California's departments of General Services and Technology have failed to provide adequate oversight of billions of dollars in noncompetitive state contracts, according to a blistering state audit released Tuesday.
The report by the California State Auditor found that state agencies “habitually overuse” noncompetitive contracts, bypassing the bid process without any justification or proof of reasonable vendor prices.
“General Services and Technology failed to ensure that agencies under their oversight used competitive bidding as state law requires, potentially putting the state at risk of not receiving the best value,” the report states.
The findings confirmed what lawmakers feared when they asked last year for the review: State agencies could have produced competitive contracts with better planning, and their failure to do so has cost taxpayers.
“Until General Services and Technology create consequences for agencies that habitually overuse noncompetitive requests, these agencies will have little incentive to change,” State Auditor Elaine Howle wrote in a cover letter to the governor and legislative leaders.
In one example, DGS approved a $3 million noncompetitive request from the California High Speed Rail Authority for a contract amendment for financial consulting services just 17 days before the contract was set to expire. The approval “prevented other vendors from competing for this contract, potentially resulting in the state not receiving the best value,” the report found.
At the Department of Technology, officials approved a noncompetitive bid by the Employment Development Department, which amended a vendor contract three times, increasing the value of the contract from $600,000 to $8 million in less than a year.
Of the 27 noncompetitive contracts reviewed by the state auditor, between fiscal years 2011-12 and 2015-16, nine lacked justification for bypassing the competitive bid process and 14 failed to show that the vendor’s prices were reasonable.
Assemblyman Tom Lackey, the ranking Republican on the Assembly Accountability and Administrative Review Committee, said the report shows why bids should be competitively advertised to all potential vendors.
“The public gets fed up when they see a lack of transparency from government and when secrecy is used to benefit a small group of insiders,” Lackey, R-Palmdale, wrote in an e-mail to Techwire. “California clearly needs to do a better job encouraging competition on bids. Competition lowers costs to taxpayers and avoids sweetheart deals for well-connected companies.”
In most cases, state agencies solicit bids from private entities and individuals, with oversight from DGS and the Technology Department. But exemptions in state law allow the state to award very large contracts without competition in certain circumstances.
State lawmakers tried last year to determine how often the exemption had been used while considering legislation that would have required state agencies to notify the Legislature of pending noncompetitive bids worth $1 million or greater. Lawmakers shelved the bill, AB 1991, in favor of the audit and more information.
In addition to how bids were awarded, the audit found that DGS had failed to ensure that a statewide contract database contained complete and accurate information. In fact, agencies often entered information incorrectly or not at all, rendering it an ineffective oversight tool.
Auditors said it was unclear whether the state’s transition to the Financial Information System for California (FI$Cal) would improve contracting data, in part because fewer than a third of state agencies currently use the system for their procurements.
The state auditor urged both DGS and the Technology Department to enforce the rules that govern noncompetitive bid requests from state agencies.
The report also recommended that DGS verify the accuracy and completeness of contract information in FI$Cal, modify FI$Cal to identify contract amendments, and analyze data to identify potential abuse or overuse.
Meanwhile, auditors suggested that the Technology Department conduct statewide analyses of contracting data to identify potential abuse or overuse of noncompetitive contracts.
In letters to the state auditor, senior leaders in the DGS and the Technology Department said they agreed with the recommendations and intended to implement them. DGS Director Daniel Kim said his department “is firmly committed to ensuring competitive procurements and contracting that promotes and provides for open and fair competition.”
The report also recommended that lawmakers require the departments to submit an annual report that lists all approved noncompetitive requests worth more than $1 million — a step Lackey said would help protect taxpayers and ensure that noncompetitive bids are awarded only in “very select circumstances.”
