- 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. - Feb.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
AMD stands for fair and open competition and the value and variety
competition delivers to the marketplace. Innovative AMD technology
allows users to break free to reach new levels of performance,
productivity and creativity. Businesses and consumers should have the
freedom to choose from a range of competitive products that come from
continuous innovation. When market forces work, consumers have choice
and everyone wins. For more information, please visit
http://www.amd.com/breakfree
About AMD
Advanced Micro Devices (NYSE: AMD) is a leading global provider of
innovative microprocessor solutions for computing, communications and
consumer electronics markets. Founded in 1969, AMD is dedicated to
delivering superior computing solutions based on customer needs that
empower users worldwide. For more information visit http://www.amd.com