Two state agencies tasked with overseeing state procurement contracts have failed to provide adequate oversight, a new State Auditor’s Office report has found.

The Department of General Services and the California Department of Technology are charged with managing the state government’s contracts for goods and services, with the latter overseeing large information technology contracts. But they have not lived up to their end of the bargain, according to State Auditor Elaine Howle’s office, resulting in a number of large contracts that were awarded without undergoing the required competitive bidding process.

The state spent $44 billion on noncompetitive contracts worth at least $1 million between fiscal years 2011-12 and 2015-16. “Of the 27 approved noncompetitive requests we reviewed, nine lacked justification for bypassing the competitive bid process, and 14 did not demonstrate that the vendor’s prices were reasonable,” the report concluded.

There seems to be a loophole in the contract management process, as contracts may initially be awarded on a competitive basis, but then later enhanced and extended — sometimes significantly — through a noncompetitive “amendment” process. The two oversight agencies routinely approved these requests, oftentimes improperly.

“Although both General Services and Technology have enforcement mechanisms, they rarely employed them, allowing agencies to continue inappropriately using noncompetitive requests,” the report claimed.

The auditor also chided agencies for their poor planning in making those requests. The Employment Development Department, for example, used four amendments to increase a contract for the processing of unemployment insurance payments from an original cost of $600,000 to $10 million.

“The sheer magnitude of the value of the state’s noncompetitive contracts during this period emphasizes the importance of ensuring that the state provides adequate oversight of agencies’ contracting practices,” the auditor asserted.

The auditor also cited substantial inaccurate and missing contract data due to data entry errors. The state’s new budgeting, accounting and procurement system, known as the Financial Information System for California, or FI$Cal, may help to reduce these errors. (General Services just switched over to the system last year.) The new system has its own shortcomings, however, as it does not currently allow agencies to indicate whether procurements were made using amendments.

As with other large state IT projects, FI$Cal has had financial issues of its own, too. The project, in development since 2005, has seen its full implementation pushed back to 2019 or 2020, and its cost estimates have ballooned to a total of $900 million to $1 billion.

“[E]conomic experts agree that competition in public procurement benefits taxpayers and consumers by providing lower prices, greater innovation and improved products and services,” the state auditor wisely counseled. But contracts are only as good as their structure and oversight. Eliminating competition eviscerates incentives to improve efficiency, save taxpayer dollars and prevent cronyism. Therein lies an important lesson not only for procurement, but for the provision of other government services as well.