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Thursday, May 8, 2014

Emergencies: man made vs natural

Deval Patrick Awards Emergency Contract to Save Massachusetts Health Connector
Gov. Deval Patrick's administration will invoke emergency rules — reserved for “an unforeseen crisis” — to sidestep the state’s procurement laws and award a lucrative, no-bid Obama­care contract to Minnesota-based Optum to salvage the disastrous state exchange, the Herald has learned.

Health Connector spokes­man Jason Lefferts said the state is executing the unusual crisis clause “to avoid substantial harm to the functioning of government ... and since the health, welfare or safety of citizens of the Commonwealth is threatened without a functioning (state Obamacare exchange).”

But former state Inspector General Gregory Sullivan said the Patrick administration is abusing the emergency language. “It wasn’t unforeseeable,” said Sullivan, now at the Pioneer Institute. “It was just denied by the administration for months. The administration was well aware of the fact that the Connector project was behind schedule, over-­budget and dysfunctional ... I wouldn’t call this an emergency, and I think it should be competitively procured so everyone has a chance to bid.”
There's obviously more to the story, including what is available in the article at the link, but this snippet is all that is necessary to ask the question, what is an emergency in the context of procurement law?

The first and most obvious point must be made that procurement law is not universal, so your own applicable law must be examined. Thus, without knowing anything about Massachusetts law, you would want to see what "an unforeseen crisis" means, if that is the statutory language as mentioned in the article.

The second point I would make is that that word "emergency" does not mean what many executives believe it means. In my experience on Guam, the emergency procurement method of source selection view with sole source selection as the most abused method of source selection in the book.

Guam's Procurement Act uses the ABA Model Procurement Code as its base, as I've mentioned many times. Guam's emergency procurement provision (method of source selection requirements) is at 5 GCA § 5215. Guam's provision goes into greater detail that the Model Code (§ 3-206), but contains the exact same general requirement:
"Notwithstanding any other provision of this Chapter, the Chief Procurement Officer, ... the head of a purchasing agency, or a designee of either officer may make or authorize others to make emergency procurements when there exists a threat to public health, welfare, or safety under emergency conditions as defined in regulations ...; provided that such emergency procurements shall be made with such competition as is practicable under the circumstances...."
Note carefully that an emergency is not a situation where there "exists a threat to public health, welfare, or safety". Most issues government deals with concern situations where there exists a threat to public health, welfare or safety. The key is the "emergency conditions".

So what is an "emergency"? Here, the ABA Model Code regulation and Guam law (and regulation) differ somewhat.

The ABA Regulation (§ R3-206.01) defines "emergency conditions" as "a situation which creates a threat to public health, welfare, or safety such as may arise by reason of floods, epidemics, riots, equipment failures, or such other reason as may be proclaimed.... The existence of such condition creates an immediate and serious need...." § R3206-02 limits the quantity of supplies, services or construction items to that which is "necessary to meet the emergency", and § R3-206.03 provides a dollar limit on the amount of money that may be spent on an emergency procurement ($25,000 is suggested as an example), and requires approval from the highest procurement official in the jurisdiction.

Guam law differs most substantially from the Model Code in its definition of emergency to rule out man made "emergencies". Comment 3 to the Model Code allows emergency procurement to possibly be justified "because all bids submitted under the competitive sealed bid method are unreasonable, and there is no time to re-solicit...." Thus, the Model Code seems to justify an emergency procurement which was not planned sufficiently in advance of need to account for glitches in the solicitation. One such glitch would be a protest, but the comment itself does not contemplate that kind of routine glitch, only the glitch where all bids are unreasonably priced (a situation often observed in emergency conditions).

This suggests, then, that an emergency must not only affect health, welfare and safety but must be unforeseeable. Guam law specifically mentions this. 5 GCA § 5030 defines "emergency" to mean, in relevant part, "a condition posing an imminent threat to public health, welfare, or safety which could not have been foreseen through the use of reasonable and prudent management procedures". It does not provide the descriptive terminology of the Model Code, "such as may arise by reason of floods, epidemics, riots, equipment failures, or such other reason as may be proclaimed". Under Guam law, for instance, an equipment failure would not justify an emergency procurement if it could have been "foreseen through the use of reasonable and prudent management procedures".

Planning is the first of the four main principles of management (see, as one basic statement example of this notion The Foundation of Management; there are plenty of other more scholarly expositions -- indeed entire texts as studied in business management classes). At the US federal level, extensive guidance is given for procurement execution in the Federal Acquisition Regulations, beginning with FAR Part 7 (Acquisition Plans), with reference to Parts 10 (Market Research) and 11 (Describing Agency Needs). Guam law does not deal with these matters, so the FAR provides useful guidance on best practices in executing the planning principle.

Guam law does provide a planning principle, however, broadly specified in 5 GCA § 5010 (Policy in Favor of Planned Procurement). The policy is expressed in the statement, "All procurements of supplies and services shall, where possible, be made sufficiently in advance of need for delivery or performance to promote maximum competition and good management of resources." This statement is broad enough to encompass procurements conducted by the emergency method of source selection.

It is notable that this provision contemplates the use of competitive "bidding" even in emergency conditions. It says, "Except in emergency situations, lower price bids are generally preferable to shorten delivery or performance bids." In emergency procurement (§ 5215), the minimal requirement is the solicitation of at least three informal price quotations. Thus, Guam law would provide an emergency competitive sealed bid wherein price would be of secondary consideration to delivery time in appropriate circumstances (including the price and time differentials specified in § 5010).

There have been many instances of abused emergency procurements in Guam over the years, including serial/rolling monthly "emergencies" specifically excluded by § 5125 of the law. ("No emergency procurement or combination of emergency procurements may be made for an amount of goods or supplies greater than the amount of such goods and supplies which is necessary to meet an emergency for the thirty (30) day period immediately following the procurement.)

The similarity in these instances with the Massachusetts article above is that such abuse requires the tacit connivance of the Governor. On Guam "In addition to any other requirement, the Governor must approve in writing all authorizations for emergency procurement." But the Guam Legislature has also condoned and facilitated emergency procurement that failed to meet the definition of emergency, through special legislation, as reported by the Guam Public Auditor. The controversy arose from legislation passed to allow fire trucks to be procured outside the bounds of the procurement law. The Auditor's Report described the situation, and her response to what transpired:
In December 2003, the GFD Chief (Chief) requested and received an emergency declaration for the purchase of three fire trucks. In two days, the emergency purchase was awarded to Mid-Pacific Far East for $734,913. Morrico Equipment Corporation (Morrico), another local fire truck distributor, protested the emergency purchase and a lawsuit followed. In March 2004, the Superior Court of Guam issued a preliminary injunction (Civil Case No. CV0152-04) in favor of Morrico and GSA was enjoined from taking any actions to procure the fire trucks. The court further found that “the written determination of emergency by the Guam General Services Agency and the Guam Fire Department dated December 31, 2003, failed to comply with requirements of 5 G.C.A. §5425 for the procurement of Fire Trucks in this case and any actions taken in furtherance of the procurement is void pursuant to §5425(g).” To date, there have been no further proceedings on this case.

In June 2004, the Chief testified on Bill 295, which would appropriate $600,000 and waive procurement requirements for the emergency purchase of fire trucks. In his written testimony, the Chief did not disclose the preliminary injunction. Bill 295 was signed by the Governor and became Public Law 27-99; however, the Governor raised concern on Public Law 27-99 that GFD and GSA lacked guidance to make the necessary procurement because it waived all methods of procurement.

In September 2004, GSA issued requests for quotation for the purchase of fire trucks to three local vendors: Mid-Pacific Far East, International Equipment of Guam, and Morrico. GSA allowed only four days for the three vendors to respond to over 100 pages of specifications. Mid-Pacific Far East was the only vendor to submit a price proposal in the four-day time period allotted.

Four days for vendors to respond to over 100 pages of specifications was unreasonably short.

GFD has not been provided a consistent source of funding to replace fire trucks and ambulances. Because of this lack of consistent funding, GFD has had to resort to emergency requests whenever the number of fire trucks and ambulances are precariously low. The passage of P.L 27-99 permitted GFD to purchase two fire trucks without conforming to standard procurement practices, thus, setting a precedent allowing emergency purchases to be obtained without following emergency procurement regulations.

We recognize the Government of Guam’s current financial difficulty, unless a consistent funding source is provided to GFD for the purchase of necessary emergency vehicles and equipment, GFD will continue to resort to emergency requests for these purchases. We urge the Legislature to discontinue passing legislation that waives procurement regulations of any purchase. Even the Governor raised concern over the lack of procurement procedures in P.L. 27-99. We recommend that GFD develop a 5-year and 10-year capital replacement plan and submit the plans to the Legislature to ensure that GFD receives the needed funding for the purchase, maintenance and upkeep of its emergency vehicles and equipment.
There are many principles of procurement, including the fostering of competition to achieve maximum economic benefit to meet the basic needs of the public, and providing fairness, equal treatment, transparency and accountability -- and insisting on planning and other prudent management techniques. But to some extent many of them, in certain cases, conflict. We can insist on efficiency, for instance, at the expense of transparency and accountability.

The principle of planning is intended to ameliorate inefficiency. If we are going to excuse inefficiency, by for example resorting to emergency procurement of supplies or services whose need was well foreseeable, we need to counter-weigh the diminished application of the planning principle by increasing, for instance, the application of the accountability principle.

In simpler terms, management heads should roll.

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