State and Local Procurement Law News
State and Local Procurement Division
A 60-Second Update on What's Happening
Co-Editor: Gerard E. Wimberly, Jr.
McGlinchey Stafford
gwimberly@mcglinchey.com
Co -Editor: Missy Copeland
Schmidt & Copeland LLC
Missy.Copeland@thesclawfirm.com
Co-Editor: Keith McCook
State Budget & Control Board
kmccook@ogc.sc.gov
Co -Editor: Bryan Boyd Arnold
Gordee Nowicki & Augustini LLP
barnold@gna-law.com
Volume 2, Issue 1, April 2012
Announcements:
The ABA Section of Public Contract Law’s State and Local Procurement
Division presents the first issue of Volume 2 of its electronic newsletter,
which will provide occasional updates on state and local procurement issues.
Please read further for the latest developments in state and local
procurement law among the several states. If you would like to contribute
to future issues, please send Gerard Wimberly an e-mail at
gwimberly@mcglinchey.com.
The Division has launched a series of monthly calls at which there are
approximately 10 minutes of Division/Section business followed by 35
minutes of substantive presentation. The next call will occur on April 27,
2012 at 11:00 a.m. EST, on the topic of State Freedom of Information Act
Laws. If you would like to be included in the notice of the call, please send
an email to gwimberly@mcglinchey.com.
Among the Several States:
VARIOUS STATES
Results Released From 50-State Survey on Corruptibility Risk
Assessment
The Center for Public Integrity, a non-profit investigative news organization,
recently conducted and released the results of a 50-state survey addressing
the “corruptibility risk” inherent in each state laws. The survey, termed the
“State Integrity Investigation,” aimed to examine states’ commitment to
government integrity by gauging (and ranking) each state's legal
impediments to public corruption and inspire the adoption of better
practices. The survey was subdivided into fourteen categories of laws that
were reviewed by the CPI, including a “Procurement” category. The CPI’s
“Procurement” survey addressed two areas: the effectiveness of the state’s
procurement process and the level of citizen access to the procurement
process.
“Effectiveness,” as defined by the CPI, related to the presence and
enforcement of conflicting interest regulations, bid laws, and “pay to play”
prohibitions, along with whether public procurement officials were subject to
mandatory professional training. CPI’s vision of access, in turn, related
mainly to whether a state provides easy access to bid offers, bid acceptance
and procurement regulations at a low cost. According to these rankings, the
worst-rated states for procurement corruptibility were Maryland, South
Dakota, Georgia and New York. All four states were docked for failing to
implement “a mechanism that monitors the assets, incomes, and spending
habits of public procurement officials” and failing to mandate “professional
training for public procurement officials,” among a variety of other perceived
procurement-related problems.
FLORIDA
Prohibition Against Contracting With Scrutinized Companies
In 2011, Florida enacted legislation prohibiting companies on the Scrutinized
Companies with Activities in Sudan List or the Scrutinized Companies with
Activities in the Iran Petroleum Energy Sector List (the “Lists”) from securing
contracts for goods or services of $1 million or more with state agencies or
local governmental entities. This legislation applies to new contracts as well
as contract renewals. However, the statute does provide an exception for a
company on the Lists on a case-by-case basis if strict conditions enumerated
in the statute are satisfied.
A company seeking to enter into or renew a contract with state agencies or
local governmental entities must certify that the company is not on the Lists.
If it is determined that the company has submitted a false certification, the
state agency or local governmental entity must provide notice to the
company of its determination that the certification is false, after which the
company will have ninety days to demonstrate the false certification was
made in error. If the company does not timely make such demonstration,
the state agency or local entity is required to institute a civil action against
the company.
If a court determines the company submitted a false
certification, the company faces a civil penalty as set forth in the statute,
including all reasonable attorney’s fees and costs.
For more information, see Section 287.135, Florida Statutes.
GEORGIA
Lockheed Martin Corporation Forced to Defend in Qui Tam Action
In March 2012, the United States District Court for the Northern District of
Georgia denied Lockheed Martin Corporation’s motion to dismiss the
amended complaint in an action commenced in late 2008 by a former
employee of Lockheed. The former employee, as a relator in this qui tam
action, has sued Lockheed for its alleged fraudulent billing of the United
States during a near-thirty year period for goods and services related to
contracts under which Lockheed produced airplanes for the United States
armed forces.
In the Amended Complaint, the former employee advances a claim for
violations of 31 U.S.C. section 3729(a)(1)-(2) of the False Claims Act; a
claim for conspiracy in violation of 31 U.S.C. section 3729(a)(3) of the FCA;
and a claim for retaliation in violation 31 U.S.C. section 3730(h) of the FCA.
Against Lockheed’s arguments, the court denied the motion to dismiss.
Although the motion to dismiss was denied, the court did limit the former
employee’s claims under 31 U.S.C. section 3729(a)(1)-(2) solely to those
allegations arising out of (a) Lockheed’s billing submissions and
representations to the United States government connected to the
department in which the former employee worked at Lockheed’s Marietta,
Georgia facility; and (b) Lockheed’s conduct arising on or after
December 17, 2002.
The court also limited the former employee’s
retaliation claims under 31 U.S.C. section 3730(h) to Lockheed’s alleged
actions taken on or after December 17, 2006.
ILLINOIS
Auditor General Finds “Serious Deficiencies” in State's Award of $7
Billion in Health Insurance Contracts
Last year’s award of the state employee health insurance contracts to Blue
Cross Blue Shield has come under severe scrutiny by the Illinois Auditor
General in an audit made public in early March, 2012. The audit takes to
task both the Illinois Department of Healthcare and Family Services ("HFS"),
as well as Mercer, a private consulting firm that was hired to make
recommendations and facilitate the awarding of the contracts to provide
health insurance to state employees. Additionally, the Executive Ethics
Commission, was targeted for its lack of oversight, independence and
fairness in its role as overseer of the bidding procedures. The audit said HFS
at first planned to award a contract to Illinois-based insurer, Health Alliance,
but the insurer was dropped from those plans after HFS staff members met
with aides to Gov. Pat Quinn in late March 2011. Health Alliance has since
filed a lawsuit in Sangamon County Circuit Court that cited many of the
same deficiencies documented in the audit.
The audit found:
The Illinois Department of Healthcare and Family Services:

Failed to include all relevant information,
evaluation criteria, in its request for proposals.
including
scoring

Used a consulting firm that had a major role in the procurement
process even though the firm had business relationships with all the
companies that submitted bids.

Failed to address major differences in scoring by people evaluating
the bids.

Awarded Blue Cross and Blue Shield 20 counties it didn’t even bid
on, and documentation showed that Blue Cross had no primary care
doctors in 24 counties that the company was awarded.
The Executive Ethics Commission:

Had staff that didn’t question the lack of compliance with evaluation
procedures.

Used a protest-review process in which the protest officer ruled on
the fairness of a procurement process his staff guided. This process
lacks independence.

Failed to develop policies and procedures for staff members who
oversee procurement functions
For their part, HFS has attempted to settle the lawsuit of Health Alliance and
other disgruntled companies by allowing them to bid on other supplemental
long-term insurance contracts and maintains that the audit merely highlights
“technical weaknesses” and HFS contends the procurement process was
“executed in a fair and competitive manner.”
LOUISIANA
Former New Orleans Mayor Focus of Federal Investigation
A federal grand jury is investigating whether former New Orleans mayor Ray
Nagin was given gratuities by city vendors, including plane tickets and
materials for his family’s countertop business, Stone Age, LLC, and whether
Nagin helped Stone Age land an exclusive granite countertop installation
deal with Home Depot while he was in office.
Much of the case the government is putting together is already well-known
from court testimony and media reports. It has long been known that one of
the city’s former vendors, Mark St. Pierre, who is currently serving a 17-year
sentence for bribing Nagin’s chief technology officer, Greg Meffert, paid for
the Nagins to travel to Hawaii and Jamaica, provided luxury transportation
for Nagin re-election campaign parties, and paid for landscaping services at
the Nagins’ home after Hurricane Katrina. Nagin has insisted that he
thought these gifts came from Meffert, rather than St. Pierre. Meffert, who is
set to be sentenced in May for taking bribes from St. Pierre, is reportedly
assisting the federal investigators in their investigation of Nagin.
With respect to Stone Age, the federal investigation is focused on whether
Nagin’s relationship with Frank Fradella, president of a restoration company
called Home Solutions of America (HSOA), helped him land the Home Depot
installation deal. HSOA was a leading countertop vendor for Home Depot,
and Nagin met often with Fradella during his second term. In 2007, Stone
Age got the Home Depot deal; meanwhile, HSOA won big city contracts
totaling approximately $50 million.
Businessman Aaron Bennet, who
recently pleaded guilty to bribing Plaquemines Parish Sheriff Jeff Hingle, says
that he introduced Nagin to Fradella in 2007 while he was overseeing St.
Pierre in Nagin’s tech office. Bennet has told the media that he introduced
the two specifically to help Nagin get the Home Depot contract.
Investigators are also looking into deliveries of free granite or equipment to
Stone Age by several city vendors.
Five Contractors Federally Charged in Hurricane Katrina Home
Repair Funds Scandal
Four contractors and a special projects coordinator with the New Orleans
Affordable Homeownership program (NOAH), a city agency that was
responsible for hiring contractors to gut houses and remediate blight after
Hurricane Katrina, have been charged by federal prosecutors with stealing or
conspiring to steal federal grant funds.
Specifically, defendants are accused of pocketing thousands of dollars
received as community development block grants from the U.S. Department
of Housing and Development for work that they never performed, taking
overpayments, and plotting with a NOAH executive director, Stacey Jackson,
to steal funds from the agency and pay her kickbacks. The charges come
years after allegations first surfaced that NOAH had been plagued by
cronyism and fraud, and that the city, under former Mayor Ray Nagin, did
not conduct any inspections until more than a year after the work was
reported by NOAH as complete. A source close to the case has told the
media that Ms. Jackson is still under investigation.
Governor Signs “GRAD Act 2.0”
Governor Bobby Jindal has signed “GRAD Act 2.0,” House Bill 549, into law,
which will give Louisiana’s universities more autonomy with their contracts,
purchasing and construction, in exchange for increased college graduation
and retention rates.
The new law offers three tiered levels of autonomy with increased
performance goals for each level of greater freedoms. Some of the main
features of the new law are: allowing colleges to “roll forward” extra
revenues each year, so they are not forced to spend any reserves at the end
of each fiscal year; giving colleges extra authority to execute more contracts
without additional red tape; allowing colleges more procurement freedoms
on buying equipment and on bulk supply purchases; letting colleges move
forward with self-funded construction projects and renovations without state
control; and granting colleges the ability to go out on their own on some risk
management costs, like worker’s compensation insurance.
LSU estimates that it will save $52 million in five years by having flexibility
similar to universities in states like North Carolina, Virginia and Arizona.
Governor Jindal said he is confident that universities will not abuse the new
freedoms and direct more contracts to friends and boosters because the
Louisiana Board of Regents and the Joint Legislative Committee on the
Budget will oversee their activities.
NEW YORK
Department of Defense Says Contractor Dumped 9/11 Remains in
Landfill
The U.S. Department of Defense recently stated that the remains of some
people killed in the 9/11 attacks were cremated and dumped in a landfill
after being turned over to a medical waste contractor. The Pentagon
investigation was triggered by whistleblowers at the Dover Air Force Base
mortuary, which received human remains after the attacks. The Dover Port
Mortuary Independent Review Subcommittee faulted a lack of leadership,
saying that the mortuary was overseen remotely by officials in Washington
as opposed to an on-site commander. Representative Bill Owens, a democrat
from New York, said that he was “disgusted and astonished” that the
remains of 9/11 victims were treated with “such recklessness and dishonor.”
Contractors Want Second Circuit to Reopen a $5B New York City
Public Projects Lawsuit
The Building Industry Electrical Contractors Association and the United
Electrical Contractors Association filed suit in the United States District Court
for the Southern District of New York, claiming that New York City’s use of
Project Labor Agreements – agreements that let the city pre-hire particular
unions, set labor standards and bar work stoppages – prevented them for
working on projects for 16 government agencies because the PLAs did not
include the unions that they deal with. A judge recently granted the City’s
motion to dismiss, finding that the City used PLAs like any private developer
would: to cut costs and keep construction workers from striking and delaying
projects. The trade associations claim that the judge improperly threw out
the case before they got a chance to present any evidence. They further
argue that the City is not implementing the PLAs like private developers,
who typically use PLAs to define the working parameters for a single large
project; by contrast, the City has signed PLAs that cover multiple projects
being funded by multiple agencies. The trade associations have asked the
Second Circuit to reopen their case.
New York Presbyterian Hospital Kickback Plot Unraveled
Seven men were recently convicted of conspiring to defraud New York
Presbyterian Hospital in a kickback scheme to award more than $2.3 million
worth of asbestos abatement and construction contracts. The acting
assistant attorney general in charge of the DOJ’s Antitrust Division, stated
that “this verdict sends a clear message that corrupt purchasing officials and
the contractors who paid them kickbacks will be held accountable for this
type of illegal conduct.” The individual defendants face up to 20 years in
prison for each count of the indictment, along with a fine of up to $1 million
for each charge. The case is U.S. v. Yaron, No. 10-00363, in the United
States District Court for the Southern District of New York.
SAIC Will Pay $500M in Federal Kickback Case, the Largest Payout
Ever by Contractor in Municipal Fraud Case
Science Applications International Corp., a scientific and engineering
company, will pay $500 million in a three-year deferred prosecution
agreement relating to alleged kickbacks that inflated the cost of New York
City’s CityTime project, a bid to overhaul and modernize the city’s municipal
payroll system. This is the largest payout that a state or city contractor has
ever paid in a fraud case.
SAIC won the CityTime contract in 2000 and hired Technodyne, LLC as its
single source subcontractor. In 2006, SAIC renegotiated its contract with the
city to provide that the city would be responsible for cost overruns.
Thereafter, the costs of the project skyrocketed from $115 in 2005 to $620
million by 2011. The project’s Program Manager, Gerard Denault, allowed
consultants to be hired at inflated rates and approved work orders for
unnecessary staff increases, in exchange for kickbacks from Technodyne,
and SAIC failed to investigate reports about the kickbacks.
Although SAIC has pled not guilty, it has admitted that it failed to properly
investigate a 2005 whistleblower’s complaint that Denault was taking
kickbacks, and that it ignored signs that Denault was intimidating employees
to stop them from raising ethical concerns. Under the agreement, SAIC will
pay $370.4 million to New York City and $130 million penalty to the United
States, and will also forgive $40 million in bills that had been invoiced to the
city but not paid.
SAIC has also agreed to implement a permanent
compliance program and not to commit any crimes for three years. SAIC is
also currently facing a shareholder class action relating to losses the
company has suffered because of the scandal. In addition, Technodyne and
its owners, Padma and Reddy Allen (who are now fugitives believed to be
hiding out in India), along with Denault, are still facing charges. In addition
to allegedly paying bribes and kickbacks, the Allens are charged with
laundering the money for the scheme through bank accounts in the U.S. and
India. The U.S. Attorney’s Office has filed a complaint for forfeiture seeking
$11.5 million from the Allens’ bank accounts and property.
Audit Reveals State Office
Procurement Guidelines
for
Technology’s
Violations
of
According to an audit recently released by the New York State Comptroller,
officials with the State Office for Technology (OFT) ignored state finance law
and procurement guidelines in awarding business to favored companies,
doing so in some instances for personal gain.
The OFT is responsible for providing information technology services to the
state and its governmental entities, as well as setting statewide technology
policy for all state agencies, assisting agencies with large technology
procurements and monitoring all large technology spending in the state. In
October 2010, the Comptroller’s office rejected a contract submitted by OFT
worth $7.5 billion because of flawed cost evaluations and because the value
of the contract appeared to overstate consultant spending. Subsequently,
the Comptroller’s office ordered a full audit of OFT’s contracting and
procurement practices. Auditors found that OFT officials wasted at least $1.5
million in state money on a $5.7 million, three-year agreement with software
security firm McAfee. OFT officials also apparently violated their procurement
policies and State procurement guidelines, by routinely granting contracts to
favored vendors, often for personal gain, by failing to ensure the price the
state was paying was reasonable, and not maintaining the proper
documentation regarding their method of procurement and basis for their
purchasing decisions.
The audit findings have been referred to the Joint Commission on Public
Ethics. The Comptroller’s Office recommended that OFT undertake various
measures to ensure that staff are properly trained on ethics and
procurement issues, and better monitor the offices practices. OFT officials
have acknowledged the misconduct and have stated that they plan to
improve their internal controls.
2012-13 Executive Budget Proposes Substantial Changes to State
Procurement Processes
Governor Cuomo’s 2012-13 Executive Budget has proposed substantial
changes to state contracting and enhancements to the Commissioner of
General Services’ (OGS) power and authority over state procurements.
Specifically, under the proposed changes: OGS would be responsible for
centralized contracts for services and technologies in addition to
commodities, and state agencies would be required to purchase off these
centralized contracts before attempting their own contracts; contracts
established or purchased through OGS centralized contracts would be
exempt from OSC pre-audit review; lowest price procurement will include
services and best value procurement will include commodities; additional
weight will be given to minority/women -owned businesses in evaluating
offers for commodities and services during best value procurements; the
commissioner will determine and set printing standards and develop a
centralized contract for printing work for all state agencies; state agencies
will be permitted to accept electronic bid submissions for all commodity,
service and technology contracts (and may require electronic submissions);
all agency procurements over $50,000 must be reported in the state’s
procurement opportunities newsletters; contract opportunities for local
municipalities, school districts and not-for-profits are expanded; and
“commodity” is redefined to include electronic information resources.
SOUTH CAROLINA
Charleston Steadfast in Efforts to Remain a Top Port on the Eastern
Seaboard
Determined South Carolina lawmakers continue efforts to secure funding for
the dredging of the Charleston shipping channel. Like other rival ports along
the Eastern Seaboard, Charleston seeks to remain competitive as a port of
call in light of the expansion of the Panama Canal, projected to be completed
in 2014. The deepening of the Charleston shipping channel will allow the
port to accommodate mega-tankers and other large shipping vessels
expected to follow with the expansion of the Panama Canal.
The Port of Charleston project is estimated to cost $300 million. Under the
proposed plan, the state of South Carolina will shoulder 60% of the total
costs with the remaining 40% to be funded by the federal government
through the Army Corps of Engineers. Because required studies for federal
permitting could potentially take five to seven years, lawmakers and the
State Port Authority are actively working to speed up the process. Once
dredging begins, the removal of silt from the channel could take up to six
years to complete.
TENNESSEE
Senate Bill Could Lead to No-Bid Contracts
The procurement process in Tennessee could see changes if a bill in the
Tennessee legislature becomes law.
The bill gives the Tennessee
Procurement Officer discretion to award contracts without competitive
bidding, but instead allows negotiation directly with suppliers when it is “in
the best interest of the state.” This would change the current statute that
states negotiations can only be used when “the state is unable to obtain
needed goods and/or services by competitive sealed bid.” Senate Bill 2218
would extend Tennessee’s Procurement Act from 2010, which revised how
the state makes purchases.
The Procurement Act moved purchasing
decisions for many state offices to a centralized office under the Chief
Procurement Officer, Jessica Robertson. This new bill would let departments
spend as much as $50,000 on goods or services without going through the
procurement office. Senator Bill Ketron, sponsor of the Procurement Act,
says this new bill would allow negotiations where competitive bidding has
been tried. Senate minority leader Jim Kyle points out that the bill may give
too much power to a few people in the executive branch.
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