A recent audit by the Oregon Secretary of State’s office shows that adoption of a statewide e-procurement system could have potentially saved more than a billion dollars if it had been in use during the last biennium.
In announcing the news, Secretary of State Dennis Richardson pointed out that savings of this magnitude would be enough to close Oregon’s 2019-21 budget gap without raising taxes.
“A statewide e-procurement system would allow the state to replace fragmented legacy systems with one modern system that would allow for detailed spend analyses … and eliminate redundancy and manual processes,” said Katy Coba, Oregon’s chief operating officer, via email.
Gov. Kate Brown raised the issue last fall in a vision statement that called for modernization of state purchasing.
“Oregon’s state agencies spend about $8 billion each biennium purchasing goods and services. This amount represents approximately 10 percent of the state budget,” Brown noted at the time. “Creating efficiency in procurement brings a tremendous opportunity to save money, opening up more state funds to be spent directly on education or critical social services that help Oregon’s families.”
The governor called on state officials to explore the development of a modern procurement system that could:
Track and manage agency purchases under one unified technology system
Ensure that Oregon’s small and emerging businesses have opportunities to compete for state contracts
Prioritize price when evaluating contractors
Demand the best deal by regularly re-negotiating existing state contracts
Increase competition in state contracting by implementing new tools
Require agencies to use new space optimization rules when purchasing or leasing space
The audit team looked at procurement practices and IT projects across 10 executive department agencies, and found the current system wanting in several areas. Procurement processes today lack an enterprise focus on shared services; are highly decentralized; lack consistency; offer only limited leverage within vendor negotiations; and fail to mitigate risk, the audit found.
“[T]he state’s reliance on inconsistent, manual, paper-based processes is time consuming, error prone, difficult to track and measure, and not easy to integrate with other systems,” they noted.
Auditors recommended all state agencies follow the Secretary of State’s office in implementing the e-procurement system OregonBuys, which the state launched as a pilot project in 2017.
They also recommended procedural improvements including better oversight practices, more robust guidance and training for agency IT project management, and better tracking of independent quality assurance reports.
Coba pointed to financing as the first hurdle on the road to implementing this vision. Adoption of e-procurement “is dependent on legislatively-appropriated funding,” she said. “The governor’s recommended budget for 2019-21 includes $9.7 million for the eProcurement system. This would provide for full implementation by July 2021.”
Should the money come through, state agencies likely will have to wrangle with human-side issues as they transition from old manual processes to a more centralized procurement methodology. “We can’t necessarily predict what the challenges may be, but one of the key components to successful implementation will be training and user adoption of the new system and associated processes,” Coba said.
Ten core agencies already have begun to explore the process, she noted. Under an e-procurement pilot project, they have development requirements for electronic procurement, conducted an RFP and awarded a price agreement for a solution partner.
“Although funding has not yet been approved for a statewide system, these 10 agencies have pooled resources to contract with the solution partner to build the backbone of the system to allow agencies with funding to adopt a ‘light’ version of the system until such time as statewide implementation is approved,” Coba said.
Those efforts helped to inform the $9.7 million request, currently awaiting approval, she said.
While the Secretary of State highlights the high end of possible savings — potentially “over $1 billion”— it’s worth noting that the auditors actually give a wide range, anywhere from $400 million to $1.6 billion in possible savings over a two-year period. That’s because the data on the ground is rather thin, owing to the opacity of the present system.
“Spend analysis is a critical best practice used by procurement organizations to create an informed procurement strategy resulting in reduced costs and effective oversight of suppliers,” the audit noted. “Due to a lack of sufficient spending data, [auditors were] unable to conduct this analysis.”
In fact, purchase-level data is only available for approximately 12.5 percent of procurement spending, the audit found. Thus, in addition to moving toward e-procurement, the auditors also urge state agencies to get a more comprehensive grasp of key data that will be needed to track the success of procurement modernization going forward.
“Without the ability to analyze detailed purchase data for all procurements, Oregon is unable to identify opportunities for potentially millions of dollars in cost savings,” they noted.
Agencies also will have to dig deep into their operating methodologies in order to leverage the advantages of an e-procurement system. Auditors point for example to the need to apply purchasing oversight at varied scales.
“Projects may vary greatly in project size, risk, and complexity, but there is no methodology to define risk or appropriately scale oversight,” they wrote. “For example, there is no clearly defined distinction in how a $2 million stage gate project with low risk and complexity will be evaluated — and with what level of scrutiny — compared to a $300 million stage gate project with high risk and complexity.”
If oversight mechanisms can’t be made to scale as needed, “there is an increased risk that some projects will receive an insufficient level of scrutiny and critical issues will not be identified.”
This suggests that technology modernization alone is not sufficient. An e-procurement system will only be as good as the business processes agencies deploy to support