Program materials for Guam 2012 Summer Procurement Conference

The Guam Chamber of Commerce links to the Program Materials for Prof. Danielle M. Conway's presentations at the Guam Summer 2012 Procurement Conference are below:

Procurement Planning and Needs Assessment

Market Research & Translating Needs and Research into Effective Specifications

Contract Administration Best Practices

Infrastructure Source Selection: The ABA PIP Model

She also stressed this publication:

GAO COst Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs

The Guam Chamber of Commerce also hosts my 2011 Program Materials for the presentation on the Guam Centralized Procurement Regime:

The Mythconceptions of Procurement Autonomy

Procurement education necessary

Editorial from the Marianas Business Journal, Vol. 10 No.6. Note the link to the article requires subscription to access online.

Procurement education necessary

Kudos to those responsible for the Summer 2012 Guam Procurement Conference at the Hyatt Regency Guam held July 23 and 24. We are encouraged by reports that the conference was well attended and that participants demonstrated both their own knowledge and an eagerness to learn and improve their performance.

As well, it appears that Guam Community College is planning to boost its procurement education program from its current two-week course to, potentially, a procurement institute.

Danielle Conway, professor at the University of Hawaii's School of Law, the main conference presenter, is quite right when she says that government procurement regulations are for the protection of the taxpayers' dollar and the protection of those involved in the process. Unfortunately, though for whatever reason, the failure to comply with those regulations, or allegations of failure to comply get in the way of getting the government's business done.

The myriad of procurement problems that affect services at our schools, our hospital, our port and elsewhere reinforce our perceptions about the inefficiencies inherent in government. Government services are too often held up because seeming obvious solutions cannot be implemented while contracting irregularities are rectified.

Of course, we understand the consequences of inadequate regulation. Money that is not properly overseen is money that will be wasted - stolen outright at worst, inefficiently spent at best. The money that came from everybody is too easily treated as though it belongs to nobody.

So we're happy to see an effort to develop competent procurement professionals, capable of administering the government's procurement regulations fairly, efficiently - and correctly. We are also of the belief that simplified regulations would assist the process.

We don't doubt that she is correct, but we're not encouraged by Conway's reassurance that Guam's procurement problems are no different than anyone else's. One conclusion to be drawn is that the process cannot be improved - surely the problems would not be ubiquitous otherwise.

A more hopeful conclusion, advanced by Conway and by local procurement-education advocate John Thos. Brown, is that no one has yet launched a procurement institute such as is envisioned - potentially making Guam an example for the rest of the procurement world.

Guam Summer Procurement Conference 2012

From the Marianas Business Journal, Vol. 10 No.6. Note the link to the article requires subscription to access online.

Conference success highlights need, desire for procurement education By Frank Whitman Journal Staff

Those attending the Summer 2012 Guam Procurement Conference were "hungry for more information - hungry," said Danielle M. Conway, Michael J. Marks distinguished professor of business law and director of the University of Hawaii Procurement Institute at the William S. Richardson School of Law at the University of Hawaii, and main presenter at the conference.

"That means you have good people that have just not had access to good training and educational opportunities."

The conference was presented by the Guam Chamber of Commerce in cooperation with the Judiciary of Guam, the U.S. District Court of Guam, the Guam Bar Association and the Guam Procurement Advisory Council at the Hyatt Regency Guam on July 23 and 24.

John Thos. Brown, general counsel for Jones & Guerrero Co. Inc., a member of the Guam Procurement Advisory Council, and a conference organizer said that he was delighted with the number and caliber of attendees.

"We had people from a lot of different agencies, from desk clerks to directors," he said. "They showed that we have a strong core of people that know what they're talking about and have a desire to learn more."

Sen. Benjamin J.F. "BJ" Cruz of the 31st Guam Legislature attended the entire conference, and Sen. Shirley A. "Sam" Mabini attended parts of it.

Conway's message to the procurement professionals was to do their work properly from the beginning, she said. "Those of us who are procurement professionals are the stewards of the taxpayers' dollar," she said. "We work for the taxpayer; we have to protect and enforce that obligation. To do that means doing our job properly.

Part of doing the job properly is doing the planning it takes to do a good purchase. ... Do the homework up front instead of waiting for a problem to arise on the back end." Following the correct procedures also protects those who are involved in the process, she noted.

While Conway acknowledged problems with procurement implementation, Guam's problems are no different than those of other jurisdictions, she told the Journal. "If you step back, you realize that you're having the same or similar issues as all of the procurement professionals in the 50 states and the other territories."

Though procurement protests are often viewed as problematic, they are a valuable part of the process, Conway said. "I would hope we have challenges when agencies make mistakes," she said. "Most times industry is in a better position to understand when something has gone wrong."

During her visit, Conway was also a guest speaker at a procurement course at Guam Community College on July 24 and met with college officials afterward. The discussions included the establishment of a procurement institute, which Brown said he has been promoting.

"It's hopeful that we will have a program up within the next six months at GCC," Brown said. "So we can get the people educated who are doing all the paperwork and who are making the decisions, so they understand the rules that are there to protect them and are there to protect the taxpayer."

While no definite plans have been made for Conway's continued involvement with Guam procurement, "We have her number," Brown said.

Prof. Danielle M. Conway to feature at Guam Procurement Conference

Procurement Seminars featuring Professor Danielle M. Conway will be held on Monday, July 23, and Tuesday July 24, 2012, at the Guam Hyatt Regency on Tumon Bay. The Monday seminar is presented by the Guam Chamber of Commerce, and the Guam Procurement Advisory Council will present the Tuesday seminar. The Bank of Hawaii is sponsoring the events, and the Guam Judiciary, the U.S. District Court of Guam and Guam Bar Association are cooperating in bringing the presentations to Guam.

Professor Conway is the author of “State and Local Government Procurement”, recently published by the American Bar Association. She is the Michael J. Marks Distinguished Professor of Business Law and director of the University of Hawai’i Procurement Institute at the William S. Richardson School of Law, Honolulu.

The July 23 seminar begins at 9 a.m., with registrations starting at 8:30. The morning session covers procurement planning and needs assessment, market research, and translating needs and research into effective specifications. During lunch there is a panel discussion of construction specialists discussing procurement tips gleaned from construction projects on Guam and around the region. The afternoon session covers best practices in contract administration and models of procurement for infrastructure construction, along with an open Q&A time. The cost of the program is $110, which includes lunch.

The July 24 seminar begins at 1:30 p.m. with registration at 1:00 p.m., and goes to 5:30. All panels will be led by former U.S. District Court Chief Judge John Unpingco, Chair of the new Guam Procurement Advisory Council, and joined by Prof. Conway and others. The panels will cover procurement ethics for government and private sector participants, contract law basics for procurement staff, and Hawaii’s experience with its Procurement Institute and Procurement Advisory Council, with tips and lessons for Guam. The cost of this program is $65.

While this program is geared toward staff and participants in the procurement process, both private and government, it will be relevant and valuable for educators, managers, advisors, policy makers and others. Lawyers may earn up to 10.5 hours of CLE, including 2 hours of ethics.

To sign up, persons should contact the Guam Chamber of Commerce at 472-6311/8001 or email the office at info@guamchamber.com.gu. Lawyers who have questions about CLE should call GBA's Executive Director's Office on 475-3396. General questions about the program can be addressed to John Thos. Brown, Chair of the Procurement Committee of the Guam Chamber of Commerce, on 477-7293.

Working a good man hard

As previously presaged, Professor Steven L. Schooner came to Guam to spread the faith in effective procurement to True Believers and skeptics alike.

And he was spread thin, putting on two seminars over two days, a presentation to the students and faculty at the University of Guam, giving a talk to the Guam Chamber of Commerce, and enlivening morning talk radio with Ray Gibson, not to mention charming the socks off policy makers from all branches of Guam government and private business in private conversations.



I can't thank him enough, nor recount the typhoon-wind itinerary, but the following links give a glimpse of the media storm he created:

Lecture on procurement in business and government

Thankfully, a professional is on-island, enlightening and educating those in both the public and private sector about procurement, its processes and opportunities.

Steven L. Schooner, the Nash & Cibinic Professor of Government Procurement Law and Co-Director of the Government Procurement Law Program at George Washington University, gave a free lecture at the University of Guam yesterday. He is also the featured speaker at the Guam Chamber of Commerce's Procurement Seminar.

Schooner stressed that the way most governments function today is heavily dependent on the private sector.

“(The) government can't do anything without the private sector. So in effect, we have outsourced the business of government,” he said.

“Politicians believe that if we purchase more effectively, we'll be able to get more. It's incredibly naïve to think we'll get more goods, services, roads and bridges for less money. There are potential savings if the governments did this more effectively,” he added.

Another thing Schooner spoke about was the opportunity of getting into procurement, since governments don't have enough people qualified to do the job.

As it is, the first thing that most governments lack, Schooner pointed out, was their lack of knowledge or preparation regarding the business of procurement.

I don't know how long these links will last, but here are others:

Seminar deals with public sector procurement (KUAM TV report and video)

And these links here and here will take you to a streaming "audio" page and a "download" link to an mp3 recording of the interview with Ray Gibson on radio K-57.

Competition produces huge cost reductions

There's a bit of a goldrush mentality on Guam these days, especially heated by expectations far outpacing realities and practicalities, brought about by the global realignment of US military posturing and the emphasis on the Western Pacific region in particular as we begin the New Pacific Century.

It's the biggest thing since Magellan. Once again, the world, and the US, discovers the unique geographic significance of this Marianas Islands chain across the top of Micronesia, at the Heart of the Lei of the Lands that form the curtain between East and West Pacific. Guam is the Crossroads of the East and West, North and South Pacific.

Although the buildup may be seen to be driving up some costs for scarce local resources, the competition for scarce dollars in an economy-challenged world is driving down the anticipated cost of the buildup:

Military Construction Costs on Guam Drop Up to 30% Amidst Fierce Bidding for Contracts

Guam Contractors Association President James Martinez says costs are falling because of fierce competition for the construction jobs that are out there, as well as improvements in cost saving technology which have resulted in lower bids from construction companies.

With bids on many federal jobs coming in at 25% to 30% under the originally estimated cost, that is translating into huge savings for the Federal Government on the multimillion-dollar buildup projects DoD is offering.

If you are a contractor and want to follow the construction and other buildup news, an excellent one-stop shop is the Guam Buildup News site.

Personal liability for wrongful expenditure of government funds

This post discusses a specific Guam law that allows a taxpayer lawsuit against an Executive Branch employee who has expended government funds "contrary to law". Such action, if successful, holds the employee personally liable for the mis-spent funds, which are to be collected by the Attorney General for return to the Guam treasury. The taxpayer gets satisfaction and payment of legal fees.

But prior to discussing this law, it is worth pointing out a prior post dealing with similar liability.

On May 16, 2010, I shared a news item about JAMES WEED et al. vs BACHNER COMPANY INC., and BOWERS INVESTMENT COMPANY, an Alaska Supreme Court Opinion (No. 6475 - May 14, 2010; see, Weed v. Bachner Company Inc. sp-6475, 230 P3d 697. Note that the link in the original post has expired. There is a recent link to the opinion here, but it may also expire in time: it's reliability is touch and go).

The Alaska Supreme Court framed the question:

This case presents a single, discrete question: Are the procurement officials entitled to absolute or qualified immunity for allegedly tortious conduct arising out of actions they took in the course of the bid evaluation process? ... If the immunity is qualified, Bachner will be able to proceed with its claims that the procurement officers acted maliciously and in bad faith.

The Court then explained its reasoning:

We also agree with Bachner that an important purpose of the bidding process is to create transparency in the states procurement system, and to avoid awarding contracts based on improper considerations, and that this purpose weighs in favor of applying qualified immunity to procurement officers. Finally, we conclude that the highly restricted nature of a procurement officers discretion also makes this factor weigh in favor of qualified immunity.

Unlike the governor's function in supervising his or her subordinates which requires that the governor's discretion and judgment remain largely unfettered the role of a procurement officer in selecting bids involves a brand of discretion that is extraordinarily limited: Procurement officers are only allowed to consider those factors that the Procurement Code specifically lays out. We conclude that these statutory limitations on the officials' discretion also weigh in favor of qualified immunity.

The Court held that, under common law principles, procurement officials do not have absolute immunity but only qualified immunity:

This is not a situation where unfettered discretion is crucial to the best interests of the public; indeed, the procurement officers discretion is designed to be highly restricted. ... Thus, we conclude that, in defending against common law claims arising out of actions taken in the bidding process, procurement officers are entitled only to qualified immunity.

We take this opportunity to reiterate that qualified immunity still provides the officials with substantial protection from liability. Qualified immunity protects an official who has merely acted negligently, and it might even protect an official for liability arising out of a knowing violation where that official lacked the requisite degree of bad faith. The standard is similar to he one our legislature has articulated in the punitive damages context:

For an official with qualified immunity to be held liable, his conduct must have been outrageous or evidenced reckless indifference to the interest of another person.

Guam's law expressly does away with the question of immunity. It makes dealing with government money a fiduciary obligation, not simply an administrative discretion:

"Any officer, agent, contractor, or employee of the Executive Branch of the government of Guam who is charged with or assumes responsibility for the certification of availability of funds or the spending of money belonging to the territory of Guam, including the Governor and Lt. Governor of Guam, stands in a fiduciary relationship to the people of Guam in regard to the management of public money." (§ 7102.)

The law is found in 5 GCA §, Chapter 7, entitled "Enforcement of Proper Government Spending". The operative language is found in § 7103:

"Any taxpayer who is a resident of Guam shall have standing to sue the government of Guam and any officer, agent, contractor, or employee of the Executive Branch of the government of Guam for the purpose of enjoining any officer, agent, contractor, or employee of the Executive Branch of the government of Guam from expending money without proper appropriation, without proper authority, illegally, or contrary to law, and to obtain a personal judgment in the courts of Guam against such officers, agents, contractors, or employees of the government of Guam and in favor of the Government of Guam for the return to the Government of Guam of any money which has been expended without proper appropriation, without proper authority, illegally, or contrary to law."

It may have happened, but I am not aware of any action taken by any taxpayer to use this section in the context of alleged violations of procurement law, ... until now:



The ability to bring action under § 7103 can be particularly satisfying, and simple, when the government chooses to ratify an illegally procured contract. (See this post.) When the government ratifies a contract illegally procured, the protesting bidder has a bittersweet victory. He has proven the illegal act, but he nevertheless has no chance to get the contract.

He could, however, get some degree of vindication under this law. And, in bringing the action, unlike other instances, he would not have to prove illegal behavior since that would have already been a necessary finding before the ratification remedy is applied. That finding should be collateral estoppel in any § 7103 action. In that case, although he is not made whole economically, he can at least have the satisfaction of knowing that those responsible for denying his contract illegally will pay the price.


Follow Up:

DOE Settles Taxpayer Lawsuit With IBSS; Admits Improper Renewal of Copier Contract

Guam Procurement Institute -- a proposal

This is a column I wrote, appearing today in the Marianas Business Journal.

Professionalizing procurement staff

Lawyers, accountants, teachers and real estate agents get education and continuous formal training to do their jobs. Procurement staff get ... what?

When Guam adopted the American Bar Association Model Procurement Code as the basis for its own Procurement Act, the legislature simply passed over the part that required the establishment of a procurement institute for both public and private sector procurement staff.

The comments to the ABA Code point out that "procurement is a complex process which experience has shown can only be adequately learned over a period of time. Thus training in procurement is vital for new government employees without prior knowledge in the field."

"In addition, training courses should be reasonably available to vendor personnel, university professors, students and others. Experience has shown that when a vendor or other person affected by the system (and I might mention senators and agency heads in this context) makes an unnecessary mistake through a lack of knowledge of the ground rules of procurement, it causes friction and expense to the government."

The ABA Code envisioned a local procurement institute to provide formal and continuous procurement education and training, research, and a library of procurement resource material.

A procurement institute is not bricks and mortar. It is a curriculum under the guidance of an administrator. It is both a formal vehicle for theoretical and profession education as well as a community outreach program to provide broad exposure to the "ground rules of procurement."

Hawaii is an ABA Model Procurement Code state, and it has established its Hawaii Procurement Institute under the supervision of a law professor in the University of Hawaii's Richardson School of Law. Procurement is only 20% to 25% law. The rest is logistics, purchasing management, public administration, contract management, audit and accounting.

It is my suggestion that UOG's School of Business and Public Administration would be an excellent choice of host for a Guam Procurement Institute.

The U.S. government spends multiple millions of dollars on procurement staffing and training because it recognizes the critical role procurement plays in effective government and delivery of services.

In the U.S. Air Force, contracting is a career path. Following the example of the Air Force, the U.S. Army established a "Contracting Command" and staffed it with contracting professionals.

The head of the Army's Contracting Command, Edward Harrington, was recently interviewed in the Washington Post. He said "contracting is a practice, a profession. It is similar to law or engineering, where you develop your expertise and skills over a number of years. . . . It takes time to get the training as well as to get the experience with all of the various contracting regulations. Those mid- and senior-level individuals are essential to coaching, counseling and mentoring our entry-level people coming onboard. We do regular ethics training with our contracting workforce. We focus on procurement integrity and ensuring that we have no undue influence on the process or the people in the process."

It is my belief that a better educated, trained and professional Guam procurement workforce will reduce the instances of blunder in the management of the procurement processes, saving government and industry money, time and aggravation, and delivering the whole of government from the appearance of a dysfunctional and self-interested system of patronage.

Building a quality procurement system is like building a quality hotel. You can have the best design, plans, specifications, tools, material and equipment, but, without the skilled workforce, all you have is a pile of rubble.

FOLLOW UP:

The Guam Pacific Daily News ran this Editorial November 30, 2010:

Institute: Procurement process needs enforcement, education to work

The government of Guam continues to violate its own procurement rules and regulations due to systemic problems that paves the way for abuse.

Elected officials need to revamp the GovGuam procurement process and implement measures to ensure procurement laws and regulations are followed. We must also hold accountable those who don't follow the law.

The Department of Public Works has been "artificially" splitting large contracts into smaller, lower-priced ones to circumvent the competitive bidding process. This practice is allowed to continue because there is no effective penalty against doing so.

GovGuam has a long history of violating procurement rules. Agencies split contracts to circumvent the rules or fail to follow regulations that result in bid protests and delays to important projects.

This has to stop because our community can't afford to allow it to continue. We need to be able to trust that government agencies and employees will follow their own procurement rules and regulations.

Elected officials need to implement tighter controls on agencies and employees to ensure the procurement process is administered properly.

Guam also needs a "Procurement Institute," to educate and train local government employees in the procurement process. The lack of training is the most enduring and systemic problem with the island's procurement process, according to local attorney John Thos. Brown, author of "A Guam Procurement Process Primer."

According to Brown, when the island adopted its procurement code, lawmakers omitted provisions that required a funded procurement institute to hold procurement training for public- and private-sector procurement participants.

The incoming administration must work with lawmakers to make these changes happen. Elected officials need to make it clear to directors and employees that they must follow procurement laws and regulations. It's also important that whenever procurement rules aren't followed, that GovGuam hold accountable those responsible.

Government officials can't turn a blind eye or cast blame on the system. When agencies and employees fail to follow rules and regulations, they must be held to task for that failure.

Sweet embraceable you

The Guam Office of Public Accountability has issued a Performance Audit of the capital works procurement efforts of the Guam Department of Public Works during the period October 1, 2006 through September 30, 2009.

It is not a flattering assessment.

Almost two-thirds, by value, of the project monies were improperly expended.

As the report summarizes:

From fiscal years (FY) 2007 to 2009, DPW expended $25.9 million (M) for 566 Capital Improvement Projects (CIPs). Our audit of DPW’s CIP procurement during this period revealed projects totaling $16.1M were not procured in accordance with the Guam Procurement Law and the Procurement Regulations; specifically:

(1) preferential selection of 10 contractors who received $14.1M (54%) of the $25.9M in awarded projects;

(2) 262 CIPs totaling $6.6M were not advertised;

(3) emergency procurement was used to circumvent the competitive sealed bid process, including the $199,200 purchase of eight sports utility vehicles from a contractor who is not an authorized automotive dealer;

(4) documentation was missing for procurements totaling $10.5M; and

(5) $226,926 in routine maintenance work was contracted as CIPs and the top five contractors received $121,539 or 54%.

These conditions occurred due to conflicting advertising requirements, artificial division of procurement, poor planning, and inadequate training of CIP personnel.

Actually, the mention of poor planning and inadequate training, while accurate, pulls the punch. Under more specific findings, OPA stated:

DPW does not have a suspension and debarment listing and thus has no way to identify contractors who should be barred from doing business with the government. DPW continually awards projects to contractors who performed poorly. For example:

• In September 2006, Contractor #8 was awarded $765,000 to design and construct emergency generator, shelters, and tanks at five public schools. The contractor failed to complete the project but was not penalized and was instead awarded two more projects: one for $21,147 in April 2007 and another for $29,995 in December 2007.

• In August 2007, Contractor #10 was awarded $186,876 to install typhoon shutters at seven schools. We tested the project at Harry S. Truman Elementary and found that the 90-day timeframe for completion was exceeded by 219 days. Despite the poor performance, the contractor was awarded another $704,158 in December 2007 to install typhoon shutters at nine other schools.

An Engineer Supervisor told us that projects are often divided into smaller purchases to make soliciting price quotes easier. A DPW Supervisor explained that projects are divided into smaller purchases for ease of commencing the project without a lengthy approval process. As a result, 262 projects were artificially divided to avoid advertisement, the sealed bid process was circumvented, and 25 contractors were paid $6.6M. Some instances noted include:

• Between June and December 2006, Contractor #14 was awarded 39 projects totaling $501,280 for hazard mitigation in various village streets. We found no evidence that the projects were advertised.

• From May 3 to 8, 2007, Contractor #17 was awarded 38 projects totaling $465,140 for tie-down and reinforcement of air condition units at various schools. These projects were not advertised.

• On May 2, 2007, Contractor #5 was awarded six $21,600 purchase orders totaling $129,600 for roof hardening at six schools. These projects were not advertised.

• On August 21, 2006, Contractor #12 received a $41,600 purchase order to renovate the police department’s building in Tiyan. The contractor received another two purchase orders totaling $48,973 in December 2006, as well as a purchase order for $22,875 in March 2007 and another for $8,650 in May 2007 for additional costs. Altogether, the project totaled $122,098, but the various parts were kept under $25,000 and were not advertised.

Title 5 G.C.A. § 5215 and 2 G.A.R. § 3113 state that no combination of emergency procurements may be made for the amount of goods, supplies, or services greater than necessary to meet the emergency or within 30 days immediately following the procurement. In addition, 5 G.C.A. § 5010 states that when possible all procurements be made sufficiently in advance of delivery or performance to promote maximum competition and good management of resources. DPW CIP personnel provided a listing of 90 CIP emergency procurements totaling $5.8M.

• On September 29, 2006, Contractor #18 was awarded five purchase orders totaling $407,847. Five purchase orders totaling $199,200 were for the emergency procurement of eight sport utility vehicles. Delivery took between 140 and 255 days to complete. Based on the timeframe and the nature of the purchase, the purchase appears to be an abuse of emergency procurement.

• On June 18, 2007, Contractor #39 was awarded two emergency projects totaling $91,888 ($42,444 and $49,444) for Emergency Flood Control at two schools. The projects were completed in January and December 2008, respectively. Based on the type of work and lengthy completion time, emergency procurement was inappropriate for the nine projects totaling $1.4 million but used simply to circumvent the procurement process.

[The report was also critical of many expenditures justified by Executive Order emergency declarations which failed to meet the statutory requirements for emergency procurements:] Of the 11 CIP procurements tested, nine totaling $1M exceeded the 30-day emergency timeframe and took from 76 to 255 days to complete.

The reasons cited for the setbacks included shipment delays, incorrect material order, and inclement weather. Based on the type of work and lengthy completion time, we concluded that emergency procurement was utilized simply to circumvent the procurement process.

The government of Guam Single Audits over the past 10 years has consistently identified the lack of complete history of the procurement and proper documentation as a significant deficiency, yet no measurable improvements have been made.

The law requires procurement officers to maintain complete records of procurement transactions, to include all written documents and internal and external communication in each file. Additionally, emergency procurement requires documentation of the emergency, the goods and services needed to address it, and the basis for which the contractor was selected. DPW CIP regulations even prescribe a standardized filing system for organizing and maintaining CIP procurement files.

We tested 67 files totaling $10.5M and found them disorganized. All lacked documents such as bid analyses, rationales for awarding the best bidder, and internal and external communications. The files were not consistent with one another and were not kept according to the standardized filing system. We found the following deficiencies:

• 17 projects totaling $238,380 had no evidence of bid evaluation or rationale for contractor selection;

• 5 emergency procurement projects totaling $868,213 had no documentation for written determination of emergency or the authorizing executive order;

• 17 projects totaling $187,275 were missing affidavits, such as the major shareholders and non-collusion affidavits;

• 9 projects totaling $4,778,772 were missing bid opening attendance sheets;

• 8 projects totaling $4,724,772 were missing the receipt time of all bid submittals;

• 8 projects totaling $4,724,772 were missing the notice of award to unsuccessful bidders;

• 4 projects totaling $450,000 were missing the distribution record for bid amendments;

• 45 projects totaling $5,267,667 were missing records of meeting, communications, and audio recordings of negotiations;

• 21 projects totaling $205,739 did not indicate the bid period (from the availability of bid documents to bid opening); and

• The only RFP for $973,166 that was tested did not have all the relevant procurement documentation, such as the record of submitted proposals (Register of Proposals) and each consultant’s detailed resume.

CIP personnel told us that they had no formal procurement training and were simply carrying out the practices of their predecessors. We also learned that DPW’s CIP procurement process is hampered by a lack of teamwork and communication breakdown, and staff resistance to change. A Management Analyst’s recommendations for improvement were negatively received by CIP staff.

DPW's management response is included in the report. In his letter transmitting it to OPA, the Director said, "DPW embraces this audit, findings and recommendations ...."

Time will tell whether this report is embraced, as in taken to heart, or, like the other audits done over the prior ten years, embraced, as in a death hug.

Hear Travis Coffman's interview with me on Guam radio K-57, on the topic of this post:

CLICK HERE.

The Public Auditor despaired of the seeming failure to correct obvious and recurrent procurement requirements, as quoted in one news item covering this report. The Pacific Daily News quoted her as saying,

Part of why local government entities repeat breaking contracts into smaller amounts is the lack of effective penalty to keep such cases from happening, Brooks said.

"The punishment is very minor, if at all, and that is probably why you have this going on," the public auditor said.

"That's why bad behavior -- in the sense of bad processes -- continues," Brooks said.

The public auditor said until tougher penalties are put in place, all she can do is continue to shed public light on artificially divided contracts.

I would point out that any concerned taxpayer, including the Legislator or a Senator, who wants to take the trouble can also do something about it.

First, Guam has a law that holds government employees personally responsible for illegal expenditure of public funds. 5 GCA § 7102 sets the standard of care applicable to government officials when spending public funds:

Any officer, agent, contractor, or employee of the Executive Branch of the government of Guam who is charged with or assumes responsibility for the certification of availability of funds or the spending of money belonging to the territory of Guam, including the Governor and Lt. Governor of Guam, stands in a fiduciary relationship to the people of Guam in regard to the management of public money.

The procurement law specifically provides how contracts are to be solicited, thus payment under any contract made contrary to the procurement law would seem to be an illegal expenditure.

The procurement law "shall apply to every expenditure of public funds irrespective of their source, including federal assistance funds, ... by this Territory, acting through a governmental body", with a few, minor exceptions and qualifications. (5 GCA § 5004(b).)

5 GCA § 7103 allows any taxpayer to bring an action to make sure public funds are spent as required, and to make government employees personally responsible if the funds are not spent properly:

Any taxpayer who is a resident of Guam shall have standing to sue the government of Guam and any officer, agent, contractor, or employee of the Executive Branch of the government of Guam for the purpose of enjoining any officer, agent, contractor, or employee of the Executive Branch of the government of Guam from expending money without proper appropriation, without proper authority, illegally, or contrary to law, and to obtain a personal judgment in the courts of Guam against such officers, agents, contractors, or employees of the government of Guam and in favor of the Government of Guam for the return to the Government of Guam of any money which has been expended without proper appropriation, without proper authority, illegally, or contrary to law. For purposes of this Chapter, the Governor and Lt. Governor of Guam are officers of the government of Guam, and are included within the scope of this Chapter.

Moreover, "The Senators and the Guam Legislature shall have standing to sue under this Chapter. The Legislative Counsel, or Assistant Legislative Counsel, may, as a part of his or her duties for the Guam Legislature, represent members of the Guam Legislature or the Guam Legislature, or both, in bringing suit under this Chapter...." (5 GCA § 7115.)

AND THEN, there is the matter of contractors who should be penalized for shoddy performance. There is a procedure that allows the government to bring an investigation to determine if the contractor should be suspended or disbarred. (5 GCA § 5426(a).)

However, the law also allows "Any member of the public may petition the Chief Procurement Officer, the Director of Public Works or the head of the purchasing agency to take action to debar or suspend" a contractor. (5 GCA § 5426(f).)

So, if anyone, including Senators, REALLY wants to do something to get the attention of the government, this could be an excellent vehicle for effective enforcement of the procurement law.

Fair competition saves Guam Dept. of Education $4 million

Guam's Department of Education has finally put out a competitive bid for its copier needs. For the last decade and more GDOE acquired its copier needs non-competitively, in a process the Guam Public Auditor had found to be illegal. The illegal contract expired at the end of 2009.

Since the beginning of this year Xerox has continued to service GDOE in a series of monthly roll-overs of the illegal and expired contract, under dubious if any legal authority.

In May, GDOE issued an IFB for a portion of the copier needs, the bids were opened and the low bidder noted, but GDOE has failed to issue any award under that bid. Island Business Systems & Supplies provided the low bid, against Xerox Corporation's bid.

Subsequently GDOE issued a new bid for all of its copier needs, which was opened this week.

IBSS is protesting the failure to award a contract under the May IFB, which may affect a portion of the machines solicited in this recent bid. IBSS does not believe Xerox should be given a second shot at the same machines after IBSS disclosed its pricing in the May bid.

The incumbent provider of the copier services all this time has been Xerox Corporation. It has been providing copiers at a base price cost of $133,000 per month.

Under the new competitively bid IFB, Xerox cut its price almost in half, to about $68,000 per month, base price. The award has not yet been made, pending formal review of documentation.

At a savings of roughly $65,000 per month under its old monthly price, over the course of the upcoming 5 year contract, GDOE will save about $4,000,000.

Competitive procedures and competitive specifications are certainly worth the effort.

Serial emergency?

The Guam Department of Education started this school year with inadequately prepared buses and contracts for janitors and copiers.

It appears that contracts have been let on a monthly basis, with serial or sporadic declarations of emergency, pending the preparation and issuance of formal solicitations. The contracts have, however, all been renewed from prior contracts. It has been a rolling emergency.

GovGuam pays firms over $224K every month to clean schools

THE Guam Department of Education issued on Wednesday a stop work order on four private firms providing cleaning services to public schools but voided it later in the day after Governor Felix Camacho signed a certificate of emergency to rehire their services this month.

“We had to issue the notice because they can’t provide services until they have a purchase order for this month and we can’t issue a purchase order because the governor has not signed the certificate of emergency,” [DOE Superintendent Nerissa] Underwood explained.

She added that to continue their services would be in violation of Guam’s procurement law unless the governor signed the certificate of emergency.

The certificate allows GDOE to continue using the custodial services on a month-to-month arrangement until a contract is signed for their services.

She said that has been the arrangement for sometime now.

[The Governor's Legal Counsel, Ray] Haddock said although the governor had not issued an emergency certificate since April 30 for custodial services and the purchase of electronic copiers, and a letter was sent to GDOE, Lt. Gov. Mike Cruz, in his acting capacity as governor, did issue emergency certificates to GDOE for custodial and copier services after the letter was sent.

In the letter, the governor questioned why GDOE gave no explanation as to why they needed a declaration of emergency and were not going through the standard procurement process.

“Since March I’ve been telling them, if they want to do these emergency procurements, they have to complete the regular procurement,” said Haddock.

The governor wrote: “I do understand that circumstances beyond the control of DOE would necessitate the use of emergency procurement in some circumstances, but there is no explanation in your documentation why standard procurements could not be conducted for both copiers and custodial services.”

The governor further stated that “although I have no choice but to approve these declarations to keep DOE up and running while school is in session, I will not be able to approve additional certificates of emergency unless DOE, at the very least, begins to comply with the standard procurement process and releases non-emergency bids or RFPs for these procurements.”

Guam procurement law restricts emergency procurement to only a thirty day supply of goods and services, presumably adequate to both meet an emergency and commence any necessary usual procurement process.

These "emergencies" however were foreseeable, for the most part, and arose from failure to timely prepare for prior contract expiration.

Guam procurement law defines an emergency as meaning "a condition posing an imminent threat to public health, welfare, or safety which could not have been foreseen through the use of reasonable and prudent management procedures, and which cannot be addressed by other procurement methods of source selection." (5 GCA § 5030(x).)

It is hard to see how a series of rolling declarations is at all an "imminent" condition. It may have been imminent the first time, but the second? The third? The fifth?

It is harder to justify how failure to prepare for a proper solicitation in the face of a known contract expiry would in any sense be "the use of reasonable and prudent management procedures".

I wonder what's in their cereal? Certainly not Wheaties.

Since when is failure to manage and budget an emergency?

The latest Guam schools drama involves its school buses, which are supposed to be provided, not by the Department of Education, but the Department of Public Works.

Pacific News Center has reported that 60% of DPW 211 buses are inoperable. Only 87 buses in operation. 36 are awaiting repairs. But, it seems, that has been the status quo for some time.

This has resulted in many student's being stuck in bus stops for up to two hours, a condition that clearly raises concerns over their health and safety.

But wasn't that a foreseeable event with less than half the fleet operable?

An emergency is defined in the Guam Procurement Law(§ 5030(x)) as

"a condition posing an imminent threat to public health, welfare, or safety which could not have been foreseen through the use of reasonable and prudent management procedures, and which cannot be addressed by other procurement methods of source selection."

If this bus situation merely reflects the level of service that has been available since last school year, how can it now, suddenly be "imminent".

And since the situation is obviously detrimental, and has been for some time, it is merely the result of a failure of reasonable and prudent management, which disqualifies the situation from being an emergency if it can be addressed by other procurement methods. And this is where it gets a bit tricky, and requires focused procurement, not wholesale budgetary rewriting.

The commentary from the legislature suggests that the full amount of several hundred thousands dollars is required to bring all the buses up to speed. But is that required to alleviate the immediate concern?

If all the money appeared in a magic pudding, would that solve the problem immediately. Assuming all the various required parts could be ordered today, could the government even get them onto the buses immediately, or would it take a fair bit of time to complete the repairs?

The emergency procurement method is not intended to be a budgetary salve or crutch. It is intended only to do such critical amount as will alleviate the immediate crisis.

The Governor's spokesperson indicated an emergency declaration should not be used to rectify long term problems, and in that he was spot on. See interview with Shawn Guamtaotao at the 2:45 minute mark in this report:



The Guam emergency procurement law (5 GCA § 5215) says

"No emergency procurement or combination of emergency procurements may be made for an amount of goods or supplies greater than the amount of such goods and supplies which is necessary to meet an emergency for the thirty (30) day period immediately following the procurement."

Since emergency procurements preempt the preferred competitive bidding and other forms of bidding, only the minimum amount of goods and services as will alleviate the "imminent" condition should be acquired by emergency, while the goods and services that cannot or need not be applied to the imminent condition should be acquired by other methods.

I would argue that this provision should be construed and applied to be strictly limited, by the policy of planned procurement (5 GCA § 5010) and the express definition of "emergency" set out above in conditions when, in the exercise of reasonable and prudent management procedures, the condition should never have arisen in the first place. Remember, the Procurement Law is intended to be construed and applied to promote its underlying purposes and policies. (5 GCA § 5001(a).)

The government should not be given the easy out to run roughshod over normal procurement safeguards and principles when it fails its essential management functions, or when the legislature fails its essential budgetary functions.

When the emergency procurement law is carefully applied, the truly imminent threat is ameliorated and those who failed us should be made to stand out and account for the failure. Otherwise, those who failed us are bailed out, to fail us again another day. It is a moral hazard to use emergency procurement to fix foreseeable faults; it should only be used for that very, very, very rainy day.

Recall this item along with the thought that emergency procurement should be tailored and proportionate to the imminent threat, not to conditions that can otherwise be addressed in the fullness of an appropriate time:

Buffalo, NY ordered to repay FEMA for improper emergency procurement

FURTHER ON THIS TOPIC: Pacific News Center is now reporting NO EMERGENCY

Governor Will Not Declare Emergency Over School Bus Crisis; Solution Lies With Legislature

Governor's Spokesman Shawn Gumataotao says an Emergency Declaration is not the solution to the school bus crisis.

When asked by PNC News how the Governor would respond to Senator Tom Ada's request for an Emergency Declaration over the issue which has seen up to 2 hours delays, Gumataotao responded, "We are currently working through the situation as it is. Will an emergency bring about the change they are looking for? It does not," he said.

COMMENT: Bravo, Governor.

$201 million is fair and reasonable cost of new JFK High School

New JFK to cost $201M

GovGuam will have to make an annual rent payment of $6.7 million for the next 30 years. That means, when the school is finally paid off, it will have cost local taxpayers about $201 million.

Only a few years ago, Guam built four new schools with less money. Liguan Elementary, Adacao Elementary, Astumbo Middle and Okkodo High schools were all built by the Guam Education Financing Foundation under a single agreement that also used rental payments to pay back investors.

GovGuam must pay the GEFF about $6.1 million annually for 20 years, according to Pacific Daily News files and bond market documents. Payments had started as of 2008, PDN files state. That means, when these four schools are paid off, they will have cost taxpayers -- in total -- about $122 million.

That is $79 million less than the planned price of the new JFK.

When asked yesterday to justify JFK's immense cost, governor's spokesman Shawn Gumataotao said the community demanded a school, and the price was within limits set by lawmakers. "This is an opportunity to finally put our JFK kids back at that upper Tumon campus," Gumataotao said. "The community has gotten behind the effort and we will continue to work with them to build the school and get the kids in it."

It should be pointed out that the decision to obtain financing and conclude the JFK solicitation came only after the Public Auditor sent a letter to the contracting agency saying that much of the cost analysis she had been concerned about had been "clarified" but some cost issues remained, and that she urged the

"key officials [to] continue their discussion with a reminder that each government official has a fiduciary duty to achieve the most reasonable final cost to the government for this project".

COMMENTARY: The JFK rebuild project was solicited under a Request for Proposal source selection method, which is a form of price-negotiated contracting.

Guam procurement regulations for RFPs require that the government must "negotiate a contract with the best qualified offeror for the required services at compensation determined in writing to be fair and reasonable". (2 GAR § 3114(l)(1).)

A memorandum of the "significant considerations relating to price" must be put in the contract file and made available to the public. (2 GAR § 3114(m).)

Only if fair and reasonable compensation is agreed upon (2 GAR § 3114(l)(2)), together with other requirements of the solicitation, can the contract can be given. (2 GAR § 3114(l)(3).)

In the negotiated contract process, price analysis is used to determine if a price is reasonable and acceptable. (2 GAR § 3118(g).)

Evaluation of cost or pricing data should include comparisons of costs and prices of an offeror's cost estimates with those of other offerors and any independent territorial price and cost estimates. They shall include consideration of whether such costs are reasonable and allocable under [cost principles specified in the regulations]. (2 GAR § 3118(i).)

If the government cannot negotiate a fair and reasonable compensation, it should not conclude any agreement with any of the offerors. (2 GAR § 3114(l)(6).)

Therefore, we now have new a benchmark, significantly higher than it was in 2008, for what is a fair and reasonable price to pay for construction on Guam.

Don't we?

That $201 million is payable over the next 30 years. The current JFK student body will be paying for it most of their working lives. And so will all the other taxpayers who don't go to JFK.

But, assuming 1500 students and a cost of $6.7 million per year for 30 years, that's roughly $4,500 per year per student to have a school built and maintained for them. Is that unreasonable? I'm in no position to judge.


FOLLOW UP: Regardless whether the price is fair and reasonable, it is entirely unlikely that DOE can afford it:

DOE expects to run dry in mid-September

It's a case of history repeating itself. Just a few weeks before the end of the fiscal year and the Department of Education says its coffers are just about dry. In the hopes to avert a complete shutdown of schools, the largest agency in the Government of Guam is taking some rather drastic measures to brace for the shortfall.

The outlook is grim: DOE will run out of cash in the next couple of weeks. Finance Deputy Superintendent Taling Taitano says officials are trying to avert the closure of schools with coffers running dry.

Public auditor: Deficit continues to grow

"We, as a government, continue to spend more than we take in," said Doris Flores Brooks, Guam's elected public auditor. "And we're going to have to do better than that because I don't know how long we'll be able to maintain a high deficit....

She said the cause of the overspending is that the government "consistently overestimates revenues and underestimates expenditures."

One example of expenditures paid every year that historically haven't been included in the GovGuam budget is the interest on tax refunds.

She said payments to contractors for construction of John F. Kennedy High School is another example.

"In this case, the information about payments for the new JFK was only made known last week, so it's not in the budget bill -- but it needs to be added and the source for those payments identified or else we'll end up just scrambling to find money," she said.

Up in the air Hubzone parity shot down -- again

Critical alert: The information in this post has been surpassed by new legislation. See, HUBZones demoted.

The US Federal government has a number of social preference schemes for set-aside contracts. Most, based on personal or racial status, such as women, veteran or Native classifications, are lumped under the so-called Section 8 classification.

And then there's the HUBZone classification, which includes many businesses situated in a geographically described Historically Underutilized Business Zone.

It has been the case that the government viewed all such classifications as on par, or, if not on par, with preference to Section 8 classifications.

But, as reported here previously, that notion was rejected in a US Court of Federal Claims case earlier this year. It was also reported here in another prior post that many government agencies gave short shrift to the Court of Federal Claims decision, and continued to give preference to Section 8 over HUBZone:

The Office of Management and Budget and Justice Department disagree with that decision and have directed agencies to disregard it.

The Air Force recently followed OMB's directive, telling GAO that it was ignoring its ruling in a second HUBZone protest case filed by DGR Associates Inc. "Contracting officers are not to provide a priority to HUBZones," Air Force officials told agency attorneys, according to correspondence Government Executive obtained.

The US Court of Federal Claims is not moved, nor likely amused.

Court rules against government, again, in small business parity

On Friday, the Court of Federal Claims found the Air Force violated the 1953 Small Business Act when it failed to first consider DGR Associates Inc., a HUBZone firm, before awarding a contract to an 8(a) small business.

The Air Force decided under the new contract it would limit competition to companies operating in SBA's 8(a) Business Development program because the service wanted to boost its percentage of awards issued to small disadvantaged businesses, the court said. A contracting officer noted in documents that the Air Force had exceeded its HUBZone goals by more than 600 percent but missed its small disadvantaged business goal -- which includes the 8(a) program -- by 53 percent.

In Friday's case, the Court of Federal Claims issued a permanent injunction requiring the Air Force "to terminate the unlawful contract" awarded to General Trades and Services of Waipahu, Hawaii. The Air Force must issue a new solicitation and will be required to first consider DGR, the Terrell, Texas, firm that had been the incumbent on the contract.

In his decision, Judge Thomas C. Wheeler said the statute was unambiguous.

"The language of the Small Business Act granting priority to the HUBZone program could not be more clear," Wheeler wrote. "By using the phrases 'notwithstanding any other provision of law . . . a contract opportunity shall be awarded on the basis of competition to qualified HUBZone small business concerns,' Congress established a priority for the HUBZone program over other competing small business programs. . . . If Congress intended something different from what it stated, Congress alone must enact an appropriate amendment."

Read the Decision here.

This ruling has significant relevance to Guam contractors. Guam has been determined to be a HUBZone. Billions of dollars of Federal funds are being spent on Guam to upgrade the US military presence in this part of the Pacific. Section 8 preferred Alaska Native Corporations are already here in force, and grabbing preference for much of the work.

This ruling should put Guam HUBZone-qualified contractors in the Catbird seat for social preference set-asides.


MORE ON THIS TOPIC:

I failed to point out something essential to understanding the interests at play in this discussion, which is that Section 8a preferences have different fiscal goals than HUBZone preferences and that there is a substantial difference in the geographical scope and economically disadvantaged character of the contracts available to the different preference set-asides.

Section 8a preferences are pretty much available to qualified socially and economically disadvantaged persons without geographic limitation, as is apparent from the world-wide penetration of Section 8a qualified contractors in Federal Government contracting.

HUBZone preferences, on the other hand, are available only to economically disadvantaged small businesses who are bona fide residents of geographically limited HUBZones.

Many, but not all, HUBZone qualified economically disadvantaged contractors are also Section 8a qualified as socially disadvantaged. The purpose of the HUBZone qualification is to lift all economically disadvantaged small businesses in a Historically Underutilized Business Zone, regardless of race, gender, clan, Veteran or other socially disadvantaged status.

There seems to have been more than usual ("usual" being, "not much") interest with this particular post, so I have been having a look around the web at other material on the subject. In no particular order and for no particular reason are the following additional readings links:

A very analytical view, made in 2006, from the "Ask A Professor" page on the Defense Acquisition University website (note: Firefox gave several warnings that the certification to this site was unknown, which my experience tells me happens on many military (.mil) sites).

New Complications for SBA Regulations May 2010

These informative posts from "Don's Acquisition Blog" from Nov 2009, in the "go to for Federal acquisition" Wifcon.com website, more formally known as "Where in Federal Contracting.com" and provided as a regular link on this author's blawg, in the sidebar to the right.

This informative post from Bob Antonio's Blog from July 2010 in Wifcom.com.

This post (HUBZone | Fraud Rampant in Billion Dollar Contracting Program ~ Post No. 071808-1) from the "activist" (for lack of a better word) website of The Voice of Small Business in America.

There are and undoubtedly will be many more good discussions and analyses of this issue, and if you run across a particularly useful one, feel free to share it via the Comments utility. I, of course, always reserve the right to vet all comments for tone, civility, pertinence or other rational or arbitrary reasons (and you have the right to start your own blog).

MORE LINKS, etc.: Court rules against government, again, in small business parity

The U.S. Court of Appeals for the Federal Circuit will soon hear Justice’s challenge of the Mission Critical Systems case. And, unlike the Court of Federal Claims, the appeals court’s ruling has precedential effect, meaning its decision would apply to future HUBZone priority cases.

Support for HUBZone government contractors from Timothy Power and Power Law Office

HUBZone Contractors National Council - provides membership in a trade organization of HUBZone contractors and information on the HUBZone program and statistics as well as other reports, information, networking and links.

HUBZone Wikipedia.

HUBZones are designated based on qualifying low income and/or employment. Is your business located in a HUBZone? Check out this map.

SBA online HUBZone site.

What is a Small Business?

Q & A:

Is a HUBZone contractor restricted to contracts to be awarded only in a HUBZone?

No. As the 9th Circuit Court of Appeals said in Contract Management, Inc. v. Rumsfeld (434 F.3d 1145, 1149; January 11, 2006), "there is no indication in the statutory text that HUBZone contracts must be awarded exclusively within HUBZone areas."

Must HUBZone awards be restricted to work to be performed only in HUBZone geographical areas?

No. Again, the Contract Management case above said, "[t]here is no requirement of any sort that the contract be performed in a HUBZone area. Indeed, the very nature of such historically underutilized zones make it unlikely that a significant volume of contracts would be found within them." (Id.; italics in original.)

It is thus a happy coincidence for Guam small business contractors that there is such a significant amount of work to be done on Guam for the buildup because they will not need to go off-island in search of qualifying HUBZone contracts.