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Thursday, February 28, 2013

Hawaii proposes legislation to consider past performance of bidder

This is the link to the article that is the subject of this post, followed by excerpts. As usual, read the whole article to learn more: Bill to Change Building Code Moves Ahead
HB 1374, introduced by House Finance Committee Vice Chairman Aaron Ling Johansen, R-Moanalua, would add a mechanism to the procurement code to consider whether a company previously completed projects that had significant delays or cost overruns.

“The usual principle of awarding contracts to the lowest bidder may lead to substandard work, because contractors may artificially lower bids to gain a contract, in spite of a lack of qualifications or worse a record of poor performance in the past,” the bill’s introductory language said.

the bill passed through the House Finance Committee unamended with unanimous support.

State procurement code is relatively strict in dictating which factors government officials may or may not consider when it comes to awarding contracts, Corporation Counsel Lincoln Ashida said.

Finance Director Nancy Crawford disagreed that the procurement code prohibits government officials from looking at a company’s past performance, though. She said the county can issue a request for proposals and write broad criteria to include quality measures that the contracting company must meet.

This is interesting to me because, as with Guam, Hawaii is generally speaking a Model Procurement Code state, based on the ABA MPC. The Model Procurement Code requires bids to be issued to the lowest responsive -- and responsible -- bidder. Hawaii deviated in details but not principle from the MPC. The MPC allows responsibility to be determined after bids are opened by before the award is made final, and it cannot be given to a bidder determined not to meet the standards of responsibility.

I am not at all conversant with Hawaii procurement law, but I do note it has this code section, from which I extract this excerpt:
§103D-310 Responsibility of offerors. (a) Unless the policy board, by rules, specifies otherwise, before submitting an offer, a prospective offeror, not less than ten calendar days prior to the day designated for opening offers, shall give written notice of the intention to submit an offer to the procurement officer responsible for that particular procurement.

(b) Whether or not an intention to bid is required, the procurement officer shall determine whether the prospective offeror has the financial ability, resources, skills, capability, and business integrity necessary to perform the work.
Guam follows more closely the ABA MPC. It has also pretty much adopted in original form the MPC regulations. Guam's version already requires that past performance be considered before a bidder passes the standards of responsibility test, not before it even bids. Its regulation is, in excerpted part, as follows:
2 GAR §3116. Responsibility of Bidders and Offerors.
(b)(2) Standards of Responsibility.
  (A). Standards. Factors to be considered in determining whether the standard of responsibility has been met include whether a prospective contractor has:
    (ii) a satisfactory record of performance;
  (B) Information Pertaining to Responsibility. The prospective contractor shall supply information requested by the Procurement Officer concerning the responsibility of such contractor. If such contractor fails to supply the requested information, the Procurement Officer shall base the determination of responsibility upon any available information or may find the prospective contractor nonresponsible if such failure is unreasonable.

 (4) Duty Concerning Responsibility. Before awarding a contract, the Procurement Officer must be satisfied that the prospective contractor is responsible.
I'm reminded of the lament of the authors of the ABA MPC, found in one of the comments to the code that does not immediately come to my mind, to the effect that problems with the implementation of the code is often the result of local tinkering.

Centralization, accountability key to UK procurement reform

Procurement "still needs a culture shift"
The coalition's new procurement strategy is the most coherent approach to reform yet and has resulted in savings but the government is failing to save as much as it could through centralised procurement, according to a report from the National Audit Office (NAO).

The NAO said that since 2010 there had been signs of good progress in key areas, such as expenditure on common goods and services and participation by small and medium enterprises (SMEs). Also, the creation of a Chief Procurement Officer and other posts had formed clearer lines of responsibility and the Cabinet Office has a much firmer grip on procurement expenditure. The NAO agreed that savings had amounted to around £426m in 2011/12.

However, the report highlighted ineffective governance structures, unrealistic targets, incomplete data and weaknesses in contract management. These "operational issues" meant that the centralised approach was not releasing procurement resources in departments as originally expected.

NAO head Amyas Morse said: "The Cabinet Office will have to lead a major cultural shift across government if the centralising of buying goods and services is to deliver the significant benefits on offer.

"There are signs of real progress, but the success of the reforms cannot depend on whether departments choose to cooperate. Departments must commit as much of their procurement expenditure as possible to central contracts and the government procurement service must be held accountable for its performance."

"Two and a half years after the government committed to centralising public procurement, individual departments are still too often doing their own thing," said Jim Bligh, CBI head of public services reform. "We need to see strong leadership from the Cabinet Office to drive a culture shift across the whole of Whitehall, highlighting the benefits of bringing procurement under one roof."

Bligh added: "High quality procurement can be an important driver of growth and although the government has made some progress in using more SME suppliers, it needs to create more opportunities for smaller businesses directly and through supply chains."

Richard Bacon, a member of the public accounts committee, said the Cabinet Office was making some real progress in improving government procurement, adding that big names do not necessarily mean best value.

Monday, February 25, 2013

Buying the unknown, pricing the unknowable

This article will likely confuse most of the procurement staff in local and municipal and probably state governments. It does not fit their typical need. Most things purchased, whether supply, service or work of construction, at local levels are standard commercial products. When you don't have to invent the wheel, there is no need to re-invent it either. Keep it simple and stick to what you know.

But, when developing new products, other acquisition paradigms come into play. No one size fits all and an inflexible means of achieving the acquisition will frustrate the goal. That is my take away from the following article, which I digest below, and which itself is a review by Sandra I. Erwin of a more extensive journal article by Frank Kendall, US Under Secretary of Defense for Acquisition, Technology and Logistics titled "Use of Fixed-Price Incentive Firm (FPIF) Contracts in Development and Production". You have the links, so pick your poison.

Pentagon Acquisition Chief Warns About Misuse of 'Fixed Price' Contracts
Kendall's latest policy guidance tells procurement officials to use "appropriate" contract types. "Unfortunately, sorting this out is not always easy," Kendall writes in the March-April 2013 issue of the Defense Acquisition University journal.

A shift toward fixed-price contract began during the second half of President Obama's first term. Pentagon officials had become increasingly frustrated as too many programs got started and “we find out later on that they were unaffordable,” Kendall says in a February 2012 speech. He cites fixed-price contracting as one of several contracting trends that are embraced and rejected in cycles. In the past two decades, he says, “We have been for-or-against fixed price contracting four or five times."

Kendall's rulebook, known as Better Buying Power, has been interpreted as a mandate to avoid "cost-plus" arrangements where the government agrees upfront to pay a vendor to design a product before it has determined its final price tag.

In the article, titled, "Use of Fixed-Price Incentive Firm Contracts in Development and Production," Kendall cautions buyers that there is no simple benchmark to select a contract type. "The choice of appropriate contract types is very 'situationally' dependent," he says.

Kendall suggests that even though fixed-price contracts do relieve the government from taking on all the risk in a program, if not used properly, such deals could backfire and lead to unneeded court battles.

"Fixed firm price development tends to create situations where neither the government nor the contractor has the flexibility needed to make adjustments as they learn more about what is feasible and affordable as well as what needs to be done to achieve a design that meets requirements," he says.

A fixed-price contract is basically a government “hands off” contract, he adds. "While we can get reports and track progress, we have very little flexibility to respond to cases where the contract requirements may be particularly difficult to achieve."

Shifting the risk to contractors should not be seen as the antidote to the Defense Department's poor track record in predicting costs, Kendall notes. The average EMD (engineering, manufacturing, development) program for a major defense acquisition over the last 20 years has overrun by nearly 30 percent. "Industry can only bear so much of that risk," he says. "It is unrealistic to believe contractors will simply accept large losses. They will not. ... Industry has a finite capacity to absorb that risk and knows how to hire lawyers to help it avoid large losses."

In most cases, says Kendall, there needs to be a "fair sharing" of the risk and rewards of performance. "For good reasons, I am conservative about the use of fixed-price development, but it is appropriate in some cases."

“The government rarely knows what it wants with sufficient specificity to support reasonable fixed prices for evolving, complex or sophisticated products to be delivered years later,” charges John Chierichella, a government contracting attorney at the law firm of Sheppard, Mullin, Richter & Hampton LLP.

He predicts the “latest federal fascination with fixed prices will end like the others — badly — with delayed fielding of the products, contractors deeply damaged by inadequate cash flow, increased claims and litigation, and focused “bail outs” in which the government decides which of the wounded contractors deserves triage.”

Even without rules, procurement principles lead the way

It appears the British government is going to roll out a decentralized, electronic (telecommunications) delivery system for health services across the country. It will span government, government supported and non-government providers, if I interpret the story accurately. 

This article describes an overview of the procurement regime required for the roll-out. The part I found most interesting is the advice given to those institutions caught up in the roll-out who are not strictly liable to the procurement regulations. The advice is consistent with the American Bar Association Model Procurement Code, which Guam follows, that admonishes, stated principles must be used to both interpret and apply the procurement law.

As usual, I cut and paste and rearrange or paraphrase all or parts of the article, so refer to the source if you are truly interested in the subject.

This article is posted on the Mondaq website by the authors Paul Barton and Emily Parris of the firm Field Fisher Waterhouse, in the form of a Q&A discussion.
The government has confirmed its policy commitment to telecare and telehealth services, first, through the NHS Mandate, published on 13 November 2012, and second, through Secretary of State for Health, Jeremy Hunt's announcement that telehealth services are to be rolled out to 100,000 people during 2013. A competitive tender process will begin in the New Year through which seven "pathfinder" NHS organisations and local authorities (including Clinical Commissioning Groups) will commission telehealth products and services at no upfront cost. This is an important first step towards the 3 million lives target. Against this background, Paul Barton and Emily Parris of Field Fisher Waterhouse answer questions on the regulatory framework for the procurement of telecare and telehealth products and services.

What are public procurement rules and who must comply?

The legal framework governing procurement of goods, services and works by the public sector is multi-layered. It comprises European Directives, the national laws of EU Member States implementing those Directives, as well as principles from the EC Treaty and case law from the Court of Justice of the European Union. In the UK, the Public Contracts Regulations 2006 implement the Public Sector Directive ((2004/18/EC) into UK Law. Central government, local authorities, bodies governed by public law, as well as associations formed by any of these must comply. Registered Social Landlords including Housing Associations are considered to be bodies governed by public law and are therefore caught by the Regulations. The new Clinical Commissioning Groups (CCGs), which will assume full commissioning responsibilities from April 2013, are also in scope. All of these organisations must assess whether their particular procurement is subject to the Regulations. This will depend on what is being procured, and whether the estimated contract value is above or below the specified financial thresholds that bring the Regulations into play.

The Government Procurement Service Framework Agreement for Assistive Technologies (RM784) was recently extended and will now run until August 2013. With some 55 suppliers across six lots covering broadly, telecare, telehealth and telecoaching products and services as well as full managed services, it provides for further competitions, reverse auctions between participating suppliers, as well as call-offs direct from a catalogue provided it is possible to determine from the catalogue which supplier represents best value for money against the buyer's requirements.

What if the Regulations are not applicable?

Even if a public sector body assesses that its procurement falls wholly or partly outside the Regulations, for example, because it is covered by one of the exclusions under the Regulations, or is below the relevant financial threshold, the procurement should still be conducted in accordance with principles established under the EC Treaty (as should regulated procurements). These principles require public bodies to (i) conduct procurements in a transparent way by advertising so that the market is open to competition, (ii) treat bidders equally, so for example, allowing one bidder alone to amend its tender would infringe this principle, (iii) ensure that any requirements imposed on bidders are proportionate, and (iv) recognise products, services and equivalent standards of other EU Member States.

What if a public sector body judges that it is preferable to buy "off-framework"?

That depends on what is being procured and the estimated contract value. Assuming the relevant financial threshold is met, public procurements of supplies, works and so called "Part A" services must comply with the full regime under the Regulations; whilst "Part B" services, which include health and social care services, are subject to lighter regulation. In order to determine to which category a procurement belongs, it is important to look at what is being procured, rather than the use to which the relevant supplies, works or services are to be put. This was made clear in a case called Jobsin Internet Service v Department of Health1. In that case, the provision of a website for NHS recruitment was held to be a "Part A" computer service, rather than a "Part B" recruitment service. So for example, if a housing association wishes to procure alarm installation and monitoring services for sheltered accommodation, the fact that the alarm system is for the purposes of a social care service is not relevant.

For a mixed contract covering the procurement of supplies (for example, the alarm kit), works (installation of the kit) and other services (for example, monitoring, call centre and paramedic support), then it is essential to identify where the main value of the contract lies. If the main value lies in the services and the services include Part A and Part B health and social care services, then it is necessary to identify whether the main value lies in the Part A or Part B services.

Tuesday, February 19, 2013

When the cat's away ...

... the mice will play.

Having recently raised concern about "fast-tracked" ways around prudent procurement strictures, this news item reported on The Hawai'i Procurement Institute website begs to be repeated.

But first, this bit of background. Hull: Building the campus at Palamanui
How exciting for the UH-Hilo campus … $66 million on three separate construction projects: a new student complex; a new campus student service building for $18, million; and a new permanent Ka Haka Ula Keelikolani College of Hawaiian Language for $20 million.

I am pleased for Hilo. This project was fast tracked after Gov. Neil Abercrombie released funding in December of 2011, according to Brian Minaai, VP/UH System for Capital Improvements.

At the Jan. 9 All Campus Meeting at the University of Hawaii Center in Kealakekua, VPCC John Morton announced the $21 million low bidder on Palamanui Campus withdrew the bid and the next lowest bid is $25 million for the long-proposed Hawaii Community College-Palamanui. We do have the funding of $7.5 million from the state bond issue and $9.7 million in private funds, but it seems like the project will be unable to proceed to break ground due to the almost $8 million needed for the $25 million bid.

At this meeting President MRC Greenwood told the attendees to contact Abercrombie and the Legislature to find the rest of the funds.
Now, the news item. UH official gave work to firm that built flawed softball field
Dennis Mitsunaga, who owns Mitsunaga and Associates, said the actions of UH’s associate vice president for capital improvements, Brian Minaai, on a Hilo dormitory project Mitsunaga is involved with would have been criminal had the university not had a temporary exemption from the state’s procurement code.

Mitsunaga, a major Demo­cratic political donor and supporter of Gov. Neil Abercrombie, made the startling accusations in written testimony submitted Thursday to a Senate committee considering a bill about UH construction projects.

The measure, Senate Bill 1383, would shift procurement oversight of construction contracts from UH and return it to the Department of Accounting and General Services, which handles that responsibility for most other state agencies. The bill passed the Senate Higher Education Committee on Thursday but was killed later that day by the Senate Economic Development Committee. UH opposed the bill while the Abercrombie administration supported it.

In his written testimony in support of the bill, Mi­tsunaga said Minaai’s process for selecting consultants for nonbid projects is highly suspect and, with the exception of Mitsu­naga’s firm, said Minaai picks only friends from a pool of hundreds of qualified Hono­lulu architects and engineers. Mitsunaga said working with Minaai on the Hilo dorm has been a nightmare for his staff. He accused Minaai of ordering the replacement of two project consultants and hiring of a third one after the selection process had been completed, adding to the cost. Minaai directed Mitsu­naga’s firm to hire the third company, Palekana Permitting and Planning, to do permit processing, even though that work usually is part of the engineer or architect’s basic service and normally doesn’t involve a separate charge. Palekana’s fee for this service is $23,000.

Asked about Mitsunaga’s testimony, UH spokes­woman Lynne Waters said in a written statement that the university leadership was aware of the serious nature of some of the Mitsu­naga allegations. “Please note these accusations have not been proven,” Waters wrote. “Nevertheless, a thorough investigation of the allegations will be conducted.”

When Minaai gave the general construction contract to Kobayashi, that company subcontracted what is normally considered the general contractor’s work to Isemoto Construction, the largest contractor in Hilo, according to Mitsu­naga. By not awarding the contract directly to Isemoto, the state probably has to pay an extra $3 million to $4 million, he estimated.

Louis Kiang, formerly with a company that settled a breach-of-contract lawsuit against UH tied to its soon-to-open cancer center, said Mitsunaga’s testimony is consistent with experiences he had with Minaai. Kiang said he believes Minaai is trying to subvert procurement rules to benefit friends and patrons. “It’s deliberate,” Kiang said. “These things go beyond incompetence.”
Read more at The Hawai'i Procurement Institute web link above.

Sunday, February 17, 2013

Abnormally low vs unreasonably low bid

I have read enough cases to know that it can be reasonably expected that bidders will bid below cost, in part at least, in an aggressive tactic to win an award. This does not appear to be a matter that too terribly concerns either the government or the courts. But underbidding comes with a risk of more than lost profits on a contract.

First, if a bid is "abnormally" low, it probably should be rejected out of hand. See my post The price is not always right for a short review of that issue.

Second, at least in the UK, it may give rise to a question of bribery, depending on the wording of relevant statute(s). See this post: When low bidding raises question of bribery.

And now, we see that an "unreasonably" low bid could form the basis of a false claim under the US False Claims Act and similar laws in other jurisdictions. It is not for nought that the typical procurement law requires that bid prices be "fair and reasonable". I have, as usual, selected, chopped and rearranged and messed with rendering the case below, so you should click the link and read it yourself. I only deal with one of the issues of the case.

Nyle J. HOOPER, Plaintiff-Appellant, v. LOCKHEED MARTIN CORPORATION, United States Court of Appeals, Ninth Circuit, 688 F.3d 1037 (2012)
In his Third Amended Complaint, Hooper alleges that Lockheed violated the FCA by: (1) knowingly underbidding the contract. Hooper brings a claim under the False Claims Act ( particularly 31 U.S.C. § 3730(h)), alleging that he was wrongfully discharged in retaliation for FCA-protected activity. The FCA protects "whistle blowers" from retaliation by their employers.

The FCA was enacted "during the Civil War in response to overcharges and other abuses by defense contractors." United States ex rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.1999). The purpose of the FCA was to "[combat] widespread fraud by government contractors who were submitting inflated invoices and shipping faulty goods to the government." United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1265-66 (9th Cir.1996). To this end, the FCA creates liability for any person who, inter alia, "(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." 31 U.S.C. § 3729(a)(1).

Hooper asserts that Lockheed violated the FCA by submitting a fraudulently low bid, based on knowing underestimates of its costs, to improve its chances of winning the Air Force RSA IIA contract. Lockheed asserts that allegedly "false" estimates cannot be the basis for liability under the FCA, because an estimate is a type of opinion or prediction, and thus cannot be said to be a "false statement" within the meaning of the FCA. Specifically, Lockheed argues that "estimates of what costs might be in the future are based on inherently judgmental information, and a piece of purely judgmental information is not actionable as a false statement."

The United States filed an amicus brief, urging this court to hold that a false estimate and/or fraudulently low bid may be actionable under the FCA.

Although the issue whether FCA liability may be premised on false estimates where those false estimates were knowingly made is a matter of first impression for this court, both the First and Fourth Circuits have held that FCA liability may attach in such a situation. Their decisions rest heavily on United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943).

In Hess, the Supreme Court found contractors liable under the FCA for claims submitted by government contractors that the contractors obtained by collusive bidding. Id. at 542, 63 S.Ct. 379. Most courts have interpreted Hess to stand for the "fraud-in-the-inducement" theory of FCA liability. Accordingly, many courts, including this court, have applied the FCA to bid-rigging situations.

The Fourth Circuit held that, after the 1986 amendments to the FCA, according to Congress the FCA should be broadly construed. See id. at 786 (quoting S.Rep. No. 99-345, at 9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5274 ("`each and every claim submitted under a contract, loan guarantee, or other agreement which was originally obtained by means of false statements or other corrupt or fraudulent conduct, or in violation of any statute or applicable regulation, constitutes a false claim'") (emphasis added in case)). he Fourth Circuit reasoned that "an opinion or estimate carries with it `an implied assertion, not only that the speaker knows no facts which would preclude such an opinion, but that he does know facts which justify it.'"

As a matter of first impression, we conclude that false estimates, defined to include fraudulent underbidding in which the bid is not what the defendant actually intends to charge, can be a source of liability under the FCA, assuming that the other elements of an FCA claim are met.

Construing the facts in the light most favorable to Hooper, there is a genuine issue of material fact whether Lockheed acted either knowingly, in deliberate ignorance of the truth, or in reckless disregard of the truth when it submitted its bid for the Air Force RSA IIA contract.

Hooper demonstrated that Lockheed employees were instructed to lower their bids without regard to actual cost. Mike Allen, an employee with Lockheed, testified that the Air Force did not accept Lockheed's initial bid because it was too high. Subsequently, Allen "was simply asked [by management] to change the cost" even though the change in cost was not based on any engineering judgment. Allen also testified that, in bidding on another contract, he was told to lower the cost. When Allen told his supervisors, "We can't. This is the real cost. This is what it's going to cost, if not more," he was dismissed from the bidding contract meeting. Allen later learned that Lockheed lowered the cost by almost half and was awarded the contract. He also testified that Lockheed was dishonest in the productivity rates that it used to determine the cost for a contract.

Further, in the Air Force memorandum analysis of Lockheed's bid, the Air Force noted that Lockheed was "optimistic about some of its inputs ..., resulting in an overstated potential for cost savings." Additionally, the Air Force stated that it found Lockheed's Risk Analysis to be "unrealistic..., so the total risk is understated."

On the other hand, the Air Force stated that "[o]verall, [Lockheed] was found `realistic' for this factor." The memorandum found that Lockheed's bid provided the best overall value, even if it was possible that there were risks which might "lead to cost growth beyond target cost."

Because there is a genuine issue as to whether Lockheed had actual knowledge, deliberately ignored the truth, or acted in reckless disregard of the truth when it submitted its allegedly false bid for the RSA IIA contract, we reverse and remand to the district court. See Balint v. Carson City, 180 F.3d 1047, 1054 (9th Cir.1999) (en banc) (when reviewing a district court's grant of summary judgment, this court must not weigh the evidence or determine the truth of the matter but only determine whether there is a genuine issue for trial).

Procurement as political theatre

Well, political theatre or sport. It doesn't matter. Politics and procurement just doesn't mix well. It's a curse on both houses.

Council’s Contract Oversight: Often a Waste of Time
When it comes to oversight hearings on city contracting, the [Washington] D.C. Council sure knows how to waste time.

Every few months, the council gets roped into and riled up over some relatively low-dollar contract dispute, like the horror of having a Baltimore-based company cutting the city's grass, and spends several hours grandstanding, wandering off topic, and ultimately not resolving anything. It would be funny, except that these sideshows distract from Council's long track record of missing massive fraud and ignoring systemic problems.

The latest brouhaha occurred yesterday. It was a four-hour hearing on whether to disapprove a $12.7 million contract to turn around Ward 8's United Medical Center. Councilmember Vincent Orange is pushing his colleagues to reject the contract because he says the winning bidder—Chicago-based Huron Consulting—did not abide by the letter of the law when it switched out its Certified Business Enterprise partner after submitting its initial bid.

None of the prime contractors who bid on the contract and lost filed a protest with the city's Contract Appeals Board, nor did they bother to testify at yesterday's hearing. But still Orange says Huron's wrongdoing was so egregious that the need for redress transcends the hospital contract. Nothing short of the fate of the city's 1,200 CBE-certified companies, says Orange, is at stake.

Monsoon of scams?

It's raining scams: Chopper controversy's yet another proof of political foot-dragging on corruption
It's politics as usual. Facing graft charges in a Rs 3,546-crore chopper deal inked in 2010, the Congress says spadework for the transaction began under NDA rule. The BJP exhumes the Bofors ghost, playing up the Italian origin of the scandal-hit defence firm, Finmeccanica, whose CEO was arrested in a graft-related probe in Italy. Instead of mudslinging, both sides should focus on the problem at hand. The corruption issue that led to widespread protests in 2011 hasn't gone away. The question is, what's been done about it?

It's not enough to say India won't lose money courtesy the deal's 'integrity clause'. What about powerful people and middlemen alleged to have illegally profited? We need a thorough probe to book those found guilty, no matter how influential they may be. Sadly, foot-dragging is evident across the political board on institutional clean-ups.

Not a single systemic reform is fully up and running yet, whether to promote transparent public procurement, non-discretionary resource allocation, strict social spending audits, targeted services delivery or revamp of land acquisition norms. The CBI's autonomy remains an issue. Judicial and police reforms are pending. And UPA-II seems to think knee-jerk moratoriums on defence purchases ”in lieu of effective monitoring” suffices to bury scandal, even if the price paid is delayed modernisation of India's military.

Whether it's the prime minister or defence minister, government representatives can no longer make personal probity an alibi against failure to stem all-pervasive corruption.

Pay (your taxes) To Play

From the UK: Bidders for Government contracts must self certify that they have not been involved in tax avoidance, says Treasury
From 1 April 2013 companies bidding for Government above-threshold contracts worth more than £2 million will be obliged to self certify that they have not been involved in certain types of tax avoidance, according to a Treasury press notice.

During the selection stage of the procurement process, bidders will be asked to self certify their tax compliance "via a simple question" as to whether they have had any 'occasions of non-compliance' within a defined period - proposed to be any time in the last ten years.
Non-compliance will occur if a tax return is found to be incorrect as a consequence of HM Revenue & Customs (HMRC) successfully taking action under the new General Anti Abuse Rule (GAAR), under any targeted anti-avoidance rule (TAAR), or under the “Halifax abuse” principle. The Halifax principle applies in relation to VAT and potentially some cross-EU border direct tax planning.

There will also be non compliance if any tax return is found to be incorrect because a scheme which the supplier was involved in, and which was, or should have been, notified under the Disclosure of Tax Avoidance Scheme (DOTAS) rules, has proved to have failed or the supplier’s tax affairs have given rise to a conviction for tax related offences or to a penalty for civil fraud or evasion.

HMRC is "successful" in this context when a tax return is amended, whether following the outcome of litigation or simply by agreement between HMRC and the taxpayer.

Foreign suppliers and suppliers with tax obligations in foreign jurisdictions will be required to certify that there has not been an ‘occasion of non compliance’ in relation to the equivalent foreign tax rules.
As usual, read more at the article link above.

For another review of this subject matter by attorneys Heather Gething, Neil Warriner, Adrian Brown and Michael Hunt from the UK law firm Herbert Smith Freehills LLP, see 
Government procurement rules: tax compliance is a factor to be considered: With effect from 1 April 2013, Her Majesty's Government will use the procurement process to secure compliance with UK and foreign tax obligations.

Slovaks go for "trust me" procurement

This may be a case of the tail wagging the dog. The central European Union bureaucrats have dictated certain conditions (on a variety of matters, not just procurement) before member States are able to take advantage of the large European market and largesse of the European bureaucracy. It's not so unusual. The World Bank, International Monetary Fund, and other organizations require certain procurement strictures be in place before lending to governments. The question then becomes whether the strictures are mere structures, tolerated but not lived in.

This story also reminds me how there was a reflexive procurement adjustment in the US when it offered a "take the money and run" deal not so long ago. We saw a rush to change procurement rules around the USA, to enact "stream-lined" or "fast-track" rules meant simply to get the money out in response to the US government's ARRA stimulus funding. The devil is always in the details, and too often saintly principles are made to give way to filthy lucre.

Procurement rules changed in swift vote
ACTING in a sudden rush in mid February, the Slovak parliament – in which the governing Smer party holds an overwhelming majority – revised the country’s public procurement rules. The amendment, which cleared parliament less than 48 hours after ministers approved its wording, hit a raw nerve with opposition parties and political ethics watchdogs, who said the haste with which the changes were pushed through was unjustified and meant that proper debate was avoided.

The author of the revision, the Interior Ministry, claimed that the move was necessary to boost Slovakia’s ability to draw every possible euro from EU funds allocated up to the end of 2013. Interior Minister and senior Smer figure Robert Kaliňák insisted that the revision to the law on procurement will enable Slovakia to draw EU funds allocated for the current programming period, which ends in December this year, more effectively. While he was not able to specify how much more money would be drawn with the help of the revision he added that “in general, we’re talking €500 million at the moment”, the TASR newswire reported. “If there is such an enormous amount of money at our disposal, we’re obliged to do our utmost to make it available for the state,” Kaliňák said, as quoted by TASR.

The government argues that the so-called small fast-tracked revision will ease the administrative burden in the procurement process. The legislation introduces penalties such as a three-year ban on participation in tenders if any cheating is detected during the process of proving that all the conditions were met, according to the SITA newswire.

Under the current rules, an objection to a tender by any bidder can lead to suspension of the whole procurement process. According to Garajová, the revision will help to speed up the process for public procurers by boosting legal certainty through the institute of so-called ‘ex-ante control’ and by shortening the time taken by concentrating appeals procedures. Under the new rules, the tender process will be completed before any appeal is considered. The Office for Public Procurement (ÚVO) will then consider any appeals, after which a contract can be signed. But in a controversial further change, the ÚVO can decide that even contracts subject to appeal can be signed if they are in “the public interest”.

Critics have questioned how “the public interest” will be defined, the Sme daily reported.

Peter Kunder of Fair-Play Alliance, a political ethics watchdog, said that the proposed changes really would limit the processes which currently result in delays in signing contracts, “yet we have doubts about whether this is in line with European law”. He suggested that the revision guidelines [of the EU] do not count on ex-ante control, which makes it impossible for bidders to object to discriminatory criteria later on.

Among other changes, the ÚVO, which Kaliňák argues has long been understaffed, will be enlarged by 39 staff. He said that resources and personnel will be re-allocated from other ministries, SITA reported. Gabriel Šípoš, the head of Transparency International Slovensko, another political ethics watchdog, said that the reduction in administration, more effective appeals procedure and increase in capacity at the ÚVO should help to speed up procurement processes. But he also sees the main risks of the revision as lying in its implementation.

“Will experts be hired for the ÚVO?” ŠípoÅ¡ asked. “Will the procurers who now have much freer hands be better controlled or less politically determined when deciding on tenders?”

The government’s revision means there is more chance that an honest procurer will get better value for money than is the case now, “but at the same time it also increases the risk that cronyism will put down roots more easily”, ŠípoÅ¡ said, adding that “the quality of procurement will thus depend even more on the political culture and standards of the ruling power”.

Garajová said that concerns about the amendment opening up space for corruption are unjustified. The changes that are being proposed do not interfere in the selection of bidders or the course of the competition in a way that would create room for anything other then legal decisions, Garajová told The Slovak Spectator.
While we're in that part of the world, see too this article on new developments in Romanian procurement:
New rules for public procurement in Romania
It comes with a caveat:
"It remains to be seen how these amendments will be implemented in practice and how quickly the competent surveillance authorities or the contracting authorities will be able to comply with these new requirements."

Friday, February 8, 2013

Sole sourcing can come in bundles

This is another report on the Lexicology online service from the informative and insightful guys, Anatoly M. Darov and Timothy J. Famulare at the law firm Burns & Levinson LLP.

The [Massachusetts Attorney General's] Bid Protest Unit addressed another protest in a line of recent “bundling” protests arising from pavement management services in the town of Kingston.

Pavement Maintenance Systems, Inc. (“PMS”) challenged Kinston’s latest procurement for roadway surface restoration services. In 2002, the town solicited bids for surface restoration seeking one contractor to perform three services: (1) infrared patching of utility and large pavement cuts, (2) small crack filling, and (3) “restorative sealing” of entire roadways. Subcontracting was not permitted, and the contractor had to have five years experience with all three services.

Felix Marino Co., Inc. was the only contractor that could meet the experience requirements and provide all three services, and, in fact, had developed the “restorative sealing” process. PMS challenged the award to Felix Marino in 2002, arguing that the three services are unrelated and should not have been bundled. The Massachusetts Appeals Court rejected this argument in a 2004 decision.

In its 2012 protest, PMS presented unrebutted evidence that the town has never used the restorative sealing process and has used the crack-filling process only twice; that Felix Marino charges the town twice as much for the infrared patching services as it does in towns where there is competition; and that these three processes would never actually be provided at the same time. The town also failed to demonstrate that working with one contractor has actually saved it any administrative costs.

The Attorney General determined that “administrative ease” is not a rational basis to bundle the services. Further, because only one bidder could meet the experience requirement for all three services, that requirement was overly restrictive and violated G.L. c. 30, §39M(b)

For another instance of bundling found to be restrictive, see Matter of: Sigmatech, Inc., File: B-296401, Date: August 10, 2005. This is a Decision under GAO's protest procedure. The official Digest of the decision states:
Protest challenging bundling of system engineering and support services with other requirements under a single-award BPA issued under awardee’s Federal Supply Schedule contract is sustained, where agency failed to perform bundling analysis or satisfy the requirements of Federal Acquisition Regulations sections 7.107 (a), (b); 10.001(c)(2); and 19.202-1.
and
Protest challenging bundling of system engineering and support services with other requirements under a single-award blanket purchase agreement (BPA) issued under awardee’s Federal Supply Schedule contract is timely, where record does not demonstrate that protester knew of basis for protest until task orders for work, which the protester had previously performed, were issued under the BPA, and the protester filed its protest within 10 days thereafter; GAO resolves doubts regarding timeliness in favor of protesters.



Of tax breaks and bids

The following story would be a run of the mill bid protest except for one thing. The protestor had been promised significant tax breaks if it got the bid. Doesn't pass my smell test for impartiality.

Many states and towns, probably countries, offer investment and other tax breaks to encourage businesses to invest or operate in the jurisdiction. Doing that, of course, gives them a competitive leg up on other businesses, so it would be bad enough if one of the tax concession businesses bid against other bidders, it should be disallowed or the tax advantage factored out of the bid amount, otherwise they would be double dipping in the public trough; getting the tax break for bringing in it business, then costing other competitors either by way of forced lower bidding or loss of opportunity.

But when the offer of the tax break is a condition of winning a bid, it certainly will skew the contest. And it will drive out competitors. If government doesn't foster fair competition, it will not get it when they need it. Costs will rise where there is no competition.

Wisconsin-based Skyward files notice of protest over losing bid to Minnesota company
The [bid] process of soliciting and awarding the bid has been shrouded in controversy from the beginning. In March, Walker's semi-private economic development agency offered nearly $12 million in tax breaks to Skyward contingent upon it winning the bid to provide student information systems to Wisconsin's more than 440 school districts and non-district charter schools.

The day before the bids were due in June, Walker's administration said it was suspending the process because of concerns about the propriety of the offered tax breaks.

It then started the process over and hired an independent observer — former Democratic Gov. Jim Doyle attorney Cari Anne Renlund — to monitor the process. Last week, when the bid was awarded to Infinite Campus, Walker's administration released Renlund's report that found no problems.

"The procurement, evaluation, and selection processes were reasonably and appropriately geared to afford all vendors an equal opportunity to compete for this contract," Renlund wrote. "There was no bias in favor or against any bidder."

Skyward Inc., of Stevens Point, said in a statement that it had filed the protest with Gov. Scott Walker's administration, saying its bid was lower than that of the winner announced last week — Infinite Campus of Blaine, Minn. Skyward has threatened to leave Wisconsin if it loses the contract.

The company said based on its analysis of the two proposals, that its bid was $2.6 million less per year. Skyward also said that implementation costs identified by the Wisconsin Department of Public Instruction, which are the responsibility of each school district, were not considered in the evaluation.

Thursday, February 7, 2013

"Someone will be going to jail"

When the US Government passed its American Recovery and Reinvestment Act, at about the same time there was a massive uptick in local spending as the US pivoted its attention to the Central Pacific, a friend of mine noted there will be a tsunami of money coming in. The honey will attract flies. And it will have to be spent in a hurry and by people not well accustomed to monitoring the acquisition and administration of contracts in the best of times. "Someone will be going to jail", he told me. Well, his prediction may become reality if charges revealed today stick.

GWA contractor accused of filching $118K fed funding
A CONTRACTOR for the Guam Waterworks Authority is being sued in federal court for allegedly submitting false claims in order to obtain a reimbursement worth nearly $118,000 in American Recovery and Reinvestment Act funds from the U.S. Environmental Protection Agency.

A civil suit filed by the U.S. Attorney’s Office on behalf of the USEPA was filed Wednesday in District Court of Guam against GRH Technologies Construction Co. Ltd. and its first director, treasurer and company stockholder, Chen Pei Su.

According to the complaint, GRH entered into a contract with GWA in January 2009 to provide services including leak detection, pipeline, location, mapping, leak control analysis, and related training.

GRH was to complete work in three phases under the contract, and was required to “provide all leak detection equipment, and that the equipment ‘be new ... and based on the most updated state of the art technology,’ and for the equipment to be transferred to GWA at the end of the contract,” court documents state.

USEPA awarded GWA more than $2 million in ARRA funds for Phase II and part of Phase II of the GRH contract.

In June 2011, court documents state, Su submitted a reimbursement request to GRH for $117,912 related to the purchase of leak detection equipment from Great Harvest Ltd., a Taiwan-based company.
But this contract was not being administered locally. Federal funds have federal requirements and accountability that is enforced.
As part of the process, GWA reviews the reimbursement request for approval and once approved, forwards a request to USEPA for final review and approval. If approved, USEPA uses ARRA funds to complete the reimbursement to GRH.

GWA had approved and forwarded the GRH reimbursement request to USEPA which subsequently approved the request and reimbursed the $117,912 to GRH, court documents state.

However, when GWA requested Su and GRH President David Lei to provide a copy of the GRH check to Great Harvest Ltd., as well as itemized receipts, neither was able to provide such documentation.

Because GRH was unable to provide evidence of its payment to Great Harvest in the amount of $117,912 to USEPA, the government believes they submitted a false claim in order to pocket the $117,912.

The government is seeking a court judgment against GRH for “triple the damages” plus penalties per violation, or as an alternative, recovery of all payments mistakenly paid and other such costs.
It is interesting that a recent Guam Office of Public Accountancy report found that the local procurement staff proved quite effective in spending and monitoring federal funds, but woeful when it came to spending and monitoring its own funds. There's nothing like having a cop that won't look the other way standing over your shoulder.

eProcurement does not by itself make things E-OK

A couple of items "courtesy" of Lexicology, these by the lawfirm Burns & Levinson LLP and its lawyers Anatoly M. Darov and Timothy J. Famulare, reporting on actions taken by the Massachusetts Attorney General’s Bid Unit.
[In one] protest involving electronic bidding, the town of Granby used Projectdog, Inc. as its agent for electronic distribution of bid documents for the town’s new library project. BidDocs protested the procurement because Projectdog denied access to the website containing the project plans and specifications by employees of BidDocs and certain other competitors of Projectdog. The Attorney General held that the procurement violated the requirement in G.L. c. 149, §44B(1) that complete plans and specifications be made available to “each person requesting the same.” In a public bidding context, Projectdog was not allowed to determine which persons requesting copies of the bidding documents were eligible to receive them.
It is essential that private third parties who are given an procurement authority or other essential government service duty be subject to the same principles and laws applicable to the government, otherwise the government evades the spirit of the laws intended to regulate those functions. Oftentimes, government is too willing to rid itself of the expense and responsibility to provide the often unfunded mandates given them, and are willing to dump duties at any price -- to the integrity of the law.

Unless closely and critically supervised, which should allow the public the right to protest the actions of the private provider, the outsourced entity can become a bigger menace to the integrity of the system than the overburdened government. The private operator here should never have determined who could bid, and should, in my mind, be barred from providing public service for an abysmal lack of judgment, favoring personal interests over the public interest. If we expect that kind of judgment from our public servants, we should expect superior judgment from those we entrust outside the usual government accountability system.
[in the other protest] Quinn Brothers of Essex, Inc. challenged the validity of the Wakefield Municipal Gas and Light Department’s use of BidDocs Online, Inc. (“BidDocs”) as its electronic bidding agent for a headquarters renovation project. Quinn maintained that it had submitted the lowest Miscellaneous Metals sub-bid, which the Department argued that BidDocs did not receive. Based on BidDocs’ computer log and the fact that Quinn did not receive an email confirming a successful submission, Quinn could not prove that it had submitted the bid electronically. However, Quinn argued that electronic bidding does not conform to statutory requirements that bids be “publicly opened” and read “by the awarding authority.” The Attorney General determined that nothing in G.L. c. 149 prohibits a public entity from delegating to a vendor the authority to open bids. It further determined that BidDocs’ process satisfies the purpose of a “public opening” because the bids are kept secret until they are made viewable to the public online immediately after the close of bidding.
I may not quibble with the result here if there is any evidence that the legislature intended to allow outsourcing of this essential aspect of government contracting. I don't think it should be implied from a mere lack of a negative statement. If the government finds it useful to outsource essentially governmental operations, like determining who does business with the government, it is my personal view that the legislature should determine that, not the executive. For what that's worth.

Determining responsibility - how not to do it

Contracting with Criminals: Where government money is going
The Willis family is having their home renovated in order to accommodate the boys through a Medicaid Waiver Program project – which is paid for with taxpayer money. The contractor was chosen through a bid process.

Jeffrey DeVeau of CNY Custom Carpentry had the lowest bid of three applicants – for $14,400 he said he could complete the work in five to seven days.

He was paid 50 percent up front by the Onondaga County Department of Social Services in August. But six months later, the work remains incomplete.

“There were a variety of excuses, I was told the cabinets that were ordered had not been shipped. That items that were ordered were on back order, that he had something else going on - could he come at a later date,” she said.

When she tried to petition Medicaid for a new contractor, she discovered DeVeau’s criminal history:

In 2005, Jeffrey DeVeau appeared in Federal court to plead guilty for fraud. DeVeau admitted that he participated in a money scheme involving loans for heavy construction equipment. He was sentenced to pay $15 million in restitution and he spent a year in prison.

Willis wanted to know how the county could contract with a convict.

“With any contract should we be looking at it routinely to make sure that we have not made it possible for a vender who might not be on the up and up to participate in our business? Yeah, there's opportunity for that,” said Onondaga County Human Resources Director Ann Rooney.

NewsChannel 9 discovered that the county is only required to do one very simple version of a background check.

The county searches a list of people in New York State who are not allowed to receive money for Medicaid. If they’re on the list, they aren’t permitted to do the project.

If they’re not on the list, they are allowed to do the job.

The list is created by the Office of the Medicaid Inspector General in the State Department of Health.

It's a list of all of the enrolled Medicaid providers who have committed offenses or crimes related to Medicaid or health care.

Contractor Kenneth Skender of the Rochester area is on the list because his company stole $300,000 from Medicaid for home modifications it didn’t complete, according to the Attorney General's office.

DeVeau defrauded companies out of more than $15 million, but because his felonies do not relate to health care, he's not on the list and can bid on public projects.

Monica Hickey-Martin is the director of the Medicaid Fraud Control Unit at the Attorney General's office. She says the list could be changed with legislative action, but the vetting process doesn't have to stop with that exclusion list.

“Just because they're not on the exclusion list - with a conviction - doesn't mean the state or the county can't refuse to do business with them. That's always the option,” Hickey-Martin said.

The county can require applicants to pay for fingerprinting or for criminal background checks; or simply search for the contractor using Google or a similar search engine.

“I would recommend anything for program integrity for doing more checks than less. Obviously there's a resource issue and there's only so much a certain individual can do -but simple internet searches,” Hickey-Martin said.
Typically, the award should go to the lowest responsive bid and responsible bidder. The government must fully critique each aspect, not just punch a check list, if it hopes to safeguard the public purse and obtain the goods and services it needs.

See, for instance, Determination of bidder responsibility (Barr v. Town of Holliston)