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Friday, July 30, 2010

Unreality procurement TV

This story gets a bit personal, not in the sense of my own personal interests, but in the sense that I have become a bit player in a much larger drama. In involves an ongoing bid process that arises from special legislation to authorize an RFP solicitation to design, build, construct, operate, maintain and finance a new high school facility on Guam.

The procurement process has gone through an initial analysis and ranking of acceptable offerors, and negotiation of all terms necessary to render an award and tender a contract to the selected best most qualified offeror. Along the way there have been two protests by two other offerors, and a court appeal by one of them that ended in a technical dismissal, all of which provided important new material for inclusion and discussion in the draft upcoming new version of the Guam Procurement Process Primer.

At this point, the government's retained bond counsel has decided that the law applicable to this one procurement needed to be changed to remove any possibility that the contract, when awarded, could not be terminated or declared null or void. He opined that this was necessary in order to obtain an "unqualified" opinion for the bond that will be used by the selected offeror to be commercially marketable.

There is disagreement whether any other offeror will need such an opinion, but bond council has stated that, in his opinion, and his inside knowledge of details of all the offerors which must remain undisclosed, all offerors are similarly required to obtain such an unqualified opinion to obtain the financing they have proposed in their respective proposals.

The solution proposed by the bond counsel, and embodied in legislation proposed by the Governor, was sent to the Guam legislature with request for enactment. The transmittal letter stated that the legislation would prohibit any protest of the solicitation. Executive branch testimony was to the effect that protests would be allowed and that the sole intent of the legislation was to eliminate the remedy, allowed under Guam law, for a court or other reviewing body to terminate or declare null and void any contract made in consequence of an award.

In this context, and after amendments conforming the language to that sole intent, amongst other matters, the proposed bill was passed.

The up front and personal part of this for your blawger is that he appeared before the legislature and was offered an opportunity to offer suggestions for some of the proposed amendments.

One consequence of his interjection into that process was the following unreal TV footage, and radio interview, links to which, as well as other news articles, follow:



Radio Interview with Travis Coffman on K-57

Lawmakers question new JFK financing

Special Session Considers Governor's Bill To Jump Start JFK Construction

Senators Grill DPW, AG, Auditor Over JFK Procurement

Special session continues on JFK bill

Senators OK bill to fast-track JFK rebuild

Taitague Applauds Passage of JFK Bill

JFK finance bill passed

Sunday, July 25, 2010

Reality procurement TV ?!

Just when you think that reality TV had saturated all possible reality situations, along comes an idea out of Pakistan for taking the reality approach to procurement reform. Paid for by the World Bank.

Good governance in public procurement to be ensured
Planning Minister Air Vice Marshal (Retd) A K Khandker yesterday said the government would make necessary steps for accelerating development programmes to ensure transparency, accountability in implementation of development activities.

He said the government wants to ensure good governance in public procurement through participation of all stakeholders.

The workshop was organised to design a document for developing and producing a six-episode TV Reality Show on the issues of public procurement rules.

CPTU has been carrying out different awareness raising activities on public procurement under the Public Procurement Reform Project-II supported by the World Bank.

Representatives of the government procuring entities, bidding community, media, civil society and creative production houses are taking part at the workshop to brain-storm contents, audience analysis, message preparation and other aspects of the TV reality show with a view to popularising the Public Procurement Act (PPA) and the Public Procurement Rules (PPR) in the country.

I may know of a few Guam contractors who would be willing to provide material for a Survival Guam Procurement series.

Procurement controversies -- New Jersey, US

How do you unfairly steer a contract to a particular vendor? The most common way is to tailor the bid specifications to fit the preferred vendor.

On Guam, using the ABA model code, various procurement law and regulations demand that specifications not be tailored or otherwise unreasonably non-competitive, but laws are useless unless policed. Moreover, mere adherence to the bare minimum strictures of the law without taking guidance from its policy and purpose encourages the tendency toward bespoke specifications.

Evidently, that may be a problem in New Jersey, too, as this report indicates.

Fairness of bid process questioned
Questions have continued over whether the Monmouth County government's bidding process is fair to vendors and efficient for taxpayers, with the freeholder board instructing administrators to begin a second internal review of procedures and Democratic freeholders asking the state Local Finance Board for an investigation.

Freeholder John Curley, one of the majority Republicans, first raised the issue in June, primarily claiming that bid specifications were often not generic and thus limited competition among vendors, he said.

Curley has noted that bid specifications often require that a vendor deliver a new vehicle within 30 days, favoring bidders that have vehicles on hand.

"What this means is that vendors are getting rid of unsold trucks loaded with unnecessary options at county taxpayer expense," D'Amico said.

Administrators conducted a previous review last month. Republican Freeholder Director Lillian Burry said the findings left her "assured that bid specification and procurement procedures utilized by the county have been compliant with the public contract law."

In a memorandum to board members, Purchasing Director Gerri Popkin said, "Please be assured this county has a longtime, good reputation of being fair, open and equitable to all during our bidding processes and for being in compliance with governing rules and statutes, of where there are many."

Saturday, July 24, 2010

Procurement controversies -- Bulgaria and Romania

Bulgaria, Romania rapped for public procurement fraud
Fraud and conflict of interest regarding public procurement are the 'big novelties' in the latest European Commission reports monitoring the progress of Romania and Bulgaria three-and-a-half years after their EU accession. The seventh such reports were published today (20 July).

Shortcomings in the implementation of public procurement procedures are widespread in Bulgaria. As for Romania, substantial improvements are required to protect against conflict of interest and corruption in public procurement, the reports say.

In particular, legislation should address conflict of interest cases related to the business interests of local politicians and their families, the report on Bulgaria says.

In Bulgaria, large-scale schemes for siphoning public funds for the personal benefit of close relatives of politicians and civil servants were recently unveiled.

For example, the head of the national roads agency, Vesselin Georgiev, has been charged for giving lucrative contracts to his brothers, Emil and Boyko. The court case is still pending, writes Dnevnik, EurActiv's partner publication in Bulgaria, as the finance ministry did not send the required documentation to the courts on time.

In another case, Emilia Maslarova, minister for social affairs under the previous Socialist-led government, was prosecuted for awarding a hefty contract to renovate an old people's home - worth 5.5 million euros - to a firm linked to her husband.

Such conflicts of interest are not just the legacy of the former government.

For Bulgaria, the Commission's so-called 'irregularity rate' is almost 100% for large public infrastructure projects, where the authorities are obliged to exert ex-ante control, the report says. It further claims that the administrative and judicial authorities are "not in a position to protect public procurement against conflict of interest in an effective way".

Commission spokesperson Mark Gray said it was indeed a matter of concern to Brussels. It is not a question of introducing a new law, rather one of using legislation that already exists more effectively, he said.

This year's report is more critical of Romania than previous editions. It reprimands the country for having breached its EU accession commitments, after its constitutional court declared significant parts of legislation on the National Integrity Agency (ANI) unconstitutional.

The new law, which was adopted after the constitutional court's decision, undermines the process of verification, sanctioning and forfeiture of unjustified assets, restricts the transparency of dealings by public officials and hampers measures to fight corruption.

In Romania, prominent public procurement cases concern an MP and a high court judge in a case of influence peddling related to public procurement, two former ministers, other current or former MPs and a number of former directors of state companies and locally-elected officials, the report says.

ANRMAP: Romania has already taken action against conflict of interest in public procurement
Romania has already taken action to solve instances of conflict of interest in public procurement, and the European Commission will be notified about the latest updates, Romania’s National Public Procurement Regulation and Monitoring Authority (ANRMAP) mentioned on Thursday in a press release.

The release says the critical report by the European Commission on Romania’s progress with judiciary reform and the fight against corruption was probably drawn up before July 2, when the Government passed an emergency ordinance amending the public procurement legislation.

‘Any bidder/candidate/associated bidder/subcontractor who is a member on the administration board/leading board or supervisory board and/or who has stakeholders or associates who are their spouse, next of kin or is related to him/her up to and including four times remote or doing business with decision makers of the contracting authority shall be excluded from the award procedure,’ the new provisions say.

The Commission’s assessment shows that the competent administrative bodies do not apply effective controls to detect conflict of interest and corruption and do not sufficiently cooperate in this matter.

Clash of procurement lore and law in UK councils

Fife Council stumps up £155,000 for light blunder
"Regulations were put in place in 2006 that are very demanding but councils, bluntly, don't adhere to them.

"They have to adhere to them, it is the law. We're not prepared to have old methods and ideas determining what's right and what's wrong.

"In this case, the council's procurement department was very slow in admitting there was a screw-up.

"We were very persistent and you've no idea how persistent you've got to be because you are faced with all sorts of things put in your way."

Fife Council has paid the Larbert firm Lightways (Contractors) Limited £155,000 in compensation for loss of profit after it failed to give the firm a three-year contract to provide festive lights and decorations in Fife towns.

An out-of-court settlement was agreed after it emerged the council had twice breached public procurement regulations in awarding the contract, which went to Ladybank firm Blachere Illumination last summer.

Little has been made public about the flaws identified in the procurement process, but a report outlining the background to the case has been considered in private by councillors.

It is understood the value of the contract, to provide festive lights and cross-street features in various towns, was in excess of £300,000.

Paul Vaughan, the council's policy and communications senior manager, said the local authority's internal auditors were looking into the matter.

"A report was brought before the policy, finance and asset management committee that outlined two breaches of the public procurement regulations and set out a number of lessons that had been learned.

Meanwhile, in another council, the new procurement boss reckons he can save a lot of money for the rate payers by effective procurement practices.

City council procurement shake-up will save £7m in 18 months
Laurence O'Neill, who took over as Stoke-on-Trent City Council's head of procurement and contracting in February, believes his department can play a pivotal role in cutting the authority's budget.

Procurement at the authority was criticised last year after the collapse of the tendering process to demolish the former Westcliffe Hospital building in Chell.

The council had awarded a £1.1 million contract to bulldoze the site in October. But the deal was rejected by councillors after it emerged that tendering procedures had not been followed.

Mr O'Neill said his ongoing shake-up of procurement will simplify procedures and ensure that all departments use them.

He also wants the authority to review all of its purchases to work out which could be done more cheaply through better tendering processes.

And he said that the authority can save even more money by cutting the number of large contracts which by-pass tendering completely under the special exemption scheme to hand the work to one chosen company.

"We have only just discovered that we spend £4.5 million a year on catering across different directorates, because it was never visible as one area of spending.

"But we can now bring things like this together and look at getting a better price for those contracts."

Lib-Dem councillor Kieran Clarke, the cabinet member for finance, performance and governance, said: "In the past, contracts were awarded and then sort of forgotten. We need to have much better monitoring in place."

Mr O'Neill also said he believes councillors should be more closely involved in major contracting decisions.

I'm more dubious about interjecting local pollies into the procurement process, but there you go. Maybe his council has more detached and disinterested ministerial responsibility than most other places. Yes, minister?

Thursday, July 22, 2010

Appearances are (almost) everything

Note: OCI is the abbreviated Federal term for Organizational Conflicts of Interest.

As previously mentioned, the US Dept. of Defense has proposed a new rule for identifying and dealing with OCIs. The proposed rule is intended to incorporate principles derived from caselaw dealing with OCI, to expand the utility of the examples the rule previously provided.

The stated policy of the proposed rule is:
203.1203 Policy.

(a) Organizational conflicts of interest can impair--

(1) The Government's ability to acquire supplies and services that
are the best value to the Government. For example--

(i) A contractor with an organizational conflict of interest may
influence the Government to pursue an acquisition outcome that is more
compatible with the contractor's interests than with the Government's
interests.

(ii) A contractor that properly had access to non-public
information while performing under a Government contract, grant,
cooperative agreement, or other transaction may be able unfairly to use
the non-public information to its advantage to win award of a future
contract.

(2) The public trust. The Government must avoid the appearance of
impropriety which taints the public view of the acquisition system.
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.

(b) The vast preponderance of contracting done within DoD is done
free of actual or potential conflict of interest. However, there are
circumstances under which potential or actual conflict of interest
could exist. In those instances, it is the Government's policy to
protect its interests by identifying and resolving organizational
conflicts of interest. To that end, in every acquisition in which the
contracting officer determines that contractor performance of the
contemplated work may give rise to one or more organizational conflicts
of interest, the contracting activity shall ensure that--

(1) Offerors are required to disclose facts bearing on the possible
existence of organizational conflicts of interest both prior to
contract award and on a continuing basis during contract performance;

(2) All identified organizational conflicts of interest are either
resolved or waived prior to the award of a contract (including
individual task or delivery orders); and

(3) The contract establishes a process by which the parties will
resolve any organizational conflicts of interest that arise during
contract performance.

(c) Except as may be otherwise prohibited within this regulation,
it is DoD policy that, generally, the preferred method to resolve an
organizational conflict of interest is mitigation (see 203.1205-1). It
is recognized, however, that mitigation may not be advisable in every
instance. In accordance with 203.1205-1(c), in those cases where the
contracting officer determines that mitigation is not likely to be
effective and the conflict of interest cannot otherwise be resolved,
the contracting officer shall select another offeror or request a
waiver in accordance with 203.1205-4.
It is worth reading the whole rule yourself. But since the language of such rules can be daunting, secondary sources are useful if incomplete guides, and WashingtonTecnhology.com has provided a few helpful articles on the subject.

DOD proposes new conflict of interest rules
Defense officials have proposed definitions and explained new types of conflicts, in order to update and address issues that have arisen since the rules last underwent a major overhaul. DOD’s new proposal seeks to clarify terms such as "contractor" to note that it means the entire company. It also adds new terms such as “marketing consultant,” because conflicts now stretch beyond contracts, according to a notice in today’s Federal Register.

The proposal lays out various types of conflicts, such as impaired objectivity and unfair access to information no one else has. Current rules in the Federal Acquisition Regulation (FAR) describe the conflict types by task, a point that has caused criticism of how conflicts are identified.

The proposed policy notes that contracting officers must “identify and evaluate [potential conflicts] prior to contract award, using common sense and good judgment, and the DOD preference for mitigation.”

As the proposed rule explains (in § 203.1205-3), there are generally "three methods of resolution: avoidance, limitation on future contracting (neutralization), and mitigation." The following article from Washington Technology discusses certain objections to the "mitigation" rules.

DOD ethics rule short on mitigation, industry complains
The Defense Department's proposed ethics regulations have left the defense industry feeling shortchanged. The proposal offers few details about mitigation and its use.

To protect the image of federal contracting, the government must avoid the appearance of impropriety, which taints the public view of it, according to the proposed policy. “Organizational conflicts of interest, by their mere appearance, call into question the integrity and fairness of the competitive procurement process,” it states.

In the proposed policy, officials define mitigation as a means to minimize an OCI to an “acceptable level.” The contracting officer can use a firewall to reassign company employees who may have had access to certain information or keeping a company’s supervisors from influencing an acquisition, the policy states. The contracting officer could also release the information to the rest of the bidders. Finally, a company could be required to have a subcontractor carry out the conflicted portion of the work. But the details basically end there.

[Criticizing the new proposal:] “Contracting officers may err on the side of avoiding even the appearance of an OCI and reject workable OCI mitigation plans, to the collective detriment of DOD, the public and the contractor community,” the American Bar Association wrote in its response to the proposed policy.

[Complementing the new proposal:] Industry experts said mitigation offers DOD access to more companies with expertise. It keeps competition in the acquisition process and promotes transparency. Moreover, mitigation allows contracting officers to use their expertise and experience to make decisions about the conflict, according to the Coalition for Government Procurement.

Wednesday, July 21, 2010

China pressing home field procurement advantage

There are many ways to play favorites with purchasing decisions, and procurement schemes designed to rigorously produce competition use many devices to try to mitigate such favoritism. But government contracting is, like all government programs, a socio-political institution also, and not a narrow-minded penny-pinching regime of economic rationalists. So it is often a case of balance between the competing demands of socio-political interests and "pure" economical interests.

Social preference provisions
have been the topic of many posts already. Today I give the nod to one of the bigger social preference controversies in world trade in the last year or so: China's moves to reduce or restrict foreign competition for its so-called home grown businesses -- so-called because often they are simply copy-cat knock-offs of foreign business ideas. It is rare anywhere in the world for truly home-grown business ideas to emerge.

A flavor of the controversy is suggested in the following articles:

U.S. steel industry calls for China trade restrictions September 19, 2007
China's government has subsidized the creation of a large steel industry that is now exporting big amounts of cut-price steel to the United States, said Andrew Sharkey, president of the American Iron & Steel Institute. Those subsidies, including discounted prices for land and energy, low-cost loans and debt forgiveness, represent unfair trading practices that threaten the U.S. industry, he said. The U.S. steel industry can compete against other companies, he said, but "we can't compete against other governments."

China Accused of Trade Restrictions June 23, 2009
The United States trade representative, Ron Kirk, said China had imposed quotas, export duties and other costs on raw materials used in the production of steel, chemicals and aluminum. In effect, he said, China was putting its thumb on the scale and giving Chinese manufacturers an unfair edge.

German Business Chiefs Criticize China July 19, 2010
Jürgen Hambrecht, chairman of giant chemical company BASF (BASFY), and Peter Löscher, chief executive of industrial conglomerate Siemens (SI), added their voices to a growing clamour of criticism against Chinese rules that are seen as disadvantaging foreign firms. Mr Hambrecht said foreign companies are frequently forced to transfer business and technological "know-how" to Chinese companies in exchange for market access.
There is currently a round of negotiation going on at the World Trade Organization level regarding China trade with the rest of the world involving government procurement matters. The Wall Street Journal has reported the events in this story:

China Reapplies to WTO Procurement Group
China offered to increase foreign companies' access to its government purchases as it seeks to overcome international complaints that it discriminates against foreign vendors, but analysts said the move still may not go far enough toward easing their concerns.

The offer was presented in the form of a new proposal for membership in the World Trade Organization's Agreement on Government Procurement, which requires nondiscriminatory access to government purchases.

The GPA is an agreement among more than a dozen parties, including the U.S. and the European Union, and has more than 20 observers, several of which, like China, are in the midst of negotiations to join the agreement.

State-owned enterprises—which include many of China's biggest companies—and agencies under provincial or local governments aren't covered by the new proposal, even though they make up a significant portion of government spending in China.

And China's proposed value thresholds for contracts that would fall under the GPA are still higher than the thresholds of other members, they say.

The proposal, which makes revisions to China's first proposal in 2007, comes amid intense criticism of China's government by foreign companies and governments for new rules governing access to its massive government-procurement market. Chinese officials estimate that such procurement contracts exceeded $100 billion in 2009.

Mr. Yao said China hopes other members will take into account that China is still a developing economy.
A blog post today in Foreignpolicy.com, The death of the China lobby? by Daniel W. Drezner, gives an expansive array of recent claims made by US and European parties about China's trade stance, in which procurement rules appear prominently. It is worth a review but would be a digression to this post. For me, the key point in his whole report is this:
At best, current policies are moving very slowly towards liberalization. The good news is that China is seeking to join the WTO's Government Procurement Agreement, which liberalizes trade among participating countries for government-commissioned projects. The bad news is that China's latest offer is half-assed tokenism underwhelming in terms of what's on offer, and likely to be rejected by the US and EU.

So, why is China suddenly so hostile towards western multinationals?

The simple realpolitik answer is that China is simply more powerful than it used to be, and its flexing its muscles now because it has them.
A Chinese perspective on this matter is appropriate. This particular one begins to sound a bit like the "governmental function" debate within US government procurement:

US welcomes China's GPA offer July 20, 2010 by Hao Zhou and Wei Lai
The US welcomes the improvement that China has made in its first revised offer to the WTO Government Procurement Committee, a senior trade official at the US embassy in Beijing said Monday.

However, a Chinese expert warned that China should pay attention to protect its vulnerable but promising companies while they are exposed to a larger and more competitive market.

"The revised offer submitted by China this time is focused on the definition of government procurement entities," Christopher Adams, minister counselor for trade affairs at the US embassy in China, told a seminar in Beijing Monday.

Washington is not asking China to cover all of its State-owned enterprises (SOEs) but does expect the coverage of SOEs that carry out government activities and provide public services, such as electric power companies, Adams said, urging China to include more sub-central government entities and SOEs in accession to the GPA.

"We don't expect companies that engage in purely commercial businesses like automakers, because other WTO rules apply to SOEs commercial activity," Adams said.

The GPA is one of the four plurilateral agreements under the WTO framework, and it doesn't require all the WTO members but only GPA parties to abide by the treaty, which aims to improve efficiency and transparency in government procurements.

"Chinese firms will gain access to a much larger government procurement market after China accedes to the GPA and remain highly competitive in China's domestic government procurement market," Adams claimed.

Jiang Yong, director of the Economic Security Studies Center at the China Institutes of Contemporary International Relations, said that China should be prudent in the GPA accession negotiations.

"The actual government procurement scale in China is much bigger than the announced figure, and, by the Chinese gauge, the government purchases scale in Western countries is not as huge as they boast," Jiang told the Global Times Monday.

The global government procurement market was estimated at $1.6 trillion in 2008. The Chinese government procurement market stands at around $100 billion, only 2 percent of its GDP. However, it doesn't cover most government-funded infrastructure projects.

"Given the strict limits imposed by Western countries on technology exports to China, it seems unworthy using the appreciating yuan currency to buy depreciating US commodities," Jiang said, noting that most Chinese government procurement entities do not have access to the huge Chinese forex reserve.

The US will not discuss the relaxing of technology export limits to China on the same table of China's GAP accession negotiation. "It's two totally different things," Adams said.

Sunday, July 18, 2010

A view of some of the backwaters in the "governmental function" debate

I have previously written about the challenges facing the Federal government, and at some level I would expect, other local and national governments as well, in deciding which services it might or should "outsource" and which services it should provide itself. See these posts.

I hope I don't over emphasize this issue, but I personally find it fascinating as one of the foundational parameters of procurement theory. And so, another perspective from another writer, Marc Ambinder, the politics editor of The Atlantic:

Previewing Priest: Inside the Semi-Secret World of Intelligence Contractors
The public literature on intelligence community contracting is quite large, thanks to work by journalists like Greg Miller, Tim Shorrock, Jeremy Scahill and Mark Mazzetti. The basic narrative of the "problem" is also fairly well known: contractors do a lot of work that the government used to do by itself; oversight has become next to impossible; the intelligence-policy complex has created a revolving door of sorts where the line between private companies and intelligence agencies blurs; and of course waste, mismanagement, and more.

Since 9/11, the intelligence community has welcomed a surge in contractors while building a larger civilian counterterrorism workforce -- a larger national security state. (A significant number of contract personnel are in support jobs like food supply and landscaping, so the head count is less important than the functions.)

Priest's story is said to focus on redundancies, particularly the number of individual counter-terrorism analytical cells costing the government billions of dollars. Some of the redundancy is deliberate because of the nature of intelligence work. But a lot of redundancy, especially in terms of information technology, is probably just wasteful.

The administration has been trying to tackle this from the angle of IT acquisition and procurement reform. It's proved hard to do. For taxpayers unfamiliar with the contracting world, the redundancies and the general confusion of authorities will probably cause outrage.

Point one: when counterterrorism and counterintelligence functions are funded by [Congressional supplemental bills], new jobs can't be created. Why? Because supplementals provide funding for one year at a time, and you can't fund a new federal employee for one year. So a lot of counterterrorism operations have to be farmed out to companies who have the cleared personnel to handle them.

Point two: there hasn't been a true intelligence authorization bill for five years. That's left the basic funding of the intelligence community to the appropriations committees, which won't budget with the same level of granularity and expertise that the intelligence committees would.

Point three: in the absence of an intelligence authorization bill, Congress hasn't increased its oversight capacity over contractors because it hasn't had the mechanisms to do so. This year's authorization is on life support because of a dispute between Speaker Nancy Pelosi and the President. Among its provisions: a census of all IC contracts and incentives for government agencies to use their own personnel for critical functions.

Policy comes into the equation here. There wouldn't be a need for expensive counterterrorism contracts if the U.S. was not expanding its counterterrorism footprint overseas.

It's gotten to the point where, in the words of one intelligence official, "we're bidding against ourselves." Take the example of Blackwater, or Xe, as they're now called.

The CIA uses Blackwater to protect its facilities in Afghanistan and Iraq. One could argue -- as, indeed, some do -- that providing physical protection for intelligence officers is a core function of the intelligence community and thus something that Blackwater shouldn't be able to do by law. But the CIA needs its bases to perform the work it needs to perform in support of warfighters and policymakers in the region. It does not have the personnel itself.

Blackwater managed to attract the largest share of qualified former Diplomatic Security Service agents and special forces personnel by paying them more than they'd get if they worked for the government. Because it's easier for Blackwater to hire someone to do a function than for the CIA to hire someone directly to do the same function, Blackwater gets to set the price boundaries for its contract, indirectly. (This is also a function of the rules governing security clearances: if you leave government on good terms, your clearance will be valid for a few more years.)

The secrecy involved in some of the contracts often makes it hard to police them. Take the case of Abraxis, a company that the CIA used to create covers and legends for its personnel who don't work out of embassies. Again, that would be seem to be a core governmental function, but the CIA was able to argue that it could not function without Abraxis.

That's because Abraxis, smelling a business opportunity, lured a bunch of qualified intelligence officers and analysts to join their company after 9/11. It's a zero sum world because the CIA has to pay a lot of money to train new people; it's thus cheaper to contract the work out, and it's more efficient, at least in the short run.

Major companies like Science Applications International Corporation (SAIC) are said to be worried about a database that Washington Post researchers have compiled linking contractors to the location and function of their contracts. That's because SAIC performs many classified functions for the government, and at least one intelligence agency occasionally uses SAIC facilities as cover for its own operations. That's how intermingled the worlds have become.

At the Department of Homeland Security, a significant percentage of its headquarters intelligence and cybersecurity personnel work for Booz Allen Hamilton, which hired former DNI Mike McConnell, among others, to bolster its ability to win new lucrative cybersecurity and homeland security contracts. At the beginning of the year, 60 percent of DHS's intelligence capacity was taken up by contractors. The share is now 54 percent and dropping, thanks to a special program that allows DHS managers to make better offers to potential employees.

There's much more on this subject in The secrets next door, itself part of a much larger investigation by the Washington Post, but, however interesting that may be, it ventures too far beyond the procurement subject matter of this blawg.

Of medicine and monopoly in procurement practices

Guam law provides specific requirements that medical drugs, whether generic or otherwise, be purchased "directly from the manufacturer so as to ensure and maximize economy".

This is noble, perhaps, in concept but naive in application. Drugs are manufactured around the world, and even the same drug may be manufactured in multiple places. Manufacturers are driven by national laws that differ from place to place. Some countries, for instance, set pricing on certain drugs, and others do not. Manufacturers therefore pick and choose where they manufacturer and where they allow their products to be distributed. Conceivably, a non-manufacturer could obtain legitimate drugs in a price-controlled jurisdiction and provide them elsewhere.

And, even in America, patients are learning to buy over the internet from countries like Canada, where the prices are not controlled so much by the brand name manufacturer as by the government. Guam law would not tolerate that.

With that background, relevant or not, consider the following address by Dr Margaret Chan, Director-General of the World Health Organization, in her opening remarks on creating synergies between intellectual property rights and public health, delivered at a joint technical symposium by WHO, WIPO and WTO on Access to Medicines: lessons from procurement practices, Geneva, Switzerland, 16 July 2010.

Access to medicines: the role of procurement policies
I welcome this opportunity to jointly explore how drug procurement practices, intellectual property policies, competition policies, and ultimately prices can improve access to medicines.

Of all the issues discussed at WHO governing bodies, access to medicines consistently sparks the most heated, sometimes divisive, and potentially explosive debates. This is all the more so since these discussions almost inevitably turn to questions of prices, patents, intellectual property protection, and competition.

The debates are often clouded by suspicions: suspicions that the rules governing international trade in pharmaceutical products are rigged to favour the rich and powerful; that economic interests will trump health concerns; that medicines are being treated just like any other commodity, despite their health-promoting and life-saving roles; and that the social context is forgotten when the rights of patent holders are more important than the right to health.

The debates are further complicated by deep mistrust. Countries unskilled in trade negotiations fear they will be tricked or duped. Countries seeking to use the flexibilities under TRIPS fear they will be punished by trade sanctions imposed in retaliation. Countries fear that pharmaceutical companies will use unfair tactics, really, every trick in the book, to reduce competition from lower-priced generics.

But while the problem of access to medicines is nothing new, the context today is strikingly different than in the past. A quest for greater fairness, in income levels, in opportunities, in access to medicines and health services, has become a strategy for coping with the unique pressures of a globalizing world.

In a world of radically increased interdependence, lives and opportunities, including prospects for better health, are governed by international systems that create benefits, yet have no rules that guarantee fair distribution of these benefits.

We face two bottom-line realities. First, the essence of the ethical argument is straightforward. People should not be denied access to life-saving or health-promoting medicines for unfair reasons, including those with economic causes.

Yet the pharmaceutical industry operates in response to economic factors and market forces. This is a profit-driven industry, and not a philanthropist, not a humanitarian enterprise. What incentives does this industry have to fix prices according to their affordability among the poor?

Second, price has a decisive impact on access to medicines. Access is influenced by many other factors, like remoteness, lack of staff, poor procurement practices and delivery systems, and the absence of health insurance schemes. But price can be an absolute barrier to access for the poor. For the poor, access and affordability are usually one and the same.

Better procurement practices is an area where WHO and UNICEF have extensive experience and some lessons to offer, as you will be hearing later. Government procurement practices have an impact on both the availability and the price of medicines, and are a good entry point for exploring ways to make medicines more accessible.

Let me illustrate the challenge, and the importance of addressing it, with a few facts and figures.

Up to 90% of the population in developing countries purchase medicines through out-of-pocket payments. Medicines account for the second greatest household expenditure, right behind food. As I said, price matters.

The organization of a country’s pharmaceutical sector, its capacity for efficient and impartial procurement, quality control, regulation, and enforcement, affect the availability and price of medicines.

Efficient distribution is also important. When facilities in the public sector experience stock-outs, patients turn to the private sector, where the prices of medicines and the quality of care are often beyond regulatory control.

Surveys conducted in 30 low-income countries found that generic medicines, obtained in the private sector, cost more than 6 times more than their international reference price.

Prices for both originator and generic medicines, in both the public and private sectors, are substantially much lower if procurement and distribution procedures were more efficient, corruption-free and mark-ups were reasonable.

These are some of the problems that can be addressed through more efficient procurement policies.

Using procurement rules to create non-competitive purchasing

It is the economic cornerstone of procurement theory that creating competition will be better, in the broad macro scheme of things, for the government and better for the community. And then along comes bureaucratic push back, cloaked in the arguments of efficiency and effectiveness at the micro coalface. Even if we leave favoritism and rigging to one side, this tension will always exist between creating competition and creating routine and habit.

Canada's procurement ombudsman is observing just such an "unintended consequence" to one of its bureaucratic salves.

Ombudsman wants review of federal contracting rules
Procurement ombudsman Shahid Minto said monopolies or market dominance by few firms may be an "unintended consequence" of the government's 2005 decision to make standing offers mandatory for the routine goods and services bought by government.

Standing offers are a key buying tool for Public Works, the government's procurement arm. Companies bid prices for their goods and services and those with the best offers win a spot on a list of pre-approved suppliers that departments can simply call up when they have work or orders to fill.

Suppliers list their prices and quantities available and buyers make their orders with much less hassle than a full contract tendering.

Supply arrangements are similar, but the suppliers who make the list don't give firm prices until federal buyers seek prices from several suppliers in a second round of bids on the specific work or goods they want to buy.

Suppliers on standing-offer lists are ranked and, in some cases, the first one is given the "first right of refusal" for any work. Only if that top-ranked firm refuses will that work be offered to the next suppliers on the list.

But firms at the top of the lists rarely turn down work and other firms on the list may never get the call.

The broad trend is the number of suppliers has decreased while the value of contracts increased.

"The government has inadvertently created the conditions (for monopoly)," Minto said. "It's not what the government intended to do and that's why we think a review would be beneficial to see what the impacts are, including the unintended effects."

Read more: http://www.montrealgazette.com/news/canada/Ombudsman+wants+review+federal+contracting+rules/3285214/story.html#ixzz0u4z1UvLJ

COMMENTARY: Guam law has a "Blanket Purchase Agreement" method of source selection for non-construction purchases under $15,000, similar to the Canadian supply arrangement it would seem. Guam law, however, requires that purchases be distributed amongst the suppliers, though to what extent that happens or is enforced is not apparent.

The US Federal government also has a Supply Schedule scheme that allows non-competitive purchases from selected vendor contractors. But to get on the list the contractor must offer "best customer" pricing of their products. The different contractors usually offer differing prices and, except for very small purchases, which must be spread around, the government can buy from any contractor on the list.

On Guam, which has access to that scheme as a territory of the US, all government copier machines were purchased from one such supplier for years, without regard to creating any diversity or competition. Go into any Guam government office and like as not you will only see the one brand of copier.


FOLLOW UP: I have come across an interesting commentary to the comments made by the Canadian Ombudsman quoted above. Particularly as to the idea that these were "unintended consequences". This commentary suggests, though perhaps unintended, they were certainly foreseeable:


Procurement ombudsman says Federal buying policy unwittingly helping to create monopolies
Ahh those were the days of the good old boys club when the Canadian Government’s oligarchical fraternity of ex-IBMers and the like would close ranks and politely snub their noses at both common sense and the rest of the world.

Perhaps Mr. Minto should visit the Ottawa Citizen archives for a story dated September 2, 2006 titled “Treasury Board reviews how PS fills top jobs: Treasury Board is reviewing a controversial program that has parachuted about a dozen high flyers from private technology and consulting firms into key executive jobs within the public service.”

According to the story, the “Treasury Board (was) reviewing a controversial program that (had) parachuted about a dozen high flyers from private technology and consulting firms into key executive jobs within the public service.” Again IBMers (and the like) such as Mornan, Ken Cochrane and Dan Belanger, immediately come to mind.

Speaking from first hand experience, this tightly knit group as well as the others which infiltrated the government’s decision-making hierarchy was anything but unwitting, unintended or inadvertent in their manner and vision. Surrounding themselves with sycophants or alternatively politically adept, practically neutered players such as Jamie Pitfield, where the government is today is by no means an accident.

Tuesday, July 13, 2010

The virtues of protest actions

The virtues of protest actions
I AM concerned to read the speculation that legislation is being considered which would exempt the finance portion of a finance/design/build/operate RFP or bid from any protest.

The article titled “Bond snag stalls JFK project,” published in the July 13 issue of Marianas Variety quotes an unidentified source as saying once an award is made, the winner’s “books are open,” and other bidders “can go in and inspect all the documents.” Evidently the aim is to prevent any such scrutiny by exempting any protest over the financing aspects of the award process.

Exemption is absolutely the worst way to maintain the integrity of the procurement system. And, for some reason, it seems to always be the knee- jerk first choice. But there would seem to be a better method to deal with the current perceived problem that does not undermine the integrity of the procurement process.

The protest procedure is there to scrutinize the procurement process, to make sure it functions according to law, not to hide it from view. Exemptions allow, indeed encourage, dirt to be swept under the rug.

Official commentary in ABA Model Procurement Code § 9-101 notes, “It is essential that bidders, offerors and contractors have confidence in the procedures for soliciting and awarding contracts. This can best be assured by allowing an aggrieved person to protest the solicitation, award, or related decision."

Exemptions that deny protests fail at this essential requirement.

The textbook, “Service Contracting, A Local Government Guide,” published by the International City/County Management Association, says, "Protests are the safety valve of public procurement.... Failure to address seriously every protest received can damage the integrity of the local government's bidding process.”

The Asian Development Bank, in its 2006 Guide, Curbing Corruption in Public Procurement in Asia and the Pacific, also emphasizes the critical role of an adequate review process: “Sound procedures and honest staff, while essential, are not sufficient to contain corruption in public procurement. Effective and swift review of major procurement decisions in response to complaints from aggrieved bidders is just as important in a procurement system that is well protected against corruption.”

The ADB report continues, “Complaint and review mechanisms fulfill two functions in curbing corruption. They allow involved bidders and the public to verify the conformity of individual decisions with the established rules and bolster trust in the fairness of the procedures. Sound verification procedures also have an important preventive role: the possibility that decisions can be overturned renders corrupt practices more difficult and therefore constitutes, together with credible sanctions, a strong incentive to respect the procedures.

All of these authorities are uniform in their insistence on availability of procedures to scrutinize the bid process. You do not improve the procurement system by creating exemptions to protest mechanisms.

The idea behind the apparent new legislative proposal seems to be that the only way to get an unqualified bond opinion is to make sure that there is no protest overhang when the award winner goes to market for the financing.

This can be assured, however, without throwing a cloak of secrecy over the bid process. Indeed, it would require the opposite. It would shine a light on the process before the award is made to smoke out any protestable issues before the award is finalized.

Under the RFP procurement process which was used for the JFK project, the information in a proposal cannot be disclosed until after the award is made. But everyone knows that the award is intended to be made to a particular offeror. This is where the problem lies, and this is where the solution should be sought.

I would propose that, in the RFP process, once the government has determined which offeror it intends to award, it must give notice of intent to award, but not actually award the contract until it has disclosed the full procurement record, including the terms of the intended proposal. The time for bringing a protest action based on the known procurement record would then begin to run.

If no protest or appeal is brought within the filing period, the award can then be made and the awarded contractor can then go to market for bonding without fear of protest based on the procurement record.

If, however, there is a protest, it can – and should – be dealt with. There should be no immunity for engaging in improper procurement actions.

COMMENT: Obviously, I'd have to wholly agree with this editorial letter. (See the linked site to understand why.)

In the eagle's eye of the beholder

"Intimately related", "core function", "critical function", "inherently governmental". These terms defy bright line definition, but a working definition of them is necessary to determine whether a particular task of the US Federal government can be procured or must be provided by trained government employees.

This issue and its legal context has previously been extensively canvassed in this blawg.

The difficulties are further illustrated in the following news item. It discusses the matter whether, or to what extent, the government should provide its own security requirements or contract out the work to private enterprise. Excerpts follow.

Commission Examines Wartime Contracting and Inherently Governmental Functions
On June 18, the Commission on Wartime Contracting in Iraq and Afghanistan (CWC) held the first of two hearings to examine the proper role and oversight of private security contractors (PSCs) in wartime contingency operations. The commission called six individuals from the private, academic, and nonprofit sectors to testify about the thorny issue of defining and enforcing what should and should not be outsourced to PSCs. While disagreement abounded on the issues, commissioners were able to pick out a few lines of consensus among the witnesses.

It is illegal for functions that are defined as "inherently governmental" to be outsourced, yet there was little dispute that contractors are performing inherently governmental tasks in Iraq and Afghanistan. Witnesses, however, did differ on how the government should go about determining whether it contracts out a function or keeps it in-house. Some witnesses, such as Al Burman – president of Jefferson Solutions, a government acquisition consulting firm – and John Nagl – president of the Center for a New American Security, a security and defense policy nonprofit – advocated for the government to stop focusing on the definition of inherently governmental.

Burman argued that because the definition of inherently governmental is so narrow and so few functions fall under it, the government should instead concentrate on a policy that scrutinizes critical functions. The criticality of a function would determine if the government should keep it in-house or contract it out. Experts generally define a critical function as one that is so intimately related to an agency’s mission that the agency must keep at least a portion of the function reserved for government performance to ensure sufficient internal capability to effectively maintain control of the function.

Nagl advanced a similar idea and advocated that the government pick out core functions that it would want to be able to perform without the need for contractors. Theoretically, under this policy, federal agencies would dramatically grow their in-house aptitude to perform these tasks because of their importance.

There was also disagreement about at which level of government the decision to outsource a function should be made. Some witnesses, like Stan Soloway – president of the Professional Services Council, the largest government contracting trade group in the country – stressed that the decision should occur as close to the ground as possible, leaving it up to individual commanders. Commission member Dov Zakheim questioned the rationale behind this argument and pointed out that many dubious contracting decisions have been made because the commander in the field often defaults to contractors to perform support activities, since it is easier for the commander to do so.

Most of the other witnesses argued that the decision to outsource a function should happen at a higher level within government, either at the agency level or at headquarters. Similarly, many also advocated for hard and fast inherently governmental rules, which, theoretically, would provide federal agencies with clear guidelines on which functions could be contracted out.

The major consensus of the day was the need for in-sourcing and creating management competency within government to better oversee contractors, as well as the need for more transparency of the contracting process overall, especially in the use of subcontractors. The importance of these reforms is immense, seeing that the State Department – a budget-crunched, human resources-lacking agency – is taking over contracting oversight responsibilities from the Department of Defense in Iraq as the United States begins to draw down combat troops.

COMMENT: For what it's worth, I would endorse the view that determinations of "inherently governmental" tasks, however defined, should be made up the chain of management, where it might be expected that, being removed from the trees, a decision about whether the subject is in the forest or not might be made more uniformly or consistently. And from that, precedents might evolve which prove useful as guidance. Consistency is one essential goal of effective procurement.

Another lesson for Guam from New York

With Guam under the gun to spend millions if not billions of dollars of Federal funds, from both ARRA and other stimulus measures as well as the "military build up", and with legislation introduced to repeal the laws making the now elected Attorney General appointed again, this Daily Politics blog post from the NY Daily News, below, jumped out at me. Read it and see if you see the parallels, too.

The posted item begins with a quote from a candidate running for the job of NY's Attorney General:

GOP Attorney General Hopeful Dan Donovan Jumps Into Fray Over No-Bid Contract

“The disclosure that a health insurance company employing the Governor’s wife received a $297 million tax-payer funded, no-bid state contract is at best, disturbing, and at worst, illegal. The State Legislature - a body with its own challenges, ethical and otherwise - is looking into the matter, but this investigation should be led by an independent Attorney General’s office. Unfortunately, the AG has no jurisdiction to look into the matter unless the Governor refers it for investigation - which given the circumstances, seems highly unlikely.

“There are some real questions that need to be answered. That’s why I’ve proposed that the Attorney General’s Office have original jurisdiction over all public corruption cases, anywhere and everywhere in our state. We need an AG who’s not hamstrung by limitations of the office, who can pursue corruption, wherever it exists. If we rely on Albany to police itself, we know all too well the result...."
The post then repeats another news item from Newsday:
Group Health Inc., a nonprofit insurer, was designated this month to administer $297 million in federal funds for medical coverage for about 15,000 New Yorkers with pre-existing conditions. The insurer is expected to receive about $30 million to cover its costs, though officials conceded Monday it may lose money on the deal.

The state's decision must be approved by the U.S. Department of Health and Human Services, which would negotiate a contract with GHI for the 3 1/2-year program, part of federal health care reform.

Paige Paterson, wife of Gov. David A. Paterson, is director of integrative wellness for GHI's parent, EmblemHealth Inc. Monday, the governor responded to a claim of impropriety, saying the couple only learned of GHI's designation from a New York Post story published hours earlier. "My wife doesn't even work in the area," he said.

Paterson explained GHI's selection stemmed from rules requiring the federal program be run by a nonprofit group. GHI is the only such entity with a statewide network, he said.

The normal procurement process was bypassed because of short notice from federal authorities and fears the state would lose funding if the program wasn't running by fall, said Insurance Department spokesman David Neustadt. For-profit insurers showed no interest in the initiative because of its temporary status, small size and likely high cost. "There's nothing to protect them from losing money, which may very well happen," he said.

Read more: http://www.nydailynews.com/blogs/dailypolitics/2010/07/gop-attorney-general-hopeful-d.html#ixzz0tcJBKEqd

No experience necessary for Bangladesh procurement contractors

Procurement law passed dropping experience clause
The Jatiya Sangsad [Bangladesh Parliament] yesterday passed a bill dropping from the Public Procurement Act 2006 the provision of past experience as a condition for getting contracts for public work involving up to Tk 2 crore.

Planning Minister AK Khandker proposed passage of the bill for bringing a few amendments to the PPA which include dropping the provision of past experience.

But during scrutiny of the bill, the parliamentary standing committee on the planning ministry changed the proposal for dropping from the PPA the provision of past experience. The House later passed the bill in November in line with the committee recommendations.

Finally, the minister came up with the new bill on June 7 seeking amendments to the PPA, and it was passed yesterday.

When the government first moved to get the PPA amended last year, the opposition BNP and some donor agencies strongly criticised the move.

They alleged the amendment would lead to corruption, and quality of government work will fall.

NO COMMENT other than to note that a "crore" is 10 million, so the "Tk 2 crore" limit would be twenty million Bangladeshi Taka, which, if I have used the calculator correctly, would be approximately USD $285,000. I would imagine that would represent a rather sizable sum of money in Bangladesh.

Sunday, July 11, 2010

Putting a price on integrity

Under Guam's procurement law, all bidders and offerors must be responsible to qualify for award of a contract. Responsibility is defined to mean both the capability to perform as well as the integrity needed to assure good faith performance.

It is the duty of the Public Auditor to promote the "integrity" of the Guam procurement process.

In Massachusetts, a little lying on a resume doesn't seem to affect one's integrity if the government is not proven to have relied on the lie, particularly where the lying contractor saves the government a bunch of bucks. Another case of finding no harm from the foul.

Applicants to Harvard and Boston College might cite the situation to admissions personnel who question a little "padding" in your resume.

SJC ruling gives municipalities discretion in bidding process
At issue was the decision by Hanover officials to hire Callahan Inc., a Bridgewater-based firm, for the high school project even though it was discovered that the firm had provided fraudulent information to qualify for bidding. The company took credit for a North Andover high school building project, even though another corporation held the lead role, according to the court.

Losing bidders said Callahan should be disqualified from bidding for violating ethical rules. Coakley recommended that Hanover end its contract with Callahan and accept the next qualified bidder. Town officials refused, saying they took Callahan’s misdeeds into account.

The unanimous ruling by the Supreme Judicial Court clears the way for the town of Hanover to finish its $50 million new high school. The state’s high court said yesterday that local governments can hire companies for public works projects even if the firms misrepresented their track records, provided there is no sign of corruption in the bidding process.

But critics in the construction industry said the ruling undermines the spirit of the open, honest, public bidding process created by the Ward Commission after bid-rigging scandals in the 1970s.

“I think the likely result will be a compromising of the integrity of the competitive process," said Donald J. Siegel, a Boston attorney who represented the Foundation for Fair Contracting before the SJC.

Attorney General Martha Coakley, whose office tried to halt the Hanover project after misrepresentations were discovered in the winning bidder’s paperwork, said accuracy is crucial.

“We believe all contractors who bid on public construction projects should accurately and fully describe their qualifications." she said in a statement.

Writing for the court, Justice Ralph W. Gants said Hanover’s actions were reasonable and not the result of official corruption or fraud. The SJC threw out an injunction issued by a lower court judge.

“We conclude that where, as here, there is no allegation that any member of the town’s prequalification committee acted corruptly in deciding to prequalify Callahan, there is unrefuted evidence that the committee did not act in reliance on any of the alleged misrepresentations, and the town wishes to proceed with the contract" the injunction must be dismissed.

The decision gives “discretion to procurement officers at the local level to really go for the lowest reliable and qualified bidder,’’ said Christopher Petrini, a Framingham attorney who represented municipal lawyers before the SJC. “The [Hanover] taxpayers got a project for $1 million less."’

Dennis Sheehan, vice president of Callahan Inc., said company officials are relieved.

“We’re certainly very pleased,’’ he said, adding “there was no intent to mislead anybody.’’

Wednesday, July 7, 2010

Conflicts of interest may include social non-profit interests

Attorney: Johnson’s funding request a conflict of interest
Darlington County [South Carolina] Councilwoman Wilhelmina Johnson’s effort to get $35,000 in public funding from Darlington County Council to help bail the Darlington County Cultural Realism Complex (CRC) Inc., of which she is executive director, out of foreclosure proceedings constitutes a conflict of interest as defined by the State Ethics Reform Act, County Attorney Jim Cox said.

Cox said it was improper for Johnson to even bring up the subject to council or to participate in any discussions about it because of her connection to CRC.

Johnson first made the request for the funding to council during a meeting on June 7 but got no response from any other members. When she tried to bring the issue up again during council’s June 21 meeting to have it placed on the agenda for the next meeting, Chairman Billy Baldwin ruled her request and comments out of order.

The Ethics Reform Act prohibits public officials from using their office to obtain an economic interest for themselves, immediate family members or any business or organization with which they are associated. It also prohibits public officials from using their office to influence decisions affecting themselves, immediate family members, or any business or organization with which they are associated.

Cox said under the statute, Johnson’s interest in CRC does not have to be only financial. Being closely tied to an organization can constitute an interest that rises to the level of conflict of interest, he said.
“Mrs. Johnson is the primary moving force behind it (CRC). She is the founder. In essence, Mrs. Johnson is CRC,” he said.

“We don’t even know what the rules are,” Councilman Alex “Buz” Shaw of Hartsville said. “We’ve been told it’s a conflict of interest, and we don’t even pay any attention to it.”

Johnson was having none of it. She read a prepared statement in which she denied any conflict of interest and said anyone accusing her of a conflict of interest had better be prepared to prove it. “When you confront me again, have your stuff ready,” she said.

Johnson founded CRC in 1973 as a nonprofit organization aimed at bridging the gap for young people between school and home with various services. She said that at the time of its formation, African Americans had little to celebrate. CRC, she said, changed that.

And Johnson again chastised council for not providing more funding for the organization in the past. She said CRC is meeting a need that the county does not meet. “Shame on Darlington County, South Carolina and the country as a whole,” Johnson said. “Hypocrisy in a democracy cannot be tolerated.”

Johnson said the $35,000 she wants from the county is “nothing compared to the need,” and said she is seeking as much as $1 million from a variety of sources, including the county, state and federal governments as well as other sources.

Johnson also tried unsuccessfully to resurrect the issue of council’s long-standing policy of not funding requests from organizations or agencies that are not a part of county government.

She said nonprofits like CRC are bearing the burden of providing services to the community and the county should be helping by providing funding.

COMMENTARY: The ABA Model Code and Guam procurement code provisions dealing with conflicts of interest seem to require some form of "financial interest" nexus. I'm not sure if that is definitionally the same thing as the "economic interest" this article mentions.

From my perspective, I would think that the conflicts of interest provisions should apply, if they do not, to cases like this where a procurement decision maker tries to steer procurement decisions to non-profit interests, however laudable, in which the decision maker has any affiliation, sponsorship or other interest, financial or noble. Otherwise, intangible benefits related to campaigning and political patronage could easily divert public funds on the basis of favoritism rather than government need.

Procurement controversies -- Nepal

Curbing procurement corruption
Corruption is one of the major causes of many problems like poverty, conflict, hunger, disease, unemployment, illiteracy, socio-economic inequalities and others, sparing no misfortune that our country is facing now. So unless we take effective measures to curb corruption, we will not be able to overcome any of the above problems. So, curbing corruption requires urgent attention of all—state, private sector, and civil society.

Procurement is one basic activity of government in order to carry out its mandate. In a lucrative office, an accountant, a chief, a storekeeper and a technical staff work as an accomplice of each other to make illegal money through procurement. Procurement is one highly susceptible area for corruption. Procurement denotes acquiring goods, works or services or their combinations. The office with more funds for procurement is considered lucrative because it offers more chances to make illegal money, because public officials— ministers and elected politicians along with civil employees— find or make weak vaults from where they would find public fund ooze which they would tap. That’s the reason for manhandling senior officials by juniors as mentioned in the beginning of this piece.

There are many forms of corruption that need some generic and some specific remedies to tackle with. Not a single model will fit all. Robert Klitgaard, a well-known scholar in the field of corruption, has identified four contributing elements which engender, promote and sustain corruption; they are monopoly, discretionary power, transparency and accountability. Weak magnitude of first two elements and strong magnitude of second two elements lead to decline in corruption.

Procurement related corruption can be analyzed in the framework of above factors. Usually government offices have monopoly in giving businesses to different kinds of business people, for example, most of the businesses specializing in road, bridge and big buildings are dependent solely on government. So, government has monopoly in such areas, thus business people become desperate to get business at any cost. They bow down so much that it becomes easier for government officials exploit them.

Discretionary power to choose a vendor, engage in business and accept or discard the goods or services make public officials corrupt. Buying through quotation or direct purchase, evaluating bids on vague or indefinite criteria, and causing hassles during contract management phase let public officials to force vendors to provide illegal money or to put it bluntly, bribe them.

Since the same government office prepares requisition and calls the vendors to submit their bids, evaluate the bids, award contract and manage them, it shows no separation of crucial authorities thereby creating room for corruption by undermining the principle of internal control system. Concentration of authority at one place gives rise to corruption because it undermines transparency and accountability.

In recent years, efforts have been made to overcome corruption in procurement including enactment of Procurement Act, Regulation and establishment of Public Procurement Monitoring Office headed by a Special Class Officer. Despite these efforts, procurement related corruption has not reduced. It infers that mere reforms in laws are not enough, and more needs to be done.

Another step to undertake would be to separate authorities as much as possible and practicable. The major activities in the procurement process are: Preparation of requisition, defining scope of works or specification of goods, inviting eligible vendors to submit competitive bids (quoting price and/or conditions), evaluating bids and managing the contracts on day-to-day basis or inspecting and verifying the goods supplied. Separation of these activities would reduce the monopoly of one decision maker, reduce discretionary power, increase transparency and enhance accountability at the same time.

To adopt the proposed system, a new office with the name of Public Procurement Office to find vendor through competitive process, facilitate evaluation and signing contracts needs to be established in each district. Such office should not only be under the central or provincial government, but also under the local government. If established, it will play a significant role in curbing corruption, and also in standardization and uniformity in procurement. This will not allow two offices to buy the same photocopy papers and toners at different prices.

To establish a procurement office in each district, no extra staff cost will be required because by many existing staff at different offices can be spared to this office after providing them with training.

The UN and its sister organizations carry out procurement adopting this type of structure and process, which leaves little or no room for corruption. We can expect it will be successful also in our case. However, it will be a great shift from the existing system and it will be resisted if implemented at once. Therefore, the system should be introduced gradually after all preparations have been made.

It cannot be said with certainty that it will eradicate procurement related corruption, but it will certainly reduce it.

Procurement controversies -- Bulgaria

Bulgaria signed 1.4 billion leva public procurement contracts in H1 2010
Bulgaria signed public procurement contracts worth 1.4 billion leva in the first six months of 2010, 1.5 billion leva less than in H1 2009, according to Public Procurement Agency (PPA) data.

"The decrease in public procurement spending will have a dramatic impact on businesses, for whom this is a key source of financing at the moment," Kamen Kolev, deputy chairman of the Bulgarian Industrial Association (BIA), said.

Kolev said that even though the Government delayed payments, it was the most reliable debtor in making payment to Bulgarian companies.

As in 2009, the bulk of the contracts involve small procurements worth less than 50,000 leva for the provision of services.

"The smaller number of public procurements in the public sector whipped up fierce competition in the building industry and prices at tenders are being reduced ," Simeon Peshov, president of construction company Glavbolgarstroy, said recently.
But,

Seventy per cent of Bulgarian firms come across corruption in procurements
Public procurements in Bulgaria leave opportunities for corruption and most local businesses teeter on the verge of the law in completing procedures, according to research by the Bulgarian Industrial Association (BIA).

The report, prepared in partnership with private cultural non-profit institution Friedrich Ebert Foundation (FES), also found that 70 per cent of all 3520 companies have encountered corruption and a further 85 per cent believe that public procurement procedures are unfair and corrupt.

A mere 10-20 per cent of all public procurements held in Bulgaria have been awarded to local companies, and the others are won by foreign organisations, said BIA chairman Bozhidar Danev.

In contrast, local businesses get 70-80 per cent of all contracts in other EU member countries such as the Czech Republic and Estonia.

The main obstacle for Bulgarian companies are the requirements outlined in the participation papers.

"Only 50 per cent of the requirements match the criteria for similar procurements in other countries, the others have been added artificially," Danev said.

Yosif Avramov, deputy chairman of the National Chamber of Entrepreneurs and Craftsmen, said that a major challenge for Bulgarian businesses participating in public procurements is the mismatch between the requirements for low cost and high quality.

Avramov suggested that a register should be set up of the government’s entire overdue debt to businesses. "I think the real figure [of unpaid government debt] is 1.5 billion leva even though the official estimate is 700 million leva," he said.

COMMENTARY: I'm frankly not quite sure what to make of this controversy. Are the complainants saying that specifications prefer quality over price? If so, that may be justifiable so long as "quality" is a not a euphemism for non-competitive practices.

Are the complainants suggesting that there should be some local preference provision? Again, that may be a justifiable complaint, but only to the extent it does not burden local government spending disproportionally.

What these stories point out, however, is that the economics of public procurement have a significant and direct impact on local economies, and any government must economically weigh and balance the direct cost to the purse in the first instance against the indirect cost to the tax base and social structure in the broader context.

Unfortunately, in weighing and balancing such considerations, politicians tend to add the extraneous weight of political patronage to the scales of economy.

Criminals are nonresponsible in Louisana, finally

I'm frankly a bit amazed by the news reported in this post.

Amazed because, under the ABA Model Code, and Guam Law, "Standards of Responsibility", any bidder or offeror is non-responsible (or, more technically, should be determined to be non-responsible) if there is an unsatisfactory record of integrity, and I'd always assumed "integrity" included consideration of such matters as being convicted of bribery in connection with procurement.

Gov. Bobby Jindal signs bills on crooked contracting for public works jobs
Two bills designed to crack down on contractors who bribe public officials to win projects has been signed into law by Gov. Bobby Jindal, his office said Wednesday.

House Bill 1292 by Rep. Walker Hines, D-New Orleans, would permanently bar from public works contracts any individual or company that has been convicted of public bribery, corrupt influencing, extortion or money-laundering, or the equivalent federal crimes.

It also will allow state and local officials to reject the lowest bid submitted if the individual or firm has been convicted of one of the crimes. Hines said that state law otherwise requires a low bidder's proposal to be accepted.

Hines said the bill went into effect Wednesday and can now be used to fight public corruption in the contract-awarding process statewide. He said he filed the bill after a spate of investigations into the contract bidding and awarding process in the New Orleans area in recent months.

The new law also imposes a five-year ban on any individual or firm convicted of theft, identity theft, theft of a business record, false accounting, issuing worthless checks, bank fraud, forgery, misapplication of payments by contractors or malfeasance in office -- or the related federal crimes.

The convictions on the nine offenses must have resulted from crimes related to the seeking or awarding of public contracts.

The new law requires the bidder to submit a form attesting that the individual contractor or a firm seeking the contract has not been convicted of the crimes. If a firm seeks the public work, it must also submit an affidavit that no partner, manager or other principal of the firm with at least a 10 percent ownership interest has not been convicted of any of the crimes.

Hines' legislation allows anyone to come forward with proof to show that the affidavit field [sic: "filed"] by the individual or company is false. If the allegations are correct and the individual or firm has been convicted, the project must be cancelled [sic: "canceled"] and rebid, Hines said. He said that the bidder who filed the false affidavit must also be billed any added costs of the project and the costs of rebidding.


The second new law, Senate Bill 720 by Sen. J.P. Morrell, D-New Orleans, had been on Jindal's desk since June 18. It takes effect Aug. 15 and will nullify any contract between a public agency and an individual or firm "entered into as a result of fraud, bribery, corruption or other criminal acts" for which a final conviction has been obtained.

Morrell's bill says that if the contract is voided, the responsible party will is on the hook for costs, attorneys fees and damages incurred in rebidding the project.
Regarding this second law, it may be an improvement on Guam/ABA law. Under Guam law, the government has the right to affirm or ratify a contract, even if there is fraud, if it finds doing so to be in the best interests of the Territory. This law implies that it is never in the best interests of the state to acquiesce to fraudulent procurement conduct.

Monday, July 5, 2010

'Quasi-' sole source opens ACAN of worms in Canada

Government fails to tell public of $869M preferred-supplier contracts (Ottawa, Canada)
Last year, the ombudsman’s office tallied all the contracts exceeding $25,000 that went to preferred suppliers from 2005-07. It found that departments spent $1.7 billion using what are known as ACANs — Advanced Contract Award Notices.

An ACAN is used to bypass a normal bidding process, when a department wants to give a contract to a specific buyer and posts a notice of its intention on the government’s electronic bidding system to see if any other bidders come forward claiming they are qualified and can do the work. If no other bidders materialize within 15 days, then the contract goes to the preferred supplier.

The Ottawa Citizen questioned the $1.7-billion figure and Mr. Minto’s office sought a recount and Public Works found four more contracts totalling $869.5 million that weren’t counted.

“How do you miss reporting $869 million worth of contracts?” asked Shahid Minto, the government’s procurement ombudsman.

The discovery means the government under-reported the value of contracts issued as ACANs by 34%.

ACANs have long been controversial. They were designed to make sole-source contracts fairer and more transparent.

The Treasury Board, which sets the contracting rules for Public Works and other departments, forbids sole-source contracts unless a contract is worth less than $25,000, is a case of pressing emergency or national security, or if there is only one “unique” supplier who can do the job.

An ACAN is only to be used when a contract meets one of those four exemptions to bypass the bidding process.

Auditor General Sheila Fraser has argued ACANs have become a substitute for bidding and many bureaucrats simply see them as a “fifth exemption” to get around calling bids. She and Treasury Board officials have locked horns for years over them.

The Treasury Board “deems” ACANs competitive and counts them in its yearly tally of competitive contracts. Ms. Fraser considers them non-competitive and said they can be abused as a way to get around rules that forbid sole-source contracts.

As ombudsman, Mr. Minto — also a former assistant auditor general — has flagged his own concerns about a “loophole” departments are exploiting to use ACANs and get access to larger spending limits that are normally allowed for contracts awarded by competition.

If a contract is given to the preferred supplier because no other bidder comes forward during the notice period, then the deal is formally “deemed” a competitive contract. And then the spending limit shoots up to the levels allowed for competitive contracts.

Mr. Minto said the government has always restricted spending limits on sole-source or directed contracts because they are considered high-risk and open to abuse.

He has argued this loophole should be closed because it undermines the government’s “risk mitigation strategy” of controlling spending limits or authority.

For Mr. Minto, ACANs come with all sorts of risks to the fairness of procurement in government.

For big contracts, alternative suppliers often don’t have enough time to put together a bid or don’t bother because they assume they don’t stand a chance against the preferred bidder. Too often, he said, the minimum 15-day notice period becomes the maximum and that’s typically too short for other bidders to respond.

Read more: http://www.nationalpost.com/news/Government+fails+tell+public+869M+preferred+supplier+contracts/3235197/story.html#ixzz0srboEAwK

Of give and take

This is not a story about negotiation.

It is a story with a moral somewhat like paying the piper and calling the tune, and echos back to a prior post about the University of South Carolina.

Navy criticizes close relationship between Academy and donor
An anonymous donor whose close relationship with the U.S. Naval Academy caused problems for the school's finance chief is connected to a Texas company that is a defense contractor, Navy investigators concluded in a report.

The donor was known to insiders at the academy as a generous alumnus who once provided nearly $100,000 so "fine wines" could be served during receptions at the superintendent's house, the report said. He maintained such a close relationship with Robert Parsons, the academy's deputy for finance, that he kept a sport utility vehicle at Parsons' home for use when the Texas donor was in Annapolis.

The donor's role became public last week when the Navy released a report into financial irregularities at the academy.

Parsons noted that the donor often bought items from the academy's store, doing "a lot of buying and giving, most of it for his own company." That company is identified in the report as the Richardson Trident Company in Richardson, Texas.

Richardson Trident owner Thomas Bentley is a 1954 academy graduate.

The donor was known for spending up to $50,000 at a time at the Midshipman Store at the academy.

"When you go to his plant and you go to his ranch, everybody that works in his plant is wearing Navy stuff because he gives it to them," Parsons told investigators.

Investigators said one of the principal problems with the relationship was that it caused Parsons to commit multiple regulatory violations relating to the acceptance of gifts. The Navy concluded that Parsons didn't do due diligence because he failed to determine the donor's "status as a defense contractor and prohibited source."

"He's a benefactor, a donor, but he's getting special treatment and handling because of his eccentricities and the relationship that you have established with him over time," a Navy investigator said to Parsons during an interview transcribed in a 110-page report.

The report found Parsons improperly solicited gifts to the Naval Academy when he used his relationship with the donor to influence him. The gifts, including watches, sunglasses, coats and purses, went to football coaches and their families as part of a strategy to retain the coaching staff.

In the report, an investigator questions Parsons about the donor's desire to be anonymous, pointing out donors can't be anonymous because donations "might be something we want to reject."