March 1, 2005

Competitive Bidding Practice Has Already Saved $156 Million

LANSING – Governor Jennifer M. Granholm today issued an executive directive requiring competitive bidding by the Department of Management and Budget (DMB) for the purchase of all goods and services by state government.

The directive caps a two-year effort by the administration to reduce "no-bid" and "sole-source" contracts, which has resulted in savings of $156 million. No-bid and sole-source contracting practices had been used for many years by prior administrations.

"During tough economic times, we must ensure the state is getting the most out of every dollar it spends when it comes to taxpayers dollars," Granholm said. "Eliminating no-bid contracts is another important step in the process of creating a leaner, more efficient state government."

Prior to 2003, 20 percent of state contracts were let without bidding. In 2002 alone, the State of Michigan spent $600 million on no-bid contracts. In just two years, the Granholm administration has reduced no-bid contracts to less than 2 percent of all state contracts. By submitting 631 contracts to competitive bids, the State has saved more than $156 million, an average of $240,000 per contract.

"When contractors compete for state business, taxpayers win," Granholm said.

Executive Directive 2005-3 is aimed at eliminating the State’s remaining no-bid contracts to create additional savings for Michigan taxpayers and establish a more effective bidding process for state contracts.

Examples of money saved by competitively bidding contracts since January 1, 2003, include:

• $1 million on Medicaid audits, by switching from a company based in Kentucky to a Michigan-based company;

• $12 million on state computer hardware and software, nearly doubling the discount the State receives on desktop computers;

• $96 million on Michigan child support enforcement system maintenance and child support payment disbursement;

• $8 million on diapers and pull-ups used by seniors and other Medicaid recipients, a savings of 36 percent per diaper; and

• $21 million on state educational achievement tests, with the prior vendor used by the State bidding 248 percent more than the new winning vendor.

The directive provides the following exemptions for procurement of goods and services, including those necessary for the protection of public health or safety; for emergency repair caused by unforeseen circumstances necessary to protect life or property; in response to a declared state of emergency or disaster; and those with a value less than $25,000 by departments or agencies using delegated purchasing authority and a purchasing process designed to assure fair and reasonable prices.

The State already uses 100 percent competitive bidding for all of its 225 MiDEAL contracts, a value of $528 million. The MiDEAL program allows the State’s Office of Acquisition Services to extend its services to any city, village, county, township, school, nonprofit hospital, or institute of higher education.

The directive, which will be enforced by the Department of Management and Budget and the State Administrative Board, is effective April 30, 2005.

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