Every year, Vermont's Department for Children and Families pays roughly a dozen private businesses a total of $20 million to provide residential treatment services to high-risk kids. Every time DCF renews its contracts with those providers, it bypasses the state's standard bidding process, citing a 1996 federal ruling barring competitive bidding for such services.
Problem is, according to state Auditor Doug Hoffer, such a ruling may never have been issued. DCF has no documentation of it and the feds say their policy is quite the opposite.
The so-called "phantom ruling" is but one example of sole-source contracting gone wild in state government, according to a new report issued Monday by Hoffer's office (PDF). Though state guidelines restrict such no-bid contracts to "extraordinary circumstances," the auditor found that 41 percent of the contracts signed by five agencies and departments last fiscal year were awarded without competition.
"The high frequency of sole-source contracts ... in this analysis raises serious questions about the effectiveness of the state’s contract management," Hoffer's office wrote in the report.
State contracting rules dictate that "every reasonable effort should be taken" to ensure a competitive bidding process. In rare instances, such as when time is of the essence or only one contractor can get the job done, state officials are permitted to negotiate directly with a single vendor. They must notify the Agency of Administration of any such sole-source contracts worth $15,000 to $100,000 and must receive approval from the agency for those worth more than $100,000.
According to Hoffer, his office kept stumbling upon sole-source contracts in the course of its other auditing work, so he decided to investigate the frequency of their use.
"When you see a few of these many times a year, you begin to wonder about the totality," Hoffer says. "It became apparent pretty quickly that it was widespread."
The auditor picked five government entities — the Agency of Education, the Agency of Human Services' central office, the Department of Buildings and General Services, the Department of Vermont Health Access and DCF — and examined 764 of the nearly 1,000 contracts they inked in Fiscal Year 2015.
What he found, Hoffer says, wasn't entirely surprising.
"Let's be honest: It's time-consuming to go through a formal [request for proposals] process," he says. "I certainly understand that and the challenge it presents busy people. But there's a reason we have [the rules]."
While sole-source contracts made up 41 percent of those examined, they accounted for 46 percent of the total contract value — or $158 million of $343 million worth of contract dollars. Those numbers are certainly just the tip of the iceberg in Vermont's sprawling state government.
"Although some sole source practices were appropriate, many contracts raised questions and concerns about the possible abuse of sole source procedures," the report says. "Frequently, sole source justifications lacked any mention of extraordinary circumstances, let alone evidence of them. In other cases, sole source justifications were based on unsubstantiated evidence. We also reviewed numerous sole-source contracts that appear to have been used for routine matters."
The issue is all the more important, Hoffer argues, because state contracting is on the rise in Vermont. The number of personal service contracts increased 180 percent between 2001 and 2014 — and their total dollar value jumped 300 percent in that period, from $130 million to $520 million.
"There's a lot of reasons the state really needs to pay attention to this if it wants to protect taxpayers," Hoffer says. "And how do we know there's not someone out there who can do [the work] better?"
While some of the examined agencies and departments disagreed with certain of the auditor's findings, Secretary of Administration Justin Johnson said in a written response to Hoffer that he "generally agree[d] with the observations outlined in the report" and would work to "strengthen the oversight and review of the contracting process."
Johnson noted that the state is already in the process of implementing a new centralized procurement system, which he said would "allow for increased oversight and transparency." According to Hoffer, it must also better train Department of Finance and Management staff charged with reviewing sole-source contracts.