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Monday, December 22, 2014

Procurement controversy -- Incorrect Corrections in Mississippi

State awards billions in no-bid contracts
State government spends billions of taxpayers' dollars — nearly $6.5 billion in the last four years — through "no-bid" contracts, with little oversight or transparency. It's a system ripe for overspending, malfeasance and cronyism. And it's one that apparently allowed corruption to fester for years, with the head of the state prisons system allegedly taking $2 million in bribes to hand out hundreds of millions of dollars in no-bid contracts. A Clarion-Ledger analysis of state records in the wake of that scandal discovered not only a lack of accurate data on no-bid agreements but numerous contracts with little or no explanation.

These include contracts given to sole-source vendors, whose products and services state agency officials claim no one else can provide, contracts with those whose professions are exempt from bidding and "emergency" contracts. It also includes contracts with dollar amounts that fall below generous state thresholds for bidding.

Some state officials concede Mississippi government has a contracting system with thresholds for bidding that are too high and with too many exemptions. They also say there appears to be abuse of provisions for emergency contracts and overall lax oversight, provided primarily by a board of the same state agency leaders who are inking the contracts.

In general, state agency leaders within liberal limits can hire whomever they want for whatever price they decide. Need to hire a motivational speaker? No bidding is required as long as it's under $100,000. Need an accountant or engineer? No bidding or approval needed because their services are exempt. Need a media consultant? No bidding is required if you declare it an emergency.

"At this point, I do not have proof that there is corruption (beyond the prisons scandal), but I think the Legislature in the past that set up this review board and system made it awfully easy for corruption to exist," said House Accountability, Transparency and Efficiency chairman Jerry Turner, who's leading the charge for reform.
MDOC Scandal Highlights Privatization Problems
Facing a federal magistrate judge in Jackson, Chris Epps and Cecil McCrory made a curious pair. Despite receiving his appointment to one of the most visible posts in state government from Democratic Gov. Ronnie Musgrove, Epps was also able to survive Mississippi's hyper-partisan government, later serving under conservative Republicans Haley Barbour and Phil Bryant. McCrory, Epps' alleged co-conspirator, seemed to have been a key cog in that system. A former legislator who held a number of elected political positions as a Republican, McCrory knew all the ins and outs of state government. During his time in the Legislature, he served on the Joint Committee on Performance Evaluation and Expenditure Review (PEER), the very agency that would later raise questions about McCrory's business dealings with the state. At their arraignment before U.S. Magistrate Judge Keith Ball, both men pleaded not guilty on all counts.

The alleged activities outlined in the indictment began seven years ago, in November 2007, when Epps signed a no-bid contract with G.T. Enterprises for commissary services at state prisons. That year, McCrory paid Epps $3,000 to $4,000 on about 15 occasions in exchange for the contract that McCrory's company's had with MDOC. That contract was later transferred to St. Louis, Mo.-based Keefe Commissary Network LLC., which resulted in a large profit for McCrory, the indictment states.

Despite PEER's criticism of Epps' no-bid contract for commissary services in 2011, policymakers failed then to take action on the report. Rick Ward, a former official with the Mississippi Gaming Commission, called PEER, which performs thorough investigations but lacks any enforcement power, a paper tiger. "The problems is you've got members of the Legislature on the commission—that's like the fox guarding the henhouse," Ward said. "It's a waste of our taxpayer dollars."
Prison review group examining no-bid contracts
Republican Gov. Phil Bryant appointed a bipartisan, five-member task force to examine the Mississippi Department of Corrections' spending practices after former Corrections Commissioner Christopher Epps and businessman Cecil McCrory were indicted last month on federal corruption charges.

"What we're going to do is try to review all the contracts that have been involved in this indictment and also all the other contracts for the Department of Corrections to see if we can change some of the practices, maybe close some of the loopholes that caused this big mess," said one of the members, former Attorney General Mike Moore. "As you know, taxpayer money must be spent to serve the needs of the public, not to perpetuate ineffective contracts or enrich government officials," Bryant wrote.
Lawyers: Epps said prison companies 'spread' money
During 2011 negotiations, then-Corrections Commissioner Chris Epps said he couldn't get rid of Mississippi's private companies running prisons "because of all the money they spread around Jackson," attorneys told The Clarion-Ledger. His remarks took place during the time when federal prosecutors say Epps was receiving more than $700,000 in bribes, including a beachfront condo.

In early 2011, Margaret Winter, associate director of the ACLU, and Sheila Bedi, then-deputy legal director for the Southern Poverty Law Center, had a meeting with Epps, which they say was also attended by Department of Corrections officials, attorneys and consultants. Bedi said Epps gave her the impression he desired to hold the private prisons accountable, but his hands were tied. She said she thought, "This is a progressive reformer beating his head against the wall." Winter said she asked Epps point blank, "Why don't you just get rid of the private contractors? We all know they're part of the problem, not part of the solution." Bedi said Epps went on to say that it was impossible to get rid of the private contractors "because of all the money they throw around Jackson."
Christopher Epps, Former Chief of Prisons in Mississippi, Is Arraigned The indictment says that Mr. McCrory operated several companies that had contracts with the state, including for prison administration, commissary services and evaluating Medicaid eligibility across the state prison system. Mr. Epps, 53, had been Mississippi’s longest-serving corrections commissioner until he resigned Wednesday. He had been president of both the Association of State Correctional Administrators and the American Correctional Association until his resignation. Mr. McCrory resigned as president of the Rankin County School Board on Wednesday within hours of Mr. Epps’s resignation.

In addition to owning companies with state prison contracts, Mr. McCrory was a paid consultant to firms seeking such deals in Mississippi, including the Management & Training Corporation, a private company based in Utah that operates the East Mississippi Correctional Facility in Lauderdale County, Miss. According to the indictment, around the time that Mr. Epps signed a contract with the Management & Training Corporation to run the prison in August 2012, Mr. McCrory — the company’s consultant — wired $34,000 to Wells Fargo Home Mortgage as a payment on a condominium Mr. Epps had recently bought in Biloxi, Miss. Mr. Epps, according to the indictment, had suggested that Management & Training Corporation hire Mr. McCrory as a consultant, and had also negotiated Mr. McCrory’s fee. “I got us $12,000 per month,” Mr. Epps told Mr. McCrory, according to the indictment. Prosecutors say the two men split the money after calculating how much tax Mr. McCrory would have to pay on the fee. Mr. Epps eventually signed a number of contracts with the management corporation to provide various prison services, including a no-bid contract in October 2012 — just weeks after Mr. McCrory paid another $14,000 on Mr. Epps’s condominium, the indictment said.

Mr. McCrory’s initial payment to Mr. Epps, according to prosecutors, was in 2007, after Mr. Epps had awarded a no-bid contract to G. T. Enterprises, a firm owned by Mr. McCrory, to supply commissary services to the prison system. Mr. McCrory went on to pay Mr. Epps $3,000 to $4,000 15 different times, and Mr. McCrory later sold the commissary business at a substantial profit, prosecutors said.
State contracts: Where should Miss. look for reform?
Past legislation aimed at reform — which was killed — is being revived and has a much better chance at passage. The state also can look to others that have reformed no-bid spending and contracting, which can be a breeding ground for corruption and overspending. "There are some opportunities here for changes in the way the state does business," said former Attorney General Mike Moore, a member of the task force. He and others on the task force said they will look for "best practices" in other states.

One of those might be in Washington state. State law there requires agencies requesting a sole-source contract to make that request public for at least 10 days prior to the contract start date. The Washington Department of Enterprise Services publishes the proposed no-bid contracts on a website. Washington, D.C., has a similar 10-day public posting of intent to award a no-bid contract.

In Iowa, such requests for sole-source contracts also are made public, and the agency must fill out a lengthy questionnaire explaining why a particular vendor is the only one who can provide a good or service and detailing what research went into this finding. The request is posted for at least five business days on Iowa's bid opportunities website, which would allow other vendors to see the request and potentially make bids.

In Pennsylvania, Gov.-elect Tom Wolf made enacting a ban on no-bid contracts with private law firms part of his campaign platform. He vows to issue an executive order banning what he called "crony contracts" with law firms, placing a cap on fees paid to lawyers and making the process transparent online.
Website not designed to track no-bid contracts
The scope and scale of the state's multibillion-dollar business with preferred vendors remains shrouded in darkness despite a 2008 law demanding transparency in government spending.

Mississippi agencies awarded nearly $6.5 billion in no-bid contracts to at least 1,807 individuals and businesses in the past four years alone, according to a Clarion-Ledger investigation. But the public would never know this by viewing the state Transparency website, which the law requires to house agency contract information.

Built and maintained on a shoestring budget by the state Department of Finance and Administration, the website contains countless contract inaccuracies caused by software glitches and human error, making it nearly impossible to know the true number and value of no-bid contracts. It's also impossible to view a list of just no-bid contracts — accurate or not — because the website doesn't track or store them that way. Neither does the Department of Finance and Administration, which, when asked for a list of such contracts, pulled it directly from the website.

But the biggest problem is that no one anticipated the need to examine no-bid contracts on a statewide scale. "The concept of no-bid is an entirely new concept to me that came out of the Epps scandal," said DFA Executive Director Kevin Upchurch, referring to the recent federal indictment of former state Corrections Commissioner Chris Epps.

It took more than two weeks of exhaustive analysis and fact checking by The Clarion-Ledger and several records revisions by the DFA — which provided assistance in the effort — to produce a viably accurate list of no-bid state contracts. Sortable by vendor, agency, contract date and dollar value, the list shows not only who gets the most cash without having to compete for it but also which agencies ink the most agreements and why. But the list is stagnant. Contracts awarded after its completion won't appear unless someone continues to track them.

It's the basis for a series of questions about the way state government operates, and perhaps chief among them are these:

•Is this the first comprehensive list of no-bid state contracts ever created in Mississippi?

•Has no one in state government tracked this before — not just posted data on a website but really tracked and analyzed it?

•And if not, should someone start, especially in light of the Department of Corrections scandal?


Sunday, December 21, 2014

Change in evaluation method or quantity requirements from specifications

You are reminded that cases and articles are typically sliced, diced, rearranged, paraphrased and otherwise edited to my own ends, plus I often leave out necessary or other interesting material, so you must read the whole piece at the link rather than rely on my rendition.

GAO Decision Matter of: CGI Federal Inc.. File: B-410330.2, Date: December 10, 2014
CGI Federal Inc., of Fairfax, Virginia, protests the award of contracts to five other offerors under request for proposals (RFP). The RFP here, which is a follow-on to previously awarded contracts for system design and development and the production of limited deployment units, contemplates the award of contracts pursuant to which production units for unit, force, and submarine platforms will be ordered on a build-to-print basis. The RFP provided for the award of up to three indefinite-delivery/indefinite-quantity (ID/IQ) contracts with firm-fixed-price (FFP) and cost-plus-fixed-fee (CPFF) contract line items (CLINs).

The SSAC recommended that despite the solicitation language indicating that the agency intended to award up to three contracts, award be made to the five top-ranked offerors. In conjunction with its decision to increase the number of awards, the agency decided to change its strategy for placing delivery orders with the selected contractors. Specifically, the agency decided that it would not place 3-4 orders of larger quantities of CANES units annually as originally planned, but rather it would issue more orders for smaller quantities of CANES units in order to achieve more competition on a per order basis.

CGI raises a number of challenges to the agency evaluation of proposals. As a threshold matter, the protester argues the agency used a flawed price evaluation methodology, which produced a misleading result. In this regard, CGI contends that the agency knew prior to award that the solicitation’s stated approach to evaluating offerors’ prices, based solely on the highest order level of 15 units, departed from how the agency actually intended to order the units, which was to place orders for much lower levels. Accordingly, CGI maintains that the agency should have amended the solicitation’s price evaluation scheme to comport with the agency’s actual ordering needs.

CGI contends that the agency’s price evaluation methodology, which provided for comparing offerors’ prices at the maximum order level of 15 units, did not match the agency’s planned ordering needs as determined by the agency prior to award. Given this disconnect, the protester argues that the agency was required to amend the solicitation’s evaluation scheme to provide a reasonable basis for comparing offerors’ prices, one which matched the agency’s ordering needs. CGI further maintains that if the price analysis had been based on offerors’ NTE unit prices for quantities of 5 per delivery order, which is far more in line with the agency’s revised acquisition strategy, decision. its evaluated price would have been [deleted], rather than highest, which would clearly have had an impact on the best value tradeoff.

This case turns on two fundamental principles. One is that, while it is up to the agency to decide on some appropriate and reasonable method for evaluating offerors’ prices, an agency may not use an evaluation method that produces a misleading result. Raymond Express Int’l, B-409872.2, Nov. 6, 2014, 2014 CPD ¶ 317 at 6; Air Trak Travel et al., B-292101 et al., June 30, 2003, 2003 CPD ¶ 117 at 22. That is, the method chosen must include some reasonable basis for evaluating or comparing the relative costs of proposals, so as to establish whether one offeror’s proposal would be more or less costly than another’s. Id.

The other is that where an agency’s requirements materially change after a solicitation has been issued, it must issue an amendment to notify offerors of the changed requirements and afford them an opportunity to respond. Federal Acquisition Regulation (FAR) § 15.206(a); Murray-Benjamin Elec. Co., L.P., B-400255, Aug. 7, 2008, 2008 CPD ¶ 155 at 3-4.

For example, where an agency’s estimate for the amount of work to be ordered under an ID/IQ contract changes significantly, prior to award, the agency must amend the solicitation and provide offerors an opportunity to submit revised proposals. See Symetrics Indus., Inc., B-274246.3 et al., Aug. 20, 1997, 97-2 CPD ¶ 59 at 6. In Symetrics, our Office concluded that the agency should have amended a solicitation for an ID/IQ contract because although the solicitation initially estimated the agency would require 3,755 sequencers, the agency subsequently learned--prior to award--that the agency no longer had a requirement for 3,219 of the sequencers. Id. Similarly, in Northrop Grumman Info. Tech., Inc., et al., B-295526 et al., Mar. 16, 2005, 2005 CPD ¶ 45 at 13, our Office sustained a protest where the Department of the Treasury, prior to award, negotiated a memorandum of understanding with OMB and the General Services Administration that significantly changed the approach set forth in the solicitation and the FAR for determining whether to exercise contract options, making it significantly less likely that the options, which were part of the evaluation, would be exercised.

The circumstances here are unusual in that the meaningfulness of the price evaluation scheme set forth in the RFP changed between the closing date for receipt of FPRs and the date of award. That is, the record reflects that it made perfect sense to evaluate on the basis of 15/each unit pricing when the agency intended to award three contracts and issue 3-4 delivery orders per year. Evaluating on the basis of 15/each unit pricing no longer provided a rational basis for comparison, however, when, during the source selection process, the agency decided to increase the number of awardees to five, and to alter its ordering strategy to significantly increase the number of delivery orders annually, thereby decreasing the number of units to be acquired per delivery order.

Given this fundamental shift in the agency’s anticipated ordering plans, it was unreasonable for the agency to proceed with a price evaluation methodology that was divorced from these plans. Rather, the appropriate course of action was for the agency to amend the solicitation in a manner that would enable it to evaluate, and make a tradeoff decision based on, the offerors’ relative relevant prices.

The agency defends its actions on the basis that it followed the terms of the solicitation and that all offerors competed on an equal basis because the solicitation did not establish that the agency would, in fact, place orders at the 15/unit level. Regarding the latter point, the agency notes that offerors were to submit prices at each level and should have understood that orders could be placed at any of the 15 price levels. The agency’s arguments, however, miss the point.

We agree that the agency followed the terms of the solicitation, and that the offerors submitted prices on an equal basis. The problem is that the price evaluation, and resulting selection decision under which CGI did not receive an award due to its high price, were based on comparing prices for quantities of units that the agency now knows it does not intend to order.
We recognize that price evaluation in the context of an ID/IQ contract may be representative, and therefore something of a fiction; nevertheless, the fiction employed must bear some rational relationship to the agency’s needs. See CW Govt Travel, Inc.--Recon.; CW Gov’t Travel, Inc., et al., B-295330.2 et al., July 25, 2005, 2005 CPD ¶ 139 at 4-5.
Where the agency’s intended ordering strategy does not anticipate placing orders at the 15 unit per order level, we fail to see how comparing prices at this level, and using such prices as the basis for a tradeoff decision, can be understood to be reasonable. As explained above, where the disconnect between the terms of the solicitation and the agency’s order needs became apparent prior to award, it was incumbent on the agency to instead amend the solicitation to correct the flaw in the solicitation.

CGI further contends that the agency failed to conduct a price realism analysis, as required by the terms of the solicitation, and that it failed to recognize that the prices of one of the awardees were unbalanced. CGI also argues that the agency engaged in unequal discussions, assigned its proposal too low a rating for past performance, and unreasonably assigned NG’s proposal a performance confidence rating of satisfactory. We deny the protester’s remaining arguments.

Friday, December 19, 2014

Another coop contract flies the coop

State to investigate contracts to Austin company
The Travis County District Attorney’s office [yes, THAT Travis County District Attorney's Office] and the Texas State Auditor will investigate how a company here won $110 million in state contracts without any competition, officials announced Thursday as the deals drew increasing condemnation and calls for reform.

Gregg Cox, director of the district attorney’s Public Integrity Unit, said he expects to open a criminal inquiry following two formal complaints into the now-canceled Medicaid fraud detection contracts given to Austin technology firm 21CT by Jack Stick, who last week resigned as general counsel at the state Health and Human Services Commission amid allegations of favoritism.
Perry: Top official resigning over no-bid contract
The widening fallout over $110 million in no-bid state contracts awarded to an Austin tech company forced the resignation of a second top state official Friday, this time at the request of Republican Gov. Rick Perry, as criminal prosecutors prepare for a likely investigation into the taxpayer-funded deal.

Texas Health and Human Services Commission Inspector General Doug Wilson submitted his resignation after the governor expressed a loss of confidence, Perry spokeswoman Lucy Nashed said. Wilson's office is in charge of preventing waste and abuse within Texas' massive health agency.
Travis DA to open criminal probe of $110 million contract award
Minutes after Cox's confirmation, Executive Commissioner Kyle Janek released a statement saying he had asked the state auditor to look into the actions of the commission, as well as the state Department of Information Resources, whose pre-approval of 21CT's product allowed Stick to use the no-bid process. "I am confident that (State Auditor John Keel)and his office will follow this investigation wherever it may lead, and I will act immediately on any findings," Janek said.

A spokesman for Gov. Rick Perry, meanwhile, indicated the governor thinks the matter should be reviewed internally.

In response to the certainty of further scrutiny, 21CT CEO Irene Williams issued a statement saying the company "welcomes any review into our good work for the State of Texas [see tag "No harm no foul?"] to validate our patented analytics technology." "We are saddened by the false innuendo and unsubstantiated claims made by self-interested competitors who attacked a procurement process that (the state) asked us to follow...."

Janek canceled the contracts last Friday, saying he had discovered that 21CT had won the massive project despite four other companies submitting more detailed information about their ability to do the job. He also scrapped a second 21CT agreement, a $452,000 pact with the health commission's Child Protective Services agency for software to track child abuse investigations.

Both projects were awarded through a no-bid process that typically is used for small technology purchases, such as school printer cartridges. Over the past five years, the average purchase through the process, called the Cooperative Contract program, has been just $3,493, according to a Houston Chronicle analysis.

Related recent post re cooperative purchasing: Procurement controversy -- District of Columbia streetcar deal

Thursday, December 18, 2014

Are we bidding on supplies or suppliers?

The article for this post is very long, and very good and worth the read in its entirety. You probably would do well to just skip this post and go directly to the article at the link, although I have offered a few comments down below, after presenting bits of the article in my usual fashion of slicing and dicing it beyond recognition of its author. 

The author is Charles Shafer, a principal consultant with Red Team Consulting, a consulting, capture and price strategy consulting firm.

Why big procurements struggle and what can be done about it
There’s a wealth of constantly evolving IT products available that can be leveraged to answer some of the most difficult missions in government. Six different government entities took similar approaches to that business problem by creating large, long-term, high-volume, billion-dollar contracts by essentially vetting an initial group of government-savvy manufacturers and resellers. This process gave them each a contract where these companies compete on a daily basis for government IT commodity requirements by offering the latest technology at the best prices.

These contracts, which are task order contracts, have long been a very successful and useful tool. Many of these contracts are in their second or third iteration. And all of these contracts were opened again for competition in this decade, offering an opportunity for new technology resellers and manufacturers to earn a spot on these contracts and force existing awardees to compete again to maintain their position.

These procurements were conducted by six different contracting offices, working with completely different program offices, over the course of four years. Some of the solicitations contained traditional evaluation factors such as past performance and management approach, and some discarded with these factors entirely. Some used a multi-phased approach that rejected proposals in stages and others attempted to do all their evaluations at once. Some of these procurements were made up of smaller contracts that separated businesses based on their size and socio-economic profiles, while others lumped all contractors together.

However, there are a few commonalities that each of these procurements share. Each procurement required bidders to propose products that fit a profile of specifications given by the government. In each solicitation, the products covered a wide spectrum of technology, from basic personal computers to enterprise-class equipment. Many of the procurements had a long list of products, sometimes hundreds of items long.

The flexible nature of these contracts means the government is not obligated to buy any item from that original list, and it is widely known that proposing items against this list is done primarily for proposal evaluation purposes, and has little to do with post-award activities. Because these contracts allow you to regularly change your catalog post-award, you can propose a product with the initial submission that is compliant and cheap, but you know to be inferior and undesirable, with the intention of replacing it or putting another item on the contract post-award.

That’s because each of these contracts has a mechanism known as “technology refresh” and “technology insertion,” which allows bidders to update the list of products they offer after award. These mechanisms are necessary to keep pace with a rapidly changing technology market. It is important to remember that the government is not buying any initial products with the creation of these contracts. They simply serve to initiate the vehicles that will later fulfill billions of dollars of competed delivery orders after award. This creates an environment where the initial pricing submission has little basis in reality. [See, Are we hard wired to corrupt our procurement systems?]

In every case, the government used this initial list of products as a pass or fail measure for the technical evaluation factor. That means a bidder had to provide a combination of technology products that met every single specification the government marked as mandatory to be eligible for an award. The list of requirements attached to a single product could sometimes be 20 or 30 specifications long. When you multiply this list by the dozens or sometimes hundreds of products, you end up with individual pass/fail elements that can go well into the thousands.

The vast number of requirements caused significant delays during the proposal phase and much longer delays during the government’s evaluation and award periods. In many cases, the technical requirements for a product were initially unclear, impossible to fulfill, or specific to a single manufacturer.

Because these were pass/fail requirements that could invalidate an entire bid with one deficient response, bidders asked questions to clarify requirements. The delays and frustrations during the proposal period were nothing compared to what actually happened when the government began evaluating proposals. In a perfect world, with plentiful and skilled resources and no gray areas, it would take an evaluation team several months to properly evaluate and document the number of proposals received. At best, the products list evaluation method is a time consuming endeavor, and at its worst, it’s a liability for litigation.

Most often, evaluators compare the prices of bids by looking at the entire price of a bid, known as a total evaluated price (TEP). Because the price of some products are significantly less than others (for example, an LCD monitor and an enterprise-class storage system), certain products, based on their price and quantity, end up contributing much more to the TEP than other products.

In industry, we call this “weighting,” meaning that one product “weighs” more than others as far as its impact on pricing. Extreme weighting give rise to a pricing methodology known as gaming.   All of these procurements had weighting issues.

With these options, each bidder is presented with a much lower risk when understating prices. Bidders know to understate the price on the most heavily weighted items - it’s grade-school math.

This gaming approach has become the standard rather than the exception on these large procurements. This has created a downward spiral with each bid, as prices move lower and lower, becoming less and less realistic while testing business ethics.

The government is fully aware that gaming happens. It’s not a practice that was created by the technology commodity industry and it has been practiced for some time. There is an entire acquisition regulation dedicated to gaming, which the government addresses as “unbalanced pricing.”

They define this in FAR 15.404-1: “Unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly over or understated as indicated by the application of cost or price analysis techniques.” The government has the right to reject offers for unbalanced pricing.

Once the government makes it over the solicitation hump and has an actual contract these contracts can be greatly beneficial to the government. They are dynamic and responsive to technology needs and can often be updated much faster than a GSA schedule. The competitive aspects of the contract drive down prices on products while also offering technology solutions the government might not have previous considered.

I believe there is a middle ground.

The proposed list of products should be vastly simplified, in both number of products and specifications. If the likelihood of a contractor having to deliver on their initial list of products is very low, then it should be reduced to a simple exercise for both industry and government. Using a much shorter list of products that are widely available and compliant with government standards, like laptops and monitors and servers, will ease several pre-award problem areas.

The key is to make the product evaluation portion simple. The government should rely more heavily on subjective evaluation factors like corporate experience, past performance, and written technical and management approaches. Detailed corporate experience and past performance information are reliable sources for evaluation in this industry as it’s not something that is often fabricated.
To me, the difficulty with this approach is that the government has given up trying to get the supplies it needs, because it cannot specify the products needed in the quantities needed fast enough to meet the demands of the consuming end users. The information from the using agencies is streaming at the procurement officers through a fire hose, or the pit stop re-fueling systems used in the Indy 500 races. With the scale down of procurement staff, there is not enough procurement broadband to deal with it all.

To deal with it, the government has turned to trying to get the supplies it needs to getting intermediaries, who get the supplies it needs. Thus, a solicitation for things turns to a solicitation for services. This may be a thoroughly rational approach, but it has flow on consequences that should be ameliorated. (Not to mention the hint of a inherently governmental function factor: see, To procure or not to procure: is that the question?

Mr. Shafer says, "Anyone who has spent time developing proposals for federal contracts will tell you that much of the evaluation process is subjective, except when it comes to pass/fail evaluation factors. Those should, by definition, be black or white." What is really being said here is that product evaluation for supplies is more objectively testable ("black or white") than the evaluation of service providers (which "is subjective").

Mr. Shafer endorses this approach because it focuses on the old-boy network of tried and true service providers. The problem I have with that is there is nothing in this approach that weeds out the gamers he mentions, and the more the same network is relied upon the narrower that network gets. 

To provide the integrity that is essential to have confidence in outsourced procurement services, critical solicitation and contract administration over the service-providers should be ramped up, and the mix of service providers should be competed far more than once a decade or so ("all of these contracts were opened again for competition in this decade"). And, maybe, it would not hurt to decentralize some of the commodity purchases ("IT commodity requirements") to more users.

Wednesday, December 17, 2014

The always optimistic efforts to improve US DOD procurement


This post links to recent articles down below on yet another discussion to improve US defense procurement. The comments are surely interesting, maybe helpful. 

But, to put this in perspective, I begin with some observations by Prof. James F. Nagle, in his excellent study, "History of Government Contracting" (2nd Edition 1999).
If someone were asked to devise a contracting system for the federal government, it is inconceivable that one reasonable person or a committee of reasonable people could come up with our current system That system is the result of thousands of decisions made by thousands of individuals, both in and out of government. It reflects the collision and collaboration of special interests, the impact of innumerable scandals and successes, and the tensions imposed by conflicting ideologies and personalities.

Much of the country's contracting history has been spent trying to find the best combination of three factors: the right contracting apparatus, the right government-contractor relationship, and the correct contract form itself.

In its search for an efficient, fair, and reasonably priced procurement apparatus, the government has tinkered endlessly with its procurement agencies. It has experimented with centralized czars of government-wide procurement, decentralized, overlapping contracting agencies; and variations in between. Originally, contracting officers were vested with a great deal of discretion, hampered by very few regulations which constricted their judgment. They could adapt contracts and clauses to individual circumstances. Throughout the nineteenth century ... that discretion decreased.

In 1984, Congress enacted the Competition in Contracting Act (CICA). CICA required agencies to obtain "full and open" competition -- the new hallmark of government contracting -- so taxpayers received the best possible value for their funds. To ensure that all responsible sources could submit sealed bids or competitive proposals, Congress mandated extensive requirement for advertising, and struck down obstacles to competition. This completed a philosophical shift from the earliest days of the country. Now, while no one had a right to a government contract, everyone has a right to know about and compete for government contracts.

Believing that a strong mechanism was needed to enforce competition, Congress enlisted a powerful and unlimited army -- disgruntled competitor! CICA strengthened the protest process If Congress thought more protests would check abuses and assure the health of the system, it got its wish. But the result was slower procurement, more paperwork, and more expense for both contractors and the government.

From 1983 to 1989 the country experienced a collective angst that fraud and inefficiency permeated government contracting. Acting on that premise, Congress and the agencies tried behavior modification on a grand scale, adding dramatically to the process' paperwork, complexity, and risks. Professor William Kovacic points out that the 1980s revisions made three basic assumptions about the procurement system: (1) the government purchasing officials lacked the ability to choose suppliers as wisely as their private sector counterparts: (2) government purchasing officials needed greater tools to identify and prosecute contractor misconduct; (3) contractors were beset by sloth and corruption.

Between 1989 to 1993 came the recognition that such harsh medicines caused some unpleasant side effects. Government contracting had become so paperladen and fraught with financial and criminal risk that contractors shunned federal business or inflated their bids to compensate.

[More and more reforms were implemented, many criminalizing contractor misbehavior.] Professor Kovacic notes that the 1990s reforms reveal a long overdue awareness that procurement regulation is not free;

1990s reforms represent a realistic look at the problems caused by incompetence, fraud and a knee-jerk reaction to such maladies; These reforms took a comprehensive approach and made fundamentally different assumptions regarding the participants; Where the 1980s had assumed government personnel were lazy, incompetent or inefficient, the 1990s saw them as innovative hard workers who should be freed of the restrictions placed on their ability to devise flexible solutions to individual problems; Where the 1980s had assumed contractors were greedy criminals, the 1990s recognized that most contractors are industrious resources willing to fulfill the government's needs with ingenious solutions for a fair price.

The situation is as healthy as any I can recall in the history of peacetime government contracting.  That is not to say it is idyllic. Protests and lawsuits still abound. Contracting officers trained in the old system still refuse to change and many contractors still try to cheat.

My fear is that laws can not change human nature. Some contracting officer somewhere will make a stupid or corrupt decision; Some contractor somewhere will pounce on the situation to defraud the government; Headlines will blare; Congress will overreact; and the cycle of contracting reforms will continue.
The articles?

Efforts underway to improve Pentagon’s procurement system

(Also reported as Experts, lawmakers optimistic for changes to the way Pentagon buys technology)

Acquisition Reform: It’s Mostly Up to Congress





Are we hard wired to corrupt our procurement systems?

The following article is, in original form, quite long, and a compelling story.  This extract is only a taste, and you really would do well to read the whole piece at the link.  It is a fine example of the difficulties government has in outsourcing services to private contractors.  

No worries; some day robots will provide all our services, and surely they will be much more uniformly competent, reasonable, selfless, up-datable to the latest technology and software, and unobtrusive, as well as inexpensive and non-proprietary?

Insiders’ rules: How government ‘wires’ contracts to get the people it wants
In this trial, one of the largest ever involving alleged white-collar crime, Canadians have been afforded rare glimpses into a government procurement system that is billed as competitive, open and fair but is actually riddled with tweaks and quirks that give bureaucrats significant power to determine outcomes.

It’s why the accused formed bidding alliances that are now a central issue in the ongoing trial in the Ottawa courtroom of Superior Court Judge Bonnie Warkentin. A 14-member jury is left to sort out whether those alliances were made known to federal contract officials, as required by the Competition Act.

While events leading to the trial occurred nearly a decade ago, little fundamental about the system has changed, the Citizen has determined through dozens of interviews with consultants, suppliers and former government contracting officials.

Suppliers have lived with the reality of rigid bureaucratic control for so long, it seems almost normal. They no longer think it odd that when departments issue a call for bids or proposals, the first order of business is to analyze the documents for evidence of ‘wiring.’

They’re looking for signs the government has already identified the winner or a preferred candidate. If it has, there’s usually no point in wasting time and money preparing a proposal that can easily run to 100 pages for something as simple as providing a few computer technology experts under contract.

“We see it all the time,” says the vice-president of a firm that has secured more than $100 million dollars worth of technology services contracts over the past decade from the federal government. “If it’s wired, we just move on to the next bid.”

Potential suppliers can tell if a request for bids is wired because the documents demand skills or experience so specific that only one or two firms can meet the minimum standard. Often these skills bear startling similarity to those possessed by contractors already on the job.

This is the real clue as to what’s behind this complex process — and the reason for it is simple: There’s an inherent conflict between running competitions and the desire of federal departments to solve practical problems by purchasing the services of specific, experienced consultants.

a central objective for many public servants is to ensure that important departmental projects get done on time and within budget. Whether this involves refurbishing the House of Commons or upgrading computer networks, government managers keen to avoid scandal want the best professionals possible on the job.

Thanks to many years of government downsizing, public service managers can no longer count on finding them in-house. So they purchase the know-how from the private sector. An estimated 60,000 private contractors or consultants are on the job at any given moment including about 25,000 in the National Capital Region alone. Not only do many of them work alongside full-time government employees, the departments involved have come to rely on them heavily.

This was certainly the case at the Canada Border Services Agency, which issued eight of the requests for proposals that are at the heart of the trial into alleged bid rigging.

“Because of their skills, consultants were actually the team leaders in the design and architecture (of computer systems),” Daniel Imbeau, a former manager with the CBSA, testified earlier this month. “A lot of times they were training our employees.”

The consultants, though, operate under finite contracts. When these come up for renewal, the CBSA and other departments are left to figure out how to make sure the right consultants – the incumbents — return.

The complication of course is that the government cannot – as a matter of sheer practicality – negotiate contracts with tens of thousands of individual consultants. They need to sign up with a corporate supplier such as Veritaaq, which in turn holds a contract with the government.

What we end up with is this world of artificial or constrained competition – in which federal departments make clear which consultants the suppliers should put forward during competitions. In many ways, consultants are just an extension of the public service. If they were employees, there would be no confusion about roles and no need to conduct competitions for their services.

Departments have every right to insist on certain types of experience and training, as long as they don’t cross the line and break the rules while they’re bending them in the direction they want.

Such was the case for instance with a major moving services contract sought by Envoy. The government last month revealed it had finally settled out of court, after agreeing to pay Envoy $35 million in lost profits and other damages. Envoy lost competitions against Royal Lepage Relocation Services (now Brookfield Global Relocation Services) in 2002 and 2004 – thanks to a rigged request for proposals.

Superior Court Justice Peter Innis noted in a ruling last year that the government “had acted intentionally to unfairly favour Royal Lepage Relocation Services, the incumbent.” Public Works officials had done so, he added, by weighting the technical aspects more heavily and, most crucially, by misleading Envoy about the true costs of providing property management services.

Innis concluded that Royal Lepage had used its insiders’ knowledge to reflect the fact hardly anyone actually used property management services while Envoy bid “using the grossly over-estimated values of PMS” described in the bid documents.” The inevitable result: Envoy lost.

The $1-billion-a-year informatics niche – which includes more than 200 firms in the Ottawa area alone — provides uniquely fertile ground for wiring. In part this is because its job descriptions are so complex. Knowledgeable bureaucrats can and do exclude consultants by requiring one extra computer language or one additional year of experience in an obscure software application among the compulsory features of a bid.

The level of detail in the requests for proposals is extraordinary. For example, CBSA last year published a 404-page RFP that listed nearly 100 technologies at play in the agency’s communications systems. The document noted that CBSA wanted to fill or renew hundreds of positions for information technology consultants involving 43 different categories of technical expertise.

On top of that, a supplier had to have done at least five information technology contracts each worth in excess of $1 million during the previous five years. Three of them had to have involved a government client.

The requirements prompted a lot of angst.

“As currently structured this RFP has the potential to prevent a notable majority of the vendors presently providing these services to CBSA to qualify,” one potential supplier wrote to the officials running the competition. “Will the Crown consider re-issuing this RFP?” the firm continued.

“No,” was the response from Public Works, the central agency that negotiates contracts on behalf of most federal departments.

CBSA last year whittled its list of informatics suppliers to fewer than 20 from nearly 50. The only new ones were the giants of the industry – IBM Corp. of New York and CGI Group of Montreal, both of which employ thousands of technical experts and could therefore meet the very difficult minimum requirements having to do with sheer volume. Smaller suppliers left out in the cold believe this was the point of the exercise.

When it comes to wiring bids, there are many shades of gray. For instance, a technical requirement that eliminates a consultant or supplier could very well reflect a rare set of skills essential for upgrading very old government computers – and not a deliberate desire to knock out the competition.

A former government official who has worked both sides of the street notes there is often a fine line in establishing technical requirements.

“You don’t want to set them so low that you’re faced with evaluating a ton of bidders,” he says, “on the other hand, you don’t want to make them so difficult you wind up with no competition.”

“We gave up trying,” said a senior executive with a large national firm that provides real estate advice and services. “The rules of the competitions kept changing and it always seemed as though conversations were taking place that we were never part of.”

Procurement controversy -- District of Columbia streetcar deal

Note: As I am wont, the following procurement controversy case study for today was cut, rearranged, and otherwise "edited". You are strongly urged to click the link to read the article in its original form if this subject tickles your interest.

The District’s streetcar deal leaves taxpayers holding the bag
IN THE market for streetcars for a planned trolley line, the District of Columbia undertook a lengthy procurement process in 2010.  Inekon, a Czech company that had built the District’s first two streetcars, a company with a proven track record in designing and manufacturing streetcars got the highest ranking in the year-long open competition. But the $8.7 million contract went to Portland, Ore.-based United Streetcar, a firm that had never produced an operational streetcar, had major problems delivering the vehicles and today no longer makes them.

When the contract was awarded to United Streetcar, Inekon protested to the Contract Appeals Board. The case was dismissed after the city acknowledged missteps and agreed to a series of corrective steps.

But instead of continuing that process, it used a provision in procurement law to buy the cars from United Streetcar through the existing contract of another jurisdiction.
I have not been a big fan of the so-called "coop purchasing" method. In my view, it is too often used as a cop out purchasing method. It outsources one jurisdiction's responsibility to another jurisdiction, leading to a large funneling of government funds to one centralized procurement agent who has no accountability back to the purchasing jurisdiction, and makes it problematic for the purchasing jurisdiction to to administer the contract. This case appears to be an example of that.

The theory behind cooperative purchasing is that bulk buying gets the lowest price possible. For instance, the federal supply schedule purchases allow any federal department to purchase from the schedule, as well as states, territories and some NGOs. The schedule acts like a cross between a catalog house, like the old Montgomery Wards or Sears Catalogs, and Amazon.

The theory is good for increasing buying power at the expense of increasing the pool of competition. We encourage competition over monopoly, but we turn around and diminish competition by monopsony.  As Steven Schooner has shown us, here and here, even a fundamental principle of procurement must be balanced against other competing procurement principles. 

Sometimes, the crush to make government contracting as convenient as private contract crowds out the governance principles. Government contracting without governance principles, like fairness and application of principles such as encouraging small or local businesses, does not create an ideal procurement system that satisfies the needs and aspirations of the political base of the purchasing government.

Somewhat related recent articles:

MPs warn over new train contracts
Taxpayers have been left with all the risk over two multibillion-pound contracts for new trains, a report by MPs has said.

The Department for Transport (DfT) decided to lead on procurements of new trains for the Intercity Express programme and for the Thameslink project "despite having no previous experience of doing so", the House of Commons Public Accounts Committee said.

The report continued: "These two major projects also demonstrate yet again that the department has limited capacity and capability to manage large-scale procurements, and that it remains overly reliant on consultants."

The committee's chairman, Margaret Hodge (Lab: Barking), said: "The department decision to buy the new trains itself has left the taxpayer bearing all the risk.
$1.2 billion contract OKd for new Muni Metro light-rail cars

When Muni bought its current fleet of light-rail cars from Italian manufacturer Breda in 1996, Haley said, it didn't buy enough cars and tinkered too much with customizing the design. Its reliability requirements also were too lax and it didn't take maintenance costs into account.

"We tried to learn the lessons from the previous procurement," he said. So the MTA plans to buy more rail cars this time, let the manufacturer handle most of the design, require better performance from the vehicles and consider the costs and time requirements of maintenance.

Tuesday, December 16, 2014

Integrity -- Sometimes it's the "little" things

One of the "three overarching principles" of procurement law is integrity, according to Prof. Steven Schooner's famous Desiderata: Objectives for a System of Government Contract Law available here and here.

Integrity is also a key standard of responsibility required of anyone wanting to become a government contractor. See ABA Model Procurement Regulation R3-401.01.1(c), and Guam Regulation 2 GAR § 3116(2)(A)(iii).

Personal integrity, of course, follows you wherever you go: if you have it. It is not something you get once, put it on the shelf, and forget about it. It is something that requires consistent care and attention.

In the current environment of the embarrassed (we'd hope) financial industry, we see that it can come down to basic character as revealed in little things.

Dishonesty at Heart of Ban for Ex-BlackRock Director Train Cheat
A former managing director at BlackRock Asset Management Investor Services Ltd. has become an emblem of regulators' efforts to crack down on ethical lapses. The U.K. Financial Conduct Authority banned Jonathan Burrows from all regulated financial-services work, saying he “lacks honesty and integrity” after cheating to pay less for his commute.

On Nov. 19, 2013, Burrows was stopped by a transport officer at the exit gates of London’s Cannon Street station for not having a ticket valid for his entire journey. The former money manager used his London travel card to exit the station, paying 7.20 pounds rather than the 21.50 pounds he should have paid for traveling in from beyond the capital’s borders. Burrows told the FCA that he’d done it a number of times and knew he’d been breaking the law.

Burrows’s exploitation of the way railway prices are calculated echoes the behavior of traders who tried to profit by gaming currency and interest-rate benchmarks -- in the face of rules requiring honest personal conduct. Banning someone from the industry over conduct outside the workplace shows how far the FCA is willing to reach as it tries to rebuild trust in London’s financial markets, lawyers said.

The FCA requirements for so-called approved persons “are not simply limited to conduct in the workplace between 9 a.m. to 5 p.m.,” said Simon Hart, a London-based lawyer at RPC LLP. “While the FCA are not there to punish every minor infringement of the law outside of work, his actions were deemed dishonest and that is where the line is drawn.”

The regulator is working to tighten its scrutiny of people going into roles that require its authorization -- typically client-facing work -- and honesty, integrity and reputation are three core values it looks at when considering whether to grant approval to work in the industry.
Think this might just catch on in government contracting? The principle is the same.