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Wednesday, November 20, 2013

Its the little things that give the appearance of impropriety

Bits and pieces from a couple of cautionary tales from the Public Spend Forum.

A Reminder of Why Those Pesky Bureaucratic Rules Matter in Procurement
While the national media has had endless stories over the past two months with the problems enveloping the Obama Administration with the botched launch of the HealthCare.Gov website, at the state level, there have also been massive expenditures and serious technical issues in the fifteen states that opted to develop their own health insurance coverage websites under the Affordable Care Act. Idaho is one of these states, and the state legislature there set up a Health Insurance Exchange Board. Frank Chan was one of 19 appointees to this board, which included representatives of insurance companies, medical service providers, legislators, small businesses and consumers. The board had a tight timeline to build-out Idaho’s state-run health insurance exchange, as its members were appointed on April 10th of this year by Idaho Governor C.L. “Butch” Otter, and the body had to have the state marketplace up and running by January 1, 2014 to comply with the provisions of Obamacare.

In Idaho, the state procurement regulations require almost all contracts over $25,000 to be subjected to a competitive bidding process. However, with the tight timeline to get the exchange up and running to meet the federal mandate, the state legislature exempted the Idaho Health Insurance Exchange Board from the state’s acquisition rules, authorizing the exchange to establish its own procurement guidelines. And for the major contract to be issued by the board to accomplish that task—setting up the website for the exchange—Your Health Idaho Executive Director Amy Dowd awarded Robert Chan’s company a $375,000 contract—without the opportunity being put out for competition—to help the state develop and operate the exchange’s website. Chan stepped down from the board later that same day. The awarding of the no-bid contract immediately brought a firestorm of publicity for the board and its executive director.

And how did the two main characters in this story react to the findings of the investigation. Remarkably, in the aftermath of the controversy, Your Health Idaho Executive Director Amy Dowd characterized her decision to award the no-bid contract to Chan as a “misstep,” saying that: “I think we were given an incredibly tight timeframe and limited resources. I think the board has done a remarkable job. We made a misstep on this. We’re going to face up to it and use it as a way to learn and grow as an organization so we can succeed with the mandate we were given by the governor and the legislature.” And as the other the central figure in the case, Frank Chan commented that: “I believe the intent for me to be able to help out Your Health Idaho was that I do have the experience and my company has the experience to really provide the help that they need right now. It’s unfortunate that given what actually happened and transpired, it went sideways.”

What are we to make of the “missteps” in Idaho and the thing going “sideways”? For all involved in the affair, while the decisions made did not break any laws, the executive director’s choice to award the no-bid contract to a board member did cost the parties a great deal in credibility and opportunity. For Chan, he and his company may have been able to do a great job for the state and its residents, but now, we will never know. For the Health Insurance Exchange Board, they have lost valuable time and credibility through this incident for the state’s health insurance effort. Coming on the heels of the national issues with Obamacare and the website, this only creates more uncertainty within the state concerning the health care exchange.

Overall though, the problems with Your Health Idaho illustrate the importance of having some level of oversight and control in making acquisition decisions and serve as a positive reminder of why a degree of bureaucratic control is so critical in the public sector. While we involved in government may indeed tire of “jumping through hoops,” the events in Idaho makes a good case for all public sector entities to make certain that they have hoops in place. The delicate balancing act is in figuring out just what is the right amount and kind of hoops to have in effect. The other thing is that all of those affiliated with an agency should have to play by and be subject to the same rules, from the front lines to executives and board members. And so while the Idaho legislature wanted to remove the hoops to fast-track the development of the state’s exchange, others—like Chan and Dowd—saw it as an opportunity to take advantage of (however bad their decisions look in retrospect).
Magic Bullet: How a Small Gift Shot Down a Huge Contract
How would you feel if what you did was headlined on the local paper? And what was the headline splashed across the front page of the Albuquerque Journal? Well, it involved skeet shooting…

Antonio Sedillo is a construction supervisor with the Los Lunas Schools, and as a hobby, he is a skeet shooter who recently participated in a skeet shooting competition in Albuquerque. The problem arose when another skeet shooter, who was employed by a local construction firm, saw that Sedillo was actually shooting in the event as part of a team from McCarthy Building Companies. Sedillo’s $125 entry fee for the competition had been paid for by McCarthy Building, which had recently been awarded a $24 million construction contract by the school district for the new Los Lunas High School. And who was on the school district committee that evaluated the bids from McCarthy Building and four other competitors? You guessed it—Mr. Sedillo! And who did the curious fellow shooter who reported Sedillo being on McCarthy’s team? As you probably guessed, he was employed by one of the losing firms!

So now, if you are school Superintendent Bernard Saiz, you have a real predicament on your hands. Your employee, who was on the committee to decide the contractor on the district’s largest construction project to date, accepted the “gift” from the firm that won the competition. To make matters worse, it should be noted that the skeet shooting competition actually occurred in the interim between the time the four firms made their proposals and when the award was actually made.

In public comments on the situation, Superintendent Saiz characterized Sedillo as a good employee, but his decision to accept the entry fee was a “clear violation” of the district’s procurement rules. Saiz commented that: “He (Sedillo) is an avid shooter, and I think he just let his desires get ahold of him here.” Saiz has announced that the contract will have to rebid, and that McCarthy will indeed be allowed to compete. However, he has also expressed his belief that in this situation, “I think McCarthy and my employee could have used better judgment.”

So, what have we learned here? The “lesson learned,” and one that should be make this a “teachable moment” for all involved in acquisition at any level of government, is that appearances do matter—greatly! No matter the amount, no matter the circumstances, no matter the timing, those involved in procurement decision-making have to strive to avoid the appearance of impropriety. Antonio Sedillo’s decision to accept that $125 entry fee cost the school district and the competing construction firms probably 1000 times as much in terms of rebidding of the project. Additionally, it cost the district a great deal in credibility—both with the public at large and with the business community.

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