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Thursday, April 29, 2010

Big Boys in Kiddie Pool?

The American Small Business League has been on a tear recently going after several Federal agencies for information whether Large Business is butting into Small Business set asides.

In its Press Release for one such action, it says,
The ASBL plans to file a series of FOIA requests to NASA as a means of uncovering more federal small business contracts that were diverted to Fortune 500 firms. Specifically, the ASBL intends to uncover contracts awarded to large corporations that were coded as small business contracts by contracting officers.

Section 16(d) of the Small Business Act states, "whoever misrepresents the status of any concern or person as a 'small business concern'...to obtain for oneself or another," any prime contract or subcontract with the government shall be subject to penalties of $500,000, 10 years in prison and/or debarment from federal contracting programs.

Attorneys for the ASBL believe federal contracting officials, and possibly even employees of prime contractors, could be held liable for penalties prescribed under section 16(d) of the Small Business Act for fraudulently misrepresenting large firms as small businesses.
In another Release it says,
Despite campaign promises of increased transparency, and an end to the diversion of federal small business contracts to corporate giants, the Obama Administration is refusing to release a wide range of information to the general public. The administration has refused to release information such as: the names of recipients of small business contracts, the names of federal contracting officials who awarded contracts to large corporations, the specific names of individuals responsible for misrepresenting large corporations as small businesses, and prime contractor compliance with small business subcontracting goals.

"We expect that by the end of 2010, through our freedom of information requests and lawsuits, that we will prove once and for all that the diversion of billions of dollars a month in federal small business contracts to corporate giants is not honest mistakes, miscoding, or computer glitches. Our efforts will prove that the government has adopted specific policies that divert small business contracts to large corporations, and in many cases the government has allowed federal contracting officials and prime contractors to get away with blatant contracting fraud," ASBL President Lloyd Chapman said.
For instance,

NASA and General Dynamics C4 Systems Incorporated:
The ASBL requested information from NASA on a contract awarded to General Dynamics after discovering that a contracting officer reported the award as a small business contract.

Wednesday's suit is the second lawsuit filed by the ASBL against NASA. In February of 2007, the ASBL prevailed in its first suit against NASA, forcing the agency to provide detailed information proving the agency falsified its small business contracting statistics by including contracts to a variety of Fortune 500 firms and other large businesses.
Department of Energy and Bechtel:
The DOE is refusing to release information about a $3.6 billion contract that was awarded to Bechtel, which listed the giant contractor as a small business under the socio-economic field.
Army and ManTech Telecommunications.

Procurement controversies -- Tanzania

Tender suspension irks appeals body
Government’s drugs procurement agency, Medical Stores Department (MSD) was on the spotlight once again after the Public Procurement Appeals Authority (PPAA) nullified its decision to suspend and order restart of a Sh573.8 million tender for supply of disposable syringes.

The tender was initially won by Salama Pharmaceuticals Limited but in less than a week to receiving a letter from MSD; the procurement proceedings was suspended on allegations of irregularities in evaluation process.

The agency claimed to have discovered a number of irregularities in the evaluation process including leakage of privileged information to one of the bidders.

PPAA said in its recent decision that the annulment of the tender was not justified as MSD did not have the mandate to annul the tender as the act amounted to interfering with the coming into force of the procurement contract.

Annulling the tender, PPAA said under section 55(7) of the Public Procurement Act, the respondent did not have the mandate to entertain the complaint after having awarded the tender.

“The authority concurs with the appellant that by the time the complaint was received from Ms Hindustan Syringes the contract was already in force in terms of section 55 (7)of the Public Procurement Act,” the authority said.

COMMENT: Under Guam law, a protest may be brought against an award of contract, and a contract resulting from an improper solicitation may be set aside, but there is no requirement to do so, even in the face of fraud on the part of the party improperly awarded the contract.

Tuesday, April 27, 2010

Rigging the sales

Hospitals Probed Over Bid-Rigging
Federal prosecutors are investigating allegations that bid rigging and fraud at Mount Sinai Medical Center and New York-Presbyterian Hospital resulted in the hospitals awarding contracts worth tens of millions of dollars to outside contractors.

Purchasing officials at the hospitals, two of the city's largest and most prestigious, are alleged to have gotten more than a million dollars in payments from companies that were then given lucrative contracts to perform work such as re-insulating pipes and removing asbestos, according to documents filed in the Southern District of New York.

Nine contractors are involved in the case. So far, eight people and three companies supplying the hospitals have pleaded guilty to charges including bid-rigging, mail fraud and tax fraud. Three more people have been indicted on similar charges.

The Federal Bureau of Investigation and Internal Revenue Service have been investigating and the Justice Department's Antitrust Division is prosecuting the allegations in the case.

A Mount Sinai spokesman said the hospital notified the Justice Department "about the possibility of impropriety immediately after it was identified in an internal audit" and is cooperating with the investigation. The spokesman said the hospital dismissed the employee under investigation and instituted tougher contracting systems.

Mount Sinai has a policy of awarding sizable contracts through competitive bidding, according to the indictment. To appear to satisfy the policy, prosecutors say, Mr. Perciavalle had the Long Island City company submit higher bids on the letterhead of other companies.

Tennessee procurement reform

Panel approves procurement bill
Legislation overhauling the way state government contracts for the purchase of up to $25 billion in goods and services has been approved by the Senate State and Local Government Committee.

The legislation, Senate Bill 3598, sponsored by Senator Bill Ketron, R-Murfreesboro, is designed to implement cost saving strategies taken from the best practices implemented by procurement officials nationwide.

The bill uses information contained in a State of Tennessee Procurement Assessment showing state authority for contracting is divided with one path for procuring goods and routine services and another path for the purchase of professional services.

Each path has its own rules, players, decision makers, databases, technology, policies and staff. Without a single entity in charge of or accountable for statewide procurement spending, there is currently no easy way to manage a coherent, comprehensive, statewide cost saving strategy for procurement.

The report also said it was confusing for vendors to do business with the state due to inefficient and redundant processes.

The proposed legislation would combine procurement of goods and services for the state into one central office housed in a department to be chosen by the governor. The governor would also appoint a single Chief Procurement Officer who has extensive qualifications and experience in contract administration to head the agency. The Chief Procurement officer would lead a staff of 88 well trained professionals to carryout the function of procurement management, contract management, contract compliance /quality assurance, and vendor customer relations.

An Advisory Council for State Procurement would be established to provide counsel to the new agency, replacing the present Board of Standards and Review Committee. It would consist of representatives from state agencies, the legislative branch and those with expertise from the vendor community.

COMMENT: I have been advocating that Guam also constitute an Advisory Council composed of knowledgeable broad procurement industry representation from public and private participant groups. The concept of and recommendation for an Advisory Council is provided in the ABA Model Procurement Code.


FOLLOW UP: Wilson: Streamlined purchasing will save taxpayers money
Thankfully, the General Assembly recently approved legislation sought by my office that will simplify and streamline the purchasing process.

The new law, which was approved with strong bipartisan support, requires the purchasing of goods and services to be combined under the oversight of one office with a single leader.

The law requires policy decisions to be made in one place - with strategic planning - after input has been received from state agencies and vendors.

The law also requires more emphasis on professional development and training for employees and for qualified vendors involved in the procurement process.

This is not revolutionary; Georgia adopted similar reforms five years ago. Those reforms have already saved Georgians tens of millions of dollars.

There are several ways we should be able to save money under the new law. A fairer and simpler system should encourage more vendors to participate, which should help drive down the prices we pay for goods and services. Also, centralized purchasing will allow us to purchase items in greater quantities, which can help us negotiate price discounts.

It will not be easy to match Georgia's cost savings in Tennessee. Vested interests here, particularly those that have been benefitting from our closed system, resisted the legislation and will throw up roadblocks to the changes that we will be making.

Making the new system work will take leadership and vision. Real change does. But we will save the taxpayers money.

Best of all, we will inject fairness, opportunity, competition and accountability into our purchasing system.

And shouldn't that be the bottom line?

Saturday, April 24, 2010

Proposal to disclose organizational conflicts of interest as condition to bid

EDIT NOTE Feb 9, 2011: Having recently critically reviewed a Guam procurement administrative review decision on disclosure of minority ownership interests "as a condition of bidding" in my draft of the next version 2.1 of the Guam Procurement Process Primer (see Sneak Preview link in side bar), I want to correct the headline to this post. As the article noted below, the conflicts disclosure is not actually a condition precedent to bidding as the headline might suggest, but a condition, subsequent to bidding, of award, and a continuing obligation of performance, to voluntarily disclose conflicts (though it is hard to reconcile what is meant by the "mandate" to "voluntarily" disclose).

Pentagon seeks to force contract bidders to disclose conflicts of interest
Defense Department contractors would be required to disclose any possible organizational conflicts of interest before bidding on projects, under a proposed rule published on Thursday in the Federal Register.

"The government must avoid the appearance of impropriety, which taints the public view of the acquisition system," the notice stated. "Organizational conflicts of interest, by their mere appearance, call into question the integrity and fairness of the competitive procurement process. This concern exists regardless of whether any individual contractor employee or contractor organization ever actually renders biased advice or benefits from an unfair competitive advantage."

Organizational conflicts of interest occur when a firm has access to nonpublic information that would give it a leg up in competing for work, the rule said. Conflicts also could crop up when a contractor is performing tasks that are subjective and that could have an impact on its bottom line. These situations would include a company helping to prepare a statement of work and then bidding on that project.

The rule would mandate that bidders voluntarily disclose facts that could relate to an organizational conflict of interest both prior to the award and on a continuing basis during performance of the contract.

As with all other posts, you are encouraged to read the entire linked article.

For further general reading on the subject of conflicts of interest, see ADDRESSING CONFLICTS OF INTEREST IN PROCUREMENT: FIRST STEPS ON THE WORLD STAGE, FOLLOWING THE UN CONVENTION AGAINST CORRUPTION.

Native Alaska contracting preference under scrutiny

Alaska Native corps. fight to keep favoritism in federal contracting
Only Native-owned businesses have the ability to land sole-source, no-bid, unlimited-value contracts with the federal government -- a fact that raises some ire among those who oppose the preferential structure.

Critics claim Native corporations too easily secure big money contracts without doing enough to improve life in their shareholders' hometowns -- a founding ethic of the Alaska Native Claims Settlement Act. Plus, they say, unscrupulous outside interests can use the Native corporations as "front companies" to gain access to big contracts from which they might otherwise be excluded, and further direct work to subcontractors in which they have a financial stake. The worst case scenario? Money and jobs are passed on to entities with no Native ties at all.

Supporters counter that the potential for waste or abuse is not a legitimate excuse to thwart opportunity for Natives. Yet changes are already under way in response to demands for increased public accountability. The SBA has proposed requiring Alaska Native corporations to demonstrate how their contracts benefit their communities, and the Department of Defense -- the main source of contracting opportunities -- is requiring its officers to justify sole-source awards in excess of $20 million, which are available only to Native-owned corporations. No-bid awards for all other 8(a) businesses are restricted to $5.5 million or less.

Alaskans are resisting the change on both fronts. U.S. Senator Lisa Murkowski intends to try to repeal the new DOD reporting requirement. Murkowski says more paperwork will cause a chilling effect on awards.

A proposed rule to report yearly on how benefits from 8(a) participation is reaching Native people prompted terms like "onerous" and "burdensome and unreasonable." Many are also critical of government value judgments about whether the corporations are fulfilling their missions.

Native corporations welcome including Native Hawaiians among the Native-owned businesses with access to sole source contracts of unlimited value.

Native corporations argue that they can weed out bad managers and corruption on their own, and question why they should be subject to more stringent performance guidelines than other American companies.

2006 GAO Report: Increased Use of Alaska Native Corporations’ Special 8(a) Provisions Calls for Tailored Oversight

Alaska Native Corporations: IGs and Issues
In July 2009, Alaska Native Claims Settlement Act Corporation Chugach World Services Inc in Anchorage, Alaska received a $55 million Indefinite Quantity firm-fixed-price contract to revitalize Buildings 2266 and 2264 at Fort Sam Houston, TX.

If an Alaska corporation seems like an odd single-solicitation choice for work in Texas, you’re not alone. Chugach has a long history of federal contracts for similar work all over the USA, however, which makes them an experienced partner. They’re not alone, either. ANCs’ share of federal contracting has grown from $1.1 billion in FY 2004 to $3.9 billion in 2008, including some key front-line contracts. That’s 26% of 8(a) dollars, going to 2% of registered 8(a) firms. Meanwhile, the US Small Business Administration’s Inspector General has released a pair of reports in the past 2 years, documenting issues with ANCs…

The July 2009 Small Business Administration’s Inspector General (SBA IG) report says that unique federal contracting privileges for Alaska Native Corporations (ANCs) damage the prospects of small, disadvantaged firms seeking federal business under the 8(a) small business contracting program.

Federal agencies are supposed to award 5% of their contracting dollars to small, disadvantaged businesses, of which 8(a) firms are a subset.

ANCs can also participate in the 8(a) program, but they have a number of additional advantages. Exemptions from competition requirements for larger contracts above $5.5 million. No $100 million cap on the total sum of money a single firm can receive under the 8(a) program. Not to mention relaxed restrictions on the number of firms that can be owned by an ANC 8(a) firm, creating a set of “small” firms that are really a large firm with operating divisions – and pre-existing relationships that have encouraged federal agencies to meet quotas by awarding large, sole-source contracts to ANCs.

Even within ANCs, the SBA IG says that no limits on sole-source awards concentrate the benefits. In FY 2007, 50% of ANC awards went to just 11 ANC firms, or 6% of the total. Furthermore, those top 11 firms received 82% of their 8(a) awards without competition.

Additional Readings [from linked article]

  • US GAO (July 9/09, #B-401057.2) – Small Business Administration-Reconsideration. “The Small Business Administration (SBA) asks that we reconsider our decision in Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD para. 93, in which we concluded that, prior to the award of a contract to an Alaska Native Corporation on a sole-source basis…”

Thursday, April 22, 2010

Inherently, self evidently and at its core ambiguous

This post has been stimulated by an opinion piece in the Guam Pacific Daily News today, Navy needs to 'in-source' more jobs.

The gist of the piece is that the Federal government on Guam, specifically the Navy, has failed to diligently implement the "inherently government" directives of recent legislation:
On April 6, 2009, while introducing the fiscal 2010 DOD budget, Secretary of Defense Robert Gates announced an initiative to rebalance the DOD work force and reduce the percentage of contracted services. This initiative is commonly referred to as "in-sourcing" and is consistent with the DOD's congressionally mandated statutory requirements under the fiscal 2008 National Defense Authorization Act, as well as Obama's call for contracting reform in his March 4, 2009, memorandum.

Section 324 of the fiscal 2008 NDAA directed DOD to consider using federal civilian employees to perform new functions and functions currently performed by contractors. As directed, special consideration was to be given to: using DOD employees at any time during the previous 10 years; a function clearly associated with the performance of an inherently governmental function....

It is high time for the DOD and the Navy to consider making amends to the people of Guam by seriously planning and making it possible for in-sourcing federal civil service workers in the Navy BOS contract and other related service contracts.

Why is the Navy on Guam not a bit interested in seeking out and hiring our former Navy and Air Force employees?
I have no knowledge whatsoever as to what is or is not being done to implement the directives, but I was intrigued enough by the concept of "inherently governmental" activities to look into that aspect.

There is a recurrent refrain when discussing this issue. In February 2010, the Congressional Research Service described it thusly:
The current debate over which functions are inherently governmental is part of a larger debate about the proper role of the federal government vis-à-vis the private sector. This debate is as old as the Constitution, which prohibits privatization of certain functions (e.g., Congress’s legislative function), a prohibition courts enforce under various judicial tests (e.g., nondelegation, functions “affected with the public interest,” etc.).
In 1991 (during the George H.W. Bush administration), the General Accounting Office said something very similar:
Concern about which federal agency activities are inherently governmental functions is not new. It goes back as far as the early days of the nation, as evidenced, for example, by the discussions in the Federalist Papers among the framers of the Constitution over what functions are appropriate for the federal government to exercise.
The Executive regulatory basis for implementing the inherently governmental directives seems to be crystallized in Office of Management and Budget Circular No. A-76, adopted in 1966, and which thereafter went through a succession of revisions. See, for instance, this version from 1983 which repeals and replaces the 1979 version.

Pointedly, for purposes of highlighting the roots of the politically philosophical tug-of-war, Circular 76-A deals in the first instance with "commercial activities", as seen in the 1999 version:
This Circular establishes Federal policy regarding the performance of commercial activities and implements the statutory requirements of the Federal Activities Inventory Reform Act of 1998, Public Law 105-270. The Supplement to this Circular sets forth the procedures for determining whether commercial activities should be performed under contract with commercial sources or in-house using Government facilities and personnel.

In the process of governing, the Government should not compete with its citizens. The competitive enterprise system, characterized by individual freedom and initiative, is the primary source of national economic strength. In recognition of this principle, it has been and continues to be the general policy of the Government to rely on commercial sources to supply the products and services the Government needs.

This national policy was promulgated through Bureau of the Budget Bulletins issued in 1955, 1957 and 1960. OMB Circular No. A-76 was issued in 1966. The Circular was previously revised in 1967, 1979, and 1983.
The Circular's focus on "commercial activities" is described by contrasting such activities with "inherently governmental" activities, and includes separate lists of illustrative "commercial" and "inherently governmental" activities, respectively.
A commercial activity is one which is operated by a Federal executive agency and which provides a product or service that could be obtained from a commercial source. Activities that meet the definition of an inherently Governmental function provided below are not commercial activities.
Before Clinton was elected President in November 1992, the White House OMB issued Policy Letter 92-1 to describe the rationale for the "inherently governmental" activity directives:
This policy letter establishes Executive Branch policy relating to service contracting and inherently governmental functions. Its purpose is to assist Executive Branch officers and employees in avoiding an unacceptable transfer of official responsibility to Government contractors.

Contractors, when properly used, provide a wide variety of useful services that play an important part in helping agencies to accomplish their missions. Agencies use service contracts to acquire special knowledge and skills not available in the Government, obtain cost effective services, or obtain temporary or intermittent services, among other reasons.

Not all functions may be performed by contractors, however. Just as it is clear that certain functions, such as the command of combat troops, may not be contracted, it is also clear that other functions, such as building maintenance and food services, may be contracted. The difficulty is in determining which of these services that fall between these extremes may be acquired by contract.

Agencies have occasionally relied on contractors to perform certain functions in such a way as to raise questions about whether Government policy is being created by private persons. Also, from time to time questions have arisen regarding the extent to which de facto control over contract performance has been transferred to contractors.

This policy letter provides an illustrative list of functions, that are, as a matter of policy, inherently governmental (see Appendix A)(, and articulates the practical and policy considerations that underlie such determinations (see [[section]] 7).
In essence, the Policy Letter followed the prior instructive use of the dichotomy between commercial and inherently governmental activities. But that dichotomy continues to be merely illustrative and of no useful guidance in the gray areas where political dogma and polemic debate reigns supreme.

For instance, in 2001, during the administration of George W. Bush, OMB again revised Circular 76-A (OMB chief describes sweeping agenda for A-76 competitions) and the GAO constituted a new panel to "study" federal out-sourcing and public-private competition.

This latter action was described in this article in 2001: Definition of 'inherently governmental' could change
A high-level panel reviewing federal outsourcing policy is working to better define when and why federal jobs can be considered inherently governmental, Comptroller General David Walker said this week.

Current guidance on the definition of the term "inherently governmental" is included in the Federal Acquisition Regulation, Office of Federal Procurement Policy Letter 92-1 and the 1998 Federal Activities Inventory Reform (FAIR) Act. The FAIR Act defines an inherently governmental job as a "function that is so intimately related to the public interest as to require performance by federal government employees."

The Commercial Activities Panel is revisiting this definition, Walker said.

"One question that has to be on the table is what is a reasonable way to go about defining inherently governmental," he said. "It's not well-defined today, and arguably not being consistently applied [by agencies] today."

In his view, agencies should ask two questions to determine which jobs must, by law, be performed by federal employees: Which activities are inherently governmental, and what core functions are necessary to carry out those activities.

"If you have an inherently governmental activity, that's one dimension. Then you have to ask what kinds of functions need to be discharged to support that activity," said Walker. "You ought to consider both to determine what is a possible candidate for outsourcing."

Walker cited national defense and law enforcement as examples of inherently governmental activities. While soldiers perform a core function that is necessary to national defense--fighting wars--workers who provide support services to soldiers are "non-core" and could be candidates for outsourcing, he said.

"We're not going to contract out for mercenaries," he said. "On the other hand, there are a lot of support services that have to be provided, some of which may be core, and some of which may not be...government doesn't necessarily have to provide all support services tied to an inherently governmental activity."

Under Walker's approach, the concept of core functions would play a central role in defining what federal jobs are inherently governmental.

For mine, this notion of "core" is not more helpful than "inherent" or "commercial". It's just another descriptive term around which ideologues can split hairs. For instance, to use Walker's categorization of soldiers and support services, is a medic a support service? A tank driver? Calling something "core" does not provide any better bright line.

Meanwhile, the Bush administration continued to put its mark on "inherently governmental":

Inherently governmental functions: at a tipping point? (2008)
More than 15 years ago, the U.S. Office of Management and Budget (OMB) Office of Federal Procurement Policy issued Policy Letter 92-1, Subject: Inherently Governmental Functions. This 1992 document offered the first government-wide guidance to help executive branch officers and employees avoid making "an unacceptable transfer of official responsibility to government contractors." Implemented in Subpart 7.5 of the Federal Acquisition Regulation, the policy has remained relatively unchanged since its issuance. Even the comptroller general's 2003 Commercial Activities Panel proposed no significant adjustments to this guidance as the panel addressed the merits and procedures for contracting out government work.

Formulating an inherently governmental policy that includes a bright-line test for every activity for which the government may want to consider using contractors would be difficult.

Which brings us to 2010, while not directly addressing the issues raised in the PDN editorial that started this post. The "debate" over "inherently governmental" goes on in the muddy trenches between the obvious.

Word War III
Obama seems determined to break with previous administrations and chart a new course for federal contracting.

An activity defined as inherently governmental is supposed to be performed by a federal government employee, not a private contractor – in theory. In reality, the line separating activities that should and should not be outsourced has been blurred. As a result, contractors are performing or have performed a wide variety of services that are either inherently governmental or very close to it.

The problem is that the definition of inherently governmental function has been gradually watered down over the years. Once, functions were either classified as inherently governmental or commercial. Now, the agencies have a growing list of terms at their disposal that allow them to stretch the boundaries. Functions that once would have been classified as inherently governmental are now slapped with less-certain terms like “core,” “critical” or “mission-essential.” POGO is glad that the Senators called for a definition of inherently governmental function that is expansive enough to eliminate the need for agencies to use such questionable terms.

Agency pilots help cultivate 'inherently governmental' changes
The administration wants agencies to use only the definition of inherently governmental that comes from the Federal Activities Inventory Reform Act (FAIR Act) of 1998. The FAIR Act defines an activity as inherently governmental a job that is so intimately related to the public interest as to mandate performance by federal employees.

"The concern was that the 2003 changes to Circular A-76 in which the word 'substantial' was added to the word discretion and there are also other changes in tone," Gordon says. "In our view, there has been confusion, and the statute governs, which overrules any inconsistency in circular or policy letter. We want to go back to statute."

OFPP also highlighted 19 positions that could be considered closely associated with inherently government, such as supporting freedom of information act requests, evaluating the technical aspects of contract proposals, participating as technical advisors to a procurement review board and drafting legal advice and interpretations of regulations and statutes.

"Closely associated with inherently governmental means it's acceptable for the government to use contractors, but the focus needs to be on oversight of those contractors to make sure their work isn't bleeding into or spreading out into inherently governmental functions," Gordon says.

Under critical functions, it's also permissible to have contractors do the work, but the test we proposed in the draft policy is that federal employees need to be sure we have enough federal employee expertise and capabilities in house so that federal employees can maintain control of the mission and operations."

The Office of Management and Budget will use learned from 24 demonstration programs to influence the governmentwide implementation of the new policy letter that helps define what is inherently governmental, closely associated inherently governmental functions and critical functions.

Dan Gordon, the Office of Federal Procurement Policy administrator, says about 12 of the 24 agencies identified acquisition or technology positions that now were being done by contractors and actually may need to be done by federal employees.
OFPP defines 'inherently governmental'
OFPP says agencies should use the FAIR Act definition from 1998 in all current regulations and policies. OFPP says agencies were using multiple definitions, including one in Circular A-76 and one from the Federal Acquisition Regulations.

"The FAIR Act defines an activity as inherently governmental when it is so intimately related to the public interest as to mandate performance by federal employees," the letter states.

OFPP also provides 20 examples of inherently government positions, such as conducting criminal investigations, determining agency policy including content and application of regulations, participating on acquisition source selection teams and determining budget, policy and strategy.

For those functions that are not listed among the 20, OFPP says it will develop a test to analyze "whether a function is inherently governmental based on the nature of the function and the level of discretion to be exercised in performing the function."

OFPP says agencies on a case-by-case basis should look at the nature of the function if it's uniquely governmental function and whether the job commits the government to decisions that deal with overall policy discretion or approval, or oversight by federal officials.

The policy also defines closely associated with inherently governmental functions and provides 19 examples.

"Closely associated functions approach the status of inherently governmental work because of the nature of these functions and the risk that their performance, if not appropriately managed, may materially limit federal officials' performance of inherently governmental functions," the letter states.

Agencies must give special consideration to reserving these functions for federal employees, and determine if contractors already are performing these functions and/or is appropriate.

"These responsibilities include pre-establishing in the contract specified ranges of acceptable decisions, subjecting the contractor's discretionary decision to final approval by an agency official, assigning a sufficient number of qualified federal employees with appropriate expertise to administer the work, and taking steps to avoid or mitigate conflicts of interest," the letter states.

Finally OFPP defines critical functions that are considered core capabilities of agency employees.

"The proposed policy letter would define critical function to mean a function whose importance to the agency's mission and operation requires that at least a portion of the function must be reserved to federal employees in order to ensure the agency has sufficient internal capability to effectively perform and maintain control of its mission and operations," the letter states. "Agencies would be held responsible for ensuring a sufficient number of positions performing critical work are filled by federal employees with appropriate training, experience, and expertise to understand the agency's requirements, formulate alternatives, manage the work product, and manage any contractors used to support the federal workforce."
Administration puts its stamp on 'inherently governmental'
The 2009 Defense Authorization Act mandated the inherently governmental policy review. President Obama's March 2009 memorandum on government contracting also required the Office of Management and Budget to develop guidance on the appropriateness of outsourcing services.

To supplement its review, OMB held a public meeting last year and solicited comments from the public. Respondents generally favored the definition found in the FAIR Act, the memo said.

In particular, the Act states that the term includes activities that require the "exercise of discretion" in applying "federal government authority." Circular A-76 refers to the exercise of "substantial discretion" in applying "sovereign" federal government authority.

"These variations can create confusion and uncertainty," Gordon wrote.

For ongoing contracts, agencies should review how work is being performed "to ensure the scope of the work or the circumstances have not changed to the point that inherently governmental authority has been transferred to the contractor," the guidance said.

Once this threshold is met, the decision about whether to have contractors or federal employees perform will continue to be primarily a cost-based one, made at the agency level, the notice said.

In some cases, government control can be re-established through increased contract oversight, Gordon wrote. "In other cases, agencies may need to in-source work on an accelerated basis through the timely development and execution of a hiring plan timed, if possible, to permit the non-exercise of an option or the termination of that portion of the contract being used to fulfill inherently governmental responsibilities," he said.
Maybe this last point about how to deal with ongoing contracts may provide some answers to the writer of the PDN opinion piece.

Unless the opinion was intended as simple polemic rhetoric.

Wednesday, April 21, 2010

Procurement controversies -- Sierra Leone

“Procurement is one of the key Corruption issues”
The Director of the National Anti Corruption Strategy (NACS) Coordinating Unit of the Anti Corruption Commission, Shollay Davies, has said in Freetown that procurement is one of the key corruption issues in not only Sierra Leone but the entire African continent such that it is costing our continent about $150 Billion a year.

The Director made this statement upon his invitation to witness the official launch of a handbook prepared by the National Accountability (NAG) Group and the National Public Procurement Authority (NPPA) titled 'Procurement Made Simple'

He further disclosed that studies conducted by the World Bank has shown that procurement accounts for about 70-80% of government recurrent expenditure and about 20% of this is misprocurement.

Mr. Davies explained the nitty-gritty of procurement procedures and the pitfalls it has faced prior to the enactment of the Public Procurement Law in 2004. He pointed out that most procurement practitioners and vendors or suppliers had simply considered procurement as buying and selling with little or no procedures to ensure transparency, accountability and competitiveness.

Buttressing the effectiveness of the handbook, the Chief Administrator of Freetown City Council Mr. Boison Philips said “there is widespread ignorance in procurement and governance processes” and added that “the Council remains committed in its performance to good service delivery”. He stressed the Council's wish to ensure the propagation of information imbedded in the drafted manuscript.

In his speech at the launch of the handbook, the Deputy Director, Budget Bureau of the Ministry of Finance and Economic Development Mr. Tesima A. Jah considered the launch of the book as one of the major steps in the history and development of public finance management in Sierra Leone. He said that an effective and efficient procurement process leads to value for money which is tantamount to integrity, cost savings, better satisfaction and good financial management practices.

Procurement controversies -- Nigeria

Ministries Are Ignorant of Public Procurement Act - Senator Makarfi
From the report we have, Ministries, Departments and Agencies (MDAs) did not fully comprehend the relevant provisions of the Public Procurement Act and it is also possible that there were deliberate actions to seat on funds to frustrate the implementation and benefit from it. But I don't have evidence to show that that is so because it's being alleged. So all these issues have contributed some complained that it is the Public Procurement Act itself that causes some delays in the process and some are calling for amendment of sections of the Act that will enhance budget performance.

Be that as it may, I think the best thing is actually to educate people-both the implementers and participants in the budget process so that whereever we have delays we can avoid these delays and also processes should commence in a very open and transparent manner to make progress.

FG Advocates Transparent Procurement Process
Speaking in Abuja at a one day workshop on mapping/baseline survey of the ministries, departments and agencies (MDAs) of government and civil society organizations and networks, the Special Adviser to the President on Relations with Civil Society, Prince Chime Ume- Ezeoke, noted that Public Procurement takes a monumental chunk of national resources and as such abundant energy should be dissipated at making it transparent.

In his goodwill message Onno Rhul Country Director of the World Bank affirmed the Banks determination to support effort of the Nigerian government to entrench transparency, accountability and all inclusive governance system.

A major impetus that will bring about the desired change in the process of contract award in the public sector usually characterized by financial indiscipline is being orchestrated by the office of the Special Adviser to the President on Relations with Civil Society.

The move, according to a statement yesterday aims at ensuring strict compliance of all provisions of the 2007 Public Procurement Act, a law adjudged as critical to bringing sanity in the public sector.


MORE CONTROVERSY: 16 August 2010:

Corruption still high in public contracts, procurement, reveals BusinessDay, LCCI survey
There is still high rate of corruption in the contracting and public procurement processes notwithstanding the establishment of the Bureau of Public Procurement, the latest opinion poll carried out by BusinessDay and the Lagos Chamber of Commerce and Industry (LCCI) has revealed.

The Public Procurement Act of 2007 established the Bureau of Public Procurement as a regulatory authority responsible for the monitoring and oversight of public procurement. The Bureau is supposed to monitor the prices of tendered items and keep a national database of standard prices and prevent fraudulent and unfair procurement and where necessary apply administrative sanctions.

According to the poll, over 90 percent of respondents believed the level of corruption in the contracts and procurement processes in public sector is still high while about 50 percent believed it is extremely high.

Before now, several reports from government quarters and the media have shown that a high percentage of funds meant to execute projects end up in private pockets. This sadly accounts for the poor quality delivery of public projects. “Project monitoring and supervision by the government to ensure quality service by contractors is weakened by the kind of involvement of public officials in the contract processes,” another respondent added. It is, however, advised that government structures must be re-aligned in a due-process-compliant style such that checkmates sharp practices.

Economics of scale vs economics of competition

Public procurement has at least two means to achieving the goal of maximizing bang for buck.

One is to buy in bulk, under the theory that the more units that can be purchased from a single supplier, the greater will be the discount for the total cost. That's sort of the buy wholesale, not retail concept.

This tends to favor suppliers who dominate a market by shear size. For instance, not many Mom & Pop stores can compete against a WalMart. It also tends to entrench reliance on a particular supplier. This approach supports purely economic considerations of government purchasing (assuming no political favourtism).

The other is to promote competition by spreading around the purchase orders. The theory here is that the more competitors there are, the more likely it will be that the price will more closely approach the cost of production.

This tends to put a heavy load on procurement staff to develop competition and to administer more solicitations and contracts. This approach tends to support other socio-economic considerations applicable to government purchasing (discounting political pandering by passing around government largess) in addition to the competition theories of economics.

The tensions and contradictions between these two approaches is perhaps illustrated in the following two articles from the same journal.

Poor procurement "has wasted £25bn"

The public sector is squandering at least £25bn a year through badly organised procurement and outsourcing, according to a report by the Institute of Directors (IoD).

'Radical restructuring' of procurement could save £15bn and more use of shared services and outsourcing could save £10bn, the IoD claimed – and the savings could be delivered within three years.

the majority of public procurement spending is so fragmented that huge potential savings are being missed every year. This is because most of the public sector still organises itself on the "corner shop" model, the IoD said, with the majority of purchasing organised in small scale silos. In other words, local authorities, NHS trusts and small central government departments all do their own thing.

The result is massive duplication and a constant reinvention of the wheel, which could be avoided if with legal services, IT, human resources and other services were sourced centrally. Instead of integrating their buying and outsourcing, hundreds of public sector organisations are each "wading through a morass of contract terms and conditions, procedures, processes and interpretations of procurement law", the report said, adding that if multinational companies operated like the public sector, they would have gone out of business years ago.

The solution is simple – integrated public sector procurement and outsourcing, ie centralised buying organisations that handle all key supplier relationships and all national and major contracts on behalf of the whole public sector. Local needs could be met by regional procurement hubs to provide expert contracting support to all organisations within the area. And all public sector bodies would have to use this system.

'Old boys network' in procurement
An Indian outsourcing company has accused the government of having an "old boys network" when it comes to IT procurement, often meaning it is not getting the best price.

In an interview with the Financial Times, Vineet Nayar, chief executive of HCL Technologies, said there was currently a "stranglehold" of a few companies on public sector technology procurement.

He believed his company could run IT services for the public sector at about 20 per cent less. But he said many UK authorities were unwilling to shortlist HCL because of their strong relationship with existing suppliers.

The FT has also quoted a number of experts in the field, admitting that the UK IT sector is one of the "most concentrated in history".

Slovakia's procurement "reform"?

It is hard to understand how anything that would reduce means to accountability can be considered "reform". Hopefully there's a better explanation than this article reports.

Sme reports that Slovakia’s Act on Public Procurement is amended
Slovakia’s ruling coalition, led by Prime Minister Robert Fico’s SmÄ›r party, recently passed an amendment to the Act on Public Procurement that abolished the right of the country’s Public Procurement Authority (ÚVO) to file a lawsuit in the event that the procurement law is violated, the Sme daily wrote on its website on April 19.

Sme wrote that if state ministries violate the public procurement law and sign a contract damaging the state, no public body will be able to question the contract involved and that from now on only competitors or tender participants will be able to file such a motion – but only if they cover a court fee amounting to €100,000. The fee will be returned only in case of victory in the trial, according to Sme.

Sme wrote that the only court in Slovakia where such a suit can be filed is in Malacky.

According to Transport Minister Ľubomír Vážny the amendment was proposed by Smer under pressure from private businesses. Sme reported that the minister told public-service Slovak Radio that “bank consortiums” claimed to the state that they would loan funds for planned PPP highway projects only “if this chance for the ÚVO to attack a contract will cease to exist”.

Size matters in set aside provision

Transparency missing, and badly needed, in Small Business contracting
The Small Business Administration has announced a change to the format of its Small Business Scorecard as a "solution" to what the agency's Inspector General has acknowledged on its Report 5-15 as being “one of the two SBA biggest challenges.” I’m speaking about federal agencies' endemic practice of taking credit for small business contracts awarded to large businesses to appear as if the agencies are meeting their statutory and socio-economic goals.

To help level the playing field in government contracting, Congress requires that federal agencies spend 23 percent of their contracts on small businesses. To meet such a mandate, agencies – without fear of consequences - establish goals and report their alleged results, which are then published on the SBA Scorecard. As you might have guessed, agencies have NEVER met their goals since the SBA Scorecard program started in 2005.

Congressional transparency allowed the FPA Think Tank at UNF last year to identify 48 multinationals, in Fiscal Year 2008, which were illegally awarded $4.1B in small business contracts. Thanks to this transparency, advocates have charged that, in total, large businesses were awarded $31.1B which would have put the agencies' actual statutory total at less than 18 percent, as opposed to the 21.5 percent reported on the latest SBA Scorecard.

But that is not all. The General Services Administration (GSA) has now proposed to discontinue the current transparency in the government's central contracting database, called the Federal Procurement Data System, which would prevent advocates and the media to identify large businesses which misrepresent their size and are awarded small business contracts.

There is already an existing vehicle in place which can stop federal agencies from continuing to misrepresent their results in contracting with small and disadvantaged businesses and its name is the “Data Quality Act” or DQA.

DQA is an obscure section of the Paperwork Reduction Act, a 29-year-old law which the Obama Administration wants to revive, which would rely on OMB “to ensure that information disseminated by federal agencies is both accurate and reliable.”

US military procurement staff getting boost

Finely tuned procurement policies and rules are useless without the trained and professional staff required to understand and effectively implement them.

Army working to institutionalize contracting reforms
"We are more than doubling our contractor workforce, including more than 175 noncommissioned officers and we will add over 1,600 new civilian contracting specialists to provide better contract execution, management and oversight," Lt. Gen. Bill Phillips, principal Military Deputy to the Assistant Secretary of the Army for Acquisition, Logistics and Technology, told the commission.

"We have to institutionalize the way we execute contingency contracting."

Over the last decade, Army contracting experienced over a 15-percent reduction in its workforce while simultaneously managing a 500-percent increase in contracted dollars, service officials said. The Army issued $135 billion in contracts in FY 2009, compared to $32 billion in 1997.

The Army has more than doubled its number of Contracting Officers Representatives in Iraq and Afghanistan over the last year in an effort to improve oversight and help rebuild local communities.

Within the last year, the number of CORs in Iraq has jumped from a 59-percent fill rate up to a 94-percent fill rate. Similarly, the number of CORs in Afghanistan has more than doubled, jumping from a 38-percent fill rate in January of last year to an 80-percent fill rate by January of this year.

In short, the Army has added hundreds of CORs to the war zone to help oversee local contracting and ensure that goods and services arrive as paid for, said Edward Harrington, deputy assistant secretary of the Army for Procurement.
House Panel OKs Bill To Beef Up Pentagon’s Procurement Process The House Armed Services Committee moved Wednesday to enhance the Defense Department’s procurement workforce and reduce its reliance on outside contractors.

The bill would require the Pentagon to create a performance management system to consider shifting work away from contractors that are not meeting cost-standards. The bill also would require department agencies to create measurements for success, such as schedule and cost objectives, and to ensure procurement organizations adhere to them.

“Our legislation will help the Department of Defense design better ways to measure value within the defense acquisition system, develop and train the defense acquisition workforce, and foster a robust domestic industrial base,” said the panel’s ranking Republican Howard P. “Buck” McKeon of California.

“We need to know why we’re buying something before we buy it.” Robert E. Andrews , D-N.J., explained.

Tuesday, April 20, 2010

Procurement controversies -- Calgary, Canada

I had the pleasure of getting a very quick look at Calgary a couple of years ago. It's very pleasant and a "I could live here" sort of a place. It's a large and spread out but not sprawling place, situated a short ride from Banff, at the eastern foot of the Canadian Rockies.

But it doesn't appear to have a public procurement system in place:

Calgary audit delves into city’s purchasing decisions

Calgary’s auditor is undertaking a broad review of its procurement process, including goods, services and construction work, after city councilors revealed there isn’t a comprehensive policy to guide purchasing decisions.

“We asked some questions about purchasing to senior administrators. City lawyers showed up and said council had no right to ask these questions,” said Calgary alderman Ric McIver.

The whole issue of procurement was raised during an audit meeting in February, when councilors asked questions about a proposed pedestrian bridge over the Bow River.

“A single source [22 million Canadian Dollar] contract for an unneeded footbridge was given to a company from Spain and no local firms were given a chance to bid on the work,” said McIver.

“Purchasing has been going on successfully for some time, but there is a policy gap there that should not exist in an organization this large,” said McIver.

“There are not enough rules and policies in place for the public to know their tax dollars are being spent in an efficient, fair or transparent manner.”

“No one is accusing anyone with doing anything wrong,” said McIver.

“But, when there are not enough rules it opens up the doors for things to go wrong. So, lets close the door.”

City auditor Tracy McTaggart released the first phase of the report in November.

“We found the necessary procurement framework had not been established to ensure The city’s procurement activities are effectively managed, monitored and controlled,” said McTaggart in the report.

“Our review found that, while some elements of effective program governance existed, it was piecemeal, dated and informal. There was no comprehensive, complete, accurate and authoritative repository available to employees with responsibilities for procurement.”

Systems had not been established to effectively manage and control delegated signing authorities, while current administrative practices are not aligned with existing policies and procedures.

As a result, there is an increased risk of error and the violation of public trust and duty from spending that circumvents established business rules and processes. There is also an increased risk of litigation from unfair and non-transparent processes.

Procurement controversies -- Malta

No hard evidence of corruption - Auditor
The Auditor General "did not come across any hard and conclusive evidence of corruption" in the inquiry concerning the tender issued by Enemalta Corporation for the supply of a new power generating plant at Delimara.

However, he complained of "the lack of cooperation from certain stakeholders who contended that they could not recall certain events or information" and questioned the undue haste with which the agreement was signed.

The auditor said that "a case in point is Mr J. Mizzi, local representative for the tenderer awarded this contract (BWSC), who was considered one of the key players throughout this inquiry. Although summoned by the National Audit Office on three separate occasions, he repeatedly cited lack of memory when asked certain questions".

In his report, the Auditor General noted that Enemalta chairman Alex Tranter had declared a conflict of interest, especially since, in his private capacity, he had business links with the local company entrusted with civil works in one of the bids under consideration (which eventually was selected and agreement signed with).

"It was noted that the chairman, prior to his declared conflict of interest, had appointed the members on the evaluation and adjudicating committees responsible for the evaluation of tenders."

"Considering the circumstances of this case it is felt that it would have been more prudent and appropriate had the Enemalta chairman resigned from his post at the time when he had declared a conflict of interest. This would surely have eliminated the extensive controversies which arose at a later stage, especially in view of the fact that the local company with whom the chairman had declared having professional connections with was actually sub-contracted the civil works of this tender."

COMMENT: Conflict of interest provisions of the Guam procurement Ethics Rules (modeled on the Amercian Bar Association Model Procurement Code) would have required the minister to recuse himself long before he finally declared his conflict. He should have recused himself from the appointment process in the first instance. 5 GCA § 5268.

Taking local preference rules on the road in China

New procurement rules a win for domestic automakers From:China Daily
As the government prepares revisions to regulations on official car procurement, domestic automakers are preparing to grab more market share from foreign joint venture manufacturers.

The new regulation, slated to be launched in June, will mandate that government offices across the country purchase more than 50 percent domestically branded cars for their fleets in the future.

The regulation will also change the guidelines for vehicles to be purchased, basically excluding most brands made by joint ventures.

German luxury car brand Audi's huge success in China should be in part attributed to its almost exclusive control of the nation's high-end official car market since it locally produced its flagship model, the A6, in 1999.

Li Shufu, chairman of Zhejiang Geely, commenting after his company acquired Swedish luxury brand Volvo that he will use Audi's business model in China to foster Volvo's future development here - indicating a new focus on the world's biggest government procurement cake.

"It's something that reflects the consumer philosophy when purchasing vehicles in China. For rich Chinese, they prefer the officials' car models which indicate car owners' prestige and provide them with more psychological satisfaction, and demonstrate the difference between them and ordinary people on the street," said Xiang Hansong, an auto industry watcher.

"As long as the government lowers the purchasing criteria of vehicles, foreign producers will lose interest in bidding," said Xue Xu, professor at the school of economics of Peking University.

"The new regulation will provide domestic brands a golden opportunity to expand and compete with foreign rivals in the world's biggest auto market," said Dong Yang, secretary-general of the China Association of Automobile Manufacturers.

Thursday, April 15, 2010

Contract variations up against a Wall in Europe

This post involves a European Court of Justice case, Wall AG C‑91/08.

It arises from a protest and appeal of a German solicitation. The background and protest decision are described in a Dundas & Wilson LLP Bulletin (at p. 3), from which the following is taken:
The case concerns a services concession contract granted by the City of Frankfurt to a public-private entity (FES), in which the City of Frankfurt holds 51% of the shares. Under the concession contract, FES was granted the rights to the commercial operation of 11 public toilets in the City of Frankfurt, involving the refurbishment of two public toilets in two railways stations.

Wall AG had been identified in the original concession documents as the intended subcontractor for the provision of advertising services and the supply of toilet cubicles. However, following the appointment of FES - but before any services were provided - FES put the provision of advertising services and the supply of toilet cubicles out to tender. Wall AG was not successful and the work was awarded to an alternative provider. Wall AG challenged the decision before the German courts.

It argued that the change in subcontractor constituted a substantial change to the concession contract concluded between the City of Frankfurt and FES.

The protest was heard before Advocate General Bot. AG Bot recognised that the EC Treaty transparency obligations left contracting authorities a wide margin of discretion to vary contracts, especially complex long-term partnering contracts such
as PPP contracts. However, that discretion had to be exercised in a manner that
protected against the abuse of the competitive tendering rules imposed by the EC Treaty.

In the present case, AG Bot concluded that the City of Frankfurt had breached those rules by allowing FES to substitute a key subcontractor so early into the contract (before any services had been provided) and without any apparent objective kustification. Significantly, he was persuaded that FES would not have been awarded the concession contract if it had not included Wall AG as its named subcontractor.

In the circumstances, EC Treaty rules required that such a change only be made following the re-tendering of the concession contract.
It must be emphasized that this has been a synopsis. As in most cases, the results reached can be influenced by the facts. Facts give cases nuance and context that are not always evident in the bare result. It is useful, perhaps therefore, for students and practitioners to review the ECJ's judgment and its rendition of the detailed facts upon which it based its decision. This is not intended to be a review of that case, however. This is provided for the simple proposition that changes in a contract can be of such nature as to require a new solicitation.

On this simple proposition, the ECJ held
1. Where amendments to the provisions of a service concession contract are materially different in character from those on the basis of which the original concession contract was awarded, and are therefore such as to demonstrate the intention of the parties to renegotiate the essential terms of the contract, all necessary measures must be taken, in accordance with the national legal system of the Member State concerned, to restore the transparency of the procedure, which may extend to a new award procedure.
This ECJ ruling was discussed in MacRoberts LLP's article ECJ rules on contract variations (May require registration with Lexology). The authors conclude,
The requirement to carefully consider whether an amendment constitutes a new award is not new. Indeed, the ECJ has previously put down a test in Pressetext, which is to be applied when an authority wishes to vary an existing contract stating an amendment might be material if it would have resulted in a different outcome if included originally, extends the scope of the contract, and/or changes the economic balance of the contract. Wall now builds on that test.
The Dundas & Wilson LLP Bulletin mentioned above is very instructive by including a discussion of the Pressetext and other cases to canvass other situations where variations to contract required new solicitation.

Monday, April 12, 2010

Procurement controversies -- New Orleans, La., USA

Recovery oversight firm is channel for no-bid contracts, inspector general reports
The city of New Orleans is using a controversial recovery management contract with MWH Americas to dole out no-bid deals to other firms, according to a recent draft report by the city's inspector general.

"In at least two instances, the city procured services from other firms by instructing MWH to enter into subcontracts with the firms and act as a pass-through for billing purposes," Inspector General Ed Quatrevaux wrote in a March 4 draft report.

"This practice circumvents the requirement for competitive procurement of services through an advertised request for proposals."

MWH Americas' president, Dan McConville, was in New Orleans last week to meet with City Council members who are concerned with the report's findings. But company spokeswoman Meg VanderLaan said the company will not address the inspector general's findings publicly until it does so formally within the 30 business days granted to the subjects of such reports to respond.

The city's deadline to respond is Thursday.

New Orleans' city charter requires competitive, properly advertised procurement for all contracts worth more than $15,000, but it's unclear whether the alleged violation of that local law would lead to the rejection of any federal assistance.

Ironically, the city's main adviser for complying with FEMA's complex reimbursement rules is one of two companies the inspector general says was hired improperly through the MWH contract.

The inspector general said the city put out a solicitation for competitive bids in March 2008 for a consultant on FEMA reimbursement.

But soon, the city canceled it and instead "instructed MWH" in February 2009 to hire Integrated Disaster Solutions as a subcontractor to do the job. Integrated Disaster Solutions is a joint venture with Louis Berger Group, one of the world's largest construction management firms.

The inspector general's report said a similar "pass-through" contract was arranged for Wink Design Group in June 2009 so that firm could do a facility condition assessment for the Chevron Building


COMMENT: It seems the oft-used retort to allegations of improper procurement is that the contractor did a damned fine job, so what's the problem? The problem is that the ends are not meant to justify the means. Both must be justified, independently.

Union labor set-aside?

Unions Win Public-Contract Row
The Obama administration is set to issue a rule Tuesday that will allow federal agencies to require that contractors on large-scale public construction projects agree to union representation for workers.

Policies designed to promote union representation on federal construction projects were last in effect during the Clinton administration. President George W. Bush in 2001 issued an executive order prohibiting federal agencies from requiring such agreements.

"Anti-competitive project labor agreements are special-interest kickback schemes that end open, fair and competitive bidding on public projects," said Jim Elmer, National Chairman of the Associated Builders and Contractors and president of James W. Elmer Construction Co. in Spokane, Wash. "We will exhaust every opportunity to challenge this policy, which is effectively a federal government endorsement of union set-asides."

Project Labor Agreements: A Better Deal for All
Project Labor Agreements are pre-hire collective bargaining agreements with one or more labor organizations that establish the terms and conditions of employment for a specific construction project.

The use of a Project Labor Agreement can provide structure and stability to large construction projects. PLAs also help ensure compliance with laws and regulations governing workplace safety and health, equal employment opportunity and labor and employment standards. The coordination achieved through PLAs can significantly enhance the economy and efficiency of Federal Construction projects.

Despite their growing use in the private, state and local sectors, Federal use of Project Labor Agreements has been curtailed twice since 1992, including most of the past two decades. Many agency contracting offices have little knowledge of or experience with PLAs. To boost implementation of the President's Executive Order, the Middle Class Task Force convened an Inter-agency PLA Working Group to provide technical assistance to agencies on PLAs.

The [US Vice President's] Middle Class Task Force Working Group on PLAs will continue to compile resources and provide assistance to Agencies as they work to implement EO 13502, helping to coordinate large projects while generating efficiency gains for businesses, the government and taxpayers.

Sunday, April 11, 2010

Procurement controversies -- South Carolina, USA

Should she who pays the procured piper be allowed to call the procurement tune? That's the question being asked in this bid controversy.

USC nixes bids; donor chooses architect
USC canceled all bids to hire an architect for its new $90 million Moore School of Business so a donor could pick a design firm of her own choosing.

While no state spending rules were broken, four Columbia firms and their national partners spent months of labor and an estimated $100,000 each hoping to win the project before the school abruptly canceled the bids in a two-sentence memo sent April 2.

Instead, the business school's private foundation will pay an estimated $4 million or more to a New York firm chosen by the school's benefactor, Darla Moore.

Moore, a Lake City financier for whom the school is named, sits on the foundation board. The firm chosen, Raphael Vinoly Architects, was a finalist for the contract but was not going to win it, a source close to the bidding told The State newspaper.

The architect's fee will be a gift from the foundation, which is allowed under state procurement rules, according to the S.C. Budget & Control Board.

But the head of the S.C. chapter of the American Institute of Architects called the last-minute canceling of the bids "unprecedented."

And one frequent critic of the university called it "an end run around the procurement process."

"People shouldn't deal with the university if they don't play by the rules," said Ashley Landess, president of the S.C. Policy Council.

If private money is mingled with public money, the project should have to follow public rules, Landess said.

"There will be public money involved in this project," she said. "And a lot comes from other government sources. It's a symptom of a bigger problem: the university blurring the line between private and public money."
Read more here.

Saturday, April 10, 2010

Procurement controversies -- Pakistan

Transparency intervenes to save loss of Rs 269 million
Transparency International Pakistan has asked Trading Corporation of Pakistan (TCP) to clarify its position on cartelization in procurements and probe the matter of loss of Rs 268.8 million on award of tender to a defaulted contractor.

Syed Adil Gilani, Chairman of Transparency International in his letter to the newly appointed chairman TCP, S Anjum Bashir, has highlighted the flaws in the present system followed by TCP and has urged him to adopt Public Procurement Rules 2004 for awarding tenders.

The Prequalification option available in Public Procurement Rules 2004 is to be used for special reasons only i.e. in case of procurement of expensive and technically complex equipment to ensure that only technically and financially capable firms having adequate managerial capability are invited to submit bids. Such pre-qualification shall solely be based upon the ability of the interested parties to perform that particular work satisfactorily.

But TCP in 2006 started using Prequalification option in all procurements, which resulted in Cartelization of groups. This system is known to all enlisted bidders, and is open to making a cartel.

Regarding the loss Transparency International letter says that national media highlighted that M/s Sadan General Trading (STG) defaulted on 50,000 tons of Sugar Contract awarded at US $ 585 per ton, and the tender was scrapped in April 2010.

This firm should not be allowed to participate in the future sugar bidding, being a defaulter. But instead, STG has been entertained in the next TCP tender, and has been awarded Sugar Import Contract at US $ 649 per ton.

In such cases according to PPRA rules, the bid security, which is up to 5% of the Value of Contract, should have been forfeited by TCP, and the contract should have been awarded to next lowest responsive bidder. And if the Bid Security of the bidder was not genuine, the bid should have been declared non-responsive, and other bids should have been evaluated.

Tuesday, April 6, 2010

Procurement controversies -- Trinidad & Tobago

This is one report from an ongoing story. For some background, see:

Company goes from $3m in projects to $154m: The birth of UDeCOTT

Uff calls for sweeping changes


Uff: Udecott operated by its own tender rules
2. Procurement practices in the public construction sector concern the operation of a number of legal entities which undertake public construction projects on behalf of the Government of Trinidad and Tobago and which have been set up in different ways. These entities are variously referred to as “special purpose companies” or more simply “Government agencies”. They all have in common the objective of freeing them from the constraints which otherwise apply to the undertaking of works or services by the Government by virtue of the Central Tenders Board legislation, which is universally perceived as imposing unnecessary constraints and bureaucracy, leading to delay and inefficiency. While the Central Tenders Board remains in operation as a safety net, its provisions are now very largely circumvented by the Government agencies. The most prominent of these, dealing with urban development, is Udecott, whose practices and methods of operation are considered separately.

5. The Commission has examined the procurement practices of these and other Government agencies, particularly Udecott. One notable feature is that each of the agencies operates its own procurement practices and tender rules, which can be seen to differ, sometimes in important respects. No good reason has been advanced for such diversity. While there may be reasons for differences to exist, there ought to be a presumption that rules and procedures of all Government agency companies should follow the same pattern unless good cause exists for adopting different rules.

In 2005 the Ministry of Finance issued a standard procurement procedure for State enterprise bodies which was intended to apply to all State agencies. While steps were taken to promulgate this document with a view to its general adoption, the new procedure was adopted by some agencies and not others. There can be no doubt that a universally applicable standard procurement procedure would benefit the whole public construction industry, including its principal client, the Government. We recommend that the rules should be revised in the light of this report and further attempts made to secure its universal acceptance.



7. There is, in relation to Udecott and potentially in relation to other Government agencies as well, a problem of securing adequate transparency in terms of the applicable procurement rules, particularly dealing with the topics already mentioned. The adoption of a general and universal procedure would greatly aid the achievement of transparency.

17. The Government of Trinidad and Tobago introduced a White Paper on proposed legislative reform in the public construction sector in 2005. There is a lively and continuing debate between proponents of the reforms and those, including now the Government, who consider that other and preferable means are available to achieve the laudable objectives of the White Paper, particularly in the achievement of greater transparency. The concerns over the proposed Regulator System embodied in the White Paper are understandable. However, if it is the decision of the Government not to implement these proposals, there should be established some equally effective form of review through the Courts, to be available in appropriate cases. Indeed it is somewhat ironic, in the context of this Inquiry and the Court actions that it has engendered, that Udecott should continue to stand behind their own immunity from judicial review.

32. Udecott through Mr Calder Hart adopted a confrontational attitude to those who have taken issue with its methods and practices, particularly the JCC by its current President Mr Winston Riley. Mr Calder Hart had a similar fraught relationship with Dr Keith Rowley, former Minister with responsibility for Udecott, with whom he had particular dealings in 2003 up to Dr Rowley’s removal from office in 2008. There were, from these and other sources, numerous complaints about Udecott’s methods and practices the most significant being:
(i) Excessive and unfair uses of sole selective tendering powers contrary to free and fair competition and transparency.
(ii) Misuse or manipulation of tender and tender review procedures leading to the inappropriate and potentially corrupt award of contracts.

Thursday, April 1, 2010

A tale of two wrongs making nothing right

The England and Wales High Court has decided a case instructive on (at least) two counts. (Hattip to CMS Cameron McKenna Law-Now.)

This case (we'll call the Sita case) is summarized by CMS in the following extracts from its review of the case:
Sita had brought an action for damages against Greater Manchester Waste Disposal Authority (GMWDA) after unsuccessfully bidding for a PFI project to provide waste disposal facilities for Greater Manchester.

The final contracts between GMWDA and the winning tenderer VL were delayed due to changes in the specification as a result of the credit crunch. These changes to the project were negotiated with VL after it was selected preferred bidder.

GMWDA finally entered into a contract with VL on this basis on 8 April 2009 and issued a press release to that effect.

Sita was informed that its bid had been unsuccessful on 18 April 2008 [ten (10) days after the selection of VL].

Sita argued that the process was flawed since VL was offered the opportunity to amend its bid whilst Sita was given no such opportunity.

On 27 August 2009 Sita launched a claim for damages against GMWDA for breach of the procurement rules.

GMWDA sought to strike out Sita’s case on the basis that proceedings were commenced outside the [3 month] limitation period. GMWDA argued that Sita knew or ought to have known of the infringements by 8 April 2009 at the latest.
First, the impropriety of changing specifications after submittal of bids: This matter was not discussed. Indeed, it was not considered an issue on the facts presented. The changes were patently material enough that it was assumed that the changes would constitute an appealable infringement of the procurement process.

The more meaty subject in the Sita case was the timing of the protest appeal. This is based in the "should know" condition of the relevant European law, discussed in a prior post. The case there discussed was a leading case in UK procurement law, often referred to simply as the Uniplex case.

The Court in this Sita case, Mr. Justice Mann, pointed (¶ 129) to the essential holding of the Uniplex case:
Only once the unsuccessful tenderer or candidate has been informed of the essential reasons of his being unsuccessful in the award procedure may it generally be presumed that he knew or in any case ought to have known of the alleged breach of procurement law. Only from then on is it possible for him sensibly to prepare a possible application for review and to estimate its chances of success. Before receiving such reasons, on the other hand, the person concerned cannot as a rule effective exercise his right to a review.
This particular procurement in Sita was extended over many years, and there was a significant amount of long (and convoluted) communication between the protester and the government agency. The decision canvassed much of it, and indicated by doing so that the discourse could color what a protester might later learn, bearing on when the "should know" condition is triggered.

The Court said (¶ 131),
As I have already indicated, the best evidence of what Sita knew comes from the correspondence between April and July 2009. Miss Rose's strongest case is that, looking at that material, against the background of what had passed, it is plain that Sita knew of an infringement (within the meaning of the Regulation) by 8th April at the latest, or very shortly thereafter, and that more than 3 months passed before it issued its claim form.
In discussing how much a protester might know before it "should know" of an impropriety, the Court said ¶¶ 129-130),
The information required is the essential reasons indicating a prima facie case. One did not necessarily need detail for this purpose...

There are dangers in dealing with this question in the abstract, and prescribing something which purports to be a formulated standard for something like knowledge of the grounds of a claim. However, some sort of boundaries need to be set. It cannot sensibly be the case that a claimant has to have great detail of how any breach came about before he has knowledge for present purposes. Many claimants do not have full knowledge until after a trial, because additional facts emerge throughout a piece of litigation. Claimants start actions (and are expected to start actions, for limitation purposes) at a time when their knowledge is incomplete, and when detail is not known. I do not see why actions under the Regulations should be any different. Any attempt to require levels of detail would be likely to run counter to the principle that challenges should be indicated swiftly and mounted swiftly. The standard ought to be a knowledge of facts which apparently clearly indicate, though they need not absolutely prove, an infringement.
The ultimate holding of the Court was that, on all the facts of this case, the protester's claim was filed beyond the time limit allowed from when it should have known it had a prima facie claim.

Another noteworthy topic in this case is the notion of tolling the time period for bringing a claim. The discussion in this case indicates both a statutory and a case law basis for exercising a discretion to extend the time beyond the stated bar. The Court said (¶ 170),
Regulation 32(4)(b) as strictly construed, and as operated before Uniplex, provided for the court to exercise a discretion to extend the time bar if circumstances justified it. If the Regulation had directly imposed a 3 month time limit then there would be a discretion to extend it if the circumstances warranted it. I have held that the discretion should be used to give effect to a different 3 month time limit. That does not, in my view, deprive this court of the more extended discretion that seemed to exist anyway.
The Court concluded (¶ 184),
I therefore conclude that Sita's claim has been brought out of time and there is no good reason to exercise any discretion to extend it.
On the facts of this case, the Court declined to exercise the discretion to toll the time bar. In analyzing various factors whether it should exercise its discretion, the Court said,
Ms Wolfenden correctly points out the public interest in the integrity of public procurement procedures. It is one of the drivers underlying giving the disappointed tenderer a remedy in the first place. She also points out that this is a big contract, and that the claim is potentially big and serious. All those factors are true. They are, however, of little weight in favour of exercising the discretion. They are the reasons why the remedy is there in the first place. That remedy is subject to time bars. So the time bars in principle override even if a claim is prima facie good and big. (¶ 176.)
This is a reference to the fact that GMWDA did not make the full necessary disclosure of what had happened after VL acquired its preferred bidder status, and to the fact that what was disclosed is said to have elements of the misleading about it. This is a more troubling point, but in the end it is no reason for exercising the discretion to extend the time bar. This factor boils down to a complaint that Sita had been kept out of information necessary to start an action. If good, it would be true in relation to an action based on those facts, but the present action is not based just on those facts. It is based on later facts and the award of the contract, and by 8th April or shortly thereafter Sita knew it had a claim anyway based on later facts. The fact that it discovered late in the time period that there were yet further alleged breaches does not justify any delay in commencing proceedings based on the matters of which it was already aware and which went to the same breach. (¶ 177-178.)
GMWDA has not identified any degree of prejudice which will be suffered by it if this claim is allowed to proceed which it would not have suffered had proceedings been commenced in July. The absence of prejudice would be a potentially relevant factor if there were other factors which supported the exercise of the discretion, at least in the sense that the existence of prejudice would point the other way. But as a separate factor it is of little weight. A short time period for the commencement of proceedings has been imposed in the interests of good public administration and so that public procurement authorities can know as soon as possible whether or not one of its exercises is being challenged. The existence of such a claim, let alone its being established, is capable of causing significant disruption to the public finances and the deliberations of those who have to plan budgets and recovery. The short time bar period is intended to limit the effect of that. Time bars are potentially draconian in their effect in that they are mechanical and absolute, and are not based on ad hoc prejudice considerations. The fact that no additional prejudice is sustained a week, two weeks, or a month after the lapse of the period is not, of itself, a good ground for extending the period. (¶ 179.)

And, so, the wrongly conducted solicitation was allowed to stand because the protester was wrong to bring the protest outside the time allowed.