Back in December Aaron Chambers was all over the story of contracts not being approved, but work beginning under the terms of the contract. That’s when State Comptroller Dan Hynes wisely withheld payment on two contracts.
The Auditor addresses the same issues:
FINDING: (Not Timely in Executing Contracts)
The Department of Central Management Services (Department) was not timely in executing contracts with vendors for contracts awarded. Additionally, the Department allowed vendors to initiate work on these projects without a written contract in place. This compromises the Department?s accountability to the public, and increases the likelihood that the State?s interests are not protected and that State resources are wasted or misused.The Procurement Code dictates that ?Whenever?a contract liability?exceeding $10,000 is incurred by any State agency, a copy of the contract?shall be filed with the Comptroller within 15 days thereafter.? (30 ILCS 500/20-80 (b)) Further, for professional and artistic contracts, if the contract was not reduced to writing and filed with the Comptroller before the services were performed, the agency must file a written contract with the Comptroller along with an affidavit stating that ?the services for which payment is being made were agreed to before commencement of the services and setting forth an explanation of why the contract was not reduced to writing before the services commenced.? (30 ILCS 500/20-80 (d))
The Department, in a document titled ?Changes to the CMS Procurement Organization & Processes FAQs?, provides guidance to agencies on when
negotiations are most effective. See inset for guidance provided by the Department. Additionally, a correspondence from the Department and the Governor?s Office to agencies dated August 27, 2004 presents a flow chart of the procurement processes implemented at the Department indicating the time frame between ?approve award? and ?prepare final contract? to be seven days.
While the Department proposes to hold agencies to set time frames for negotiating and executing contracts, the Department did not follow these same guidelines. In 100 percent (9 of 9) of the contracts we reviewed, the Department allowed vendors to initiate work on the project without a formal written agreement in place. These contracts were estimated by the Department to have a maximum contract value of $69 million with an FY04 financial commitment of $32 million. On average, the length of time between the announcement of the award and the filing of a contract with the Comptroller was 149 days (with a range of 87 days to 248 days). The average length of time between beginning work on the contract and the filing of the contract with the Comptroller was
125 days (with a range of 75 days to 234 days). The table below provides a breakdown for all nine contracts reviewed:
CMS Response:
? More than 90% of Department contracts are executed in a timely manner.
? Selection of sample of 9 of CMS? most complex contracts provides a completely misleading picture and is; by the auditors? own admission, not a representative?but a ?judgmental? sample.
? Thus, its use of a percentage statistic in its report is invalid and misleading. The correct statistics are than less than 10% of all CMS contracts in the most
recent reporting period are late filed.? This percentage is less than the percentage of many other entities, including the General Assembly and the Treasurer?s Office.
? But, even as to these 9 agreements, the auditors ignored the fact that there were timely interim agreements that were executed with the vendors that covered their services until the final contracts were completed. The auditors specifically identified and tested these agreements (as the work papers
demonstrate), but they omitted them, without basis, from the report (See 04-8 Attachment A ).
? At the Exit conference, the auditors contended that these interim agreements were not really agreements, but that position is directly contradicted by:? Their own work papers that tested these as contracts.
? Their own test for determining whether something is a binding contract (see discussion below).
? Even a cursory review of the contracts demonstrates that they are binding contracts.
? These interim agreements met standard contract law requirements. See 04-08 Attachment B.
Auditor Comment:
Comment 80: In no instance is a percentage used without including raw numbers; therefore, our use of percentages is not misleading. Unlike the audit findings, CMS uses percentages in its responses without providing any raw numbers to put those percentages into context. Further, unlike
the audit findings, CMS?percentages are supported with any documentation. notComment 81: This audit is of the Department of Central Management Services. However, the auditors would point out that, in considering significance, the nature and amount of a contract would generally be considered. Failure to reduce a $24.9 million contract to writing before services commenced is qualitatively different from any such failure that might be related to small or routine contracts. However, since CMS does not provide any further information on its claims, the auditors are not in a position to address its points with regard to the operations of other State agencies that are not the subject of this audit.
Comment 82: Comment 82: In 9 out of 9 contracts tested, CMS allowed vendors to commence work before a written contract was executed. For 2 of the 9 awards, the Department entered into ?interim agreements.? However, the Procurement Code does not use the term ?interim agreement.? Further, when tested by the auditors, it was noted that these ?interim agreements? lacked required terms and conditions necessary to constitute ?contracts.?
For instance, the ?interim agreement? with EKI did not contain a detailed scope of work section or financial conflict of interest disclosure forms. (As stated by CMS in a cover sheet to the interim agreement, ?The final definitive agreement will require significant negotiations regarding the statement of work and our expectations.?) We stand by our recommendation that CMS should take the necessary steps to increase timeliness in reducing contracts to writing.
It continues though
Comment 83: We do not agree that CMS?failure to reduce 9 out of 9 contracts tested ? with a total value of $69 million ? to writing before services commenced constitutes a ?limited? situation.
Comment 84: Since the law requires reducing these agreements to writing before the services are performed(30 ILCS 500/20-80 (d)), any discussion about whether or not this represents good public policy is rather esoteric. However, as auditors, we continue to believe that having a fully executed and timely contractual agreement represents prudent business practice and helps to avoid potentially costly disputes and litigation. Further, when the public does not know the actual scope of work and the cost of such work until the final contract is
filed.
Of all of the criticisms, this is the one that I don’t mind – that the department allowed the vendor to begin work without a written contract in place. All of the risk here is being assumed by the vendor. They are the one choosing to do work beneficial to the state prior to having a written agreement that they will get paid to do so. From the point of view of the state, this is completely advantageous, especially in these circumstances.
In many of these cases with contracts at CMS they were engaging vendors to redefine operations to produce cost savings. If you assume that at the time of the RFP CMS assumed they were operating inefficiently, and why wouldn’t they otherwise they wouldn’t have sought out proposals to produce cost savings, then it’s fair to say that everyday they continue to operate prior to the changes recommended by the vendor they are pissing away money with excessive operating costs. It’s therefore in the best interest of the state for the vendor to begin work right away.
In the time it takes for the contract to be written and signed off by both parties’ lawyers the state continues to lose money. If the vendor is willing to start working without having a written contract in place guaranteeing that they would be paid for their work, why wouldn’t you? The state gets all the benefit and the vendor assumes all of the risk.
1) To start with–it’s the law.
From the report itself
2) Compromises Oversight and Public Accountability
3)Vendors Represent Themselves as Working for the State
4)Utilization of State Resources
5)Delays May Increase the Likelihood that Proposed Elements do Not Make it
Into the Final Agreement ?
6)May Limit the Department?s Ability to Negotiate
In fact, CMS own manual cites some of these reasons. It’s a bad way to run a government agency.
1) 55mph on the highway is also the law.
2) Not one bit
3) Which they soon will be
4) For the benefit of the state
5) Exactly. So why delay? Get started right away!
6) No it helps the department’s ability to negotiate. The Vendor will want payment for work already performed and they will have made an investment of time and energy and will be much more agreeable to terms that will allow them to recover those costs.
I’m underwhelmed.
1) So state agencies can just violate the law at their whim? It exists for a reason.
2)It does compromise accountability and a one line response is pretty damn lazy. Perhaps you’d actually like to read the report? Or perhaps the notion that just maybe the contract might be invalid and accepting services before proper oversight of the contract is good practice.
Incurring costs without proper procedures is an invitation to abuse.
3) And so when they don’t get a contract or make promises before a contract spells out the terms of that contractual arrangement, the state can incur liabilities it shouldn’t–henc e why one has a contract.
4) Not necessarily-the point of having a contract is to spell out exactly what is to be done and how. Without that formalized agreement it’s easy for a company to charge for services that wouldn’t have otherwise been allowed.
5) There’s a specific example you don’t even address. You did read the section didn’t you?
6) No, they know the state needs something and can use that as leverage over not having to enter into another round of RFPs being issued and bid out. The state has little power and if the state gives the go ahead for work–the state has to pay for it
This isn’t rocket science, but before trying to be pithy try reading the actual report and knowing something about the subject. Being condescending on top of that only makes you look stupid.