May 13, 2010

Audit faults state on $90 million in contract renewals

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By Erich Wagner
Erich@MarylandReporter.com

The state didn’t do enough to make sure it was getting the best price available when it renewed contracts for gasoline, pharmaceuticals and other products, according to a state audit made public Thursday.

When the Department of General Services Office of Procurement and Logistics renewed its contract for commercial fuel services for state agencies — worth about $77 million last year — it did not analyze whether it could save money by using different suppliers. Auditors said such a cost-benefit analysis would have been “prudent,” given that the existing contract had provisions that “effectively prohibited other vendors from being able to compete for the contract.”

The office also did not ensure that the state’s contract for pharmaceutical drugs, which was arranged through a multi-state pharmaceutical purchasing alliance, was the best possible deal. The deal cost the state $14.2 million in fiscal 2009. And when renewing the contract, it neglected to analyze whether membership in the multi-state organization was in the best interest of the state.

Auditors recommended that the office make the proper analyses to determine whether these contracts are the best available for the state, and said the state should use those conclusions when it becomes time to renew or rebid the contracts.

The Office of Procurement and Logistics agreed with the audit’s recommendations on the issue of fuel services contracts, but argued that the state’s membership in the multi-state pharmaceutical-buying partnership is in Maryland’s best interest.

Since the actual contract was competitively bid by Minnesota, the result of that state’s bidding process “[represents] a statement of market reasonableness for the products,” The state also argued that the process of buying in larger volumes for multiple states at once “has proven beneficial and in the best interest of the State of Maryland.”