By The Beachwood Illinois Reform Commission Affairs Desk
Editor’s Note: This is the third part of a multi-part series excerpting the final report from the Illinois Reform Commission. We don’t necessarily endorse all parts of the report, but offer it up as a starting point to generate support for bringing real structural change to Illinois’ sordid political culture.
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PROCUREMENT
I. Introduction
The state’s current procurement system has failed to stop pay-to-play abuse and has resulted in widespread manipulation of the system in awarding state contracts. Clouted and favored companies have benefited from large contracts through corrupt processes, to the detriment of companies without the right connections. Consequently, the reduced competition raises the cost of goods and services; and a system where connected companies do best means tax dollars are leveraged for political advantage.
Accordingly, the Commission recommends that the state:
1. move state procurement administrative officials into an insulated,
central, independent procurement office;
2. eliminate loopholes and exemptions in the Procurement Code;
3. establish an Independent Monitor to oversee and review the
procurement process;
4. mandate greater disclosure for contractors, lobbyists, and others; and,
5. enhance transparency in the procurement process.
II. Information and Sources Considered
Before its March 13, 2009 hearing, the Commission reviewed a large volume of research and material on government procurement, including the practices of other governments, “best practices” advocated by government procurement groups, and various reviews and audits of the researched laws and recommendations regarding government procurement. The Commission interviewed experts in government procurement, current state employees involved in procurement, and individuals who have experienced corruption in the procurement process first-hand.
A. Research Reviewed.
The Commission did an extensive review of the state’s Procurement Code, policies and procedures. The Commission also reviewed the procurement rules and practices of several other states (including Colorado, Maryland, Massachusetts, and Florida), counties and large municipalities (especially Miami-Dade County), and of the federal government. The Commission studied procurement “best practices” recommended by the National Institute of Government Purchasing (NIGP) and by the American Bar Association (ABA), including the ABA’s Model Procurement Code. Among the best practices noted by the Commission:
* The Model Procurement Code recommends one centralized procurement agency headed by one Chief Procurement Officer;
* Colorado and Florida centralize procurement authority in one procurement agency, with very limited delegation to operating agencies;
* Florida’s procurement code covers all of state government except for state universities;
* Florida requires all sole source contracts to be publicly posted before being entered into;
* The Inspectors General for the Commonwealth of Massachusetts and Miami-Dade County utilize independent procurement “monitors” who provide “real-time” monitoring of the procurement process;
* Maryland and the federal government provide for bid and award protests to be handled by outside, independent agencies.
The Commission reviewed studies of state procurement done by the Better Government Association and audits done by the State Auditor General. The consistent findings included (1) the state procurement code is riddled with exceptions; (2) disclosure requirements were insufficient; and (3) the entire process lacked transparency.
The Commission reviewed the findings of the state’s “Blue Ribbon Committee” which studied state procurement in the 1990s, as well as the state’s rewrite of the Procurement Code in 1998, which implemented many of the Committee’s recommendations.
The Commission reviewed the findings of the recent House Impeachment Committee, the transcript of the proceedings before both the House and Senate in the impeachment and trial of former Illinois Governor Rod Blagojevich, the federal indictment of Blagojevich and his associates (including two former Chiefs of Staff), the complaint charging Blagojevich, and the evidence from the trials and plea agreements of other defendants in the investigation, including Tony Rezko.
Significant evidence was presented that Governor Blagojevich was able to manipulate the awarding of state contracts to benefit political friends and punish enemies.
The Commission also reviewed the charges and evidence against former Governor and Secretary of State George Ryan, and former Illinois Department of Corrections Director Donald Snyder, and interviewed former state employees and a former federal prosecutor who were familiar with Ryan’s and Snyder’s schemes. The Commission noted that Ryan was able to manipulate the State’s procurement system to direct public benefits to his friends and supporters, often by pressuring the agency head to direct a state purchase to a particular vendor. The Commission noted the almost complete absence of any effective oversight, monitoring, or deterrence in the State’s procurement process.
B. Witnesses Interviewed and Testimony Presented at Hearing.
The Commission interviewed current state employees from Central Management Services, one of the Executive Inspector General’s Offices, and the Illinois Department of Corrections. The Commission noted the following:
* Required documentation is often missing;
* There are few consequences for state employees who circumvent the procurement process;
* User agency employees have considerable discretion in the procurement process, including writing the specifications and choosing members of the evaluation committee;
* There is little to no disclosure of subcontractors.
The Commission consulted with people who had a clear understanding of the concerns of vendors, having dealt extensively with the procurement process in Illinois and other states. The Commission also interviewed a federal law enforcement agent knowledgeable about corruption in the state procurement system. This witness discussed how undisclosed, unregistered lobbyists are able to use their influence over agency heads to steer contracts to politically favored vendors. This witness advocated for separating and insulating the procurement process from the agency heads.
The Commission also presented eight witnesses, on three panels, at its March 13, 2009 hearing on procurement. Panel One focused on first-hand accounts of corruption in the procurement process. The panel consisted of Karl Becker, the former Deputy Director of Finance and Administration at the Illinois Department of Corrections, Basil Demczak, Supervisory Postal Inspector at the U.S. Postal Service, and Andy Shaw, former investigative reporter for ABC 7 in Chicago.
Becker and Demczak testified about specific instances where the state’s procurement process improperly favored politically-connected companies. Becker and Demczak described situations where state employees narrowed contract specifications to favor certain vendors, gave contracts to vendors who provided expensive meals and gifts to state employees, and allowed politically-connected vendors to “re-do” their bids.
Shaw described former Governor Blagojevich’s extensive fundraising from state vendors, and testified that Blagojevich and his allies bent the procurement rules to ensure that those vendors received state contracts.
All three testified that these abuses cost the taxpayers money in increased prices and inferior products and services.
Panel Two focused on past efforts to reform the state’s procurement process. The panel consisted of State Senator Jeff Schoenberg and former state Senator Steve Rauschenberger. Both had been involved in procurement reform efforts over the years, and both testified that abuses continue despite some significant reforms. Both advocated for (1) additional resources for auditing and monitoring of procurement and contract management, and (2) an independent procurement agency that would be disconnected from the political process. Senator Schoenberg also recommended applying the Procurement Code to quasi-governmental agencies – such as the Illinois Finance Authority – which are presently outside the state’s Procurement Code.
Panel Three focused on best practices in other jurisdictions, particularly in the areas of monitoring and enforcement. The panel consisted of Christopher Mazzella, Inspector General of Miami-Dade County, Professor Christopher Yukins, Co-Director of the Government Procurement Law Program atGeorge Washington University Law School, and Michael Bevis, Chief Procurement Officer for the City of Naperville, IL.
Mazzella testified that his office uses “contract oversight specialists” to provide real-time procurement monitoring. Mazzella believed that monitoring has significantly improved procurement in Miami-Dade County.
Professor Yukins testified that at a recent ABA conference on procurement, a substantial number of large, national companies stated that they do not do business in Illinois because of the State’s culture of corruption. As a result, procurement here is not as competitive and contracts are more costly for taxpayers. Professor Yukins said that corruption in Illinois, and the market’s perception of that corruption, is an “artificial barrier to competition.” Professor Yukins and Michael Bevis supported an independent procurement agency.
III. Commission Findings
The testimony and documents that the Commission considered clearly establish that the procurement system in Illinois has been hampered by political influence, a lack of transparency and insufficient monitoring and oversight systems.
Because of these flaws and the corruption scandals that have plagued the state, Illinois is perceived as a state in which vendors without clout or connections are at a disadvantage. Some vendors who might otherwise seek public contracts in Illinois are reluctant to participate in a system in which the odds are stacked against them. Accordingly, competition is hindered and the taxpayers of Illinois pay a steep price for the political favoritism and related deficiencies that characterize the procurement system in the state.
To address these problems, the Commission finds that the procurement structure and system in Illinois needs to be redesigned in a way that ensures greater independence for professional procurement officers, enhanced monitoring of procurement decisions, more transparency of the procurement process and, overall, a system that is more resistant to political influence.
IV. Commission Recommendations
As with campaign finance regulations, remedying the structural impediments to fair, open and competitive procurement in Illinois requires significant reform.
Ending pay-to-play will not happen overnight, but the Commission unveiled its initial legislative proposals toward this end on March 31, 2009. On April 21, 2009, Commission representatives testified about our findings and proposals before the Joint Committee on Government Reform. We appreciate the spirit of cooperation with which the leadership of the Joint Committee, including Speaker Madigan and Senate President Cullerton, has engaged us and look forward to continuing these efforts.
Accordingly, the Commission makes the following legislative recommendations, which it urges the Governor and General Assembly to adopt to help end the pay-to-play scandals.
A. Move state procurement officials into an insulated, central, independent procurement office.
In light of the extensive history of abuse in the awarding of state contracts, the procurement professionals in state government must be insulated from political pressure to the maximum degree possible.
To achieve this, they must be part of a separate procurement department with the ability (a) to resist pressure from political officials (or employees working on their behalf) and (b) to make decisions about the awarding of contracts by following the rules and applying professional criteria.
Accordingly, the Commission recommends that the state:
1. Place the five existing chief procurement officers (“CPO”) in the executive branch, as well as their staffs, in a new department called the Department of Procurement. If the CPO is currently the head of the agency (as in the Illinois Department of Transportation), the lead procurement official in that agency or the equivalent would become the CPO for that area.
Moreover, the State’s CPOs should not be subject to removal for political reasons.
2. The five CPOs would report to the Executive Procurement Officer (EPO), who would head the Department of Procurement and would have ultimate authority for procurement and contracting decisions. The EPO would be appointed by the governor, subject to the approval of a supermajority of the legislature (e.g., sixty percent or two-thirds). The EPO would be appointed to a 5-year term and would not serve at the pleasure of the governor. Instead, the EPO could only be removed from office for cause
after a public hearing.
3. The EPO would hire and supervise the five CPOs, and would delegate purchasing authority to them. Subject to the EPO’s approval, the current staff of the CPOs would become part of the Department of Procurement, though their offices would physically remain in their current locations.
4. Even though the procurement professionals would be insulated in a central, independent department, the operating agencies would continue to play a primary role in defining the procurement needs of the agency and evaluating proposals from vendors based on the agency’s technical expertise and experience. This is consistent with the typical practice in this area, regardless of whether procurement officials are centralized or decentralized – procurement officials play the role of administering the procurement process while the operating officials play the role of defining the substance of what they need and how to judge competing bids. Critically, however, it must be left to the procurement professionals to determine whether the rules are being followed, and whether the operating agency’s recommendations are based on the merits and not politics, favoritism, or other improper factors.
5. The EPO would ensure consistency in procurement policies and practices among all the CPOs, accounting for the diverse types of contracts and procurement situations that arise throughout state government. In addition, the EPO would ensure that training among all procurement officials was thorough and up-to-date.
B. Cut back Loopholes and Exemptions in Procurement Code.
The Commission recommends that the State close loopholes that exempt large parts of state government from the procurement rules, so that state contracts are not awarded without approval of the procurement professionals. Specifically, the Commission proposes the following:
1. Require all state contracts above a certain amount (e.g., $25,000) to be subject to the approval of CPOs or their designees within the Department of Procurement.
2. Abolish sections of the Procurement Code that (a) allow CPOs to delegate the power to award contracts back to the “user” agencies themselves, or (b) create a separate tier of officials with the power to award contracts called “Associate Procurement Officers.”
3. Make all no-bid contracts (also called “sole source” contracts), which should be very rare, subject to the approval of the EPO personally. Require sole-source contractors to satisfy additional transparency requirements, described below in the Transparency section of this Chapter.
4. Make all emergency contracts subject to the approval of the EPO or the EPO’s designee, and allow contracts awarded on emergency basis to be valid for a maximum ninety-day term unless the EPO approves an extension (of no more than 90 days), with both the request for extension and the approval posted online.
5. Require the approval of the EPO or designated CPO for any material changes, including extensions of the contract beyond its original term; change orders for contract limit increases over a specific amount (e.g., 10% over the original contract amount); changes to the contract’s scope; substitution of subcontractors; changes to Minority-and Female-Owned Business Enterprise goals (including those resulting from change orders); and modifications of the vendor’s Financial Interests and Potential Conflicts of Interest Disclosure Form (hereinafter, Final Interest Disclosure or FID).
6. Amend the Procurement Code so that it applies to all procurements for any good or service above a specified dollar amount (e.g., $25,000) by all branches of state government, including any quasi-governmental agencies. The Legislative and Judicial branches should not be exempt from the Procurement Code. Abolish exemptions for other parts of state government.
7. Require the procurement processes under all constitutional officers to conform to all of the requirements set out above, including the requirement of giving authority to independent procurement officers to approve contracts, hire and fire staff, and serve for a defined term of office.
8. Abolish exemptions for certain types of contracts within one year – such as “purchase of care” contracts – unless the head of the new Independent Contract Monitoring Office (described below) recommends retaining the exemption until after his office can further study the matter.
C. Establish an Independent Contract Monitor to oversee and review the procurement process.
Oversight and monitoring of the procurement process by an outside, independent agency are critical to ensure integrity in the procurement system, especially in a place like Illinois where powerful interests have succeeded in corrupting parts of the procurement process in the past. This oversight would include real-time monitoring of the contract-award process and related activities.
Only through a strong, independent oversight effort will the existing rules be enforced – and therefore have meaning. Two places that do this well, Miami-Dade County and the Commonwealth of Massachusetts, house this oversight function in their Inspector General’s Offices.
(Subsequent to the release of the Commission’s initial recommendations on this topic on March 31, 2009, Auditor General William Holland stated that he did not believe it would be appropriate to house contract monitors in the Auditor General’s Office, as he believes that adding other non-auditing functions into the Auditor General’s Office would be inconsistent with its mission of conducting audits of all parts of state government.
Specifically, the Commission proposes the following:
1. Establish an Independent Contract Monitoring Office (the “Monitor”) to provide outside oversight and review of the procurement process as it occurs. Ideally, the Monitor’s office will be a new independent agency but, alternatively, it could be part of the Inspector General’s Office or incorporated into the Auditor General’s Office.
After the Commission’s initial recommendations on this topic on March 31, the Commission heard testimony from Attorney General Lisa Madigan who recommended that the functions of the Monitor be placed in the Inspector General’s Offices, and Auditor General William Holland stated that the functions of the Monitor should not be placed in his office.
The Commission now recommends either the creation of the Monitor as a separate office or housing it in the Inspector General’s Offices. However, it is critically important that this monitoring function be housed in a part of state government that is as independent as possible. If the Monitor is a separate, independent agency, its head would be selected, and protected from removal, in a way that ensures the agency’s independence. The Monitor would have a five-year term and could only be removed by impeachment for cause, or after a public hearing.
2. Grant jurisdiction to the Monitor over all of state government, including all contracts issued by agencies under all constitutional officers (not just the governor), and the Legislative and Judicial Branches.
3. Allocate sufficient funds to the budget for the Monitor’s office to make the office effective, and protect it from large retaliatory cuts for acting independently and forcefully. To guard against any retaliatory budget cuts, the budget of the Monitor’s office would be tied to the amount of annual contract spending, as set out below.
4. The state should fund any additional cost of creating the Monitor’s office by withdrawing from each state agency a small “integrity surcharge” (0.1%) each time the agency makes a contract payment to a vendor. For example, if an agency is making a $10,000 payment to a vendor, the agency would pay a surcharge of $10 for contractual services. Thus, the agency could still spend 99.9% of the funds budgeted to it for contractors, but the last 0.1% would go to the Monitor.
5. Grant the Monitor real-time access to all procurement files and databases so that it can monitor all phases of procurement. Require agencies to forward timely notices of all procurements to the Monitor. Amend the Ethics Act to include a duty for employees and vendors to cooperate with the Monitor and to provide all requested records.
6. Grant the Monitor or its staff the ability to attend any meeting regarding procurement. Permit the Monitor to initiate reviews of procurements, or groups of procurements or procurement data, for “red flags” of misconduct, waste or inefficiency. The Monitor should also receive advance notification of significant contract modifications, such as change orders over 10% of the contract award amount, and should attend hearings regarding no-bid contracts. The Monitor should also maintain staff and publicize a tip-line and tip-email to receive complaints.
7. If the Monitor observes a problem in the procurement process, the Monitor will have the option of attempting to persuade the relevant state officials to correct the problem by changing their process or decision, or to issue a public report if it cannot correct the problem otherwise.
8. The Monitor will be required to file regular public reports on its activities, and regularly appear before the legislature to discuss those reports or as otherwise requested. By resolution, either chamber of the legislature will have the authority to request that the Monitor review a specific procurement or procurements (as it does with the Auditor General).
9. The Monitor will be charged with ensuring and maintaining complete transparency of the procurement process, including an all-inclusive procurement website described below.
10. The Monitor will also hear appeals of protests on bid specifications and contract awards. Initial protests to contract awards will be lodged with the Department of Procurement (or its equivalent in the other constitutional offices), which will have a short time period to rule on a protest. The aggrieved party may appeal that decision to the Monitor, similar to the federal system in which appeals of denials of bid protests are heard by the General Accountability Office. If a bid protest appeal is granted, the Monitor’s Office will have the power to block a procurement, but will not have the power to award the contract to another vendor. The action will simply require the Department of Procurement to re-bid the contract or take a different action.
D. Mandate Greater Disclosures for Contractors, Lobbyists and
Others.
Transparency in the contracting process – including more robust disclosure requirements – makes it much more difficult for corrupt interests to manipulate the contract process.
While the main problem in this area has been that existing transparency rules are not consistently followed, important improvements are required in the transparency and disclosure rules.
1. The Financial Interests Disclosure submitted by vendors should include all individuals (other than company employees) who are or will be having any communications with state officials in relation to the pertinent contract or bid. This includes lobbyists, but also includes non-lobbyists who are acting in any way as the agent for the company.
2. Vendors must disclose the names of all subcontractors, including information about payments to subcontractors.
3. The FID requirements should also require disclosure of all
officers and directors, any debarments, adverse judgments or findings, bankruptcies, and criminal convictions for crimes related to the veracity of the entity, its five percent or more owners, and its officers/directors. If any owners are corporate entities, then those corporate entities should also have a duty to file a FID, and so on, until individual owners of more than five percent are disclosed.
4. All disclosure obligations must be ongoing, so that as a company adds lobbyists or agents, or changes subcontractors, it will have an obligation to update its disclosures.
5. The FID must require signature under penalty of perjury, must be incorporated as a material term in the contract with the state, and must be filed with the state in a searchable and sortable format, preferably in online form. Penalties for knowing violation of disclosure requirements should include the immediate cancellation of the vendor’s contract with the state, and possible debarment from future state contracts.
6. The Procurement Code should require that all procurement staff keep a log of all contact with vendors and their agents, including lobbyists, and any other interested parties. On a regular basis, this log should be posted in the online searchable database with all other procurement information.
This disclosure should be part of an expanded Recommendation of Award process, where all employees involved in a procurement are required to sign off that they are not aware of any violations of state law, and are required to disclose any contacts with any agents for the bidders.
7. State employees should have to disclose, as part of their annual Statement of Economic Interest, any equity/debt interest of more than five percent in any company that does business with the State. Those disclosures should be collected and made available in a searchable, sortable format on the central procurement website.
E. Enhance Transparency in the Procurement Process.
1. All information regarding state procurement – by the executive, legislative and judicial branches, and every constitutional officer and quasi-governmental agency – should be collected in one website in a format that is easy to use, searchable, and sortable. As set out above, the Independent Contract Monitor should be in charge of maintaining the website, in order to avoid the current problem of contract information being scattered throughout different websites (when it is actually posted). By having an agency outside the procurement process responsible for ensuring that all relevant procurement documents are posted, an important check is in place against officials who may want to avoid transparency in certain situations.
2. The information collected on this state procurement website should include: current procurement opportunities; all applicable procurement rules and regulations; interactive training modules; a continuously updated FAQs file; current and pending awards, including change orders and bid protests; links to the Monitor, the Inspector General’s Office, Auditor General and Attorney General’s Public Corruption Unit; payments to prime vendors and prime vendor payments to associated subcontractors, including the invoices/vouchers submitted; a description, with relevant links, of the bid protest process; Vendor Disclosures of Financial Interests; Employee Statements of Economic Interest; agenda and meeting schedule for the Non-Competitive Procurement Review Committee; vendor political contributions; and information required as part of the vendor registration with the Board of Elections.
3. The Procurement Code should mandate that when a Request for Proposals (RFP) or Request for Information (RFI) process is used, all documents related to the recommendation by the evaluation committee must be made public after the award is made, including the identity of the members of the committee and their scoring sheets.
4. The Procurement Code should be amended to require a public hearing by the Department of Procurement (or its equivalent in the other constitutional offices) before the approval of any “no-bid” or sole source contract, where the subject agency must provide its justification for using the “no bid” process. The Department must publish its agenda, meeting time and meeting place in advance of the meeting, so that it may hear from vendors or other members of the public. All documents the Department reviewed, as well as its decision and reasoning must be publicly available. Only the EPO should be able to close the hearing upon a determination that the hearing would disclose trade secrets, national security information, or other highly confidential and sensitive information.
5. The Procurement Code should be amended to require that all approvals for emergency contracts include a written justification regarding the emergency and must be posted online within forty-eight hours, or as soon as is feasible if the emergency makes posting within forty-eight hours impossible. Such contracts should only be awarded for a ninety-day term unless an extension (of no more than ninety days) is approved by the EPO, with both the request for extension and the approval and justification posted online within the same time period.
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See also:
* Ready for Reform: Chapter One/Executive Summary.
* Ready for Reform: Chapter Two/Campaign Finance.
Posted on May 5, 2009