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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)).

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