Economic Study Reveals That Brand Specifications In Computer Hardware Procurement Needlessly Cost U.S. Taxpayers Up To $563 Million
- Report Concludes that Brand Specifications Lead to Higher Prices, Less Competition and Fewer Choices -
- Study Finds 69 Percent of Applicable Government Solicitations in 2004 Contained Language Specifying Brand-Name Microprocessors -
SUNNYVALE, Calif. -- February 8, 2006 --The inclusion of brand-name specifications in federal computer hardware procurement lead to harmful consequences that needlessly cost U.S. taxpayers up to $563 million, according to a new economic study by R. Preston McAfee, J. Stanley Johnson Professor of Business, Economics and Management at the California Institute of Technology. The study, Improving Federal Procurement: The Benefits of Vendor-Neutral Contract Specifications, was commissioned by AMD (NYSE: AMD).
The report also found that approximately 69 percent of the applicable government solicitations for computer systems and technology in 2004 contained language that either required specific brand-name microprocessors or specified that the processor should be equivalent to a particular brand microprocessor.
Federal law (Federal Acquisitions Regulation) forbids the use of brand-name specifications under most circumstances. Use of a “brand-name or equal” clause is inherently biased against non-name-brand products and encourages purchasing decisions based on brand-name recognition and perception rather than objective performance metrics.
“Anticompetitive procurement language prevents competition on the merits and results in no efficiency gains,” said Professor McAfee. “This study demonstrates how brand specification damages market competition, raises prices for computer equipment, limits choice, and hurts taxpayers. The findings of the study should serve as a strong wake-up call to all government procurement officials.”
“Non-competitive government procurement practices are needlessly costing American taxpayers hundreds of millions of dollars at a time when we are faced with budgetary belt-tightening across the board,” said Sue Snyder, AMD vice president of international policy & relations and executive legal counsel. “Enforcement of vendor-neutral contracts must be a key goal of policymakers to maximize the competitiveness of companies who bid on procurement tenders, and to get the best value for taxpayer money while providing a choice of quality products.”
Additional key findings of the study include:
* Prior to 2005, the United States Air Force (USAF) purchased only Intel processors and specified this requirement in all of its procurement materials. The USAF has changed this requirement to allow computer systems with microprocessors from different producers to compete, which the study estimates could save the USAF up to $2.2 million per year because of increased competition.
* Non-vendor neutral contract specifications constitute artificial restrictions to competition that unnecessarily reduce the set of alternative suppliers. This anticompetitive procurement language increases prices and reduces quantities, product variety, and quality.
* No efficiency reason exists to justify the use of exclusionary language in these procurements. For some products, the variety and complexity of items compel contracting agents to use brand names rather than to detail specific technical requirements and product characteristics. In the case of microprocessors, third-party benchmarks represent a solution to such a procurement specification issue.
Governments around the world have recognized the problem of closed procurement in the IT sector and the Argentine, Austrian, Belgian, Canadian, Finnish, French, German, Irish, Italian, Japanese, Swedish, U.K., and U.S. governments have all issued guidance calling for neutral specifications and the elimination of brand names in contracts. The European Commission noted in a 2004 study that application of its new procurement rules has reduced prices by approximately 30 percent.
For a copy of the executive summary of the report, please visit http://www.amd.com/breakfree.
AMD’s Position on Fair and Open Competition
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