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Report Number: 2016-124

Abbreviations

Department of General Services and California Department of Technology
Neither Entity Has Provided the Oversight Necessary to Ensure That State Agencies Consistently Use the Competitive Bidding Process

Introduction

Background

Each year, state agencies award billions of dollars in contracts for goods and services. Because these contracts involve the expenditure of state funds, it is critical that agencies award them fairly and that the contracts represent the best value for the State. To eliminate favoritism, fraud, and corruption and to ensure fair competition in the State’s contracting, the Legislature enacted the Public Contract Code, which requires that agencies use a competitive bidding process when possible. The competitive process brings a number of advantages for public procurements, including lower costs and higher‑quality products. At the same time, state law acknowledges that under limited circumstances, certain procurements may not warrant competition. In these instances, state agencies may use the noncompetitive bidding process, as we discuss in more detail later.

Examples of the Types of Procurements That General Services and Technology Oversee

General Services:

  1. Non-IT goods: Contracts involving all types of non-IT tangible personal property, including materials, supplies, and equipment.
  2. Non-IT services: Contracts in which the contractor performs a duty or labor that does not relate to IT. Examples include medical services, call center operations, mental health services, and exam administration.
  3. IT goods and services: Contracts for the acquisition of IT goods and services that are not part of a reportable IT project. Examples include laptops, monitors, statewide database maintenance, and credit card transaction processing.

Technology:

  1. Reportable IT projects: Contracts for the acquisition of IT projects that exceed specified cost thresholds, among other factors. Examples include maintenance for self‑service terminals, payroll software, department websites, unemployment and disability claims processing systems, and 9-1-1 emergency texting services.
  2. Telecommunications: Contracts for the acquisition of telecommunications involve voice and data communications but may include communication by other means as well. Examples include purchasing radio frequencies, telephone services, and voicemail.

Sources: General Services Acquisitions Glossary, State Administrative Manual, state law, and procurement files.

The Legislature has generally tasked two state departments—the Department of General Services (General Services) and the California Department of Technology (Technology)—with statewide contracting oversight.1 General Services has historically been the entity responsible for overseeing the vast majority of the State’s procurements. For example, as the text box shows, it oversees contracts for goods and services that do not involve information technology (IT). Further, it oversees contracts for IT goods and services that are not part of what State law identifies as reportable projects. Effective July 1, 2013, state law made Technology responsible for the oversight of procurement for reportable IT projects, or those projects whose costs exceed specified thresholds or meet other specified criteria. Technology’s website indicates that the thresholds for reportable projects vary by purchasing agency and generally range from $200,000 to $2 million. In addition, Technology is responsible for overseeing telecommunications procurements, which mostly involve voice and data communications but may include communication by other means as well. The focus of this audit is on General Services’ and Technology’s oversight and approval of noncompetitive procurements over $1 million.

Competitive and Noncompetitive Procurements

In an open competitive process, an agency permits all vendors to compete for a contract, and it evaluates bidders on the same fixed criteria. When conducting a competitive procurement, an agency must use a competitive solicitation process to notify prospective bidders that the State wishes to receive bids for furnishing goods and services. The type of competitive solicitation process the agency must use depends on whether the acquisition is a good or service and its estimated value. If the type and value of the procurement require formal competition, the agency must follow standardized procedures and use specific types of solicitations, such as an invitation for bids or a request for proposal. In contrast, the State Contracting Manual allows informal competition when the cost of a contract falls below a certain dollar threshold. In these circumstances, the agency can use different procedures and solicitation methods, such as a request for quotations. The agency then evaluates suppliers’ responses using various factors, including reviewing cost proposals. It chooses a vendor based on the lowest bid or quality of the proposal or it can decide not to award a contract.

State law requires competitive bidding for contracts unless a legally authorized basis exists for exempting them from the competitive process. A number of laws identify situations in which contracts are exempt from competition. Further, state law allows General Services to establish policies to exempt certain types of contracts. General Services lists these exemptions in its State Contracting Manual. Table 1 identifies some of the laws and policies that exempt certain procurements from competition. One type of policy exemption, and the focus of this report, involves the noncompetitively bid contract justification (noncompetitive request). An agency must submit a noncompetitive request to the appropriate oversight entity—either General Services or Technology—when that agency wishes to justify entering into a noncompetitive contract for non-IT goods or IT goods and services because it believes only one vendor can serve its needs. For non-IT services acquisitions, state agencies fill out noncompetitive requests to explain why they are affording only a single business enterprise the opportunity to provide the specified services. General Services uses this information to determine whether the noncompetitive requests are in the State’s best interests. Once the appropriate oversight entity approves the noncompetitive request, the agency can proceed with its noncompetitive procurement.

Agencies sometimes use noncompetitive requests both to enter into original contracts and to amend existing contracts. Generally, an agency can amend a contract without approval from its oversight entity if the option to amend the contract was included in both the contract and the contract’s original competitive solicitation. However, if the original competitive solicitation and the contract did not establish the possibility of amendments, the State Contracting Manual requires the agency to submit a noncompetitive request before entering into the amendment. Additionally, other policy and statutory exemptions may allow an agency to noncompetitively enter into an amendment with a vendor without first submitting a noncompetitive request.

Table 1
State Law or Policy May Exempt Certain Procurements From the State’s Competitive Bidding Requirement

EXEMPT BY STATUTE OR POLICY LIMITED COMPETITION CONTRACT TYPE DESCRIPTION
Statute Emergency contracts* Contracts for goods or services that are necessary for the immediate preservation of public health, welfare, or safety, or for the protection of state property.
Statute Interagency agreements Contracts between state agencies, including the California State University and University of California campuses.
Statute Contracts with other public entities Includes contracts with federal agencies, California local government agencies, state agencies, state colleges, state universities, or local government entities from states other than California.
Statute Expert witness for litigation Contracts solely for the purpose of obtaining the services of expert witnesses for litigation.
Statute Legal defense, legal advice, or legal services Contracts for legal services.
Statute Various program contracts Contracts for various programs exempt by law. Examples include contracts with business entities operating community rehabilitation programs that are justified under Government Code 19130(b) and that meet the criteria of the Welfare and Institutions Code 19404, as well as contracts for the Golden Bear State Pharmacy Assistance Program.
Statute Testing examinations Contracts for development, maintenance, administration, or use of licensing or proficiency testing examinations.
Policy Noncompetitive request or special category request Contracts for which the acquisition of a good or service is restricted to one vendor. Special category requests are similar to noncompetitive requests but involve a group of related contracts rather than a single contract.
Policy Various categorical exemptions Service contracts using General Services’ leveraged procurement agreements, public entertainment contracts for state-sponsored fairs and expositions, proprietary subscriptions, as well as other contract types.
Policy Subvention and local assistance contracts Contracts providing assistance to local government and aid to the public directly or through an intermediary, such as a nonprofit corporation organized for that purpose.

Sources: State law and the State Contracting Manual.

Note: This is not an exhaustive list of all statutory exemptions.

* The emergency contracts statutory exemption defines an emergency as “a sudden, unexpected occurrence that poses a clear and imminent danger, requiring immediate action to prevent or mitigate the loss or impairment of life, health, property, or essential public services.”

Oversight of Noncompetitive Procurements

As Figure 1 shows, multiple units within General Services’ Procurement Division, as well as its Office of Legal Services (Legal Services), play a role in overseeing noncompetitive procurements. As the State Contracting Manual outlines, if an agency wishes to acquire a good or service within General Services’ purview either competitively or noncompetitively, the agency must first determine whether the purchase falls within its delegated purchasing authority. If it does, the agency can conduct the procurement itself. However, if the cost of the acquisition exceeds the agency’s purchasing authority and the procurement is within General Services’ purview, the agency must either obtain General Services’ approval or General Services will execute the acquisition on the agency’s behalf. If the procurement is exempt from competitive bidding by statute or policy but does not involve a noncompetitive request, it moves directly to the appropriate General Services unit for final review, as Figure 2 shows.

Figure 1
Multiple Units Within General Services Approve Contracts That Are Exempt From Competition


An organization chart describing the roles of units within General Services that approve contracts that are exempt from competition.

Sources: State Contracting Manual and General Services’ policies.

* Although the Procurement Division includes other branches, we only identified those branches involved in processing contracts exempt from competition.

Although the units have other roles, we only include detail as it pertains to contracts exempt from competition.

Figure 2
General Services Generally Reviews Acquisitions for Goods and Services That Are Exempt From Competition and Valued Over $1 Million

A flowchart outlining General Services’ review process of acquisitions for goods and services that are exempt from competition and valued over $1 million.

Sources: State Contracting Manual and General Services’ policies.

This process changes slightly when an agency wishes to use a noncompetitive request for a procurement. Specifically, General Services’ Procurement Division’s Dispute Resolution unit is responsible for reviewing and approving all noncompetitive requests from agencies. Once the Dispute Resolution unit has approved the noncompetitive request, the agency must submit the contract to either Legal Services or one of the other units in General Services’ Procurement Division for review if the acquisition is for an amount above its purchasing threshold. Legal Services must approve all such procurements of non-IT services, while the Purchasing Authority unit is responsible for one-time authorizations for agencies to execute their own contracts for non‑IT goods or IT goods and services. Finally, if called for, General Services’ One-Time Acquisitions Unit executes one-time acquisitions on behalf of the agencies.

Similar to General Services, Technology follows the policies set forth in the State Contracting Manual for reviewing and approving the contracts under its oversight. Technology’s Statewide Technology Procurement Division (Technology’s Procurement Division) oversees all procurement activities classified as reportable IT projects or telecommunications services exceeding the agency’s delegated purchasing authority. Technology’s IT Project Oversight Division assists agencies in planning and implementing successful IT projects. However, Technology’s Procurement Division is responsible for overseeing procurements related to those projects. Specifically, it approves noncompetitive requests and also reviews and approves final contracts.

Scope and Methodology

The Joint Legislative Audit Committee (audit committee) directed the California State Auditor to conduct an audit of General Services’ and Technology’s processes for awarding noncompetitive contracts. Table 2 lists the audit committee’s objectives and the methods we used to address them.

Table 2
Audit Objectives and the Methods Used to Address Them

Audit Objective Method
1 Review and evaluate the laws, rules, and regulations significant to the audit objectives.
  • We reviewed relevant laws, rules, and other background materials related to the State’s noncompetitive contracting.
  • We interviewed key staff at General Services and Technology who oversee and approve noncompetitive contracts.
2 For the past five years, determine the total number of contracts awarded for $1 million or more that were approved by General Services or Technology.

General Services

  • We interviewed staff and reviewed relevant documentation regarding SCPRS. We obtained an extract of SCPRS for the period from fiscal years 2011–12 through 2015–16.
  • We interviewed staff at each of the different units involved in approving contracts or noncompetitive requests. Because of the insufficiencies that we identified with SCPRS, we attempted to use these units’ internal databases to answer this objective instead.
  • We determined that of the four internal databases that we obtained, two databases could not clearly distinguish between competitive and noncompetitive contracts and contained inconsistent dollar amounts. Therefore, we used the remaining two internal databases to determine the total number and value of the contracts over $1 million that General Services approved from fiscal years 2011–12 through 2015–16.
  • We did not review the Financial Information System for California (Fi$cal) system for completeness and accuracy because of its relatively new adoption by General Services. Therefore, we instead looked at General Services’ method of ensuring that departments are entering accurate data into FI$Cal. Because the consistency of the FI$Cal data should improve as more departments transact in FI$Cal, we examined the number of agencies currently using the system and those expected to do so in the near future.

Technology

We interviewed staff involved in approving contracts or noncompetitive requests, and reviewed Technology’s internal workload database. Because of the insufficiencies of its internal database, we asked Technology to prepare a list of all contracts over $1 million that Technology approved from fiscal years 2011–12 through 2015–16.

a. For those contracts, determine the number and value of contracts awarded without competitive bidding at General Services and Technology.

General Services

  • Using the same two internal databases we analyzed above in objective 2, we determined which of the contracts had been awarded competitively and noncompetitively. We also determined the total number and value of noncompetitive contracts over $1 million that General Services approved.
  • We considered all procurements except competitive procurements and master agreements to be noncompetitive.
  • General Services establishes master agreements in order to leverage the State’s buying power. Because General Services generally competitively procures these agreements, we did not evaluate them.

Technology

We determined which of the contracts from the list obtained in objective 2 had been awarded competitively and noncompetitively. We also determined the total number and value of noncompetitive contracts over $1 million that Technology approved.

b. For those contracts, identify the various specific state laws, regulations, and policies the agencies relied on to award contracts without competitive bidding.
  • We reviewed the relevant laws and the State Contracting Manual’s policies that exempt state contracts from competitive bidding. Because of limitations with the data, we could not determine the specific exemptions that applied to the incomplete contracts we identified that were over $1 million and approved by General Services or Technology.
  • Because General Services’ data could not identify instances when agencies purchased goods and services noncompetitively because of emergencies that posed an imminent danger to life, health, property, or essential public services, and General Services’ staff do not separately track these instances, we were unable to evaluate whether General Services appropriately approved the State’s emergency for purchases over $1 million from fiscal years 2011–12 through 2015–16. Starting with the implementation of FI$Cal in January of 2016, General Services should be able track such emergencies using an indicator in the system.
3 For a selection of contracts awarded without competitive bidding, determine the following for each contract awarded:

General Services

We selected 30 noncompetitive procurements for our review by using the internal databases that could distinguish between competitive and noncompetitive contracts. We considered the frequency of the type of noncompetitive acquisition method, dollar amount, requesting agencies, and any records listed as “expedited” when judgmentally selecting procurements for our review.

Technology

We selected 15 noncompetitive procurements for our review using the list of such procurements that we obtained. We selected fewer procurements to review for Technology because the contracts it approved appeared to represent a smaller portion of the value of contracts that General Services approved according to their respective internal databases. We considered the type of noncompetitive acquisition method, dollar amount, requesting agencies, and vendors when judgmentally selecting procurements for review.

a. Whether the justification for noncompetitive bidding was clear and complied with law, regulation, and policy.

General Services

  • Fifteen of the 30 procurements we selected were exempt from competition by a specific statute or policy. For these 15 procurements, we determined whether the statute or policy that the agency cited was appropriate.
  • The remaining 15 procurements involved noncompetitive requests. Because more robust analysis is necessary to determine if noncompetitive requests are appropriate, we decided that half of our selection for General Services should be this type of noncompetitive procurement. For these procurements, we primarily assessed two factors to determine whether a noncompetitive request could have been competitively bid: whether the agency provided sufficient justification supporting that the acquisition was restricted to the good, service, or supplier, and whether the agency sufficiently planned for procurement. Furthermore, we determined whether the agency demonstrated that the vendor’s price was fair and reasonable or that the State would realize savings by engaging in the noncompetitive procurement. In addition, we reviewed the timing of the submission of the noncompetitive request compared to the critical deadline the agency was facing and the number of previous noncompetitive requests related to the same contract. Lastly, we determined whether General Services applied any enforcement mechanisms against agencies submitting the noncompetitive requests.

Technology

  • Because agencies cited far fewer specific statutes or policies that exempted their contracts from competition when seeking Technology’s approval rather than General Services’, we selected only three of these types of contracts for Technology. For these three contracts, we determined whether the specific statute or policy that the agency cited was appropriate.
  • The remaining 12 procurements involved noncompetitive requests. For these procurements, we primarily assessed two factors to determine whether a noncompetitive request could have been competitively bid: whether the agency provided sufficient justification supporting that the acquisition was restricted to the good, service, or supplier, and whether the agency sufficiently planned for procurement. Furthermore, we determined whether the agency demonstrated that the vendor’s price was fair and reasonable or that the State would realize savings by engaging in the noncompetitive procurement. In addition, we reviewed the timing of the submission of the noncompetitive request compared to the critical deadline the agency was facing and the number of previous noncompetitive requests related to the same contract. Lastly, we determined whether Technology applied any enforcement mechanisms against agencies submitting the noncompetitive requests.
b. Whether the state law, regulation, or policy used for the justification was consistently applied among the test items reviewed.

General Services

  • We determined whether General Services consistently evaluated the justifications agencies cited for each noncompetitive request by evaluating the answers to the noncompetitive request justification form and correspondence between General Services and the agency submitting the noncompetitive request.
  • We examined whether General Services approved contracts for procurements exempt from competition by statute or policy in a uniform manner. We did not note inconsistencies.

Technology

  • We determined whether Technology consistently evaluated the justifications agencies cited for each noncompetitive request by evaluating the answers to the noncompetitive request justification form and correspondence between Technology and the agency submitting the noncompetitive request.
  • We examined whether Technology approved procurements exempt from competition by statute or policy in a uniform manner. We did not note any inconsistencies.
4 Review and assess any other issues that are significant to the audit.We did not identify any other significant issues.

Sources: California State Auditor’s analysis of state law, State Contracting Manual, and information and documentation identified in the column titled Method.

Assessment of Data Reliability

In performing this audit, we obtained electronic data files extracted from the information systems listed in Table 3. The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of computer‑processed information that we use to support findings, conclusions, or recommendations. Table 3 describes the analyses we conducted using data from these information systems, our methods for testing, and the results of our assessments. Although these determinations may affect the precision of the numbers we present, there is sufficient evidence in total to support our audit findings, conclusions, and recommendations.

Table 3
Methods Used to Assess Data Reliability

INFORMATION SYSTEM PURPOSE METHOD AND RESULT CONCLUSION

Legal Services

Contracts Database as of August 2016

For contracts and amendments of at least $1 million approved by Legal Services from fiscal years 2011–12 through 2015–16, calculate the number and dollar amount by procurement method, and generate a selection of contracts. We performed data-set verification procedures and found no errors. Further, we performed electronic testing of key data elements and found that the dollar amount of contracts and amendments could be positive, negative, or zero. The Contracts Database has no set rules as to how the contract or amendment amount is entered. Thus, we used the absolute value of the contract and amendment amounts to determine the dollar value of contracts and amendments. We performed accuracy testing on a random sample of 29 contracts and amendments by tracing key data elements to supporting documentation. We found four errors in the data field that identifies contract selection method. We verified completeness by tracing a haphazard selection of 31 contracts and amendments to the database and found no errors. Not sufficiently reliable for these audit purposes. Although this determination may affect the precision of the numbers we present, sufficient evidence exists in total to support our audit findings, conclusions, and recommendations.

General Services

Limited Competition Database as of September 2016

For noncompetitive requests of at least $1 million approved by General Services from fiscal years 2011–12 through 2015–16, calculate the number and dollar amount by procurement method; generate a selection of noncompetitive requests; and generate a list of the noncompetitive requests General Services denied from fiscal years 2011–12 through 2015–16. We performed data-set verification procedures and electronic testing of key data elements and found no errors. We performed accuracy testing on a random sample of 29 noncompetitive requests by tracing key data elements to supporting documentation. We found two errors in the dollar amount. We verified completeness by tracing a haphazard selection of 29 hardcopy noncompetitive requests to the data and found no errors. Not sufficiently reliable for these audit purposes. Although this determination may affect the precision of the numbers we present, sufficient evidence exists in total to support our audit findings, conclusions, and recommendations.

General Services

SCPRS as of August 2016

To calculate the number and value of noncompetitive contracts and amendments General Services or Technology approved from fiscal years 2011–12 through December 2015. We performed data-set verification procedures and found no errors. We reviewed existing information to determine what was already known about the data and found that SCPRS data are self-reported by individual departments throughout the State. Further, when we interviewed General Services staff who were knowledgeable about the data, we found that state agencies inconsistently enter contract amounts and contract numbers and that SCPRS does not contain a field that indicates when the contract or amendment was approved or by which oversight entity. Further, as we discuss in Chapter 1, to gain some assurance of the accuracy and completeness of SCPRS, we tested a selection of non-IT goods and services and IT services contracts and their associated amendments of at least $1 million that General Services approved from July 2011 through December 2015. We found that 9 of the contracts and associated amendments were misrepresented as competitively bid, when in fact, they were not. In addition, we found 12 contracts and amendments were missing. Not sufficiently reliable for this audit purpose. Due to the intended use of the data and the significant limitations identified, we chose not to use these data to support findings or conclusions.

Technology

List of Contracts and Noncompetitive Requests

For contracts and amendments of at least $1 million approved by Technology from fiscal years 2011–12 through 2015–16, calculate the number and dollar amount by procurement method. Because Technology’s internal database did not indicate which contracts Technology had approved, we requested that Technology provide a complete list of contracts it approved. We attempted to verify completeness by tracing a haphazard selection of 29 competitive and noncompetitive procurements to the data. We found two procurements were missing within the first 19 selected procurements. We did not perform further completeness or accuracy testing because we found the data were not complete. Not sufficiently reliable for these audit purposes. Although this determination may affect the precision of the numbers we present, sufficient evidence exists in total to support our audit findings, conclusions, and recommendations.

General Services

One-Time Acquisitions Log

For contracts and amendments of at least $1 million approved by General Services from fiscal years 2011–12 through 2015–16, calculate the number and dollar amount by procurement method. We reviewed key fields for logical inconsistencies and found that the log did not clearly distinguish between competitive and noncompetitive contracts. We also found that the dollar amounts were inconsistent. Not sufficiently reliable for these audit purposes and therefore, we did not present the information.

General Services

Purchasing Authority Log

For contracts and amendments of at least $1 million approved by General Services from fiscal years 2011–12 through 2015–16, calculate the number and dollar amount by procurement method. We reviewed key fields for logical inconsistencies and found that the log did not clearly distinguish between competitive and noncompetitive contracts. We also found that the dollar amounts were inconsistent. Not sufficiently reliable for these audit purposes and therefore, we did not present the information.

Sources: California State Auditor’s analysis of various documents, interviews, and data from the entities listed in the Table.




Footnote

1 These entities oversee purchases that are above agencies’ delegated purchasing authority. Agencies can make their own purchases if the costs are below their assigned delegated purchasing authority. Go back to text



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