Procurement Reform Needed to Reduce Government Spending

Tax-supported institutions are ripe for reform so tax dollars can be saved. Officials, elected and appointed, acknowledge this, but seem stumped on how to move beyond rhetoric to action. This is true not only in the United States, but worldwide.

According to the Center for International Development at Harvard University, government procurement accounts for a substantial part of the global economy—10 percent to 15 percent of GDP (gross domestic product) in developed countries and up to 20 percent in developing countries. Reducing government procurement costs would definitely help Greece, Italy and other economies where the government has been living beyond its means. At home, lowering the cost of government spending without reducing its purchasing power would in itself be an economic stimulus.

There are, however, major stumbling blocks: Bureaucracy is no doubt the largest. Another is decentralization. Apathy is a third. Resistance to change is fourth. Fear of losing control or power is fifth. The sixth, and perhaps most important, is a lack of knowledge about new procurement options that should replace traditional procurement methods that have outlived their usefulness.

Traditional procurement methods are limited in scope and design, lack competition and transparency and rely too much on cronyism and sometimes involve graft. Relationship dependency, negotiated pricing, spot bidding and reverse auctions are some of the most widely used traditional procurement methods.

Constraints imposed by various government policies limit the ability of tax-supported institutions to adopt new procurement technology and tailor their purchasing needs. For instance, in the United States, some state governments require the awarding of institutional contracts—such as the purchase of furniture from state correctional industries—when, considering costs and quality, other sources would be better choices.

“Progressive state, county and local governments should allow institutions flexibly to adopt procurement solutions to meet individual organizational needs,” said William Gindlesperger, chairman and chief executive officer of e-LYNXX Corporation, a leading procurement technology firm. “For instance, with the adoption of a print procurement management program powered by new procurement technology, an organization can realize a reduction of 25 percent to 50 percent in its costs for procured print—publications, packaging, labels, commercial print, direct mail, marketing collateral, etc.”