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Billions in no-bid contracts mismanaged, state auditor says

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It didn’t take long for the cost of a technology contract in California’s unemployment office to increase twelvefold.

Two changes to the contract – added without bidding – swelled the deal to $8 million within a year. Then, the Employment Development Department submitted a request to add another $2 million worth of work to the arrangement without soliciting new bids from other companies.

That project is one of nine that State Auditor Elaine Howle highlighted in a new report released on Tuesday that urges California government to be more cautious in awarding high-value contracts without seeking competitive bids.

The report estimates that the state spent $44 billion on noncompetitive contracts worth $1 million or more between 2011 and 2016, a substantial sum that auditors said underscored the need for better management.

“The sheer magnitude of the value of the state’s noncompetitive contracts during this period emphasizes the importance of ensuring that the state provides adequate oversight of agencies’ contracting practices,” the report says.

State rules allow departments to award contracts without bidding in emergencies and under other special circumstances. But Howle’s auditors found that the state departments in charge of monitoring spending – the Department of General Services and the Department of Technology – have missed opportunities to challenge requests for noncompetitive contracts, failed to ensure that contract databases have accurate information and rarely disciplined other government agencies for misusing noncompetitive contracts.

That weak oversight puts the state “at risk of not receiving the best value,” auditors wrote.

The audits were based in part on a sampling of 27 noncompetitive contracts that state departments awarded over five years. Nine of them should have gone out to bid, auditors wrote.

Examples included:

▪ A $3 million contract extension that the California High-Speed Rail Authority presented just 17 days before its existing contract was scheduled to expire. High-Speed Rail did not describe why the vendor it chose had unique services that merited a noncompetitive contract.

▪ An $835 million noncompetitive contract amendment in 2013 for the company that manages Medi-Cal dental benefits. It was the seventh amendment to the original contract.

▪ A $75.5 million noncompetitive contract extension at the Department of Motor Vehicles on top of what was a $62.8 million for work on the state’s driver’s license production system.

▪ A fourth amendment to a Cal Fire aviation contract that was worth $27.8 million.

One $163 million contract that was missing from databases highlighted shortcomings in the state’s accounting system. It was the eighth change to a contract from the Department of Developmental Services, and no one entered it in the program the Department of General Services uses to follow spending.

State government is in the midst of a major overhaul of its accounting system with departments gradually adopting a new program called the Financial Information System for California (FI$Cal). When it’s in full use, the Department of General Services and the Department of Technology should be able to follow instantly any contract awarded by a state entity.

Until then, different state departments are using a hybrid system for accounting. Most use the system that FI$Cal is replacing; about a third of them use FI$Cal.

Howle’s office says it’s too early to tell whether FI$Cal will work as intended. “It is unclear if FI$Cal will fully solve the state’s lack of comprehensive contracting data,” auditors wrote.

Officials from the Department of General Services and the Department of Technology embraced the audit’s findings. They committed to implementing audit recommendations, such as compelling agencies to document cost justifications for noncompetitive contracts, creating plans within 90 days to better track noncompetitive contracts, educating other agencies on how to report noncompetitive contracts, and devising a disciplinary process for agencies.

 

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at sacbee.com/newsletters.

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