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Friday, May 31, 2013

RFP to manage two nuclear weapons plants explodes

Parts of Y-12, Pantex contract protests upheld; GAO says procurement should be re-opened
The U.S. Government Accountability Office also recommended re-opening the contract procurement, raising questions about the status of the $22.8 billion contract awarded to Consolidated Nuclear Security LLC, or CNS, in January. CNS was one of three bidding teams who competed for the contract to manage and operate the Y-12 National Security Complex in Oak Ridge and Pantex Plant near Amarillo, Texas.

At the heart of the GAO decision, announced Monday, were questions about proposed savings. In particular, the agency seemed to question whether the National Nuclear Security Administration, which awarded the consolidated contract to CNS on Jan. 8, had properly evaluated the expected savings.

“NNSA failed to follow the publicly stated solicitation criteria, which provided that the agency would evaluate the feasibility and size of each offeror’s proposed cost savings resulting from the consolidation of the management and operation of these sites,” Ralph O. White, GAO managing associate general counsel for procurement law, said in a statement released Monday afternoon.

“Specifically, GAO concluded that NNSA failed to meaningfully assess the majority of each offeror’s proposed cost savings, and based its source selection decision on the unsupported assumption that all cost savings proposed by every offeror would be achieved,” White said. “The protesters raised various other protest allegations, which were denied.”

Earlier this year, federal officials said CNS had promised to help the federal government save $3.27 billion during the next decade, but many of the details would have to be announced later. The expected savings of the other two bidding teams have not been publicly disclosed.
The GAO decision is reported here.

B&W team says it’s the best choice for Y-12, Pantex contract
One of the two teams that did not win the $23 billion contract to manage and operate two nuclear weapons plants in Tennessee and Texas said newly released federal documents show it had the best bid.
And more tidbits at the last linked webpage.

Get offa my cloud

$600 million cloud computing contract protested, again
FCW has learned that IBM filed a bid protest on Feb. 26 over the major CIA contract – awarded to AWS in January – and supplemented its protest three times, with the last amended protest filed April 11. Those actions -- which are not uncommon on major contracts -- are delaying AWS' plans to build the intelligence agency a private cloud infrastructure, the full scope of which is yet unknown.

Ralph White, managing associate general counsel for procurement law at the Government Accountability Office, confirmed the bid protest to FCW, and said GAO will render a decision by June 6 – within 100 days of the filing as required by law. GAO can deny, dismiss or sustain the protest. If GAO sustains it, the CIA will have to do the procurement again.

CIA's major shift in cloud strategy – driven at least in part by the agency's embrace of big data as an intelligence tool – has been delayed before. AT&T and Microsoft protested the request-for-proposal specifications of the procurement in mid-2012.

White said GAO did not issue a decision in either of those protests because the CIA "took corrective action," pulling the procurement back in August 2012 and making changes to the bid solicitation that rendered the protests moot. It was not clear to which procurement those protests pertained.

Wednesday, May 22, 2013

Outsourcing defense procurement: an experiment

The UK is going to conduct an experiment, of sorts, with full and serious consideration being had, if not preferred, to privatize (or outsource, take your pick) the conduct of the country's defense spend.

It is a proposition, of course, that is controversial.

This article from supplymanagement.com (which provides views inside the world of government contracting as well as private sector contracting) describes the experiment.

Defence procurement outsourcing needs more examination
The Ministry of Defence (MoD) is to carry out a year-long assessment phase before eventually deciding whether to outsource defence procurement to the private sector.

In a statement to Parliament yesterday defence secretary Philip Hammond revealed the government will invite proposals from the private sector that will detail the provider’s capability and how they would operate a ‘government-owned, contractor-operated’ (GoCo) entity. In his statement, Hammond made clear he believes the GoCo option will prove preferable. “We have made no secret of our expectation that the GoCo option is likely to prove better value for money, but we need to test this assumption with the market, to see what can be delivered and at what cost.”

In parallel, it will assess a public sector comparator, described as ‘Defence Equipment & Support plus’ to decide which option provides greater value for money. Once the assessment phase has been completed, the government will decide whether to contract one of the bidding parties or to keep the purchase of military supplies - from helmets to helicopters - within the public sector.
Some consider this the Holy Grail, as in this next opinion piece by Andrew Pringle from The Telegraph.  Andrew Pringle is president of KBR’s UK defence business.  KBR provides defence work for the UK. One is reminded of Candy Rice-Davies.

It might be noted, as does the last mentioned article below, that this is a £14bn annual procurement programme. It is big bikkies, and big business, in anyone's currency.

The Ministry of Defence can get better value from the private sector
Good equipment saves lives, while failures in supply or specification can endanger or even cost them. Those on the front line do not care how it is procured, as long as they get the right equipment, in the right place, at the right time.

Yesterday’s announcement by Philip Hammond, the Defence Secretary, that private firms will be brought into the heart of the MoD’s procurement process – with the Defence Equipment and Supply organisation (DE&S) becoming, in the jargon, a government-owned, contractor-operated entity – has attracted criticism. But having been on both sides of the divide – as a commander at every level from platoon to division, and now the president of a global leader in the delivery of defence projects – I have no doubt that commercial-sector expertise could greatly enhance the way our Forces are equipped, and provide far better value for money for the taxpayer.

Lord Browne, the Government’s lead non-executive director, argued that by adopting best practice from the private sector, the country could save between 10 and 30 per cent of that total. This must start with the ethos. From the beginning to the end of the process, everyone must focus on that fundamental business concept: time is money.

Making defence procurement faster and more cost-efficient is not “privatising” or “taking over” the Civil Service. This is a model of equal partnership. It is about loosening the bureaucratic straitjacket to create the freedom for the thousands of excellent civil servants who work in the DE&S to do their job better.

How will this work? First, new skills. The existing staff are drawn from the Armed Forces, mostly with a background in operations, or the Civil Service, often with a background in policy. Their ability to run increasingly challenging acquisition programmes, on a £14 billion budget, can be enhanced by introducing individuals whose sole focus in their working life has been to extract the best deals from the supply chain and force it to deliver on time and to budget. This new partnership will level that playing field, and allow the ministry to cultivate, retain and recruit the best in the market.

The second great benefit will be private expertise in large-scale programme management. Lord Browne’s recommendations are again a good starting point. Projects must be held to a high level of scrutiny before the button is pushed, and no money should be committed without an experienced project manager and team in place.

The skills needed to run such projects translate directly into what’s required at DE&S to deliver the best possible kit to our soldiers at the best possible price. That is why this new approach may well prove a model for the world.
Others are far less sanguine, as reported in the Financial Times (you will likely need to register for a free, but limited, right to view this article, but you should always check the source, especially on this blog since I often extract, cut and rearrange and paraphrase to make a teachable moment of the item).

MoD procurement reform plan gets cool industry response
Howard Wheeldon, a veteran industry analyst, said on Thursday: “I have not heard of anybody who is in favour . . . I have not heard of one [defence] company that has put its hat in the ring.

“It still must be proven beyond all reasonable doubt that this is going to provide value for money for the taxpayer and to the armed forces and some benefit for those companies the MoD procures equipment from,” he added.

Sir Brian Burridge, vice-president of ADS, the industry trade group, said: “There needs to be a proper dialogue, a proper recognition of the legitimacy of the industry’s concerns and a proper resolution of those concerns.”

These include commercial confidentiality and intellectual property issues, especially if the job of running the Goco is given to a competitor.

However, the Royal United Services Institute, one of the UK’s most influential military think-tanks, expressed stronger doubts. “We cannot easily see how the . . . Goco would even work in practice, let alone why it would be a less expensive and better alternative to what is in place today,” it said, adding that history was littered with failed outsourcing deals.
I am supportive of this kind of experimentation.  Assuming the race is a fair one (and I question whether the defects in outsourcing this complex task will show up in only the first year), we need practical studies of the effects of the choices available to get the right balance of transparency and accountability against bang for buck and efficiency appropriate for the job.

But we cannot, in my mind, abdicate due process and public interest, especially when it comes to critical government functions and services, such as the defense of the country. We could, for instance, sell advertising space on uniforms, replacing the flag of the country for, say, a golden arches patch, and that would give us bang for buck. Sports teams do that, and it is a common private sector practice. But is that commercial model one we want for our military, our public works department, our school teachers?  

I get queasy with the thought of off-loading our governmental responsibilities to and conferring our sovereign immunity on the highest bidder, even the best value bidder. 




Friday, May 17, 2013

Paving the way for PPPs

I recently made the comment to the effect that the fundamental problem, from the public's point of view and finances, is that it cannot match wits with the private sector when it comes to complex or big infrastructure acquisitions. See Out gunned and out classed.

The following article shows an example of how a government might respond to that situation. Might. Perhaps. Please consider.

Why You Won’t Own Your Road
Cash-strapped states such as Virginia are turning to the private sector to help finance large infrastructure projects. But it may just be a way of forcing drivers to pay more in the long run.

The Virginia Transportation Department is fighting to keep afloat a $2.1 billion public-private tunnel project in the Hampton Roads region after a Portsmouth judge ruled in May that the accompanying toll hike was unconstitutional. The case will likely wind up at the Virginia Supreme Court, putting at risk the department’s ability to negotiate tolling authority with private investors, a near-essential component of public-private partnerships.

Dusty Holcombe, a 13-year veteran of the Virginia Transportation Department, had never heard of Tony Kinn, the man tapped to head the commonwealth’s newly minted Office of Transportation Public-Private Partnerships. That’s because Kinn had spent most of his career far away from government, honing marketing and business-development strategies for clients such as Macy’s, General Foods, and Procter & Gamble. Kinn’s boisterous personality, his white hair, his overstuffed frame, his mile-a-minute chatter—it all seems to clash with the bureaucratic nothingness of this public office building in downtown Richmond.

The office was the brainchild of the state’s sometimes controversial Republican governor, Bob McDonnell, who has a geek streak when it comes to transportation. McDonnell is one of the few high-level elected officials to openly declare what transportation gurus have been saying for a decade without being heard: The gas tax is an antiquated way to fund roads. Without changes, highway coffers will dwindle over time as cars become lighter and more fuel-efficient. McDonnell was pilloried from both the right and the left for his proposal to replace Virginia’s gas tax with new sales taxes, but he is to be commended for pointing out the elephant in the room. His gas-tax replacement bill became law in March.

Kinn was just the type McDonnell wanted for the job: a business-first operator who isn’t happy unless investment opportunities are moving, moving, moving. Kinn met his team for the first time at an alehouse across the street from their Richmond office. “I talked to these people, and I thought, ‘My goodness, if they just allowed these people to do their jobs, we can do just about anything we want,’ ” he says.

His attitude toward his staffers, whom he says he dearly loves, is an odd mix of contempt for government culture and awe of their individual expertise. It drives him crazy to see their ingenuity squelched in bureaucracy, and he insists they have to rise above it. “If I want the private-sector industry to play with us, then our people have to be held to a higher standard,” he says. “They have to deliver.”

Holcombe, not Kinn, is the one you can picture leafing through back issues of Public Works magazine that lie in his office’s reception area, the ones with profiles of heavy-duty excavator buckets and track-mounted crushers. Holcombe talks like this: “Our goal is to try to mature a project enough before we take it out for procurement. Get the environmental petition in place. Make sure sketch-level traffic and revenue studies are done. Make sure you’ve done your business model to define that it brings value.”

Holcombe and Cromwell, who each have decades of civil-service experience, are critical players in fashioning deals that are attractive to the private sector. They make sure permits are delivered on time and concurrently with construction plans. They navigate the matrix of federal, state, and local rules for the private companies. They schedule public meetings and contact all the stakeholders. They let the private partners in on the construction planning early so they can seek their own contracts in non-bureaucratic ways.

“You’ve got contractors that are not looking so much for change orders or more money or more time out of a traditional contract. They’re looking to deliver on time, on budget for less than what they told you,” Cromwell says. “It’s a completely different way.”

Together, Kinn and Holcombe form the perfect blend of bureaucratic know-how and private-sector competitiveness, a relationship that is increasingly vital as state and federal budgets shrink. Like phosphorus and sulphur on a match, their combined aptitudes are intended to spark new and cheaper ways to allow people to travel about Virginia with less hassle.

Their solution is to woo corporate partners who aren’t shy about boosting their own bottom lines. Such an unvarnished quest for profits can be off-putting to residents who just want the roads to be pothole-free. Why should a Wall Street firm make money from a taxpayer-supported utility? Typical public-private arrangements, such as leased roads or privately tolled tunnels, are often met with grumpy skepticism by drivers, who are just as likely to complain about traffic snarls along the Capital Beltway or I-264 into Norfolk.

Is the United States ready to make the shift from the Eisenhower-era national highway network—in which the public owns the roads and highways it supports with tax dollars—to a partially private, profit-based system that invites partners from Wall Street and even other countries?

The benefits of such a shift are rooted deeply in the tenets of capitalism, if not public works. The disadvantages lie in the public’s potential lack of access to a needed utility. If private companies run the roads, it’s possible that those who are able to pay more would get better access because they could assume the higher cost of tolls.

Former Gov. Mitch Daniels in Indiana succeeded in completing a public-private deal to finance the 157-mile Indiana Toll Road, which secured $3.8 billion for the state. Yet critics still complain that truck tolls could increase more than 3,000 percent over the 75-year deal. Economists say the private dollars were a windfall for the state when the deal closed in 2006, but the agreement will wind up being a net loss for future generations. “It’s almost a kind of confidence game, where you’re continually putting more debt into the future,” says Phineas Baxandall, a federal budget and tax analyst with U.S. PIRG.

Skeptical taxpayers and sketchy economics be damned: Officials such as Kinn and Holcombe are looking for creative ways to attract private investors to develop roads, tunnels, and government land because they see no other options. State budgets are not going to increase anytime soon, and tax increases are politically unpalatable. What’s more, when private investors are looking for places to put their capital, why not take advantage?

Public-private partnerships make sense only for the biggest and most complex infrastructure projects. Simple road paving, for example, needs nothing more than a standard “design-bid-build” process to seek out cost-effective contractors. It doesn’t need a lot of up-front money, and the job can be completed in a few months or years.

Bigger projects that span five, eight, or 10 years—and probably a few electoral cycles—benefit from private-sector partners because the firms can infuse a state with cash at the front end. They can also provide consistency in the design and construction phases even if political administrations change. No matter how sophisticated an infrastructure contract gets, private-sector partners add a tricky new dimension to an already difficult process. Unwieldy projects can run amok for any number of reasons, and that makes some people suspicious of the private partners from the get-go.

The biggest concern the public expresses, although often not in an organized fashion, is lack of accountability. Citizens carry the impression, true or not, that a big project is being turned over to a company that has no roots in the community and no reason to take the public’s preferences into account. The reality tends to be more complex. Municipalities often have dueling political goals. Large projects tend to cross several local jurisdictions, which can make the political talks messier. Even without these local problems, transportation analysts acknowledge that elected bodies will always end up ceding some of their authority to a private entity in the course of these deals (witness the recent dustup over flaws in the Silver Spring Transit Center in suburban Maryland). That doesn’t always sit well with the locals.

There is truly a lot more to this article than I've extracted here, and I strongly urge you to click the link and read it all. It is well researched and covers the controversial ground in classic journalistic style, such as,  "It is ironic that one of the most socialized parts of American society, the national highway system, came about out of fear of being overrun by communism. ... Less well-known is that Eisenhower originally proposed that the national highway system be funded by tolls."

My own take is that all of these public projects, however complex, require some kind of cooperation between government and private actors. But what kind?  How are risks and rewards best shared -- in the public interest?

If politicians had any backbone to put in place these social infrastructures, like the Hoover Dam and Eisenhower's interstate highway system, they could see it through. But they don't because a lot of toes get stepped on and a lot of mistakes get made and many people sometimes die, as with the Hoover Dam project, and pollies just don't stand up to that heat when the time frame of the project extends beyond the election cycle.

So, if you just want to get the job done, don't look to the pollies. Look to the private sector, and be prepared to pay your own way. This stuff ain't free no matter where it comes from.

Thursday, May 16, 2013

Kick me

A frivolous protest is one, in my opinion, with no legal basis.  Why then, I ask government procurement staff, make it so easy?  Take off those "kick me" signs worn around your necks and you'll reduce the amount of protests you get, frivolous or not.

The following excellent Bloomberg report covers more ground that just this topic, so you should read the whole thing at the link, but it also does a great job of highlighting and elaborating my point.


Shrinking Budgets, Acquisition Workforce Mistakes Drive Bid Protests, Experts Say

Total federal spending on contracts fell to $516.8 billion in FY 2012 from $538.6 billion in FY 2011, according to USASpending.gov. Spending rose only 19.6 percent from $432.1 billion in FY 2006. At the same time, contractors filed 2,475 protests, cost claims, and requests for reconsideration with GAO in fiscal year 2012, a five percent increase from FY 2011 and a 94 percent increase from the 1,274 protests filed in FY 2006.

Protests started rising quickly in FY 2008--up 17 percent from FY 2007--with the downturn in the economy, according to GAO. As the commercial market contracted, companies focused on their government customers. “It became more important to win each opportunity that came out,” McKenna Long & Aldridge Partner Jay Carey said.

“If you talk to just industry people, they will tell you all this stuff about how the government is wrong on this, wrong on that,” Guerra said. “To be fair to the government, you are throwing these people to the wolves without proper training. That encourages industry to file protests. They are making mistakes, and GAO is overturning them, so what do I have to lose?”

One factor contributing to the rise in protests is the acquisition workforce, which is becoming smaller and losing talent due to budget pressures. A shrinking acquisition workforce dealing with more complicated contracts commits more errors, several analysts said.

Among other things, staffers writing requests for proposals need more training, ImpaQ Solutions President Mark Boster said. “The vast majority of RFP's I've seen have fatal flaws, and the process itself is fatally flawed, making protests easy,” he said. “Why not go after it?”

In addition, policy makers completely fail to appreciate the complexity of federal procurements and the time and talent required from contracting officers, Boster said. As a result, COs do not get the support and training they need.

A protest is especially tempting if the agency is reluctant to say why a particular bidder lost.

Contracting officers are afraid that disclosing such information might be viewed as illegal or used against them in a bid protest, Seville Government Consulting President and CEO Jaime Gracia said. However, that reasoning can backfire. “If you're not telling me what I need to know, I will probably protest to get the information,” he said.

The situation was different 20 years ago. “There were probably fewer procurements and more experienced and better trained people,” Boster said.

Gracia agreed that many of the common problems with contract awards stem from the weak skills of the acquisition workforce.

“The requirements are bad, people don't understand what they are doing, you get a bad award and then you get protests,” he said. “It is more than numbers themselves. You must give them the skill set so that contractors have confidence that awards are done correctly.”

Skills that are lacking include “basic knowledge of how industry functions,” Gracia said. “They misunderstand what a company is looking for or what its goals are. There needs to be a lot more focus on collaboration and communication with industry and in the debriefing process.”

Increased numbers of service contracts, especially commoditized services such as software as a service and cloud computing, particularly tax the acquisition workforce, Mascoloceo said. “It's not where a lot of contracting officers and staffers have a lot of training, so the requirements are less defined,” she said.

Although it is hard to validate statistically that a poorly trained acquisition workforce has contributed to the rise in protests, Mark Colley, Arnold & Porter partner and chair of the firm's government contracts practice, said there is little doubt the workforce has been financially neglected and undertrained.

“It gets beat up,” Colley said. “It's hard to recruit and retain people when they are underpaid, abused, not given raises and promotions, and not given respect. It is becoming a thankless job.”

Protorae Law Member Devon Hewitt said the lack of workforce skills has increased the need for corrective actions in the last 18 months, especially for procurements of less than $30 million.

Agencies assign smaller procurements to less-experienced staff who make more errors such as math mistakes, undocumented discussions, or incomplete source selection documents, she said.

Numerous reports by both public and private entities point to deficiencies in the acquisition workforce.

For example, government procurement executives and practitioners cited inadequate training as a top concern in the Professional Services Council's biannual 2012 survey (98 FCR 651, 12/18/12). The root cause of problems in the acquisition community was the workforce downsizing conducted in the mid-1990s, they said.

Respondents classified negotiating skills as a major weakness of the workforce by a 7-1 margin over those calling it a strength. Front-end acquisition planning--e.g. defining requirements and choosing the correct contract type--also was cited as a significant area of weakness by a large margin.

Intense competition between agencies for personnel added to workforce woes, respondents to the PSC survey said. To entice offers, agencies hired GS-12 staff--viewed as working-level contracting professionals--as GS-13, 14, or 15 employees.

As a result, agencies lost institutional skills while unprepared workers filled higher-level positions.

GAO noted that the Defense Department's acquisition workforce got a boost in 2008 when Congress created the Defense Acquisition Workforce Development Fund (DAWDF).

DOD used the money to hire thousands of new staff but failed to spend 61 percent of the funds available in FY 2011, GAO noted in a June 2012 report (97 FCR 635, 6/26/12). So much was left over that Congress actually reduced funding in FY 2012 by $200 million.

Unfortunately, GAO has found that simply hiring more people will not automatically create a more capable workforce. GAO made the same point in a 2010 report, recommending that DOD develop additional measures to determine the capability of its workforce. DOD disagreed, stating current metrics such as numbers worked.

DOD is not an isolated case. Many federal agencies lack the resources to train staff, or even data regarding which skills are needed or the number of acquisition staff on their payrolls, GAO said in a March 28 report (99 FCR 492, 4/23/13)

The report found that 20 of 23 agencies surveyed identified obtaining adequate funding as challenging. Obtaining sufficient staff to manage training was deemed challenging by 19 of 23.

Almost half the agencies said even identifying the acquisition workforce was difficult, especially because some workers are involved in procurement as a secondary rather than primary duty. Almost one-third of the agencies said they do not track the benefits of training--not even basic end-of-course evaluations.

“The shortage of trained acquisition personnel hinders agencies from managing and overseeing acquisition programs and contracts that have become more expensive and increasingly complex,” GAO said. “As a result, the federal government is at risk for significant overcharges and wasteful spending of the billions of dollars it spends for goods and services each year.”

More than the solicitation process

People outside procurement (government contracting) tend to think that it is nothing more than the solicitation process. We don't read stories about much other than bid protests or other procurement train wrecks. Those inside know better, of course.

Spend Matters is a private/public purchasing website that a lot of procurement insiders from around the world go to. It can be an insightful resource for practitioners and students of contracting, both government and private. This post began with a piece from that site.

The Public Sector and the Cost of Resisting Change, a guest post from Mark Digman.
I know I occasionally fall into the trap that organizations must be on-board with what we so clearly see as necessary (if not obvious.) But then I read about the recent procurement struggles of a great American city like New Orleans, and I snap back into reality and the hard truths of the world: change is hard. As it stands, the Office of the Inspector General in New Orleans is making recommendations – what amounts to a slap on the wrist – but it’s easy to envision a scenario where failure to turn it around will result in very unfavorable results.

In fact, we’re starting to see increasingly strict regulations placed on state and federal organizations – regulations with real teeth that go much farther than the recommendations of the Inspector General in the case of New Orleans. Illinois, for example, recently enacted into law a procurement reform bill. As a result of that legislation, much tighter controls have been put into place in regards to vendor restrictions, subcontractor requirements, and transparency provisions. The state has, in essence, legislated procurement accountability.
I'll leave it to you to read the rest of his piece at the link, and here turn to his link to the situation in New Orleans.

IG finds problems remain with city purchasing, payment procedures
The Office of Inspector General issued an audit report in May on the city’s internal controls related to budgeting, bids, purchasing, contracts, disbursements and wire-transfer processes and found several issues with those procedures.

Controls put in place to separate ordering and receiving processes were not functioning since 84 percent of the purchases the OIG tested only had one person placing and receiving the order. City policy requires more than one person within a department to participate in the ordering and payment process.

OIG suggested that the city put in place a process to determine if vendors were delinquent in paying city taxes before they were paid for services.

The initial OIG report also found that vendors who registered with the city did not go through a verification process to determine if they were valid vendors or that their tax ID number was valid.

The OIG suggested that the city create a policy to manage the vendor master file by determining the company’s existence through the Secretary of State’s Office and obtaining federal tax ID numbers from the IRS.

While the OIG found that the city’s financial system did not provide an adequate audit trail for auditors, the city did find a way to make that possible. The city also began to amend contracts only after it reviewed if changes would not be better than rebidding the contract. And while the city previously was not required to verify that vendors were current on tax payments, the city implemented corrective actions and got tax compliance certificates for all contracts, including amended contracts.
It is nice to say that procurement should be accountable and transparent and maximize the public dollar. But principles become pap unless given effect. And that requires effort. But it comes with a pay-out to the taxpayers.

Wednesday, May 15, 2013

Out gunned and out classed

One of the big problems with government purchasing (we're only talking about just one here, not a litany), is that government purchasers and contract administrators are often times, and particularly in critical, highly technical or high budget projects, out gunned and out classed by the private sector contractors.  This can be particularly in the so-called PPP arena, which presents a huge opportunity, if not adequately resisted, for contractors to socialize costs and privatize profits of infrastructure upgrades.

We in the private sector know our beans better than the government does.  It can be a huge mismatch to the misfortune of the taxpayers, as I pointed out in cases from Sydney, in one of my other alter egos, here, here and here.

But the government does not have to be as naive as indicated in this story reported by the Hawaii Procurement Institute, Multiple procurement violations in airport project, which is based on the following report from the Acting State Auditor of Hawaii:

Procurement Examination of the Department of Transportation, Report No. 13-04, May 2013
Dependence on and accommodation of contractors subverts the public interest

Airports Division surrendered oversight and management responsibilities to contractor

Especially troubling was the pattern of recurring violations and questionable practices we found in the Airports Division (Airports), which in fiscal years 2009 and 2010 accounted for approximately 30 percent of the department’s total procurements of $417 million and $467 million in goods and services, respectively.

In 2006, Airports hired Parsons Transportation Group, Inc. to manage its 12-year, $1.7 billion program to modernize the Honolulu International Airport. According to Airports, hiring a thirdparty program manager was necessary because the project size and scope are beyond the capabilities of Airports staff. However, we found that Airports not only outsourced its management functions, it also removed itself from parts of the decisionmaking process, surrendering key oversight and management responsibilities.

This disengagement resulted in questionable allowances to the program manager, such as the provision of rent-free facilities and the reimbursement of $570,000 in office renovation expenses and $21,000 for “team-building” training.  [In fairness to the contractor, I have heard stories of heads of departments having similar projects on Guam who have, I was told, demanded that the contractor provide such "training" for staff, in Las Vegas for instance, knowing full well the cost would be passed back to the government under the contract.]

Airports is also unwilling or unable to properly administer and manage contracts that it oversees directly. Again, we found a persistent overreliance on and accommodation of contractors, which often resulted in cost over-runs, time delays, and procurement violations.

For instance, Airports did not procure a new security contract in a timely manner, allowing the original contract to be extended three times, exceeding the original contract term limit by 16 months and $37.7 million. In addition, Airports failed to do a cost analysis for the construction of field offices for projects at the Hilo, Lihu‘e, and Kahului airports. The eventual amount paid for the construction of one individual field office was nearly $1 million, almost 30 times the amount we estimated it should have cost.
It should be emphasized that this is just the executive summary. You'd learn a great deal more by reading the report at the link provided.

In situations such as this where the government lacks the in-house expertise required to ride herd on the solicitation and contract, the government should first consider engaging the services of a consultant with at least equivalent experience to the contractor, and workable knowledge of local procurement law, to advise the government, from solicitation through performance, to make sure the government gets what it has bargained for.  It is just a case of outsourcing needed services, like anything else.  If the need becomes recurring, bring the expertise in-house.

It may cost a bit more, but it may save money, it may save face for both the government and contractor, and to that extent, it would "provide for increased public confidence in the procedures followed in public procurement", in the words of one of the fundamental purposes and principles of the Guam procurement law (5 GCA § 5001(b)(3)).

Big headaches from small purchases

It's the little things. Nickles and dimes. They can drive you crazy, and they can drive you poor ("nickle and dimed to death").

So "petty" cash does not mean it is unimportant cash. The low administrative oversight of small purchasing is simply a practical trade-off between conflicting procurement principles of efficiency and accountability, or in the phrases of the Guam procurement law (and its source, the ABA Model Procurement Code), "to provide increased economy" (efficiency) and "to provide safeguards for the maintenance of a procurement system of quality and integrity" (accountability).  It is not an abdication of either principle.

Many jurisdictions accommodate small purchasing by way of approved credit card use. In Guam's case, it is accomplished by a "Blanket Purchase Agreement" made with various vendors, or a Request for Quotes process (RFQ).   In all cases purchase amount limits are limited to small purchases (though "small" is variously defined, relative to the size of government and its economy).

Here's a couple of audit reports on the subject, from Hawaii and Washington.

The Hawaii Public Auditor issued Report No. 10-05, in June 2010, titled "Program and Management Audit of the State’s Purchasing Card Program". A summary of it can be found here, at page 11 of the 2010 Annual Report, together with other reports from 2010. Here are some excerpts:
In 2001, the State Procurement Office (SPO) established its Procurement Card Program (pCard program). The pCard program was meant to simplify the State’s small purchase operations and reduce the administrative burden associated with issuing purchase orders and processing invoices for payment without sacrificing financial controls over expenditures. As of April 1, 2005, executive branch agencies were required to use pCards to pay for goods and services under $2,500.

We found that the pCard program has had some benefits: vendors are paid sooner, cardholders (purchasers) receive goods and services faster, and the State receives a rebate from its bank. However, other benefits, including a more efficient and streamlined government procurement system, have not been achieved. Although the procurement office is ultimately responsible for the program, it has taken a hands-off approach to its administration by delegating significant responsibilities to the executive departments.

We recommended the procurement office play a stronger administrative role by ensuring the intent of the pCard program is met. We also made specific recommendations for the procurement office to establish clear guidelines to help executive branch agencies achieve consistency and efficiency with the pCard program. In its response to our draft report, the State Procurement Office claimed that we made many misstatements and failed to take into account the limited resources available.
Fast forward to the present. Hawaii is still experiencing problems, according to a story reported by the Hawaii Procurement Institute:
The Hawaii state auditor says the State Procurement Office isn’t allowing it to verify improvements to its administration of a credit card program for government agencies. Acting Auditor Jan Yamane says auditors haven’t been able to check whether the office followed up on these recommendations because procurement officials won’t meet with them.
Things may not be so different further east in Washington (a lot further east if you start from Guam). Mike Purdy's Public Contracting Blog reports,
The Washington State Auditor's Office recently issued an audit finding to the Grays Harbor County Fire Protection District No. 16 for not having adequate supporting documentation, such as invoices or detailed receipts, to support $19,695 in expenses with District issued credit cards. The audit cited purchases for food, fuel, clothes, holiday decorations, supplies, and lodging that were not documented, raising the question whether they were an allowable use of public funds as required by state law.
He notes,
Government issued credit cards, sometimes known as "Purchasing Cards," "Procurement Cards," or "P-Cards" can be a great tool to simplify the procurement process. However, they come with risks if there are not adequate controls in place.
He provides some "practical tips" to deal with the issues.

It may be interesting to note that the audit finding found
The District’s Board has not adopted a policy relating to the use of District credit cards. Such a policy should require detailed supporting documentation, approval and a thorough review to ensure the transactions are for an allowable use of public funds.
The Commissioner of the tagged Board responded tersely and in stark contrast to Hawaii's State Procurement Office,
As a response to the audit findings, as a Commissioner of GHFD #16 I will not allow a credit card to be issued to the department until the proper policies are in place, and we have strict monitoring procedures.