FISCAL NOTE

Date Requested: March 13, 2017
Time Requested: 12:50 PM
Agency: Administration, WV Department of
CBD Number: Version: Bill Number: Resolution Number:
2772 Introduced HB2936
CBD Subject: Finance and Administration


FUND(S):



Sources of Revenue:

Other Fund various department funds

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The new language as written states that written bids are not required for purchases in the amount of $2,500 or less but must be purchased at the lowest price. This would lead to believe that bids or some research will need to be required for these small dollar purchases. Current language states competitive bids are not required. However, in purchasing training offerings, it is always noted that competitive is always encouraged. Human resources which are not quantifiable will be expended to perform the research to determine the lowest price and to ensure that the retail market cost is not exceeded. The repeal of the master contract and approved vendors section, formerly known as the secondary bid process, would not have a major effect; however, the note at the bottom of the bill stating the purpose is the elimination of master contracts and other statewide contracts. Eliminating statewide contracts, which are different from master contracts, would have a devastating impact on costs not only to state agencies but to local government entities that utilize these contracts. Leveraging cost on volume procurements is a standard practice used by all other state purchasing divisions throughout the United States, according to a recent National Association of State Procurement Officials (NASPO) survey. The majority of states (66%) issue an administrative fee for use of statewide contracts. The West Virginia Purchasing Division joins 34% of states that do not require an administrative fee for statewide contracts in order to provide an even bigger benefit state agencies and to create more competition for these volume discounts on frequently-used commodities and services. The costs to the state and local government entities if statewide contracts would be eliminated could reach in the millions of dollars; however, a confirmed number is unknown.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2017
Increase/Decrease
(use"-")
2018
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


The costs to the state and local government entities if statewide contracts would be eliminated could reach in the millions of dollars; however, a confirmed number is unknown.



Memorandum


It is not clear if the $2,500 limit in the bill applies to each individual order/purchase or if a purchase of the same item multiple times would result in exceeding the limit. For example, it is uncertain if an agency that purchases the same $500 item six different times in one month would be exempted from written bidding. W. Va. Code 5A-3-10e, does not provide the authority for issuing statewide contracts. It is unclear if the bill is intended to eliminate statewide contracting authority, but if that is the intent, this bill does not accomplish that goal. If that is the intent, it is important to outline the numerous benefits of statewide contracts. Statewide contracts are the state’s most economical way to take advantage of economies of scale and obtain reduced pricing based on volume spending. Great pricing is gained on its statewide contracts. Examples are vehicles and tires. Certain vendors require large scale purchases to reach the best pricing tiers. Certain contracts, such as the purchasing card contract and the state’s Lease/finance contract, only work at the statewide level. Breaking these contracts down to each individual agency would not attract the vendor pool necessary to implement the programs as desired. Statewide contracting authority allows the State to participate in nationwide cooperative procurements, thereby leveraging the spending of multiple states much larger than West Virginia. Again, more volume leads to lower prices. This ability would be greatly reduced or eliminated without statewide contracting authority. Fundamentally, there is no operational difference between multiple agency contracts and one larger statewide contract covering multiple agencies, except for scale. More volume means better overall pricing. As noted above, at least 47 states allow for statewide contracting according to the NASPO survey. Three states did not respond to the survey question. Statewide Contracts are heavily utilized by county and Local governments, including county school systems. Disallowing statewide contracts would significantly increase the volume of procurements processed by state agencies and the Purchasing Division. Additional personnel would be needed to handle the increased volume. Additionally, terms and conditions negotiation would need to occur with each additional vendor requiring more time. Statewide commodity contracts always mandate delivery to the agency. This delivery component saves personnel time spent traveling to obtain needed items and significantly reduces the risk of accidents caused by or to the employee and to the purchased items while in transit. Statewide Contracts provide for uniformity in products. This is critical for agencies such as the Office of Technology in implementing the State’s IT infrastructure. Uniform hardware from the statewide computer contract the cell phone contracts reduce the need to train on different systems. Similarly, uniform software from the IBM, Microsoft, or Oracle contracts reduce time spent learning new software. Contracts will often cover a category or type of product rather than each individual product. Bidding every single item on an individual basis would be cost prohibitive from a time and management perspective given the sheer depth and breadth of the items the State uses. The state obtains the best value by awarding to the vendor that provides overall category at the lowest price. Categorical bidding is a very common practice in both the private sector and public sector. Repeatedly purchased items like computers, tires, copiers, debt collection, Microsoft products, security guard services, and vehicles do not change from agency to agency and should be purchased on a statewide basis. Eliminating statewide contracts will require the Purchasing Division to bid the same items multiple



    Person submitting Fiscal Note: Diane Holley-Brown
    Email Address: Diane.M.Holley@wv.gov