Department of General Services: Review Small Business

Assembly Committee on Accountability and Administrative ReviewRoom 447, State Capitol Sacramento, California

June 8, 2011

Department of General Services: Review of Strategic Sourcing and Impacts on Small Business

Presentation by ELAINE M. HOWLE, CPA California State Auditor

KAREN L. McKENNA, CPA Audit Principal

IndependentTRANSPARENT Accountability

NONPARTISAN

1California State Auditor—Presentation Document

June 8, 2011

SUMMARYThe California State Auditor has issued two audit reports on the State’s contracting practice that involve small businesses or Disabled Veteran Business Enterprises (DVBEs).

• July 2002: Disabled Veteran Business Enterprise Program: Few Departments That Award Contracts Have Met the Potentially Unreasonable Participation Goal, and Weak Implementation of the Program Further Hampers Success (Report 2001-127).

• July 2010: Department of General Services: It No Longer Strategically Sources Contracts and Has Not Assessed Their Impact on Small Businesses and Disabled Veteran Business Enterprises (Report 2009-114).

Our 2002 report concluded that many awarding departments did not report DVBE participation to the Department of General Services (General Services) as required by statute. Of those that did report, most did not meet the 3 percent participation goal established under the DVBE program. Additionally, the methodology for reporting DVBE participation levels was flawed. The reasonableness of the 3 percent goal itself was uncertain, and a thorough study of the businesses owned by disabled veterans was needed to determine an appropriate goal. Additional factors also impeded the State’s ability to meet the 3 percent goal. Awarding departments had great flexibility in implementing the program, leading to inconsistent and weak implementation. Some awarding departments exempted a significant number of contracts, did not scrutinize good-faith effort documentation that bidders submitted as a substitute for subcontracting with DVBEs, and did not take steps to ensure DVBEs were used according to contract specifications.

In the 2002 report, we made several recommendations to state agencies, including General Services and the Department of Veterans Affairs. These recommendations focused on a variety of areas, such as reporting, monitoring, and outreach. As part of what was then our standard follow-up process, the state agencies to which we made our recommendations reported on their status three times within the first year after our report was issued. In February 2004 we last reported to the Legislature that most of the recommendations to state agencies had been partially implemented. We also made recommendations that we asked the Legislature to consider. Subsequent to our report, there have been several laws enacted that modified the State’s contracting practices with DVBEs.

Our presentation today focuses on our 2010 report, which is our most recent work involving small businesses and DVBEs. We will present the key issues in the report, as well as the latest information that we have received regarding the implementation of the recommendations we made during the audit. The Joint Legislative Audit Committee requested that we review General Services’ strategically sourced contracting practices and the effects these practices have on California small businesses and DVBEs. Although our audit focused on strategically sourced contracts, the policy questions we identified during the audit are also applicable to other types of statewide contracts that the State implements to take advantage of volume discounts. A key policy question is as follows: Is it in the State’s best interest to limit a particular line of business to a select number of small businesses and DVBE subcontractors rather than the many small businesses and DVBEs that could contract with the State?


June 8, 2011

BACKGROUNDGeneral Services’ Role and Responsibilities

General Services serves as the business manager for the State and has the authority to establish various types of contracts that leverage the State’s purchasing power. State law provides General Services with broad powers for carrying out its responsibilities. For example, it has general powers of supervision over all matters concerning the financial and business policies of the State as they relate to its duties. State agencies are generally not permitted to acquire goods costing more than $100 without General Services’ supervision. General Services can delegate purchasing authority to state agencies that meet specific criteria for purchases that exceed that amount. Under their delegated authority, state agencies can enter into contracts up to a specified dollar amount as defined by the level of purchasing authority that General Services grants. All purchases that exceed a state agency’s delegated purchasing authority must be contracted by General Services on that agency’s behalf. Depending on the volume of purchases of certain goods, General Services might enter into a statewide contract for state agencies to use when purchasing goods.

In June 2004 General Services awarded a three-year contract to CGI-American Management Systems (CGI) to assist General Services in implementing its strategic sourcing initiative. The purpose of strategic sourcing was to enter into statewide contracts that leveraged the State’s purchasing power to save money on the goods and services purchased most frequently by state agencies. The strategic sourcing process involved identifying those goods and services through a systematic analysis of past purchasing data and projecting the savings that could be expected through new contracts.

Small Business and DVBE Participation Requirements

In an effort to increase small business and DVBE participation, state law and regulations require agencies that award contracts provide preferences and incentives to these firms. State law requires state agencies to give a 5 percent preference to California small business bidders meeting specifications. Before October 2007 General Services’ policy for itself and agencies with delegated authority allowed a 3 percent to 10 percent incentive for DVBE participation. In October 2007 a regulation was established limiting the DVBE incentive to no less than 1 percent and no more than 5 percent.

Participation goals also exist. By executive order, a goal was set for all state agencies to award at least 25 percent of their contract dollars to small businesses. Further, state law establishes a 3 percent DVBE participation goal that applies to state agencies’ overall annual expenditures for contracts. Before a change in law that became effective July 2009, bidders could meet a DVBE participation effort requirement or perform a good-faith effort to meet the requirement. With the change in law, the good-faith effort is no longer an option and, for individual solicitations in which a state agency includes a DVBE goal, bidders actually must meet the specified DVBE goal to be considered for contract award.


June 8, 2011

AUDIT HIGHLIGHTSOur July 2010 review of General Services’ strategically sourced contracting practices revealed that it:

• Awarded 33 statewide strategically sourced contracts for 10 categories of goods between February 2005 and July 2006. Further, it:

– Accrued at least $160 million in net savings as of June 30, 2007.

– Paid the consultant that assisted in implementing the strategic sourcing initiative 10.5 percent of the accrued savings realized through these contracts.

– Did not continue to formally calculate the savings after June 2007 when its consulting contract expired.

• Has not strategically sourced 20 other categories of good or services, which were recommended by the consultant, and had not prepared an analysis to document its rationale for not strategically sourcing.

• Incurred significant costs to train staff and to develop written procedures on strategic sourcing, yet has not awarded any new strategically sourced contracts using the procedures or reviewed comprehensive purchasing data to identify new opportunities.

• Lacks data to determine the impact of strategic sourcing on the participation by small businesses and DVBEs.

• Does not monitor small business and DVBE subcontractors to ensure that they perform commercially useful functions in providing goods or services once a contract has been awarded.

• Does not have standard procedures to recover any overcharges identified despite its new automated process designed to monitor compliance with contract pricing terms.

General Services’ Initial Strategic Sourcing Efforts Resulted in Significant Savings

General Services awarded a contract in June 2004 to CGI to assist it in identifying and creating strategically sourced contracts. The contract required General Services to pay CGI 10.5 percent of the first $400 million in accrued savings realized through these contracts until June 2007, when the CGI contract expired.

Based on CGI’s recommendations, General Services awarded 33 strategically sourced contracts for 10 categories of goods. These categories, which included goods such as information technology hardware, office equipment, and pharmaceuticals, comprised $532.8 million in historical annual purchases.

CGI identified the cost the State would have incurred had it not strategically sourced the goods by applying historical prices and discounts the State received in the past to the purchases it made during the period for which CGI was calculating the savings. It also calculated the cost the State incurred by applying the strategically sourced contract prices to the purchases it made during the same period. The difference represented the accrued savings. General Services reviewed the savings calculations before paying CGI.

The savings calculations indicated that between February 2005 and June 2007, the State incurred $179 million less in costs for purchases under the strategically sourced contracts. General Services paid CGI fees of $18.8 million. Therefore, documents indicate that the net accrued savings from the contracts through June 2007 was $160 million.


June 8, 2011

At the time of our July 2010 audit, 28 of the original 33 contracts had expired, with the remaining five scheduled to expire by July 2010. Although 26 of the 28 expired contracts had been rebid or extended, management acknowledged that the historical information used by CGI in measuring related savings may no longer be relevant because that information was based on purchases during fiscal years 2002–03 and 2003–04.

General Services Had Not Entered Into New Strategically Sourced Contracts

General Services created an Intake and Analysis Unit (IAU) in 2006 to review new contract requests from state agencies and the State’s contract expenditure patterns to identify strategic sourcing opportunities. The IAU performed opportunity assessments, which is the first step required by its procedures manual to identify potential categories to strategically source; however, General Services had not awarded any new strategically sourced contracts using these procedures.

In particular, General Services did not strategically source 20 other categories of goods or services that CGI recommended. These additional categories included telecommunications, architectural and engineering services, leased real property, and personnel services. General Services indicated that the State has used traditional methods to issue statewide contracts from many of the categories. However, it had not determined that these contracts have resulted in savings commensurate with what it would have achieved under strategic sourcing.

General Services was not reviewing comprehensive purchasing data that would allow it to effectively identify any new opportunities. Instead, when it performed opportunity assessments to determine if strategic sourcing was warranted, General Services primarily considered the usage information it received for existing statewide contracts.

General Services planned to use the data in the State Contracting and Procurement Registration System (SCPRS), a database state agencies use to input information related to purchasing documents, for strategic sourcing purposes. However, SCPRS data can be unreliable and do not have the level of detail necessary to allow General Services to identify the specific goods purchased. Until General Services obtains a comprehensive source of statewide data, obtaining detailed purchasing data useful for strategic sourcing purposes will involve using SCPRS as a starting point to target potential opportunities and then working with selected state agencies to obtain the necessary data.

Effects of Strategic Sourcing on Small Business and Disabled Veteran Business Enterprises Are Not Known

Strategically sourced contracts present a trade-off between conflicting state goals. Specifically, strategic sourcing achieves lower prices by consolidating state expenditures into fewer contracts and thus taking advantage of volume discounts. However, consolidating state contracts can result in fewer contracting opportunities for small businesses and DVBEs.

General Services did not track the effect an individual type of acquisition methodology, such as strategic sourcing, has on contracting with small businesses and DVBEs, nor did it have all the information necessary to measure the effect. For example, it did not have participation data showing the number of small businesses and DVBEs for contracts of categories of goods that subsequently were strategically sourced.

As previously mentioned, by executive order, a goal was set for all state agencies to award at least 25 percent of their contract dollars to small businesses. Further, state law establishes a 3 percent DVBE participation goal that applies to state agencies’ overall annual expenditures for contracts.


June 8, 2011

To provide state agencies with alternative means of achieving small business and DVBE goals, General Services inserted an “off-ramp” clause in strategically sourced contracts, as it did with some other mandatory statewide contracts, to allow agencies the option to forgo purchasing from the mandatory vendor and to contract with small businesses and DVBEs directly. However, General Services did not have information regarding how often state agencies have used the off ramp for contracts, choosing not to track this information because it believes the individual agency is responsible for monitoring its achievement against goals.

State agencies annually report participation data to General Services that include the total number and dollar amounts of contracts awarded to small businesses and DVBEs, and General Services used this information to prepare a consolidated report, as required by state law. However, limitations largely hindered the use of these data in determining the impact of strategic sourcing. For example, not all agencies submitted a report every year, and in no year did the annual report isolate participation levels for the subset of goods included in the strategically sourced contracts.

As the information in the annual reports was the best information available, we analyzed the reported dollars and numbers of contracts awarded by five large state agencies during a seven-year period (that included fiscal years before and after the start of strategic sourcing). However, the data did not indicate a clear relationship between participation and strategic sourcing, and we learned that the data contained errors. For example, the California Department of Corrections and Rehabilitation explained to us that it underreported by nearly 29,000 the number of small business contracts it awarded in fiscal year 2006–07.

General Services Does Not Monitor for Ongoing Compliance With Commercially Useful Function Requirements

State law requires that small businesses and DVBE contractors and subcontractors participating in state contracts must perform commercially useful functions in providing goods or services that contribute to the fulfillment of the contract requirements. Such requirements are designed to ensure that the firms play a meaningful role in any contract in which they participate.

To perform a commercially useful function, a person or an entity must do all of the following:

1. Be responsible for executing a distinct element of the work of the contract.

2. Actually perform, manage, or supervise the work involved.

3. Perform work that is normal for its business services and functions.

4. Not further subcontract a portion of the work that is greater than that expected to be subcontracted by normal industry standards.

General Services requires bidders to identify in their bids the goods or services that each small business and DVBE subcontractor will provide, and it relies upon their assertions to assess whether the subcontractors’ roles will meet the commercially useful function requirements. Although it may request that bidders clarify their plans, General Services did not monitor subcontractors to ensure that they comply with these requirements once the contract was awarded.

General Services’ management commented that the individual state agency making the purchase is responsible for validating that subcontractors complied with commercially useful function requirements. Management pointed to a State Contracting Manual section as addressing the state agencies’ responsibilities in this area. However, the State Contracting Manual does not provide specific guidance on how state agencies are expected to verify that subcontractors actually performed commercially useful functions.


June 8, 2011

Questions Have Been Raised Regarding the Role of Subcontractors on a General Services’ Contract

In August 2006 General Services awarded the office supplies contract to Office Depot, which proposed to use a combination of nine small business and DVBE subcontractors to fill most of the orders placed by the State. Although the subcontractors would follow up on the orders and invoice the state agencies for them, Office Depot would package and ship the goods from its warehouse without subcontractors taking physical possession of the goods. Several small businesses questioned whether these subcontractors complied with certain contract provisions, including commercially useful function requirements, which prompted General Services to request an internal audit.

The internal auditors concluded that the subcontractors complied with the commercially useful function requirements. In particular, the report noted that General Services’ legal counsel indicated that a small business or DVBE does not need to take physical possession of the contracted goods to comply with the requirements. The legal counsel advised that, according to the California Commercial Code, the title to goods passes from the seller to the buyer in any manner explicitly agreed upon by the parties.

The internal auditors noted some limitations in documentation during their review. For example, the report noted that, at the time of the review, General Services’ policies did not require the completion of a specific work sheet or other document to capture the results of the assessment as to whether the bid complied with commercially useful function requirements.

The report by the internal auditors highlighted the amount of discretion possible when General Services verified that proposed work was within each firm’s line of business. For example, the internal auditors confirmed that one small business subcontractor was not a seller of goods at the time of the contract award. Although they acknowledged that this condition raised concerns about the firm’s apparent lack of experience, they noted that state law and policy does not prevent an existing firm from entering into a new line of business to participate into a state contract.

Although the internal auditors’ review found no indication that the Office Depot contract violated state laws governing commercially useful function requirements, the contract raised the following policy questions that we suggested the Legislature may want to consider further:

• Is a business relationship such as the one between Office Depot and its subcontractors what the Legislature envisioned when it created the commercially useful function requirements?

• Should a firm be required to have demonstrated experience in a particular line of business before being allowed to participate in state contracts?

• Considering the tasks contracted were of a nature that Office Depot was capable of performing, should the State prohibit contractors from subcontracting with small businesses and DVBEs under such circumstances at the cost of eliminating participant opportunities for these entities?

• Is it in the State’s best interest to limit a particular line of business, such as office supplies, to a relatively small number of small businesses and DVBE subcontractors rather than the many small businesses and DVBEs that could contract with the State?

General Services’ New Process for Verifying Pricing Compliance Needs Further Attention

General Services began an automated process of ensuring contractors’ compliance with contract pricing terms in August 2008 when it implemented the Compliance and Savings Administration (CASA) system.


June 8, 2011

Our review of selected items found that although the CASA system appropriately processed usage data reported by contractors and identified discrepancies between the prices in usage reports and the respective contract’s pricing terms, General Services had not yet developed standard procedures to recover overcharges.

General Services relied on the usage data reported by contractors to ensure compliance with contract pricing, but it did not verify the data for accuracy. Thus, General Services could not be assured that its efforts to ensure pricing compliance are meaningful.

General Services’ management commented that individual state agencies making the purchases are responsible for ensuring that the contractor invoiced them for correct amounts in accordance with the contract. However, discrepancies identified by the CASA system demonstrate that state agencies are not always performing this task effectively.

The following pages identify the multiple recommendations we made in the July 2010 report, the December 2010 status on implementing them, and our assessment of the status.


June 8, 2011


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dent

ifies

a p

artic

ular

cat

egor

y th

at it

bel

ieve

s is a

goo

d ca

ndid

ate

for s

trat

egic

sour

cing

, it

shou

ld w

ork

with

thos

e st

ate

agen

cies

that

acc

ount

ed fo

r the

m

ost p

urch

ases

with

in th

e ca

tego

ry to

det

erm

ine

the

type

s an

d vo

lum

e of

spec

ific

good

s pur

chas

ed to

furt

her a

naly

ze th

e ty

pes o

f goo

ds to

stra

tegi

cally

sour

ce. G

ener

al S

ervi

ces s

houl

d as

sess

any

nee

d fo

r add

ition

al re

sour

ces b

ased

on

the

savi

ngs i

t ex

pect

s to

achi

eve.

Gen

eral

Ser

vice

s ind

icat

es th

at it

per

iodi

cally

revi

ews d

atab

ases

, in

clud

ing

the

SCPR

S da

ta, f

or it

ems t

hat m

ay in

dica

te a

stra

tegi

c so

urci

ng o

ppor

tuni

ty. I

t sta

tes t

hat i

n co

nsul

tatio

n w

ith it

s cu

stom

ers,

it us

es a

vaila

ble

data

on

purc

hasi

ng p

atte

rns t

o id

entif

y if

stra

tegi

c so

urci

ng o

r ano

ther

pro

cure

men

t veh

icle

sh

ould

be

used

. Gen

eral

Ser

vice

s bel

ieve

s tha

t the

se st

eps a

re

suffi

cien

t to

allo

w it

to o

btai

n co

mpr

ehen

sive

and

acc

urat

e da

ta

on th

e sp

ecifi

c ite

ms t

hat s

tate

age

ncie

s are

pur

chas

ing

that

are

of

a v

olum

e th

at w

arra

nt a

n op

port

unity

for s

trat

egic

sour

cing

. G

ener

al S

ervi

ces s

tate

s tha

t it g

oes t

hrou

gh a

n ex

tens

ive

sear

ch

for p

urch

asin

g da

ta u

sing

all

avai

labl

e so

urce

s and

that

it

requ

ests

cop

ies o

f pur

chas

e or

ders

from

stat

e ag

enci

es to

obt

ain

mor

e de

taile

d pu

rcha

sing

dat

a.

Pend

ing:

It i

s unc

lear

to

wha

t ext

ent G

ener

al S

ervi

ces

impl

emen

ted

new

pro

cedu

res

sinc

e th

e au

dit.

To p

rovi

de d

ecis

ion

mak

ers w

ith th

e in

form

atio

n ne

cess

ary

to

dete

rmin

e th

e tr

ue c

osts

and

ben

efits

of s

trat

egic

sour

cing

, G

ener

al S

ervi

ces s

houl

d ev

alua

te a

ny im

pact

stra

tegi

c so

urci

ng

has o

n sm

all b

usin

ess a

nd D

VBE

part

icip

atio

n in

term

s of

num

ber o

f con

trac

ts a

war

ded

and

amou

nts p

aid

to sm

all

busi

ness

es a

nd D

VBEs

with

in th

e ca

tego

ries b

eing

stra

tegi

cally

so

urce

d. S

peci

fical

ly, f

or g

oods

that

wer

e st

rate

gica

lly so

urce

d,

Gen

eral

Ser

vice

s sho

uld

com

pare

the

num

ber o

f con

trac

ts

awar

ded

to sm

all b

usin

esse

s and

DVB

Es b

efor

e th

ey w

ere

stra

tegi

cally

sour

ced

with

thos

e aw

arde

d th

roug

h su

ch

cont

ract

s aft

er th

ey w

ere

stra

tegi

cally

sour

ced.

Thi

s effo

rt

shou

ld in

clud

e co

ntra

cts a

war

ded

by G

ener

al S

ervi

ces a

nd o

ther

st

ate

agen

cies

.

Gen

eral

Ser

vice

s sta

tes t

hat b

efor

e pe

rfor

min

g an

acq

uisi

tion,

it

incl

udes

an

asse

ssm

ent o

f the

num

ber o

f sm

all b

usin

esse

s an

d D

VBEs

that

par

ticip

ated

in th

e pr

evio

us so

licita

tion

and

the

pote

ntia

l num

ber o

f sm

all b

usin

esse

s and

DVB

Es th

at w

ill

be p

artic

ipat

ing

in th

e ne

w so

licita

tion.

As f

or tr

acki

ng th

e us

e of

smal

l bus

ines

s and

DVB

E fir

ms a

fter

a st

rate

gica

lly so

urce

d co

ntra

ct h

as b

een

awar

ded,

Gen

eral

Ser

vice

s has

dec

ided

to

capt

ure

and

trac

k th

at in

form

atio

n fo

r eac

h st

atew

ide

cont

ract

un

der i

ts p

urvi

ew.

Part

ially

Impl

emen

ted


June 8, 2011


June 8, 2011CA

LIFO

RN

IA S

TATE

AU

DIT

OR

REC

OM

MEN

DAT

ION

S

DEP

AR

TMEN

T O

F G

ENER

AL

SERV

ICES

’ UPD

ATE

ON

IM

PLEM

ENTI

NG

REC

OM

MEN

DAT

ION

S

(DEC

EMB

ER 3

, 201

0)ST

ATE

AU

DIT

OR

’S A

SSES

SMEN

T O

FIM

PLEM

ENTA

TIO

N S

TATU

S

To e

valu

ate

the

effec

tiven

ess o

f the

off

ram

p in

pro

vidi

ng

oppo

rtun

ities

for s

mal

l bus

ines

s and

DVB

E pa

rtic

ipat

ion,

G

ener

al S

ervi

ces s

houl

d tr

ack

the

num

ber a

nd d

olla

r am

ount

s of

con

trac

ts th

at st

ate

agen

cies

aw

ard

thro

ugh

the

use

of th

e off

ra

mps

in st

rate

gica

lly so

urce

d an

d ot

her m

anda

tory

stat

ewid

e co

ntra

cts.

Gen

eral

Ser

vice

s’ ev

alua

tion

also

shou

ld c

onsi

der t

he

exte

nt to

whi

ch a

n off

ram

p aff

ects

the

mon

etar

y be

nefit

s tha

t re

sult

from

stat

ewid

e co

ntra

cts d

esig

ned

to le

vera

ge th

e St

ate’s

pu

rcha

sing

pow

er.

Gen

eral

Ser

vice

s sta

tes t

hat i

t is m

aint

aini

ng a

dat

abas

e fo

r tra

ckin

g pu

rpos

es o

f app

rove

d sm

all b

usin

ess o

r DVB

E off

-ram

p pu

rcha

ses,

whi

ch in

clud

es p

ricin

g in

form

atio

n. It

pl

ans t

o us

e th

is in

form

atio

n to

ass

ess t

he im

pact

on

smal

l bu

sine

sses

and

DVB

Es a

fter

stra

tegi

c so

urci

ng. G

ener

al S

ervi

ces

is p

ilotin

g th

e ne

w o

ff-ra

mp

usag

e tr

acki

ng p

roce

ss u

sing

on

e st

atew

ide

cont

ract

and

ant

icip

ates

com

plet

ing

the

pilo

t ph

ase

and

final

izin

g pr

oced

ures

with

in th

e fir

st q

uart

er o

f the

20

11 c

alen

dar y

ear.

To e

nsur

e th

at sm

all b

usin

ess a

nd D

VBE

subc

ontr

acto

rs c

ompl

y w

ith th

e co

mm

erci

ally

use

ful f

unct

ion

requ

irem

ents

, Gen

eral

Se

rvic

es sh

ould

dev

elop

gui

danc

e fo

r sta

te a

genc

ies o

n ho

w

to e

nsur

e th

at su

bcon

trac

tors

per

form

com

mer

cial

ly u

sefu

l fu

nctio

ns if

it b

elie

ves s

tate

age

ncie

s mak

ing

the

purc

hase

s th

roug

h st

atew

ide

cont

ract

s sho

uld

be re

spon

sibl

e fo

r thi

s tas

k.

In a

dditi

on, G

ener

al S

ervi

ces s

houl

d m

onito

r, on

a sa

mpl

e ba

sis,

whe

ther

stat

e ag

enci

es a

re e

nsur

ing

com

plia

nce

with

thes

e re

quire

men

ts. G

ener

al S

ervi

ces c

ould

leve

rage

its e

ffort

s by

wor

king

with

oth

er st

ate

agen

cies

to e

nsur

e th

at su

bcon

trac

tors

cl

aim

ing

to h

ave

prov

ided

the

good

s and

serv

ices

to th

e pu

rcha

sing

age

ncy

did,

in fa

ct, p

erfo

rm th

e w

ork

for w

hich

they

ar

e in

voic

ing

the

stat

e ag

enci

es.

Gen

eral

Ser

vice

s sta

tes t

hat i

t will

ens

ure

that

use

r ins

truc

tions

fo

r fut

ure

stat

ewid

e co

ntra

cts c

onta

in p

rovi

sion

s tha

t ful

ly

info

rm th

e us

er st

ate

agen

cy o

f com

mer

cial

ly u

sefu

l fun

ctio

n re

quire

men

ts. F

urth

er, i

t not

es th

at it

is in

the

proc

ess o

f im

plem

entin

g th

e us

e of

con

trac

t man

agem

ent p

lans

th

at c

lear

ly d

ocum

ent t

he re

spon

sibi

litie

s of i

ts c

ontr

act

adm

inis

trat

ors.

Whe

re a

pplic

able

, the

se p

lans

are

to in

clud

e a

requ

irem

ent f

or e

nsur

ing,

on

at le

ast a

sam

ple

basi

s, co

ntra

ctor

co

mpl

ianc

e w

ith c

omm

erci

ally

use

ful f

unct

ion

requ

irem

ents

. G

ener

al S

ervi

ces r

epor

ts th

at p

olic

ies a

nd p

roce

dure

s for

im

plem

entin

g th

e co

ntra

ct m

anag

emen

t pla

n pr

oces

s are

cu

rren

tly in

dra

ft fo

rm w

ith fi

naliz

atio

n ex

pect

ed w

ithin

the

first

qu

arte

r of t

he 2

011

cale

ndar

yea

r.

Part

ially

Impl

emen

ted

To e

nsur

e pr

ompt

reco

very

of s

tate

fund

s, G

ener

al S

ervi

ces

shou

ld im

plem

ent s

tand

ard

proc

edur

es to

reco

ver o

verc

harg

es

iden

tified

by

the

Com

plia

nce

and

Savi

ngs A

dmin

istr

atio

n sy

stem

. Gen

eral

Ser

vice

s’ ne

w p

roce

dure

s sho

uld

spec

ify th

e am

ount

of t

ime

it co

nsid

ers r

easo

nabl

e to

reco

ver f

unds

due

ba

ck to

the

Stat

e. To

impr

ove

the

inte

grity

of i

ts m

onito

ring

of p

ricin

g co

mpl

ianc

e,

Gen

eral

Ser

vice

s sho

uld

impl

emen

t pro

cedu

res t

o he

lp e

nsur

e th

at u

sage

repo

rts r

eflec

t the

act

ual i

tem

s rec

eive

d an

d pr

ices

pai

d by

the

stat

e ag

enci

es th

at p

urch

ased

the

item

s. Fo

r exa

mpl

e, o

n a

perio

dic

basi

s, it

coul

d se

lect

a sa

mpl

e of

pu

rcha

ses f

rom

the

usag

e re

port

s and

wor

k w

ith p

urch

asin

g st

ate

agen

cies

to c

onfir

m th

at th

e pr

ices

and

qua

ntity

of

item

s rep

orte

d re

conc

ile w

ith th

e in

voic

es su

bmitt

ed b

y th

e co

ntra

ctor

.

Gen

eral

Ser

vice

s is d

evel

opin

g st

anda

rd p

roce

dure

s to

reco

ver a

ny

over

char

ges,

incl

udin

g th

e am

ount

of t

ime

cons

ider

ed re

ason

able

to

reco

ver f

unds

due

bac

k to

the

Stat

e. Th

e pr

oced

ures

are

to

prov

ide

for t

he p

rom

pt is

suan

ce o

f a “c

ure

lett

er” u

pon

iden

tifica

tion

of a

n ov

erch

arge

am

ount

. Gen

eral

Ser

vice

s sta

tes t

hat i

t will

also

pr

ompt

ly fo

llow

up

to co

llect

any

del

inqu

ent a

mou

nts.

It re

port

s th

at th

e pr

oced

ures

are

in th

e fin

al st

ages

of c

ompl

etio

n an

d an

ticip

ates

impl

emen

tatio

n w

ithin

the

first

qua

rter

of 2

011.

Gen

eral

Ser

vice

s pla

ns to

impl

emen

t pro

cedu

res t

o as

sist

in e

nsur

ing

the

accu

racy

of t

he u

sage

repo

rts s

ubm

itted

by

cont

ract

ors.

The

cont

ract

man

agem

ent p

lan

proc

ess m

entio

ned

in

Gen

eral

Ser

vice

s’ co

mm

ents

on

the

reco

mm

enda

tions

rela

ted

to

com

mer

cial

ly u

sefu

l fun

ctio

n re

quire

men

ts is

to in

clud

e st

eps f

or

the

cont

ract

adm

inist

rato

r to

wor

k w

ith st

ate

agen

cies

to c

onfir

m

the

accu

racy

of c

ontr

acto

r rep

ort p

ricin

g an

d ot

her r

elev

ant d

ata.

To

ens

ure

the

valid

ity o

f the

con

trac

tor’s

usa

ge re

port

ing,

the

step

s are

to in

clud

e sa

mpl

ing

purc

hasin

g ag

ency

doc

umen

ts a

nd

reco

ncili

ng th

at d

ata

with

usa

ge re

port

info

rmat

ion.

Part

ially

Impl

emen

ted


June 8, 2011


June 8, 2011

CALI

FOR

NIA

STA

TE A

UD

ITO

RR

ECO

MM

END

ATIO

NS

DEP

AR

TMEN

T O

F G

ENER

AL

SERV

ICES

’ UPD

ATE

ON

IM

PLEM

ENTI

NG

REC

OM

MEN

DAT

ION

S

(DEC

EMB

ER 3

, 201

0)ST

ATE

AU

DIT

OR

’S A

SSES

SMEN

T O

FIM

PLEM

ENTA

TIO

N S

TATU

S

To e

valu

ate

the

effec

tiven

ess o

f the

off

ram

p in

pro

vidi

ng

oppo

rtun

ities

for s

mal

l bus

ines

s and

DVB

E pa

rtic

ipat

ion,

G

ener

al S

ervi

ces s

houl

d tr

ack

the

num

ber a

nd d

olla

r am

ount

s of

con

trac

ts th

at st

ate

agen

cies

aw

ard

thro

ugh

the

use

of th

e off

ra

mps

in st

rate

gica

lly so

urce

d an

d ot

her m

anda

tory

stat

ewid

e co

ntra

cts.

Gen

eral

Ser

vice

s’ ev

alua

tion

also

shou

ld c

onsi

der t

he

exte

nt to

whi

ch a

n off

ram

p aff

ects

the

mon

etar

y be

nefit

s tha

t re

sult

from

stat

ewid

e co

ntra

cts d

esig

ned

to le

vera

ge th

e St

ate’s

pu

rcha

sing

pow

er.

Gen

eral

Ser

vice

s sta

tes t

hat i

t is m

aint

aini

ng a

dat

abas

e fo

r tra

ckin

g pu

rpos

es o

f app

rove

d sm

all b

usin

ess o

r DVB

E off

-ram

p pu

rcha

ses,

whi

ch in

clud

es p

ricin

g in

form

atio

n. It

pl

ans t

o us

e th

is in

form

atio

n to

ass

ess t

he im

pact

on

smal

l bu

sine

sses

and

DVB

Es a

fter

stra

tegi

c so

urci

ng. G

ener

al S

ervi

ces

is p

ilotin

g th

e ne

w o

ff-ra

mp

usag

e tr

acki

ng p

roce

ss u

sing

on

e st

atew

ide

cont

ract

and

ant

icip

ates

com

plet

ing

the

pilo

t ph

ase

and

final

izin

g pr

oced

ures

with

in th

e fir

st q

uart

er o

f the

20

11 c

alen

dar y

ear.

To e

nsur

e th

at sm

all b

usin

ess a

nd D

VBE

subc

ontr

acto

rs c

ompl

y w

ith th

e co

mm

erci

ally

use

ful f

unct

ion

requ

irem

ents

, Gen

eral

Se

rvic

es sh

ould

dev

elop

gui

danc

e fo

r sta

te a

genc

ies o

n ho

w

to e

nsur

e th

at su

bcon

trac

tors

per

form

com

mer

cial

ly u

sefu

l fu

nctio

ns if

it b

elie

ves s

tate

age

ncie

s mak

ing

the

purc

hase

s th

roug

h st

atew

ide

cont

ract

s sho

uld

be re

spon

sibl

e fo

r thi

s tas

k.

In a

dditi

on, G

ener

al S

ervi

ces s

houl

d m

onito

r, on

a sa

mpl

e ba

sis,

whe

ther

stat

e ag

enci

es a

re e

nsur

ing

com

plia

nce

with

thes

e re

quire

men

ts. G

ener

al S

ervi

ces c

ould

leve

rage

its e

ffort

s by

wor

king

with

oth

er st

ate

agen

cies

to e

nsur

e th

at su

bcon

trac

tors

cl

aim

ing

to h

ave

prov

ided

the

good

s and

serv

ices

to th

e pu

rcha

sing

age

ncy

did,

in fa

ct, p

erfo

rm th

e w

ork

for w

hich

they

ar

e in

voic

ing

the

stat

e ag

enci

es.

Gen

eral

Ser

vice

s sta

tes t

hat i

t will

ens

ure

that

use

r ins

truc

tions

fo

r fut

ure

stat

ewid

e co

ntra

cts c

onta

in p

rovi

sion

s tha

t ful

ly

info

rm th

e us

er st

ate

agen

cy o

f com

mer

cial

ly u

sefu

l fun

ctio

n re

quire

men

ts. F

urth

er, i

t not

es th

at it

is in

the

proc

ess o

f im

plem

entin

g th

e us

e of

con

trac

t man

agem

ent p

lans

th

at c

lear

ly d

ocum

ent t

he re

spon

sibi

litie

s of i

ts c

ontr

act

adm

inis

trat

ors.

Whe

re a

pplic

able

, the

se p

lans

are

to in

clud

e a

requ

irem

ent f

or e

nsur

ing,

on

at le

ast a

sam

ple

basi

s, co

ntra

ctor

co

mpl

ianc

e w

ith c

omm

erci

ally

use

ful f

unct

ion

requ

irem

ents

. G

ener

al S

ervi

ces r

epor

ts th

at p

olic

ies a

nd p

roce

dure

s for

im

plem

entin

g th

e co

ntra

ct m

anag

emen

t pla

n pr

oces

s are

cu

rren

tly in

dra

ft fo

rm w

ith fi

naliz

atio

n ex

pect

ed w

ithin

the

first

qu

arte

r of t

he 2

011

cale

ndar

yea

r.

Part

ially

Impl

emen

ted

To e

nsur

e pr

ompt

reco

very

of s

tate

fund

s, G

ener

al S

ervi

ces

shou

ld im

plem

ent s

tand

ard

proc

edur

es to

reco

ver o

verc

harg

es

iden

tified

by

the

Com

plia

nce

and

Savi

ngs A

dmin

istr

atio

n sy

stem

. Gen

eral

Ser

vice

s’ ne

w p

roce

dure

s sho

uld

spec

ify th

e am

ount

of t

ime

it co

nsid

ers r

easo

nabl

e to

reco

ver f

unds

due

ba

ck to

the

Stat

e. To

impr

ove

the

inte

grity

of i

ts m

onito

ring

of p

ricin

g co

mpl

ianc

e,

Gen

eral

Ser

vice

s sho

uld

impl

emen

t pro

cedu

res t

o he

lp e

nsur

e th

at u

sage

repo

rts r

eflec

t the

act

ual i

tem

s rec

eive

d an

d pr

ices

pai

d by

the

stat

e ag

enci

es th

at p

urch

ased

the

item

s. Fo

r exa

mpl

e, o

n a

perio

dic

basi

s, it

coul

d se

lect

a sa

mpl

e of

pu

rcha

ses f

rom

the

usag

e re

port

s and

wor

k w

ith p

urch

asin

g st

ate

agen

cies

to c

onfir

m th

at th

e pr

ices

and

qua

ntity

of

item

s rep

orte

d re

conc

ile w

ith th

e in

voic

es su

bmitt

ed b

y th

e co

ntra

ctor

.

Gen

eral

Ser

vice

s is d

evel

opin

g st

anda

rd p

roce

dure

s to

reco

ver a

ny

over

char

ges,

incl

udin

g th

e am

ount

of t

ime

cons

ider

ed re

ason

able

to

reco

ver f

unds

due

bac

k to

the

Stat

e. Th

e pr

oced

ures

are

to

prov

ide

for t

he p

rom

pt is

suan

ce o

f a “c

ure

lett

er” u

pon

iden

tifica

tion

of a

n ov

erch

arge

am

ount

. Gen

eral

Ser

vice

s sta

tes t

hat i

t will

also

pr

ompt

ly fo

llow

up

to co

llect

any

del

inqu

ent a

mou

nts.

It re

port

s th

at th

e pr

oced

ures

are

in th

e fin

al st

ages

of c

ompl

etio

n an

d an

ticip

ates

impl

emen

tatio

n w

ithin

the

first

qua

rter

of 2

011.

Gen

eral

Ser

vice

s pla

ns to

impl

emen

t pro

cedu

res t

o as

sist

in e

nsur

ing

the

accu

racy

of t

he u

sage

repo

rts s

ubm

itted

by

cont

ract

ors.

The

cont

ract

man

agem

ent p

lan

proc

ess m

entio

ned

in

Gen

eral

Ser

vice

s’ co

mm

ents

on

the

reco

mm

enda

tions

rela

ted

to

com

mer

cial

ly u

sefu

l fun

ctio

n re

quire

men

ts is

to in

clud

e st

eps f

or

the

cont

ract

adm

inist

rato

r to

wor

k w

ith st

ate

agen

cies

to c

onfir

m

the

accu

racy

of c

ontr

acto

r rep

ort p

ricin

g an

d ot

her r

elev

ant d

ata.

To

ens

ure

the

valid

ity o

f the

con

trac

tor’s

usa

ge re

port

ing,

the

step

s are

to in

clud

e sa

mpl

ing

purc

hasin

g ag

ency

doc

umen

ts a

nd

reco

ncili

ng th

at d

ata

with

usa

ge re

port

info

rmat

ion.

Part

ially

Impl

emen

ted

CALI

FOR

NIA

STA

TE A

UD

ITO

RR

ECO

MM

END

ATIO

NS

DEP

AR

TMEN

T O

F G

ENER

AL

SERV

ICES

’ UPD

ATE

ON

IM

PLEM

ENTI

NG

REC

OM

MEN

DAT

ION

S

(DEC

EMB

ER 3

, 201

0)ST

ATE

AU

DIT

OR

’S A

SSES

SMEN

T O

FIM

PLEM

ENTA

TIO

N S

TATU

S

To p

rovi

de fu

rthe

r cla

rity

rega

rdin

g th

e us

e of

smal

l bus

ines

s an

d D

VBE

subc

ontr

acto

rs o

n st

ate

cont

ract

s, th

e Le

gisl

atur

e sh

ould

con

side

r the

pol

icy

ques

tions

ass

ocia

ted

with

the

Offi

ce

Dep

ot c

ontr

act a

s fol

low

s:

• Is

a b

usin

ess r

elat

ions

hip

such

as t

he o

ne b

etw

een

Offi

ce D

epot

and

its s

ubco

ntra

ctor

s wha

t the

Leg

isla

ture

en

visi

oned

whe

n it

crea

ted

the

com

mer

cial

ly u

sefu

l fu

nctio

n re

quire

men

ts?

• Sh

ould

a fi

rm b

e re

quire

d to

hav

e de

mon

stra

ted

expe

rienc

e in

a p

artic

ular

line

of b

usin

ess b

efor

e be

ing

allo

wed

to

part

icip

ate

in st

ate

cont

ract

s?

• Co

nsid

erin

g th

e ta

sks c

ontr

acte

d w

ere

of a

nat

ure

that

Offi

ce

Dep

ot w

as c

apab

le o

f per

form

ing,

shou

ld th

e St

ate

proh

ibit

cont

ract

ors f

rom

subc

ontr

actin

g w

ith sm

all b

usin

esse

s and

D

VBEs

und

er su

ch c

ircum

stan

ces a

t the

cos

t of e

limin

atin

g pa

rtic

ipan

t opp

ortu

nitie

s for

thes

e en

titie

s?

• Is

it in

the

Stat

e’s b

est i

nter

est t

o lim

it a

part

icul

ar li

ne o

f bu

sine

ss, s

uch

as o

ffice

supp

lies,

to a

rela

tivel

y sm

all n

umbe

r of

smal

l bus

ines

ses a

nd D

VBE

subc

ontr

acto

rs ra

ther

than

the

man

y sm

all b

usin

esse

s and

DVB

Es th

at c

ould

con

trac

t with

th

e St

ate

in th

e ab

senc

e of

stra

tegi

c so

urci

ng?

The

Legi

slat

ure

shou

ld th

en re

vise

stat

e la

w a

s it

deem

s app

ropr

iate

.

Department of General Services: Review Small Business

Documents

Transcript of Department of General Services: Review Small Business