Part two of a national series on IT procurement modernization cites California’s efforts in recent years to save taxpayer money and increase vendor competition by, among other things, reducing the 50 percent requirement for performance bonds.
Titled Leaving Performance Bonds at the Door for Improved IT Procurement, part two of the series by the National Association of Chief Information Officers and TechAmerica says that California, before passing a law in 2007 to reduce the 50 percent requirement to 10 percent, suffered from procurement delays, vendor drop outs and increased costs, despite already having multiple contractual protections.
Used as a protection for government agencies, performance bonds typically ensure a payment to cover customer costs if a contractor fails to complete a technology project under contract. The issue paper questions the use of performance bonds on various levels, saying they drive up costs and reduce competition and small business participation. Alternatively, states can instead use service level agreements, warranties, holdbacks, penalties and liquidated damages, among other instruments, to remedy failing projects, according to the report.
"Weighing non-performance, existing protections, and the benefits of robust competition is a balancing act that no longer leans towards the use of performance bonds," said Technology Agency Secretary Carlos Ramos in a statement. "State CIOs recognize that states need the flexibility to best determine how to protect itself from risk. In California, the State Assembly has unanimously passed legislation that helped lower performance bond requirements from 50 percent to a more feasible 10 percent."
