Report 94015 Summary - September 1995
Many Do Not Comply With Consultant Contract Requirements
Results in Brief
Departments do not always adhere to the requirements of the California Public Contract Code and other state regulations that apply to consultant contracts. In fact, we found significant areas of noncompliance.
Our review of 19 state departments found that:
55 percent of the 1,688 consultant contracts awarded were sole source;
Not all consultant contracts provide adequate documentation to justify the cost of solesourcing;
Several departments' annual reports for consulting contracts failed to disclose required information, such as the type of bidding used or the justification for solesourcing;
Certain departments did not always adhere to legal requirements for consultant contracts, such as approval prior to commencement of work, reviewing credentials of potential contractors, and providing contractor evaluations after completion of work; and
Faithful performance bonds were not always obtained from contractors as required for certain electronic data processing (EDP) or telecommunication goods and service contracts.
Further, the Department of General Services (DGS) did not ensure that departments complete internal audits of their contracting programs and submit reports to DGS as required.
Finally, we found that California State University (CSU):
- Is deficient in complying with its own requirements to provide adequate documentation to justify contracts exempt from competitive bidding;
- Does not always obtain approval before the contractor starts work; and
- Does not provide adequate guidance in its State University Administrative Manual to ensure that campuses award and manage contracts in the best interest of the State.
Specifically, we reviewed 19 state departments' annual reports of their consultant contracts and found that some failed to indicate the type of bidding used for certain contracts. The annual reports did not always meet the requirement to identify solesource contracts. In addition, 8 departments either did not submit a fiscal year 199394 annual report, as required, or submitted it late to DGS.
A total of 12 solesource contracts in our sample from 6 departments did not have adequate documentation to justify the contract costs. We also found that 23 contracts from 12 departments did not have the necessary approval before work began.
Eight departments failed to review prior evaluations of contractors before approving 22 contracts in our sample. Six departments did not prepare prompt postevaluations for 6 of the contracts reviewed. Two departments failed to obtain performance bonds from contractors when making progress payments on certain types of contracts for EDP or telecommunication goods and services.
Finally, DGS did not ensure that two departments met all of the conditions to retain the contracting authority that was delegated to them.
DGS is responsible for providing administrative oversight of state departments entering into consultant contracts to ensure they comply with applicable state laws and regulations. However, DGS is not responsible for providing this type of administrative oversight to CSU.
We reviewed four contracts at CSU that were not competitively bid. None of the contracts contained sufficient evidence to indicate that they were exempt from the competitive bidding requirements. Further, one of the four did not have the necessary approval before contract work began.
State departments should:
- Obtain required approvals before a contractor begins work to ensure they do not expose the State to potential financial liability for work performed if the contract is not approved;
- Document that a review of the contractor's prior evaluation was performed to ensure that new contracts are not awarded to contractors whose prior work for the State was substandard;
- Complete evaluations of contractor performance promptly so that information about contractor performance and contract usefulness can be reviewed before other contracts are awarded; and
- Secure a performance bond when making progress payments on contracts for EDP or telecommunication goods and services that are not suitable for sale to others to ensure the State is protected from potential loss;
The Department of General Services should:
- Re-emphasize the requirements of Section 10359 of the California Public Contract Code to ensure that state departments provide all of the information required in their annual report of consultant contracts;
- Require departments to provide sufficient documentation to justify the costs of all solesource contracts before they are approved; and
- Ensure that departments submit internal audit reports of contracting programs by the due dates specified by DGS.
California State University should:
- Comply with the requirements in the State University Administrative Manual regarding adequate justification on contracts exempt from competitive bidding requirements to ensure that state funds are protected from misuse and to stimulate competition in a manner conducive to sound fiscal practices;
- Submit contracts to the appropriate CSU officials in time for contracts to be reviewed and approved before work is begun; and
- Re-evaluate and improve its guidelines for contracting included in its State University Administrative Manual.
In its response to this report, the DGS states that it has a firm commitment to provide efficient and effective oversight of the State's consultant contracting program. As a part of its continuing efforts to improve policies over this program, the DGS will take appropriate actions to address the issues presented in the report.
Twelve of the 19 departments whose contracts we reviewed also responded to this report. The Chancellor of the California State University also provided a response to the report. These departments and the California State University generally concur with the findings and recommendations of the report and have agreed to take corrective action.