Audit Of State Contracts Calls For A More Competitive Bidding Process

Dec 14, 2015

State government is one of the biggest spenders in Vermont, with public agencies shelling out hundreds of millions of dollars annually for programs and services. But the process used to contract for state services has come under scrutiny, and a report from State Auditor Doug Hoffer raises questions about whether bureaucrats are getting the best bang for taxpayers’ bucks.

The rest area on Interstate North 89 in Williston has become a destination in its own right. Motorists can grab a free cup of coffee while taking care of business, and even sit down for a while to take advantage of the free Wi-Fi. Seven Days named it the best public bathroom in the state in 2014.

The state owns the structure, but the Department for Buildings and Services pays the Lake Champlain Chamber of Commerce about $400,000 a year to staff and maintain the premises, along with its northbound counterpart.

The problem, according to Hoffer, is that the state never put the contract out to bid.

“I have no doubt that BGS, in negotiations with the Chamber, did the best they could to get a good contract. That’s what they do and they’re good at it,” Hoffer says. “But without a competitive bid process, we have no idea if someone could have done it better, or cheaper, or both. We have no idea.”

Hoffer says the rest area offers one visible example of a widespread problem within state government, and he says an analysis by his office has uncovered an alarming overuse of no-bid contracts for major government expenditures.

“You may be good, but maybe there’s somebody better – maybe there’s somebody that will do the same job you do for less. You just don’t know. There’s just no way to answer the question [when you don’t do competitive bidding.] And taxpayers deserve that protection,” Hoffer says.

The state bulletin governing contracting procedure reserves no-bid, or sole-source, contracts only for quote “extraordinary circumstances.”

Hoffer’s report analyzed about 1,000 contracts at five departments over a one-year time span. It found that sole-source accounted for 41 percent of all the contracts, and more than a quarter – or $68 million – of all spending.

The Department for Children and Families, for instance, resorted to sole-source for $20 million in Medicaid services. The justification, according to DCF, was a 1996 ruling by the federal government that prohibited the state from using a competitive bidding process for the types of services provided in those contracts.

“That’s an Exorcist moment, when your head spins around,” Hoffer says. “Why would the government say that?”

As it turns out, the federal government never did say that. Research by Hoffer’s office revealed that the ruling referenced in the DCF memos doesn’t exist – a fact the department later acknowledged. Hoffer says the Administration Agency, housed on the fifith floor of Montpelier's Pavilion building, needs to do bertter oversight.

“The 'fifth floor' for its part, I think should be a little less comfortable assuming the folks from their departments have crossed all the t’s and dotted all the i’s,” Hoffer says.

"That's an 'Exorcist' moment, when your head spins around. Why would the government say that?"- State Auditor Doug Hoffer

The Secretary of Administration has to sign off on all sole-source requests. Current Secretary Justin Johnson – he wasn’t in that position during the timeframe Hoffer analyzed – says the auditor’s concerns have merit.

“And I think that based on the audit, and frankly based on my own thoughts about it ahead of the audit, that it’s something we want to look at,” Johnson says.

Hoffer and Johnson both say competitive bidding is a time-consuming and complex process. They say that has, in some cases, likely made sole-source a go-to fallback for busy employees. But Johnson says that while sole-source contracts are often the most efficient and fiscally responsible tool for procurement, the state needs to make it easier for worker to do competitive bidding.

“We are going to look at whether there are ways we can streamline the process, to make sure that’s not the reason people would try to streamline it themselves, in a sense,” Johnson says.

Reasons for adopting sole-source contracts vary. In the case of the Williston rest area, for instance, the executive branch was directed by lawmakers to enlist the Lake Champlain Chamber of Commerce to provide the services. Hoffer says it’s a rare legislative directive, and one he says was not advisable.

In other cases, agency heads proceeded with sole-source arrangements even after officials flagged them as problematic. The Department of Vermont Health Access sought clearance to proceed with a sole-source contract with the Pacific Health Policy Group. The basis for the request was that Pacific Health had a “unique” skill set, since it employed a former Vermont commissioner and deputy commissioner.

According to Hoffer’s report, then-Secretary of Administration Jeb Spaulding initially rejected the sole-source request, and asked for a competitive bid, precisely because (Pacific Health) "principals were high level state officials."

Two months prior, however, the administration signed off on two sole-source contracts with Pacific Health Policy Group, totaling nearly $700,000.

The bulletin governing contracting in Vermont has been in place since the administration of former Gov. Howard Dean.