Procurement Ponderable responses
Last issue’s Procurement Ponderable struck a nerve with GoPro readers, who submitted an unprecedented number of responses to the hypothetical scenario designed to stimulate thought and discussion on significant issues in the profession. The dilemma involved “you” as the director of procurement for a large city who is being urged by the mayor to quickly increase the level of participation by woman-owned and minority-owned (WMBE) businesses in city contracts. You award a contract for a controversial road project to a construction company on the basis of a lower evaluated bid price and a committed level of WMBE participation. You later find that the principal subcontractor is not an independent firm at all. Its listed address is the same as the prime contractor, its president is the wife of the prime contractor and the subcontractor has no assets in its name. Here is a sampling of reader responses to the scenario:
I read your article referencing the dilemma that the purchasing director would face after awarding a contract to a supplier that was using his wife as a front company on an awarded job. Of course, this would be an awkward position to be in, but most municipalities avoid this by, first, having a certification process in place. Next, appropriate penalties should be delineated in the RFP. Once discovered, those penalties should be immediately initiated.
Finally, make the penalties as public as possible. Open each future pre-bid conference with a statement reminding all bidders that recently a firm was caught trying to circumvent the system, and that firm shall not act in any capacity, either as a prime or sub for a period of time (i.e., three years or greater, as specified in the RFP). Any firm that chooses to use them on one of the municipality’s projects shall receive the same penalties. However, building relationships with the community, including non-minority and women bidders, makes a pretty strong alliance against fraudulent setups such as this. The community can be your eyes and ears.
— Errick Young, Manager
Orange County (Fla.) Business Development
What should you have done? Exercise the right to check references. If the WMBE is not a real company, the references should bring out the truth. Ask the supplier for a list of three to six similar projects over the last three years [on which] they have used this WMBE. I think you will quickly realize that the bid is a sham.
What can you do now? Unfortunately we are in a time where all of us need to rely on our legal resources in this type of matter. It would be nice if you could just have a meeting with the prime contractor, but they are already at fault. I would discuss with legal the next steps and what they advise.
If this large city has a debarment or suspension list, then the supplier should be added to the list.
What can you do to prevent what happened in this case from happening again? Change your bid form. You need to have the prime prove that the WMBE subcontractor is an actual business. Ask for direct references from the subcontractor as well as the prime. Also, tighten up the specifications on your next IFB with the stated goals and the purpose of the program.
Another suggestion is to conduct interviews with the prime and the WMBE subcontractor. This will normally provide the necessary information to make sure you have a valid subcontractor.
— Scott Duncan, C.P.M.
Procurement and Contract Services
Colorado Springs Utilities
I found the article to be very thought-provoking and a very good scenario. As we all know in procurement, the construction contract, along with the services contract, can be the most difficult of the contracts to execute, given the amount of potential risk involved. Although given the facts of this scenario, all seems to be going all right in terms of the work that is being produced. There are still a number of things to think about going forward:
- 1. Contract Management – After speaking with the mayor regarding the increase in the level of participation in WMBEs, and the short amount of time given for research and analysis, I feel that due diligence in this area particularly should have resulted in the exposure of the principal subcontractor and prime contractor being one and the same. There are procedures to be followed as well as committees that should have checked on these types of things prior to awarding the contract. I would think that this would have been researched as a non-responsive bidder, mitigating risk, past performances, certifications and warranties, contract clauses and debriefing the vendors at pre-bid meetings.
- 2. Breach of Contract – The contract was awarded to this company based on the evaluated bid price and not the actual bid price being the lowest. Are there grounds for termination at this point or would the loss at this point, outweigh the action warranted? Was there a clause in the contract to address this risk?
- 3. Conflict of Interest – Since the prime contractor and principal subcontractor are the same entity, is there a conflict of interest here?
In conclusion, what we need to look at is the entire contract management process. There were obviously some steps that were not taken or considered. The integrity of the process for bids should never be compromised due to time limits. The result will always be a not-so-favorable outcome for the administration of the contract. I would like to know how this project ended. Did the monies that were to be allocated to the WMBEs reach their destination? Take the potential problems from this scenario and use them in future procurement dealings.
— Gina L. Mobley, CPPB
Buyer Assistant I/II/III
Fairfax County (Va.) Public Schools/OPS
What should you have done? Instead of taking the information provided by the prime contractor at face value, the Director of Procurement should have conducted research into the companies that were offered by all of the prime contractors as WMBE subcontractors. Most states have registries of Certified WMBE contractors and the listing would provide a beginning point for one’s research. If that had been done, the pretense should have been uncovered and the contract awarded to the proper prime contractor.
What can you do now? In the State of Florida, under the circumstances of this “Procurement Ponderable,” the prime contractor would be found in breach of his contract. If that is the case, all payments that exist under the contract may be suspended immediately. If the prime contractor is able to prove that he tried in good faith to follow the terms of the contract and was unable to do so, suspended payments may be paid. If he is unable to prove a good faith attendance to the terms of the contract, “all amounts paid to the contractor or firm under the state contract intended for expenditure with the certified minority business enterprises shall be forfeited and recoverable by the Department of Legal Affairs.” (F.S. 287.094(2)) Also, the contract can be terminated and the prime contractor required to return goods that have been received and funds that have been paid.
What can you do to prevent what happened in this case from happening again? You can begin by following better practices of verification when certifications are required. As stated above, most states provide Certified WMBE registries and by not finding the name of the purported WMBE subcontractor on the registry, one would insist on being provided with a certification. Additionally, in the State of Florida, “Any county, municipality, community college or district school board may set aside up to 10 percent or more of the total amount of funds allocated for the procurement of personal property and services for the purpose of entering into contracts with minority business enterprises.” (F.S. 287.093) This allowance removes the prime contractor from the process and allows the WMBEs to deal directly with the purchasing entities.
— Lysle W. Robinson, FCCM, FCCN
Department of Management Services
In response to your December /January 2001 issue ‘Procurement Ponderable,” quite succinctly consider the following:
- One cannot ever shortcut research and analysis.
- Use only certified WMBEs. (This requires some level of in-depth sleuthing!)
- Get informal and formal assessments from colleagues regarding their work and especially note/tag any suspicions anyone may have had about their true status as a WMBE.
I hope this isn’t too simple a response, but the simpler and more direct we are in assessing contractors, the better the outcomes are in the long run. In this instance, determining a vendor’s “true identity” is to many more important than the product. This is fraudulent behavior which may carry serious consequences, therefore forcing some to investigate this vendor’s work history and possibly raise more questions.
— Diane Ward
Director of Program Resource Management
New York City Department of Correction
Programs and Discharge Planning Division
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