Posted on 02/15/2005 3:12:23 PM PST by NormsRevenge
SACRAMENTO (AP) - Under pressure to show results from one of the governor's key budget initiatives, the state's Department of General Services announced last month that a new procurement program saved state and local taxpayers $1.1 million on an order for 1,600 police cars.
But the state will actually save less than $75,000, according to purchasing records and interviews - a result that may prove to be the latest in a trail of disappointments for the "strategic sourcing" program, which faces a Senate hearing in the coming weeks and growing criticism among lawmakers.
Launched by Gov. Arnold Schwarzenegger in June as a critical first step in reshaping the bureaucracy, the program has delivered only a fraction of the $96 million the administration expected so far this fiscal year.
The procurement program has been a highly anticipated part of the California Performance Review - the governor's landmark plan to modernize the state - and was forecast to save taxpayers $1 billion over five years, using aggressive negotiations and the state's enormous buying power to drive down vendor prices.
But the company hired to implement the new system - Virginia-based CGI-AMS - had never before handled a procurement contract like California's, and has a recent history of troubled software contracts in other states.
CGI-AMS has also hired two of the Capitol's most influential consultants to help market the program to state officials and to lobby General Services: the Flanigan Law firm, well-known GOP lobbyists with close ties to Schwarzenegger's senior staff; and a public relations firm partly owned by the governor's chief fund-raiser, Marty Wilson, who is also helping the governor raise $50 million for his special election campaign.
Ron Joseph, director of the Department of General Services, said the Jan. 26 press release was not intended to be misleading but he acknowledged that only a small portion of the $1.1 million in savings would be going to the state, if that money was saved at all.
Of the 1,600-car order, the state would be buying about 1,000 cars at a savings of about $75,000, Joseph acknowledged after inquiries from The Associated Press.
The remaining cars could potentially be bought by any local police and sheriff's departments that decide to make purchases through the state program, generating an estimated savings to local taxpayers of close to $1 million if all the cars were sold, he said.
Joseph defended the procurement program and said big savings are coming.
"I won't deny that it's gone quite a bit slower than we anticipated, but we were given an aggressive target," said Joseph.
He said it took longer than expected to get good data on the state's spending practices to use as a baseline - and that several contracts that will save the state big money should be announced in the coming month.
CGI-AMS and its partner, Texas-based A.T. Kearney, have completed just one deal to date - a renegotiating of an office supply contract expected to save $9 million through June 2006. Contracts for the purchase of the police cars have been held up by a protest filed by a losing bidder.
If bigger deals are in the offing, lawmakers preparing for next month's hearing said they want to know more about how the department calculates the savings from each contract. That's important, said Sen. Joe Dunn, D-Garden Grove, because the companies' commission is based on a percentage of the savings.
The problem is that CGI-AMS and A.T. Kearney are not only helping the state evaluate how it spends money but also helping set the baseline for measuring the savings - and thus their own commissions, said Dunn, who first began questioning the CGI-AMS contract shortly after it was signed.
"It could be a little bit of the fox guarding the hen house," said Dunn, a member of the Senate subcommittee reviewing the contract. "That was our concern then and now. It's just not a good business practice to put those functions in the hands of the same entity. Even if there's no impropriety, there's an appearance of it."
Joseph said the contract has provisions that prevent the companies from exploiting their dual role - including an independent audit of both the methods used for calculating savings and another audit after each contract is completed to ensure the savings are accurate.
But a close review of the police car bidding shows how calculating the savings can become a question of interpretation.
In the Jan. 26 press release, the department estimated that $1.1 million would be saved by state and local taxpayers in the deal. But Joseph acknowledged that a big part of the order - and most of the touted savings - are tied to the purchase of Chevrolet Impalas, vehicles that would be bought by local police and sheriff departments and not the state.
For local governments to save enough money to back up the department's claims, they would have to save $1,708 on each of the 600 Chevrolets. That's 22.7 times the $75 saved for each of the 1,000 Fords.
Folsom Lake Ford won the right to sell the cars to the state, offering a price of $21,465 per vehicle for up to 1,000 Ford Crown Victoria sedans for the California Highway Patrol.
However, records show conflicting prices for the baseline cost of the cars - and even after the AP inquired about the contract, department officials were uncertain whether the state was preparing to agree to the baseline that would result in a much higher commission.
One baseline comes from the most recent prior purchase of the same Fords for the CHP. That was Dec. 9, when a contract for 150 cars was awarded to Sacramento's Downtown Ford. In a deal done outside the strategic sourcing program and without the help of CGI-AMS, the dealer's price was $21,540 or $75 more per car than the January bid.
The savings are calculated by multiplying $75 by 1,000 cars for $75,000 in total savings.
The other baseline price was set in November after department officials and their consultants agreed on a complex formula for evaluating the marketplace and historic purchases of Ford police cars in the past. That price was set at $21,770 or $305 more per car than the January bid.
The $305 per car in estimated savings multiplied by 1,000 comes to $305,000 in savings.
Depending on which baseline is used, the 10.5 percent commission to the consultant swings greatly. The December figure would result in a commission of $7,875; the November figure would bring in closer to $32,000.
Joseph said the department now will argue that the December price is more accurate. He conceded that he may get a challenge from CGI-AMS.
A spokeswoman in CGI-AMS' corporate communications office in Cleveland referred questions about the contract to Joseph.
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On the Net
Gov.'s home page: http://www.governor.ca.gov/state/govsite/gov-homepage.jsp
California Performance Review: http://cpr.ca.gov/
This is a great idea, but why limit the tag-along savings to local govt?
I would love to be able to get a negotiated bulk discount price for a CHP spec BMW R1150RT motorcycle.
Let any Californian that wants one place an order.
Los Angeles county alone has over 650,000 state and local government employees. Or about 1/7th of the entire workforce.
This incredible socialist bloat is the root of California's budget problems. Everything you can think of and much that you can't has been made the government's business and has a staff of bureaucrats to attend to it. Most of this "work" isn't even pretending to produce something, it is creating obstacles to prevent anyone else from producing things.
No amount of wheeling and dealing with material suppliers will make a bureaucracy of that size efficient, affordable, or productive. The problem is the work being done in the first place.
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