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Tuesday, August 9, 2016

Procurement controversy - North Carolina Dept of Health & Human Services

Audit outlines shortcomings in DHHS contracting
A new audit has found that many no-bid contracts within the N.C. Department of Health and Human Services lacked proper review or documentation, and didn’t have adequate written justification to waive competition, putting taxpayer dollars at risk. State Auditor Beth Wood said that agency officials are supposed to provide justification before waiving the bid process. Many contracts had no waiver justification, and others were assigned justifications that didn’t add up, she said.

The deficiencies were found under both Democratic and Republican administrations.

On several occasions, Wood said, officials said bidding was waived because there was an immediate need for the contract, even though the state “had this person on contract for 10 years.”

The report found three contracts with a value of $6.1 million lacked the required review from the Attorney General’s office. “When the A.G. does not review no-bid contracts, a greater risk exists that these contracts are not in proper legal form, do not contain all clauses required by law, are not legally enforceable, and do not accomplish the intended purposes of the proposed contract.”

The State Auditor’s Office recommended that DHHS evaluate and monitor its contracting processes to ensure that its personnel are applying state laws and department policies and procedures effectively and efficiently. It also recommended that the department incorporate best practices when negotiating no-bid contracts. In addition, it recommended that DHHS ensure its contract personnel provided more specific documentation when it waived competitive bidding.

The audit quotes from author William Sims Curry’s book, Contracting for Services in State and Local Government Agencies. Curry has been a member of the National Contract Management Association for more than 30 years and has held procurement or contract positions in federal, state, and local governments.
“Contractors that are well aware of their status as the sole source provider for a particular service have a tendency to propose higher pricing than they would in a competitive environment,” Curry writes. “Sole source contractors involved in service delivery over the long term also tend to increase their pricing at a rate higher than increases to their costs or the applicable rate of inflation. This tendency for higher initial pricing and excessive price escalation from sole source contractors is intuitive and well understood.”

The report noted, by way of background,
The North Carolina Administrative Code states “North Carolina’s purchasing program shall be built on the principle of competition.” The competitive bidding process is designed to prevent collusion and favoritism in the award of contracts, and to generate better pricing, quality or value to conserve public funds. However, the Administrative Code allows competition to be waived when contracting under certain circumstances. When a contract is awarded without competition, NC regulations, and contracting best practices require it to be sufficiently justified, negotiated when feasible, and supported by documentation.
It found that "data in DHHS’ contract database, Open Window, had approximately 2,500 non-competitively bid contracts with a value of approximately $2.4 billion between state fiscal year 2012 through 2014. The value of the no-bid contracts accounts for more than 32% of all contracts during the same period."

Its key findings were:
• Many no-bid contracts lacked required review and approval to protect state interests
• Many no-bid contracts lacked documentation of negotiations to improve pricing or terms
• Many no-bid contracts lacked adequate written justification to waive competition, which increases the risk of favoritism, unfavorable terms, and poor performance

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