The state Auditor’s Office has come up with a pretty good way to address some of the state’s budgetary woes without pinching the poor: restore competitive bidding practices on state contracts so that taxpayers get more value for their money and more Vermont businesses may benefit from state patronage.

Auditor Doug Hoffer has a habit of shining the bright light of performance scrutiny into cobwebbed corners of state bureaucracy where he routinely identifies  inefficiency, waste and cronyism. With his latest report, he may have struck the motherlode: no-bid state contracts.

His report to the Agency of Administration is aptly titled” Sole Source Contracts: Extraordinary Use in Ordinary Times.”

“The high frequency of sole source contracts reviewed for this analysis raises questions about the effectiveness of the State’s contract management,” Auditor Hoffer said. “The State’s longstanding policy to competitively bid for contracts is meant to ensure taxpayers receive the highest values for their contracted dollars and Vermont businesses are afforded an equal opportunity to obtain contracts.”

There are many things about our intimate little state with its small town culture that are very much to the benefit of us all. But when informality in public agencies segues into undisciplined sourcing habits, the cost to taxpayers can be enormous.

After looking at the procurement practices of just five agencies and departments (Agency of Education, Agency of Human Services Central Office, Department of Buildings and General Services, Dept. for Children and Families, and the Department of Vermont Health Access) it was the conclusion of the Auditor’s office that “sole sourcing,” or contracting goods and services on a no-bid basis is, overall, not the exception but rather the rule.

According to contracting guidelines, contracts to supply the state are, as a rule, to be awarded through a competitive bidding process in order to ensure that taxpayers get the best value for their investment.

“Sole sourcing” is to be resorted to only in emergencies or in exceptional circumstances when only one source is qualified to supply the goods or services required by an agency.

To assess how frequently the five agencies and departments employed sole source practices, we took a snapshot by accounting for all contracts that commenced in fiscal year 2015 (FY15). We reviewed a total of 764 contracts for the five agencies, carrying a total value of $343.3 million…Of those contracts, 41% were sole-sourced. That translates to $158 million, or 46% of the total contract value, that was sole-sourced.16

The worst offender of the five agencies studied was the Agency of Education, which “sole sourced” the majority of its contracts, and showed the highest dollar value for its sole-sourced contracts, but all five relied on sole sourced contracts much more than one would expect under the contracting guidelines.
The Auditor’s Office made allowance for extenuating circumstances that, in some cases explained the high volume of sole sourced contracts; but overall, there seems to have been a distinct lack of justification.

Reasons provided by the agencies when required to explain their default to sole sourcing were often highly deficient; even, in the case of DCF practices, described in the report as “Phantom:”

“A ruling issued by the Health Care Finance Administration in 1996 prevents the department from securing Medicaid services by competitive bid,” DCF’s Deputy Commissioner wrote in memos from 2009-2015. “Therefore it is my intention to enter into sole source contracts with the existing providers for a period up to four years.”   A search of past rulings of the federal administration yielded no results that would prevent the State from competitively bidding for these services. We asked DCF for documentation associated with said 1996 ruling, and the department was unable to provide it.   Upon checking with the Centers for Medicare and Medicaid Services, the Auditor’s Office was told:  “Typically, to assure economy and efficiency of provider rates, we allow states to use competitive bidding to subject rates to market forces.”

Claims that contracts were sole sourced due to time constraints appear to have been more often a matter of agencies neglecting to address projects in a timely manner than any legitimate emergency which could justify the practice.
The Auditor’s report stops well-short of implying systemic corruption, but it isn’t difficult to see a parallel between these statewide practices and the similar preferential treatments at the most local level with which many of us are all too familiar: the selectboard member who sells fill to the town at a higher than market price; the cushy administrative job that is suddenly created and filled by a member of a prominent family with no trace of a formal search process. No doubt most GMD readers have their own local tales to tell.

Corruption is the easiest offense to commit and the hardest to discover.

Much of the questionable sourcing practices discussed in the Auditor’s report are probably more a result of poor habits, sloppy management, and the ‘good ol’ boys’ effect than any considered effort to defraud.

The end result is, however, potentially very costly to taxpayers and, once exposed,  embarrassing for the agencies involved.

If the report is received by the agencies as it should be, it will be embraced as their opportunity to deliver better value for all of us…thanks to Hoffer and his team.