Arbitrary budget cuts to operations do not help state governments achieve savings but instead aggravate their losses. In a financial crisis, however, governments routinely impose deep cuts across the board to hold the line on spending. When cuts reduce the effectiveness of operations that generate revenue, such as procurement, long-term gains are sacrificed for short-term savings.
This is a key point made in a briefing paper from NASPO, the National Association of State Procurement Officials. I previously covered how the paper, State Procurement Adds Value and Jobs, asserts that maintaining procurement organizations does more to resolve revenue shortfalls than downsizing them through budget cuts. Here, I’ll look at what the NASPO paper says happens when procurement is over-regulated and when key procurement positions are not staffed.
State procurement is a public operation and, according to the group, must run transparently. Nevertheless, when political considerations impose “[c]omplex, arcane procurement rules [that] … discourage competition” and raise compliance costs, the result is “inflated costs to state and local governments,” the paper notes.
And when public bodies are exempt from procurement rules as a result of influence, a similar situation develops: Fewer competitors bid for jobs, and higher costs result. Maintaining a dynamic procurement operation thus avoids a “balkanization” of the bid structure, where public organizations pursue their own needs without the leverage that comes from aggregating procurement in one operation. NASPO says that governors and legislators should consult with state procurement professionals before drafting laws that serve select constituencies at the expense of taxpayers.
Another point the paper makes is the impact of unfilled procurement positions on state revenue. If the average salary and benefits paid to a procurement professional come to $80,000 per year, and that person generates annual savings of $3 million for the state, the math is convincing: Not filling a position will cost far more than an $80,000 salary.
Yet hiring freezes remain firmly within states’ deficit-fighting arsenals despite their potential to make procurement more expensive.
The NASPO paper concludes by noting that state procurement professionals generate far more in savings than they cost to staff. They also have a beneficial impact on the economic well-being of the private sector through the contracts they award. NASPO argues that state procurement professionals, like their counterparts in the private sector, need executive-level support and should be a part of state policies that promote job growth, economic recovery, and sustainable budgets.
The group’s message about procurement in the public sector is as clear as it is in the private sector: Effective procurement makes a big difference in the bottom line. Governments — and companies — ignore this at their own peril.