Los Angeles Rejects All Bids Due to Conflict of Interest Questions

The commissioners for Los Angeles International Airport rejected all bids on a $350 million media services contract on August 20, 2013 after one of the bidders protested the award.  

Basis of protest:  The protest was based on the fact that the low bidder's team included a former president of the Board of Airport Commissioners who participated in discussions and plans on the media services contract before he resigned from the commission in 2010.

More information on the protest: 

• L.A. airports panel throws out bids on media services contract, August 20, 2013, Los Angeles Times 

• LAX media contract bidding may be scrapped, started over, August 17, 2013, Los Angeles Times.

Lessons learned:  

• Does your agency have a code of ethics that prevents conflicts of interest and addresses other issues?

• When was the code of ethics last updated?

• Is the code of ethics comprehensive in addressing a wide variety of ethical issues?  

• Compare your code of ethics with those of other agencies to pick up idea.  For example, the City of Seattle has a strong code of ethics you may want to review.

• Are your agency's employees regularly trained on the provisions of the code of ethics?

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Agency Violates Selection Processes and Conflict of Interest Provisions

Using federal funds, a small fire protection district had one of its elected commissioners draw plans for a building to house fire trucks.  The district also hired a contractor owned by another commissioner to build the building,   In the process, the district skirted both consultant and contractor selection requirements and violated conflict of interest laws.

Audit finding:  Here's the audit finding the Washington State Auditor's Office recently wrote about the practices of the Klickitat County Fire Protection District No. 15:

• Bidding violation:  State Law requires the District to seek formal bids on public works projects of more than $20,000. The District stated they called local construction companies and informed them of the project; however, this did not meet the requirements for a project of this size. 

• Conflict of interest:  State law prohibits a conflict of interest with a municipal officer. The District paid the Commissioner’s company $66,000 during the audit period for this project.

• Consultant competition required:  State law requires that all architectural and engineering services be competitively procured. The District used architectural services from a Commissioner without publicly advertising a request for services.

• Prevailing wage violations:  State law requires contractors to pay prevailing wage on all public works projects.  While we saw evidence of certified payrolls from the contractor, the District did not ensure intents and affidavits were filed with the State Department of Labor and Industries and thus cannot be sure the contractor complied with prevailing wages requirements.

More information:  Click here to read a copy of the audit report.  The District indicated they were not aware of the procurement and conflict of interest laws applicable to the project.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

University of Illinois Voids $4.6 Million Contract Over Conflict of Interest Concerns

Perceptions surrounding a potential conflict of interest and how it was handled have led the University of Illinois to void a $4.6 million contract with BLDD Architects, ending a months-long debate about the situation. 

Straightforward disclosure?  In 2010, BLDD submitted a proposal for the planning phase of the university's $70 million renovation of its historic Natural History Building. As required, the firm disclosed that one of its principals, Bruce Maxey, was married to the university's associate director of planning, Jill Maxey, who had also worked for the firm in the past. Since Jill would normally be involved in the selection process, she recused herself from the project early on. University officials have stated that she was internally isolated from decisions that would affect BLDD. 

Further review requirements neglected:  The problem is whether the disclosure and internal controls were enough. The debate has centered around the issue of whether the potential conflict of interest meant the contract should have been reviewed by the Illinois Procurement Policy Board. As it was, the board didn't learn about the situation until over a year after the initial $368,000 conceptual design contract was signed, and several months after a $4.3 million contract for architectural and engineering services was added. 

The issue of additional review seems to have gotten lost in the midst of university staffing changes and confusion over the requirements for board review, which had only recently been mandated by a newly enacted law. 

Previous debate:  Shortly after discovering the issue, the Procurement Policy Board voted in April 2012 to recommend voiding the contract with BLDD over concerns about the potential conflict, but that decision was overturned by the Illinois Chief Procurement Officer, Ben Bagby, who oversees procurement for higher education in the state. 

Bagby maintained that adequate internal controls were exercised to prevent any misconduct or conflict of interest. Furthermore, he argued that going through a new selection process for the project would be too expensive, while negotiating with the second highest-rated firm would mean using a "stale" proposal from over a year before. 

Final decision:  Last week the Procurement Policy Board voted a second time to throw out the contract, referring it to the university's Board of Trustees. The Board of Trustees agreed with the board and voted on July 19, 2012 to void the contract, which will likely be subject to a new selection process. 

Lessons learned:  Interestingly, the debate seems to have sparked no accusations of actual misconduct. Concern seems to have centered instead on negative appearances and failure to follow proper procedures. This illustrates how critical perception can be (even if there is no actual misconduct) and the importance of following procedures. Small mistakes at the beginning of a project can be amplified as things go on and later escalate into significant delays, additional expense, and/or disciplinary action. 

Practical tips:

1. Remember appearances:  Even if it seems clear that there is no conflict of interest, consider how the facts might appear to someone unfamiliar with the situation.
2. Follow procedures:  The University of Illinois situation illustrates how easily important requirements can be misinterpreted or overlooked. If there's any question of whether an issue requires additional reporting or review, ask agency leadership or legal counsel.  As this incident shows, it's usually better to go the extra mile at the beginning of a project rather than try to clean up a mistake later.
3. Stay current:  Keep on top of new legislation and policy changes, coupled with proper training and effective internal controls.  These are important tools to avoid controversies such as the one faced by the University of Illinois.

Additional resources:

• Extensive article on the vote by Board of Trustees to void the contract, from The News-Gazette of Illinois (July 19, 2012)

• Previous article on the issue from before the Board of Trustees voted, from the Chicago Tribune (July 17, 2012)

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Miami Beach Corruption Case Develops Over Information Leak

A burgeoning scandal threatens to derail the massive $1 billion redevelopment of the aging Miami Beach Convention Center. 

Previous accusations:  Several months ago, Miami Beach procurement director Gus Lopez was forced to resign over allegations that he was leaking confidential information on the selection process to a prospective developer for the project. Investigators turned up emails from Lopez to developer Walter Garcia revealing information on the project before it was released to other candidates as well as details not available to others. There are even some indications that the two were thinking of assembling their own team to propose on the project. 

Expanding controversy:  The scandal has recently grown to potentially enmesh top developer CMC Group, part of the team vying for the convention center project. The team, Portman-CMC, was the highest scoring developer rated by the evaluation committee. 

The concern centers on a payment of $25,000 from CMC to developer Garcia's company, Peninsula Development. CMC maintains that the payment was for talks and negotiation when Peninsula was being considered for a consulting role on the convention center proposal. 

Start over or forge ahead?  Even though CMC ultimately did not work with Peninsula on the project, some feel that the selection process has been tarnished to the point that it should be restarted completely. 

Commissioner Jonah Wolfson expressed the opinion that the allegations of misconduct are "reason to start the whole thing over." Others, however, are concerned about the implications of current proposals being public and how that would affect response to another RFQ: "Everyone knows everything," said Stuart Blumberg, Chairman of the Miami Beach Convention Center Advisory Board, "It would make it difficult."

Lessons learned:  The Miami Beach story illustrates one of the ways that a perception of bias or favoritism can be destructive to the selection process. Advance or inside information can be a significant advantage to a proposer and can be easily transferred to other proposers, making it hard to track while conveying a potential advantage on any proposer who receives such information. As a rule, information about a project should not be released outside the public agency unless and until it is available to all proposers. 

Additional information:

• Recent Miami Herald article on the scandal
• Recent article from Miami-Dade's SunPost Weekly
• Earlier Miami Herald article covering Lopez' resignation

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

No Bid for Modular Home Bought From Commissioner's Spouse

The Washington State Auditor's Office issued a finding against the King County (WA) Fire Protection District No. 28 for the following:

• No Bid:  The District failed to solicit bids or declare that an $85,000 modular home it purchased from the spouse of one of the Fire District's Commissioners was available from only one source.

• Conflict of Interest:  Even though the Commissioner abstained from voting on the purchase, the transaction represented a conflict of interest under state law.

• Gift of Public Funds:  The District reimbursed the Commissioner $1,850.92 for the cost of a lot fee for keeping the modular home in its current location until the District obtains permits and relocates the home.  Without any written agreement, the Auditor noted that such reimbursements represented a gift of public funds, a violation of the State constitution.

Practical Tips:  

1. Pay attention to the bid laws that affect your type of agency, and follow them.  
2. Be sensitive to conflicts of interest, whether real or apparent.  If you have any doubts, it may be a problem.  Consult with the leadership of your agency and fully disclose any potential conflicts.
3. Make sure you have a contractual agreement in place before you make payments. 

Audit Report:  Click here to read the three page audit report.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Avoiding Conflicts of Interest When Selecting Consultants

What is the relationship between your selection committee members and the consultants who submit proposals?  What is the nature of the relationship between your project manager and the selected consultant?  

Personal Relationships with Consultants:  In many cases, government employees know the consultants who are proposing, often having worked with them in the past.  But what if the project manager or other evaluators also have a social relationship or personal friendship with any of the consultants submitting proposals or with the selected consultant?  Does that create a conflict of interest or the appearance of a conflict of interest?

Contract Termination:  The City of Sammamish, Washington recently terminated a $30,000 consultant contract for an environmental study to establish the "ordinary high water mark" for Lake Sammamish, after it was revealed that the city's project manager was a personal friend of the consultant.  In addition, the city's project manager was a member of the selection committee, and just prior to the selection process, the city's project manager had invited the consultant onto the city employee's boat.

Keep it Squeaky Clean:  In announcing the contract termination, in which the consultant will keep $20,000 for work already performed, Deputy City Manager Pete Butkus stated: "We want to make sure this is squeaky clean."  The study is "a very emotional issue for many people and we want to make sure it is technically correct and there's not anything that would allow someone to question the results."

Costly Relationship:  The city will start over with a new selection process, a different city project manager, and a new contract that will be for the same study as the terminated contract.

More Information:

• SammamishReview.com article, City ends contract in water level study, November 24, 2010

• SammamishReporter.com article, City pulls plug on Lake Sammamish study, November 20, 2010

Practical Tip: As part of the selection process, require each evaluator to sign the evaluation form with their scores.  The evaluation form should include a statement that the evaluator does not have a conflict of interest (financial, relational, or other nature) with any of the firms being evaluated or key personnel of any of the firms, and that there is no perception of a conflict of interest that could arise from any relationships.

Mike Purdy's Public Contracting Blog 

© 2010 by Michael E. Purdy Associates, LLC

http://PublicContracting.blogspot.com

New Orleans Reforms Corrupt Contracting Practices

New Orleans Mayor Mitch Landrieu announced a series of significant contracting reforms on June 3, 2010, designed to make selection of consultants and contractors more transparent and open to the public. 

The changes follow years of questionable practices by previous mayors.  Mayor Landrieu noted that "We are going to institute a new way of doing business...to restore credibility and faith that the public should always have in the way government handles its money."

Chief Procurement Officer:  A new Procurement Office headed by a Chief Procurement Officer position will be created to implement and manage the contracting reforms and new processes.  Click here to read the mayor's Executive Order MJL 10-04 on this subject.

Consultant Selection Practices:  A key change will shift the decision making for selection of professional service consultants, such as architects and engineers, away from the mayor.  Instead, a selection committee of five high-ranking city employees will make a recommendation to the mayor.  The mayor will be required to either sign a contract with the recommended firm or state in writing why he is not doing so.  If the mayor does not agree with the selection committee recommendation, a new procurement process must be conducted.  

The selection committee will be subject to open public meetings and public records laws.  The new consultant selection procedures will apply to all contracts of $15,000 or more.  The ten page Executive Order also details procedures for development of standardized RFPs and RFQs, advertisement, selection criteria, and contract negotiations.  Click here to read the mayor's executive order MJL 10-05.

Disadvantaged Business Enterprises (DBE):  One of the mayor's Executive Orders establishes a provisional certification program for DBEs, creates an advisory committee to reform and strengthen the City's DBE program, creates a contract review committee for procurements, commissions a disparity study, and explores the creation of a surety fund for bonding DBEs.  Click here to read the mayor's Executive Order MJL 10-02.  

Another of the mayor's executive orders creates a new position of Director of Supplier Diversity.  Click here to read this Executive Order MJL 10-03.

Other Information:

• For a June 3, 2010 news article about the new contracting regulations in The Times-Picayune, click here.
• For a June 6, 2010 editorial in the The Times-Picayune, click here.
• For a history of some of the contracting scandals that have plagued the City of New Orleans, click here.

Training: Ethics 101 and Writing Effective Scopes of Work

I was in Richland, Washington on April 6, 2010 conducting training for Energy Northwest on two subjects: "Ethics in Public Contracting" and "Writing Effective Scopes of Work." 

Here's a summary outline of the 4.5 hours of training:

Ethics in Public Contracting

• Public Service is a Public Trust
• 5 Keys to Making Ethical Decisions
• What's So Important About Appearances?
• Why Do We Have Public Contracting?
• 4 Risks of Ethical Lapses
• Is It a Conflict of Interest?

Writing Effective Scopes of Work

• 4 Questions to Ask
• The Importance of Clear Scopes of Work
• Tips for Writing Scopes
• What Should be Included in a Scope of Work?
• Should I Write a Detailed Scope or Performance-Based Scope?
• What Are Valid Reasons for a Sole Source or Proprietary Scope?
• How Detailed Should the Scope Be?  4 Issues to Address
• Resources to Help in Developing Scopes of Work

Energy Northwest is a Joint Operating Agency that provides electricity at cost to 28 member public utilities in the State of Washington, and operates as a public agency.

Please contact me if you are interested in me providing this training, or other training for your organization.

Auditor Cites School District for Conflict of Interest

The Washington State Auditor's Office issued a finding that a board member of the Battleground School District created a prohibited conflict of interest.

The situation arose when the board member voted to award four public works projects that included a roofing company as a subcontractor. He was an officer of the roofing subcontractor and his salary included a profit sharing component. The board member and his roofing company stood to gain financially from his action as a board member. The board member should have disclosed his financial interest in the subcontracting company in a public meeting and not voted on the contract awards.

For more information, read the three page audit report by clicking here.

King County Declares Emergency

King County Executive Ron Sims declared an emergency and waived competitive selection procedures to hire The Sazan Group to re-design deteriorating hot water pipes at the Maleng Regional Justice Center in Kent. Sazan studied the issue and issued a report stating that "the pipe appeared to be on the verge of immediate collapse or rupture."

Hiring a firm to conduct design work when they have conducted a study indicating the need for design work does not technically violate any law. It does raise interesting issues of potential conflict of interest, however. On the other hand, with the potential for a catastropic failure of the pipes, the emergency nature of such an action may be appropriate.

Click on the Seattle Times to read a more complete story about the emergency.

Under-the-Table Gifts from Contractor Nab Senator

Alaska Senator Ted Stevens was indicted on Tuesday, July 29, 2008, by a federal grand jury for failure to report more than a quarter million dollars of gifts from a contractor who provided free renovations to Stevens’ home, in addition to other gifts. For the complete story, visit the Seattle Times to read their article on the subject.

Public officials, especially elected officials, are held to a high standard when it comes to drawing a bright line concerning their relationship with the business community. As stewards of the public trust, public officials should not profit from gifts or favors received from contractors and consultants they do business with or might do business with. The public expects that public officials will maintain the highest standards of ethics so that there are no conflicts or interest, apparent conflicts of interest, or attempts to buy the favor of public officials. This is a particularly important area for those responsible for government procurement and contracting to pay close attention to.

If you find yourself in a situation where you even have to ask the question of whether a particular action is ethical and appropriate, it may be an indicator that there would, at a minimum, be an apparent ethical issue involved. And, of course, there is always the “front page” test: how would a particular action look on the front page of the daily newspaper and would you want to see your name there describing your actions. Another question to ask is “what would a reasonable person assume?” about the meaning of a particular gift or action.

Many public agencies have written standards of ethics related to acceptance of gifts. It is important that public employees not only know about these standards but receive training so they can identify issues of concern as they arise. If your agency would like training in this area, please feel free to contact me.