DOCUMENT

POL - Cost Savings-Avoidance Instructions 2007

  • YEAR CREATED: 2007
  • TYPE OF DOCUMENT: POL - Policies/Procedures
The document provides guidelines for cost savings and cost avoidance in procurement. It explains the various methods and calculations used to determine the amount of cost savings or avoidance. Under the category of cost savings, there are several definitions provided. These include savings as a result of competitive processes such as verbal quotes, price quotes, or invitation for bids. The calculation for this type of savings is the difference between the low bid and the next lowest bid. Another definition is the savings achieved by rejecting a sole source request and generating a solicitation for competitive bids. The calculation for this is the difference between the low bid and the original price of the sole source vendor. Maximum competition is another method where the product or service is further competed beyond the customer's efforts. The calculation for this is the difference between the customer's recommended "Low Bid" and the low bid received as a result of competition performed by procurement. Lastly, there is a comparison between competitive bids and state or other agency contracts to determine lower costs. The calculation for this is the difference between the cost actually paid and the cost that would have been paid via another contract. The document also explains cost avoidance, which includes cooperative purchasing or intergovernmental agreements where costs are reduced by utilizing existing contracts from other governmental agencies. The calculation for this can be the actual savings if objectively calculated or an average conservative estimate of 10% of the total cost. Audit recovery is another method of cost avoidance, where excess payments discovered during compliance audits of contracts are recovered. The document mentions other potential areas of cost savings or cost avoidance, such as outsourcing services currently performed in-house, value analysis to acquire the right item at the least possible total cost, challenging or understanding specifications to determine if there are more cost-effective ways to achieve the same goal, and suggesting product substitutions that are just as effective but more cost-effective. Overall, the document provides guidelines and calculations for various methods of cost savings and cost avoidance in procurement.
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