Follow the money

With every disaster comes disastrous spending.  And attempts to stem the flow.  So many attempts.  Sad.

Here's an illustration of the money flow, from the source to the see (sic), all courtesy of Covington & Burling LLP.

GAO Report Reveals New Insights Into Lobbying Disclosure Act Compliance and Enforcement:

"The 2020 annual report from the Government Accountability Office (“GAO”) provides new details regarding the state of Lobbying Disclosure Act (“LDA”) compliance and enforcement. By statute, the GAO is charged with conducting random audits of LDA compliance and submitting reports reflecting the results to Congress. This year’s audit reviewed approximately 100 quarterly “LD-2” reports filed by lobbyist employers and lobbying firms and about 160 semi-annual “LD-203” reports that disclose political contributions and politically-related contributions.

"Many takeaways from this year’s review were consistent with past reports. Lobbying registrants still often neglect to round their lobbying expenses and lobbying income to the nearest $10,000. Many registrants also fail to disclose the prior covered government positions held by newly-registered lobbyists. And many LDA reports continue to be amended after a registrant learns of the audit — a fact that GAO believes “suggests that our contact may spur some lobbyists to more closely scrutinize their reports than they would have without our review.”

"But the 55-page report does include some interesting new nuggets:

     • "Missing Political Contributions. Almost half (45%) of audited registrants failed to report political contributions on their semi-annual LD-203 political contribution reports. GAO described this as a “statistically significant” increase over prior years. This is a preventable error. Prior to filing, registrants should consider cross-checking the LD-203 reports versus Federal Election Commission reports to ensure there are no missing contributions.
     • "JACK Act Certifications. Pursuant to a new statute, the JACK Act, lobbyists are now required to certify they have not been convicted of certain crimes. This year, GAO audited the accuracy of these reports, including by conducting criminal background checks on names listed in the reports. While it found no errors, GAO’s background checks underscore the importance of conducting due diligence to confirm the accuracy of these representations.
     • "Naming and Shaming. The report singles out, by name, two lobbying firms that “declined to meet with us following our initial letters.” The failure to meet led to GAO reporting the names of these firms to Congress.
     • "Low Enforcement Levels. While there has only been a trickle of LDA civil enforcement cases in the last decade, the trickle has begun to dry in recent years. Only one civil attorney now handles LDA enforcement part-time (down from two in 2017). Moreover, GAO announced that “no suits have been initiated or cases settled since our 2018 lobbying report.” Those prior cases, GAO emphasized, have all involved “chronic offenders”."

Whistleblowers Watch Stimulus Money From Inside from the firm Squire Patton Boggs.

"Whistleblowers, with their unique access to business operations, follow the money to learn whether the business abides by the strings attached to that money. Whistleblowers look for an opportunity to cash in on what they consider fraudulent conduct. What’s a business to do?

Strings Attached

"We recently advised about the many strings attached to the trillions of dollars available from the stimulus packages. Government watchdogs aggressively will scrutinize what happens to that money from the outside. If they find fraudulent conduct, they will seek recovery under the federal False Claims Act (FCA) not just for the amount of loss to the government but for up to three times that amount (known as treble damages).

Whistleblower Incentives

"Whistleblowers are employees on the inside who know what procedures are in place, what procedures they think should be in place, and the people to who make decisions about those procedures. The FCA incentivizes whistleblowers to capitalize on their invaluable insight by filing a lawsuit (a qui tam suit) reporting what appears to be fraudulent conduct to the government watchdogs. The rewards are great. Whistleblowers receive 15% to 30% of the amount of any recovery. In addition, the business is required to pay attorney’s fees to the whistleblower.

"Those incentives work. Whistleblowers are the source of most recoveries under the FCA. We reported that qui tam law suits in 2019 were being filed at the rate of more than 12 per week. Whistleblowers personally recovered more than $271 million in payments. The government itself recovered more than $2.2 billion in those qui tam suits. This far outstrips direct enforcement actions brought by the government without a whistleblower. Now that trillions of dollars are flowing, whistleblowers know the rewards are even greater.

Proactive Action

"A business that needs a recovery stimulus should obtain the relief that is available. From small businesses, nonprofits, venture-backed startups, higher education institutions, and healthcare to trade, supply chains and defense, and other regulated industries, Squire Patton Boggs attorneys are here to help you receive the much-needed assistance.

"But vigilance also is needed. Prepare to account for the money received by, for example, ensuring

     • Protocols are established to handle the money
     • Compliance programs are in place
     • Compliance programs operate effectively
     • Clear and readily available channels handle complaints remotely
     • Tone at the top encourages employees to report problems to leadership"

Past as Prologue: The Wave of Investigations to Follow the Pandemic Recovery and Actions that Companies Can Take Now to Prepare from, again, Covington & Burling LLP.  

"On March 30, 2020, the inspectors general of several major agencies selected the Department of Defense Inspector General, Glenn Fine, to lead a newly created federal oversight entity that will investigate waste, fraud, and abuse in connection with the massive new coronavirus economic relief legislation. The inspectors general were exercising new authority contained in the legislation, but these actions also echo Congress’s past approach to oversight of recovery efforts. This client alert examines the new investigative authorities in the legislation and provides advice for companies, based on past examples.

"Throughout American history, when Congress has confronted a national emergency and authorized a major government response, the economic recovery has almost always been accompanied by significant congressional, civil, or criminal investigations. This paradigm dates back at least to the Civil War, with Congress’s Joint Committee on the Conduct of the War. In modern times, the savings and loan crisis and bailout of the late 1980s led to criminal convictions and the Keating Five lobbying scandal.

"Most recently, after the 2008 financial crisis, Congress sought to formalize and institutionalize the oversight and investigation of recovery efforts through the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) and other oversight bodies. A Congressional Oversight Panel held 26 hearings over more than two years on the causes, symptoms, and effects of the economic crisis and government response and reform efforts. Investigations by just one entity, the Recovery Accountability and Transparency Board, resulted in 1,665 convictions, pleas, or judgments, along with more than $157 million in recoveries, forfeitures, seizures, and other savings.

"In the newly enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Congress again provided that oversight and investigations will accompany the $2 trillion relief program:

"The bill establishes a Special Inspector General for Pandemic Recovery within the Department of the Treasury. The Special Inspector General will be presidentially appointed, as was the SIGTARP. The Special Inspector General will be responsible for conducting, supervising, and coordinating audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments by the Treasury under the CARES Act. Like the SIGTARP, the Special Inspector General for Pandemic Recovery will also be responsible for providing quarterly reports to Congress. Congress dedicated $25 million of new Treasury funds for the Special Inspector General to carry out these duties.

"The bill establishes a Pandemic Response Accountability Committee within the Council of Inspectors General on Integrity and Efficiency to prevent and detect fraud, waste, abuse, and mismanagement of funds and to mitigate risks across programs and agencies. Congress appropriated $80 million for the Committee. This new Committee appears to be modeled on the Recovery Accountability and Transparency Board established by the American Recovery and Reinvestment Act of 2009 (ARRA), which is generally viewed as having successfully protected against the misuse of recovery funds. Although the Recovery Board was required to coordinate its activities with various agency inspectors general, the new Pandemic Committee is created within the Inspectors General Council. This may mean that the Pandemic Committee will have a heightened degree of autonomy and a greater ability to act quickly and with better coordination than was the case for the Recovery Board. The Pandemic Committee is authorized to issue subpoenas to persons outside of the government.

"The bill authorizes the creation of a bipartisan Congressional Oversight Commission charged with oversight of the Treasury Department and Federal Reserve, as they work to provide economic stability in the wake of the coronavirus. Like the TARP Congressional Oversight Panel, the CARES Act’s Congressional Oversight Commission will consist of five members appointed by the leaders of Congress. Also like its predecessor, the Congressional Oversight Commission will have significant authority to conduct oversight and investigations, including holding hearings and taking testimony.

"In addition to these new entities, existing authorities are certain to continue to investigate. For example, the House Oversight and Reform Committee has already launched an investigation of travel insurance companies and their coverage decisions related to travel cancelled due to the coronavirus. It is likely that congressional committees will examine the administration’s preparedness and response to the crisis, along with the activities of deeply affected companies and industries, especially those that receive federal aid. If history is a guide, these investigations will continue for many years into the future. For example, as late as last year, the House Financial Services Committee held a hearing that focused on bank accountability “10 years after the Financial Crisis.” The CEOs of Citigroup, JP Morgan Chase, Morgan Stanley, Bank of America, Goldman Sachs, and others all testified.

"Criminal authorities will also continue to investigate. Attorney General William Barr has directed federal prosecutors to prioritize investigations and prosecutions of coronavirus fraud schemes, and Deputy Attorney General Jeffrey Rosen directed each U.S. Attorney’s Office to identify a prosecutor to serve as the lead coronavirus fraud coordinator. These developments mirror actions that were taken after the financial crisis. For example, SIGTARP investigations related to fraud involving TARP funds resulted in enforcement actions against nine financial institutions and in the successful criminal prosecutions of 51 bank officers and executives. The Department of Justice—including through a Financial Fraud Enforcement Task Force and a Residential Mortgage-Backed Securities Working Group—investigated fraud related to the financial crisis itself, ultimately resulting in several multi-billion dollar civil settlements with financial institutions.

"Of course, the investigations that will follow the coronavirus recovery will not be exactly the same as the investigations of the financial crisis or the savings and loan bailout. Each new crisis has its own unique attributes and characteristics. Nonetheless, based on our experience defending companies and individuals involved in similar investigations, we can offer the following five tips for being prepared:

     1. Invest in compliance now to avoid problems in the future. Companies need to understand the implications of taking federal money and establish systems that ensure compliance. For example, companies that benefit from increased federal investment in pandemic responses may have increased compliance obligations as a result of contracting with the government. Certain of the federal relief programs contain restrictions on executive compensation. Even the process of seeking federal assistance may implicate laws that regulate lobbying, depending on the agencies or officials contacted.
     2. Consider the public and political dynamics of corporate actions. Congressional investigators often follow where the press leads, and investigative reporters will be looking for juicy stories to highlight. Some recipients of prior federal funds were criticized for paying bonuses, moving jobs overseas, or even for their executives’ vacation arrangements. By seeking and accepting public funds, companies will often be held by the public and Congress to a higher standard.
     3. Understand your company’s areas of vulnerability. Companies in certain industries already face a high risk of investigation. Industries involved in the response to the crisis—including the biopharmaceutical, technology, consumer goods, and medical device industries—could have their actions scrutinized closely. Sometimes companies with the best intentions, such as rushing to respond to a pandemic, will take risks that would not be warranted upon reflection. Companies should have a clear understanding of these vulnerabilities and a clear and compelling answer to after-the-fact criticisms.
     4. Involve your legal department in business decisions. With the vast majority of employees working from home, and business situations moving rapidly, there are significant risks that business decisions can be made in “silos” without proper examination by all relevant parts of the company, including the legal department. The coronavirus pandemic has placed pressure on government regulators, including the Food and Drug Administration and others, to relax tightly controlled regulatory regimes. This dynamic also creates opportunities for industry, including for companies that may seek to develop new product lines or otherwise re-tool their manufacturing processes to meet current demand for hand sanitizers, facial masks, and other products and supplies needed during the pandemic. It is critical to involve the legal and compliance functions in these business decisions in order to mitigate a host of risks, including missteps with the federal government that could lead to regulatory or criminal exposure.
     5. Carefully vet all applications for assistance and other submissions to the federal government. In order to review applications and other submissions quickly and exercise judgment about the suitability of individual institutions to receive funds, the government will need to rely on representations, attestations, and certifications made by applicants. Companies and their counsel should carefully vet such statements with an eye toward the potential civil and criminal risks associated with submissions to the government. Civil and criminal authorities will focus on such submissions and other disclosures in any eventual investigations, and companies should seek to mitigate this risk with proper planning and legal review processes on the front-end."

UPDATE TO THIS STORY:

As reported in the final article above,"The [Congress']bill establishes a Pandemic Response Accountability Committee within the Council of Inspectors General on Integrity and Efficiency to prevent and detect fraud, waste, abuse, and mismanagement of funds and to mitigate risks across programs and agencies. ... This new Committee appears to be modeled on the Recovery Accountability and Transparency Board established by the American Recovery and Reinvestment Act of 2009 (ARRA), which is generally viewed as having successfully protected against the misuse of recovery funds. ... the new Pandemic Committee is created within the Inspectors General Council. This may mean that the Pandemic Committee will have a heightened degree of autonomy...."

NOT SO FAST. Fine, but...

Trump Removes Acting Pentagon IG Slated to Lead Pandemic Oversight Last week, the Council of the Inspectors General on Integrity and Efficiency tapped Fine to chair the Pandemic Response Accountability Committee, an oversight body created by the $2.2 trillion CARES Act to ensure taxpayer money is spent wisely. The law empowered CIGIE to name the committee chair, but stipulates that only current IGs can hold the position, so Trump’s removal of Fine from his acting position prevents the well-regarded watchdog from leading the oversight committee.

Over the course of his presidency, Trump has flouted transparency precedents and bristled at the role of IGs, whose work is critically important to holding agencies and the administration accountable for protecting the public’s health, among other things. Fine’s removal is part of a larger shakeup to the IG community.

Trump signaled in a signing statement on March 27 that he would not enforce some of the oversight provisions in the $2.2 trillion CARES Act. He specifically objected to the creation of a special IG for pandemic recovery at Treasury empowered to request information from other agencies and report to Congress any delays in receiving that information: “I do not understand, and my administration will not treat, this provision as permitting the SIGPR to issue reports to the Congress without the presidential supervision required by the Take Care Clause, Article II, section 3,” the statement said."

The Constitutional "authority" the President of the United States cited doesn't appear to quite fit this particular Bill which, remember, was intended "to prevent and detect fraud, waste, abuse, and mismanagement of funds." Article II, Section It says, the President "shall take Care that the Laws be faithfully executed...." Instead, the President seems more interested in taking care that no independent voice is heard, and no such Inspector seen.

When Commercial Off the Shelf became a Cockup Off the Cuff

The Project On Government Oversight (POGO, as it is called) has an interesting, and somewhat disturbing, report out. This post will only go into parts of it. The whole report is well worth the read. Read it at the link below.

The Pentagon relies on the obscure Defense Contract Management Agency (DCMA) to negotiate and administer $5 trillion contracts across the Defense Department as an average of $455 million In taxpayer dollars are paid out each day to contractors. DCMA undertook to modernize its procedures and processes and contracted professionals to design and build a system. The result was a software system created to help review, implement, and track defense contracts a, a project, called the Integrated Workload Management System.

The project appears to have been a colossal cockup. But that, and the investigation it appears to have instigated, is not what this post is focused on. For that story, you must read the POGO report at the link above. The bouncing ball that traces this post is a golf ball that seems never made it onto the fairway; it was in the weeds from the gitgo. This is a tale of “Do as I say, not as I do”.

Pentagon’s Contracting Gurus Mismanaged Their Own Contracts

 In 2011, the agency got the ball rolling with a contract paying a company called Apprio to conduct a study on what a “Model Contract Management Office” would look like and to “identify relevant technology” it would use. The next year, Apprio’s contract was expanded to envision a replacement for the Electronic Document Workflow system.

Things started going south for the software project in mid-2013, when Apprio won a contract worth more than $3 million to begin testing and developing software as the replacement system. But because the agency had previously hired Apprio to help lay out the requirements for this work, under federal acquisition regulations the company was ineligible for contracts implementing its prior recommendations. Regulations specifically prohibit this so that a contractor is not tempted to misrepresent the needs of the agency in order to sell more of its own products or services. The “organizational conflict of interest violation” raised “serious concern over contracting practices and processes within DCMA.”

Because the contract involved spending more than $1 million on a system the Defense Department uses to manage its resources, then-Director of Information Technology Haynes needed approval from the Pentagon’s deputy chief management official. The official rejected Haynes’ initial request, citing missing documentation and other flaws, and asked him to resubmit it. Despite not having the Pentagon’s approval, the contract was awarded to Apprio. But during testing over the next several months, Apprio’s software “failed to properly integrate” with the agency’s other systems.

The agency turned to another company, Discover Technologies, to develop a software solution. It appears that the documents provided to the Services Acquisition Review Board to get approval for the contract were misleading. The documents, submitted just two days before the end of the fiscal year, listed the upcoming year’s projected expenses as $960,000. There was no mention of the estimates that the contract would likely cost up to $40.5 million over its lifetime. Evidently, the Pentagon had not approved the funds necessary to cover that much larger estimate. In the event, the board received and approved the contract on September 28, 2013, and reapproved it each year through 2017.

Additionally, the board failed to conduct a formal review of the Discover Technologies contract before approving it. It didn’t seem to know what the contract was intended to deliver. Personnel consistently did not understand what was being communicated by Haynes and others in the IT department, and therefore either stopped asking questions or failed to ask any at all. In the absence of any questions or objections, approvals were essentially rubber stamps, with the board approving 95 percent of IT submissions on first attempt.

If it had done a thorough review of the Discover Technologies contract before approving it, the review board might have caught numerous problems. For example, the agency used the wrong type of contract: a “Blanket Purchase Agreement,” which is intended for recurring needs for straightforward supplies or services, not the type of complex software modifications Discover Technologies would be performing. The agency mischaracterized the software as a “commercial off-the-shelf” product, which requires less oversight, despite the fact that those involved knew it required a significant amount of coding and development work. The contract’s requirements were also vague, with some overlapping with work already assigned to Apprio. In many cases, task orders within the contract were missing key components, such as statements of work and standards by which to measure performance, and the document detailing the work requirements didn’t include a list of specific objectives.

On the last day of the fiscal year, two days after the review board approved the Discover Technologies contract, the Pentagon approved spending about $6.3 million on the software project over the next year. Hours later, the agency awarded the contract. It appears there was “pressure in contracting to get contracts awarded at year end,” leaving insufficient time to plan and properly craft the project’s requirements. In summary, some of the project’s most significant problems stemmed from the structure and administration of the contract. The lack of clear objectives in the contract directly impacted performance, and the lack of planning and strategic vision led to money being wasted through duplicative work and cost overruns.

Worse, the government did not provide any oversight focused of the project. There were “essentially two budget offices with a separate one in IT, and there was no oversight of the IT budget personnel by the [agency] budget office. This meant the agency’s own budget office didn’t know the agency was spending more money than it was authorized to. In a similar vein, Pentagon budget officials didn’t adequately keep track of the numbers or talk to each other, so one office kept giving away more money than the other had authorized.

The project had become a runaway train until the agency director put a halt to things and requested both an Inspector General audit and an independent investigation into the suspected Antideficiency Act violations. By then, the agency had spent around $45 million on the project, not including government labor costs.

In 2009, the congressionally created Commission on Wartime Contracting wrote, “DCMA is not aggressive in motivating contractors to improve business systems,” which it described as “the first line of defense against waste, fraud, and abuse.” The agency’s “conservative approach results in little, if any, motivation for contractors to improve their business systems, and ultimately has a direct impact on the warfighting mission.” In 2011, the Government Accountability Office attributed many of the agency’s struggles to “a seriously eroded workforce” stretched thin by the surging number and value of contracts in prior years due in part to the wars in Iraq and Afghanistan; a decentralization initiative that led to inconsistent guidance and practices across the agency that one official called a “free for all”; and the challenges posed by defense contractors’ increasing reliance on subcontractors.

While the agency has in many cases not been zealous enough in protecting taxpayer interests, the shortcomings are not across the board, and parts of the agency have at times seemed more willing to hold contractors accountable. The agency’s hard-hitting findings that Lockheed Martin had used a significantly flawed business system for the F-35 program, and the Pentagon’s subsequent willingness in 2012 and 2013 to withhold some payments from the company, is one example. Last year, it did the same with helicopter manufacturer and major defense contractor Sikorsky.

But the extent to which the agency was failing to properly manage contracts for even its own internal systems is coming into focus this year with the April Inspector General report and the documents POGO obtained.

As mentioned above, this post presents only part of the story, the mistakes made. There is another story in the article about the investigation(s) and information obtained by POGO regarding the project and loosely related others. Here, I focus on what went wrong. The rest of the story focuses on the investigation and remedies. And that's the main point of the procurement system.

While we're here, let me put in a plug for the Project On Government Oversight. Our procurement system requires the essential efforts of the private sector to police government spending in real time. POGO is one of those many sentinels along the watchtowers we rely on to keep the game clean, as best we can.

For the times, they are a'changing -- or are they?

Here is the first of a couple of intriguing and thought-provoking current articles, each from very good sources (or so I've observed), considering aspects of the current "changes" in federal government acquisition. The second will be in the next post (see here). 

Remember, I take indecent liberty with articles advanced here, to provide context to students of local government procurement, and Guam's in particular. Thus, I slice and dice, omit great swaths of critical data, paraphrase, rearrange, and perhaps tilt to one side or the other, the original information in these articles. It is imperative that you read the articles in their original form and the authors' intent, and not rely on my iteration of them.



“Other Transaction Authorities” might seem like a risky new acquisition method, but it’s been around longer than the Federal Acquisition Regulation.

Before there was a Federal Acquisition Regulation regime describing the many procurement laws adopted at the federal level in the last three decades plus, there were “other transaction authorities,” also known by the shorthand OTAs or OTs. This contracting method, outside the usual federal process, is not widely used and even less understood. But that’s beginning to change. “Even though it’s been around for a fairly lengthy period of time, it’s just not been used very much. So, people are afraid of it because they haven’t seen how it’s worked,” Douglas Maughan, director of the Homeland Security Department's Science and Technology Directorate’s Cyber Security Division, told Nextgov.

It comes across as new and scary but is potentially a game-changing acquisition model and it is catching fire across government. After all, it has no structure, no built in roadmaps, accountability or paper trails. But, it doesn’t have to be scary and is not really all that new, if you are a big believer in getting to the future by going back before the dawn of modern procurement rules-based practices. It has roots going back to the 1950's, long before the FAR and the Competition in Contracting Act. Three decades later that same language came to be used to grant the Defense Department similar authorities. “Under these authorities, agencies may develop agreements that are not required to follow a standard format or include terms and conditions that are typically required when using traditional mechanisms,” according to a Government Accountability Office definition. In other words, OTAs rely more on principles than rules.

By 1994, that authority had been broadened beyond research to include prototyping and then updated again in 2017 to enable contracts to move into production after successful prototypes. Over that time, several departments have been granted other transaction authorities, including Defense, Energy, Health and Human Services, Homeland Security and Transportation. Under these departments, five component agencies have also been given explicit OT authority: the Federal Aviation Administration, Transportation Security Administration, National Institutes of Health, Domestic Nuclear Detection Office and Advanced Research Projects Agency-Energy, or ARPA-E.

Homeland Security’s Science and Technology Directorate awarded its first OT contract for cybersecurity in February 2016 after launching its Silicon Valley Innovation program. While the primary focus for OTs is on research and development, not all agencies are using them for that express purpose. For instance, TSA and NASA use them for other services, such as airport security, education and outreach, according to GAO.

The reluctance to use OTs is based on “fear of giving people a lot of discretion,” said Nash, the procurement law expert. “If you’re in a government agency and you’ve got an inspector general and you’ve got congressional oversight … there’s a tendency to be pretty cautious about how you do business.”

That said, “It’s the same oversight you have over any other transaction where you’re giving a company money,” Nash said. “The problem is, if you have a lot of discretion, you take away a lot of the rules, but you still have basic ethics problems. If you gave an OT to your father without telling anybody else about it, you’d have the same ethical violation you’d have with a contract or a grant.”

The other major roadblock is the fear of funding projects that don't pan out, Nash said. “People have a hard time understanding that when you fund research, over half the time you’re funding failure,” Nash said. “You do not get 100 percent payout from research; and you shouldn’t expect it.” If you were to see a 100 percent success rate in funding research, that would just mean you weren't looking far enough into the future. “There’s nothing wrong with failure,” Nash said.

Homeland Security’s Maughan agreed. “We have a lot of successes we can talk about with return on investment, but even the failures” have some return, he said. He cited a program to downsize a Defense Department radar system to fit on smaller drones used by U.S. Customs and Border Protection. The company awarded a contract ultimately failed to produce a working prototype, but everyone involved still consider it a successful venture. The company was able to get funding to move their research forward and CBP learned what is feasible for the size of drones they use. “They were still really happy about being part of the program,” Maughan said. “We helped them move the technology down the roadmap toward a smaller device and that will help them in some of their DOD missions.”

“I think there’s still some return on investment," Maughan added. "Our investment was less than $400,000 with them, so I think it falls into the category of: If you’re going to fail, fail quickly."

Had the office used a traditional contracting method for this project, it likely would have taken six to 12 months just to make an award, let alone discover that the idea would not work. Under the Science and Technology Directorate's OT authority, the time from application to award can be as short as 60 to 90 days.

Broadening OTs beyond research seems to increase their use accordingly. GAO reports that while most agencies do fewer than 75 OT transactions a year, TSA and NASA conducted 640 and 3,220, respectively, in 2014 alone.

Many in government have been reluctant to use their OT authorities precisely because of the lack of regulations governing their use. Since the contracts exist outside of the Federal Acquisition Regulation, they can be written with far less stringent requirements. But that also means there are fewer protections along the way to avoid a catastrophic contracting failure—one that could land a government official in front of a congressional committee.

“Even though it’s not FAR-based, we still have to do procurement documentation, we have to do a source-selection plan that says what are the criteria by which we’re going to evaluate proposals. For the most part, it’s the same as a traditional FAR-based contract, it’s just that the vehicle you’re using is not a FAR-based vehicle,” Maughan said. Despite appearances, “It’s not the wild, wild west,” Maughan added. “You still have to make sure the government is making the decisions on what gets awarded. Even still, we have a contracting officer—who’s called an ‘other transaction authority officer’—so you’re still doing the same kinds of things with the contracting folks as part of the team.”

The company was able to get funding to move their research forward and CBP learned what is feasible for the size of drones they use. “They were still really happy about being part of the program,” Maughan said. “We helped them move the technology down the roadmap toward a smaller device and that will help them in some of their DOD missions.”

“I think there’s still some return on investment," he added. "Our investment was less than $400,000 with them, so I think it falls into the category of: If you’re going to fail, fail quickly."

Had the office used a traditional contracting method for this project, it likely would have taken six to 12 months just to make an award, let alone discover that the idea would not work. Under the Science and Technology Directorate's OT authority, the time from application to award can be as short as 60 to 90 days.

“It’s not a solution for every case,” Maughan said. “It’s not the answer for all things,” he added. “If you’re trying to get startups with new innovation, then an OT might be good for you as an organization. There’s a little bit of risk working with a startup company—if you’re really just looking for a solutions provider and you’re not willing to take some risk, then an OT might not be for you.”

Nash agreed and offered some advice to agencies interested in getting in on OTs. “Let’s say you find a company out there that’s never done business with the government and that has some fascinating technology. You go to them and you say, ‘How could we sponsor you to do this? And we’ll give you all the money.’ Well, they may say, ‘The only way we’ll deal with you is this, this, this and this,’” Nash said. “We’re talking about intellectual property issues; we’re talking about accounting issues. And a normal contracting office might be pretty darn uncomfortable when they hear that because that’s not their norm.”

“You’ve got accounting problems. You want to make sure the company spends the money for what you gave them the money,” which can be particularly difficult, as one advantage of an OT contract is the company does not have to abide by government accounting standards. “But you need to make sure they have some systems.

“You need to worry about intellectual property—who’s going to have rights to it. And that would mean that if they said, ‘We’ll only do it if you take zero rights,’ that would be a problem. You might do it but you certainly would know that that’s a flashpoint that you would worry about. And then, of course, you’ve got to worry about audit rights because the government always wants to be able to audit and the contractor might not want to be audited.

Additional reading for this subject: Acquisition Disruption - Innovative Concepts in Government Contracting

Excerpt:  "This term is not defined by statute or regulation; it is best defined by what it is not. An OTA is not a procurement contract, grant, or cooperative agreement. It is a different type of agreement with the government – one that is not subject to the strict regulatory regimes that characterize other types of contracting." 

In my mind, adherence to principles is absolutely necessary for a successful procurement regime, but principles are not, in themselves, sufficient, any more than rules alone are.  See, The ethics of paper work.

Procurement Controversy du jour - Australian government 'consultants'

Experts flag lack of accountability in procurement contracts

Current contract arrangements often prevent consultants from being held accountable for the advice they give to government while ambiguous reporting makes it difficult to determine the value for money of outsourced work. That’s according to the Melbourne School of Government, which has told a parliamentary committee into government procurement contract arrangements that the commercial-in-confidence privileges often attached to consultants’ work has given rise to concerns about accountability and transparency.

“This is different to advice provided by, for instance, a government department, which forms part of the public record,” the school says in its submission to the inquiry.

Last week Government News reported on calls for the Department of Finance to carry out a detailed investigation into whether there is “systematic flouting” of the procurement rules, given the high use of government contracts below $80,000, which are not required to be put to market. The Melbourne School of Government said the way in which value for money is reported by Commonwealth agencies is not specified under procurement contracts and often remains unclear. “This means it is not possible to understand the ways in which value-for-money was assessed for specific consultant engagements, and the extent to which a particular engagement did, in fact, deliver that value.”

The school also pointed out the lack of formal accreditation for becoming a consultant or professional body ensuring practitioners meet basic professional or ethical standards.

“This means that there are no generally accepted rules regarding who can legitimately call themselves a consultant,” it said.

The school also highlighted that more than two-thirds of the public service’s consulting work is completed by five organisations, four of these being the Big Four accounting firms. “It would be helpful to understand why exactly this is.”

Dean of engagement at Griffith Business School, Professor Anne Tiernan, who has been involved in several projects examining public service capability, said successive “reforms” had eroded institutional memory and capacity for long-term thinking.

KPMG, which earned $620 million in government contracts from 2012 to 2017 according to the national auditor, argued it was unrealistic to expect public service to possess in-house the myriad technical skills needed to meet rising demands. Departments and agencies required specialist skills including data and analytics, artificial intelligence and business and technology transformation, it said.

While only the primary organisation in a contract is currently reported, the consultancy argued that the reporting of subcontractors would provide an increased level of transparency, particularly for smaller enterprises working as part of a consortium. KPMG also proposed that AusTender should provide information on other companies and consultants that unsuccessfully tendered for a contract, and not just the winner, to provide “an additional level of transparency” to the procurement process.

Read more at the link.

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.

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 - 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.

War (good God): What is it good for? In Nigeria, the elite and Boko Haram, it seems

Or so the following article would have us believe. I use this as though it is thoroughly hpothetical to illustrate that, in times of strife, whether ma-nmade or natural, attention is more attracted to the strife, not the money trail. 

The only defense for such diversion of attention is transparency and accountability in as near real time as possible. A trained and trustworthy professional bureaucracy is critical. 

It is obviously most useful to elect and appoint honest leaders who put good governance and the welfare of the led before their own interests.

Nigeria's Political Elites Hid Behind Military to Steal Billions of Dollars - Report

Corrupt officials over the years exploited the excessive secrecy of the country's defence budget to rip off the nation, says the report released Thursday in Abuja by Transparency International Defence And Security. The 15-years-old war against Boko Haram insurgency has helped pushed up Nigeria's defence budget and corresponding increase in corruption within the sector, the report said. The Areport has highlighted how Nigeria's political elites for years hid under the cover of the country's military to steal billions of dollars that would have been channeled into improving the living conditions of the citizens.

The report, which was prepared in partnership with the Civil Society Legislative Advocacy Centre, CISLAC, is titled, Weaponising Transparency: Defence Procurement Reform As a Counterterrorism Strategy in Nigeria. Corruption in the defence sector, according to the report, is a major threat to Nigeria's internal security and political stability. "Largely unaddressed, it has weakened Nigerian counterterrorism capacity whilst strengthening Boko Haram," it said.

The report repeatedly mentioned a former National Security Adviser, NSA, Sambo Dasuki's case as an example of how the country's defence sector leaves room for exploitation. Mr. Dasuki is currently standing trial for allegedly mismanaging funds meant for the procurement of weapons to prosecute the war against Boko Haram.

The report also mentioned former President Goodluck Jonathan and the late military dictator, Sani Abacha, as some of the nation's leaders who profited from the inherent weakness in the sector.

According to the report, the stealing is usually done through inflating of procurement contract values and creating of "phantom" defence contracts. "Such contracts are used as a vehicle for money laundering: facilitated via weak or corrupted Nigerian banks, illicit financial flows are often hidden in property in the UK, United States, South Africa and Dubai," the report says.

The stealing is done with the active connivance of the country's military leaders. "With oil prices at a record low, defence has provided new and lucrative opportunities for the country's corrupt kleptocrats," says the report.

"Former military chiefs have stolen as much as US $15 billion - a sum equivalent to half of Nigeria's foreign currency reserves - through fraudulent arms procurement deals."

All is not lost. The report acknowledged President Muhammadu Buhari administration's effort to tackle corruption in the country's defence sector. But it warned that, "Only a holistic reform agenda can deliver the deep, systemic changes and improvements in transparency and accountability needed to prevent the next US $15 billion quietly leaving Nigeria through the back door".

"Since coming to power in May 2015, President Buhari has taken some bold action in tackling defence sector corruption. Central to his approach have been two ad hoc, temporary audit committees: one investigating spending by the Office of the National Security Adviser and one investigating defence arms and equipment procurement.

"Taking on the defence establishment was a significant move: the evidence uncovered by these probes revealed that several of the country's former military chiefs, using dozens of companies, together stole as much as US $15 billion.

"President Buhari's anti-corruption drive is a rare example of senior Nigerian defence and security officials being exposed to criminal investigation. By signalling that military impunity is not without limit, it is undoubtedly a positive step forward," it said.

State governors in Nigeria are also known to have used the secretive "security votes" as an avenue to steal public funds, the report said.

The report recommends a unified anti-corruption strategy for the defence sector, the extension of public access to defence and security information, and the monitoring of confidential procurements as some of the ways of tackling the problem. Other recommendations include the sharpening of international focus on fighting corruption in Nigeria, plucking off money laundering loopholes in banks, the extension of whistle-blower protection to cover the defence sector, and regulation of secretive security votes.

"Declassifying how the security vote funds have been spent, after a two-year information embargo, could also enable citizen oversight," the report said.

Katherine Dixon, Director Transparency International Defence and Security, called for a quick action against corruption in the Nigeria's defence sector. "Corruption in Nigeria is not just a problem for Nigerians, but a concern for all of those looking to tackle violent extremism around the world.

"Entering into blind defence deals that ignore the rampant corruption in Nigeria's defence sector means international partners could inadvertently be giving rise to Boko Haram. Likewise, the doors to allow corrupt officials to launder their ill-gotten gains out of Nigeria should be slammed shut, through the active denial of visas and other domestic legislation that targets corrupt money. With Buhari's first term soon to end, the international community may soon find itself without a Presidential ally in this fight - now is the time to act," Ms. Dixon said.

Procurement controversies series: Ohio. Time after time...

Ohio awards millions in unbid IT contracts, sidestepping state policy, analysts’ protests

Time after time, state purchasing analysts warned that the pricey pending contracts were improper. “This position was unbid” ... ”No competitive procurement was issued” ... “The rates seem to be excessive” ... “The agency did not complete any competitive process” ... ”This position could have been filled ... with rates at least $63 less per hour.” The supervisors also repeatedly disregarded the agency’s own purchasing policy and sidestepped approval of the bipartisan state Controlling Board that serves as a check on spending on non-competitive contracts.

And, time after time, their superiors at the Ohio Department of Administrative Services overrode those concerns to award millions of dollars in no-bid, information-technology contracts, frequently paying more than $200 an hour — often to a company employing one-time Administrative Services executives, a Dispatch investigation found. As a result, Ohioans likely have paid much more than if routine competitive purchasing procedures had been used by the agency with the responsibility to “guide the use of resources on behalf of the public trust.”

Revolving door in reverse:

The high cost of contracting consultants' employees is underscored by a pair of instances in which the consultants later were hired by the state to perform similar duties — but at a sharply lower cost to taxpayers.

Gregory Jackson, one of Davis’ predecessors as the state’s chief information officer for five years (Davis was a 20-year agency employee who was named chief information officer in 2009 and became a deputy director two years later), left his state job in 2005. He was employed by Advocate beginning in September 2012, and through an unbid contract approved by Administrative Services, immediately became interim chief information officer at the Ohio Department of Medicaid. The company received more than $913,000, charging $218 an hour for Jackson’s full-time services until May 2015, when he departed both Advocate and the Medicaid department.

Jackson then returned to the state 10 months later as a full-time state employee in a similar job as head of information services at the Department of Job and Family Services. His hourly state salary of $67.31 — which yields $140,000 a year — represents less than a third of what Advocate was paid for his services. Advocate was paid $453,400 in its last contract for the services of Jackson, who listed a salary of $180,000 a year at Advocate on his state employment application. Jackson declined a request for an interview.

Peter McGeoch, Administrative Services’ IT director in the 1990s and an Advocate employee, worked at the Ohio Department of Higher Education through an unbid contract. His duties included advising Chancellor John Carey on IT issues. Records show McGeoch was hired for $150 an hour, for a total of $77,400, to work for three months ending in September 2016. A spokesman for Carey said McGeoch continued his work at $150 an hour under an extension with Advocate before departing in January. Advocate also was paid $456,000 in 2014 and 2015 for general consulting services provided by McGeoch.

A spokesman for the agency said that it did nothing wrong because its awarding of no-bid contracts is lawful under a waiver of competitive selection granted by the Controlling Board for the past 45 years. But the spokesman could not point to any law or another written policy permitting the awarding of contracts, even with the waiver, without first obtaining at least three price quotes from competing suppliers, as required by the department’s own policy.

The Department of Administrative Services oversees or handles most state purchasing. It also serves as the state property manager and human-resources and payroll office. Its Office of Information Technology handles most software and computer-system contracts for state agencies. The state spends more than $930 million a year on those agencies’ computer and information-technology needs. State agencies generally are required to obtain Controlling Board approval of no-bid or single-source contracts in excess of $50,000 per vendor per year. Last year, a department purchasing analyst pointed out a need to “help reduce the $75 million spent on consultants ... who have since 2006 received several million dollars in unbid work,” writing that some tasks could have been done at lower cost by other companies.

Administrative Services has not submitted any no-bid information-technology contracts for board approval during the past four years, records show. Top agency officials, such as Director Robert Blair and Chief Information Officer Stuart Davis, were not made available for interviews requested by The Dispatch. “The complexity of this subject matter does not lend itself to an interview,” wrote department spokesman Tom Hoyt.

“The majority of the identified (no-bid) contracts are for managing large-scale, complex IT projects and programs that span several years,” Hoyt said. “Items such as a pen or pencil can be compared or purchased in a like manner, apples-to-apples, while IT consulting involving specialized skills, knowledge and experience is difficult to compare in the same way.”

Among the findings from The Dispatch’s seven-month investigation:

‒ Advocate, a Columbus family of companies that has received in excess of $14 million in multiple unbid contracts since mid-2011, employs several former Department of Administrative Services IT executives who once worked closely with the state’s current highest-ranking IT officials.

‒ Stonyhurst Consulting, based in the Washington, D.C., exurb of Middleburg, Virginia, was handed more than $3 million in unbid IT contracts — again, many over the protest of Administrative Service analysts — that included pay rates of up to $250 an hour.

‒ Advocate also charged hourly rates exceeding $200 an hour. In fact, when a couple of its employees transferred to the state payroll, their wages were less than a third of what Advocate had charged the state for similar services.

‒ Despite insisting the no-bid contracts were proper, agency officials canceled some and sought price quotes following the protests of purchasing analysts. However, department leaders gave some contracts to Advocate and Stonyhurst anyway — even though they were the highest-priced.

The unbid contracts uncovered by The Dispatch were awarded without complying with an Administrative Services policy that since 2008 has required the agency to obtain at least three price quotes from competing suppliers, a process intended to save tax dollars by yielding lower prices through competition. The quotes are to come from pre-negotiated and pre-approved “state term schedules” that would-be contractors file with the state.

Hoyt said that policy is overridden by the agency’s receipt of a waiver of competitive selection each biennium from the Controlling Board, which consists of six legislators and a Kasich appointee. The waiver permits the granting of unbid contracts for specialized work and “to provide continuity of services,” Hoyt said. “It allows for a judgment call to be made by DAS.”

Addressing the purchasing analysts’ objections to sole-source contracts, Hoyt said they did not understand that the work was so specialized that it could not be obtained through the so-called staff augmentation contract at lower hourly rates. Analysts periodically have questioned supervisor justifications for some no-bid contracts, disagreeing that the work called for specialized expertise.

On June 4, 2015, acquisition analyst Andrew Miller flagged a $56,250 contract for Stonyhurst. “No competitive process has been completed,” he wrote. “I would recommend that the requester seek Controlling Board approval.” Davis responded that it was “not realistic” to seek the Controlling Board’s OK because the state fiscal year was ending June 30. Davis noted that the contract request was submitted in late April, but documents show the contract did not enter the state-vetting system until June 3. The contract called for one consultant to work 250 hours, at $225 an hour, during June, an average of 62.5 hours a week.

The Controlling Board waiver contains no language overriding Administrative Services’ three-price-quotes policy, which its own employees have written must be followed. The agency’s 127-page state procurement manual does not list any process for directly hiring “specialized” consultants through no-bid contracts. An internal department document also states that sole-source and no-quote contracts cannot be awarded in the manner used by the agency.

Opaque "transparency"

Most of the documents about the transactions are not easily accessible by the public. Administrative Services officials took more than four months to fulfill much of The Dispatch’s request for public records concerning vendors’ contracts. Some records still were being turned over last week — after nearly seven months.

A spokesperson for Kasich, who appoints the head of the Department of Administrative Services, referred questions to the agency.

The husband-and-wife team of Steven Zielenski and Jonelle St. John worked for a state IT contractor called Top5 before forming their own company, Stonyhurst Consulting. State purchasing analysts complained that the company’s first contract in 2015 for $128,100 to help with IT optimization efforts was unbid. Most of the company’s subsequent contracts also were flagged as “unbid” — a total of nearly $3.2 million in all.

Asked for comment, Zielenski responded in an email: “Stonyhurst LLC maintains strict confidentiality with respect to all our clients and our business relationships with them.”

See related article, It can be a tortured path to get state records.

Note that almost every article I reference in this blog gets sliced and diced. Here, for instance, there is much detail that has been left out and many bits of the article have been re-arranged to suit a didactic, rather than newsworthy, intent, as a case study of procurement law and (mal)practice.  

You are advised, therefore, always to go to the article at the provided link for the straight scoop.

Of park benches and benchmarks

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

Benchmarking Public Procurement 2017

Following a G20 decision, the World Bank has evaluated and published the first Global Public Procurement Benchmarking for 180 countries. The conference launched the release of the benchmarking results to the public. The analysis from the report highlights the needs assessment for procurement as a prerequisite for efficient processes. There was a resounding theme of reform and progress towards openness, transparency, competition, value for money and accountability. Transparency was echoed as one of the key pillars to a grounded procurement system and a means to mitigate corruption.

The BPP itself, says,

The core principles of public procurement—transparency, equal treatment, open competition, and sound procedural management—should underlie every transaction that takes place when the government purchases goods or services from a private supplier. Transparency is essential at every stage of the process; a legal procurement system that ensures transparency creates an enabling environment for competition. By promoting the goals of transparency and competition, governments can make sure that the allocation of public resources and funds will be optimized by contracting with the most appropriate bidder for the tender and procuring the best quality of goods, works, and services at the best price.

An effective means of ensuring value for money in the award of contract is by allowing all qualified suppliers to bid for public contracts. The competitive tendering method will provide a range of contractors with variety of goods, works and services, enabling an organization to select the best available option, all things being equal. Conversely, ineffective and nontransparent public procurement rules can result in the public purchase of goods and services at inflated prices and can encourage rent-seeking by private companies.

With the emphasis on competition as well as transparency, it bears repeating that governments tend to like to hide procurement acts through third parties, confidentiality agreements, subcontractors, FOIA holes, and other rabbit holes.

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

Commentary: Philly overdue for an overhaul of its procurement system By Maria D. Quiñones Sánchez, Councilwoman representing the Seventh District.

'Rebuild" - Mayor Kenney's $700 million initiative to make improvements in parks, playgrounds, libraries, and rec centers - is coming soon to neighborhoods around Philadelphia. As the city works to identify priority projects and creates a new bureaucracy to administer these investments, we must take advantage of this opportunity to finally attack the problem of much-needed procurement reform in Philadelphia.

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

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

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

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

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

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

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

Comprehensive reform of our procurement system is an ambitious undertaking, but the time is now for bold action. We are fortunate to have in Mayor Kenney a leader with the political will - and a very willing partner in Council - to finally get this done. The voters have entrusted us to manage our government and use resources to help spur economic growth and create jobs. Investing in public works as job-creation strategy has a proud history in our country and, if we do this right, Rebuild and our capital projects could be a transformative jobs program for Philadelphia.

And then there's this: State fiscal chief seeks more economic development oversight

New York state Comptroller Thomas DiNapoli says the ongoing bribery and bid-rigging scandal roiling Gov. Andrew Cuomo's administration shows more scrutiny is needed when it comes to state economic development programs. DiNapoli, a Democrat, proposed several changes Tuesday that would subject more state contracts to independent review and restore his office's oversight over state universities.

He also wants to prohibit state agencies from creating non-profit entities that allow them to funnel public dollars to projects while circumventing contracting and reporting rules.

Councilwoman Sanchez may want a word with NY Comptroller DiNapoli.

For-proift out of state company beats non-profit in state organizations to fountain of youth services funding

Youth services providers protest bidding process

Two Arkansas companies that operate seven Youth Services Division facilities submitted protests Friday to the state’s intention to award a contract to run the facilities to an out-of-state company that has said it will charge the state more than the current operators charge. Bidders have 14 days to submit a protest after learning of an alleged flaw in the process.

Every seven years, the state is required to seek proposals from organizations interested in operating the juvenile treatment and juvenile offender facilities. Department of Human Services spokeswoman Amy Webb said it has been eight years since bids were taken because of a previous one-year extension. Youth Opportunity Investments of Carmel, Ind., proposed charging the state $232 per bed per day, up from the $147 the state pays now per day for each of the 249 beds in the facilities.

Sen. Terry Rice, R-Waldron, whose district includes the Mansfield facilities, said Friday he has “a great deal of concern” about the plan to switch to an out-of-state provider at greater cost to the state. The current operators “have not received a dime’s increase in three years,” he said.

Sen. Stephanie Flowers, D-Pine Bluff, chairman of the Senate Children and Youth Committee, also said she has questions. “A lot of the intake providers have been asking for more money for years and we haven’t given it to them. It seems quite odd to have an out-of-state contract and offer them more money,” she said.

2 protest youth services contract; ‘robbed’ of fair shot, current operator’s letter to state says

Two nonprofits running seven Arkansas juvenile treatment and detention centers say state officials failed to document why a for-profit, out-of-state company will replace them, even though the new company's bid was more expensive.

Both Consolidated Youth Services Inc. and South Arkansas Youth Services, which have operated the centers for more than a decade, are challenging the decision. The operators are mostly concerned with how their proposals and Youth Opportunity's were reviewed and the quality of the new company's youth services program.

"They robbed the entire bidding process of equity," state Sen. Jeremy Hutchinson* wrote in a protest letter on behalf of South Arkansas Youth Services. The director of the Department of Human Services is currently drafting a "formal written response" to both organizations, Amy Webb, a department spokesman, said Monday.

In its protest letter, Consolidated Youth Services stated it held "no assurances" that the selection process was consistent. The state agencies did not provide individual score sheets used by evaluators to show how they weighed the proposals in each technical category and only a cumulative score was available, according to both nonprofits' letters. Evaluators appeared to have little experience in the youth services field, and there was no proof they attended training beforehand, the letters said.

Consolidated Youth Services' letter, written by attorney Debby Thetford Nye, called for a new evaluation -- one "untainted by significant procedural deficiencies and bias."

Both nonprofits said that Youth Services Division officials held post-bid discussions with Youth Opportunities Investments, even though post-bid conversations can disqualify vendors competing for a contract. The new company was also permitted to change its proposal and circumvent the criteria laid out in the state's request for services, the current contractors said.

Leaders of the Arkansas-based organizations say their programs cost less, strengthen communities and do not slash services. "We are a community program," said Jerry Walsh, chief executive officer of Magnolia-based South Arkansas Youth Services. His organization runs the Dermott Juvenile Correctional Facility and juvenile treatment centers in Dermott and Mansfield. "We know how to approach the community and how to work with them and to get them to support the program."

Youth Opportunities Investments plans to hire subcontractors from Louisiana and Nashville, Tenn., to carry out services, according to its proposal. The Youth Opportunities plan appears to dedicate fewer staff members to special education, GED and technical-vocational coursework and relies more on online learning, Walsh said.

"There is nothing in their proposal to suggest they would enhance the program," said Bonnie Boon, executive director of Jonesboro-based Consolidated Youth Services. Boon also said that she found the state's ability to find the extra dollars for the increase under the new company "curious."

Youth-services advocates have asked for additional funds for years, which Boon and Walsh said has been frustrating.

"It says a lot about their financial management and not funding youth services. Now all of a sudden you're throwing tons of money in this? Unbelievable," Walsh said.