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Monday, December 25, 2017

Crikey! Wot a rort!

I remind my reader to click the links to the articles presented and read the originals, as I slice and dice the material for didactic purposes in order to try to present a "teachable moment". These posts are mostly to be considered as hypothetical procurement case studies, not news or other literary content, and omit, paraphrase and rearrange a lot of original material. You've been warned, again.

Allegations of systemic fraud sparked Defence Department internal audit
Confidential documents drafted by a senior defence department investigator reveal allegations of systemic fraud spanning several years inside the government's biggest spender. The 10-month investigation, which finished in February this year, was prompted by an anonymous disclosure about fraud and corruption made to the department in April 2016.

One of the most concerning aspects involved the department awarding companies contracts without a competitive tender process and only a flimsy justification they met "value for money" requirements. In other cases the department was unable to tell whether a contract breached procurement rules or not because important paper work could not be found.

In 2015-16 the Department of Defence reported the largest yearly contract spend of any agency within the public service. The department dialled-up a bill of $30.5 billion on contracts, amounting to 54 per cent of total government contractor spending.

The investigation raised serious questions about the department's use of "single source" tenders, where a single company is awarded a contract without having to compete against other providers. "It is questionable whether true value for money is achieved when [redacted] continually conduct single source limited tenders," Dr Clarke wrote. "Whilst there is less administration and quicker decision making with this approach, it provides limited opportunity for Defence to achieve the best possible outcome. "Single source limited tenders increase the risk of contractor underperformance and corruption."
Defence spending data unreliable, incomplete, national audit office says
Transparency and accountability for billions of dollars of annual defence spending remains suspect despite recent reforms, the Australian National Audit Office (ANAO) has found.

Last year, the Defence Department spent $8.3 billion on keeping its equipment in working order, known as "sustainment" in military jargon. Yet, the audit office found that despite small recent improvements, information about where that money went and whether it was being spent wisely was often unreliable or not available.

The report also questions a claim from Defence that reforms to its sustainment policies had saved $2 billion. "Defence has not been able to provide the ANAO with adequate evidence to support this claim, nor an account of how $360 million allocated as 'seed funding' for Smart Sustainment initiatives was used," it read.

Auditors were also critical of inconsistencies between figures given to the Government during the budget process and those provided in the department's annual report. "It's absolutely not good enough," Andrew Davies, director of defence and strategy at the Australian Strategic Policy Institute, told AM.
Oz military megahack
An Australian Signals Directorate (ASD) presentation to the Australian Information Security Association (AISA) conference yesterday detailed the hack. Suffice to say that a medium-sized defence contractor was breached and gigabytes of aerospace data and commercial arrangements for military aircraft and naval vessels were delivered into the hands of the attackers. The ASD used it as a case study for the AISA conference yesterday.

The government has since said the information was commercial-in-confidence, but not classified. This is not an isolated incident: in Australia, as elsewhere, attackers thwarted by a network's defences then seek out third-party contractors as an easier mark.

This suggests a problem in sub-contractor oversight – you can win a government contract without proving you have adequate network security.

Minister for Defence Industry Christopher Pyne seems to agree. This morning, he told Radio National's Breakfast programme that the government can't be held responsible for a contractor's lax security.
Fat and mismanaged public sector is eating us alive
In a Crikey article, carried by the Community and Public Services Union, Eric Beecher chronicles appalling mismanagement in service delivery.

Then there’s the $11 billion spent by the Defence Department managing 119 bases around Australia which the ANAO says is well in excess of the $9.3bn “expected value” of the 10 services contracts, signed in 2014, to do the work. The department has defended its performance, saying the vast project to renegotiate the contracts has delivered value for money, when considered against increased service demands and changing expectations of the ADF. Yet a new $120 million IT system, meant to manage contracts ­between Defence and the private companies servicing the bases, was $39m over budget and five years late.

There’s also the flawed tendering and contracting processes overseen by the Immigration ­Department, which resulted in the waste of “tens and possibly, hundreds of millions of dollars”. Given these practices were subject to a scathing ANAO report, they could hardly be ignored.

We’re reminded of last year’s Australian Bureau of Statistics census “stuff-up”, the Australian Taxation Office’s massive and damaging IT outage, the Department of Health’s decade-long mismanagement of e-health records, and the embarrassing release of identifiable Medicare information. There’s also the Department of Finance’s lax oversight of ministerial travel arrangements. But not raised is the $576m public service travel bill — a blowout of $75m in just four years.

While this shocking record is acknowledged, Beecher argues the blame lies mainly with outsourcing to powerful private contractors.
Outsourcing failures expose weaknesses in both government and business
The problems of dealing with private sector providers and contractors are a persistent theme in the analysis of government shortcomings. For example, recent Australian National Audit Office reports highlighted contracting problems in Air Services Australia, the Defence Department and the Immigration Department. Contract management issues were at the heart of last year's failed online census and have been a constant factor in the turbulent administration of Australia's controversial offshore detention centres. Over-reliance on contracted consultants was a major cause of the botched home insulation scheme.

Given the extent to which governments rely on private contractors for a large range of goods and services, it is unsurprising that contractors are often in the frame when things go wrong. But many of the recurring issues arise out of factors specific to the contracting process.

A common complaint is that the use of contractors has caused agencies to run down their in-house expertise and technical resources. As a result, it can be argued, agencies lack the capacity to assess whether the contracts they are agreeing to give the government and taxpayer adequate value for money. Without their own professional judgment, grounded in technical knowledge and practical experience of the area in question, public service managers are ill-equipped to decide matters of all-round quality. Instead, they tend to fall back on generic checklists of assessment criteria that emphasise easily specifiable factors, such as cost and timeliness.

Alternatively, if funds allow and time permits, they may contract in an external consultant or commissioner to give an expert opinion on a proposed contract. But such advice carries the risks of perverse incentives attached to all forms of external contracting and consulting. The consultants' objective is to gain future contracts, which encourages them to say what they think governments want to hear in preference to what they ought to hear. Once again, without the professional judgment to tell the difference and without their own in-house, trusted staff to advise them, public service managers are at the mercy of self-interested outsiders. This vulnerability is compounded by the lack of transparency that surrounds contracting. Overuse of commercial-in-confidence provisions has shielded public servants from the bracing effects of public scrutiny.

The lack of in-house capacity can affect not only the initial process of drawing up contracts but also the oversight of how contracts are implemented. However, as the constant stream of scandals illustrates, many commercial providers are more interested in profit than in good service and cannot be trusted to do the right thing. As a result, governments are being driven to impose tighter controls and regulations. Even then, in the face of determined rorting and corner-cutting, most government agencies lack the resources to prevent opportunistic contractors from wrongfully expropriating public funds.

After two decades of wholesale outsourcing, some general conclusions are clear. Contracting out is an efficient and effective alternative to in-house provision where the objectives are clear and easily monitored, and where there is a competitive market of alternative providers. It also works well for more complex services where providers can be trusted to pursue public-interest objectives for their own reasons. However, where these conditions of either simplicity or trust do not apply, the risks that governments will not receive value for money start to build. Moreover, extensive experience with outsourcing has itself compounded these risks by reducing governments' capacity to effectively draw up and monitor outsourcing contracts. Some complex service contracts that could have been safely contemplated a generation ago are now beyond the professional expertise of public servants to administer.

politicians need to recognise that outsourcing complex government services requires the development of trust between the parties, which means looking beyond the short-term bottom line and not always preferring the cheapest option. In addition, successful contracting depends on well-resourced government agencies with the skills and experience necessary to manage ongoing relationships with contractors. Running down government staffing levels while relying more on private contractors is a recipe for continuing policy failure.

Contractors, for their part, must earn the right to be treated as trusted partners. They must be prepared for the long haul and willing to learn from experience. They must also be ready to submit to the level of public scrutiny and accountability that public servants take for granted. Indeed, given that the commercial private sector is not imbued with the same commitment to serving the public interest, there is a case for subjecting private contractors to more scrutiny than the public service, not less.

Tuesday, November 28, 2017

The limits of procurement law - agency authoriity

This GAO decision is a short example of the limits of procurement law, or government contracting as the feds say. Procurement law is not part of the common law, it is statutorily imposed by the legislature, with regulations made by the executive branch, to allow the executive branch to acquire stuff to meet its operational and other legislatively allowed needs.

NB: I take liberties when presenting material in this blawg. You must read the source material at the link and not rely on this, or other, post(s) for information that comes from the horse's mouth. Some have characterized this matter as coming from the other end.

Matter of: A-Z Cleaning Solutions
DIGEST: The United States Mint, a federal agency within the Department of the Treasury, is not subject to the Government Accountability Office’s bid protest jurisdiction under the Competition in Contracting Act of 1984, because the Mint is statutorily exempt from all federal procurement laws and regulations.

A-Z Cleaning Solutions, of Pittsburg, California, protests the award of a contract to Clean Solutions Services, Inc., of San Francisco, California, under a solicitation issued by the Department of the Treasury, United States Mint for janitorial and laundry services in San Francisco. The protester contends that the agency erred in its evaluation of proposals and in its best-value tradeoff decision.

The United States Mint, an agency within the United States Department of the Treasury, asserts that it is statutorily exempt from our bid protest jurisdiction, and therefore this protest should be dismissed. We agree. We dismiss the protest for lack of jurisdiction.

Under the Competition in Contracting Act of 1984 (CICA), our Office has jurisdiction to resolve bid protests concerning solicitations and contract awards that are issued “by a Federal agency.” CICA provides that the term “Federal agency” has the meaning given in statute that defines the term “Federal agency” as including any “executive agency,” which is defined as any executive department or independent establishment in the executive branch of the government.” The Mint, as part of the Department of the Treasury, is an executive agency that otherwise would be subject to our bid protest jurisdiction under CICA.

In 1996, however, Congress established the United States Mint Public Enterprise Fund (USMPEF) to finance the programs and operations of the Mint. Of note, the establishing legislation for the USMPEF included the following proviso: “Provided further, That provisions of law governing procurement or public contracts shall not be applicable to the procurement of goods or services necessary for carrying out Mint programs and operations.” The same provision defines Mint programs and operations as follows:
(1) the activities concerning, and assets utilized in, the production, administration, distribution, marketing, purchase, sale, and management of coinage, numismatic items, the protection and safeguarding of Mint assets and those non-Mint assets in the custody of the Mint, and the Fund; and (2) includes capital, personnel salaries and compensation, functions relating to operations, marketing, distribution, promotion, advertising, official reception and representation, the acquisition or replacement of equipment, the renovation or modernization of facilities, and the construction or acquisition of new buildings.
The provision further contemplates that all receipts from Mint operations and programs be deposited in the USMPEF, and that all expenses incurred for operations and programs of the Mint that the Secretary of the Treasury determines to be ordinary and reasonable incidents of Mint operations and programs be paid out of the USMPEF. As a result of these provisions, the agency represents that the Mint is entirely funded by and operates within the USMPEF.

Because the establishing legislation provides that federal procurement laws and regulations do not apply to the procurement of goods or services necessary for carrying out the Mint’s operations and programs, and those operations and programs are defined broadly enough to encompass substantially all of the Mint’s activities, we conclude that the Mint is not subject to the terms of CICA. Furthermore, because the bid protest jurisdiction of our Office derives from CICA, we must conclude that the Mint is not subject to that jurisdiction.

Our Office reached a similar conclusion when considering whether our bid protest jurisdiction extended to the United States Postal Service (USPS). The USPS is an independent establishment of the executive branch, and thus it is a federal agency, like the Mint, that would otherwise be subject to our bid protest jurisdiction. However, by law, the USPS is expressly exempted from any “Federal law dealing with public or Federal contracts.”

Similarly, the Presidio Trust, a wholly-owned government corporation, would otherwise be subject to our jurisdiction, but is statutorily exempt from all federal procurement laws and regulations but for certain enumerated exceptions, which do not include CICA.
Thus, for an instrumentality of the executive branch to be free from the procurement requirements imposed on the executive branch by the legislature, the instrumentality must be given express leave by the legislature. 

We have seen on Guam, for instance, the Mayor's Council of Guam create a non-profit organization to take responsibility for operating the annual Liberation Day Carnival and festivities for the sole purpose of doing so without restrictions imposed by the procurement law. This case illustrates the wishful thinking of such action.

Smack-down of Forestry Service over claim an unduly restrictive specification was reasonable for its needs

This GAO decision is Matter of: Global SuperTanker Services, LLC, File: B-414987; B-414987.2.

This post will be brief, while the decision itself is extensive. Extensive in its unrelenting smack-down of an agency trying to defend a specification the decision hails as "a post hoc attempt to justify" an unreasonable restriction on competition. "[T]he agency’s decision to restrict those assets at this time does not withstand logical scrutiny.

If you ever want to see what a comprehensive, almost frolicking, dismantling of lumbering argument looks like, this will give you an entertaining read. Clearly, the Forest Service was unable to see the forest for its own trees.

With references to past performance

This GAO decision is interesting in that, factually, it arises in connection with a solicitation conducted in Malawi. Its official government website on my Google search suggests the site might be hacked. The CIA World Factbook describes Malawi's economy as ranking "among the world's most densely populated and least developed countries. The country’s economic performance has historically been constrained by policy inconsistency, macroeconomic instability, limited connectivity to the region and the world, poor infrastructure, rampant corruption, high population growth, and poor health and education outcomes that limit labor productivity. The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations." In other words, there is likely not a deep history and trained understanding of the niceties of the procurement norms we are accustomed to.

Such as the role of past performance in evaluating bidder responsibility or bid responsiveness. The decision involves many issues, but this post is limited to the past performance controversy, because I suspect Malawians may not be alone in the failure, seen in this decision, to appreciate the past performance evaluation. It is not a "tick the box" evaluation, though it often seems that way.

The usual caveats apply: I take terrible liberties with the presentation of source material, so you are admonished to go to the source at the links.

Matter of: Fattani Offset Printers
On June 23, 2017, the United States Agency for International Development (the agency) issued an RFP for printing, binding, and distribution services to be performed pursuant to a fixed-price contract over a two-year period. The RFP specified, among other matters, that “[t]he purpose of this contract is printing, binding, and distribution of 773,025 English Standard Four Learners’ Books (LBs) and 6,000 Stock Management Cards.” Fattani Offset Printers, of Blantyre, Malawi, protests the award of a contract to Kris Offset & Screen Printers, Ltd., also of Blantyre, Malawi, alleging the agency unreasonably evaluated its proposal.

Award would be made on a best-value tradeoff basis considering two evaluation factors, technical and price. RFP at 50. For the technical factor, the RFP divided a total of 100 points between technical understanding and past performance, with 85 points allocated to technical understanding and 15 points to past performance. Fattani, low offeror, was awarded 35 out of 100 points. Kris Offset was awarded 92 points, and the contract.

GAO considered all of the firm’s allegations and found no basis to sustain the protest, noting at the outset that, in reviewing protests challenging an agency’s evaluation of proposals, our Office does not reevaluate proposals or substitute our judgment for that of the agency; rather, we review the record to determine whether the agency’s evaluation was reasonable and consistent with the solicitation’s evaluation criteria, as well as applicable statutes and regulations.

Past Performance

The RFP instructed offerors to provide a list of at least five organizations to serve as past performance references. For each organization, offerors were instructed to provide a contact name, address, telephone number, description of the work performed, and date of performance. The RFP also stated that proposals would be evaluated based on successful completion of previous similar projects.

Fattani provided reference letters from five different organizations. Each reference letter provided a positive review of Fattani’s performance. The record shows that the agency contacted three of Fattani’s references, and it also contacted references outside of Fattani’s listed references. Following its review, the agency assigned Fattani’s proposal two weaknesses and several significant weaknesses. Chief among the agency’s concerns was that Fattani had received negative past performance evaluations. The agency also determined that Fattani had not performed any projects of similar size and complexity (i.e., contracts of $5 million in value with distributions to over 5,500 outlets). The agency assigned Fattani’s past performance proposal only 5 out of a total of 15 points.

Fattani asserts that the agency’s evaluation was unreasonable because the RFP did not expressly permit the agency to seek additional past performance references. Additionally or alternatively, Fattani contends that the agency improperly determined that none of Fattani’s past performance references were of similar size and complexity.

In light of the RFP’s stated evaluation criteria, we find that the agency reasonably evaluated Fattani’s past performance references. Contrary to Fattani’s view, our cases explain that an agency is generally not precluded from considering any relevant past performance information, regardless of its source. Consequently, the agency acted reasonably when it solicited additional past performance references beyond those listed in Fattani’s proposal, notwithstanding the fact that the solicitation did not specify that the agency could seek alternate past performance information sources. Furthermore, GAO’s in camera review of the record reveals that Fattani received negative reviews of its performance from some of its listed references and other entities the agency had contacted.

As to Fattani’s alternate allegation, we find that the agency reasonably evaluated Fattani’s past performance references for similar size and complexity. Of Fattani’s five references, only one adequately describes the performance, and that job was not similar in size or complexity to the instant contract. That job required distribution to only 90 stores, while the instant contract requires distribution to over 5,500 outlets. Thus, Fattani’s past performance proposal did not demonstrate that it had successfully completed previous similar projects. Accordingly, based on the record before us, we find that the agency reasonably evaluated Fattani’s proposal under the past performance factor.

The protest is denied.

The laborious SAGA of the US Navy's BOSS contract on Guam

This post is a follow-up to a prior post almost 3 years ago, Protest of Navy's BOSS contract on Guam upheld.

Note: As always, I take considerable liberties with the source documents when presenting them here. For instance, critical citations are often omitted, parts are re-arranged and/or paraphrased, etc. Read the source at the link if accuracy, completeness and fidelity is important to you. (If it is not important to you, reconsider wandering around the web without an escort.)

Before the GAO in re Matter of: Fluor Federal Solutions, LLC, File: B-410486.9, January 18, 2017
DIGEST: Fluor maintains that the agency misevaluated proposals and made an unreasonable source selection decision. Protest challenging agency’s evaluation of staffing and resources proposals is sustained where record shows that agency evaluated the protester’s and awardee’s proposals disparately in a manner that prejudiced the protester. We sustain the protest.

This is our third occasion to consider the propriety of the Navy’s actions in connection with this acquisition. In a prior decision, we sustained a protest filed by Fluor relating to the agency’s evaluation of proposals and conduct of discussions in connection with this acquisition. We recommended that the agency reopen discussions with the offerors, solicit, obtain and evaluate revised proposals, and make a new source selection decision.

The Navy implemented our recommended corrective action and again selected DZSP for contract award. Fluor filed a second protest challenging the agency’s selection of DZSP in the wake of the agency’s corrective action. After full development of the record in that case, we conducted an outcome prediction alternative dispute resolution (ADR) procedure at the request of the Navy. We advised the parties that the agency’s evaluation of DZSP’s proposed cost in the area of its exempt employee compensation (discussed in detail below) appeared to have overlooked certain significant features of DZSP’s proposed costs. As a result, the GAO attorney advised that our Office likely would sustain the protest. The agency advised our Office that it intended to take corrective action to address the concerns we identified, and on that basis we dismissed Fluor’s second protest as academic.

After dismissal of Fluor’s second protest, the agency engaged in limited discussions with the protester and DZSP and solicited, obtained and evaluated revised proposals. The agency again selected DZSP for award, and the current protest followed.

The RFP advised offerors that the agency would make award on a best-value basis, considering cost and several non-cost evaluation factors. The non-cost factors were as follows: past performance, occupational safety, staffing and resources, technical approach, and small business utilization. For cost evaluation purposes, the RFP advised offerors that the agency would evaluate proposals for completeness, reasonableness, balance, and realism. The RFP stated that the agency would assign past performance examples relevancy ratings of very relevant, relevant, somewhat relevant or not relevant, and would assign each offeror’s past performance a confidence rating of substantial confidence, satisfactory confidence, limited confidence, no confidence or unknown confidence. Finally, the RFP stated that past performance was approximately equal in importance to the other four non-cost evaluation factors combined, and that all five non-cost factors, when combined, were approximately equal in importance to cost.

DZSP had proposed 113 exempt labor categories, and claimed that it was escalating the direct rates of compensation for these employees by [deleted] percent for each year of contract performance. A careful examination of the record showed, however, that in addition to applying an escalation factor of [deleted] percent, DZSP also was applying what it termed a “decrement factor” of [deleted] percent to these same rates of compensation. The net result of these calculations was that, rather than escalating its direct labor by [deleted] percent per year, DZSP actually was reducing the rates of compensation for these employees by [deleted] percent during each year of contract performance. The contemporaneous record showed that the agency failed to recognize this decrease in DZSP’s proposed compensation, and that its cost realism evaluation failed to take it into account.

The record further showed that Fluor had been found technically superior to DZSP under the non-cost evaluation factors. While both firms received the highest ratings (substantial confidence and outstanding) under the past performance, occupational safety, staffing and resources, and small business utilization factors, Fluor’s proposal received an outstanding rating under the technical approach factor, while DZSP’s proposal was assigned a rating of good under that factor.

The agency’s selection of DZSP’s lower-rated proposal was based on its conclusion that it represented a savings of approximately $6.9 million over the life of the contract. However, we concluded, based on the error associated with the agency’s failure to recognize DZSP’s decrease in its exempt employee compensation, that this apparent cost savings was largely non-existent. We therefore concluded that the agency’s source selection decision was not reasonable.

Subsequently, the agency elected to allow Fluor and DZSP to make limited revisions to their proposals.
Both firms revised their proposals and the agency reevaluated them on the basis of those revisions. The agency made no changes to the adjectival ratings assigned to the offerors’ non-cost proposals (Fluor was again found superior under the technical approach factor). Both firms revised their proposed costs: Fluor proposed a total cost of $494,519,656, and DZSP proposed a total cost of $491,894,166. The agency made no adjustments to either firm’s proposed cost for purposes of evaluating realism. On the basis of these evaluation results, the agency again made award to DZSP, concluding that, although Fluor’s proposal was technically superior, it did not merit the approximately $2.6 million cost premium.

The focus of Fluor’s latest protest centers on a change in the proposed approach to managing and compensating its exempt personnel that DZSP introduced in response to the agency’s latest round of discussions. The agency had provided DZSP a discussion question relating to the fact that, in its earlier proposal, it had offered to reduce its exempt employees’ compensation by a net factor of [deleted] percent during each year of contract performance. The agency advised DZSP that such an approach was not considered by the government to be reasonable or realistic because it implied that every exempt position would be replaced with a new hire at a lower rate of compensation for each year of contract performance.

In response to the agency’s discussion question, DZSP essentially introduced an entirely new approach to how it would manage and compensate its exempt employees. In effect, DZSP’s new approach was that it would replace incumbent workers at a rate of [deleted] percent of its exempt workforce per year and hire new, lower paid, employees in their place. These new employees would be paid [deleted] percent of the hourly rates identified in DZSP’s proposal. The employees that were not replaced in a particular contract year would be given a [deleted] percent escalation to their hourly rates of compensation (until such time as they were replaced), and this would result in [deleted] hourly rates of compensation that would [deleted] over the life of the contract.

Fluor raises various challenges to the agency’s evaluation of DZSP’s proposed approach to maintaining [deleted] wage rates for its exempt employees. Among other arguments, Fluor alleges that the agency engaged in disparate treatment in connection with evaluating its proposal and DZSP’s proposal in the area of staff recruitment and retention.

For the reasons discussed below, we agree with the protester that the agency evaluated the two proposals disparately in connection with the question of recruitment and retention of staff. It is axiomatic that agencies are required to evaluate proposals on a common basis and in accordance with the terms of the RFP; agencies may not properly engage in disparate treatment of offerors in the evaluation of proposals.

Under the express terms of the RFP, the agency was required to evaluate the adequacy of the offerors’ staffing approach as it related to the recruitment and retention of staff.

The record shows that Fluor’s staffing approach for exempt employees involved recruitment of 95 percent of the incumbent staff. Fluor represented to the agency that it was confident in its ability to do this based on the wage rates it was proposing. Of significance, Fluor specifically represented that, in the event it was unable to attract the incumbent staff with the rates of compensation it was proposing, Fluor proposed to [deleted] for exempt employees. Notwithstanding this representation in the Fluor proposal, the record shows that the agency’s evaluators and source selection authority expressed a concern that Fluor would be unable to recruit the incumbent exempt employees at the wage rates it had proposed. The agency’s technical evaluators questioned Fluor’s ability to recruit the incumbent exempt staff based on the wage rates it had proposed, and suggested that Fluor’s approach could result in employee morale and retention issues. The agency’s cost evaluators echoed these same concerns.

In contrast, the evaluators did not give meaningful consideration to similar implications of DZSP’s proposed approach described above, or how it would impact the firm’s retention of employees, as required by the RFP. In this connection, the evaluators gave no consideration to the fact that DZSP expressly proposed to replace its incumbent staff at a rate of [deleted] percent per year for each year of the 8-year potential life of this contract. The agency technical evaluators confined their observations to consideration of whether or not it was realistic for DZSP to replace its existing, incumbent exempt employees, and concluded that it was “very realistic” for DZSP to do so because approximately [deleted] percent of DZSP’s overall workforce was comprised of an aging population. In addition, the technical evaluators observed only that DZSP’s claimed 95 percent retention rate for its exempt employees would “not be applicable” to future contract periods, but did not criticize the firm’s proposal for this reason. The cost evaluators, for their part, did not give consideration to DZSP’s proposed plan to replace its exempt workforce, and instead confined their observations to whether or not DZSP’s proposed rates of compensation were reasonable and realistic.

In addition to these inconsistencies, the agency’s source selection authority (SSA) specifically found the DZSP proposal superior to the Fluor proposal in the area of employee retention and used that as a discriminator for making her selection decision. In fact, she apparently was unaware of DZSPs’ proposed approach of essentially replacing its exempt workforce more than once over the life of the contract.

In sum, the record shows that the agency evaluated the offerors disparately under the staffing and resources factor, criticizing Fluor’s proposed approach as possibly involving a risk that it would not be able to recruit the incumbent workforce, while at the same time failing to meaningfully consider whether a similar risk was raised by DZSP’s proposed approach of repeatedly replacing its exempt employee workforce over the life of the contract. In light of these considerations, we sustain Fluor’s protest.

We recommend that the agency reevaluate proposals in a manner that is consistent with this decision and make a new source selection decision after performing that reevaluation. Should the agency conclude that DZSP is no longer in line for award, we further recommend that the agency terminate DZSP’s contract for the convenience of the government, and make award to Fluor, if otherwise proper.

Monday, November 27, 2017

When all salient factors are rated similarly for best value, there is no prejudice to rejected offeror; But...

In a best value photo finish, when a protesting offeror’s past performance evaluation factor was recognized by the agency as more advantageous than the others, there is a reasonable possibility that the protester was prejudiced by award being made to another offeror. Thus, the protest was valid.

The following GAO decision is instructive for its discussion of the means for evaluating technical factors, past performance factors and price factor trade-offs. It is particularly instructive for dealing with photo finishes. As always, I take great liberty in presenting cases and articles, so this is not an official recitation. If you need that, go to the link.

Matter of: SITEC Consulting, LLC; VariQ Corporation; Logistics Systems, Inc.
1. Protests challenging the agency’s evaluation of technical proposals are denied where the evaluations were reasonable, performed in accordance with the solicitation evaluation criteria, and equal.

2. Protests challenging the agency’s failure to conduct an adequate risk assessment of the awardee’s price are actually challenges that the agency failed to perform a price realism analysis and, where the solicitation did not provide for a price realism analysis, such challenges are without merit.

3. Protest challenging the agency’s evaluation of past performance is sustained where the agency concedes errors in its past performance evaluation and the record establishes that one protester was prejudiced.
Under the terms of the RFQ, award was to be made to the firm whose proposal represented the best value to the government, considering technical approach, past performance, and price. Technical approach was more important than past performance. Those two factors, when combined, were significantly more important than price.

With respect to past performance, the RFQ advised offerors that the government would evaluate “relevant past performance.” Relevant is defined as “similar to the IT services in the PWS and similar in nature, scope, size and complexity to the required services.”

Past performance was to be rated based on a stepped adjectival rating scale from “Significant Confidence” (highest) to “Confidence” to “Neutral” to “No Confidence” (lowest). Each rating was defined, for instance: ‘Confidence’ shows “the Vendor’s past performance record indicates the Vendor should be able to successfully perform the required effort. Some Government intervention is expected to be required in achieving the required level of performance.” The next lowest rating, ‘Neutral’, shows “the Vendor has no relevant performance record. A thorough search was unable to identify any relevant past performance information. This is a neutral rating. It does not hinder or help the Vendor.”

In the Technical evaluation, one offeror (the highest price) was rated a notch above the other three offerors, who all received the same rating. In Past Performance evaluation, the agency rated all offerors equally, as “Confidence”. In the result, award was made to CWS, the second lowest price offeror. VariQ protested. It asserted that the agency deviated from the past performance evaluation criteria specified in the solicitation and should have been rated higher than its given rating.

Here, the agency ultimately admitted the substance of the protested error. A review of the agency’s own evaluation of past performance information supplied by CWS, SITEC, and LSI supports a past performance rating of neutral for each of those offerors. The agency determined that while LSI and CWS had some past performance that was similar in scope, it was smaller in size. The agency also determined that SITEC had past performance that was narrower in scope than the current requirement. However, in all cases, because the agency did not find any negative past performance, it assigned each of those offerors a confidence rating. The agency conceded that neutral is the appropriate past performance rating for all of the offerors except VariQ.

But, the agency asserted that the errors in the past performance evaluation did not prejudice the protester, and that even if the other three vendors had been given a “Neutral” rating for past performance, the source selection authority (SSA) could not have used that as a discriminator due to the fact that a “Neutral” rating can neither hinder nor help the vendor. In effect, the agency said that the hierarchy of the four rating levels specified in the solicitation was neutralized by the description of one of them.

But the agency had chosen a “best value” method of source selection, and that entails a trade-off of the various stated factors according to their relative ratings. The agency’s assertion that the SSA could not have considered VariQ’s past performance confidence rating in VariQ’s favor in its tradeoff decision, because the other offerors’ proposals were rated neutral, is inconsistent with prior decisions of this Office. Although agencies may not rate an offeror that lacks relevant past performance favorably or unfavorably with regard to past performance standing alone, an agency may, in a price/technical tradeoff, determine that a high past performance rating is worth more than a neutral past performance rating.

Competitive prejudice is an essential element of a viable protest; where the protester fails to demonstrate that, but for the agency’s actions, it would have had a substantial chance of receiving the award, there is no basis for finding prejudice, and our Office will not sustain the protest. However, GAO will “resolve doubts regarding prejudice in favor of the protester; a reasonable possibility of prejudice is sufficient to sustain a protest.”

Here, the RFQ stated that the technical factor is more important than the past performance factor and that those two factors combined are significantly more important than price. The record shows that there are variances behind the technical factor ratings, the offeror’s prices are clustered relatively closely together, and, as the agency has now stated, VariQ’s proposal is the only one to have a past performance rating of confidence rather than neutral.

Under these circumstances
, we find a reasonable possibility that the protester was prejudiced. Consequently, we sustain VariQ’s challenge to the agency’s past performance evaluation.
FURTHER READING: GAO Makes Rare Finding of Error in Past Performance Evaluation, and Underscores Incumbents Are Not Automatically Entitled to Highest Technical Rating

Wednesday, August 23, 2017

The ethics of paperwork

Illinois, USA

Note: As I so often warn, I slice and dice and paraphrase and omit articles to my end an didactic idiosyncrasies. Therefore, don't take my word for the renditions of articles here. If you need to know the actual intent and full context of the authors of articles presented in this blawg, read the source at the links.

Procurement changes welcome
Gov. Bruce Rauner signed bipartisan legislation last week that should make it easier for the state to make required purchases at lower costs for taxpayers. S.B. 8 has particularly positive ramifications for public universities throughout Illinois.

The legislation is intended to make the procurement process more efficient and transparent by undoing restrictive rules that were put into place after the scandals of the administrations of former Govs. Rod Blagojevich and George Ryan. They created bureaucratic nightmares, the undoing of which Rauner said will "make it easier for small and midsize businesses to bid on contracts." It also will make it easier for public entities to accept the lowest bid. That may seem like common sense, but in Illinois, it's revolutionary political reform.

Killeen cited several problems UI officials endured under the old rules that he expects to be addressed by the new law. He said that "our libraries will be able to purchase academic journals that are staples throughout higher education without going through unnecessary and time-consuming procurement reviews" and "will avert delays that have slowed research and frustrated top faculty, threatening to chase them and their nearly $1 billion in annual research funding to states with "less-cumbersome" procurement guidelines. "For instance, our chemistry and biology researchers will be able to order a specialized microscope that is available from just a single source without jumping through hoops to attract other vendors that don't exist," Killeen said.

The goal of limiting public corruption under the old approach was well intended. Given the criminal instincts that pervade government in this state, they can hardly be ignored. But there are limits to what bureaucratic rules can achieve in pursuit of the noble but challenging goal of legislating honesty. They can become counter-productive when they have the effect of paralyzing the process — in this case, the procurement process.
Governor Signs Procurement Reform Bill
Rauner said the bill isn’t perfect, but it will make the procurement process easier for both vendors and state agencies like universities. “And, based upon the estimates I’ve heard, this can save the university tens of millions of dollars every year.” And Rauner says the savings will be even greater for other state agencies, from Central Management Services to the state prison system. Rauner said that his administration estimated that procurement reform would, in time, save the state $250 million to $300 million a year.

“This bill will allow us to save hundreds of millions of dollars every year”, the governor said. “This is big stuff, and it’s wonderful. This is major progress for the people of Illinois.”

Prof. Jeffrey Moore, said he welcomed the measure. Moore said Illinois’ complicated procurement rules have made it difficult for researchers to obtain vital but obscure equipment and parts at good prices, because many suppliers find them too complicated to bother with. He gave the example of a researcher who was seeking a part that was made by only one small company. “And this particular company, which is a small company and doesn’t have a lot of business, but is the only maker of this research part, was not willing to learn the process of our complicated system and chose not to participate in the bidding process”, said Moore, “which meant that the researcher was not able to do the research that they needed to do, because they couldn’t get this part.”

Gov. Rauner said it’s difficult to regulate ethics, and the result is often a surplus of paperwork. He said his own administration supported a different approach.

“We’ve made an effort to try to encourage ethical behavior”, said Rauner, “and encourage good government, but try to also balance that with making government efficient and effective and transparent.”
The devil is always in the detail. There will never be a one-size-fits-all-perfectly procurement system for all time. It's a balancing process. Every procurement change involves a rebalance of crucial principles, for better or worse. You can never finally have it the way you'll always be happy with it. In other words, it's a politician's dream come true: a never-ending dream of posture and headline. As Prof. Steven Schooner of the George Washington University Law School tells us in his procurement Desiderata, the choices we make in procurement reform involve trade-offs of critical governance principles.
It is difficult to articulate objectives for a procurement system. There are many options, and most are contradictory.

Critics of the U.S. system suggest that, historically, efficiency was not a fundamental goal of the procurement process and, arguably, our system is designed to thwart efficiency. A procurement system is efficient when it spends the least amount of resources in the process of purchasing what is needed. If your buyers are overworked, however, such a system becomes more expensive, because your buyers fail to obtain the best prices. Unfortunately, the pursuit of best value typically requires greater buyer resources, from market research to negotiation.

Ultimately, each government must decide how much discretion or flexibility it wishes to delegate to its buyers. For each individual transaction, greater buyer flexibility should result in higher customer satisfaction and better value for money. For all of your transactions, taking a systemic view, broad delegations of discretion or flexibility may reduce transparency and competition. Accordingly, this discretion may entail a lack of control that may threaten public confidence in your procurement system.

No system can achieve all of these goals. Nor can a state expect that its objectives for its system will remain constant over time. Determining which goals are most important is a daunting, ever-evolving challenge.

Because no system can achieve all of the goals here (or the many not discussed), your desiderata entails important tradeoffs. There are significant transactional, economic, and social costs associated with maximizing transparency, integrity, and competition. Nonetheless, the author believes these costs are an excellent long-term investment.

Three “pillars”, in my opinion, underlie the United States procurement system: system transparency; procurement integrity; and competition. In the United States, we believe that, as a general rule, our government enjoys access to the best contractors, lowest prices, most advanced technology, favourable contract terms and conditions, and the highest quality goods and services. We think this is so because our system, for the most part, encourages participation by the widest possible pools of potential competitors; it consistently demonstrates that competitors will be impartially considered for award of our contracts; and it treats all contractors in a manner that balances appropriate risks with meaningful profit incentives and rewards.

Alternatives to competitive bidding, designed to save time or money, reduced accountability

New Mexico, USA

Audit: State contracts lack competition
New Mexico state procurement rules designed to ensure competition on contracts for goods and services are being circumvented unnecessarily amid exemptions that cover $6.5 billion in spending each year, the State Auditor’s Office said Tuesday. A special audit by the office of State Auditor Tim Keller found some state agencies used emergency exemptions in ways not permitted by law and that sole source contracting remains common.... New Mexico spends between $10 billion $13 billion in state funds and federal aid each year on procuring goods and services.

Health care contracts signed by the Human Services Department accounted for the bulk of exemptions to the state procurement code — more than $5 million in the fiscal year ending in June 2016.

State Auditor Tim Keller said current alternatives to competitive bidding were designed to save the state time or money, but have ended up reducing accountability in government and fairness to outside businesses. The audit also found limited oversight of political campaign contributions from contractors hired by the state.

The report recommends reforms to rein in exemptions to competitive bidding and to streamline contract approvals under a single procurement oversight authority. Agencies typically spend over six months to approve a contract, making it more likely that agencies will look for short-cuts, the audit stated.

In a letter to Keller, Department of Finance and Administration Secretary Duffy Rodriguez called the methodology behind the audit “questionable” and described as conjecture concerns about the general overuse of non-competitive procurement. Keller said, “We’re supposed to protect against pay-to-play and fraud, waste and abuse, and also I think just be accountable for where those dollars are going. What our audit showed is that, by and large, for billions of dollars, we are not doing that in one way or another. We’re either violating our own laws or we’re not tracking the data.”

Auditor’s report reveals state overreliance on no-bid contracts
The study, to be formally released Tuesday, found state agencies, in violation of the government procurement law, used emergency exemptions from purchasing rules when there was no urgency to bypass the competitive bidding process.

The Auditor’s Office reviewed 11 small contracts, too. Less oversight is required for purchases of less than $60,000 in many cases, but the report found a state agency amending small contracts several times to include much larger sums.

The report examined 13 larger sole-source contracts and found 10 did not meet the state’s rules for such purchases. The State Auditor’s Office said agencies are skipping the competitive bidding process out of convenience and based on assumptions about price. The report also examined 14 emergency purchases and found only three fit the definition of an emergency; an agency said it needed to fix what the report described as a contamination issue even though the agency had learned of the issue one year earlier.

State Auditor Tim Keller said the study’s findings show a government too reliant on contracts that are not put out to bid, as well as a purchasing system that is complex, decentralized and rife with loopholes. “The spirit of procurement is to safeguard tax dollar funded contracting from fraud, waste and abuse,” Keller said in a statement. “Strong directive executive leadership and a reworking of the law to make bidding more effective and efficient would have a game-changing impact on creating local jobs, cutting red tape, and providing essential services to New Mexicans at the best value.”

The biggest share of state spending outside the usual purchasing process goes to goods and services that are bought by one state agency from another or from a local government. Those purchases are usually exempt from competitive bidding. And certain health care spending, a major expense for the state, also falls under what is known as “sole source procurement,” which is when an agency gives the contract to one company without competitive bids.

State agencies can buy goods and services from private companies without a competitive, open bidding process only when one company sells a particular product or an emergency requires officials to move quicker than the time it takes for competitive bids. However, agencies must make an effort to find other vendors and detail the reasons for an emergency. The state’s rules warn that agencies are not supposed to bypass the usual purchasing process because staff believes one particular option is best or the least expensive.

The report raised concerns that the General Services Department and the Department of Finance and Administration “do not always provide adequate scrutiny.” As a result, the report said, agencies can get away with no-bid contracts that do not meet the state’s rules.

The State Auditor’s Office suggested consolidating oversight of the purchasing process, which the Legislative Finance Committee has long recommended. The report also called for additional training of all state personnel involved in procurement and suggested legislators comprehensively review the exemptions and exceptions in the state’s purchasing law.

Sen. Sander Rue, R-Albuquerque, has sponsored legislation reforming the procurement process but said lawmakers may need to revisit the language of the current rules. Rue said the state should open up the process even further by, for example, making public how officials choose winning contracts.

“The more transparent and open procurement is,” he said, “the less you are to have mistakes, errors and perhaps mischief.”
Note: New Mexico is one of a couple of dozen states, including the Territory of Guam, that use the principals and are guided by the processes of the ABA Model Procurement Code.

Wednesday, June 21, 2017

California procurement database found to be off base

California Audit Report 2016-124, Department of General Services and California Department of Technology

Among the key findings: General Services does not have complete and accurate contracting data, and it did not implement controls to avoid these shortcomings with its contracting data.
The previous contract and procurement database system used through 2015 had severe limitations—we found many key data entry errors, and more than a third of the contracts and amendments we reviewed were missing from the system, including one with eight amendments worth $163 million.

Of the 27 approved noncompetitive requests we reviewed, nine lacked justification for bypassing the competitive bid process and 14 did not demonstrate that the vendor’s prices were reasonable.
Among the highlights of the report:

• General Services and Technology did not provide adequate oversight of the billions of dollars state agencies awarded through noncompetitive contracts from fiscal years 2011–12 through 2015–16.
vices did not ensure that a statewide contract database contained complete and accurate information about the State’s contracts for use by key decision makers.

• Although General Services transitioned to the new Financial Information System for California (FI$Cal) as its statewide contract database, it is unclear if FI$Cal will fully solve the State’s lack of comprehensive contracting data.

• Neither General Services nor Technology has established formal plans to regularly analyze the new FI$Cal data to identify instances of abuse or misuse of statewide noncompetitive procurements.

• General Services and Technology approved noncompetitive requests that lacked adequate justification for bypassing the competitive bid process, such as demonstrating that it conducted market research to substantiate that no competition existed.

• Nine of the 27 noncompetitive requests we reviewed could have been avoided if the agencies had engaged in sufficient planning.

• Although both General Services and Technology have enforcement mechanisms, they rarely employed them, allowing agencies to continue inappropriately using noncompetitive requests.
Billions in no-bid contracts mismanaged, state auditor says, By Adam Ashton (Excerpts; read full report at the link)
It didn’t take long for the cost of a technology contract in California’s unemployment office to increase twelvefold.

Two changes to the contract – added without bidding – swelled the deal to $8 million within a year. Then, the Employment Development Department submitted a request to add another $2 million worth of work to the arrangement without soliciting new bids from other companies.

That project is one of nine that State Auditor Elaine Howle highlighted in a new report released on Tuesday that urges California government to be more cautious in awarding high-value contracts without seeking competitive bids.

The report estimates that the state spent $44 billion on noncompetitive contracts worth $1 million or more between 2011 and 2016, a substantial sum that auditors said underscored the need for better management.

“The sheer magnitude of the value of the state’s noncompetitive contracts during this period emphasizes the importance of ensuring that the state provides adequate oversight of agencies’ contracting practices,” the report says.

State rules allow departments to award contracts without bidding in emergencies and under other special circumstances. But Howle’s auditors found that the state departments in charge of monitoring spending – the Department of General Services and the Department of Technology – have missed opportunities to challenge requests for noncompetitive contracts, failed to ensure that contract databases have accurate information and rarely disciplined other government agencies for misusing noncompetitive contracts.

The audits were based in part on a sampling of 27 noncompetitive contracts that state departments awarded over five years. Nine of them should have gone out to bid, auditors wrote.

Examples included:

▪ A $3 million contract extension that the California High-Speed Rail Authority presented just 17 days before its existing contract was scheduled to expire. High-Speed Rail did not describe why the vendor it chose had unique services that merited a noncompetitive contract.

▪ An $835 million noncompetitive contract amendment in 2013 for the company that manages Medi-Cal dental benefits. It was the seventh amendment to the original contract.

▪ A $75.5 million noncompetitive contract extension at the Department of Motor Vehicles on top of what was a $62.8 million for work on the state’s driver’s license production system.

▪ A fourth amendment to a Cal Fire aviation contract that was worth $27.8 million.

One $163 million contract that was missing from databases highlighted shortcomings in the state’s accounting system. It was the eighth change to a contract from the Department of Developmental Services, and no one entered it in the program the Department of General Services uses to follow spending.

State government is in the midst of a major overhaul of its accounting system with departments gradually adopting a new program called the Financial Information System for California (FI$Cal). When it’s in full use, the Department of General Services and the Department of Technology should be able to follow instantly any contract awarded by a state entity.

Until then, different state departments are using a hybrid system for accounting. Most use the system that FI$Cal is replacing; about a third of them use FI$Cal.

Howle’s office says it’s too early to tell whether FI$Cal will work as intended. “It is unclear if FI$Cal will fully solve the state’s lack of comprehensive contracting data,” auditors wrote.

Read more here: http://www.sacbee.com/news/politics-government/the-state-worker/article157239494.html#storylink=cpy

Procurement controversy du jour: Newport News airport audit investigation gets off the ground

State, federal agents interview employees at Newport News airport (Excerpted; read article at link)
Sandy Wanner, the Newport News/Williamsburg International Airport's acting executive director, said three investigators — special agents with the state police's criminal investigations division, the Internal Revenue Service and U.S. Department of Transportation's Office of Inspector General — met with five employees over the course of the day. Last week, Wanner said, the investigator with the Department of Transportation Inspector General's Office asked for copies of the airport's annual audit reports going back to 2009. Those are the annual audits performed by an outside accounting firm, Dixon Hughes Goodman LLC, of Newport News.

The moves come in the wake of a scathing Virginia Department of Transportation audit report that detailed widespread issues with airport spending — including a loan guarantee to a startup airline that ultimately cost $4.5 million in taxpayer money. The airport and its financial practices have been under scrutiny since early this year, when the Daily Press reported that in 2014, the Peninsula Airport Commission quietly guaranteed a line of credit of up to $5 million from TowneBank for startup airline People Express.

After People Express quickly collapsed and defaulted on its loan, the commission paid off the $4.5 million debt using $3.5 million in state airport construction grants, $300,000 in federal grant money, and $700,000 from a regional marketing group funded by local city councils and county boards.

The Virginia Department of Transportation — which vowed to cut off future construction grants to the airport — launched a comprehensive audit that found the commission had improperly used state taxpayer money to guarantee the loan.

Moreover, Attorney General Mark Herring issued a formal opinion declaring the loan guarantee illegal under a provision of the state constitution that generally bars public bodies statewide from lending their credit to private interests.

The state auditors also found that airport executives routinely used commission money for personal expenses, skirted procurement rules, and worked to shield the loan from public scrutiny.

They found that Ken Spirito, the airport's executive director at the time of the loan, also authorized some airport employees to charge up to $2,400 for gasoline on their airport credit cards without requiring it to be tied to business travel. According to the audit report, Spirito directed the airport accounting department not to treat the gas allowance as taxable income.

The audit report quotes a passage from the letter of dismissal that the airport commission sent to Spirito: "These payments actually are compensation to each employee receiving free gas, not fuel expense. According(ly), you have hidden employee compensation in the fuel expense account, also exposing these employees and the PAC to back taxes, additional filing obligations, and possible interest and penalties."

As controversy swirled around the loan guarantee and improper spending, the commission and city have seen major shake-ups.

On March 2, Newport News City Manager Jim Bourey — who voted for the loan agreement as an airport commissioner — resigned as an airport board member, then stepped down as city manager a few days later.

Also on March 2, the commission fired its longtime legal counsel, Herbert V. Kelly Jr., who had assured commissioners the loan guaranty was legal. The job serving as the airport's lawyer had been in Kelly's family for decades, with the airport terminal named after Kelly's father, Herbert V. Kelly Sr.

The Newport News City Council later removed longtime airport commission member Aubrey Fitzgerald as a board member.

Finally, on May 15, the Peninsula Airport Commission fired Spirito after auditors reported he had used commission money to pay for personal expenses — including car repairs for himself and Jessica Wharton, the airport's marketing and public relations director.
Other reading: No love for tennis coach

Sunday, June 11, 2017

Procurement controversy du jour - PI seeks to expand emergency procurement before and after emergency

New purchase rules eyed during crises
Speaker Pantaleon Alvarez has filed a bill proposing to loosen restrictions on negotiated procurement in cases of “extreme urgency and necessity,” and allow the government to skip public bidding in purchasing cheaper goods. House Bill No. 5521 seeks to amend several provisions of Republic Act No. 9184 or the Government Procurement Reform Act, which was enacted in 2003.

The (current) law considers negotiated procurement and direct contracting as alternative procurement methods to public bidding. The former (negotiated procurement) refers to the method used in extraordinary circumstances such as during the failure of bidding and in times of emergency.

Under Alvarez’ bill, negotiated procurement will be allowed “before, during, or after a calamity.” Currently, this mode is applicable “during a state of calamity,” which requires an actual declaration by the affected government unit.

Alvarez said that current regulations “unduly delay and hamstring the delivery of services” in times of calamity.

The proposed measure also provides for an additional criteria to resort to direct contracting, which currently sees the agency ask for a price quotation from the exclusive supplier of goods of critical or proprietary nature.

Read more: http://newsinfo.inquirer.net/904623/new-purchase-rules-eyed-during-crises#ixzz4jkiZKcEF
Sounds like a step onto a slippery slope to a procurement system without accountability, competition, transparency or integrity, as I've illustrated before: When corners are cut, even for great reasons (e.g., war), the way is opened for fraud. Also, refer to the tags/labels associated with this post, just below.

Tuesday, June 6, 2017

Own up to those mistakes; don't put lipstick on that pig

Jason Miller is an astute federal procurement journalist with Federal News Radio, with a knack for making arcane and difficult matters interesting and graspable. I don't read him regularly, but when I do I wonder why not. (Not enough time in a day comes to mind.)

Jason wrote the following article, and his respect for action of the protagonist in the unfortunate circumstances of the story is palpable, and deserved. You may just want to click the link to the article and get it from the horse's mouth. Or you can stick around with me and my rendition, and be sorry.

What happened in a nutshell is that the Department of Homeland Security solicited, and then cancelled (after protests began), a solicitation for certain technical services, known as "Flexible Agile Support for the Homeland" ('FLASH'). It was framed as a small business set-aside procurement focused on agile development methodologies. (That's another story; read it, too.)

As Jason explained in a prior article, DHS' Procurement Innovation Lab (PIL) set out to get its arms around one of the problems of federal acquisition — the need to close out low-risk, low-dollar contracts. Too often these contracts are forgotten or under prioritized, and a backlog builds up. At DHS, for example, its backlog grew to more than 350,000, and 92 percent of the contracts had been completed more than a year ago. PIL took an innovation risk and re-engineered the business processes a simplified means for contract closeout. (Look, as I said he can explain better than I, so read that article, too.)

To re-engineer the business processes, DHS first created PIL, a cross-functional team of policy, finance, general counsel, contracting and industry and then had to identify the low-risk contracts. It was all about coordinating, good communications and making sure that all the people that could be involved and are looking at the process to collaboratively understand what to do and all the appropriate steps to do it. PIL completed nine projects and is working on others.

One of the PIL's biggest experiments was FLASH.   As Soraya Correa, the chief procurement officer at DHS, described it, FLASH was meant to take care of "contracts that are typically small dollar value, generally firm fixed price, no activity over the last 12-to-24 months, final goods and services have been delivered so we know they are probably ready for close out. What we are doing is a streamlined approach trying to close them in one fell swoop.”

Correa explained, “Everything we’ve done on FLASH has been very different from what we’ve done in the past. Start with our industry day where our communications were more of a discussion where we provided the ability to do speed teaming or speed dating, but also an opportunity for vendors to meet with government officials and ask questions,” she said. “We also had experts in various business areas like small business, digital services and others so industry could come up to speed on what we were doing in those areas. It was a very interactive day that focused a little more on the business processes around bidding as opposed to focusing on the requirements that would be contained in the solicitation.”

DHS evaluated contractors based on a technical challenge where the bidders had to present to the agency how they would go through an agile development process. Correa said the bidders then had 4-to-6 hours to actually complete and then did a presentation. DHS received 114 proposals.

Now, flash forward a bit to last month when Jason reported "DHS cancels $1.5B contract for agile services".
DHS has been working on the multiple award vehicle for the better part of a year. The goal of FLASH was to give department components access to innovative methods and industry best practices to acquire agile design and development support services. DHS said in the solicitation it was seeking to develop an acquisition contract that includes the concepts from the U.S. Digital Services Playbook such as user-centered design, dev/ops, automated testing and agile. DHS’s Procurement Innovation Lab (PIL) was running FLASH.

But since November when DHS awarded FLASH to 13 companies, it faced an uphill battle to get the contract off the ground. Eight vendors who didn’t make the cut submitted protests to GAO. DHS decided to take corrective action instead of letting GAO decide the protests and reopened bidding.

Then in early March, DHS announced 11 new winners under the FLASH contract, and 12 unsuccessful bidders protested to GAO again.

The decision to cancel FLASH comes as more and more agencies are developing contract vehicles to buy agile services. Along with the DHS, the General Services Administration’s 18F organization also struggled to award and ultimately cancelled the second and third contracts under its agile blanket purchase agreement. 18F awarded 16 vendors a spot in part one of its agile BPA in August 2015.

It’s unclear what comes next for FLASH — whether DHS will try again with a new procurement or give up entirely on a separate contract vehicle for agile services and rely on an existing one like EAGLE II.
So, now for the denouement:

DHS’ internal assessment of its $1.5B agile contract: ‘significant errors and missteps’
If the Homeland Security Department’s decision to cancel its $1.5 billion contract for agile services wasn’t shocking enough, the details of the missteps and problems the agency detailed in its “motion to dismiss” left long-time federal procurement attorneys and vendors with their collective mouths agape.

“DHS has determined that cancellation of the FLASH solicitation, HSHQDC-16-R-00118, is the only viable option to address the many issues that DHS has identified as problems with the requirement and the record,” DHS lawyers wrote to GAO in the document, which Federal News Radio obtained. “The integrity of the procurement process will be served by this cancellation.”

Barbara Kinosky, managing partner with Centre Law and Consulting LLC, said she was “floored” by DHS’s honesty and the level of detail it provided.

“They did everything but name names,” she said. “It is absolutely draconian to cancel the contract at this point. It means it is so flawed that they couldn’t tweak this, or conversely they decided not to let all the protestors on to the vehicle. I suspect the whole methodology was flawed and even if they tweaked the evaluation factors it was still susceptive (sic) to more protests.”

In the motion to dismiss, DHS said the problems with FLASH ranged from the evaluation criteria and adjectival ratings to the price evaluations and best value tradeoffs to lacking the expertise in agile software services to do a proper evaluation.

“DHS has also determined that the evaluation of the offerors may have resulted in unequal treatment of offerors’ weaknesses and risks. This is partially due to the adjectival ratings that were used, but also due to the evaluation process used to evaluate and assess offerors during the technical challenge exercises,” DHS stated in its motion.

“DHS has identified issues in the price evaluation report (PER) and best value tradeoff analysis (BVTA) which do not adequately support its award decisions. The methodology by which the price evaluation team evaluated price realism is not identified in the PER. Nor is it evident in the PER itself what DHS reviewed and evaluated to determine whether prices were reasonable and realistic.”

Christoph Mlinarchik, a government contracts expert and owner of Christoph LLC, a consulting firm, said DHS’s self-assessment of the FLASH procurement resulted in a firm vote of “no confidence” due to a “comedy of errors: poorly executed technical challenge evaluations, sparse price analysis, inadequate tradeoff analysis and more.”

“The most glaring admission by DHS is that critical documents were altered after award, like the technical evaluation report and best value tradeoff analysis. These critical documents were changed after submission to the GAO as part of the official record– a flagrant foul that undermines the bid protest system,” Mlinarchik said. “In summary, DHS rolled over, showed its belly, and provided ample reasons that the FLASH procurement was a total failure.

This does not look good for DHS, but it shows courage in admitting fault and starting from scratch instead of putting lipstick on a pig.”

The decision to cancel FLASH left vendors both relieved and in disbelief. One industry source, who requested anonymity for fear of retaliation from DHS, said it was a painful process from the beginning.

As Soraya Correa, DHS chief procurement officer, said in December in a NextGov article after the initial set of protests delayed FLASH:

“We’ve got to start getting rid of that fear,” Correa said. “We’ve got to start making it OK to sometimes make a mistake, as long as you’re making an intelligent mistake. It’s OK to take a few chances, and you know what? Every now and then, we’re going to stub our toe.”

Monday, June 5, 2017

No emergency, just a desire to act quickly, like business

The procurement issues here raise issues of noncompetitive acquisitions, the requirement to obtain a fair and reasonable price before acquiring anything, even by sole source, and the contrast between government acquisition and private business. Government contracting requires market research to have independent knowledge of source alternatives in the market, prices and costs, as part of the acquisition process before a selection process is even chosen.

The governance policies of government acquisition are intended to assure transparency and the pursuit of effective competition within the free enterprise system. It is meant to avoid the secretive and arbitrary selection of colleagues and strong-arm "horse trading" linked to matters far afield from the instant acquisition that is the norm in private business ("you scratch my back and I'll scratch yours").

Government procurement is concerned with public confidence, fair and equitable treatment of market participants, maximization of public funds, and safeguards to establish and maintain a contracting system of integrity with accountability to the public. It's not meant to trade products or services for votes or favors or other "godfather offers".

In these respects, government procurement is intentionally designed to be the antithesis of private business, especially private business whose only concern is the welfare of the business owner. Not that there is anything wrong with that in the context of people betting their own money in their own smoke-filled rooms or out on the golf course or the box seat of some entertainment venue. 

But, private business has no concern about other people's money, whereas government must be concerned with other people's money or face a fractious public, as well as a mutinous supply of vendors. 
 
Again, I advise readers of articles I present to read the articles themselves, at the link provided. I omit, rearrange, slice, dice, paraphrase, editorialize and generally use the general fact situation of articles to provide teachable moments concerning procurement practice and principle. My version may or may not reflect the article's author's intent, and likely do not to my re-working of the following story, so read the original; click the link at the title.


No competition, no cost estimate as Kansas City firm picked for coveted VA contract McClatchy Washington Bureau
The federal government typically awards contracts to private companies after a competitive bidding process in order to keep costs low and avoid conflicts of interest. “When you have competitive bidding it prevents government officials from throwing contracts to their friends or keeping them from people they don’t like,” said Richard Painter, chairman of the board of Citizens for Responsibility and Ethics in Washington, a nonpartisan watchdog group.

But, the Trump administration picked Kansas City-based Cerner Corp. for a coveted contract to modernize veterans health records, and there will be no competition for the taxpayer-funded project. Cerner partnered with defense technology contractor Leidos, Accenture Federal Services and Intermountain Healthcare in its bid for the $4.3 billion, 10-year defense contract. Other health IT companies didn’t have a chance.

VA Secretary David Shulkin told reporters his decision to waive competition and acquire Cerner’s software directly was motivated by President Donald Trump’s desire to act quickly. “From the outset that when the president selected me to be secretary, he made clear to me that he expected us to act with faster decisions, to act like business, and to really make sure that we are really doing the right thing to change veterans’ health care. And that's exactly what we’re trying to do today,” Shulkin said.

Shulkin said there was a “public interest exception” to allow awarding the Cerner contract without a “full and open competition.” The VA still must draw up a justification for waiving open and public competition, and Tester’s office will be following up with VA for those documents, said his spokesman, Dave Kuntz.

Sen. Jon Tester of Montana, the top Democrat on Senate’s Veterans Affairs Committee, was supportive of Shulkin’s announcement but his spokesman said he has some questions and concerns about timing and costs that the secretary did not answer. Neither Cerner nor the Department of Veterans Affairs could say how much the contract will cost, however.

“The challenge here is that by giving up competition, the VA has given up all control to the company” when it comes to price, said Phillip Carter, a senior fellow at the Center for a New American Security who teaches government contracts law at Georgetown University Law Center. “At the end of the day ... they’re probably going to pay whatever Cerner asks,” Carter said.

The new VA health records system won’t be identical to the Defense Department’s, but its core will be Cerner’s Millennium software, Shulkin said on Monday. He said Cerner’s work on the Pentagon’s system, now known as MHS Genesis, pushed his decision in Cerner’s favor. Adoption of the same system “will ultimately result in all patient data residing in one common system,” the secretary said.
To me, adopting a system that will ultimately result in "all data residing in one common" (but proprietary) software will assure everyone else will become locked out. There are historical precedents, such as Motorola's lock on emergency radio systems, and Microsoft's lock on desktop software systems. See, Sure, Kid, first one's free.


The US government has been trying hard to break free of such locks.  This procurement seems to also go against the US Government's Federal Source Code Policy: Achieving Efficiency, Transparency, and Innovation through Reusable and Open Source Software:
When Federal agencies are unable to identify an existing Federal or commercial software solution that satisfies their specific needs, they may choose to develop a custom software solution on their own or pay for its development. When agencies procure custom-developed source code, however, they do not necessarily make their new code (source code or code) broadly available for Federal Government-wide reuse.

Even when agencies are in a position to make their source code available on a Government-wide basis, they do not make such code available to other agencies in a consistent manner. In some cases, agencies may even have difficulty establishing that the software was produced in the performance of a Federal Government contract.
These challenges may result in duplicative acquisitions for substantially similar code and an inefficient use of taxpayer dollars.

This policy seeks to address these challenges by ensuring that new custom-developed Federal source code be made broadly available for reuse across the Federal Government. This is consistent with the Digital Government Strategy’s “Shared Platform” approach, which enables Federal employees to work together—both within and across agencies—to reduce costs, streamline development, apply uniform standards, and ensure consistency in creating and delivering information. Enhanced reuse of custom-developed code across the Federal Government can have significant benefits for American taxpayers, including decreasing duplicative costs for the same code and reducing Federal vendor lock-in.
Note also the internationally informed Open Source for Government component of the Open Spouse Initiative.

Other article(s) on this topic: VA to dump Vista for DOD's electronic health record system











Monday, May 29, 2017

Late paying government brings out the worst in vendors

$2.4M state warehouse lease renews procurement questions
Controversy surrounding a former furniture store in Springfield highlights the problems of a state lease procurement system dogged by bureaucracy, reliance on old-fashioned paper files and a state unable to pay its bills.

Climate Controlled Holdings LLC of Chicago bought an abandoned furniture store and refurbished it to meet the needs in the City of Springfield for a climate controlled warehouse for the Illinois Department of Human Services records. Although the details of the contracting process are fuzzy in this article, it appears Climate Controlled Holdings ended up with a five year lease worth $2.4 million. Climate Controlled Holdings and the five-year, $2.4 million lease since have become the focus of controversy over political influence in state leases, bureaucracy, reliance on paper records in a digital age, and the difficulty of determining whether the state is getting its money’s worth from public documents in private storage.

Allegations of improper political connections were raised in April when Champaign-based WCIA-TV reported on links between Springfield businessman Bill Cellini and Climate Controlled Holdings. Cellini has been dubbed “The King of Clout” for extensive business and political ties to state government through the years. He served about nine months of a one-year, one-day prison sentence on a 2011 federal corruption conviction for a failed attempt to shake down a Hollywood film producer for a $1.5 million contribution to the campaign of former Gov. Rod Blagojevich.

The Champaign station also highlighted the longtime Cellini friendship with Springfield businessman Frank Vala, who is chairman of the Illinois Procurement Policy Board. That board, which reviews state leases, allowed the South Grand Avenue lease to be approved in January without a vote. Secretary of State’s records show Climate Controlled Holdings agent Thomas Storniolo is also the agent for multiple Cellini-controlled New Frontier Management companies with Cellini’s children, William Jr. and Claudia, listed as presidents. But it was part-ownership in Climate Controlled Holdings by Claudia Cellini’s husband, Raffi Vartnaian, that raised questions of political influence and the Valla friendship with Cellini. Climate Controlled Holdings submitted the only bids for the lease through two separate companies.

Vala did not return messages, but Hurwitz said on behalf of the building partnership that the lease has been unfairly portrayed in media accounts and by state lawmakers. In addition to the $575,000 purchase price, she said the partnership invested approximately $1.25 million – a figure confirmed by state records -- to bring the building up to specifications required by the state, including construction of a loading dock, legal services, new lighting, security, new heating and air conditioning, roof work and electrical upgrades.
The partnership also is responsible for monthly management fees, property taxes, maintenance, insurance and other operational costs.

Hurwitz also said she learned of the state request for storage space thorough regular public notices sent out by the Department of Central Management Services, the state agency in charge of state buildings. “We did everything by the book and by the law, and we won the bid,” Hurwitz said.

“It’s an OK deal, if the state pays us,” Hurwitz said.

Hurwitz said there is reluctance among developers to take on the risk of state leases when Illinois is months behind in payments on dozens of local buildings, but that such deals remain attractive at a time when the commercial-leasing market continues to struggle.

“We went to another developer in town, but he turned it down because he was not willing to risk money on a state lease,” said Hurwitz, who added that the deal keeps the building on property tax rolls. Property taxes total just over $33,800 for 2017, according to county records.

Former state Sen. Susan Garrett, now chairwoman of the Illinois Campaign for Political Reform, said the state still needs stricter disclosure rules on companies involved in state leases. “It appears as if they’re shell companies,” Garrett said. “There are just so many loopholes there that allow this to happen.”

Ed Bedore has been a member of the Policy Procurement Board for 19 years, including when the Barney’s building lease was approved without a vote in January. Bedore said he understood at the time there had been two competitive bids, rather than separate bids from the same company.

He said he recently toured the facility and found it only about 40 percent to 50 percent full, though state officials indicate additional files would be moved to the site. In addition to questioning storage of public records in private buildings when so many state properties are vacant, Bedore said he has been pushing for years for the state to begin moving away from paper documents to digital records.

“We’re not in the 21st century, we’re not even in the 20th century, we’re in the 19th century,” said Bedore, who added that the transition could be done gradually to minimize costs.

Central Management Services Acting Director Mike Hoffman, who has insisted rules were followed on the Barney’s building lease, said after a legislative hearing on Thursday that it is common to receive only one or two bids on state leases, given the complexity of the process. He added that the bureaucracy often limits bids to companies that know how to work the system.

In an understatement, “The state also is not making payments,” Hoffman added, “and a limited number of people are willing to go through that process.”
Just a quick reminder: I edit, slice and dice articles discussed here for didactic focus and emphasis and personal viewpoint, so you absolutely must read the article at its source via the link in the title.

There is no point, though, in full disclosures, published notices and much of the effort involved in trying to "foster" competition, as the ABA Model Procurement Code requires (as does Guam's, which follows in the footsteps of the MPC: 5 GCA § 5001(b)(6)), if the government does not timely pay its vendors.

Slow and other delinquent payments, or even nonpayment, is the single most salient factor in dissuading vendors to bid. the fewer vendors there are who are willing to do business with the government, the higher prices will be. The more often government business is done with the same "boys' club", the more they will take advantage. The fewer competitive bidders there are, the less effective the policing of the procurement process is, because the only real time policing of the process is through a fair and expeditious protest system.

Government can do a lot to improve its systems to achieve lower costs.  But before fussing around with all the bureaucratic rigmarole, first pay the vendors promptly. That will save you more money in the long run than all that other distraction.