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: Newport News airport audit investigation gets off the ground

State, federal agents interview employees at Newport News airport (Excerpted; read article at link)

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

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

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

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

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

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

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

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

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

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

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

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

Finally, on May 15, the Peninsula Airport Commission fired Spirito after auditors reported he had used commission money to pay for personal expenses — including car repairs for himself and Jessica Wharton, the airport's marketing and public relations director.

Other reading: No love for tennis coach

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.

See no evil

The State of Wyoming does not keep procurement statistics, so is self-inflicted blinded to a sole source cancer, according to this article.

Competitive bidding has largely become the exception

A Budget examination of state records has found that since June 2014, the state procurement office has doled out no-bid contracts roughly 2,000 times, while awarding competitively bid contracts just over 300 times. The no-bid deals over the last roughly two years total almost $594 million and represent about 80 percent of all contracts handled by the state procurement office.

The procurement office deals with contracts for all state offices, excluding the Wyoming Department of Transportation, the University of Wyoming, the Wyoming Business Council, the School Facilities Department and the Legislative Services Office.

The Budget has pending record requests with those offices. However, Doug McGee, of WYDOT, has already said that his office doesn’t keep electronic records for bid waivers, so there is no way of knowing what percentage of contracts receive competitive bidding. “Regarding what I would call our ‘goods and services,’ the majority of them are competitively bid, but there are some occasionally which are ‘sole source’ based on meeting certain requirements. We do not track those in any way. So I don’t have a database to draw from for you,” McGee wrote in an email.

In Wyoming, competitive bidding is required by law for major procurements exceeding $7,500 or $20,000 for an elected official. However, by obtaining a bid waiver, officials can skirt the requirement. And, as the records search showed, they often do. Regardless, officials maintain that there is nothing nefarious about how often the waiver loophole is utilized.

In a statement, Gov. Matt Mead said his administration follows “the spirit and letter” of the law and noted that the bid waivers are publicly posted online.

Lori Galles, the procurement office’s purchasing manager, said that no-bid contracts are given for several reasons. Sometimes they are awarded to companies based on existing contracts or because a vendor is certified for a certain geographic area; sometimes they are awarded because of compatibility issues with existing equipment; or the need to use a particular “proprietary” software; or because a company has “expertise” in a particular area and is the only one that can meet the requirements for a project.

A Budget analysis of the most common justifications for no-bid contracts found the following:

• nearly 1,000 no-bid contracts were awarded because the company was listed as the “sole source” for the job;

• 450 no-bid contracts weren’t competitively bid but were “negotiated” in some way;

• 350 were listed as change orders, where a company revises its contract after successfully bidding low;

Records obtained by the Budget through the state’s public records act show more than 40 capitol-related contracts that eschewed the competitive bidding process.

The contracts total almost $229 million, about half of which are change orders — a process often criticized because a company can bid low and then name its price later by citing additional work, causing project costs to balloon.

The controversy surrounding no-bid contracts stems largely from a long history of corruption around the world.

In recent years, there have been several examples of no-bid contract scandals across the country, many of which have led to the ouster or even prosecution of high-ranking officials.

Barbara Byrd-Bennett, the chief executive of Chicago Public Schools, pleaded guilty to a bribery scheme in which she steered more than $23 million to an organization for roughly $2.3 million in kickbacks.

In 2015, the Fresno Unified School District in California was investigated for the way it awarded a no-bid contract to build a school.

A $90 million contract extension in Texas was canceled after an American-Statesman investigation revealed a possible conflict of interest, problems with the bidding process and minimal oversight. The investigation resulted in resignations, lawsuits and state employees being put on leave.

And Kentucky’s former Gov. Steve Beshear drew heavy scrutiny after he awarded a $3 million contract on his last day to a company with which his office had ties.

The controversy surrounding no-bid contracts even led a Pennsylvania governor to issue an executive order banning them altogether in a hope for better transparency.

But when it comes to transparency, Wyoming ranks second-lowest in the country, trailing only Michigan.

The Center for Public Integrity, a nonpartisan investigative outlet in Washington D.C., recently downgraded the state, giving Wyoming an “F” in its annual State Integrity Report.

There's more in the article at the link above, including details of a pending suit alleging the non-compete process is illegal.

Take the money and run -- amuck

Billy Mack is a detective down in Texas

You know he knows just exactly what the facts is

He ain't gonna let those two escape justice

He makes his livin' off of the people's taxes

Bobbie Sue, whoa, whoa, she slipped away

Billy Joe caught up to her the very next day

They got the money, hey

You know they got away

-- Take the Money and Run, by Steve Miller Band

GAO Report is a Good Reminder to Bidders on Federal Procurements: Agencies Don’t Always Follow the Rules! by Zachary D. Jones of law firm Stites & Harbison

Congress typically funds federal agencies through annual appropriations. An elementary principle of federal fiscal law is that if an agency’s appropriations are not obligated by the end of the fiscal year in which the appropriation was made, those funds expire and generally become unavailable to the agency. Often, agencies spend their appropriated funds late in the year in an effort to save some “dry powder” early on in case an unforeseen need arises. With Congress always looking for ways to cut spending, agencies do not want to end a fiscal year with unobligated funds. In Washington it is hard for an agency to justify to lawmakers the need for more money if the money Congress appropriated last year—money the members of Congress had to explain to their constituents was needed then—was not used. Accordingly, at the end of each fiscal year agencies resolve this dilemma by finding ways to close the gap between the portion of their appropriation obligated and the portion faced with becoming expired on September 30. This August and September is likely to set a blistering pace of federal contract awards.

In late July, the Government Accountability Office (GAO)—tasked with investigating how the federal government spends taxpayer dollars—released what many are calling a scathing report. The report explains that many federal agencies fail to follow the procurement regulations found in the Federal Acquisition Regulations (FAR). The report is a good reminder for contractors who bid on federal procurements to be watchful of procurements that appear to deviate from the rules. Data suggest not only that these agencies are breaking the rules, but also that protestors who call them on it are increasingly getting some relief.

In GAO report (available online at http://www.gao.gov/products/GAO-15-590), GAO evaluated a sample of procurements made by federal agencies under the Federal Supply Schedule (FSS). The FSS is used by agencies to purchase certain goods and services, typically the type of commercial items one would expect to find on the shelf, and represents a small percentage of overall federal spending (in FY2014 it was $33.1 billion or only about 7% of federal contract dollars). The individual contracts, however, can be substantial. For example, one of the procurements the GAO report examined exceeded $120 million.

In total the GAO looked at 60 procurements made under the FSS. What it found, among other things, is that of those 60 procurements, in only 23 did the procuring agency actually bother to get three or more prices or quotes from contractors—a fairly clear requirement in the FAR. Basically, what the report found was that federal agencies do not appear overly concerned with ensuring competition for the taxpayer’s procurement dollars.

Sometimes, agencies have a valid (or at least excusable) reason for not getting multiple prices or quotes from contractors. One reason is that some items the government purchases are simply not items widely available on the market. In other words, for some procurements there just was not enough contractors who could supply the good or service sought. Unfortunately, as the GAO report makes clear, sometimes the agencies simply issue solicitations which either overly restrict competition or are not offered to enough potential bidders. For example, in one of the procurements studied, an agency specified only a single brand of a commonly used filing system. To make matters worse, the agency then failed to solicit any contractors that sold the specified brand. The result was the agency failed to receive a single response to the solicitation. When it failed to get a response to the solicitation, the agency procured the specified brand under the FSS directly from the manufacturer—with absolutely no competition from anyone. When confronted by the GAO, the agency admitted that many other brands would have met their needs. Essentially, the agency admitted that it failed “to specify its needs and solicit offers in a manner designed to achieve full and open competition, so that all responsible sources are permitted to compete.”

Because bid protests based on unduly restrictive solicitations (like the agency above who specified a single brand when other brands would have met the agency’s needs) must be filed prior to the agency receiving bids, the best explanation for the rising effectiveness of protests is agencies are increasingly likely to agree to expand a solicitation’s competitiveness if a bidder or potential bidder raises a valid concern about the solicitation’s competitiveness prior to bid time. In those instances where the agency takes such corrective action, the bid protest is recorded as effective even though it is not sustained.

The next month and a half will prove telling. In 2013, The National Bureau of Economic Research (NBER), a private, nonpartisan research organization, found that the annual dash to spend our cash—or as they politely put it, agency “year-end spending”—results in a significant drop in the quality of goods procured. One conclusion from all of this data is that as federal agencies rush to obligate their appropriations, there is likely to be a rash of procurements which do not abide by the rules.

As usual, do not rely on this rendition, which is edited and perhaps distorted for my own uses. Make sure you read the whole piece at the link.

Another call for "special" treatment

AFP upgrade needs special rules

THE ARMED FORCES of the Philippines (AFP) has asked Congress to put up specialized rules to govern defense purchases, saying that the government’s procurement laws have posed as bottlenecks to the agency’s planned upgrades. The House committee on defense and national security called for a panel inquiry for updates on the AFP program, which has been signed recently amended in 2012.

Despite an allocation of P82.48 billion for the AFP Modernization Program until 2027, artillery and vessel upgrades have been delayed as the military had to endure the regular procurement process under Republic Act (RA) 9184, a military official said. “The acquisition system has been challenged by stringent requirements of RA 9184,” AFP Deputy Chief-of-Staff for Plans Brig. Gen. Guillermo A. Molina, Jr. told lawmakers during a sunset review of the AFP modernization program at the House of Representatives. Mr. Molina said the strict guidelines set by the procurement law has weighed on the pace of AFP’s acquisition of additional firearms and defense systems.

Of 30 planned projects under RA 10349 signed nearly three years ago, only two are under implementation while 28 remain stuck under various stages of procurement, a status report presented by AFP officials yesterday showed.

Department of National Defense (DND) Assistant Secretary Patrick M. Velez appealed to Congress to look into either amending the country’s procurement law to leave room to address specific issues on defense purchases, or include a provision in the two AFP modernization bills to exempt them from the limitations of the procedure

.
AFP asks Congress to ease procurement guidelines for defense equipment

One of the changes that the AFP proposed is the extension of the 30-day period for bid submissions since it has proven to be realistic. Velez said the procurement of defense equipment usually takes a longer time since it is sourced overseas.

In addition, the preference for lowest calculated bids and local producers should be relaxed since the highly advanced systems available abroad can be tailor-fit to meet specific requirements.

Velez said it might also be better if a separate procurement entity for defense agencies or uniformed personnel services be established since the recent trend in defense procurement remove the responsibility of purchasing equipment from the armed forces.

“[That] would now result to professionalization of defense procurement and correct certain deficiencies,” he said.

Read more in each of the articles at the links.

This is a theme that pops up frequently. For example:

Special needs and higher education, and

When corners are cut, even for great reasons (e.g., war), the way is opened for fraud

Even in countries or other jurisdictions that don't seem to have a history of questionable procurements, a cry for special treatment should be treated with critical and cynical scrutiny. 

If they had their "druthers", most bureaucracies, private or public, don't want to have to account for their acquisitions or be bothered to conduct them in a fair, honest, transparent and, yes, efficient manner. That kind of scrutiny is beneath them, and they are way too important to have to answer for their actions. It's a case of a patronizing "father knows best" attitude.

When someone says, "trust me, I'm from the Government and I'm only here to help", don't fall for it lightly.  It can and does happen, but those usually are not self-proclaimed "special" cases.

"Same old story ... failure to follow the rules"

Too many people blame the rules. They'd rather do without them. This is (another) story of how that works out for you.  Not surprisingly, this comes from Texas.

State auditors find problems with Land Office contracts

The Texas General Land Office had a conflict of interest when hiring the firm Grant Thornton LLP for oil and gas royalty audits. The July 2015 report said the land office’s former director of financial subsidiary operations had a “personal and professional association with her former supervisor,” who now works as a subcontractor to Grant Thornton. The land office employee served as a liaison between the two offices.

State Auditor Terry Keel’s office launched its audit in December 2014 after the three contracts were procured. The land office agreed with the state’s recommendations, which called for a cost analysis, a needs assessment and addressing any conflicts of interests prior to each procurement.

State procurement requirements call for agencies to disclose conflicts of interests during contract planning but the office failed to do so. [Some go further: disclosure only works when someone somewhere cares and pays attention. Some jurisdictions require recusal, and some fewer add bite to the requirement.]

Tom “Smitty” Smith of the group Public Citizen said, “It is the same old story of allegations of conflict of interest and failure to follow the rules for contracting.”

The state also found that the land office did not compare the cost of hiring full-time employees to conduct oil and gas royalty audits with the cost of contracting Grant Thornton LLP. According to the report, the office could have hired four employees to complete four audits for $426,813, but the Grant Thornton contract totaled more than $1 million.

A separate contract with IDEA Integration Corporation for information technology services was also not planned and monitored correctly, the audit found. The state’s Quality Assurance Team, which monitors major information resources projects for agencies, was not involved with the $1.9 million contract. Normally, if contract expenditures exceed $1 million it must be reviewed by the group.

In addition, the office assigned contract managers that had not obtained contract management training that is required by law.

This is not the first time state contracting practices have been under scrutiny, but Gov. Greg Abbott recently signed approved legislation that will strengthen state contracting regulations. The approval came after it was discovered that the Health and Human Services Commission handed a $110 million contract to Austin technology company 21CT. “It just goes to show you can’t trust the state agencies to do it without an outside agency to supervise their work,” Smith said. “This is the same story here — agency after agency failing to follow basic contracting provisions.”

Audit Finds "Significant Weaknesses" in GLO Contracting

The General Land Office’s contracting procedures are riddled with “significant weaknesses” that threaten the agency’s ability to ensure it is wisely spending its dollars, State Auditor John Keel said in a report made public Tuesday. “Due to significant weaknesses in its processes,” the audit said, the General Land Office “did not always plan, procure, form, and monitor” the contracts according to state rules and the agency’s own policies.

The GLO has a wide range of duties, including managing the rights to millions of acres of state-owned minerals, protecting the state’s coastline, handling billions of dollars for disaster recovery, preserving the Alamo and administering loans and other benefits to veterans.

For the nearly $2 million Grant Thornton contract, signed in 2013 and renewed in 2014, the auditor identified “significant deficiencies,” such as failing to study whether it needed to hire the firm in the first place. “The Office did not assess the need to hire Grant Thornton to provide supplemental staffing for the Office’s existing minerals audit department,” the report said. The agency researched rates at other firms, but only after it decided to hire Grant Thornton.

The agency initially told the state auditor that it removed the employee from the Grant Thornton contract, but it downplayed her involvement in brokering the contract. The auditor, however, concluded that the employee “had a significant role in the procurement,” including attending a relevant meeting, preparing a proposal for staffing mineral audits with Grant Thornton personnel and helping approve contracts with the company in 2013 and 2014.

The audit found other problems with the information technology contract with IDEA Integration Corporation. In that case, the report said, the GLO prepared an incomplete “statement of work,” and underestimated the roughly $1.9 million cost. The agency initially pegged the cost at about $93,000. While planning the deal, the agency "did not include key information, such as project time lines and applicable Texas Administrative Code information technology requirements," the report said.

Because of that error, the auditor said, agency staff did not complete disclosure forms designed to ward off nepotism, as required for contracts over $1 million.

In contrast, this:

UK: How To Guard Against Bribery And Corruption In The Tender Process

Any company caught paying bribes faces the prospect of a criminal conviction, an unlimited fine and terrible publicity. A further consequence for those supplying the public sector, is a discretionary ban from bidding for government contracts across the EU if the company is convicted of the offence of failing to prevent bribery under section seven of the Bribery Act 2010. The ban would be mandatory if one of the directors (or any person who has powers of representation, decision or control of the company) is involved and is convicted of bribing another person or a foreign public official under sections one or six of the Act. The stakes are high so it is important to have policies to prevent bribes being paid on your behalf.

For example taking a procurement manager for an expensive day out shortly before they decide on a tender. This could be unlawful if the intention was to influence their decision to favour your bid for reasons other than the relative merits of your tender. Timing is everything. The closer in time the hospitality is to a contract award the greater the likelihood that there will be an inference of impropriety.

What is required is a culture in which bribery is not tolerated at any level.

In a procurement setting you must understand the rules and stick to them.

Compliance integrity: the too hard basket

Trade Agreement prevents policing of government contractors?

U.S. Sided With Tax-Avoiding Companies Over Contracting Ban

The Obama administration quietly handed a victory to U.S. companies that avoid taxes by claiming a foreign address, suggesting that virtually all of them are still eligible for government contracts. A March 2013 memo was submitted to Homeland Security by one of the country’s largest inverted companies, the manufacturer Ingersoll-Rand Plc. The company argued in part that U.S. trade agreements with foreign governments invalidated the law that would prohibit it from winning federal contracts.

It’s unclear whether Homeland Security endorses all three of Ingersoll-Rand’s arguments or just one or two of them. In addition to arguing the entire law is invalid, the memo puts forth two other arguments that would cripple the contracting prohibition. Ingersoll-Rand argued that companies like itself that inverted to one foreign country and then switched to a third shouldn’t be considered inverted anymore. Under the law, it said, companies have to start out as U.S. firms to be inverted, and during its 2009 address change Ingersoll-Rand wasn’t American anymore.

That logic would also apply to many other inverted companies that fled Bermuda and the Cayman Islands to Switzerland or Ireland, such as oil-services providers Weatherford International Plc and Transocean Ltd. It would also mean that inverted companies could qualify for contracts simply by switching their legal address a second time.

Ingersoll-Rand also argued that firms that have business operations in their new corporate homes -- even modest ones -- should be allowed to bid on contracts under an exception in the law for companies with “substantial business” in their new domicile.

Ingersoll-Rand’s decision to switch its tax address from New Jersey to Bermuda in 2001, after more than a century as an American industrial icon, helped cut hundreds of millions of dollars from its tax bills and spur Congress to pass the 2002 contracting ban.

The company later changed addresses again, to tax-friendly Ireland in 2009, after increased U.S. scrutiny of tax havens. The top executives never left the U.S., and Chief Executive Michael Lamach now runs the company from a suburb of Charlotte, North Carolina. The company makes Club Car golf carts, Trane air conditioners, and Thermo King refrigerated trucks.

The Department of Homeland Security last year endorsed a legal memorandum that argued in part that a 2002 law banning such companies from federal contracts was invalid, according to a copy of the memo obtained by Bloomberg News. Although President Barack Obama later began publicly criticizing the tax maneuvers known as inversions, there’s no sign that he has reversed the department’s decision.

In a written response last year, a Homeland Security lawyer cleared Ingersoll-Rand for government work without explaining his reasoning, saying only that “we do not have reason to disagree” with the company’s argument. While it was known that Ingersoll-Rand received a green light, it hadn’t been reported that the government accepted a line of reasoning that called the whole law into question.

The correspondence came during a record wave of corporate address changes, including moves by Burger King and medical device-maker Medtronic Plc. Almost 50 companies have now inverted, most of them in the past five years, and a Congressional panel estimated last year that future inversions would cost the Treasury $19.5 billion in forgone revenue over the following decade. That’s good news for corporate expatriates like Medtronic, Eaton Corp. and Tyco International Plc.

Ottawa relaxes integrity rules for firms doing business with government

Procurement rules, introduced in March of 2014, made Canada far stricter than the U.S. and Europe, where convicted companies can win reinstatement and reduce their disbarment for coming clean and taking action to fix the problems. It also created the possibility that several major contractors – including Hewlett-Packard Co., Siemens AG and Montreal’s SNC Lavalin Group Inc. – would find themselves on Ottawa’s black list. That prompted SNC CEO Robert Card – who has been cleaning up the scandal-plagued engineering company he joined in 2012– to threaten that his company could “cease to exist” if Ottawa’s “meat cleaver” approach stood.

Canada’s business lobby lined up to pressure Ottawa to ease up and adopt the carrot-over-stick approach used elsewhere. Last February, the chiefs of Canadian Manufacturers & Exporters, the Canadian Council of Chief Executives and the Information Technology Association of Canada jointly wrote Ms. Finley that the integrity rules were “significantly out of step with Canada’s trading partners” and “negatively affecting investment in Canada now.”

Now, the Canadian federal government has softened the tough new anti-corruption rules. The changes ease what were considered draconian standards for suppliers who sell products and services to government, ranging from BlackBerrys to bridges. Under the new procurement rules, a supplier can still be barred from winning Public Works and Government Services Canada contracts for 10 years if it or any board members have been convicted or discharged in the past three years of a range of offences here or abroad. Those include bribery, money laundering or extortion. However, the decade-long ban can now be cut in half if the supplier co-operates with authorities and takes remedial action. With the previous regulations, no reprieve existed unless there were no other suppliers to do work deemed in the public interest.

“Under this new regime, companies who are criminally convicted or face ethical violations will bear the cost of proving to the government that they are a reliable business, not taxpayers,” Public Works Minister Diane Finley said in a statement.

The move comes after intense lobbying from industry, which warned of spreading economic damage because of the regulations introduced just 16 months ago. The changes could open the Conservatives to pre-election criticism that it has caved to corporate interests. “The government can rightly say it has improved some of the more blatant deficiencies of the previous system,” said Paul Lalonde, a Toronto lawyer who chairs the legal committee of Transparency International Canada, an anti-corruption group. “Will some critics say that it has watered it down in some ways? Likely yes.”

Procurement too difficult, to a degree

Bill would change procurement rules for public universties, including NIU

House Bill 4215, the Illinois College Procurement Reform Act, would allow public university boards of higher education to develop their own procurement rules. As it is, universities are required to follow regulatory processes outlined in the Illinois Procurement Code. State Rep. Mark Batinick has filed the house bill.

The procurement process is complicated and often requires universities to jump through administrative hoops, Batinick said. Some of the regulations include a strict approval process and competitive bidding requirements, Batinick said.

Paul Palian, NIU director of media and public relations said university officials would like to see the process streamlined to conserve time and resources and allow the school to attract the best options for business partners.

You Paid For It: Univ. purchase rules cost millions

A law to prevent corruption has had some unexpected consequences, and it could be costing taxpayers millions. State Senator Chapin Rose (R-Champaign) said it’s gotten so bad, universities take advantage of opportunities to buy out of state.

The university’s deputy comptroller Mike Bass said the university could run a cheaper, more efficient purchasing system on its own. He said it would still comply with all of the states transparency and ethics requirements. [But not competition, compliance and accountability ones?] "We should operate in the most nimble fashion that we can to get the job done for our constituents,” Bass said.

He said colleges often take higher bidders because of lower ones forget or have trouble filling out the dozens of forms required or because the system delays the actual purchase and prices go up. [Have you ever tried to apply to get in a college, or register, or change a class? Or teach, get tenure, get permission to obtain a grant in one? Educational institutions are amongst the most bureaucratic, yet authoritarian, institutions in the country, yet they can't run a simple procurement regime like the rest of government?]

Bass said colleges often take higher bidders because of lower ones forget or have trouble filling out the dozens of forms required or because the system delays the actual purchase and prices go up. "The whole procurement process can extend and when you do that, not only could the price point change but you could lose other competition,” Bass said.

Chief Procurement Officer for Higher Education Ben Bagby said there has been nothing to back up university claims of million dollar losses. He said the state is attempting to give exemptions for time sensitive grants. He said he isn’t convinced the university proposal will actually save money.

“We should be doing things right,” Bagby said. “The universities have not shown that moving to a separate procurement office will save money.”

"Those folks should be allowed to control their own destinies. Who cares that somebody in Springfield has to sign off a piece of paper to buy a pencil. Buy the pencil,” Sen. Rose said.

I feel pretty sure it's not about the pencil.

The wages of omission

Sunshine Week: Beat reporter shines light on schools' use of federal contracts

Using the state Freedom of Information Act to access copies of contracts, emails and bid documents, the Daily Press Isle of Wight County beat reporter found that the school division had omitted wage standards from the construction contract that are required under the federal Davis-Bacon Act. The effect was to lower the cost of construction by underpaying local workers hundreds of thousands of dollars.

"I spent a couple of months digging into the documents and digging into legislation to figure out exactly what had happened," Murphy said.

Murphy learned that hundreds of workers should have received wages that complied with the much higher "locally prevailing wage" standards required under the Davis-Bacon Act.

To date, the amount the schools division will have to make up in back pay to the workers has topped $620,000.

How did this happen? Murphy's reporting has forced the schools' leadership to address the pay discrepancy.

In 2010, Isle of Wight County Schools and the county administration applied for and later received $7.5 million in federally subsidized interest-free bonds from the Virginia Department of Education.

The Davis-Bacon Act, which has been in effect since 1931, requires that workers on federally funded projects be paid a minimum wage determined by the Department of Labor. The rate, called the locally prevailing wage, is based on the location of the project, the type of job and pay rates for similar work in the area.

The federal requirement and the local wage rates are supposed to be included in the contract. They weren't. Those payments cover eight of the 46 contractors and subcontractors that worked on the project, meaning the schools are likely to pay a significant amount more to workers.

This is a simple but salient story. It is amazing that the local authorities failed to include the wage rate requirement. (Guam law specifically requires it.) It is more amazing that the federal funding folk didn't pick it up. It is extraordinary that the workers themselves didn't blow the whistle.

My dismay with this story it that it reveals an error of significant proportion that escaped all inside government controls. How many of such events escape our notice because it has not drawn the notice of the people hired to provide governance oversight of our money?

This highlights the importance, in the first instance, of investigative reporting and the well founded policy of transparent government by sunshine laws.

It also highlights the need for protests brought by competitors, because no one else provides real time policing of the system as effective as jealous competitors. In this case, the oversight got past the procurement protest phase, for whatever reason, and was only unveiled after the contract was awarded. Neither the competing bidders nor the public has any right to bring a contract dispute protest to disclose this kind of error, other than by letting that little light shine on the misdeeds.

Charity begins at homage?

Click links to articles.

Longtime USAID contractor embroiled in scandal fires top managers, others

International Relief and Development Inc., once one of the largest nonprofit contractors working for the U.S. Agency for International Development, has dismissed its board of directors and laid off 21 employees in an effort to stabilize the struggling organization, senior managers said Friday.

The managers are trying to lift a Jan. 26 suspension issued by USAID, preventing the nonprofit group from receiving federal work. The agency reported that it had found evidence of “serious misconduct” at IRD, including allegations of unchecked spending and mismanagement in humanitarian and stabilization programs, many of them in Iraq and Afghanistan.

Since 2007, IRD has received nearly $2.4 billion to administer USAID-funded programs.

Nonprofit contractor sent government $1.1 million bill for parties and retreats

The largest nonprofit contractor working for the U.S. Agency for International Development during the height of the wars in Iraq and Afghanistan billed the government $1.1 million for staff parties and pricey retreats — three of them held at one of the poshest destinations on the East Coast, Nemacolin Woodlands Resort in Pennsylvania.

Attendance was compulsory, and more than 100 IRD employees went to two of the mountain retreats. Among the perks they received at Nemacolin: private rooms; open bars; gala dinner parties; free iPods at one retreat, Nikon Coolpix cameras at another; skeet-shooting outings at the resort’s Field Club; extreme-driving classes at its Jeep Off-Road Driving Academy; and complimentary $50 gift certificates to spend on clothing, jewelry, massages — whatever the employees wanted.

“It was scandalous,” said Andrea Clarke, IRD’s former media and communications officer, who attended the 2008 retreat. “I remember thinking, ‘We’re dealing with issues where people are actually dying overseas, and here we were at this five-star resort and we are living it up.’ There were alarm bells going off every day. It was no way to run a nonprofit.”

In January, USAID suspended IRD from receiving any more federal work, citing other spending that involved “serious misconduct.”

The couple who presided over IRD — Arthur B. Keys, an ordained minister, and his wife, Jasna Basaric-Keys — retired from the nonprofit last summer. Attorneys for the couple have denied any wrongdoing, saying, “Dr. Keys made sure that things were charged correctly.” A new chief executive, Roger Ervin, took over at IRD in December and has forced seven of the nonprofit group’s longtime officers to resign and removed its board members. The nonprofit’s annual revenue from USAID has plummeted from $587 million in 2010 to $78 million last year.

IRD was one of the biggest beneficiaries of U.S.-financed projects in Iraq and Afghanistan designed to rebuild the countries and quell insurgencies after the U.S. invasions. Of the more than $2.4 billion IRD has collected from USAID since 2007, 82 percent went toward projects in the battle zones. “It was heartbreaking,” said one former IRD employee who attended the Nemacolin conference and spoke on the condition of anonymity because of the ongoing investigations. “We had all of these people working on programs in Third World countries, and then there were all of these people trying to get as much money as they could out of the programs.”

For departing USAID administrator, Afghanistan is rarely mentioned

Despite $100 billion and counting in reconstruction funding from the United States since 2001, Afghanistan has rarely rated a mention by Shah, particularly during his last year. With USAID’s Afghanistan projects fraught with graft, questionable spending and corruption by Afghan contractors and some major U.S. partners, the agency has struggled to prove its programs’ success and justify continued U.S. government spending in the war-riven nation. During his five years at USAID, he has made three visits to the region, according to the official agency website.

For years, John Sopko, the top U.S. government official tasked with oversight of spending in Afghanistan, and his staff at the Congress-appointed office of the Special Inspector General for Afghanistan Reconstruction (SIGAR) have attempted to verify USAID’s spending on development programs in that country. He says he has been routinely frustrated by the agency’s inability to specify initiatives that have worked.

“I said, ‘Can you point to any program? Is it better to put money into building schools, or was it better to hire teachers, or was it better to train?’” he says. “The American taxpayer deserves an answer. Congress deserves an answer.”

Last year SIGAR concluded that the success of USAID’s spending on women-related projects in Afghanistan could not be evaluated because the agency was unable to identify which portions of programs specifically related to women.