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Friday, December 30, 2016

The business of government

I've taken the following article and sliced and diced it to my own editorial fancy, to make particular points about procurement, as is my wont in this blawg. So, if you really want to know the article's author's intent, read it at the title link.

Go on. Click the link and read it from the horse's mouth; some may view it as thought provoking. I did.  My convoluted version follows the link and hopefully does not too much damage to the author's intentPay attention to my identified tags/labels (in the head of this blawg) to put this post in my context.

Thinking about the business of government, By CHRIS DISHMAN, a Ph.D. candidate in public affairs at the University of Texas at Dallas, who wrote it for the Dallas Morning News.
Total spending for the executive branch, known as “discretionary funding,” amounts to 30 percent of all U.S. spending. “Mandatory spending” accounted for 70 percent of total government spending in 2016.

The Department of Defense accounts for half of “discretionary” spending, so agencies like Commerce, Energy, Homeland Security and Veterans Affairs make up 15 percent of total spending. If Congress eliminated the Department of Energy, for instance, the government would save $28 billion annually, which is roughly equivalent to the cost of two new CVN-class aircraft carriers.

Medicare, Medicaid, Social Security and interest on the debt make up the bulk of “mandatory” spending, together with other “entitlements”, social as well as corporate.

The executive branch is the same size as it was in the 1970s, despite the increasing number of laws and regulations passed by Congress. The government remains at 2.1 million people or less.

The government’s workload has skyrocketed, as measured by the amount of spending per government employee, yet neither Congress nor any executive will support additional resources to implement the rules and regulations they advocate. The result of this dilemma is that government contracts out many of its duties to the private sector. And this forces government managers to shift existing resources — those used to undertake other governmental duties — to “manage” those contracts.

The government is paying big dollars to companies to undertake governmental missions. Why? Because it is politically palatable. Mandatory spending must be addressed to balance the budget, but politicians know that threatening a reduction in these programs is electoral suicide. Do you wonder why lobbyists like this approach?

There are fundamental differences between business and government.

Constitutional values, not corporate law and profit, guide the public sector. Ideally, government serves public interests while protecting the competing values that underpin those interests.

The private sector, in contrast, is governed by corporate law and profit, and business executives are, in the main, disinterested in anyone who cannot support that goal.

These differences do not mean that government cannot learn from the private sector. But we should remember that the republic’s founders intended the structure and processes of government to reflect constitutional values, not those of free enterprise.

Monday, December 19, 2016

Minor post-bid mistatkes

Protests arise following Shop Road extension contract award
The Richland County Council has spoken on a contract for a $25 million road project aimed at sparking industrial development. However, one of the firms that lost out is still fighting to overturn the decision.

On Friday, attorney Kathleen McDaniel for Richardson Construction Company, a Richland County-based company, went to court in a last ditch effort to win a contract of at least $22 million dollars. She says the contract was wrongly awarded to another bidder. “We believe this is not consistent with Richland County's procurement ordinance.”

McDaniel admits Richardson made a minor and easily correctable mistake on its bid proposal. However, that mistake could cost taxpayers about $2.9 million if the contract goes to McClam and Associates - the highest bidder and the one approved by a 9-2 majority of the county council.

“The county has a concern that if they permit any type of revision to a bid, post-bid I think, that would be inconsistent with the county procurement code. I think we just have a different interpretation of what the procurement code permits and that's why we will be filing a protest with the Richland County procurement review board,” McDaniel said.

It won't be easy for Richardson to prevail, however. Richland County Council's Torrey Rush and others in county government are worried about setting a precedent for other bidders to try to change their proposals after submitting them. County government is also concerned that overturning the decision could cause construction delays and problems for development of another project dependent on the road.

Read more and more accurately at the link.

In a related article, Construction company suing Richland County over Shop Road project, it is reported:
The plaintiff, Richardson Construction Co. of Columbia, says it was the lowest bidder for the project by $3 million but made what it considers a minor mistake in its bid that caused the county not to consider the company for the job. Richardson’s complaint was filed Thursday in the Richland County Court of Common Pleas.

County administrator Gerald Seals has told County Council the county’s procurement laws do not require the county to allow bidders to correct errors in bids once the bids have been opened.

Read more and more accurately at the link.
The American Bar Association procurement law and regulations have provisions that speak to this situation, and could aid Attorney McDaniel if the same or substantively similar rules apply in Richland County and the facts are amenable.

Guam's procurement law is based on the ABA model, so I will refer to the Guam version.  Guam has a regulation dealing with mistakes in bids, generally, and with mistakes made in various stages of the solicitation process. 2 GAR § 3109(m)(4) particularly deals with mistakes made after bid opening but before award.

Generally speaking, the rule distinguishes between mistakes of judgment and other non-judgmental mistakes. "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." (§ 3109(m)(1).)

A nonjudgmental mistake made after opening but before award may consist of a minor informality or a matter of substance that is insignificant. Such 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. The Procurement Officer shall waive such informalities or allow the bidder to correct them depending on which is in the best interest of the territory." (§ 3109(m)(4).)

This regulation is specifically backed up by statute: "Correction or withdrawal of inadvertently erroneous bids before or after award, or cancellation of awards or contracts based on such bid mistakes, shall be permitted in accordance with regulations...." (5 GCA § 5211(f).) The corresponding ABA Model Procurement Code cite is §3-202(6) and the Model Regulation is §R3-202.11.

As an aside, regulation § 3109(m)(4) incidentally provides a guide to what is meant by the term "bidder prejudice", indeed it is the only reference in the Model Code and Regulation that comes close to specifically defining the term. 

Insignificant mistakes, the regulation tells us, 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, a claim of bidder prejudice must be based in something in the bid that has an effect on price, quantity, quality, delivery, or contractual condition which is more than negligible. For instance, bidder responsibility is based on factors concerning the nature of the bidder, not the nature of the bid. This can be a handy guide to distinguishing between what constitutes an issue of responsiveness and what constitutes a matter of responsibility.

Of park benches and benchmarks

The U.S. Chamber of Commerce recently held an event to make its members aware of the World Bank's Benchmarking Public Procurement (BPP) project, and present an opportunity for its members for doing business with foreign governments:

Benchmarking Public Procurement 2017
Following a G20 decision, the World Bank has evaluated and published the first Global Public Procurement Benchmarking for 180 countries. The conference launched the release of the benchmarking results to the public. The analysis from the report highlights the needs assessment for procurement as a prerequisite for efficient processes. There was a resounding theme of reform and progress towards openness, transparency, competition, value for money and accountability. Transparency was echoed as one of the key pillars to a grounded procurement system and a means to mitigate corruption.
The BPP itself, says,
The core principles of public procurement—transparency, equal treatment, open competition, and sound procedural management—should underlie every transaction that takes place when the government purchases goods or services from a private supplier. Transparency is essential at every stage of the process; a legal procurement system that ensures transparency creates an enabling environment for competition. By promoting the goals of transparency and competition, governments can make sure that the allocation of public resources and funds will be optimized by contracting with the most appropriate bidder for the tender and procuring the best quality of goods, works, and services at the best price.

An effective means of ensuring value for money in the award of contract is by allowing all qualified suppliers to bid for public contracts. The competitive tendering method will provide a range of contractors with variety of goods, works and services, enabling an organization to select the best available option, all things being equal. Conversely, ineffective and nontransparent public procurement rules can result in the public purchase of goods and services at inflated prices and can encourage rent-seeking by private companies.
With the emphasis on competition as well as transparency, it bears repeating that governments tend to like to hide procurement acts through third parties, confidentiality agreements, subcontractors, FOIA holes, and other rabbit holes.

One such suspicious rabbit hole is the one mentioned in this following article, which you should read at the link.

Commentary: Philly overdue for an overhaul of its procurement system By Maria D. Quiñones Sánchez, Councilwoman representing the Seventh District.
'Rebuild" - Mayor Kenney's $700 million initiative to make improvements in parks, playgrounds, libraries, and rec centers - is coming soon to neighborhoods around Philadelphia. As the city works to identify priority projects and creates a new bureaucracy to administer these investments, we must take advantage of this opportunity to finally attack the problem of much-needed procurement reform in Philadelphia.

Currently, the administration is considering contracting with one non-profit partner to administer Rebuild, instead of keeping the projects within our existing capital projects system. While nonprofit partners have a vital role to play, it is a mistake to outsource this initiative to just one entity.

The city spends a lot of money, and we're looking to spend more. In addition to the $700 million Rebuild, we have a $9.7 billion five-year capital plan; multibillion-dollar infrastructure investments planned for the airport and Water Department; and more than $1 billion is spent annually on goods and services.

The way we spend those dollars can have a tremendous impact in our neighborhoods, our business community, and our job market. Unfortunately, right now the rules that govern how we spend that money do not support our shared goals of efficiency, diversity, and inclusion.

Instead of using our investments to build communities, we practice business as usual and maintain the status quo. The vast majority of the work goes to the few big, savvy contractors who can navigate the process, and small businesses are largely shut out. We need to make major changes to bring fairness and clarity to this process. Here's how:

Prioritize project management: The groundbreaking is only the beginning - after the ceremonial shovels are put away, neighbors are too often left with a project that drags on, over budget, and months or years past deadline. This is why we have a years-long capital projects backlog now. To change this, we should institute project management requirements to hold contractors accountable to the city and to the community. This is where our private and nonprofit sector partners can bring their expertise to ensure compliance and accountability in these projects.

Welcome more small businesses as city contractors: Small businesses do exceptional work in every city neighborhood every single day. If we create supports to bring them into this process, they can compete with the big guys, creating jobs and wealth in their communities. We can be more welcoming to small contractors by debundling oversized contracts into manageable smaller ones, and developing insurance, bonding, and financing umbrellas to help them meet the cash-flow and back-office demands of participating in the city procurement process.

Develop diversity in the building trades: City Council's 2015 Annual Disparity Study showed us that the growth in certified minority- and women-owned contractors has not been matched by their participation on city worksites. The diverse workforce is growing, but it isn't being hired. Meanwhile, we continue to exempt contractors from our own diverse workforce requirements, accepting their excuses that there aren't people of color and women who are able to do these jobs.

Comprehensive reform of our procurement system is an ambitious undertaking, but the time is now for bold action. We are fortunate to have in Mayor Kenney a leader with the political will - and a very willing partner in Council - to finally get this done. The voters have entrusted us to manage our government and use resources to help spur economic growth and create jobs. Investing in public works as job-creation strategy has a proud history in our country and, if we do this right, Rebuild and our capital projects could be a transformative jobs program for Philadelphia.
And then there's this: State fiscal chief seeks more economic development oversight
New York state Comptroller Thomas DiNapoli says the ongoing bribery and bid-rigging scandal roiling Gov. Andrew Cuomo's administration shows more scrutiny is needed when it comes to state economic development programs. DiNapoli, a Democrat, proposed several changes Tuesday that would subject more state contracts to independent review and restore his office's oversight over state universities.

He also wants to prohibit state agencies from creating non-profit entities that allow them to funnel public dollars to projects while circumventing contracting and reporting rules.
Councilwoman Sanchez may want a word with NY Comptroller DiNapoli.

Centralized Procurement: Theory vs Practice

In theory, theories work.  In practice, they often do not.  Whether practice does or does not comport with theory is often dependent on the vision the theorists have and convey vs the commitment and practices the practitioners decide to use to implement the theory. "'Tis many a slip twixt cup and lip", as they say.

The following is yet another example of a good idea gone wrong because it was gleefully exaggerated and politically oversold. Implementation requires good management, but so does planning. If you plan for the unreasonable, no amount of good management will get you to the final vision.

Cabinet Office did not get departmental buy-in for shared procurement plans, says spending watchdog

The UK government’s attempts to reform central buying through the Crown Commercial Service (CCS) was launched in April 2014, bringing in staff from the Government Procurement Service, with a mandate to buy common goods and services directly rather than simply creating frameworks for departments to use.

But a new report by the National Audit Office ("NAO") says the Cabinet Office was too reliant on this mandate, and “severely underestimated the difficulty of implementing joint buying across government”.
Cabinet Office underestimated difficulty of procurement reform, say auditors
In theory, central buying should achieve very large savings, the NAO said. But it was not clear what spending should be centralised. It said the Cabinet Office relied on a Cabinet committee mandate to get departments to transition services quickly, and did not consider how it would manage them once services were transitioned.

Overall, the CCS has not achieved its ambitions, which the NAO believes were not realistic. The Cabinet Office’s plan to create the service “wrongly estimated both the activities and the amount of goods and services that were appropriate to be bought centrally.” Auditors recommended that the Cabinet Office should reiterate the mandate for CCS in central government, and set clear expectations for those departments yet to transfer their buying of common goods and services to CCS.

Auditor general Amyas Morse said that without a sound overarching business case or a detailed implementation plan, it is not surprising that the Crown Commercial Service rapidly ran into difficulties. “It is particularly disappointing that the Cabinet Office has not tracked net costs and benefits,” he added. “Because of this, it is not possible to show that CCS has achieved more than departments would otherwise have achieved by buying common goods and services themselves.”
CCS centralised buying in the public sector isn’t working yet, but worth pursuing
Something’s not working somewhere. CCS was set up in 2014 with an objective of saving £3.3 billion in procurement spend by 2018. For the 2015/2016 period, it’s claimed that £521 million of savings can be attributed to CCS. Some £12.8 billion of spending by central government and public sector organisations uses CCS frameworks for the deals.

But the NAO concludes that it’s impossible to tell whether those would have occurred anyway without transferring buying responsibilities to CCS. In addition, these claimed savings were calculated on a different basis and are not directly comparable to the planned net benefits of £3.3 billion over four years. Most damning of all the criticisms is the one that states that to date CCS hasn’t actually done the job it was supposed to do.

The NAO goes on to suggest that a significant problem for CCS was lack of consistency of data and no common understanding of what can and can’t be centralised:
[CCS] did not have consistent information on what departments spend and there is no agreement with departments about what should be centralised and what should be bought locally. The Cabinet Office’s estimates of the common goods and services suitable for centralisation have varied from £8 billion to £15 billion. For example, all departments buy information technology, but many of these contracts are strategically important to the department and hard to specify centrally.
With all that in mind, it’s hardly surprising that the NAO report notes that “from the start there was a rapid erosion in departments’ confidence in CCS” and that by 2015 the programme was “widely acknowledged to be in difficulty”.

Leaping to the defence of the Cabinet Office, John Manzoni, chief executive of the Civil Service, says:
The Cabinet Office will always set ambitious targets for the work we do right in the heart of government. CCS has made huge strides in recent months, and we expect to see more and more savings as the changes we make take hold across departments. From the centre we will increase skills and bring in the talent needed to make sure every penny of taxpayers’ money is used to its absolute maximum.
That’s a pretty standard reaction to criticism from ‘Sir Humphrey’, coupled with a a mile-high statement of direction from the centre, but it doesn’t address the problems at hand.
CCS’s current management does not consider [CCS original] plan to have been achievable as it thinks the plan wrongly estimated the amount of common goods and services appropriate for centralisation, and the buying services which should be undertaken centrally. CCS’s current management also believe the original plan did not adequately define the activities that customers would still need to carry out.
For all its criticism, the NAO admits that the “strategic argument for joint buying remains strong” and that the right structures and management is now being put in place. Since launch in 2014, only four of the original 11 board and senior management team at CCS have stayed in site. But the second half of this year has seen CCS bring on board four senior managers with “significant operational experience”.

[The author of this article, Stuart Lauchlan, offers his take:] Any kind of significant reform in government is going to take time, dedication and a willingness to challenge the status quo. Making bold policy declarations isn’t enough in its own right. One of my favourite phrases here is that of the political will meets the administrative won’t. That demands strong and coherent leadership from the centre and that’s something that undermined CCS in its early days.
My take: When even the best laid plans of mice and men oft go awry, sketches of plans and lofty marketing almost always certainly will.