states spending nearly $200 billion annually to purchase goods and services, changes in government procurement practices could save 5 to 10 percent of total spending, according to a May report by the Pew Center on the States.

Virginia and Minnesota stand at the forefront of the movement to enhance procurement strategies by documenting what they buy and how much they spend. In 2005, Minnesota Gov. Tim Pawlenty launched a sourcing initiative that the state claims has reduced the costs of goods and services by $250 million. Virginia saved about $114 million from 2001 to 2004 through improved contracting practices that allowed agencies to secure lower prices on selected goods and services, according to the report.

“Minnesota and Virginia also have changed how and from whom they purchase goods and services, drawing on best practices, many adapted from the private sector,” the report authors wrote. “An exploration of these innovations yields a roadmap for other states.”

Timing Questioned

But in New York, the timing of DiNapoli’s rejection raises questions. He is currently running for re-election on a populist platform that promotes working families.

At times, the line between political posturing and public interest can get fuzzy, said Gerald Benjamin, a political scientist at the State University of New York at New Paltz. Just last week, New York's inspector general blasted top state legislative leaders and the governor's office for a botched aqueduct gaming contract fueled by political schemes. Due to such recent events, contracting has become a sensitive issue in New York, Benjamin said, but it’s impossible to say whether DiNapoli has any ulterior motives.

In a letter to the New York State CIO/OFT, the comptroller’s office claimed that the contract didn’t provide the best value for the state, especially when compared to previous estimates by the OFT of $24 million. The review by the comptroller’s office was prompted by a protest from an unsuccessful bidder.

“In case OFT hasn’t noticed, the state can’t afford to waste $7, much less $7 billion,” DiNapoli said in a statement.

Earlier this year, New York State CIO Melodie Mayberry-Stewart said the contract not only provided value, but also would help increase diversity in the tech sector. As part of the contract, Tapfin had committed to utilize at least 24 percent of New York's minority and women-owned business enterprises (MWBE) as subcontractors, underscoring Gov. David A. Paterson's push to expand opportunities for small businesses and increase the participation level for MWBEs in government contracting.

In any case, it’s back to the drawing board for the CIO/OFT. DiNapoli said he would welcome a rewritten bid with additional cost justifications, but he plans to launch a full-scale examination of the CIO/OFT’s procurement processes.

“He raises concerns at a fiscally austere time,” Benjamin said. “I think he's doing what he's supposed to do to make sure the contracts are properly managed according to state law.”