Two Year Procurement Study Revealed
Two Year Procurement Study Revealed
On June 13, 2016, Joint Legislative Audit and Review Commission’s (JLARC) briefed the joint legislative committee on their report on the Development and Management of State Contracts. Below is a summary of the report and briefing.
Key Findings: Please note – these findings relate to all state contracting (both goods and services)
• Little data is available on relevant measures of contract performance
• Some state policies can limit agencies ability to pay reasonable prices and avoid poor quality purchases
• There is a lack of emphasis on risk management and contract administration in statewide agency policies
• Vendors do not have an effective means to report negative contracting experiences
The report put forward 30 recommendations:
• Several are related to creating policies and procedures to increase the effectiveness of contract administration, which they identified as a significant weakness.
• Several are related to improving the quality of state contracts to reduce risk, add performance and quality measures, and include penalties for vendor non-performance.
• Several are related to developing mechanisms to collect data on contracts, vendor performance, and procurement methods
• Several are related to supplier diversity/SWAM — because this is of interest to a number of firms, the recommendations are regarding: identifying a formula for “fair and reasonable” pricing differences, collecting data on contracts to evaluate the 20% rule, prioritizing “small” and “micro” over women- and minority-owned, and electronic notification of renewal
• Several are related to developing a mechanism to identify high-risk/high-value contracts and elevating the level of oversight on these contracts
• Several were specific to the procurement of IT
• And, finally, several were related to improving the complaint process for vendors
Two recommendations were specific to the industry
The Department of General Services should modify the Construction and Professional Services Manual to clarify the requirement that vendor experience with project delivery method, such as construction-manager-at-risk or design-build, be considered by state agencies and higher education institutions when qualifying vendors to compete for construction contracts. The policy should state that agencies shall not automatically disqualify vendors during the Request for Qualifications stage of a procurement because of a lack of direct experience with the specific project delivery method to be used for the project.
The Department of General Services (DGS) should broaden its focus, and the focus of its Procurement Management Reviews, toward ensuring agency compliance with state laws and policies regarding the development and administration of contracts and implementation of best practices for all aspects of contracting, including professional services and construction contracts. The department should collaborate with the Auditor of Public Accounts (APA) to ensure that the elements of its reviews, and the review schedule, do not unnecessarily duplicate the work of APA staff.
APPENDIX E analyzes contracting methods for construction projects.
JLARC interviewed staff at four universities and collected data on 28 recent construction projects completed by Virginia Tech, the University of Virginia, William and Mary, Virginia Commonwealth University, Christopher Newport University, James Madison University, and George Mason University in order to examine the advantages and disadvantages of three procurement methods: design-bid-build, design-build, and construction-manager-at-risk.
According to state policy, methods other than design-bid-build are intended for especially costly projects. Guidelines for the use of the construction-manager-at-risk method states that it should be limited to projects valued more than $10 million.
Institutions were generally satisfied with all three procurement methods. All 28 projects analyzed performed differently than originally expected, regardless of contracting method.
- Cost overruns occurred for all three types of projects, cost overruns as a percent of the original project cost were highest for design-build projects. The dollar value tended to be highest with CM at risk projects.
- Schedule delays occurred for all three types of projects, the average length of delays was greatest for design-build projects
- All three categories of projects experienced change orders.
The report asserts that alternative methods may be beneficial for especially complex or time-sensitive construction projects because of the built-in collaboration between the agency, construction manager, and project design team. It also asserts that a dollar threshold is not the most effective criteria for deciding which method to use because a project’s cost does not necessarily reflect the complexity or time-sensitivity of projects.
The report recommends that DGS be directed to periodically evaluate how projects under each method perform in relation to schedule, budget, and specifications, allowing the Department to compile data on construction project performance and contribute to a greater understanding of the advantages and disadvantages of the different methods.
Recommended Legislative Action
- Develop criteria for identifying high-risk contracts and implement a process to oversee them.
- Direct DGS and VITA to develop a centralized approach to tracking contract performance.
- Direct DGS and VITA to develop a comprehensive training program on effective contract administration.
Recommended Executive Action
- Develop tools and policies that allow agencies to balance cost with the quality of goods and services purchased.
- Develop mandatory training on effective risk management.
- Develop guidelines for assigning staff to administer contracts, particularly those that are high risk or high value.
- Develop guidelines for monitoring vendor performance, reporting performance problems, and using enforcement measures.
- Improve awareness of the vendor complaint process and make it easier to use.