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State Comptroller Alan Hevesi today delivered the following testimony to New York State Assembly committees.
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Good morning. Thank you for inviting me to present testimony in support of procurement reform, specifically bill number A.8397 which was introduced by Assemblywoman Destito at my request. The Committees, particularly Chairs RoAnn Destito, Bob Sweeney, Mark Weprin, Tom DiNapoli, Jim Brennan, Joan Millman and Adam Bradley, are to be commended for starting these discussions early and using the time of the extended sunset of the Procurement Stewardship Act to seek input on ways the State’s procurement practices can be improved.
2005 has seen the beginnings of reform in New York State. The budget was enacted on time, and, in the waning days of the regular session, bills were passed to increase the accountability of public authorities, improve oversight of school boards, create a fiscal stability authority to get Erie County back on track, and, important to today’s discussion, restrict lobbying intended to affect the awarding of State and local government contracts.
But our work is not yet done. Far from it. We’ve got to do more to increase transparency, improve accountability and restore New Yorkers’ faith in their government, particularly in several areas that have not yet become the focus of public attention, such as debt reform, further monitoring of public authorities, and procurement policy.
One of the most important operations of government is the purchase of goods and services to meet the needs of its taxpayers. Every year, our State government enters into contracts valued at more than $28 billion. This purchasing power can be used to reduce overall costs for both State and local governments; it can be employed to help minority and women owned businesses increase their involvement and market share; or, as we have seen, it can be misused to reward friends at the public’s expense.
New York has a critically important system of checks and balances in place to ensure our procurement practices have integrity, that processes are competitive and that purchases result in the best value for the State and its taxpayers. I know this system well because, by law, State agency contracts valued at more than $15,000 cannot become effective until they have been approved by my office. In State Fiscal Year 2004-05, my office reviewed 13,707 contracts valued at nearly $16.6 billion dollars. This is in addition to 27,591 contract amendments, a total of 41,298 transactions valued at more than $28 billion last fiscal year.
Review by my office ensures compliance with a number of statutory requirements governing the award of State contracts. The most comprehensive contracting rules are found in the Procurement Stewardship Act (PSA), now scheduled to sunset on June 30, 2006.
Before the sunset was extended, I had directed my staff to develop ideas about ways the State’s contracting practices and the rules spelled out in the PSA could be improved. Such staff includes people who have been conducting and reviewing State agency procurements for decades, as well as some of the folks involved in drafting the PSA.
I listened to my staff’s ideas and then directed them to get other opinions. They spoke with vendors who do business with the State, including non-profit organizations and minority and women business owners. They spoke with people who handle procurements at State agencies and for local governments.Meetings held 11/9/04, 11/30/04, 12/6/04, 1/28/05, 3/4/05, 3/16/05, 3/28/05, 3/31/05, 4/8/05, 4/13/05, 4/22/05, 5/12/05, 5/23/05 and 6/10/05 resulting in discussions with more than 350 people. We combined what we learned from the outside with our in-house expertise. The result is a comprehensive reform agenda that streamlines the system without sacrificing accountability. Our proposals correct flaws in the current system, reduce bureaucracy and improve our use of resources.
We first advanced this agenda, along with legislation to enact these changes, this past April with the full support of the Partnership for New York City, the New York State Association of Counties, the New York State Association of Towns and the New York Conference of Mayors. Throughout the development of the agenda, we also worked very closely with the Business Council of the State of New York.
When we released our agenda, we published a 77-page report on the State’s procurement process detailing roles and responsibilities of State agency staff as well as the Office of the State Comptroller. For the first time, this report has provided extensive data on contract timeliness, the types, numbers and value of contracts entered into, the methods used to award contracts (i.e. competitive grants, best value, sole source, preferred source, piggyback), the top ten contracting agencies, average amount of time it takes for contract review by my office, and the number of contracts returned unapproved.
The first proposed reform we recommend involves increases in various thresholds established in the State Finance Law that set the dollar values at which formal competitive processes, and approval of contracts by the State Comptroller, are required. Currently, both of these thresholds are set at $15,000. I believe it is time we increase them to $50,000.
Approximately 23 percent of the new contracts reviewed by my office last fiscal year were valued between $15,000 and $50,000. This means State agencies, as well as the Comptroller’s Office staff, expend a great deal of time and resources assessing relatively low risk contracts. The change in the threshold that we have proposed would not only permit faster award of lower dollar value contracts by State agencies but also would allow us to better use staff time scrutinizing more complex procurements of high dollar value. It would also provide appropriate relief for our vendors, the businesses whose participation we wish to encourage.
In my office, staff resources would be redeployed to examine purchases made by agencies pursuant to the State’s centralized contracts. Although my staff reviews and approves the centralized contracts as they are established by the Office of General Services (OGS), the millions of dollars of commitments made by State agencies pursuant to these contracts are left unchecked except by audits after-the-fact. And, our post-audits of the use of these contracts have indicated that there is no oversight of the utilization of these contracts by State agencies and no monitoring of contractors’ compliance with contract terms. As a result, there is no process to ensure that the use of a centralized contract results in a better value than might be obtained through a new, competitive procurement, that the benefits of the centralized contract, such as volume discounts, are being realized, or that the best qualified vendor available under the centralized contract is being employed. To address these deficiencies, we have begun to require that the terms of new centralized contracts entered into by OGS include provisions for my office to pre-audit use of the contracts by State agencies. It is clear that our resources will be better used overseeing the use of millions of dollars of purchases made pursuant to these contracts than the relatively low risk contracts valued between $15,000 and $50,000.
Existing law at the State level provides an incentive for agencies to do business with New York State small business entities and certified minority and women owned businesses and to purchase recycled or remanufactured products. The incentive comes in the form of a higher threshold, currently $50,000, to reduce the bureaucratic hurdles for agencies to enter into these contracts. In order to maintain this incentive, I recommend that State agencies be allowed to enter into contracts valued up to $100,000 with these entities without a formal competitive process. In order to maintain transparency and opportunity, I also recommend a requirement that a notice be published following State contract awards valued between $15,000 and $100,000 to certified minority and women owned businesses, New York State small businesses and for the purchase of recycled/remanufactured products. Similarly, State agencies would be required to announce contract awards valued between $15,000 and $50,000, and would continue to advertise in advance higher dollar value contracting opportunities. Post-award disclosure will alert other potential vendors to procurements that are likely to occur in the future and provide the other public benefits of transparency.
As with State thresholds, it is time to modernize the General Municipal Law which, along with local policies and procedures, governs contracting by local governments. The General Municipal Law sets thresholds for sealed competitive bidding in awarding purchase contracts and contracts for public work. Current thresholds of $10,000 for purchase contracts and $20,000 for public works have been in effect since 1991. We recommend increasing these thresholds to $20,000 and $50,000 respectively. Further, an incentive for local governments to enter into contracts with minority and women owned businesses should be established by creating an exception in the General Municipal Law for purchase contracts up to $25,000 awarded to qualified M/WBEs.
If the Legislature and the Governor are willing to make these changes in contract thresholds, I will work with you to create a post-audit program to ensure that the expansion of discretion for State agencies is used well.
In addition to these general improvements, the legislation we submitted in April proposed seven specific changes to the Procurement Stewardship Act:
The first goes hand-in-hand with the proposal to increase thresholds and involves defining a time-period during which the value of purchases should be aggregated. The law currently is unclear about timeframes in which thresholds apply, but case law suggests it is intended to mean a one-year period. We should make it clear in law that the thresholds apply to two or more contracts to meet the same or similar needs awarded within a one-year time period.
Our second proposal would improve communications with unsuccessful bidders who too often are denied an explanation of the reasons their proposals were not selected. Without this explanation, a bidder may feel his or her proposal was treated unfairly and may file a protest with the Office of the State Comptroller. Legislative clarification of vendors’ rights to be debriefed before the contract is submitted to the Office of the State Comptroller for approval is needed. This change is particularly important in light of the new restrictions on procurement lobbying, which may make it more difficult for a dissatisfied bidder to protest to my office by requiring that all contacts be in writing.
Third, while the Procurement Stewardship Act provides for agencies to take advantage of other existing State or federal contracts by “piggybacking,” it does not detail the factors to be considered by an agency when determining if this is the best available option. The Office of General Services has offered guidance to agencies that should be codified in law. In addition, agencies deciding to enter into piggyback contracts should be required to document the reasons such a decision is in the best interest of the agency and the State.
The fourth PSA reform would establish program procurements to recognize that for-profit entities, as well as not-for-profit organizations, often compete for grant-type awards for services that have traditionally been confined to the not-for-profit arena. Daycare or job training contracts are good examples. Our proposed amendment would ensure that program procurements produce awards based on technical merit and public benefit, while at the same time ensuring that the costs are reasonable.
I am also asking you to statutorily build flexibility into the law by allowing the Office of the State Comptroller to waive minor deviations in the procurement process that are otherwise consistent with the law. This flexibility would be used judiciously but would permit a reasonable outcome in cases where the results of a fair, competitive process are clear but the award of a contract is threatened due to a minor technicality.
Along the same lines, the sixth reform would permit the Office of the State Comptroller to work with State agencies to craft creative or pilot procurement methods in situations not anticipated by law. This authority would only be employed when it is in the best interests of the State, when the pilot procurement method would better serve the public interest than other available methods and when the procurement process can be applied fairly and equitably.
The seventh and final legislative change to the PSA we recommend is the elimination of language permitting Strategic Partnerships. At the time the PSA was enacted, it was envisioned that State agencies would enter into unique arrangements with businesses to meet a variety of needs. The provision has not been used effectively or successfully and is unnecessary because the law permits the award of contracts to uniquely qualified entities on a single source basis.
I would also like to make you aware of an administrative action we have taken to improve the integrity of the State’s contracting processes. Since January 1, 2005, we have required State agencies to include in the official procurement record reviewed by the Office of the State Comptroller evidence that officials have conducted a review and have officially determined that the vendor they are entering into a contract with is responsible.
