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Testimony of George A. Schutter on the Procurement Practices Reform Amendment Act of 2015 and the Procurement Integrity, Transparency, Accountability Amendment Act of 2015

Tuesday, November 10, 2015

Good afternoon, Chairman Mendelson and members of the Committee of the Whole. I am George Schutter, Chief Procurement Officer of the District of Columbia and Director of the Office of Contracting and Procurement. Today, I will offer testimony on the Procurement Practices Reform Amendment Act of 2015 bill number 21-0397 and the Procurement Integrity, Transparency, and Accountability Amendment Act of 2015, bill number 21-0334. I will outline the reforms proposed in the Mayor’s bill, which I will refer to as PPRA Amendments, as well as highlight some concerns in the Council bill, which I will refer to as PITAA.

In reviewing these proposed amendments to the Procurement Practices Reform Act of 2010, I recognized a shared goal between Council and the Executive branch to enact change that will result in good governance and an efficient, transparent procurement process. Our challenge is to ensure good governance and balance oversight and the ability to execute contracts. It is also my priority to ensure that we have a transparent contracting process and maintain the integrity of procurement sensitive information submitted by industry partners. 

PPRA amendments

As I shared with you in July at my confirmation hearing, the Mayor and I have a vision to improve the efficiency, quality and integrity of the procurement service delivery in the District. I take my position as the Chief Procurement Officer (CPO) and being a public procurement official seriously.  I recognize the importance of obtaining the best value for goods, services, and construction, ensuring transparency and competition, and complying with the laws and regulations governing procurement.  The proposed PPRA amendments are opportunities to improve the procurement process and remove or lessen some of the administrative bottlenecks that impede our work daily.

 

Option Years

One of the key elements of the PPRA amendments is to change the process for review of option periods contained in contracts previously reviewed by the Council. The PRRA amendments propose to change the duplicative approval process required to exercise option periods that were included in the proposed contract award submitted by the Executive and approved by Council.

Presently, we are required to submit each exercise of a contract option period over $1 million, even though the options were included as part of the approval of the initial contract package submitted to Council.  The PPRA amendments propose that Council reviews and approves option periods as part of the initial contract package. Option years would be resubmitted for Council review and approval if there are any changes to the option after it was originally submitted to Council. It is critical to remember that option year exercises are not separate contracts, so the initial contract package clearly outlines the plan for fulfilling the requirement during the period of performance.

Our intent is not to remove oversight of the Council in contracting. Our intent is to reduce the duplicative administrative processes that preclude contracting officers from working in the most efficient manner possible. We anticipate that this process change will conserve government resources, reduce the risk of a lapse in essential government services, and align the District with best practices in governmental purchasing. According to a 2015 survey by the National Association of State Procurement Officials, the District of Columbia is the only jurisdiction that requires approval of contracts by the legislative branch. In other jurisdictions, contract approval is handled solely by the Executive. Again, the proposed bill does not seek to remove Council’s oversight of contracts, but only to remove the second approval of option periods by the legislative branch.

Tipping Actions

Currently, contract modifications that did not previously require Council approval and increase the contract to an amount in excess of one million dollars during a 12-month period are required to be added to the consent agenda at a legislative meeting. Practically, this approval can only happen during a legislative meeting, which only occurs once a month, and requires legislation to be drafted, legally certified by the Office of the Attorney General and filed with the Council’s Office of the Secretary five days before the legislative meeting. Our proposed change will allow these contract modifications, generally referred to as tipping actions, to be considered for 10-day passive Council approval. Often times tipping actions are time-sensitive and if not processed quickly, can interrupt critical services to residents of the District. Allowing passive approval of these contract actions at any time, rather than only during a legislative session will help streamline both essential and routine contract modifications without reducing the Council’s oversight in the procurement process.

Integrity

The PPRA amendment also proposes measures that will prevent attempts to influence District decision-makers and protect procurement sensitive and proprietary information obtained in the procurement process from public disclosure.  The District procurement process and global best practices consider procurement “live” from the point of industry solicitation through contract award. Since our laws and regulations require legislative branch approval prior to being officially executed or signed by the contracting officer, contracts are technically “live” until approved by Council and countersigned by the Executive. In those instances when contracts are not approved by Council, it is still a “live” procurement should we reopen negotiations with other offerors.  Industry best practices require us to protect the integrity of procurement-sensitive information acquired through the procurement process, similar to the Good Government Rules upheld by many other jurisdictions. We are also seeking to extend the prohibitions against interfering with live procurements by District employees, or attempts to influence a District employee or official with respect to source selection, to contractors competing in the live procurement or anyone associated therewith. This proposal does not prevent non-public briefings between Council and members of the Executive on live procurements.

Clean Hands
Currently, a potential contractor is deemed not responsible, if it has any delinquent outstanding tax debt to the District or federal government. Responsibility is a technical term meaning that a prospective contractor has been determined by the contracting officer to have the necessary capacity to perform in the accordance with the terms and conditions of the contract.  OCP proposes to change the focus of the Council’s “clean hands” review requirement to a procedure allowing the award if the contractor owes the District no more than the higher of $1,000 or 1% of the contract value up to $25,000. This provision also allows the District to withhold payment under the contract to offset the tax liability and place a penalty on the contractor if the contractor does not comply. This change to the Clean Hands requirement will allow some flexibility in the process.

The second part of this provision of the PPRA amendments includes a proposal that Council packages can rely on information from the Clean Hands Database, rather than requiring written certification from the Department of Employment Services and the Office of Tax and Revenue.  In some cases, receiving the written tax certifications can add up to an additional 10 days to the procurement process.  

Acquisition Planning

This year, the team at OCP led our customer agencies through an extensive acquisition planning process to produce the 2016 acquisition plan.  This critical and ongoing acquisition planning process will improve planning and coordination for contract actions in fiscal year 2016 and moving forward. Our proposal simply changes the timeframe for submitting acquisition plans to 60 days after Council approval of each agency’s budget. The change in timeframe allows us to submit a plan to Council that will clearly identify priority procurements and align them properly with approved budgets and agency priorities for the coming fiscal year.  

Procurement, Integrity, Transparency, and Accountability Amendment Act of 2015

Director Weaver and I, with considerable support from our teams, reviewed the Procurement Integrity, Transparency, and Accountability Amendment Act of 2015 to analyze the key components of the bill. In our review, we understood the general intent; however, we do have concerns with some of the provisions of the Council’s bill.

DGS AUTHORITY

Our analysis of section 2 of the bill, the proposal is to limit the procurement authority of the Department of General Services (DGS) to “construction and related services,” and the “operations and maintenance of facilities, real estate management, utilities, and security.”  Procurement authority to purchase other goods and services would revert to the CPO. 

The partial removal of DGS independent procurement authority will create ambiguity in execution and confuses the lines of authority, which are currently very clearly defined.  While proper planning and coordination between DGS and OCP may alleviate this concern to an extent, interagency confusion over procurement authority may result in the delay of delivering critical goods and services to the District.

COUNCIL REVIEW PROCESS
Section 3 of the bill proposes two areas of change to the District’s Council review process: one concerns the information required to be sent to the Council for review; and the other adds a requirement for referral of contract modifications to the Office of the Inspector General (OIG). 
The PITAA lists 10 specific items to be included in the Council Summary.  OCP agrees with the bill’s intent to provide quality and relevant information to Council for consideration in review and approval of contracts. We agree that source selection method, option values and amounts, values and dates of letter contracts, anticipated date of competitive procurement if the contract was a sole source, and a general description of the selection process are valuable information for the Council’s review and approval of contracts.   However, there are a few requirements in the bill that we believe merit further discussion. The three that cause the most concern are:

  • Subcontracting plan. In certain construction procurements, the design may not yet be completed such that all types of work required for the project are known at the time work commences.  As a result, it is impossible to identify all subcontractors without having first fully established the scope of the project’s design, and, therefore, impossible to submit a subcontracting plan.  This is recognized by the Small and Certified Business Enterprise Development and Assistance Act of 2005, which provides that a design-build project shall not be required to identify specific subcontractors as a condition precedent to performing preconstruction services. 
  • Secondly, the proposed requirement for evaluation of past performance. The proposed requirement regarding evaluation of past performance is unclear and leaves room for interpretation as to what information would satisfy this requirement.  Information on a contractor’s performance relating to private contracts may not be available to the District, and may require additional administrative resources to obtain. 
  • And thirdly, the requirement that any reviews or reports be summarized and included in a Council package will add to the time needed to prepare the Council package. Reports may also contain deliberative information that would be inappropriate to disclose in a Council Contract Summary that is made available to the public.

Section 3 also requires that any option exercise, modification, or change order be submitted to the Inspector General for review for corruption, mismanagement, waste, fraud, or abuse.  Options exercised in accordance with the contract terms are legitimate procurement actions that should not be automatically submitted for the Inspector General’s review.  Other modifications, change orders, or basic change directives should only be referred when circumstances suggest further investigation is needed.  Changes and modifications are normal parts of contracting, and there should not be an implication that any change or modification is an indication of corruption, mismanagement, waste, fraud, or abuse.  

OMBUDSMAN
Section 6 of the bill creates an Office of Ombudsman for contracting and procurement.   The Ombudsman is appointed by the Mayor, in consultation with independent agencies, the Department of Small and Local Business Development (DSLBD) and industry, and the office lies within the OCP.  The Ombudsman is responsible for receiving complaints from District contractors and subcontractors, responding to those complaints, trying to resolve any disputes, recommending suspensions and debarments, identifying “systematic concerns” and recommending to the Mayor and Council policy changes, and referring complaints to the Contract Appeals Board, DSLBD, the Office of the Inspector General, or the Office of the Attorney General.

This Ombudsman adds an administrative layer to the District’s procurement process, blurs the lines of responsibility for procurements, and creates confusion for contractors when the Ombudsman and the contracting officer have conflicting views.  OCP is already subject to oversight and review through its own Office of Procurement Integrity and Compliance, OIG, the DC Auditor, and the OAG. Additionally, we established the Procurement Accountability Review Board to review widespread challenges in the contracting process with the Mayor, the City Administrator, and myself. This is an added layer of oversight where we can review pervasive contracting issues and identify solutions that will have widespread, far-reaching impact on the contracting process.

We are committed to ongoing engagement with industry through our Customer Contact Center, our Vendor Relations team, and creating opportunities for two-way communication with the business community. That being said, contracting officers are still the primary points-of-contact for procurement-specific issues.

EVALUATING CONTRACTOR PAST PERFORMANCE

Section eight of the bill lays out several evaluation criteria that are required to be included in all Requests for Proposals. Among these factors is the past performance of the offeror and elaborates further to list the following criteria:

  • Current or past government and private sector contracts;
  • Information obtained from the offeror or any source on the offeror’s past or current contracts;
  • Information regarding predecessor companies, subsidiaries, key personnel, or subcontractors; and
  • Compliance with past or current subcontracting plans or goals.

I am specifically concerned with the broad nature of this section. Evaluation factors are developed in conjunction with the program, designed for a specific procurement to get the best value, and should not be applied across all procurements. Further, contracting officers and program managers should be responsible for establishing evaluation criteria for a given procurement.

Non-Construction Payment Bonds
The bill significantly changes the PPRA’s bond requirements by mandating that non-construction contracts valued at more than $250,000 require a payment bond in the amount of 35 percent of the contract amount or the amount set aside for subcontractors, whichever is greater.  

This new provision is not in line with standard and best procurement practices.  For example, under the Federal Acquisition Regulations (FAR), “agencies shall not require performance and payment bonds for other than construction contracts,” except in limited circumstances.  Further, payment bonds are only required if a performance bond is required, and only if the use of payment bond is in the Government's interest; which is a determination of the contracting officer for the specific procurement.   This new bond requirement will increase the time required to finalize a sizable number of procurements.  Moreover, this requirement will also increase the cost of procurements as contractors will likely pass the cost of obtaining payment bonds on to District taxpayers.   At a minimum we recommend that “whichever is greater” be changed to “whichever is lower” because if the subcontracting amounts do not exceed 35 percent, the payment bond should not be for an amount greater than 35 percent of the award. 

Finally, the requirement for payment bonds on non-construction service contracts will most significantly affect small businesses, adding another requirement to engage with the District, and, therefore, possibly decreasing competition for District contracts.  Businesses, particularly small businesses, for non-construction service contracts are not currently and have not traditionally been required to obtain bid, performance, or payment bonds. Small business may be prevented from doing business with the District because of their inability to obtain payment bonds.  

INHERENTLY GOVERNMENTAL FUNCTIONS

Section five of the PITAAA adds a new section the PPRA that prohibits contracting for inherently government functions. The proposed addition creates three types of inherently governmental functions which is generally concerning because the delineation of specific government functions unduly ties the executive’s hands, limits flexibility, and stifles creative solutions to meeting the District’s needs.  The PITAAA definition of inherently governmental functions does not include the critical premise of the federal definition that “This is a policy determination, not a legal determination.”

Another concern is the definition of “closely associated with inherently governmental functions.” The PITAA list of functions closely associated with inherently governmental includes functions that the FAR specifically lists in section 7.5 are “generally not considered to be inherently governmental functions.” OCP and DGS share the opinion that the provision be revised to include only a definition of inherently governmental function and the authority for the Mayor to provide more detail through rules.

CONSTRUCTION COSTS

Section nine of the PITAAA requires an estimate for any proposed contract, modification, or change order in excess of $10,000. It further requires that the estimate be prepared in detail, as though the District were bidding on the project, and shall not rely solely on comparable costs of similar construction projects.

Our concern is that $10,000 is too low, especially when considering new awards. While a detailed, formal estimate for a larger project is appropriate, that level of detail is not necessary for a small purchase of $100,000 or less. Furthermore, the proposed provision precludes reliance solely on comparable costs for a similar construction project.  Such reliance, however, is a legitimate tool for assessing estimated costs and may be used appropriately when a detailed estimate on standard purchases would only be burdensome. Lastly, even though this provision implies that it pertains only to DGS, the wording would make it applicable to all construction handled by the District, including at the District Department of Transportation.

PRIVATIZATION CONTRACTS

Section four of the PITAAA clarifies and supplements the existing law on privatization contracts. Most of the changes involve preventing District employees from being displaced. The section also adds a requirement that the DC Auditor review District privatization contracts and assess their savings and impact on the District. OCP and DGS have identified the following concerns with this provision:

  • Section four states that any bid submitted by District employees or an entity representing them, shall be deemed responsive. A bid can only be found responsive if it addresses the District’s minimum needs. If the bid will not provide the required services, it should not, as a matter of law, be deemed responsive.
  • The section also requires the CPO to provide available reasonable resources to assist District employees, or the entity representing them, in preparing the bid. This requirement creates a conflict for the CPO, who is conducting the procurement to provide resources to one of the parties bidding on the procurement. If resources are to be provided, it should be done by an agency that is not conducting the procurement.

CONCLUSION

I appreciate the opportunity to testify on the PPRA Amendment and the PITAA. The intent of these bills is to ensure that we instill principles of good governance in the District’s procurement process, to which I am deeply committed.  I would like to thank Mayor Bowser for her leadership and vision in support of improving contracting in the District. I also want to thank my staff for their hard work and dedication to improving the efficiency, quality, and integrity of the District’s procurement process. I’m very happy that Director Weaver has joined the team and I look forward to working closely with him to make strategic improvements, particularly in how the District engages in construction contracts.  Mr. Chairman, I would like to thank you personally and on behalf of OCP for your long standing commitment to ensuring that the District’s contracting process is fair and open, and is one that maximizes value for District residents.  We look forward to working with you and the Committee of the Whole to refine both bills. This concludes my testimony and I am happy to answer any questions you may have.