Bidder dobs self in

There is probably more to this than meets the eye, but on face value, you have to admire the principled action taken by this preferred bidder.

Search and rescue helicopter bid process is halted

the preferred supplier, Soteria, admitted it had access to commercially sensitive information.

The Department for Transport and Ministry of Defence (MoD) said the preferred supplier would not be used.

In a statement to Parliament regarding the £6bn procurement programme, Transport Secretary Philip Hammond said: "In mid December, the Preferred Bidder in the SAR-H competition, Soteria, had come forward to inform the government of irregularities regarding the conduct of their bid team which had only then recently come to light.

"The irregularities included access by one of the consortium members, CHC Helicopter, to commercially sensitive information regarding the joint MOD/DfT project team's evaluations of industry bids and evidence that a former member of that project team had assisted the consortium in its bid preparation, contrary to explicit assurances given to the project team."

MORE: As I noted above, there would likely be more to this story. Evidently, this is having major ramifications, based on a report in the Financial Times, which says:

Cancelling the privatisation will also require the government to put in place some potentially costly interim measures to provide a continuation of service. Depending on the length of delay, this could include an upgrade to extend the air life of the existing Sea King helicopter fleet.

It will also amplify calls for a review of MoD rules on the employment of civil servants and military officers by defence companies during sensitive commercial competitions.

FT's report contains much more detail of the players and consequences of the situation. The Wall Street Journal also reported on the story, impressed by the size of the project and the global players involved in it.

Printing money

Collusion in the private sector is as deleterious to effective competition as corruption inside the government sector. Both undermine faith in good government.

Consider this report from Ghana:

Intelligence picked up by The Herald have revealed that the US$50 million 2010 Population and Housing Census and the GH¢35million 2010 District Assembly Election organized by the Ghana Statistical Service and the Electoral Commission respectively failed due to the existence of a mafia within the commercial printing industry, called the Big Six.

They hold meetings where figures are cooked and decisions made as to which of the companies should win the contract and share it amongst the groups to execute. Most often, the Public Procurement Authority, which by the public procurement law, is to give approval before these jobs are executed, is ignored by the state agencies.

Insiders in the printing industry, the Controller and Accountant General’s Department, and the Electoral Commission informed The Herald that the companies have strategically positioned themselves with state agencies which do huge volumes of commercial printing.

Deliberate delays are created to avoid any competitive tendering processes during the award of the huge printing jobs hence there are no advertisements in the newspapers as specified by public procurement law, and this enables the printing jobs to be awarded under a cloak of emergency.

Accountability is a two way street

Much of what gets discussed under the topic of accountability has to do with procedures and safeguards intended to assure we get what's expected from government buying agencies. But the story of this post has to do with getting what's expected from the contractor. How can we expect to get what's coming from the contractor?

The most effective means of assuring performance is to require that the contract provide a performance bond. Sure, the cost of that, as with most costs, gets factored into the price of the job, but the owner (the government here, and us, the taxpayers) nevertheless benefits from the cost when there is a penal sum available to absorb some of the damages the owner suffers when the contractor defaults.

With that in mind, consider what's happening in the US State of Virginia:

Rolling The Dice With Taxpayer’s Money

Virginia State legislators recently passed a new law that boosts the minimum contract amount required for bid, performance, or payment bonds from $100,000 to $1 million. This means jobs that fall under $1 million are not required to obtain a surety bond to guarantee their work; it's risky business for both contractors and taxpayer's.

When it comes to trying to rationalize the new enactment, it does give previously unqualified contractor's more opportunities to work on bigger jobs that formerly required a surety bond. But whose interest does that serve? Just because some contractors may not have been able to qualify for Performance Surety bonds bond doesn't mean it's a clever idea to raise the minimum contract amount so they have more chances to work on larger projects. I will agree that surety underwriting is rather conservative these days, but that only lends to an environment of financially sound contractors getting good public work.

The HB 1951 Public Procurement Act that changes the surety bond requirements threatens taxpayer's dollars and future construction projects.

Guam Procurement Reform -- An Approach

Recently, the Guam Business Magazine was kind enough to run an article I wrote for them suggesting a format for reforming the Guam procurement infrastructure.

To me, it seems the approach needs to be global, and the process methodical.

Before I go to this topic, however, I want to repeat "Seven Steps to Better Procurement", attributed to Professor Danielle M. Conway, Michael J. Marks Distinguished Professor of Business Law & Director, University of Hawai`i Procurement Institute:

1. Develop a fulltime, professional procurement staff in all departments: For most staff, state procurement is now an added responsibility to their usual duties.

2. Make salaries of procurement professionals competitive with private industry: You get what you pay for.

3. Recentralize supervision of procurement in the State Procurement Office: Decentralizing, which was meant to expedite the process, resulted in waste and fraud.

4. Remove exemptions from state procurement code: Far from promoting autonomy, granting exemptions from the code to certain agencies exposes them to litigation, waste and fraud.

5. Encourage, rather than discourage, reasonable protests of contract awards: A lively, expeditious protest system is our most effective way to check misconduct and inefficiency in the solicitation process.

6. Educate, educate, educate: And not only about Hawaii procurement laws, but about innovative procurement practices in the federal government and elsewhere. Remain open to novel or mainstream procurement innovations.

7. Invest time and resources in acquisition planning: Up-front planning will make for a smooth process during the formation and administration of a contract.

These are excellent goals and should guide our own efforts here on Guam to make better use of, and get more from, our procurement resources.

There could be many ways to start down the road to Guam procurement reform, but I believe the first two essential steps are institutional. My first priority would be to establish a Guam Procurement Institute, as I've mentioned in a prior post here.

Although of subordinate priority, at the same time I think we need a Guam Procurement Advisory Council. My proposal for that is filled out in the Guam Business Magazine article.

The article I've written is entitled Procurement Reform.

I'd hope those interested would click the link and read the whole article.

Procurement controversies du jour, 24 Jan 2011

Bangalore, India: Civic body’s projects are ‘urgent’ only on paper

The BBMP had planned several projects in the run-up to Aero Show 2009, the biggest aviation event of the country. But today, when the city is gearing up for the 2011 edition of the show, these ‘urgent’ works still lie incomplete while those completed are riddled with inferior quality of work, reveals an audit by the Technical Vigilance Cell under Commissioner (TVCC).

Under the circumstances, what was the point of exempting the projects from the Transparency Act and tendering process?’’ an official said.

Exemption from scrutiny was sought saying that the projects could not be held up in paper work as they had to be implemented immediately. Among other things, the audit revealed that contracts were given to select contractors and administrative procedures ignored.

Geneva (AP): Fraud plagues global health fund

A $21.7 billion development fund backed by celebrities and hailed as an alternative to the bureaucracy of the United Nations sees as much as two-thirds of some grants eaten up by corruption, The Associated Press has learned.

Much of the money is accounted for with forged documents or improper bookkeeping, indicating it was pocketed, investigators for the Global Fund to Fight AIDS, Tuberculosis and Malaria say. Donated prescription drugs wind up being sold on the black market.

"The messenger is being shot to some extent," fund spokesman Jon Liden said. "We would contend that we do not have any corruption problems that are significantly different in scale or nature to any other international financing institution."

New Jersey, USA: Audit shows Rutgers' spending procedures lacking

Rutgers University routinely flouts competitive bidding standards in purchasing a wide range of goods and services, an audit by the state comptroller has found. The audit said the university had yet to implement tighter fiscal controls recommended by a report by the State Commission of Investigation three years ago.

Comptroller A. Matthew Boxer said in a press release, “its procurement policy allows for exceptions that are so general and undefined, they essentially give Rutgers officials unfettered discretion when selecting vendors.”

The audit found that in “almost all instances” the university does not publicly advertise for its contracts, instead selecting preferred vendors. Rutgers further limits competition by entering into noncompetitive “negotiated” agreements

The university issued a statement in response noting that the comptroller found no evidence of illegal activity. Rutgers said it had been a good steward of public money, getting better deals on some goods and services than had other agencies that used the state’s purchasing system.

The university's defense in this last story once again illustrates the "no harm, no foul" proposition I have previously objected to.

All three stories illustrate that the "cost" of effective procurement procedures is cheaper than the cost of ineffective ones. It may be easier to put a price on the cost of performing the procedures, but the cost to the integrity of the government and institutions cannot so easily be quantified.

Procurement: Cost or Benefit analysis?

This is a tale of two contrasting news items:

First, EU procurement rules increase costs for councils

A Local Government Association survey of local authorities has found that the 2004/18 EU directive on procurement is proving a strain on their purchasing operations.

Two-thirds of councils report that procurement process costs and administrative burdens have increased as a result of the law, which was introduced in 2006.

Over half (54 per cent) of the councils said the directive has made procurement processes more complicated.

Second, Pennsylvania Auditor General Jack Wagner Says State Contracting Reform Could Save Millions of Dollars

Auditor General Jack Wagner said today that his department has uncovered systemic problems with the state's $4-billion-a-year procurement process that, if corrected, would provide hundreds of millions of dollars in sustainable savings.

"Tightening this process would create transparency and save taxpayers at least $200 million a year if we could realize savings of only 5 percent." Over four years, the savings would approach $800 million.

Wagner's analysis found that from June 2008 to December 2010 the commonwealth awarded 511 sole-source contracts and 272 emergency contracts worth more than $250 million.

"Competition is the key to American enterprise," Wagner said. "It generates new ideas and it's the best way to assure taxpayers that they are getting the best price available on goods and services."

Wagner cited several examples of structural flaws in the contracting process discovered in his audits, including:

* An October 2009 special performance audit of the Department of General Services' procurement of information technology contracts found that the state paid one company $592 million over four years through 59 contracts. The contracts were originally worth a total of $382 million, but increased by 55 percent due to change orders, sole source contracts, and emergency contracts. Of the 59 contracts, 34 were not bid competitively.

* A December 2010 special performance audit of the Pennsylvania Gaming Control Board uncovered that the Board failed to adhere to state procurement procedures and failed to comply with the Sunshine Act in the awarding of $7 million in contracts for legal and other professional services through competitive sealed bid, emergency, and sole-source contracts.

* Numerous legal contracts awarded by state government and agencies without competitive bidding.

Hey you, get off of my cloud

Google has won a preliminary injunction preventing the U.S. Department of the Interior from concluding a sole source contract to provide "cloud computing" services to Microsoft. There are many articles on the subject, but I've not yet found a cite to the decision.

This story is fascinating enough for its Battle of the Titans aspects. But for this blawg, it is instructive for use of the preliminary injunction to curtail the procurement process and the apparent analysis the judge used to determine if the agency conducted a proper analysis, or was biased.

Below are some quotes from some articles I've seen, and you can click on them to go to the source and more information:

Judge Braden wrote that Google had made a preliminary showing that the agency "violated the Competition in Contracting Act," which was passed in 1984 to promote "full and open competitive procedures" for federal contract bids.

Braden said "without injunctive relief, Google will suffer immediate and irreparable harm," and it would cost Google "the opportunity to compete."

Microsoft provided CNET this statement: "The Department of the Interior determined that the dedicated, U.S.-based cloud solution offered by Microsoft met its minimum security and other requirements after a careful and thorough evaluation, and that Google's solution did not. The judge's decision does not address this fundamental determination. We believe the full record will demonstrate that this award is in the best interest of the government and taxpayers. Microsoft can't publicly comment further due to its ongoing relationship with DOI."

Judge Susan Braden of the U.S. Court of Federal Claims wrote, in an order made public late Tuesday, that a July determination by an assistant secretary naming Microsoft's Business Productivity Online Suite-Federal (BPOS) as the agency's standard for messaging and collaboration did not include "proper justification or appropriate approvals." The agency's determination that BPOS was its standard included "no estimate of internal agency cost" of other options, Braden wrote. The determination also failed to list any potential alternatives, including Google's attempts to sell the agency on its products, she wrote. The agency declined to change its bidding process after Google showed it alternatives to Microsoft, the judge wrote. "The failure to list Google's repeated express interest in this procurement cannot be explained as an oversight," she added.

It might be noted that this fight does not take place in a vacuum, as this story from about a month ago reveals:

GSA Victory a Win for Google Apps and the Cloud

The United States General Services Administration (GSA) announced yesterday that it is selecting Google Apps over bids from Microsoft or IBM to deliver e-mail and collaboration tools. Google has faced some challenges winning larger customers, but the GSA contract demonstrates that Google's cloud-based platform poses a credible threat to its rivals.

Obviously, Microsoft isn't excited by the decision. A post on the Why Microsoft blog says, "While we are disappointed we will not have the opportunity to meet the GSA's internal messaging needs, we will continue to serve its productivity needs through the familiar experience of Microsoft Office and we look forward to understanding more about GSA's selection criteria--especially around security and architecture."

The United States Department of the Interior determined that Google is incapable of delivering the services and functionality it is looking for, while also meeting the security requirements of the agency. Rather than address the security deficiencies, though, Google is suing the federal government claiming that the DOI is showing undo favoritism to Microsoft.

That said, Google Apps was the first cloud e-mail and collaboration solution to achieve FISMA (Federal Information Security Management Act) certification--a goal attained by Microsoft as well a few months later. But, FISMA certification does not include handling of classified information, so it is not a silver bullet for winning government contracts.