Audit Outlines Shortcomings In DHHS Contracting | Eastern North Carolina Now

    Publisher's note: The author of this post is Barry Smith, who is an Associate Editor for the Carolina Journal, John Hood Publisher.

Absence of oversight, flawed handling of no-bid contracts highlight auditor's concerns

    A new audit has found that many no-bid contracts within the N.C. Department of Health and Human Services lacked proper review or documentation, and didn't have adequate written justification to waive competition, putting taxpayer dollars at risk.

    "What comes to mind is that the terms were not as favorable to the state as they should be," state Auditor Beth Wood said. "You might be giving business to a buddy when somebody out there could be providing the same service and so they didn't have a fair chance"

    Wood said that agency officials are supposed to provide justification before waiving the bid process. Many contracts had no waiver justification, and others were assigned justifications that didn't add up, she said.

    On several occasions, Wood said, officials said bidding was waived because there was an immediate need for the contract, even though the state "had this person on contract for 10 years."

    The deficiencies were found under both Democratic and Republican administrations.

    "It's processes that nobody's been looking over," Wood said. "It's not about Rs and Ds. It's about getting the processes right."

    The State Auditor's Office recommended that DHHS evaluate and monitor its contracting processes to ensure that its personnel are applying state laws and department policies and procedures effectively and efficiently. It also recommended that the department incorporate best practices when negotiating no-bid contracts. In addition, it recommended that DHHS ensure its contract personnel provided more specific documentation when it waived competitive bidding.

    A number of contracts flagged by the audit lacked proper oversight and review, including:

• Three contracts with a value of $6.1 million lacked the required review from the Attorney General's office. "When the A.G. does not review no-bid contracts, a greater risk exists that these contracts are not in proper legal form, do not contain all clauses required by law, are not legally enforceable, and do not accomplish the intended purposes of the proposed contract," the report says.
• Nine contracts with a value of $9.5 million by the Division of Purchase and Contract and the Office of Information Technology Services. "When P&C or ITS does not approve no-bid contracts, there is an increased risk of inappropriately waiving competition and overspending funds," the report says.
• Seven contracts with a value of $2.5 million by the DHHS Office of Procurement and Contract Services.
• Thirteen contracts with a value of $11.8 million by the DHHS Division of Budget and Analysis.
• Five contracts with a value of $4.2 million lacked the required approval by the DHHS Division of Information Resource Management.

    "When DHHS offices do not approve no-bid contracts, there is an increased risk of noncompliance and overspending," the report says.

    The audit quotes from author William Sims Curry's book, Contracting for Services in State and Local Government Agencies. Curry has been a member of the National Contract Management Association for more than 30 years and has held procurement or contract positions in federal, state, and local governments.

    "Contractors that are well aware of their status as the sole source provider for a particular service have a tendency to propose higher pricing than they would in a competitive environment," Curry writes. "Sole source contractors involved in service delivery over the long term also tend to increase their pricing at a rate higher than increases to their costs or the applicable rate of inflation. This tendency for higher initial pricing and excessive price escalation from sole source contractors is intuitive and well understood."

    In response, DHHS Secretary Richard Brajer agreed with the auditor's findings and recommendations. Brajer said the department is working internally and with federal agencies to implement many of the recommendations, he wrote.