Courting government business and sovereign immunity

One of the risks of doing business with the government is that you cannot sue them for fault, even if clearly wrong, unless you get its permission to sue. At least with the common law, a sovereign cannot be sued unless it consents to be sued. This is the law of "sovereign immunity". Fortunately, most US jurisdictions do consent, at least in a very restricted manner, to being sued in procurement matters. But you may have to hop on one foot and plea, "may it please the court", if that is one of the conditions the sovereign demands of you.

When the government allows suit, it is said to waive sovereign immunity. And it is a very strict application of legislative, or constitutionally, granted waiver. The right to sue may only be in a very particularly described case (or cause of action), in a particular court, at a particular time, and in a particular manner. Get any of those conditions wrong, and your "right" to sue he sovereign is a mirage.

I must here disclaim much knowledge of such matters. Sovereign immunity is generally in the knowledge of courts and litigators, and I do not litigate. I am a simple minded in house general commercial lawyer. So, this is more in the nature of a "heads up" than any kind of elucidation of the law of this topic. Still, I thought you might want to be aware.

Here I link to two cases, the first from Pennsylvania, and the second from Guam, each dismissing a procurement claim on the basis of sovereign immunity.  In the Pennsylvania case, the issue was which tribunal was required; in the Guam case, the issue was what form of action was required.

The following case is from the Commonwealth (State for those outside the USA) of Pennsylvania, USA. Again, I have no knowledge of Pennsylvanian law. I am guessing, but it appears to me that Pennsylvania had a long standing law relating to government contracting, particularly construction contracting, and that it more recently adopted a more comprehensive law dealing more broadly with government contracting, including for supplies, services and construction. At first blush, it looks somewhat like the ABA Model Procurement Law on which Guam's law is based.

One of the issues presented is "Does the Board of Claims have exclusive jurisdiction to determine claims arising under a contract with the Commonwealth, including the claim that a contract exists?" Please have a read of the whole case at the link and don't rely on my exposition of it; I have selectively cut and pasted and rearranged and paraphrased the opinion, so there is plenty of opportunity here for me to misstate the case. Further there are other issues of importance that I do not touch on.

The background here is that SGI (the appellant) won an RFP under the competitive sealed proposal method of source selection, and the other offeror, GTECH protested, following which the government agency (DGS) cancelled the bid.   Pennsylvania law evidently does not allow a protest of a bid which is cancelled before award. 

SGI brought this action, seeking declaratory and injunctive relief, in the Commonwealth Court's original jurisdiction, and petitioned for a preliminary injunction claiming it had received the contract, or was entitled to receive it, and sought to affirm it. The issue was whether SGI brought a cognizable claim to the Commonwealth Court, or whether it should have been brought before the administrative Board of Claims. The lower court had allowed the non-monetary claim to be brought to the Commonwealth Court rather than the Board of Claims.

The interplay of the older Board of Claims Act terms and the newer Procurement Act terms has to be considered, also, so you must read the opinion to understand that nuance. Such is the tangled web of sovereign immunity.

SCIENTIFIC GAMES INTERNATIONAL, INC. v. COMMONWEALTH OF PENNSYLVANIA, Supreme Court of Pennsylvania, Middle District, Decided March 25, 2013.

The Procurement Code establishes administrative processes to address disputes arising in the procurement setting. On account of the doctrine of sovereign immunity, however, contractors, bidders, and offerors have limited recourse and remedies.

We consider the contours of the Board of Claims' exclusive jurisdiction pertaining to procurement litigation against Commonwealth agencies. More specifically, we are asked to determine whether such jurisdiction forecloses original-jurisdiction proceedings in the Commonwealth Court.

The Procurement Code contains a scheme for resolution of disputes arising in connection with the solicitation or award of a contract, commencing with a pre-litigation process encompassing a protest procedure administered by the purchasing agency and a right of appeal to the Commonwealth Court. For post-award contract disputes, the Procurement Code establishes a claim procedure before the contracting officer, subject to review in the independent administrative board known as the Board of Claims. The Board of Claims is given "exclusive jurisdiction" to arbitrate claims arising from contracts entered into by Commonwealth agencies, except: "(d) Nonmonetary relief. — Nothing in this section shall preclude a party from seeking nonmonetary relief in another forum as provided by law."

Significantly, as well, the Procurement Code "reaffirms sovereign immunity," prescribing, with limited exceptions, that "no provision of this part shall constitute a waiver of sovereign immunity[.]" The only exceptions to this sovereign immunity waiver in the Procurement Code pertain to the protest and claim procedures described above, and to proceedings in the Board of Claims "to the extent set forth in" the chapter pertaining to legal and contractual remedies.

GTECH claims that sovereign immunity has been waived only relative to the protest, claims, and Board-of-Claims procedures specified in the Procurement Code. Thus, for jurisdiction of claims against the Commonwealth to be cognizable in judicial venues, a legislative waiver of sovereign immunity must be found elsewhere to pertain. Appellants observe, however, that neither the Commonwealth Court panel nor SGI has identified any such waiver provision.

SGI adopts the Commonwealth Court panel's position that jurisdiction was proper under Section 1724(d):"On its face, Section 1724(d) preserves parties' ability to invoke any grants of jurisdiction to any other tribunal that would extend to contract actions against Commonwealth agencies for nonmonetary relief."

We begin with the doctrine of sovereign immunity, because we agree with GTECH that it plays an important role under the Procurement Code, which is designedly structured to accord immunity, subject only to specific and limited exceptions.

The constitutionally-grounded, statutory doctrine of sovereign immunity obviously serves to protect government policymaking prerogatives and the public fisc. To a degree, it has been tempered to recognize the rights and interests of those who may have been harmed by government actors, and/or, in the contract arena, to remove a substantial disincentive for private individuals to pursue government contracts.

Understandably, some immunity applications may be distasteful to those who may discern government wrongdoing, or at least unremediated collateral injury to private concerns resulting from governmental policy changes. In light of the constitutional basis for the General Assembly's allocation of immunity, however, the area implicates the separation of powers among the branches of government also crafted by the framers.

Thus, in absence of constitutional infirmity, courts are not free to circumvent the Legislature's statutory immunity directives pertaining to the sovereign.

We recognize that some decisions of this Court may suggest that immunity is not squarely a jurisdictional matter. Notably, at the federal level at least, however, sovereign immunity is considered a core jurisdictional concern. The language of the Pennsylvania Constitution itself seems consistent with such perspective, as it relegates to the General Assembly the power to specify the manner and designate the courts in which suits against the Commonwealth may be brought.
While more general clarification of the relationship between sovereign immunity and jurisdiction may be appropriate in the arena at large, for present purposes, we regard sovereign immunity as a jurisdictional concern vis-à-vis the Procurement Code.

In this respect, we agree with GTECH that — as a matter of jurisdiction — if the General Assembly has not specifically provided by statute for such nonmonetary relief in a claim arising from a contract entered into by a Commonwealth agency under the Procurement Code, then either the claim is within the exclusive jurisdiction of the Board of Claims or it is barred by sovereign immunity.

Based on the above, we conclude that the Commonwealth Court erred in interpreting Section 1724(d) so broadly as to sanction original-jurisdiction actions in a judicial tribunal over nonmonetary claims against the Commonwealth. To the contrary, nonmonetary claims against the Commonwealth are cognizable only to the extent they fall within some "specific[]" waiver or exception to immunity. As explained, no such waiver or exception is found in Section 1724(d) of the Procurement Code, and neither the Commonwealth Court nor SGI has identified any other salient and specific waiver provision within which to bring SGI's claims.

This next case is from Guam, and one in which I had involvement at the administrative review level. An appeal of the administrative review tribunal, the Office of Public Accountability, was taken to the Superior Court, which dismissed the action on sovereign immunity grounds. The Guam Supreme Court upheld the result. (Again, there are other issues for which you need to refer to the linked case report.)

As background, for most of the history of the Guam Procurement Act, many if not most appeals to the court were by way of a writ or either mandamus or review, but also by way of an ordinary civil action. Writs are entitled to an expedited review as a "special proceeding". Civil actions take their turn and grind slowly through the system. Nothing frustrates the public, let alone the government and bidders, more than a long, drawn-out review process, especially when needed services or supplies are at stake. And, of course, big money is usually involved when a case is so important to be taken to court.

In the years leading up to this case, there were Superior Court cases, seemingly inconsistent, dismissing a civil action on the basis that a writ must be sought, or dismissing a writ on the basis that a civil action was required. One decision said, of appeals from the administrative tribunal, that not all such appeals were created equally, and if the appeal involved the merits it should be by civil action, but if procedural rules, then by writ. The appeal in this case was framed as a civil appeal, lodged as a special proceeding, and argued it should be treated as a writ of review.

The Supreme Court ruled the statutory waiver of sovereign immunity required a civil action rather than a writ. It reasoned that Guam law distinguishes between writs and civil actions, and that the waiver of sovereign immunity in 5 GCA § 5480(a) expressly referred to an "action", thus it held a "civil action" was required. It found that, since no parties were named (or necessarily required under a writ of review), the Superior Court appeal failed as a civil action. It held, that, to invoke the waiver of sovereign immunity, the appeal must be brought against the Territory of Guam or other named agency in a civil action.

The case is :

 Town House Dep't. Stores, Inc. v Dep't. of Educ., 2012 Guam 25.

//

Responsive does not mean precise, but does require no bidder prejudice

Canada Allows Firms To Fix Bid Errors

The Canadian government has introduced a provision to allow defense firms to repair their bids on military equipment programs. The provision is an attempt to head off situations in which companies vying for a contract are disqualified over minor infractions.

Over the past two years, Canada has disqualified a number of bids for military programs because of a draconian system that prohibits any errors, even minor ones, in bid proposals. The disqualifications have delayed projects and have cost companies millions of dollars, industry sources say.

The new process would allow companies to submit more information to meet the bid requirements, even after bidding is closed.

A bid by Thales Canada was rejected because one official involved in the company’s proposal lacked the proper security clearance, according to government and industry representatives. The name of the individual, a health and safety officer, had been submitted in error and Thales asked Public Works to remove the name from its bid. Instead, Public Works refused and disqualified the bid. Public Works rejected another company’s bid for the project because information provided in two charts outlining spare parts acquisition did not exactly match up.

Tim Page, president of the Canadian Association of Defence and Security Industries, welcomed the change. “Any way for the government to exercise some reasonable discretion that doesn’t affect the reasonableness of a procurement is of value.”

But others say it opens up the bidding process to potential manipulation. “It could be used as a loophole to favor a company that should be disqualified and to give them a second chance at bidding,” said one defense industry executive. “I can see this as opening the way to potential abuse.”

Page said he doesn’t believe the change will allow abuse of the system. “If you’ve got knowledgeable and experienced procurement officers in the federal government who understand the business of procurement, then the risk of abuse will be significantly reduced,” he said.

Under the American Bar Association Model Procurement Code, and most if not all US jurisdictions whether or not they adopt the ABA MPC, a bid must be responsive to the Invitation for Bid, which includes specifications and contract requirements. A bid is responsive if it conforms in all material respects to the Invitation for Bids. Materiality is the operative standard, not conformity.

Ultimately, of course, materiality is a judgment call. In an ideal procurement world, judgment would be based on objectively verifiable criteria, not subjective ones. That is not often possible in the real procurement world. Some form of flexibility ("reasonable discretion" as mentioned above") is required when matching bids with IFBs to avoid absurd, slavish insistence on exact conformance to terms which are not always clear, let alone material.

To minimize the influence of extraneous, subjective factors, I think an appropriate balance of the principles of integrity and effectiveness should demand a robust determination process, and made accountable by written reports setting forth a rational rendition of facts and analysis supporting the determination and suppressing the suspicion of bias. Then, even a determination made in error will dispell the tainting suspicion that undermines faith in the system.

The ABA MPC sets out a comprehensive and elaborate framework to facilitate the flexibility required. It may not be perfect in application, or theory, but it is better than the elimination of all flexibility.

In the Guam regulations, the relevant model regulations are adopted in 2 GAR § 3109(m), and speak of the needed flexibility in terms of "mistake" and "informality" and distinguishes between an "error in judgment" and a "nonjudgmental mistake".

The general rule applicable in all circumstances is that

"Correction or withdrawal of a bid because of an inadvertent, nonjudgmental mistake[] in the bid requires careful consideration to protect the integrity of the competitive bidding system, and to assure fairness.  If the mistake is attributable to an error in judgment, the bid may not be corrected.  Bid correction or withdrawal by reason of a nonjudgmental mistake is permissible, but only to the extent it is not contrary to the interest of the territory or the fair treatment of other bidders."

To implement this general rule,

When the Procurement Officer knows or has reason to conclude that a mistake has been made, such officer should request the bidder to confirm the bid. Situations in which confirmation should be requested include obvious, apparent errors on the face of the bid or a bid unreasonably lower than the other bids submitted. If the bidder alleges mistake, the bid may be corrected or withdrawn [under certain prescribed conditions]."

Regulations also apply different rules, standards and procedures, depending on if a mistake is discovered before bid opening, after opening but before award, and after award. The rule for mistakes discovered after bid opening but before award are instructive as to what is meant by a bid that "materially conforms" to the IFB. It says a minor informality or insignificant mistake can be waived. It describes an insignificant mistake as one "that can be waived or corrected without prejudice to other bidders". Thus a only a nonconformity that does prejudice other bidders is material.

But what is it that is deemed to prejudice other bidders? 

Obviously another bidder is benefited by tossing out a lower bid, thus any mistake that is waived, in one sense, burdens the higher bidder.  But the regulation is not so broad as to equate benefit or burden with materiality. It specifically limits the scope of what is meant by "prejudice".  It says of prejudice,

 "Minor informalities ... or insignificant mistakes ... can be waived or corrected without prejudice to other bidders; that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible."

Thus, it is only those traditional "material" items of contract law -- "that is, ... price, quantity, quality, delivery or contractual condition" -- which are deemed to prejudice other bidders. Those are items which each bidder can and does specify in its race for the contract; when accepted, the bidder has determined these material terms.  

Allowing a bidder to modify any such material item, with knowledge of another's bid, is obviously unfair advantage.  But, allowing a bidder to modify other matters which are not under the control of the bidders is, to an extent, none of their business; it is the government's business. That extent, of course, is based in principle: the duty to maintain the integrity of the procurement law and to treat all bidders fairly and equitably.

Only material nonconformity is, under the ABA model, deemed sufficient to require that the bid be set aside as nonresponsive. And it is only those matters that affect bidder prejudice that are considered to be "material": price, quantity, quality, delivery or contractual condition.

Not all nonconforming bids are nonresponsive. Nor is bidder prejudice implied by any change of terms.


POST ADDITION:

And on the topic of bidder prejudice, note this case comment by Attorney Claude P. Goddard of lawfirm Husch Blackwell LLP, with its tip to making a successful protest (be able to show prejudice). The GAO case is BC Peabody Constr. Serv., Inc., B-408023 (May 10, 2013) and is reported here.
Without prejudice, procurement errors are not enough to sustain a protest

The GAO agreed the Corps’s action was procurement error. “Where multiple proposals propose the same contractor, once the agency becomes aware of that subcontractor’s experience . . . it cannot reasonably assign one proposal a higher score than another based on that experience.” GAO nevertheless denied the protest.

During the protest, it came to light that BC Peabody had failed to provide a required letter of commitment from Bauer, an omission that would have been deemed a deficiency. GAO concluded that BC Peabody could not show that it was prejudiced by the Corps’s improper evaluation. Even if the procurement error had been corrected, BC Peabody could not have won the contract because its proposal still would have been considered unacceptable.

A protester must be prepared to show that it would have had a substantial chance of receiving the award but for the agency’s improper actions. A fourth-ranked offeror, for example, must be able to show not only that it would have received a better technical evaluation score, but also that it would have beat out the second and third-ranked offerors and been in contention for the contract award.

Good procurement is the cornerstone of good governance

I co-teach a course on the Principles and Fundamentals of Procurement at Guam Community College. I make the obviously exaggerated claim that good procurement is the cornerstone of good governance, and that if not handled correctly, it can undermine public confidence in a community's own government to such an extent that, in extreme cases, can lead to insurrection.

The following article contains the text of a speech by British ambassador to Bulgaria, Jonathan Allen, which provides a much more interesting and particular, if not extreme, exposition of my proposition. I urge you to read more at the link for the article.

UK ambassador: Should I be an optimist or a pessimist about Bulgaria?

Th[e] key element of the Bulgarian psyche might be characterised as a negativity about the situation in Bulgaria and cynicism over how things happen here, coupled with fervent idealism about life everywhere else. It forms a vicious circle – if people believe not only that Bulgaria is below average, but that everywhere else is above average, it magnifies the perceived gap.

Let me share an anecdote from my own Embassy to illustrate my point. A colleague from my commercial team complained about a tender that UK companies were interested in. “It’s ridiculous”, they fumed, “the tender terms have been written so tightly that they exclude any serious company with international experience from bidding. It is clearly a stitch-up, designed to ensure one company wins. That’s how things happen in Bulgaria.”

So when I next met the Minister, I innocently asked about progress in this area. “It’s ridiculous”, said the Minister, “the tender terms were written so tightly, they excluded any serious company with international experience from bidding. We only got one company that applied. We need much wider expertise if we are to improve. I’ve cancelled the tender and we will try again”.

The problem with this pessimism and this cynicism is that it is infectious. Politicians, media, NGOs, think tanks all magnify and amplify. It infects foreign diplomats and their governments. It becomes the story that people hear and re-tell about the country. It becomes existential: an action cannot merely be incompetent but it has to be corrupt. A new mall is assumed to be a front for money laundering, an assumption that is repeated as gospel truth.

Worse, it becomes an alibi for inaction. “What’s the point in trying to do anything?” sigh Bulgarian and foreigner alike. People abdicate their responsibilities with a shrug of their shoulders. It is someone else’s task to do something about it. So I’ll park on the pavement rather than finding a space and complain later about the broken paving stones.

The Ambassador's speech covers a lot of ground, this being only one small part. It would make for good reading by anyone, but any Guamanian who might stumble on this post might find more of it resonating than others, for instance:

Ever since my arrival, I have heard a lot about centralisation of decision-making in Bulgaria. But it seems to me that power is diffuse. Much relies on the willingness and ability of individual municipalities and mayors to take action. There is an over-reliance on legislation as the basis for activity. Ministries can take an age to come to agreement on a policy, or not do so at all.

Believe me when I say that it is far easier to announce what needs to be done than to do it: it is easier to spot strategic gaps than to fill them. Even in my own country, with all its years of stability and its developed bureaucracy, there are still far too many strategies that are published with a fanfare, only to gather dust on a shelf.

Announcing a strategy or a decision is only any good if the lever that you pull is actually attached to the machinery.

In my country, we have the Cabinet Office. It is responsible for getting agreement where there is none and for making the calls on the trade-offs needed between different departments’ vital interests. Meetings are held at a range of levels from officials to Deputy Ministers to the Cabinet itself, to support common approaches and tackle obstacles and problems. Failure by a department to do what it has agreed leads to an increasingly difficult set of meetings, until ultimately the Prime Minister himself has a terse phone call or meeting (without biscuits) with the relevant minister.

I wonder if there is room here for such a strategic centre, forging consensus and systematically following-up agreed actions at every level of government, including local. Perhaps in the Council of Ministers?

To an outsider, the risk of this not happening is greater than the risk of concentration of power in the centre.

Of course, one reason for a community's reticence centralize government is in big part because it may not be trusted.  It can be a vicious circle indeed.

I'd also caution, the only way centralization works is if there is rigorous accountability, such as the ancient but diminishing (to the point of being considered "quaint") notion of ministerial responsibility. As the Ambassador alludes:

In Bulgarian the word for “transparency” – “прозрачност/prozrachnost” – is a close relation to the word for “window” – “прозoрец/prozoretz”. But transparency is not just a window through which we observe a scene played out before an audience.

For it to be meaningful it has to be a value that runs through all that the state does – the belief that scrutiny and being held to account make for a stronger, healthier government, better policies and better implementation of those policies.

It means setting clear standards for public services and reporting openly on progress in meeting those standards, and inviting involvement in their design and running from those who use them.

It means regulators that work openly in the interests of citizens and consumers.

It means the highest standards of disclosure of personal interests from those in authority, and of hospitality and gifts received, and complete openness on government expenditure.

It means a media that is plural, independent and investigates on behalf of the citizen.

Transparency is also about facing openly the issues in a society and using that information to change attitudes and behaviours. If we are not careful, the very tightness of the bonds that sustain personal networks could delineate those within from those outside it, who become “other”. Strong societies and communities rely on a willingness to act in the interests of a wider network, of people that we don’t know and haven’t met.

Transparency means giving power to the Bulgarian people and trusting them. Once done, it is almost impossible to reverse. A great opportunity exists for open government.

Keeping procedures up to date with law

On Guam, we find many regulations and government contract provisions that are inconsistent with law, most often because the many changes to law that legislatures cannot seem to resist making are not recognized in contracts used by the procuring agencies. The following article is an illustration that this defect in the system is not restricted to Guam.

There are other interesting controversies revealed in the story that are not directly on this point. Read more at the article link.

Report: Afghan militants could get contract funds

The special inspector general for Afghan reconstruction, John F. Sopko, said weaknesses mar procedures that the Defense Department tightened in 2012 to comply with a new federal law aimed at preventing militants from obtaining U.S. contract payments.

Sopko said his new audit detected flaws in a provision that Congress added last year to a defense authorization bill. The provision gave the Defense Department the authority to "restrict, terminate or void" any contracts with individuals or organizations opposing U.S. or coalition forces in Afghanistan. Sopko said his audit found that language in some contracts did not contain the new provision, which is legally necessary to sever any contracts unwittingly given to militants.

Sopko also warned the Pentagon that it needed to develop a standard process for tracking suspect contractors and notifying contracting officials and contractors about suspect contractors and their obligations under the law.

Take the money and run -- amok

Adv. 1. amok - wildly; without self-control

When reading the article linked below to get the full story, keep in mind this contract

"was deemed an emergency, D.C. claimed, because federal wind energy tax credits will expire at the end of the year".

Protest filed against D.C. sole-source deal for energy services

The Department of General Services selected Customer First to prepare a solicitation for a massive wind or solar energy purchase on behalf the District government, and then to review the responses. It was deemed an emergency, D.C. claimed, because federal wind energy tax credits will expire at the end of the year, and there's no other company that can do what D.C. has asked of Customer First in such a short period of time.

The District cited an "informal market survey of both local and national firms" that revealed the proposed contractor "is the only renewable energy integrator in the U.S. focused on bringing economically attractive utility-scale renewable electricity solutions to large end-users."

Procurement restrictions are intended to keep the government from spending other people's money (yours) without the self-control and prudence they'd exhibit if they were spending their own money. Here a local government was spending federal government money. The same principle should apply. (Indeed, it is likely that the federal strings attached to that money come with more "bite" for spending the money without legal authority than the local government.)

It will be interesting to see this controversy develop. The story so far has many teasers: the contractor was first selected to prepare the specs, then review responses, then awarded the contract to itself; award was sole source when it appears there were plenty of available competitors; the "emergency" existed only because the local government failed to act quickly enough in the first case to avail of the funds. Under the ABA Model Procurement Code as adopted on Guam, an emergency, as defined in law, does not include an event "which could not have been foreseen through the use of reasonable and prudent management procedures".  (5 GCA § 5030(x).)

Outsourcing the burdens -- and benefits -- of eProcurement

New User Fees Fund Pennsylvania's No-Bid Website Contract   By Melissa Daniels | PA Independent Read more at the link.

Pennsylvania teamed up with a private company to revamp and manage its official websites, promising the latest and greatest advances over its own old technology. Last fall, Pennsylvania entered a sole source contract with NIC USA, an “eGovernment” services firm. It will operate Pennsylvania’s entire online system, from page design to online transactions, and from customer support to hardware upgrades.

The state pays NIC nothing out of its own budget. Instead, the site work gets funded by adding “convenience fees” to certain online transactions residents or businesses might complete, like a license renewal. This self-funded model spares the state from spending up front on expensive redesigns, system upgrades or app development.

But the contract does not have a cap on what fees might be for users, meaning there’s no limit to how much could be assessed. It was a sole source contract, meaning there was no competitive bid process.

NIC provides all website design, development, services and maintenance, managed through a Harrisburg-based subsidiary called Pennsylvania Interactive, LLC. Because there is no other company that provides all these services under one umbrella, the state deemed a competitive bid process unnecessary, according to the contract summary.

But NIC’s own filings with the Securities and Exchange Commission seem to dispute that point, as they attest to “intense competition” in their industry. The filing, from late February, says NIC faces competition from government-managed services, system integrators like CGI and Unisys and developers like Microsoft and Oracle.

Dan Egan, spokesman for the Office of Administration, said the NIC contract was precipitated by multiple issues with the current system. The state was faced with a need to upgrade its server by 2015. “No one company does everything that NIC does and can do in a way that isn’t going to cost us tens of millions of dollars,” Egan said.

The state researched NIC with an outside research firm and contacted other states who use its services. “None of those states who’ve ever contracted with them have left,” Egan said. “It’s because they like the service and they like what they get from the company.

”Before the contract was signed, the state put the procurement on its website, and offered a 10-day comment period where no other vendors reached out to the state, Egan said. It was also approved by the Office of the Attorney General, like any other state contract.

Angela Skinner, director of communications for NIC, said NIC is “comfortable with the sole source procurement,” given the commonwealth’s research, legal justification and the public comment period. And a majority of the services, she said, are “free.” Any fees are set and approved by state officials.

Egan said the state expects to keep about two-thirds of transactions free, while a third may have some kind of “convenience charge.”

Egan compared the fee to what a consumer might pay for having express delivery to their home – the charge is there for the extra convenience.

“There will still be a choice,” he said. “If you still want to walk into a government office or lick a stamp or do what the old process was, it will remain available to you without the convenience charge. But if you want to get online, get it faster, get it more conveniently, that’s what it’s there for.”

Prescription for Tanzania's procurement regime

Transparency is important in government procurement By Dr Richard Mshomba, professor of Economics at La Salle University, Philadelphia, Pennsylvania, US.

The Doctor is in:

According to a report by the Tanzanian ministry of Finance, total central government procurement for 2010/11 was Sh4,532 billion ($2.83 billion) – 40 per cent of the central government budget. The central government procurement is 12 per cent of the GDP.

Given its size, government procurement policies can be significant in fostering development and addressing income inequalities. However, to achieve those objectives, government procurement must be transparent. Currently, government procurement processes are not sufficiently transparent and the rules are not adequately enforced.

For example, there are rules that make it unlawful for the government to procure goods and services from civil servants, but those rules are not always adhered to. Likewise, as reported by Transparency International, “the Public Procurement Act makes provision for blacklisting companies, but these regulations are not enforced.”

A recent report by Transparency International suggests that the situation might be even worse with procurement associated with the ministry of Defence and National Service. Tanzania received a D- grade for its apparent high level of corruption in the defence sector. Overall, it is estimated that at least 20 per cent of the government budget is lost annually to corruption.

Many people have been calling for policies that foster efficiency, transparency, and accountability. The following should be used as criteria for ideal government procurement policy: the end goals of procurement; integration of procurement goals with broader socio-economic goals; competitiveness; clarity and transparency in the selection process; flexibility; and administration of the process and enforceability.

It’s imperative to be clear about what is being procured. Otherwise, the government will be at the mercy of the potential bidders. This criterion is becoming increasingly important regarding the natural gas industry, where the government is dealing with aggressive foreign companies that have extensive technical and manipulative experience and, of course, whose only motive is profits.

Social goals must guide government procurement. Government procurement can be used, for example, to develop industries in the context of “affirmative action” programs to promote the inclusion of women and to promote development in historically marginalized regions of the country. But even the pursuit of industrialization or important social goals such as empowerment of women must be balanced with an eye to competition and market-induced outcomes – efficiency and flexibility.

At best, a well-devised government procurement program intended to support women’s businesses would be an incentive for the number of women-owned businesses to grow and, thus, increase competition and efficiency. At worst, government procurement can be a safe haven for a few businesses owned by women who are well-connected to government officials.

New rules may be necessary for more transparency in the bidding process and awarding contracts. Of course, changing government procurement rules too often can create confusion, unnecessary transaction costs, and loopholes for corruption.

The ability to learn from experience requires a transparent recordkeeping and a process that can be evaluated against its stated objectives.

Of course, transparency alone is not sufficient. To be effective, transparency must be accompanied by accountability. There must be severe legal and career ramifications for violating the rules. Thus the process should be administered by an autonomous, independent body that is at the same time accountable to a democratic political system of checks and balances.

Good medicine for any procurement regime.

Value for money is not the central procurement ideal

I have had previous posts illustrating the "no harm, no foul" excuse for improper procurement, collected here. But it has been awhile since the last example, so to remind, here is another example.

Council broke procurement rules in 78% of deals

Auditors have found significant problems with how Waterford City Council has spent public money. A report into the local authority’s expenditure said that proper procurement rules were not followed in 78% of deals examined.

This meant that €4.3m, out of €4.9m which was audited in 2010, did not meet requirements. In 40% of these cases contracts were awarded without a procurement process. A quarter of all problem purchases, spotted by the internal audit team, related to the €8m investment the council made in the relocated visitors’ centre for WWRD’s Waterford crystal operation.

In other areas of spending the auditors could find no evidence of a procurement file on the traffic fine management system; the Tramore Rd improvement scheme; the work at Knockboy junction and repair works on Rice Bridge.

In total the council spent €822,941 on 12 different projects in 2010 where there was no procurement file available for the auditors to inspect.

In the case of €788,328 of spending, the contracts in question were not advertised.

In the case of one construction company on this project there was no evidence of other firms being involved in a tender competition.

Because of this Waterford City Council was told to give back €101,866 in grant aid it got from the European Structural Fund. In total the council had to return €218,952 of ESF money received for the Waterford crystal project because it was not spent according to the rules.

The council said it believed it got value for money.

“Whilst acknowledged that the full rigours of the procurement rules were not adhered to, the adhered to principle of obtaining value for money was of upmost importance,” it told the auditors.

It is never an acceptable excuse for improper procurement to say, "well, we spent the money well, so what's the fuss?"

First, if the rules are not followed, if competition is not sought by effective specifications and needs assessment, what faith should we hold that prices paid were indeed the best obtainable, that the thing acquired was indeed the one best matched to our needs?

More importantly, when shortcuts are taken, they tend to be repeated, and before long there is no rigorous procurement system. There is always a systemic risk created when we try to rationalize away failure to follow the system with after-the-fact valuation satisfaction. 

Best value, value for money, are matters that should be judged, if ever, at the beginning of the process, to assure by rigorous methodology that we have wrung the best price for the most suited product available from the marketplace. Otherwise, it is simply a cover-up.