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IT procurement savings 'eaten' by fees

IT procurement savings 'eaten' by fees

A Government initiative to save procurement costs will end up lining the pockets of one of its agencies, an industry source says.

The Government will charge a 1.5 percent fee on purchases of computers and laptops under sector-wide contracts, he says.

The contracts have been negotiated by Internal Affairs and are due to be announced in the next few weeks.

In taking a cut on the computer contracts the Government is effectively replacing channel retailers and taking the margin they would have charged agencies, the source says.

Agencies should question why the Government is charging the fee which is very high for "hands-off" brokering services, he says.

Phil Weir, procurement development manager at the Economic Development Ministry, which has been overseeing the contracts, says agencies have been notified they will pay a 1.5 percent administration fee for all purchases under the contracts.

That fee will be paid to the ministry's procurement development group to cover administration costs, including the costs of the procurement reform and the development of further government-wide purchasing contracts, he says.

"The total savings across government, after deduction of the 1.5 percent administrative fee, are at least $115 million over five years from the first four contracts. All other savings, which are substantial, are retained by the agencies using the contracts."

Departments are expected to spend about $58 million on the computer contracts in the first year, according to Cabinet estimates. The successful suppliers are believed to be Dell, Hewlett-Packard, Toshiba, Lenovo and local supplier of non-branded PCs Cyclone.

The industry source says suppliers cannot sell similar products to government agencies outside the contracts, unless they charge them at least 1.5 percent more than prices agreed under the contracts and pay a 1.5 percent premium to the Government.

Weir says that is incorrect. The computer contracts are still being finalised, he says, but other government-wide contracts already negotiated state that where approved suppliers want to sell similar products for lower prices outside the contracts, they must offer the same pricing to agencies using the contracts.

Departments are required to move to the contracts as soon as possible and before July 2012.

Other state sector agencies such as school boards of trustees will be encouraged to purchase through them. Contracts for the purchase of office stationery, photocopiers and printers and passenger vehicles have also been negotiated.


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