Pay (your taxes) To Play

From the UK: Bidders for Government contracts must self certify that they have not been involved in tax avoidance, says Treasury

From 1 April 2013 companies bidding for Government above-threshold contracts worth more than £2 million will be obliged to self certify that they have not been involved in certain types of tax avoidance, according to a Treasury press notice.

During the selection stage of the procurement process, bidders will be asked to self certify their tax compliance "via a simple question" as to whether they have had any 'occasions of non-compliance' within a defined period - proposed to be any time in the last ten years.
Non-compliance will occur if a tax return is found to be incorrect as a consequence of HM Revenue & Customs (HMRC) successfully taking action under the new General Anti Abuse Rule (GAAR), under any targeted anti-avoidance rule (TAAR), or under the “Halifax abuse” principle. The Halifax principle applies in relation to VAT and potentially some cross-EU border direct tax planning.

There will also be non compliance if any tax return is found to be incorrect because a scheme which the supplier was involved in, and which was, or should have been, notified under the Disclosure of Tax Avoidance Scheme (DOTAS) rules, has proved to have failed or the supplier’s tax affairs have given rise to a conviction for tax related offences or to a penalty for civil fraud or evasion.

HMRC is "successful" in this context when a tax return is amended, whether following the outcome of litigation or simply by agreement between HMRC and the taxpayer.

Foreign suppliers and suppliers with tax obligations in foreign jurisdictions will be required to certify that there has not been an ‘occasion of non compliance’ in relation to the equivalent foreign tax rules.

As usual, read more at the article link above.

For another review of this subject matter by attorneys Heather Gething, Neil Warriner, Adrian Brown and Michael Hunt from the UK law firm Herbert Smith Freehills LLP, see 

Government procurement rules: tax compliance is a factor to be considered: With effect from 1 April 2013, Her Majesty's Government will use the procurement process to secure compliance with UK and foreign tax obligations.

Slovaks go for "trust me" procurement

This may be a case of the tail wagging the dog. The central European Union bureaucrats have dictated certain conditions (on a variety of matters, not just procurement) before member States are able to take advantage of the large European market and largesse of the European bureaucracy. It's not so unusual. The World Bank, International Monetary Fund, and other organizations require certain procurement strictures be in place before lending to governments. The question then becomes whether the strictures are mere structures, tolerated but not lived in.

This story also reminds me how there was a reflexive procurement adjustment in the US when it offered a "take the money and run" deal not so long ago. We saw a rush to change procurement rules around the USA, to enact "stream-lined" or "fast-track" rules meant simply to get the money out in response to the US government's ARRA stimulus funding. The devil is always in the details, and too often saintly principles are made to give way to filthy lucre.

Procurement rules changed in swift vote

ACTING in a sudden rush in mid February, the Slovak parliament – in which the governing Smer party holds an overwhelming majority – revised the country’s public procurement rules. The amendment, which cleared parliament less than 48 hours after ministers approved its wording, hit a raw nerve with opposition parties and political ethics watchdogs, who said the haste with which the changes were pushed through was unjustified and meant that proper debate was avoided.

The author of the revision, the Interior Ministry, claimed that the move was necessary to boost Slovakia’s ability to draw every possible euro from EU funds allocated up to the end of 2013. Interior Minister and senior Smer figure Robert Kaliňák insisted that the revision to the law on procurement will enable Slovakia to draw EU funds allocated for the current programming period, which ends in December this year, more effectively. While he was not able to specify how much more money would be drawn with the help of the revision he added that “in general, we’re talking €500 million at the moment”, the TASR newswire reported. “If there is such an enormous amount of money at our disposal, we’re obliged to do our utmost to make it available for the state,” Kaliňák said, as quoted by TASR.

The government argues that the so-called small fast-tracked revision will ease the administrative burden in the procurement process. The legislation introduces penalties such as a three-year ban on participation in tenders if any cheating is detected during the process of proving that all the conditions were met, according to the SITA newswire.

Under the current rules, an objection to a tender by any bidder can lead to suspension of the whole procurement process. According to Garajová, the revision will help to speed up the process for public procurers by boosting legal certainty through the institute of so-called ‘ex-ante control’ and by shortening the time taken by concentrating appeals procedures. Under the new rules, the tender process will be completed before any appeal is considered. The Office for Public Procurement (ÚVO) will then consider any appeals, after which a contract can be signed. But in a controversial further change, the ÚVO can decide that even contracts subject to appeal can be signed if they are in “the public interest”.

Critics have questioned how “the public interest” will be defined, the Sme daily reported.

Peter Kunder of Fair-Play Alliance, a political ethics watchdog, said that the proposed changes really would limit the processes which currently result in delays in signing contracts, “yet we have doubts about whether this is in line with European law”. He suggested that the revision guidelines [of the EU] do not count on ex-ante control, which makes it impossible for bidders to object to discriminatory criteria later on.

Among other changes, the ÚVO, which Kaliňák argues has long been understaffed, will be enlarged by 39 staff. He said that resources and personnel will be re-allocated from other ministries, SITA reported. Gabriel Šípoš, the head of Transparency International Slovensko, another political ethics watchdog, said that the reduction in administration, more effective appeals procedure and increase in capacity at the ÚVO should help to speed up procurement processes. But he also sees the main risks of the revision as lying in its implementation.

“Will experts be hired for the ÚVO?” Šípoš asked. “Will the procurers who now have much freer hands be better controlled or less politically determined when deciding on tenders?”

The government’s revision means there is more chance that an honest procurer will get better value for money than is the case now, “but at the same time it also increases the risk that cronyism will put down roots more easily”, Šípoš said, adding that “the quality of procurement will thus depend even more on the political culture and standards of the ruling power”.

Garajová said that concerns about the amendment opening up space for corruption are unjustified. The changes that are being proposed do not interfere in the selection of bidders or the course of the competition in a way that would create room for anything other then legal decisions, Garajová told The Slovak Spectator.

While we're in that part of the world, see too this article on new developments in Romanian procurement:

New rules for public procurement in Romania

It comes with a caveat:

"It remains to be seen how these amendments will be implemented in practice and how quickly the competent surveillance authorities or the contracting authorities will be able to comply with these new requirements."

Sole sourcing can come in bundles

This is another report on the Lexicology online service from the informative and insightful guys, Anatoly M. Darov and Timothy J. Famulare at the law firm Burns & Levinson LLP.

The [Massachusetts Attorney General's] Bid Protest Unit addressed another protest in a line of recent “bundling” protests arising from pavement management services in the town of Kingston.

Pavement Maintenance Systems, Inc. (“PMS”) challenged Kinston’s latest procurement for roadway surface restoration services. In 2002, the town solicited bids for surface restoration seeking one contractor to perform three services: (1) infrared patching of utility and large pavement cuts, (2) small crack filling, and (3) “restorative sealing” of entire roadways. Subcontracting was not permitted, and the contractor had to have five years experience with all three services.

Felix Marino Co., Inc. was the only contractor that could meet the experience requirements and provide all three services, and, in fact, had developed the “restorative sealing” process. PMS challenged the award to Felix Marino in 2002, arguing that the three services are unrelated and should not have been bundled. The Massachusetts Appeals Court rejected this argument in a 2004 decision.

In its 2012 protest, PMS presented unrebutted evidence that the town has never used the restorative sealing process and has used the crack-filling process only twice; that Felix Marino charges the town twice as much for the infrared patching services as it does in towns where there is competition; and that these three processes would never actually be provided at the same time. The town also failed to demonstrate that working with one contractor has actually saved it any administrative costs.

The Attorney General determined that “administrative ease” is not a rational basis to bundle the services. Further, because only one bidder could meet the experience requirement for all three services, that requirement was overly restrictive and violated G.L. c. 30, §39M(b)

For another instance of bundling found to be restrictive, see Matter of: Sigmatech, Inc., File: B-296401, Date: August 10, 2005. This is a Decision under GAO's protest procedure. The official Digest of the decision states:

Protest challenging bundling of system engineering and support services with other requirements under a single-award BPA issued under awardee’s Federal Supply Schedule contract is sustained, where agency failed to perform bundling analysis or satisfy the requirements of Federal Acquisition Regulations sections 7.107 (a), (b); 10.001(c)(2); and 19.202-1.
and
Protest challenging bundling of system engineering and support services with other requirements under a single-award blanket purchase agreement (BPA) issued under awardee’s Federal Supply Schedule contract is timely, where record does not demonstrate that protester knew of basis for protest until task orders for work, which the protester had previously performed, were issued under the BPA, and the protester filed its protest within 10 days thereafter; GAO resolves doubts regarding timeliness in favor of protesters.

Of tax breaks and bids

The following story would be a run of the mill bid protest except for one thing. The protestor had been promised significant tax breaks if it got the bid. Doesn't pass my smell test for impartiality.

Many states and towns, probably countries, offer investment and other tax breaks to encourage businesses to invest or operate in the jurisdiction. Doing that, of course, gives them a competitive leg up on other businesses, so it would be bad enough if one of the tax concession businesses bid against other bidders, it should be disallowed or the tax advantage factored out of the bid amount, otherwise they would be double dipping in the public trough; getting the tax break for bringing in it business, then costing other competitors either by way of forced lower bidding or loss of opportunity.

But when the offer of the tax break is a condition of winning a bid, it certainly will skew the contest. And it will drive out competitors. If government doesn't foster fair competition, it will not get it when they need it. Costs will rise where there is no competition.

Wisconsin-based Skyward files notice of protest over losing bid to Minnesota company

The [bid] process of soliciting and awarding the bid has been shrouded in controversy from the beginning. In March, Walker's semi-private economic development agency offered nearly $12 million in tax breaks to Skyward contingent upon it winning the bid to provide student information systems to Wisconsin's more than 440 school districts and non-district charter schools.

The day before the bids were due in June, Walker's administration said it was suspending the process because of concerns about the propriety of the offered tax breaks.

It then started the process over and hired an independent observer — former Democratic Gov. Jim Doyle attorney Cari Anne Renlund — to monitor the process. Last week, when the bid was awarded to Infinite Campus, Walker's administration released Renlund's report that found no problems.

"The procurement, evaluation, and selection processes were reasonably and appropriately geared to afford all vendors an equal opportunity to compete for this contract," Renlund wrote. "There was no bias in favor or against any bidder."

Skyward Inc., of Stevens Point, said in a statement that it had filed the protest with Gov. Scott Walker's administration, saying its bid was lower than that of the winner announced last week — Infinite Campus of Blaine, Minn. Skyward has threatened to leave Wisconsin if it loses the contract.

The company said based on its analysis of the two proposals, that its bid was $2.6 million less per year. Skyward also said that implementation costs identified by the Wisconsin Department of Public Instruction, which are the responsibility of each school district, were not considered in the evaluation.

"Someone will be going to jail"

When the US Government passed its American Recovery and Reinvestment Act, at about the same time there was a massive uptick in local spending as the US pivoted its attention to the Central Pacific, a friend of mine noted there will be a tsunami of money coming in. The honey will attract flies. And it will have to be spent in a hurry and by people not well accustomed to monitoring the acquisition and administration of contracts in the best of times. "Someone will be going to jail", he told me. Well, his prediction may become reality if charges revealed today stick.

GWA contractor accused of filching $118K fed funding

A CONTRACTOR for the Guam Waterworks Authority is being sued in federal court for allegedly submitting false claims in order to obtain a reimbursement worth nearly $118,000 in American Recovery and Reinvestment Act funds from the U.S. Environmental Protection Agency.

A civil suit filed by the U.S. Attorney’s Office on behalf of the USEPA was filed Wednesday in District Court of Guam against GRH Technologies Construction Co. Ltd. and its first director, treasurer and company stockholder, Chen Pei Su.

According to the complaint, GRH entered into a contract with GWA in January 2009 to provide services including leak detection, pipeline, location, mapping, leak control analysis, and related training.

GRH was to complete work in three phases under the contract, and was required to “provide all leak detection equipment, and that the equipment ‘be new ... and based on the most updated state of the art technology,’ and for the equipment to be transferred to GWA at the end of the contract,” court documents state.

USEPA awarded GWA more than $2 million in ARRA funds for Phase II and part of Phase II of the GRH contract.

In June 2011, court documents state, Su submitted a reimbursement request to GRH for $117,912 related to the purchase of leak detection equipment from Great Harvest Ltd., a Taiwan-based company.

But this contract was not being administered locally. Federal funds have federal requirements and accountability that is enforced.

As part of the process, GWA reviews the reimbursement request for approval and once approved, forwards a request to USEPA for final review and approval. If approved, USEPA uses ARRA funds to complete the reimbursement to GRH.

GWA had approved and forwarded the GRH reimbursement request to USEPA which subsequently approved the request and reimbursed the $117,912 to GRH, court documents state.

However, when GWA requested Su and GRH President David Lei to provide a copy of the GRH check to Great Harvest Ltd., as well as itemized receipts, neither was able to provide such documentation.

Because GRH was unable to provide evidence of its payment to Great Harvest in the amount of $117,912 to USEPA, the government believes they submitted a false claim in order to pocket the $117,912.

The government is seeking a court judgment against GRH for “triple the damages” plus penalties per violation, or as an alternative, recovery of all payments mistakenly paid and other such costs.

It is interesting that a recent Guam Office of Public Accountancy report found that the local procurement staff proved quite effective in spending and monitoring federal funds, but woeful when it came to spending and monitoring its own funds. There's nothing like having a cop that won't look the other way standing over your shoulder.

eProcurement does not by itself make things E-OK

A couple of items "courtesy" of Lexicology, these by the lawfirm Burns & Levinson LLP and its lawyers Anatoly M. Darov and Timothy J. Famulare, reporting on actions taken by the Massachusetts Attorney General’s Bid Unit.

[In one] protest involving electronic bidding, the town of Granby used Projectdog, Inc. as its agent for electronic distribution of bid documents for the town’s new library project. BidDocs protested the procurement because Projectdog denied access to the website containing the project plans and specifications by employees of BidDocs and certain other competitors of Projectdog. The Attorney General held that the procurement violated the requirement in G.L. c. 149, §44B(1) that complete plans and specifications be made available to “each person requesting the same.” In a public bidding context, Projectdog was not allowed to determine which persons requesting copies of the bidding documents were eligible to receive them.

It is essential that private third parties who are given an procurement authority or other essential government service duty be subject to the same principles and laws applicable to the government, otherwise the government evades the spirit of the laws intended to regulate those functions. Oftentimes, government is too willing to rid itself of the expense and responsibility to provide the often unfunded mandates given them, and are willing to dump duties at any price -- to the integrity of the law.

Unless closely and critically supervised, which should allow the public the right to protest the actions of the private provider, the outsourced entity can become a bigger menace to the integrity of the system than the overburdened government. The private operator here should never have determined who could bid, and should, in my mind, be barred from providing public service for an abysmal lack of judgment, favoring personal interests over the public interest. If we expect that kind of judgment from our public servants, we should expect superior judgment from those we entrust outside the usual government accountability system.

[in the other protest] Quinn Brothers of Essex, Inc. challenged the validity of the Wakefield Municipal Gas and Light Department’s use of BidDocs Online, Inc. (“BidDocs”) as its electronic bidding agent for a headquarters renovation project. Quinn maintained that it had submitted the lowest Miscellaneous Metals sub-bid, which the Department argued that BidDocs did not receive. Based on BidDocs’ computer log and the fact that Quinn did not receive an email confirming a successful submission, Quinn could not prove that it had submitted the bid electronically. However, Quinn argued that electronic bidding does not conform to statutory requirements that bids be “publicly opened” and read “by the awarding authority.” The Attorney General determined that nothing in G.L. c. 149 prohibits a public entity from delegating to a vendor the authority to open bids. It further determined that BidDocs’ process satisfies the purpose of a “public opening” because the bids are kept secret until they are made viewable to the public online immediately after the close of bidding.

I may not quibble with the result here if there is any evidence that the legislature intended to allow outsourcing of this essential aspect of government contracting. I don't think it should be implied from a mere lack of a negative statement. If the government finds it useful to outsource essentially governmental operations, like determining who does business with the government, it is my personal view that the legislature should determine that, not the executive. For what that's worth.

Determining responsibility - how not to do it

Contracting with Criminals: Where government money is going

The Willis family is having their home renovated in order to accommodate the boys through a Medicaid Waiver Program project – which is paid for with taxpayer money. The contractor was chosen through a bid process.

Jeffrey DeVeau of CNY Custom Carpentry had the lowest bid of three applicants – for $14,400 he said he could complete the work in five to seven days.

He was paid 50 percent up front by the Onondaga County Department of Social Services in August. But six months later, the work remains incomplete.

“There were a variety of excuses, I was told the cabinets that were ordered had not been shipped. That items that were ordered were on back order, that he had something else going on - could he come at a later date,” she said.

When she tried to petition Medicaid for a new contractor, she discovered DeVeau’s criminal history:

In 2005, Jeffrey DeVeau appeared in Federal court to plead guilty for fraud. DeVeau admitted that he participated in a money scheme involving loans for heavy construction equipment. He was sentenced to pay $15 million in restitution and he spent a year in prison.

Willis wanted to know how the county could contract with a convict.

“With any contract should we be looking at it routinely to make sure that we have not made it possible for a vender who might not be on the up and up to participate in our business? Yeah, there's opportunity for that,” said Onondaga County Human Resources Director Ann Rooney.

NewsChannel 9 discovered that the county is only required to do one very simple version of a background check.

The county searches a list of people in New York State who are not allowed to receive money for Medicaid. If they’re on the list, they aren’t permitted to do the project.

If they’re not on the list, they are allowed to do the job.

The list is created by the Office of the Medicaid Inspector General in the State Department of Health.

It's a list of all of the enrolled Medicaid providers who have committed offenses or crimes related to Medicaid or health care.

Contractor Kenneth Skender of the Rochester area is on the list because his company stole $300,000 from Medicaid for home modifications it didn’t complete, according to the Attorney General's office.

DeVeau defrauded companies out of more than $15 million, but because his felonies do not relate to health care, he's not on the list and can bid on public projects.

Monica Hickey-Martin is the director of the Medicaid Fraud Control Unit at the Attorney General's office. She says the list could be changed with legislative action, but the vetting process doesn't have to stop with that exclusion list.

“Just because they're not on the exclusion list - with a conviction - doesn't mean the state or the county can't refuse to do business with them. That's always the option,” Hickey-Martin said.

The county can require applicants to pay for fingerprinting or for criminal background checks; or simply search for the contractor using Google or a similar search engine.

“I would recommend anything for program integrity for doing more checks than less. Obviously there's a resource issue and there's only so much a certain individual can do -but simple internet searches,” Hickey-Martin said.

Typically, the award should go to the lowest responsive bid and responsible bidder. The government must fully critique each aspect, not just punch a check list, if it hopes to safeguard the public purse and obtain the goods and services it needs.

See, for instance, Determination of bidder responsibility (Barr v. Town of Holliston)