DES/OFM Approach to Assessing Contracting Options

In 2011, the Legislature created the Department of Enterprise Services (DES) by merging existing agencies Departments of General Administration and Printing, portions of the Departments of Personnel, Information Services, and Office of Financial Management and functions.

• DES provides business services such as human resources, accounting, contract and procurement management, training, printing, facility management, and parking to state agencies and local governments.
• DES provides some of its services through private sector contracts. For example, in the 2015-17 biennium, DES spent $33 million (10 percent of the agency's total budget) on private sector contracts.

The same legislation that created DES also directed the Office of Financial Management (OFM) and DES to explore additional opportunities to contract with the private sector. The statute specified a contracting assessment process to see if the private sector could provide DES services more cost effectively and efficiently than the agency. The law requires OFM and DES to conduct the process each biennium through June 2018.

Exhibit 1.1: Statute outlines a contracting assessment process to explore additional contract opportunities for DES services

Source: JLARC staff depiction of requirements in RCW 43.19.008(5).

OFM and DES implemented the process to explore additional contracting opportunities

OFM and DES implemented the process outlined in statute. As shown in Exhibit 1.2, OFM identified nine services for potential contracts. After procurements and additional OFM analysis, DES used contracts for two services and started two pilot projects to collect additional information for OFM to analyze. More detail is in the graphic below.

Exhibit 1.2: Process resulted in contracts for two services and pilot projects for two others

Source: JLARC staff analysis.

* No contracts were entered for AccessWA, the state's web portal, due to legislative policy changes in 2014. Washington Technology Solutions (WaTech), a separate state agency, now manages the service.

Step 1: OFM selected nine services for potential contracting

Over three biennia (fiscal years 2012-2017), OFM reviewed more than 20 DES services for potential private sector contracting. It selected nine services for DES to test in the private sector through procurements. As directed by the Legislature, the nine services included bulk printing.

In its review, OFM considered whether private vendors could provide similar services and whether it might be more efficient and cost effective for DES to contract with the private sector. OFM determined that some of the 20 services were not well-suited for private sector contracting or were already using the private sector.

Step 2: DES tested the nine services in the private sector using procurements

DES ran procurements for the nine services identified by OFM. A procurement is a systematic process for selecting, securing, and purchasing goods and services. DES used procurement methods such as requests for proposals (RFPs) and requests for quotes and qualifications (RFQQs) to identify potential vendors that might be competitive and responsive to providing government services. This gave private vendors an opportunity to bid on work traditionally provided by government agencies.

Step 3: OFM analyzed costs and efficiencies of private sector vendors

After DES conducted procurements for services, OFM compared the cost of private sector vendor bids to DES's cost estimates for providing the same services. OFM also compared the efficiency of vendors and DES.

Of the nine services initially identified for contracting, OFM completed seven analyses of costs and efficiency. No analyses were completed for two services because one received no vendor bids (surplus services) and one is still under review (parking management).

Based on the analyses, OFM directed DES to use contracts for three services and pilot projects for two others. OFM determined that DES was more cost effective and efficient than bids received for the remaining two services (mail and printing & imaging services).

Step 4: DES used contracts for two services and is managing contracts for two pilot projects

DES entered contracts for providing web design and maintenance services and continued using an existing contracting approach for bulk printing services (See Section 2.) It did not create contracts for AccessWA, the state's web portal, due to legislative policy changes in 2014. Washington Technology Solutions (WaTech), a separate state agency, now manages the service.

DES is conducting pilot projects for real estate lease negotiations and motor vehicle claims processing (See Section 4.)

Step 5: DES required to monitor contracts for four services

Statute requires DES, in consultation with OFM, to develop a contract monitoring plan. DES is required to monitor and measure contract costs and performance. DES is directed to review these measures before contracts are renewed and to cancel contracts that do not meet cost and performance standards. The remainder of this report addresses DES's contract monitoring efforts.

OFM issued two reports to Legislature on the results of this process

OFM issued reports to the Legislature in December 2014 and December 2016 describing the results of its reviews of DES services. The reports identified which services were selected for contracting, which were selected for pilot projects, and which procurements did not result in contracting. OFM's final report on this statutory process for exploring private sector contracting is due in 2018.

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Statute requires the Department of Enterprise Services (DES) to assess costs as part of the process for exploring private contracting. Statute also directs JLARC staff to report on the costs or savings to the state as a result of private sector contracts. As described below, DES did not collect sufficient data to know the effect of contracting on the state's costs.

Web design and maintenance contracts: State agency estimates appear lower than private sector costs, but may not reflect the full scope of work

DES entered master contracts with three private vendors to provide web design and maintenance services. Master contracts meet procurement laws and guarantee prices for services. State agencies and local governments can use them to streamline their purchases for specific projects.

According to DES, seven agencies used the services of one vendor and spent a total of $880,000. DES did not compare these private sector costs to in-house estimates while contracts were in place. It is not the agency's practice to do so.

JLARC staff were able to compare the amount spent through the vendor to recent in-house estimates by WaTech for four of the seven projects, but the data is inconclusive:

• DES's data on actual amount spent through private vendor was incomplete. JLARC staff found DES's initial data on vendor costs included about half of the actual amount agencies spent. DES coordinated with the vendor to retroactively verify and update the data for this report.
• The available information for in-house estimates may not reflect the full scope of work completed. Washington Technology Solutions (WaTech) created in-house estimates for this report. WaTech is the state agency responsible for web services since 2015. JLARC staff cannot determine how well the estimates compare to the actual vendor costs because they were created retroactively and may not reflect the full scope of work performed by the vendor.

Bulk print contracting: Cost data insufficient for comparing private sector and DES services

The Legislature required DES to test bulk printing in the private sector through a procurement Systematic process for selecting, securing, and purchasing goods and services. Bulk printing includes many types of work such as letterhead, envelopes, maps, and directories.

Before the legislative mandate, DES had used a procurement approach for some printing services in which prequalified vendorsList of vendors pre-approved for bidding on work provided price quotes based on specific job requirements. In 2013, consistent with legislative direction, DES ran a new procurement process for bulk printing. OFM then directed DES to further pursue private sector contracts based on that procurement. However, DES continued contracting through its existing approach (that is, using the prequalified vendor list).

Although DES engaged private vendors, it did not collect sufficient data to compare the costs of providing bulk printing services in-house versus using private vendors. Specifically:

• DES cost estimates are incomplete: The 2013 DES procurement combined all types of bulk printing, but included only a small sample of each. For example, the procurement included 2 of the 45 types of envelopes that the state uses. DES’s in-house cost estimate for bulk printing reflects only the small sample of jobs listed in the procurement. Also, DES could not provide JLARC staff with complete documentation to support its cost estimates. Complete documentation is needed to confirm the reliability of the estimates.
• Amount spent through contracts is unavailable: When using the prequalified vendor list, DES does not separately track the amount spent on contracts for bulk printing from other types of printing. For example, DES paid $10.5 million to vendors for printing and imaging services in the 2015-17 biennium. The agency did not track what portion of this amount was spent on bulk printing. Further, while using a prequalified vendor list offers flexibility in vendor selection, it does not guarantee prices. As a result, it is not possible to compare state and contract rates.

If DES had used the same contracting approach as it did for web design and maintenance services, vendors would have been required to report the amount agencies spent on bulk printing. Also, guaranteed prices would have been available for analysis.

Accurate cost comparisons needed to determine whether to renew or cancel contracts

Statute and industry practice require a review of cost measures when considering whether to renew or cancel contracts. DES and OFM did not have cost comparisons when deciding whether to renew contracts for web design and maintenance or to allow a vendor to remain on the prequalified vendor list for bulk printing.

• DES chose not to continue contracting for web design and maintenance services in 2016. It cited low use and unsatisfactory performance in its decision. DES stopped providing these services in-house in 2013. Since then, WaTech has begun offering these services to state agencies.
• DES continues to use a prequalified vendor list for bulk printing. Since 2012, DES has reduced its in-house bulk print operation through staffing and equipment reductions.

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Statute requires the Office of Financial Management (OFM) and the Department of Enterprise Services (DES) to assess service performance as part of the process for exploring private contracting.

• OFM is directed to review DES's service performance when it identifies services for potential contracting.
• DES must monitor and measure the performance of any contract it enters.

Neither OFM nor DES documented performance in a manner that would allow the state to determine whether service performance changed by using private vendors.

OFM did not document DES's service performance

OFM examined more than 20 DES services for potential contracting opportunities. OFM reviewed the staffing and resource needs of these services, but did not document service performance. In many cases, OFM identified sample performance measures for a service, but it did not document how well DES performed on those or other measures. As a result, there is no baseline information to compare the performance of DES services with the performance of contracted services. Without this performance comparison, it is difficult to determine whether bid proposals would improve service delivery or whether to renew service contracts based on vendor performance.

Web design and maintenance contracts: DES developed performance measures but did not monitor them

When DES entered master contracts for web design and maintenance in 2013, it developed and included performance measures. DES's policy is to have the agencies that use a master contract collect performance data for their respective contracting job. Seven agencies used one vendor for web design and maintenance work. DES did not collect data on performance measures from the agencies in order to analyze vendor performance.

Instead, DES tracked contract use and received informal feedback on vendor performance:

• Contract use: DES used quarterly reports to determine how often agencies used the contract.
• Informal feedback: Both DES and WaTech (the agency that began providing web services in 2015) reported receiving anecdotal feedback from agencies on vendor performance. The agencies indicated some difficulty with using the master contracts, but there is little documentation of specific problems that occurred.

Bulk print contracts: DES does not track bulk print performance separately from other contract work

DES chose to continue its existing contracting approach of using a prequalified vendor list for bulk print work rather than enter master contracts from the procurement.

DES has a process for rating the quality of printing jobs performed by vendors on the prequalified vendor list. The quality ratings are on a scale of 1 to 4 and provide information on the timeliness and quality of the print product. DES does not separately identify bulk print jobs from other printing work, so it cannot assess the performance specifically for bulk print jobs.

Statute requires a review of performance measures before renewing contracts

Statute and industry practice in contract management require an analysis of performance measures before deciding whether to renew contracts established under RCW 43.19.008(5)(b)(vii).

• OFM did not establish baseline information on DES's performance to compare to vendor performance. As a result, it is unclear whether performance has improved, worsened, or stayed the same using private vendors.
• Performance measures for web design and maintenance contracts were not collected and bulk print measures were not separately tracked by DES, so vendor performance could not be clearly evaluated.
• DES, in consultation with OFM, chose not to renew the web design and maintenance contracts in 2016. DES cited low contract use and the problems informally reported by agencies. Contract renewal decisions were not based on a review of contract performance measures, as required by statute.

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