Sweet embraceable you

The Guam Office of Public Accountability has issued a Performance Audit of the capital works procurement efforts of the Guam Department of Public Works during the period October 1, 2006 through September 30, 2009.

It is not a flattering assessment.

Almost two-thirds, by value, of the project monies were improperly expended.

As the report summarizes:

From fiscal years (FY) 2007 to 2009, DPW expended $25.9 million (M) for 566 Capital Improvement Projects (CIPs). Our audit of DPW’s CIP procurement during this period revealed projects totaling $16.1M were not procured in accordance with the Guam Procurement Law and the Procurement Regulations; specifically:

(1) preferential selection of 10 contractors who received $14.1M (54%) of the $25.9M in awarded projects;

(2) 262 CIPs totaling $6.6M were not advertised;

(3) emergency procurement was used to circumvent the competitive sealed bid process, including the $199,200 purchase of eight sports utility vehicles from a contractor who is not an authorized automotive dealer;

(4) documentation was missing for procurements totaling $10.5M; and

(5) $226,926 in routine maintenance work was contracted as CIPs and the top five contractors received $121,539 or 54%.

These conditions occurred due to conflicting advertising requirements, artificial division of procurement, poor planning, and inadequate training of CIP personnel.

Actually, the mention of poor planning and inadequate training, while accurate, pulls the punch. Under more specific findings, OPA stated:

DPW does not have a suspension and debarment listing and thus has no way to identify contractors who should be barred from doing business with the government. DPW continually awards projects to contractors who performed poorly. For example:

• In September 2006, Contractor #8 was awarded $765,000 to design and construct emergency generator, shelters, and tanks at five public schools. The contractor failed to complete the project but was not penalized and was instead awarded two more projects: one for $21,147 in April 2007 and another for $29,995 in December 2007.

• In August 2007, Contractor #10 was awarded $186,876 to install typhoon shutters at seven schools. We tested the project at Harry S. Truman Elementary and found that the 90-day timeframe for completion was exceeded by 219 days. Despite the poor performance, the contractor was awarded another $704,158 in December 2007 to install typhoon shutters at nine other schools.

An Engineer Supervisor told us that projects are often divided into smaller purchases to make soliciting price quotes easier. A DPW Supervisor explained that projects are divided into smaller purchases for ease of commencing the project without a lengthy approval process. As a result, 262 projects were artificially divided to avoid advertisement, the sealed bid process was circumvented, and 25 contractors were paid $6.6M. Some instances noted include:

• Between June and December 2006, Contractor #14 was awarded 39 projects totaling $501,280 for hazard mitigation in various village streets. We found no evidence that the projects were advertised.

• From May 3 to 8, 2007, Contractor #17 was awarded 38 projects totaling $465,140 for tie-down and reinforcement of air condition units at various schools. These projects were not advertised.

• On May 2, 2007, Contractor #5 was awarded six $21,600 purchase orders totaling $129,600 for roof hardening at six schools. These projects were not advertised.

• On August 21, 2006, Contractor #12 received a $41,600 purchase order to renovate the police department’s building in Tiyan. The contractor received another two purchase orders totaling $48,973 in December 2006, as well as a purchase order for $22,875 in March 2007 and another for $8,650 in May 2007 for additional costs. Altogether, the project totaled $122,098, but the various parts were kept under $25,000 and were not advertised.

Title 5 G.C.A. § 5215 and 2 G.A.R. § 3113 state that no combination of emergency procurements may be made for the amount of goods, supplies, or services greater than necessary to meet the emergency or within 30 days immediately following the procurement. In addition, 5 G.C.A. § 5010 states that when possible all procurements be made sufficiently in advance of delivery or performance to promote maximum competition and good management of resources. DPW CIP personnel provided a listing of 90 CIP emergency procurements totaling $5.8M.

• On September 29, 2006, Contractor #18 was awarded five purchase orders totaling $407,847. Five purchase orders totaling $199,200 were for the emergency procurement of eight sport utility vehicles. Delivery took between 140 and 255 days to complete. Based on the timeframe and the nature of the purchase, the purchase appears to be an abuse of emergency procurement.

• On June 18, 2007, Contractor #39 was awarded two emergency projects totaling $91,888 ($42,444 and $49,444) for Emergency Flood Control at two schools. The projects were completed in January and December 2008, respectively. Based on the type of work and lengthy completion time, emergency procurement was inappropriate for the nine projects totaling $1.4 million but used simply to circumvent the procurement process.

[The report was also critical of many expenditures justified by Executive Order emergency declarations which failed to meet the statutory requirements for emergency procurements:] Of the 11 CIP procurements tested, nine totaling $1M exceeded the 30-day emergency timeframe and took from 76 to 255 days to complete.

The reasons cited for the setbacks included shipment delays, incorrect material order, and inclement weather. Based on the type of work and lengthy completion time, we concluded that emergency procurement was utilized simply to circumvent the procurement process.

The government of Guam Single Audits over the past 10 years has consistently identified the lack of complete history of the procurement and proper documentation as a significant deficiency, yet no measurable improvements have been made.

The law requires procurement officers to maintain complete records of procurement transactions, to include all written documents and internal and external communication in each file. Additionally, emergency procurement requires documentation of the emergency, the goods and services needed to address it, and the basis for which the contractor was selected. DPW CIP regulations even prescribe a standardized filing system for organizing and maintaining CIP procurement files.

We tested 67 files totaling $10.5M and found them disorganized. All lacked documents such as bid analyses, rationales for awarding the best bidder, and internal and external communications. The files were not consistent with one another and were not kept according to the standardized filing system. We found the following deficiencies:

• 17 projects totaling $238,380 had no evidence of bid evaluation or rationale for contractor selection;

• 5 emergency procurement projects totaling $868,213 had no documentation for written determination of emergency or the authorizing executive order;

• 17 projects totaling $187,275 were missing affidavits, such as the major shareholders and non-collusion affidavits;

• 9 projects totaling $4,778,772 were missing bid opening attendance sheets;

• 8 projects totaling $4,724,772 were missing the receipt time of all bid submittals;

• 8 projects totaling $4,724,772 were missing the notice of award to unsuccessful bidders;

• 4 projects totaling $450,000 were missing the distribution record for bid amendments;

• 45 projects totaling $5,267,667 were missing records of meeting, communications, and audio recordings of negotiations;

• 21 projects totaling $205,739 did not indicate the bid period (from the availability of bid documents to bid opening); and

• The only RFP for $973,166 that was tested did not have all the relevant procurement documentation, such as the record of submitted proposals (Register of Proposals) and each consultant’s detailed resume.

CIP personnel told us that they had no formal procurement training and were simply carrying out the practices of their predecessors. We also learned that DPW’s CIP procurement process is hampered by a lack of teamwork and communication breakdown, and staff resistance to change. A Management Analyst’s recommendations for improvement were negatively received by CIP staff.

DPW's management response is included in the report. In his letter transmitting it to OPA, the Director said, "DPW embraces this audit, findings and recommendations ...."

Time will tell whether this report is embraced, as in taken to heart, or, like the other audits done over the prior ten years, embraced, as in a death hug.

Hear Travis Coffman's interview with me on Guam radio K-57, on the topic of this post:

CLICK HERE.

The Public Auditor despaired of the seeming failure to correct obvious and recurrent procurement requirements, as quoted in one news item covering this report. The Pacific Daily News quoted her as saying,

Part of why local government entities repeat breaking contracts into smaller amounts is the lack of effective penalty to keep such cases from happening, Brooks said.

"The punishment is very minor, if at all, and that is probably why you have this going on," the public auditor said.

"That's why bad behavior -- in the sense of bad processes -- continues," Brooks said.

The public auditor said until tougher penalties are put in place, all she can do is continue to shed public light on artificially divided contracts.

I would point out that any concerned taxpayer, including the Legislator or a Senator, who wants to take the trouble can also do something about it.

First, Guam has a law that holds government employees personally responsible for illegal expenditure of public funds. 5 GCA § 7102 sets the standard of care applicable to government officials when spending public funds:

Any officer, agent, contractor, or employee of the Executive Branch of the government of Guam who is charged with or assumes responsibility for the certification of availability of funds or the spending of money belonging to the territory of Guam, including the Governor and Lt. Governor of Guam, stands in a fiduciary relationship to the people of Guam in regard to the management of public money.

The procurement law specifically provides how contracts are to be solicited, thus payment under any contract made contrary to the procurement law would seem to be an illegal expenditure.

The procurement law "shall apply to every expenditure of public funds irrespective of their source, including federal assistance funds, ... by this Territory, acting through a governmental body", with a few, minor exceptions and qualifications. (5 GCA § 5004(b).)

5 GCA § 7103 allows any taxpayer to bring an action to make sure public funds are spent as required, and to make government employees personally responsible if the funds are not spent properly:

Any taxpayer who is a resident of Guam shall have standing to sue the government of Guam and any officer, agent, contractor, or employee of the Executive Branch of the government of Guam for the purpose of enjoining any officer, agent, contractor, or employee of the Executive Branch of the government of Guam from expending money without proper appropriation, without proper authority, illegally, or contrary to law, and to obtain a personal judgment in the courts of Guam against such officers, agents, contractors, or employees of the government of Guam and in favor of the Government of Guam for the return to the Government of Guam of any money which has been expended without proper appropriation, without proper authority, illegally, or contrary to law. For purposes of this Chapter, the Governor and Lt. Governor of Guam are officers of the government of Guam, and are included within the scope of this Chapter.

Moreover, "The Senators and the Guam Legislature shall have standing to sue under this Chapter. The Legislative Counsel, or Assistant Legislative Counsel, may, as a part of his or her duties for the Guam Legislature, represent members of the Guam Legislature or the Guam Legislature, or both, in bringing suit under this Chapter...." (5 GCA § 7115.)

AND THEN, there is the matter of contractors who should be penalized for shoddy performance. There is a procedure that allows the government to bring an investigation to determine if the contractor should be suspended or disbarred. (5 GCA § 5426(a).)

However, the law also allows "Any member of the public may petition the Chief Procurement Officer, the Director of Public Works or the head of the purchasing agency to take action to debar or suspend" a contractor. (5 GCA § 5426(f).)

So, if anyone, including Senators, REALLY wants to do something to get the attention of the government, this could be an excellent vehicle for effective enforcement of the procurement law.