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Tuesday, July 31, 2012

Reveal the truth or face the consequences

This case involves the right of citizens to gain "freedom of information" access to records kept by outsourced service contractors. I was alerted to the case by this article: New Mexico court requires disclosure of public records held by contractors for government. As described in the article:
At issue in the case was the reach of one of New Mexico's main governmental sunshine laws, the Inspection of Public Records Act.

The court issued the decision last week in a case involving the city of Truth or Consequences and a nonprofit corporation that operated a public access cable channel for the community.

Video recordings of city commission meetings, which were made by the contractor to show on the cable system, are subject to disclosure under state law, the court said in reversing a district judge in Sierra County who had decided the recordings were not public records. The court said the cable system contractor was the "functional equivalent of a public agency in this case."
The case is from the Appeals Court of the State of New Mexico and involves a contractor service provider for the New Mexico town (well, it was a town when I passed through there back in the mid-60's) of Truth or Consequences (named after a popular TV show of that era). The case is reported here, and I cut and paste and remove the relevant context from it, so you'd benefit from a read of the case in full at the link.
the City entered into a contract (operating agreement) with SCC, designating it the “cable access management organization” for the PEG channel. The City agreed to provide funding to SCC to support the PEG channel through the dedicated portion of the franchise fees as well as equipment and, if available, physical space. In exchange, SCC agreed to operate the channel for “public/community access programming purposes” and further agreed to produce any programming the City required for a public purpose at no cost to the City. The operating agreement identified SCC as an independent contractor and stated that no principal/agent or employer/employee relationship existed between SCC and the City.

The district court found that SCC was an independent contractor, not an agent of the City. The district court further found that, at the time of the request, one meeting was still on SCC’s computer; however, it concluded that nothing in the operating agreement required SCC to create, maintain, or hold recordings of City meetings on behalf of the City. Therefore, the district court ruled that “[n]o public record was created by virtue of Hopkins recording City meetings and SCC cablecasting those meetings.”

the dispositive question is whether SCC’s recordings of the City meetings were made on behalf of the City so as to constitute public records within the meaning of IPRA.

IPRA defines “public records” as all documents, papers, letters, books, maps, tapes, photographs, recordings and other materials, regardless of physical form or
characteristics, that are used, created, received, maintained or held by or on behalf of any public body and relate to public business, whether or not the records are required by law to be created or maintained.

Florida appellate courts have repeatedly held that documents in the control of a government contractor are public records subject to inspection. Importantly, Florida’s public records law, like New Mexico’s, states that every person has the right to inspect or copy any public record including those records “made or received in connection with the official business of any public body, officer, or employee of the state, or persons acting on their behalf[.]” The Florida Public Records Act defines “public records” as including any document or sound recording made or received “by any agency.” The Florida legislature further defined “[a]gency” to include not only governmental units, but any “business entity acting on behalf of any public agency.”

The seminal Florida case addressing when a private entity will be subject to its
state public records law is News & Sun-Sentinel Co. v. Schwab, Twitty & Hanser
Architectural Group, Inc.
, 596 So. 2d 1029 (Fla. 1992). There, the Florida Supreme Court listed nine factors that can be used to determine whether a private corporation is “acting on behalf of any public agency” under the public records law.

Those factors include:
1) the level of public funding;
2) commingling of funds;
3) whether the activity was conducted on publicly owned property;
4) whether the services contracted for are an integral part of the public agency’s chosen decision-making process;
5) whether the private entity is performing a governmental function or a function which the public agency otherwise would perform;
6) the extent of the public agency’s involvement with, regulation of, or control over the private entity;
7) whether the private entity was created by the public agency;
8) whether the public agency has a substantial financial interest in the private entity; and
9) for who[se] benefit the private entity is functioning.
Applying this totality of factors test, the court held that an architectural company was not “acting on behalf of any public agency” when it was hired by the county to perform professional architectural services for the construction of a school (noting that because the firm was not created by the school board, public funds were only given for services rendered, the school board did not control the firm or delegate any of its decision-making process to the firm, and the school board did not perform a government function, the totality of factors test was not met).

Nevertheless, the Florida Supreme Court stressed that it was taking a flexible and
cautious approach by using a broad definition of “agency” that would ensure that a
public agency could not avoid disclosure under Florida law by contractually
delegating its responsibility to a private entity.

Since Schwab, Florida courts have continued to find that if a private entity is
doing more than just providing a specific contracted-for service to the public agency, the private entity is likely to be subject to its access law.

At least four other states have adopted approaches analogous to the totality of
factors approach of Florida. The Connecticut Supreme Court in Connecticut Humane Society v. Freedom of Information Commission, 591 A.2d 395, 396-97 (Conn. 1991), explained that in order for a private entity to be subject to the state Freedom of Information Act, it must be the “functional equivalent of a public agency.”

In A.S. Abell Publishing Co. v. Mezzanote, 464 A.2d 1068 (Md. 1983), the Maryland Court of Appeals held that an insurance guaranty association was an “agency or instrumentality” under the Maryland Public Information Act.

Similarly, the North Carolina Court of Appeals has held that a non-profit county
hospital system must release terms of legal settlements because of the county
commission’s control, review, and regulation; public funding; operation on leased
property; and operation pursuant to county agreement and bonds. News & Observer Publ’g Co. v. Wake Cnty. Hosp. Sys., Inc., 284 S.E.2d 542, 544-45, 549 (N.C. Ct. App. 1981).

Finally, the Oregon Supreme Court in Marks v. McKenzie High School FactFinding Team, 878 P.2d 417, 419 (Or. 1994), adopted a totality of factors approach when it denied parents access to the records of a fact-finding team appointed by the school district to investigate problems at the local high school. Because the team was independent of the government and not able to make decisions, the court held that the factors weighed against finding it subject to the inspection of public records law.

We are persuaded by the application of a totality of factors approach adopted
by the courts in Florida and the other states listed above. Further, although no New
Mexico case has used the totality of factors test to determine when a private entity
should be subject to IPRA’s provisions, we find support for utilizing this procedure
in our cases that have considered when a private entity performs a public function
such that it must comply with statutes generally governing only government agencies.

We emphasize, however, that IPRA should be construed broadly to effectuate its purposes, and courts should avoid narrow definitions that would defeat the intent of the Legislature. See Cox, 2010-NMCA-096, ¶ 5 (noting that access to information concerning the affairs of the government is a fundamental and necessary right of every person in this state).

Applying the totality of factors test, we conclude that SCC was acting “on behalf of” the City in this case. All of SCC’s funding comes from the City; SCC’s operation and activity is conducted on publicly owned property, albeit for a nominal fee; the services provided by SCC are an integral part of the City’s decision under the Ordinance to operate a PEG channel; the City is intimately involved in the regulation and procedures for access channel use and has control over SCC to the extent that it can unilaterally cancel the contract; and SCC is operating for the sole benefit of the City. Consequently, once SCC relieved the City of its function to operate the PEG channel and because it uses public equipment and funds to perform that function, the SCC acts “on behalf of” the City and becomes subject to IPRA.

Today, traditional public functions such as fire protection, transportation, jails, afterschool programs, and health care are routinely delegated to private entities — or privatized — for a variety of reasons. To allow such entities to circumvent a Citizen’s right of access to records by contracting as the City and NMML suggest would thwart the very purpose of IPRA and mark a significant departure from New Mexico’s presumption of openness at the heart of our access law. See Rio Grande Sun v. Jemez Mountains Pub. Sch. Dist., 2012-NMCA-___, ¶ 9, ___ P.3d ___ (No. 30,698, Apr. 26, 2012) (stating that “IPRA embodies New Mexico’s policy of open government”. We therefore continue to utilize a flexible approach that favors access to records even when held by a private entity.

Although the court repeatedly spelled out the language of the IPRA, indicating it may be specific to local law, it also relied on a common law type test based on the totality of the circumstances, coupled with a policy of law to promote transparency, so it may be that your particular jurisdiction may be persuaded by the rationale even if your local statute varies from the code law of New Mexico.

Guam has a Sunshine Act that applies to "public records", which "includes ... any writing containing information relating to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency in any format, including an electronic format."

It does not apply to entities other than government "agencies", and as currently used on Guam, it would be difficult to make the case that a private contracted service provider is an "agency", even if performing governmental function services as an agent. 5 GCA § 10102(a): "Agency means any authority of the government and includes a department, institution, board, bureau, commission, council, committee of Guam government, branch, autonomous instrumentality, public corporation funded by public taxes or funds, or other public entity of the government of Guam, whether or not it is within or subject to review by another agency."

Wednesday, July 25, 2012

The rotating door can be difficult to prove

Feds, contractor working to settle Ky. fraud suit
The federal government has sued a former Fort Knox contractor who attorneys say steered hundreds of thousands of military contracting dollars into his own company, saying he misused his military assignment to create a lucrative retirement for himself.

[About 2005] Meredith created and signed a deal creating an energy savings program and sent the request for proposal to Nolin. The Army awarded the $2 million deal to Nolin in October 2007, with Meredith and his company, Meredith & Co., making $200,000 off of the contract he created.

Meredith worked from 1987 through 2007 as the energy program director at Fort Knox, with the job of finding ways for the military post to conserve energy. From 1996 on, Fort Knox worked with Nolin Rural Electric Cooperative on the program. Meredith retired from the U.S. Army in August 2007 and immediately went to work for Nolin, using the same office and computer at Fort Knox he had while serving in the military.

Federal prosecutors say Meredith spent nearly two years negotiating with Nolin before retirement and had been talking with the company about a job when he wrote the contract and took the position he ultimately created.

In a dozen emails sent before his retirement, Meredith contact Nolin for details that would allow him to award the cooperative the contract and place himself in the job of implementing the deal.

On April 12, 2005, Meredith wrote in an email to Nolin, "...Have considered doing it myself...retire (And I can), and come back on Monday as a REM, IN THE SAME CHAIR, probably same office and be off the Government rolls...."

When Nolin advertised the job at Fort Knox in September 2007, only Meredith applied. Nolin's Vice President of Operations, Vince Heuser, told Defense Criminal Investigator Jared Camper that he told Meredith about the advertisement, which had been placed to make the job look legitimate, but didn't notify anyone else. Camper noted that Meredith was the lone applicant for the job.

The lawsuit filed in federal court in Louisville seeks to prevent Meredith from spending any more of the money and recover what he had been paid. Court records indicate that federal prosecutors are also interested in settling the dispute. No criminal charges have been filed against Meredith or his company.

Buy or build: cost of outsourcing services depends on scope of factors considered

New GAO Report reads a bit like the two-handed lawyer: on the one hand....

But that appears to have been the limited goal of the study. Notwithstanding, it did highlight the problematic notion that method may determine outcome.


Results of Studies on Federal Pay Varied Due to Differing Methodologies
A careful consideration of federal pay is an essential part of fiscal stewardship and is necessary to support the recruitment and retention of a competent, successful workforce. Recent studies comparing the compensation of federal workers to workers in other sectors have produced varying findings. To improve understanding of federal pay setting, GAO was asked to examine
(1) how annual pay adjustments for the GS system are determined;

(2) the extent to which the pay increases and awards available to GS employees recognize individual performance, and how the Office of Personnel Management (OPM) provides oversight of pay increases and awards; and

(3) how selected studies compare federal and private pay and total compensation and the factors that may account for the different findings.
GAO reviewed legislation, OPM regulations, executive orders, and federal agency documents; analyzed OPM data; and interviewed agency officials. GAO reviewed six studies that met three criteria: issuance since 2005, original analysis, and focus on federal and private sector compensation.

GAO compared and contrasted the differences between their approaches, methodologies, and data sources, and interviewed the studies’ authors, people with expertise in compensation issues, and agency officials responsible for the data.

Findings of selected pay and total compensation (pay and benefit) comparison studies varied due to different approaches, methods, and data.

Regarding their pay analysis, the studies’ conclusions varied on which sector had the higher pay and the size of pay disparities. However, the overall pay disparity number does not tell the whole story; each of the studies that examined whether differences in pay varied among categories of workers, such as highly or less educated workers or workers in different occupations, found such variations.

Three approaches were used to compare pay:

• human capital approach (3 studies)—compares pay for individuals with various personal attributes (e.g., education, experience) and other attributes (e.g., occupation, firm size);

• job-to-job approach (2 studies)—compares pay for similar jobs of various types based on job-related attributes such as occupation, does not take into account the personal attributes of the workers currently filling them; and

• trend analysis approach (1 study)—illustrates broad trends in pay over time without controlling for attributes of the workers or jobs.

When looking within and across the studies, it is important to understand the studies’ differences in approach, methods, and data because they impact how the studies can be interpreted.

The differences among the selected studies are such that comparing their results to help inform pay decisions is potentially problematic. Given the different approaches of the selected studies, their findings should not be taken in isolation as the answer to how federal pay and total compensation compares with other sectors.

GAO provided drafts to agencies and study authors for review and comment and made technical changes as appropriate in response to comments received. One study author provided written comments concurring with the findings.

GAO is not making any recommendations in this report.
No Mention of Contractors, But Federal and Private Pay Differences Depend on Methodologies
The issue of federal vs. private sector pay has been hotly contested, and was the subject of a March 2011 hearing before Chairman Ross’ Subcommittee. Unfortunately, that hearing raised more questions than it answered and GAO was called into to analyze the pay gap issue. The GAO report fails to make any recommendations, but it provides a comprehensive explanation of the legal and practical reality of the federal pay system and why comparisons to the private sector vary in their conclusions about the pay gap.

GAO found that the studies used different methodological approaches, methods, and data. That was expected, as we had previously pointed out flaws in the Heritage Foundation 2010 study, which found that “federal employees earn approximately 30 percent to 40 percent more in total compensation (wages and benefits) than comparable private-sector workers.” POGO calculated the federal and private sector compensation gap to be 20 percent, but we emphasized that no one will really know the truth until uniform systems are created and apples-to-apples comparisons are conducted that factor in comparable skills, work experience, education, and other non-pay factors.

The debate is important for the limited purpose of complying with the Federal Employee Pay Comparability Act of 1990. However, if the prevailing attitude is, as Heritage has proclaimed (see p. 16), that the private sector is cheaper than the public sector, and therefore we should “Hire More Private Contractors,” then GAO’s time and energy was wasted.

A comparison of federal and private sector pay doesn’t do anything to help contribute to the government’s decisions to insource or outsource work. While there are relevant policy concerns related to the 2.1 million civilian federal employees (who cost $200 billion in fiscal year 2011), there are more concerns with the unknown number of service contractor employees, who cost about $120 billion more.

Procurement after the end of corruption

Kenya, Procurement laws an obstacle, protests PM
Prime Minister Raila Odinga criticized the current procurement laws, saying that were imposed by the World Bank and the International Monetary Fund to curb financial irregularities at a time when corruption was rife in the country, and hence have outlived their intended purpose.

“We need to review these procurement rules as they may not be in the interest of the country at the moment because they were introduced as conditionality to cut down on corrupt practices” he said.

Odinga was speaking during a forum on low absorption and implementation capacity among government Ministries, Departments and Agencies (MDAs).

The low utilization of budgeted funds impacted negatively on donor funded programmes and projects, he added, putting more of a burden on the government that has to repay the loans with interest. Under-absorption, he said, was being fuelled by failure of ministries to plan funds ahead of the budget, which was evident in the amount of government projects that failed to materialize within the expected timeframes.

Yes, now that corruption is solved, simply plan the budget and then spend away, and make sure you spend it all.

Thursday, July 19, 2012

Canada opting to centralize some defense procurement processes?

Ottawa eyes plan to loosen DND’s grip on military procurement (NB: filed by the Globe and Mail under "politics")
The Harper government, eager to fix Canada’s chronically dysfunctional system for buying military equipment, is considering changes that would strip the Department of National Defence of significant responsibility in steering major purchases. Ottawa has considered the notion of a standalone central purchasing agency but judged it too onerous. There’s no support among the Harper cabinet for creating an arm’s-length entity, sources say.

One option under serious study is the creation of a permanent secretariat, reporting to the Department of Public Works, that would take responsibility for all major military procurements above a certain dollar value, a Department of National Defence source said. It would also represent an important reduction in DND’s traditional role in drawing up specifications for big expenditures: in effect, the designing and selecting of the options for purchase.

In military procurements, DND is responsible for taking a required purchase and developing the specifications for precisely what features are needed. This can be a lengthy process, partly because regular turnover among project managers at National Defence means the task of drawing up specifications ends up being restarted more than once.

National Defence’s involvement more often than not results in the department picking the supplier before a competition has been held. That’s because it draws up specifications that can be met by only one product – the one it likes best.

Under the proposed new system for major purchases, the Defence Department would tell the secretariat what its requirements are. But it would hand responsibility for generating the options and specifications to Public Works.

At the end of the process, the new procurement secretariat would return to the Minister of National Defence and unveil the options for purchasing before launching a competition for suppliers. The military would still have the final say on whether the options put forward meet its requirements, but National Defence would no longer be able to tailor the specifications to a particular supplier’s vehicle, equipment, vessel or plane.

A big embarrassment for DND last week – when the Harper government shut down a project to buy new army trucks because National Defence was trying to spend as much as 86 per cent more than authorized on the vehicles – is being held up as the last straw by procurement reformers.
The article is also interesting for some of its observations on similar approaches in Australia. And contrast that philosophy with the partial (?) privatisation of procurement contemplated in the UK.

Further reading on this subject:

Army trucks project cancelled after DND added $300 million to price tag without permission
The Defence Department had received government approval in 2009 to move forward with the $430 million purchase of 1,500 off-the-shelf medium-sized trucks. But in subsequent years department and military officials began adding more capabilities to what they wanted in the vehicles, bumping the estimated cost to between $730 million and $800 million.
Army trucks project canned due to $300M cost overrun
The cancellation is not fair to contractors who invested time and money into the bid preparations, NDP defence critic Jack Harris argued. He said taxpayers are too often kept in the dark about the ballooning costs of military purchases.
Read that last remark carefully. The contractors were not kept in the dark; the taxpayers were.

Wednesday, July 18, 2012

Races are judged by first over the line, beauty contests by ... what?

I've just read this article, written by an immigration lawyer:
Why Value Procurement Is Critical to I-9 Compliance.
So now its your turn. Go read it, too. We'll discuss.

The premise is this assertion:
In the world of procuring goods or services, there is an ongoing debate between value procurement versus price procurement. As applied to the field of I-9 compliance though, this critical debate can mean the difference between exposure to hundreds of thousands of dollars in fines and other risks or reducing overall I-9 non-compliance risks.

Focusing on a vendor’s price offerings as the primary motivation, at the expense of a thorough vetting of a vendor, can lead to expensive lessons learned. This is where proponents of value procurement argue that organizations will get a better return on investment when value (rather than price) is the central focus during procurement. Value is “a fair return or equivalent in goods, service, or money for something exchanged.”

For example, if the procurement process was fixated on a low price, important considerations to determine what value the service/product will bring to the organization will be completely eclipsed. A vendor could fail on all counts (below) yet still survive a Request for Proposal due to its low price. While some might call this approach “penny wise pound foolish,” the results, as described in the Minnesota State example, can be costlier in the long run.

That Minnesota State example is briefed this way:
Minnesota State Colleges and Universities procurement process for an I-9 vendor back in 2009 which ultimately led to a security breach of employee I-9 records on the internet. After a formal review by the Minnesota State Office of the Legislative Auditor, it was determined that Minnesota State lacked a formalized I-9 vendor review process. According to the report, Minnesota State had selected its I-9 vendor overwhelmingly because the low price offered by the I-9 vendor, which was four to five times lower than competing vendors’ prices, and because the I-9 vendor waived “set-up” fees. The Office of the Legislative Auditor also determined there was a lack of a meaningful assessment of the I-9 vendor’s security claims made in its marketing materials and no meaningful review of contract provisions to safeguard encrypted data provided by the Minnesota State to the I-9 vendor.

I very readily accept the author's point that different races require different measures of success. But, the more you move away from objective criteria, the more you find beauty in the eye of the beholder, not in the thing beheld. The more you move to the "value" end of the spectrum, the more oversight and critical review you must allow to avoid the appearance of favoritism in the discretion used.

The author framed the whole "debate" as a simple matter of "price" vs. "value". In fact, even in a competitive price model of source selection, "price" is the very last consideration.

In competitive sealed bidding, there are three equally important factors: responsiveness to the bid specification, the responsibility of the bidder, and then price. The Minnesota example, based on the information provided, failed on the first two counts, and was suspect on the last.

It is unclear that the State's specifications were sufficient to separate wheat from chaff, or if they were, whether the evaluators bothered to confirm the bid against the specifications. It is more clear that the State failed to conduct the inquiry into responsibility that is required, including an inquiry into past performance: we're told the State "lacked a formalized I-9 vendor review process".

Finally, we're told "the low price offered by the I-9 vendor ... was four to five times lower than competing vendors’ prices". That certainly should have waved red flags.

It is not simply a low bid that is required, it is a low bid that is both fair and reasonable. The State simply did not do its market research to determine what the going rate was.


On this last point, see the following:
The price is not always right

When low bidding raises question of bribery

Kroll Global Fraud Report - detecting a climate of procurement fraud

The example provided speaks to the failure of the competitive bid process, not to the benefit of the "best value" approach.

UK considers outsourcing defense procurement

What's the difference between PPP and GoCo? Or ENDPB/SP for that matter?

None, really. They all try to insulate government employees from accountability and politicians from hard decisions about intractable bureaucracy, interest groups, and policy. They all reflect either an inability or unwillingness to properly manage, top to bottom.

And the more acronyms thrown at a subject, the more obvious the struggle to hide something, such as, the inability to frame the issue clearly.

Yes, Sir Hammond Humphrey?

MoD set to opt for GoCo model for Defence Equipment & Support
The Ministry of Defence (MoD) is expected to choose a "government owned, contractor operated" (GoCo) organisation as its preferred type of model for the military procurement organisation Defence Equipment & Support (DE&S) to drive better value from the defence budget.

It follows a statement by defence secretary Philip Hammond in the House of Commons on the various merits of the GoCo and Executive non-departmental public body with a strategic partner from the private sector (ENDPB/SP) models.

"This is essential to tackle the legacy problems in defence acquisition that led to cost and schedule overruns, and which have resisted previous reform. The people at DE&S work hard to provide battle-winning equipment, support and logistics, but the current system does not work for them, does not always support them, and is not delivering value for money for the taxpayer.

Over the last year, said Hammond, Bernard Gray, the chief of defence materiel, has analysed the root causes of the current situation and identified three interlinked issues. These are a historically overheated equipment programme, where far more projects were planned than could be paid for; a weak interface between DE&S and the wider MoD with poor discipline and change control between those setting requirements for equipment and those delivering the programmes; and insufficient levels of business capability at DE&S for the scale and complexity of the portfolio it is asked to deliver.

The result, he said, has been significant additional costs in the defence budget of hundreds of millions of pounds each year, with money spent managing the consequences of delay rather than delivering maximum capability for the armed forces.

"The MoD is now engaged in a process of transformation to deliver the behaviour-changing incentives and structures that will maintain the budget in balance in the future. The restructuring of DE&S is key to this process," said Hammond.

"Earlier this year, I therefore asked my officials to focus their efforts on considering the comparative benefits which could be derived from changing DE&S into either an ENDPB/SP, or a GoCo entity."

Privately run MoD procurement 'could harm accountability'
Shadow defence minister Alison Seabeck said ministerial accountability and public transparency were vital on defence decisions involving "billions of taxpayer pounds", decisions which were also "central to the strength of frontline forces".

She warned proposals could "weaken accountability and ministers have important questions to answer". "We must have evidence to support any decision made and must know who is responsible for delivery of contracts to time and cost," she said.

"The problems we have seen in relation to G4S cannot be repeated when dealing with our armed forces."

U. of I.'s C. of I.

When it comes down to conflicts of interests, in regimes with fairly effective enforcement regimes, the most critical element is the appearance of impropriety. To avoid the build up of distrust in the integrity of the system, not only must actual conflict be dealt with, but as important, the appearance of favoritism.

'Conflicted' contract may be rebid
Under pressure from state authorities, the University of Illinois plans to rebid a multimillion-dollar contract with BLDD Architects of Champaign because of concerns about a potential conflict of interest, Chancellor Phyllis Wise said Monday. "I don't think there was a conflict of interest," Wise told The News-Gazette on Monday.

But she added, "We will rebid it (the contract). And it will cause a significant delay in the renovation of the Natural History Building, but it probably is wise to rebid it."

At issue: Jill Maxey, UI associate director of planning in Facilities and Services, who supervises some aspects of campus construction projects, is married to Bruce Maxey, who works at BLDD and owns a 8.9 percent share of the firm. Jill Maxey is also a former BLDD employee.

The Natural History Building was initially scheduled to reopen by fall 2015, but that's already been pushed back to winter break of 2015, and any further delays mean the building wouldn't be available until the summer of 2016. The total cost of a 12-month delay would top $1.1 million, the university said.

BLDD disclosed the relationship, as required under state law. And the state's chief procurement officer for higher education, Ben Bagby, last month refused to void the contract, saying he found no evidence that the potential conflict resulted in any improper actions, documents show.

A state law that took effect in July 2010 requires that when a potential conflict of interest is identified or "reasonably suspected," the state chief procurement officer must send the contract to the Procurement Policy Board. The board then recommends whether to allow or void the contract or bid offer, "weighing the best interest of the state of Illinois."

UI officials made a determination in 2010 that notification wasn't required under its interpretation of the new law, according to testimony from a hearing in May prompted by the procurement board's vote.

Assistant Vice President Maxine Sandretto, the UI's state purchasing officer, saw the potential conflict as a "serious concern given the close relationship involved," emails show. But she consulted with the UI's legal department, which advised that the statute didn't apply to Maxey because she did not meet the salary threshold in the state procurement code.

The UI also argued that it had an internal procedure in place to prevent a conflict, as Facilities and Services had set up an informal "firewall" to remove Maxey from the decision-making process if BLDD bid on a project. Therefore, they argued, no potential conflict existed.

But the procurement board said documents and testimony from the hearing revealed several "breaches" in that firewall. Maxey recused herself once BLDD bid on the Natural History project but was later copied on several emails about the scope of the project, before a firm had been chosen.

Also, the employee that Maxey assigned the project to, Anthony Battaglia, testified that he had connections to the firm, playing in a band with some BLDD employees. His wife's brother-in-law works at the firm, documents show. Battaglia testified that he removed himself from the process after the four finalists were chosen.

Bagby conceded in his decision that the university's efforts at the firewall were "weak," adding, "The process was simply lacking." And he said the UI should have submitted the contract for review before it was signed.

Panel again votes to void U. of I. contract over conflict of interest
The two firms that had the second- and third-highest scores during the selection process both agreed to continue what BLDD started with little or no delays, records show.

An official with the firm that came in second place, Chicago-based BauerLatoza, said Tuesday she is glad the contract is getting another look. The firm fell a fraction of a percentage point below BLDD when 34 companies submitted bids in 2010. It told the procurement board that it would take two weeks and no additional costs to get caught up to speed with BLDD's design plans.

"I would like to think we could do something with those two firms that were so closely ranked that would avoid a complete and total rebid," said procurement board member Bill Black, a former Republican state representative from Danville. "I don't want to see this project delayed nine, 10 months, and I don't think we have to."

Tuesday, July 17, 2012

Gee, for that we coulda done it ourselves, yes?

If you haven't followed the G4S/Olympic security story, you can get a sense of it many places, such as in this story: London Olympics' security woes overshadow questions about how much is too much?. It's about the outsourcing of security services for the London Olympics to a company that boasts 600,000 employees but failed to get the 10,-20,000 it promised and needed for the job.

A timely warning about dogma and outsourcing
Consider what this fiasco means for the members of the armed forces, who learnt this week that thousands of army jobs are to go in the next few years, men returning from duty in Afghanistan who are now being told they must stand in where a private company has failed to fulfil a contract. The people who appear to be angriest of all are the chief constables. They, too, face the loss of thousands of staff, yet they are being asked to provide cover for a firm being handsomely paid to do a job that the police will usually do for far less.

For purposes of comparison, the nation's highest-paid policeman, the Metropolitan Police Commissioner, was paid £260,088 in 2011. The Chief of Defence Staff was paid £240,000. Mr Buckles's pay was recorded in the company's accounts as £830,000, but that does not include bonuses and extras which will have taken his total packet to around £1.2m. He is paid four times as much as the heads of the armed forces and police who must now dig his company out of this mess.

The one thing that can be said in G4S's defence is that it was originally contracted to provide 6,500 security staff, a figure that was revised upwards at the end of last year to an alarming total of 23,000. That was a massive task, but the company undertook to do it and, according to the Home Secretary, Theresa May, gave no warning until 11 July that it was in difficulty.

Mr Buckles told MPs that he did not know until 3 July. As recently as 6 July, G4S's account manager for the Games, Ian Horseman-Sewell, told Reuters that the firm would be able to handle an event in Australia at the same time as guarding the Olympics.

A bigger political question is about outsourcing, under which private companies are hired to perform tasks previously undertaken by the State in the belief that they will do a better job. There certainly are circumstances in which private firms subject to market discipline outperform agencies of the State – but this has not been one of them. It provides a salutary warning to those who hold an ideological conviction that private is necessarily good, and public necessarily bad.

Finally, there is the question of G4S's £57m fee. "Even after all that has happened, you still want to claim the management fee? I find that astonishing," the Home Affairs Committee chairman, Keith Vaz, exclaimed yesterday. Mr Buckles responded that he did.

Sunday, July 15, 2012

US Iraq Reconstruction payments ok, but payment for what?

A large amount of money is at risk all along the procurement trail from the time a "need" is identified to the time it is exhausted by consumption of the goods or services procured. Strict budgeting, planning and management controls are needed to make sure the need is indeed that and properly identified. Competitive oversight via effective protest systems give real time policing of the solicitation process. And accounting and auditing work are meant to control the delivery and payments functions of the contract administration end of the procurement lifecycle.

This is a tale of that last aspect of procurement.

Final Forensic Audit Report of Iraq Reconstruction Funds (SIGIR-12-017)
Public Law 108-106, as amended, requires the Special Inspector General for Iraq Reconstruction (SIGIR) to perform forensic audits and issue a final report on all funding appropriated for the relief and reconstruction of Iraq. A forensic audit involves the systematic examination of a program’s internal controls over expenditures and financial data for indications of fraudulent, wasteful, or abusive activities.

This report summarizes the results of SIGIR’s forensic audits and investigations of Iraq reconstruction funds and satisfies the requirement for a final forensic audit report.

SIGIR audits, inspections, and investigations have found serious weaknesses in the government’s controls over Iraq reconstruction funds that put billions of American taxpayer dollars at risk of waste and misappropriation. The precise amount lost to fraud and waste can never be known, but SIGIR believes it is significant. As of June 30, 2012, SIGIR audit reports had questioned $635.8 million in costs, and SIGIR Investigations, working with other agencies, had resulted in $176.84 million in fines, forfeitures, and other monetary results.

SIGIR found few problems in the agencies’ invoice payment processes. SIGIR tested 180,000 DoD Department of Defense), DoS (Department of State) and USAID payment transactions totaling about $40 billion. SIGIR looked for problem transactions such as duplicate payments, payments to fictitious vendors, or inappropriate separation of duties of individuals in the payment process. Overall, SIGIR’s tests found that once invoices were approved for payment, the payments were essentially processed correctly and to valid vendors.

However, because of the internal control weaknesses, government agencies cannot be certain that the payments were for goods and services that (1) were actually received, (2) met contractual specifications, (3) were in accordance with the contract prices, or (4) were competitively priced.

SIGIR audit reports identified internal control weaknesses such as inadequate reviews of contractors’ invoices, insufficient numbers of, or inadequately trained oversight staff, poor inventory controls, high staff turnover, poor recordkeeping, insufficient price competition by subcontractors, and weak oversight of cash disbursements.

For example, SIGIR’s audit of a DoS contract for Iraqi police training program support found that more than $2.5 billion in U.S. funds was vulnerable to fraud and waste as a result of poor DoS oversight. Another SIGIR audit of a DoD contract for warehousing and distribution services found that the contractor’s business systems had not been adequately reviewed. Business system reviews are the government’s primary control to ensure that prices paid are reasonable and allowable.

Weaknesses in internal controls open the door to opportunities for fraud and other illegal activities. As of June 30, 2012, SIGIR investigators, working with other agencies’ investigators, have developed information used to indict 87 individuals and convict 71 individuals for fraudulent activities including bribery, kick-backs, theft of government funds and property, inflated invoices, delivery of insufficient or inferior goods, and bid rigging.

For example, a U.S. Army Captain was convicted of stealing $690,000 intended for security contracts and relief and reconstruction programs. A regional vice president of a logistics company was convicted of a scheme to inflate invoices for military shipments to Baghdad through the firm’s contract. The estimated loss to the U.S. government was approximately $1 million.

Read the full report at the link.

Wednesday, July 11, 2012

Prof. Danielle M. Conway to feature at Guam Procurement Conference

Procurement Seminars featuring Professor Danielle M. Conway will be held on Monday, July 23, and Tuesday July 24, 2012, at the Guam Hyatt Regency on Tumon Bay. The Monday seminar is presented by the Guam Chamber of Commerce, and the Guam Procurement Advisory Council will present the Tuesday seminar. The Bank of Hawaii is sponsoring the events, and the Guam Judiciary, the U.S. District Court of Guam and Guam Bar Association are cooperating in bringing the presentations to Guam.

Professor Conway is the author of “State and Local Government Procurement”, recently published by the American Bar Association. She is the Michael J. Marks Distinguished Professor of Business Law and director of the University of Hawai’i Procurement Institute at the William S. Richardson School of Law, Honolulu.

The July 23 seminar begins at 9 a.m., with registrations starting at 8:30. The morning session covers procurement planning and needs assessment, market research, and translating needs and research into effective specifications. During lunch there is a panel discussion of construction specialists discussing procurement tips gleaned from construction projects on Guam and around the region. The afternoon session covers best practices in contract administration and models of procurement for infrastructure construction, along with an open Q&A time. The cost of the program is $110, which includes lunch.

The July 24 seminar begins at 1:30 p.m. with registration at 1:00 p.m., and goes to 5:30. All panels will be led by former U.S. District Court Chief Judge John Unpingco, Chair of the new Guam Procurement Advisory Council, and joined by Prof. Conway and others. The panels will cover procurement ethics for government and private sector participants, contract law basics for procurement staff, and Hawaii’s experience with its Procurement Institute and Procurement Advisory Council, with tips and lessons for Guam. The cost of this program is $65.

While this program is geared toward staff and participants in the procurement process, both private and government, it will be relevant and valuable for educators, managers, advisors, policy makers and others. Lawyers may earn up to 10.5 hours of CLE, including 2 hours of ethics.

To sign up, persons should contact the Guam Chamber of Commerce at 472-6311/8001 or email the office at info@guamchamber.com.gu. Lawyers who have questions about CLE should call GBA's Executive Director's Office on 475-3396. General questions about the program can be addressed to John Thos. Brown, Chair of the Procurement Committee of the Guam Chamber of Commerce, on 477-7293.

Procurement controversies -- Switzerland

Swiss officials sidestep procurement law: report
Any public contract worth more than 230,000 francs ($234,960) must first be put out for tender. In 2011, the administration signed off on an average of one such contract every day without requesting any bids, newspaper Tages Anzeiger reported.

Last year, the total value of contracts above the 230,000-franc threshold that were awarded by the administration without bids amounted to almost 376 million francs ($384.1 million), the newspaper revealed.

The newspaper found that the Department of Defence had actually reduced the number of contracts over the threshold to 27 million francs ($ 27.5 million), a quarter of the total two years earlier. A spokeswoman said this was due partially to the introduction of clear guidelines but also periodic inspections.

Not all of these awards are a bad thing, lawyer Christoph Jäger told the newspaper.
“There are cases in which a direct award is in absolute conformity with the law and in addition is cheaper," he said.

Nevertheless, Jäger explained that tenders have positive effects, not only because they limit the opportunities for corruption, but also because those entering into them often offer better prices.

Sunday, July 8, 2012

Skirting the evaluation process

One of the rules of procurement engagement is that the government evaluators be free of influence, and only evaluate bids and proposals on the basis of the submissions.

That process is undermined, and the integrity of the system compromised, when competitors attempt to influence the evaluation. I consider that to be a capital offense, requiring the offending competitor's bid to be thrown out. It should also be grounds for suspension or disbarment.

Consider this from an article from India:

NATO ‘letter missiles’ target American Seahawk copter; European consortium writes to Antony against rival US firm
Over $1-billion Indian naval deal for 16 multi-role helicopters is being dragged into a controversy by a European consortium by taking an unusual step of “directly writing” to Defence Minister AK Antony sometime back against its American rival.

The Tribune has accessed the copy of a confidential letter written to Defence Minister AK Antony by NHI’s managing director D Vaccari, who has claimed that Sikorsky’s S-70B helicopter could not have cleared the recently concluded field evaluation trials, at least, in eight specific areas, had the naval staff requirements been strictly examined and adhered to.

it also wrote to the Defence Secretary in December 2011. The defence and naval authorities are reportedly upset over these “letter missiles”. The NHI has charged that “Sikorsky has made doubtful claims about its machine’s compliance”.

The NHI claims that it wrote to Antony as it did not receive any response to an earlier letter sent by its senior vice-president G Saponaro to Defence Secretary SK Sharma on December 15, 2011.

When this correspondent contacted Seahawk manufacturer for a reaction on the NHI allegations, Subir Moitra, director, communications, United Technologies Corporation, India, e-mailed back to say: “We had a discussion internally...We have decided not to make any comment on this matter.”

Sources familiar with the global functioning of the UTC-Sikorsky, said as a policy, they do not comment on competitor-related issues as they believe that it is against their code of ethics and that they believe in buyer country’s technical evaluation and procurement process.

The appropriate time and manner to contest the responsiveness of a competitor's product is in the formal protest process. The method evidently undertaken here smacks of trying to influence the judge outside the courtroom.

Wednesday, July 4, 2012

Fines for procurement violations

First, in the private sector, fines for procurement violations, at least in the following case, could also be characterized as imposition of liquidated damages. But as the other cases following note, in the public sector, a fine is a penalty paid by the contracting agency. The Public Purse has many pockets, and lifting money from one for another does have real world effects.

Tesco fines suppliers for late deliveries
Retail giant Tesco has imposed a new system of fines on its suppliers for missed or late deliveries which are causing shortages at depots and costing millions in missed sales.

In a letter seen by The Grocer, Tesco has started to charge its suppliers £10 for every case of goods that was either late or missing. According to the retailer its top 40 suppliers had failed to deliver more than £6.2m cases which in lost sales opportunities had cost it £50m.

Suppliers responded to the news, accusing Tesco of acting unfairly and saying that the action could cause some suppliers to go out of business. One supplier told The Grocer, “The sort of sums involved are enough to take a small company down... This sort of approach totally alienates the supply base and it’s going on across the board.

A spokesman for Tesco, responded by saying that the retailer’s approach was commensurate with the problem. “They [the charges] represent reasonable and legitimate compensation due from suppliers for not meeting their contractual obligations,” said a spokesman for Tesco. “The terms are set out in the contractual documentation agreed up front.”

In the public sector context, I have not seen this before. Live and learn:

Demands for three county transport undertakings to pay procurement fines
“There is a justified requirement for business-like behaviour, sound long-term planning and knowledge of the applicable rules and regulations when dealing with large sums of taxpayers’ money. When contracting entities, such as those concerned in these cases, are lacking in these respects and completely fail to subject substantial contracts to competition, there are no guarantees that taxpayers’ money is being used efficiently,” explains Dan Sjöblom, Director-General of the Swedish Competition Authority. The Competition Authority considers that this is serious and urges all those responsible for allocating resources to the procurement function at local and central government authorities to attribute sufficient strategic importance to these functions.
Fines for the Swedish Armed Forces following improper procurement
In an application to the administrative court, the Swedish Competition Authority has demanded that the Swedish Armed Forces pay SEK 270,000 in procurement fines following an illegal direct award of contracts for certain advertising services. Stockholm Administrative Court has now adopted the line of the Competition Authority and has sentenced the Armed Forces to pay the fines sought.

It is now possible for the Competition Authority to present demands requesting an administrative court to impose fines in the event of a breach of the rules. This was achieved in this case.

“I am pleased that the administrative court has taken the line of the Swedish Competition Authority. The procurement rules exist as a guarantee that taxpayers’ money is used in the best and most efficient way possible,” comments Dan Sjöblom, Director-General of the Competition Authority.

“It is good that the new rules and regulations may curb the making of routine contract calls on former suppliers and that such illegal conduct may have repercussions for the authority concerned.”
Norwegian Complaints Board for Public Procurement fines the Oppegard municipality for direct procurement of medical services

Public procurement (Sweden): The Swedish Coast Guard fined for improper procurement
According to the Swedish Procurement Act procurement fines shall not exceed ten percent of the contract value. However, the Court held as an aggravating circumstance that the SCG previously had committed similar errors in its procurement processes. For this reason, in accordance with the SCA´s claim, the Court established procurement fines amounting to SEK 35,000, over nine percent of the contract value. Source: Swedish Competition Authority Press Release 17/02/2012
Martineau: A Guide To The European Public Procurement Rules Note: this is truncated and out of context, so go to the link.
Where the remedy of ineffectiveness is applied the court must also impose a fine. Where a declaration of ineffectiveness is not made for certain specified reasons the court must order that the duration of the contract be shortened and/or impose a fine.

Grounds for ineffectiveness
The three grounds on which a declaration of ineffectiveness may be based are as follows.
Ground 1: Award of a contract without publication of a contract notice where the Regulations require publication
Ground 2: Breach of standstill or suspension provisions
Ground 3: Framework agreements and dynamic purchasing systems

It should be noted than even if “overriding reasons relating to a general interest“ are found to exist, and the contract cannot therefore be declared ineffective, the court must still shorten the duration of the contract and/or impose a fine as described below.

Fines and shortening of the contract duration: If the court makes a declaration of ineffectiveness it must also order the contracting authority to pay a fine. If the court does not make a declaration of ineffectiveness because: (a) although one of the grounds for ineffectiveness exists, there are “overriding reasons relating to a general interest“; or (b) the court finds a breach of the standstill or suspension provisions but no ground for ineffectiveness is raised or the court is not satisfied that one of the grounds applies; then the court must either impose a fine and/or shorten the duration of the contract.

The penalties that the court imposes must be “effective, proportionate and dissuasive”. The court must look at all the relevant factors but is specifically required to take into account the seriousness of the breach, the behaviour of the contracting authority and, if the contract still remains in force, the extent to which it does so.

Control test for Disadvantaged Business Enterprise

Powerhouse minority contractor ousted from government program
Grady Excavating gained DBE (Disadvantaged Business Enterprise) status because the dump-trucking company was run by a woman, Kim Grady. Some of the qualifications for the program are that businesses must be small and owned by a minority or a woman. The goals of the program are to remedy past and current discrimination against disadvantaged groups by giving DBE’s an advantage in landing work on large government jobs. A certain percentage of DBE’s must be hired to work on any highway project funded with federal dollars.

Now the small state agency that certifies DBE’s, the Office of Minority and Women’s Business Enterprises (OMWBE), has removed Grady Excavating from the program. According to the agency’s new director, Chris Liu, OMWBE’s Certification Committee ruled Kim Grady cannot be considered economically disadvantaged and does not meet the standards of the program as per the federal regulation known as 49 CFR 26.71 (f). That regulation states a DBE owner must “actually exercise control over the firm’s operations, management, and policy.” In other words, Kim Grady is not the person who is actually in charge.

In the continuing investigation "Fraud on the Job," the KING 5 Investigators exposed in May that the original paperwork submitted to the state by Grady Excavating for DBE certification looked suspicious. Kim Grady was listed as the owner in charge of it all: operations, bidding, and purchasing multi-million dollar trucks. Yet her resume featured no trucking or construction experience. Another requirement to be a certified DBE is that the woman or minority owner must have enough experience and expertise in the field to make critical business decisions and to control the day-to-day operations and management of the company.

Kim Grady’s resume listed working at Nordstrom, LA Sun and Ski Tours and Pacific Food Service.

But Kim’s husband, Joe Grady, has years of experience in the industry. He’s an engineer and seasoned project manager for Mukilteo-based KLB Construction, which is a multi-million dollar general contracting company.

Upon applying in 2008, the OMWBE investigator assigned to the case advised that Grady Excavating was not eligible for DBE certification.

“It was clearly an attempt by a married couple trying to subvert the system," said former OMWBE employee Jenais Radabaugh. “(Kim's resume) was laughable. I thought it was obvious that this person was starting a dump trucking business because her husband had expertise in contracting business in the state."

Despite her recommendation, her supervisor, former OMWBE manager Juan Huey-Ray, allowed the company to be certified. Since that time Grady Excavating has been awarded $40 million in government contracts.

Grady Excavating has the opportunity to appeal the decision to the U.S. Department of Transportation.

Tuesday, July 3, 2012

If not centralization, at least uniformity: Australia

The rules of public buying have changed
The old guidelines applied to all Financial Management and Accountability Act agencies and to certain Commonwealth Authorities and Companies Act bodies.
Since those guidelines were introduced, the Finance Department has noted that a ''wide range of procurement approaches'' have been used across agencies. This has proven both complex and unwieldy. A lack of clarity in the guidelines resulted in the use of different practices across otherwise similar procurements.

The Finance Department recently revised the Commonwealth Procurement Guidelines. The Commonwealth Procurement Rules, which replace the guidelines, came into effect this week, on July 1.

These new rules are intended to update and clarify the old guidelines, and streamline procurement procedures for Commonwealth agencies. The rules also focus on whole-of-government arrangements, notably coordinated procurement. While the core framework remains largely unchanged, the rules clarify requirements for the conduct of agency procurements.

The rules emphasise that agencies must use whole-of-government coordinated procurement panels where they exist. Exemptions to using these panels are limited

Finance has changed the terms that the guidelines used to describe methods of procurement, from ''select tender'' to ''pre-qualified tender'', and from ''direct source'' to ''limited tender'' (the term ''open tender'' remains unchanged). The new terms are also defined in more detail and align with the emphasis on value for money and ''economical'' use of Commonwealth resources.

Officials must maintain appropriate documentation for each procurement and retain those documents in accordance with the Archives Act. Agencies must also have appropriate documentation with the supplier (such as a contract).
All contracts and amendments must be reported on AusTender within 42 days of entering into (or amending) contracts if they are worth $10,000 or more for FMA Act agencies. All standing offers, regardless of value, must be reported.


The rules specify that the request documentation ''must include a complete description of the procurement, the conditions for participation, the minimum form and content requirements and all evaluation criteria'' (paragraph 10.6). Thus, it will not be possible to ''hide'' evaluation criteria or develop criteria during the evaluation process.
This is supported by the requirement in paragraph 10.8 that agencies must ensure that tenderers are dealt with fairly and in a non-discriminatory manner.

The shift in emphasis from guidelines to rules suggests the government is serious about maintaining its reputation as a ''respected, transparent and accountable procurer''.

Read more at article link above.