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.

The study,"Improving Federal Procurement: The Benefits of Vendor-Neutral Contract Specifications," was undertaken by R. Preston McAfee and J. Stanley Johnson at the California Institute of Technology; it was commissioned by MPU maker Advanced Micro Devices Inc. (AMD).

The report 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.

"Anticompetitive procurement language prevents competition on the merits and results in no efficiency gains," said McAfee in a statement. "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."

Federal law, namely the 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, according to McAfee and Johnson.

The United States Air Force (USAF), for example, prior to 2005, 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-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," Sue Snyder, AMD VP of international policy and relations and executive legal counsel, said in a statement. "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."

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, according to AMD. The European Commission noted in a 2004 study that application of its new procurement rules has reduced prices by approximately 30 percent.

By: DocMemory
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