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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.

1 comment:

elsie said...

I agree..The government can do better to achieve lower cost