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Sunday, March 26, 2017

Anomoly? Or Fraud?

An anomaly is an abnormality, a blip on the screen of life that doesn’t fit with the rest of the pattern. If you are a breeder of black dogs and one puppy comes out pink, that puppy is an anomaly. The noun anomaly comes from the Greek word anomolia, meaning "uneven” or “irregular.” When something is unusual compared to similar things around it, it’s the anomaly.

Fraud is the "wrongful or criminal deception intended to result in financial or personal gain.
"he was convicted of fraud"
synonyms: fraudulence, cheating, swindling, embezzlement, deceit, deception, double-dealing, chicanery, sharp practice.
"he was arrested for fraud"
swindle, racket, deception, trick, cheat, hoax;
informal scam, con, rip-off, sting, gyp, fiddle, bunco, hustle;
a person or thing intended to deceive others, typically by unjustifiably 
claiming or being credited with accomplishments or qualities.
synonyms: impostor, fake, sham, charlatan, quack

Ex-Palawan gov Reyes, 41 others charged in P1.53-B Malampaya scam
MANILA — Former Palawan Governor Mario Joel Reyes and 41 others have been charged at the Sandiganbayan for anomalies in 209 contracts funded by P1.53 billion in royalties from the Malampaya gas field in 2008 and 2009.

The Office of the Deputy Ombudsman for Luzon filed 159 criminal charges, totaling 491 pages, for alleged procurement violations by the provincial government led by Reyes. State prosecutors also alleged that the engineering office faked the accomplishment and inspection reports and allowed the violation of the terms for 39 infrastructure contracts worth P461.37 million.

These projects from across the island province—which included roadworks, schools, day care centers, and even an airport development project in San Vicente town—were actually unfinished at the time when these were certified as completed in 2008 and 2009. Add to these the contracts with disadvantageous provisions, a total of 54 projects were singled out as riddled with irregularities

Prosecutors said Reyes conspired with seven other officials to award the 209 contractors to 11 construction firms sometime in 2008, despite the violation of several requirements under the Government Procurement Reform Act. These included the failure to post the bid invitation online at the Government Electronic Procurement System and the province’s website, and the non-submission of bidding documents.

Likewise, the infrastructure contracts were found not to contain a clause for the payment of liquidated damages in case of project delay.

There was also improper evaluation of bid proposals as one set of key personnel was allowed to supervise construction work in different municipal projects with overlapping timetables. This violated the rule that evaluators must stay in the job site and handle only one contract at a time, the charge sheet read.

Due to these alleged irregularities, Reyes was charged with 14 counts of violating Section 3(e) of the Anti-Graft and Corrupt Practices Act for causing undue injury to the government and 22 counts of violating Section 3(g) of the same law for entering into disadvantageous contracts.

Reyes was also accused, along with provincial accountant Orlando Colobong and provincial legal officer Elena Melchor Vergara-Rodriguez, of approving the payments to three contractors despite incomplete supporting documents.

Reyes was not involved in most of the 159 charges, which are related to the provincial engineering office’s alleged offenses regarding 39 individual contracts. Provincial engineer Charlie Factor has been charged with 50 counts of violating Section 3(e) of the graft law, 76 counts of falsification, and seven counts of violating Section 2 of Presidential Decree No. 1759, which penalizes violations of material provisions in government contracts.

Factor, Padua, Abrina, and Cabuigen, as well as assistant provincial engineer Federico Rubio Jr. and 10 resident engineers were accused of causing the government a total of P169.71 million in damages for faking the accomplishment reports to justify the payment for 39 unfinished projects priced at P461.37 million.

Egregious discrepancies allegedly attended seven of these projects, which were barely half-completed. A supposedly 100-percent completed road widening project in Coron, for one, turned out to be 13.81-percent finished only.

At the same time, state auditor Edwin Iglesia and senior technical audit specialist Ronelo del Socorro of the Commission on Audit regional office were slapped with one count each of graft, falsification, and violation of PD 1759.

Their charges pertained to the allegedly fabricated CoA inspection report for the San Vicente Airport Development Project dated Sept. 11, 2009. They stated that the project was 58.36 percent complete during ocular inspection, when it was only 8.8 percent finished.

Private individuals from inside and outside Palawan contractors were also charged.
Corruption and fraud are engineered by anomalies and irregularities.

The Six Signs of Internal Fraud
As executives, managers, internal auditors or rank and file employees, when it comes to internal fraud we may suspect it, suffer the consequences of it, or anticipate it. But we never see it, according to Steven Albrecht, associate dean at Brigham Young University's Marriott School of Management.

However, we can see the signs of fraud, Albrecht said in a speech at the 18th Annual ACFE Fraud Conference. There are six signs in all organizations. By understanding them and looking for them, we significantly improve our chances of detecting and reporting fraud.
Accounting anomalies—representing such countless red flags as inventory shortages, unrecorded transactions, unusual levels of returns, etc.

Internal control weaknesses. These equate to opportunities for insiders to commit fraud. If you identify a weakness, chances are that someone will exploit it if they haven’t already.

Analytical symptoms. When a business function occurs at the wrong time, or is conducted by the wrong person or a similar operational anomaly occurs, chances are it is a sign of fraud.

Lifestyle symptoms. Employees living beyond their means is the most common. Smart internal fraudsters would steal and save. But most steal and spend. When you notice signs of extravagant lifestyle, you’re most likely looking at a sign of fraud.

Behavioral symptoms. People who stop looking you in the eye, sweat more than usual, come in earlier than usual and/or stay late should be monitored as potential fraudsters.

Tips and complaints. When employees report actual or suspected incidents of fraud among their co-workers or bosses, you’ve got good reason to start following up with a search for hard evidence.
Look for the anomaly to find fraud
Businesses have spent megabucks on detection systems and controls to prevent fraud — and yet fraud still occurs. There are ways, however, that all individuals and businesses can recognize fraud.

People ask me continuously, “How do you find fraud?” The answer is simple: You look for the anomaly! I mean, look for the unusual. You must look for the anomaly, recognize it and not ignore it. In hindsight, people will tell you they saw the signs of their kids or spouse using drugs, but they ignored it.
There is actually a huge industry and body of knowledge built up around the detection of fraud through the careful collection and sifting of data, looking first for anomalies, things out of place. But mere deviation is not fraud.  Fraud is intentional deviation designed to unfairly or illegally dispossess someone of there property. 

But in cases like that reported here, when anomaly has been rendered the norm and in large proportions, which if proven would be an epic of collusion and corruption, all you need is to simply open your eyes to link anomaly to fraud and corruption. Here, no one, it appears, was prepared to do that, given that these deeds were done many years ago, and are only being exposed now.

Of course, crimes are not presumed and persons charged with crimes are innocent until proven guilty.  But, in some cases, "anomaly" or "irregularity" is simply a polite, legally judicious, and imprecise, way of saying "fraud" or "corruption".

Friday, February 17, 2017

A tortuous path to nowhere on unfair labor wages claim against low bidder

I have to acknowledge the firm Horvitz & Levy LLP and its blog, At The Lectern, for alerting me to this California Supreme Court case: ROY ALLAN SLURRY SEAL, INC. v AMERICAN ASPHALT SOUTH, INC.
To prove the tort of intentional interference with prospective economic advantage, a plaintiff must establish “the existence of an economic relationship with some third party that contains the probability of future economic benefit to the plaintiff.” Here we decide whether such a relationship exists between a bidder for a public works contract and the public entity soliciting bids. Plaintiffs alleged that they had submitted the second lowest bids on several contracts awarded to defendant, and that their bids would have been accepted but for defendant‟s wrongful conduct during the bidding process. Public works contracts are a unique species of commercial dealings. In the contracts at issue here, the public entities retained broad discretion to reject all bids. In these highly regulated circumstances, plaintiffs had “at most a hope for an economic relationship and a desire for future benefit.”

The Riverside complaint alleged that American won six public works contracts2 on which either Allan or Martin was the second lowest bidder. American‟s underbids ranged from $3,842 to $140,794. To support their theory of tortious interference, plaintiffs alleged as follows.

Together, plaintiffs had 60 years of experience handling public works projects for slurry seal repair and maintenance. The cost of materials for these projects is essentially the same for all contractors. American engaged in wrongful, fraudulent, and illegal conduct by submitting deflated bids because it failed to pay prevailing wage and overtime compensation in connection with the named contracts, and with other public works contracts during the same period. Plaintiffs alleged they had both a relationship with the contracting public entities and a reasonable probability of future economic benefit, because they “were the respective second lowest bidder[s] and would have been awarded the contract[s] but for the fraudulent and/or illegal conduct of [American] . . . .” According to the complaint, “[American]‟s bid would have been rejected if [American]‟s conduct in failing to pay its employees properly was made known to the [public entity,] and/or [American] would not have been able to submit a lower bid . . . if [American] was properly paying all of its employees the prevailing wages . . . .” Plaintiffs alleged that the failure to secure the Riverside contracts resulted in estimated lost profits of $168,511 for Allan and $269,830 for Martin.

The Appeals Court found that, implicit in the Plaintiff's claim is the allegation that the various public entities were required to award the contract to the lowest responsible bidder and that plaintiffs satisfied all the requirements necessary to qualify for those contracts. Although plaintiffs here did not submit the lowest bids, that was alleged to be due solely to American‟s violation of its statutory obligation to pay its workers the prevailing wage. It went on to add, “an actionable economic expectancy arises once the public agency awards a contract to an unlawful bidder".

The Supreme Court reasoned that the tort of intentional interference with prospective economic advantage has five elements to be proved, the first being the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff. We focus on the first element, and consider a question of first impression. Can a disappointed bidder on a public works contract demonstrate the requisite economic relationship with the public entity?

American argues that merely submitting a bid to a public entity does not create an existing relationship but rather the hope of one. It emphasizes that each bidder is considered a stranger to the public entity because the entity is prohibited from favoring bidders with whom it has had past dealings. Additionally, public entities have discretion to reject all of the bids submitted. Under these circumstances, American contends, there is no existing relationship with which to interfere and no reasonable probability that a benefit will be conferred by the awarding of a contract.

A cause of action for tortious interference has been found lacking when either the economic relationship with a third party is too attenuated or the probability of economic benefit too speculative. The tort has traditionally protected the expectancies involved in ordinary commercial dealings—not the "expectancies", whatever they may be, involved in the governmental licensing process. A relationship between a competitor and a City cannot be characterized as an economic relationship. The tort “protects the expectation that the relationship eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will eventually arise.”

In a government contracting bid situation, there could be no existing relationship between plaintiffs and the public entities soliciting bids because public contract law forbids it. Public entities are required by statute to award these contracts to the lowest responsible bidder. Under the law, each bidder must be treated as a stranger to the entity.

A public entity‟s solicitation for bids is merely a request for offers from interested parties. It encourages multiple parties to compete for the contract. The bidding was sealed, and no negotiations took place. Ultimately, the public entities had broad discretion to reject all bids.

The case law recognizes that “the interference tort applies to interference with existing noncontractual relations which hold the promise of future economic advantage.” Here, when American allegedly submitted illegally deflated bids, plaintiffs were only one of several bidders on these public works contracts. No one knew if plaintiffs would be the lowest bidder, and the public entities had not yet decided whether or not to award the contracts. Plaintiffs cannot rely on the outcome of later events to prove that American interfered with an existing economic relationship.

The Court is cautious in defining the interference torts, to avoid promoting speculative claims. California authority requires at least the reasonable probability of an expectancy to establish a cause of action for interference with prospective economic advantage. This requirement is especially appropriate to evaluate a lost economic expectancy where the facts involve a competitive contest of one kind or another. To require less of a showing would open the proverbial floodgates to a surge of litigation based on alleged missed opportunities to win various types of contests, despite the speculative outcome of many of them.

We have previously noted in a case alleging lost profits under a promissory estoppel theory, inherently speculative nature of public works bidding.

Additionally, to be awarded the contracts, plaintiffs were required to meet the criteria for responsible bidders and responsive bids. Determining whether a certain bidder is “responsible” generally entails an evaluation of the bidder's trustworthiness, quality, fitness, capacity, and experience to satisfactorily perform the contract in question. It is a complex matter dependent, often, on information received outside the bidding process and requiring, in many cases, an application of subtle judgment. Given the complex and
external nature of a determination of nonresponsibility, it is speculative for plaintiffs to allege, as a basis for the economic relationship, that they were the second lowest bidder and would have been awarded the contract if not for American's illegal conduct.

For these reasons, the public works bidding process differs from the types of commercial transactions that traditionally have formed the basis for tort liability. In ordinary commercial transactions, there is a background of business experience on the basis of which it is possible to estimate with some fair amount of success both the value of what has been lost and the likelihood that the plaintiff would have received it if the defendant had not interfered. By contrast, in these public works contracts, the bidding was sealed, there were no negotiations, all qualified contractors were on equal footing regardless of past contractual dealings, the public entities were required to determine the bidder‟s responsibility, and they retained discretion to reject all bids. These circumstances counsel against extending a tortious interference claim to the bid process for these public works contracts.

Additionally, we must consider whether expanding tort liability in the area of public works contracts would ultimately create social benefits exceeding those created by existing remedies for such conduct, and outweighing any costs and burdens it would impose. Courts must act prudently when fashioning damages remedies in an area of law governed by an extensive statutory scheme.

Plaintiffs argue that their lawsuits will protect employees on public works projects by uncovering and deterring wage law violations. The argument fails for two reasons. First, the area is already extensively regulated. Prevailing wages are required by statute to be paid on all public works contracts. Several statutory mechanisms exist to enforce that duty. A public entity may withhold payments to a contractor who violates the prevailing wage laws. The Division of Labor Standards Enforcement may recover wages, interest, and damages on behalf of employees through an administrative hearing process and a civil action. The affected employees also possess private rights of action arising from statute and contract. None of these statutory schemes contemplates damage awards to a disappointed public works bidder who alleges the winning bid was based on prevailing wage violations. The duties created by the wage-and-hour statutes run solely from employer to employee. They do not create any action for civil damages in a competing bidder.

Expanding tort liability to cover wrongful interference with the public contracts bid process would provide little additional benefit in light of the extensive statutory scheme. Conversely, an expansion has potentially significant public policy disadvantages. The possibility of significant monetary gain may encourage frivolous litigation by second lowest bidders for effort they did not make and risks they did not take. That litigation, in turn, may deter responsible bidders from participating in the process, thus undermining the Legislature's goal of stimulating competition in a manner conducive to sound fiscal practices. Such a result would directly contravene the principles underlying the tort of intentional interference with prospective economic advantage: carefully drawing lines of legal liability in a way that maximizes areas of competition free of legal penalties.

The costs of recognizing the tort in this context is just too high.
(Note that I slice and dice, so read the case yourself and do not rely on what is presented here, except as a tease to lure you to the original.)

Wednesday, February 1, 2017

End corruption; adopt the ABA Model Procurement Code

This editorial comes from The Weekly Northside Sun, in Jackson, Mississippi, USA. Of course, I slice and dice articles presented here to make instructional emphasis of procurement issues for my own didactic purposes. Read the article at its link to get the full content and expression of the author.

The time has come for procurement and bidding reform
A recent study claimed Mississippi to be the most corrupt state in the country. The Epps prison scandal is a perfect example. It all stems from Mississippi’s awful bidding and government procurement laws. They are the worst in the nation.

There is a simple solution: Do what 16 progressive states (also including America's Territory in Asia, Guam) have already done. Adopt the American Bar Association’s Model Procurement Law. We just need the political will to do it. It would transform our state from a bastion of corruption to a model of good government. Large companies would cease fearing coming to Mississippi because of our notorious home cooking.

Tupelo Rep. Jerry Turner and Columbia Sen. John Polk are taking a crack at procurement reform as respective chairmen of their chamber’s committees on accountability, efficiency and transparency. A bill is being debated in the state House and Senate that is supported by Turner and Polk. The bill is a step in the right direction, but more decisive action is needed.

Rather than tweak our jumble of existing procurement laws and their infinite loopholes, we need to start from scratch with a new board and a new law. Rather than reinvent the wheel, we need to adopt the ABA’s model procurement law, which has become a national standard for good government.

The first step is to consolidate dozens of governmental entities that currently oversee procurement and bidding. The multiple agencies and governmental units should be consolidated into a single independent agency. Turner’s bill does this in part, but it doesn’t go far enough. For instance, the revamped Public Procurement Review Board still won’t have authority to review public procurement by cities and counties, only state agencies.

Here’s the problem: If our bidding laws are hashed out by the Legislature, there will be political manipulation by contractors and their lobbyists. A better way would be to let an independent board adopt the model procurement law. Such a process would have a better chance at reducing corruption.

Let’s take the bidding laws for the Mississippi Department of Corrections. These laws are buried deep in the MDOC state code. As it turns out, unidentified legislators exempted MDOC from competitive bidding and nobody knew about it. It may have been the very legislators who pushed through the exemptions were later involved in the shady contracts.

The same is true of the Mississippi Department of Transportation, the airport authorities and dozens of other agencies. Bidding and procurement laws have been buried in the codes of these specific agencies, making it easy for manipulators to water down without anyone noticing.

A better way is to have a statewide standard for bidding and procurement. All bidding laws should be consolidated in one section of the code. The same code should apply to all agencies and governmental entities. That would make it far harder to manipulate.

Right now we have a hodge podge of agencies and regulations: The Mississippi State Personnel Board, the Personal Services Contract Review Board, the Office of Purchasing, Travel and Fleet Management, the Bureau of Building, Grounds and Real Property Management, the Mississippi State Board of Contractors, MDOT . . . just to mention a few. Each has its own rules and regulations.

Title 31 Chapter 7 of our code has bidding laws that govern cities and counties but the law is weak at best, allowing contracts to go to the “best” bid rather than the “lowest responsive bidder” as most states do.

Making matters worse, the cities and counties, unlike state agencies, have no oversight at all. The only recourse is a lawsuit in which a losing bidder must prove that they were the “best.” Tough to do given such a vague standard.

How much money is on the line? Well the total budget for the state of Mississippi, including special purpose and federal funds, is over $20 billion. Billions of these dollars are paid to private companies contracting with the government. Transparent, competitive procurement laws could save hundreds of millions in lower prices for taxpayers. Imagine how much money is wasted by our cities and counties as the politically connected get sweetheart contracts.

Then there are the exemptions: for service contracts, single-source suppliers and emergencies. There’s so much wiggle room and lack of oversight, it’s just a free for all money grab. The taxpayers lose.

Just look at the city of Jackson. The wastewater treatment sludge removal bidding process has its own unique bidding laws different from any other such laws. Why? Instead, these contracts should have to follow standard bidding practices and get approval from the procurement board. It would have saved Jackson taxpayers millions on just that one contract. It would have prevented crony contracts at inflated prices.

Time and time again, the city of Jackson issues a “Request for Proposal” instead of following a competitive sealed bidding process. The politically connected contractor gets the business in a negotiated contract instead of competitive bidding. This is going on throughout our state, inflating the cost of governmental services by hundreds of millions of dollars.

This type of crony capitalism scares off the legitimate contractors. I know a dozen excellent companies that won’t even bid in Jackson because they know it’s rigged. The Northside Sun hasn’t bid on publication of the legals for 15 years. No point. It’s rigged.

But it’s worse. Not only does this corruption cost taxpayers millions, it gives our state the reputation of corruption, scaring away excellent national companies from locating plants here.

We have got to quit running our state like a private club for the politically connected and embrace open, efficient, transparent government. Only then will we begin to make progress.
The MPC was first adopted in 1979, and its core principles and processes have remain unaltered. It has been revised once, in 2000, and its regulations amended in 2002. Since its initial promulgation, there "has been great experimentation and variation among the state and local governments in the methods by which equipment and services have been procured. The proliferation of “local content” procurement regulations has, in turn, created a multitude of arcane differences among the thousands of jurisdictions buying such equipment and services on an annual basis. The resulting trends were negative, because complex, arcane procurement rules for such acquisitions by numerous jurisdictions discouraged competition by raising the costs to companies of understanding and complying with different rules in each jurisdiction. These costs are recovered in the prices offered by a smaller pool of competitors, resulting in unnecessarily high costs to state and local governments" (See the Introduction to the 2000 ABA MPC.)

And as the Commentators to the 2000 MPC noted, "The 2000 Code revision process has shown that many of the obstacles procuring agencies and officials encounter are those that have been written into the Code by enacting jurisdictions." (§ 2-503, Commentary 1.)

I'm also a true believer in transparent, accountable, uniform procurement laws. Guam adopted its version, falling very close in line with the ABA MPC, in 1982, and I've been witness to it's lifespan. Guam's procurement has also been tinkered and played with, by both the legislature and the executive, sometimes to good effect, others not so much. But, on the whole, from its very specific fundamental principles, the "purposes and policies" of procurement through it structured if not wholly centralized architecture and administrative as well as judicial review processes, the MPC does offer a framework yielding more than usual competition, transparency and integrity.

All that said, it must be understood that no procurement regime will negate dispute nor guarantee efficient satisfaction of government needs, nor immunize the government from corruptible influences or practices. Independent auditing, robust protest procedures and public access to almost all records of procurement (as required under the MPC) have to fill in a lot of the blanks. The public must be vigilant and demanding that exceptions and exemptions are eliminated. For instance, disclosure requirements and outsourced essential government services should not get shielded by tiered layers of contracts and ownership hiding behind LLCs and corporate structures, including "non-profit" entities owned by government agencies.

As the author of the article above reminded us, "We just need the political will to do it." And, "it" is an ongoing and never ending story. Unfortunately, it's part of the dirty work of democratic structures.

Monday, January 30, 2017

It takes one to know one: Evaluating the evaluators

Campground manager wins bid protest
The county on Friday upheld a bid protest by the current manager of the Chassahowitzka River Campground, ruling that scorers did not have the necessary expertise to judge the bids adequately. Moore & Moore Realty Inc. of Homosassa, which has had the campground contract the past five years, filed the protest after the county had recommended the contract instead be awarded to a Cape Canaveral company.

In his response to Moore’s bid protest, Assistant County Administrator Jeff Rogers acknowledged that the scoring process was flawed and the county did not assign experts to score the four bidders. “I do believe the county could have had county staff and/or external staff that might have had more interaction with the daily operation of the campground or had more knowledge of the operation of a campground involved in the scoring,” Rogers wrote.

Moore and Chassahowitzka residents who supported the current contract took particular dispute with Phillips, who along with two other county staffers scored the bids in seven areas. Phillips gave Moore & Moore low scores in all but one category, and all three gave high scores to the eventual winning bidder, Camp Leisure.

Rogers wrote that staffers who should have been involved in the scoring could not participate because of a conflict of interest with one of the bidders. Still, he said county regulations require bids be reviewed and scored by individuals with knowledge or expertise of the service or commodity being procured. He said the county could have sought outside expertise to assist with the bid scoring.

The company, in its bid protest, said the county should never had sought proposals in the first place. Company president Elaine Moore said that both the prior Parks and Recreation director and Tobey Phillips, director of the Department of Community Services, assured her in July 2016 that the county planned to give her a five-year contract extension. She said the only reason the county sent the contract out to bid is because a Hudson company inquired about the campground in October.

In his response to Moore’s bid protest, Assistant County Administrator Jeff Rogers did not find fault in the county seeking new bids.

Tuesday, January 17, 2017

What a revolting development this is

Ok, I'm showing my near-septuagenarian age, but from the 1940's world of entertainment came the oft-used line, "what a revolting development this is".

And from later days in the U.S. Navy comes the "KISS principle": Keep It Simple, Stupid.

These two phrases, and the sentiment they express, come together in the following article written by David P. Goodwin and Erik C. Porcaro of the law firm Troutman Sanders LLP which can be found on the Mondaq website

In the era of just a few decades ago, particularly but not exclusively in IT procurements, the government procured bespoke supplies, services and systems, developed from the ground up for a particular purpose, and typically with proprietary locks on all the doors and windows which, obviously, benefit an incumbent.

But the industry has evolved, and IT systems these days often sport a variety of generic core programs that can easily be focused for particular purposes by the add-on of an "app" or two. This is the result of programmers taking the risk of creating a profitable program and putting it on the shelf marked "Sale". 

Both the federal government and local governments using the ABA Model Procurement Code for a guide (e.g., 2 GAR § 4102(a)(3): Preference for Commercially Available Products) have expressed preference for standard commercial products and services over development contracts. But it is hard to wean institutions from their habits, as this article illustrates.

New Leverage In The Federal Marketplace For Commercial Item And Commercial Systems Contractors
In Palantir USG Inc. v. U.S., the Court of Federal Claims recently issued a ruling in favor of Palantir's pre-award protest citing the need for the government to evaluate all viable commercial options under the Federal Acquisition Streamlining Act of 1994 ("FASA") when issuing solicitations. Palantir, a data-mining company, lost their initial GAO bid protest challenging the Army's bid solicitation process relating to an enhancement of the Distributed Common Ground/Surface Systems (DCGS) which allows for sharing of multi-sensor combat intelligence and weather information among the armed forces.

FASA lowered procurement barriers and opened up government contracts to bids from small businesses by promoting fixed-price contracting based on performance. Another example is the preference FASA created given to buying commercial off-the-shelf items (COTS Items), rather than purchasing through the more complex contracting process for government-unique items. FASA also defined commercial items more broadly and exempted such purchases from over thirty statutes that contain requirements unique to government procurements. The goal of these changes was to simplify the procurement process for companies who do not ordinarily sell to the government. Though this goal has been achieved in certain ways, many in Government and in industry feel that the Government continues to lose out on the faster pace of commercial sector development, especially in high-tech and information technology.

At the heart of the Palantir case were Palantir's assertions that the solicitation process for bids blocked commercial firms like Palantir from competing, in violation of FASA. The Army issued a developmental solicitation which required bids for the creation of an entirely new data integration system. Palantir argued the Government could buy the existing core functionality from the commercial market and integrate any number of additional applications at less cost than developing new systems. In choosing to issue a developmental solicitation, the Army overlooked a viable commercial market system thereby violating FASA, which requires government agencies to frame their requirements so as to accept commercial products "to the maximum extent practicable."

Friday, December 30, 2016

The business of government

I've taken the following article and sliced and diced it to my own editorial fancy, to make particular points about procurement, as is my wont in this blawg. So, if you really want to know the article's author's intent, read it at the title link.

Go on. Click the link and read it from the horse's mouth; some may view it as thought provoking. I did.  My convoluted version follows the link and hopefully does not too much damage to the author's intentPay attention to my identified tags/labels (in the head of this blawg) to put this post in my context.

Thinking about the business of government, By CHRIS DISHMAN, a Ph.D. candidate in public affairs at the University of Texas at Dallas, who wrote it for the Dallas Morning News.
Total spending for the executive branch, known as “discretionary funding,” amounts to 30 percent of all U.S. spending. “Mandatory spending” accounted for 70 percent of total government spending in 2016.

The Department of Defense accounts for half of “discretionary” spending, so agencies like Commerce, Energy, Homeland Security and Veterans Affairs make up 15 percent of total spending. If Congress eliminated the Department of Energy, for instance, the government would save $28 billion annually, which is roughly equivalent to the cost of two new CVN-class aircraft carriers.

Medicare, Medicaid, Social Security and interest on the debt make up the bulk of “mandatory” spending, together with other “entitlements”, social as well as corporate.

The executive branch is the same size as it was in the 1970s, despite the increasing number of laws and regulations passed by Congress. The government remains at 2.1 million people or less.

The government’s workload has skyrocketed, as measured by the amount of spending per government employee, yet neither Congress nor any executive will support additional resources to implement the rules and regulations they advocate. The result of this dilemma is that government contracts out many of its duties to the private sector. And this forces government managers to shift existing resources — those used to undertake other governmental duties — to “manage” those contracts.

The government is paying big dollars to companies to undertake governmental missions. Why? Because it is politically palatable. Mandatory spending must be addressed to balance the budget, but politicians know that threatening a reduction in these programs is electoral suicide. Do you wonder why lobbyists like this approach?

There are fundamental differences between business and government.

Constitutional values, not corporate law and profit, guide the public sector. Ideally, government serves public interests while protecting the competing values that underpin those interests.

The private sector, in contrast, is governed by corporate law and profit, and business executives are, in the main, disinterested in anyone who cannot support that goal.

These differences do not mean that government cannot learn from the private sector. But we should remember that the republic’s founders intended the structure and processes of government to reflect constitutional values, not those of free enterprise.

Monday, December 19, 2016

Minor post-bid mistatkes

Protests arise following Shop Road extension contract award
The Richland County Council has spoken on a contract for a $25 million road project aimed at sparking industrial development. However, one of the firms that lost out is still fighting to overturn the decision.

On Friday, attorney Kathleen McDaniel for Richardson Construction Company, a Richland County-based company, went to court in a last ditch effort to win a contract of at least $22 million dollars. She says the contract was wrongly awarded to another bidder. “We believe this is not consistent with Richland County's procurement ordinance.”

McDaniel admits Richardson made a minor and easily correctable mistake on its bid proposal. However, that mistake could cost taxpayers about $2.9 million if the contract goes to McClam and Associates - the highest bidder and the one approved by a 9-2 majority of the county council.

“The county has a concern that if they permit any type of revision to a bid, post-bid I think, that would be inconsistent with the county procurement code. I think we just have a different interpretation of what the procurement code permits and that's why we will be filing a protest with the Richland County procurement review board,” McDaniel said.

It won't be easy for Richardson to prevail, however. Richland County Council's Torrey Rush and others in county government are worried about setting a precedent for other bidders to try to change their proposals after submitting them. County government is also concerned that overturning the decision could cause construction delays and problems for development of another project dependent on the road.

Read more and more accurately at the link.

In a related article, Construction company suing Richland County over Shop Road project, it is reported:
The plaintiff, Richardson Construction Co. of Columbia, says it was the lowest bidder for the project by $3 million but made what it considers a minor mistake in its bid that caused the county not to consider the company for the job. Richardson’s complaint was filed Thursday in the Richland County Court of Common Pleas.

County administrator Gerald Seals has told County Council the county’s procurement laws do not require the county to allow bidders to correct errors in bids once the bids have been opened.

Read more and more accurately at the link.
The American Bar Association procurement law and regulations have provisions that speak to this situation, and could aid Attorney McDaniel if the same or substantively similar rules apply in Richland County and the facts are amenable.

Guam's procurement law is based on the ABA model, so I will refer to the Guam version.  Guam has a regulation dealing with mistakes in bids, generally, and with mistakes made in various stages of the solicitation process. 2 GAR § 3109(m)(4) particularly deals with mistakes made after bid opening but before award.

Generally speaking, the rule distinguishes between mistakes of judgment and other non-judgmental mistakes. "If the mistake is attributable to an error in judgment, the bid may not be corrected. Bid correction or withdrawal by reason of a nonjudgmental mistake is permissible, but only to the extent it is not contrary to the interest of the territory or the fair treatment of other bidders." (§ 3109(m)(1).)

A nonjudgmental mistake made after opening but before award may consist of a minor informality or a matter of substance that is insignificant. Such insignificant mistakes "can be waived or corrected without prejudice to other bidders; that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible. The Procurement Officer shall waive such informalities or allow the bidder to correct them depending on which is in the best interest of the territory." (§ 3109(m)(4).)

This regulation is specifically backed up by statute: "Correction or withdrawal of inadvertently erroneous bids before or after award, or cancellation of awards or contracts based on such bid mistakes, shall be permitted in accordance with regulations...." (5 GCA § 5211(f).) The corresponding ABA Model Procurement Code cite is §3-202(6) and the Model Regulation is §R3-202.11.

As an aside, regulation § 3109(m)(4) incidentally provides a guide to what is meant by the term "bidder prejudice", indeed it is the only reference in the Model Code and Regulation that comes close to specifically defining the term. 

Insignificant mistakes, the regulation tells us, can be waived or corrected "without prejudice to other bidders; that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible". Thus, a claim of bidder prejudice must be based in something in the bid that has an effect on price, quantity, quality, delivery, or contractual condition which is more than negligible. For instance, bidder responsibility is based on factors concerning the nature of the bidder, not the nature of the bid. This can be a handy guide to distinguishing between what constitutes an issue of responsiveness and what constitutes a matter of responsibility.