Report LA96-17

Results in Brief

Weaknesses in the Agency's contracting process do not ensure that contracts are awarded fairly, or that contractors are properly monitored. The Agency spent over $38 million for contracting services since 1989. However, the Agency failed to perform or clearly document key aspects of the contracting process for nearly all of the $17.1 million in contracts we examined. The majority of the contracts awarded on a noncompetitive basis that we examined lacked documentation of attempts to find other suppliers and estimates of expected contract costs. In addition, many contracts awarded based on Requests for Qualifications were not competitively bid as required by the State Administrative Manual. Also, they lacked complete requests for contractors' qualifications, or documentation supporting the Agency's evaluation of each proposal and subsequent contractor selection. Further, the Agency did not always document its efforts to monitor contractors to ensure the quality of work performed and the costs charged.

Principal Findings

1. The Agency did not attempt or did not document attempts to find other contractors for $8.9 million of the $14.4 million in contracts we examined that were awarded on a noncompetitive basis. Without such documentation, the awarding of contracts may appear biased and contracts may not be awarded at competitive prices. (page 9)

2. The Agency did not always completely develop its Requests for Qualifications (RFQ). In 11 RFQ's used to award $2.7 million in contracts, we found 10 lacked clear evaluation criteria, 11 did not clearly indicate the relative importance of the evaluation criteria, and 9 did not require information necessary to determine if the contractor was capable of completing the project. (page 10)

3. The Agency did not routinely develop cost estimates before awarding contracts. We examined 43 contracts awarded on a noncompetitive basis for $13.9 million which lacked evidence of any cost estimates being prepared. Excessive costs for contract services can occur if costs are not estimated before awarding contracts. (page 11)

4. The Agency periodically awards contracts, such as for public information services, based on the contractors' qualifications. Of the 61 contracts we examined, 13 contracts totaling $2.7 million were awarded based on qualifications without soliciting bids. Although the State Administrative Manual requires that contracts be competitively bid, the Agency, in most instances, did not award contracts on a competitive cost basis. (page 11)

5. The Agency paid $125 an hour for clerical services that included preparing labels, copying information, mailing flyers, and clipping newspaper articles. The contract, as negotiated, provided for the payment of $125 per hour for both the services of the principal and one office person. (page 12)

6. The Agency did not always adequately document its evaluation and selection of contractors. Of the 11 contracts in our sample awarded using RFQ's, we could not determine if 6 were awarded based on evaluations using criteria as stated in the RFQ. (page 13)

7. Many of the contracts contained terms that were vague and lacked a clear description of the services needed. Eighteen contracts did not clearly define the scope of work and 27 contracts did not include a required completion date for deliverables. (page 13 )

8. Required audits of contractors were not performed. The Agency could only provide 1 audit report for the 21 contracts requiring audits. (page 14)

The Agency did not perform formal cost/price analyses for each of the contracts identified. However, the Agency did evaluate the cost bases [sic] for the contracts as part of the contractor selection process and, subsequently, in the negotiating process prior to contracts being executed.

We believe the written representations of the Executive Director provide sufficient evidence to support our conclusion that the Agency did not routinely document the development of cost estimates before awarding contracts.

4. The Agency rejected our recommendation that it solicit competitive bids for contracts as required by the State Administrative Manual. (See page 36) It indicates that many contracts are necessarily sole-source agreements requiring unique expertise, continuity of effort, or use of the Nevada University System or units of local government. Furthermore, the Agency believes that for the majority of contracts awarded, the use of low cost as the determining factor for selecting technical, public information, research, and other contractors would be inappropriate and even irresponsible. (See page 28)

Legislative Auditor's Comment's

Our finding on page 11, relates to 13 contracts totaling $2.7 million for services such as public information. It does not relate to sole-source contracts for technical or scientific services, or contracts with the University System or local governments. As discussed on page 11, the use of competitive bidding procedures on contracts is required by the State Administrative Manual. Without solicitiation of bids, the important element of cost is eliminated from the awarding process. Our report does not indicate that cost should be the only factor, but recognizes the importance of other factors such as the bidder's qualifications, experience, approach to providing the needed services, prior contract history, and available resources. Therefore, we believe our recommendation that the Agency solicit competitive bids for contracts as required by the State Administrative Manual is appropriate.

5. The Agency disagrees with our conclusion that it paid $125 an hour for clerical services. The Agency states the $125 per hour was not for clerical services, but for a whole range of professional services provided, and that the audit report reflects a lack of understanding of how professional services are rendered. (See page 29)

Legislative Auditor's Comments

As stated on page 12 of our report, two billings showed the Agency was charged $125 an hour for services including preparing labels, copying information, mailing flyers, and clipping newspaper articles. These services are clearly clerical in nature. In addition, several of the Agency's other contractors billed for services at hourly rates reflective of the level of service provided.

6. The Agency disputes our finding that contracts lacking a clear description of the services needed or required completion dates for deliverables, can result in untimely work, services not needed, and may not accomplish their intended purpose. The Agency stated that work scopes for certain contracts, of necessity, are somewhat vague, lack definitive descriptions of detailed subtasks to be performed, and lack completion dates for specific work products. Furthermore, the Agency stated it cannot, and should not, bind all contractors into a specific set of activities that may or may not be appropriate to extant circumstances. (See page 30) Consequently, the Agency rejected our recommendation to clearly define the scope of work and deliverables to avoid misinterpretation. (See page 36)

Legislative Auditor's Comments

The Agency's basis for disputing our finding and rejecting our recommendation appears to conflict with earlier statements made in its response. For instance, in justifying the use of RFQ's, instead of RFP's, the Agency stated:

In the case of RFQ solicitation, the awarding agency has already identified and specified the work, research, or project to be accomplished and is seeking contractors that are best qualified to carry it out. (See page 25)

And:

Instead, the Agency identifies and defines the work that needs to be done and then seeks the best qualified contractors to perform that work. (See page 28)

As discussed on page 13, vague contract terms can lead to disagreement and confusion between the contractor and Agency. Furthermore, since many of the contracts did not establish specific tasks or deliverables, we found it difficult to determine whether the service or product was completed according to the contract terms. Therefore, we believe our finding and recommendation to better define the scope of work and deliverables in contracts, is appropriate.

7. The Agency disagrees that it only provided 1 audit report for 21 contracts requiring audits. The Agency states it actually provided 11 audit reports but the auditors considered 10 to be inadequate because they were agreed upon procedures audits. (See page 32)

Legislative Auditor's Comments

Each of the 21 contracts had terms (1) requiring the contractor to have annual audits of financial records pertaining to the agreement to conform to the requirements of generally accepted auditing standards, and (2) requiring the contract could only be modified by a written amendment signed by the parties. The Agency provided audits of agreed-upon procedures for contracts prior to those being examined, agreed-upon procedures reviews of a contractor's proposal for initial pricing of contracts with the United States Department of Defense, or unaudited financial statements. These audits, reviews, and statements did not comply with the contract's terms. In addition, the Agency admits to waiving the audit requirements for several contracts. However, it failed to follow the terms of the contracts requiring modifications be by written amendments signed by both parties.

8. The Agency indicates statements in the audit report that it did not document the evaluation of its contractors' performance are inaccurate. (See page 33)

Legislative Auditor's Comments

As stated on page 15, the Agency did not document the evaluation of contractors' performance after the contract was completed for 42 of the 44 applicable contracts examined. In letters to the Executive Director dated June 20, 1995, and July 26, 1995, we requested records to document the evaluation of the contractor's overall performance. The Agency was unable to provide the requested documentation.

9. The Agency indicates the Attorney General advised it that using Requests for Qualifications for selecting independent contractors was appropriate, and that competitive bidding procedures were not required. (See Attachment I , page 38) The Attorney General's Office indicates the Agency's rationale for selection of contractors based on their qualifications is nearly identical to the Legislature's rationale for exempting engineers and architects from competitive bidding requirements on public works projects. Furthermore, the Attorney General indicates that the state administrative requirement for soliciting bids or proposals is an aspirational directive, limited to those circumstances when a bidding process is required as part of the authorizing legislation. Finally, the Attorney General concludes that the State Administrative Manual should not be construed to establish new legislative requirements where none otherwise exist.

Legislative Auditor's Comments

The exemption from bidding requirements for engineers and architects referred to in NRS 625.530(3), applies only to contracts for public works. Since the Agency is not involved in the design and construction of public works projects, the exemption from competitive bidding requirements granted under NRS 625.530(3), does not apply. Furthermore, as mentioned on page 11, many of the contracts awarded by the Agency without competitive bids involved public relations, not engineering or scientific related services.

We disagree with the conclusion that the competitive bidding requirement stated in the State Administrative Manual (SAM) is an aspirational directive. Section 0338.0(1) of SAM states:

Particular attention should be given to proposals and bids. An agency shall, whenever possible, solicit and review at least 3 bids or proposals for each contract.

We believe it was possible for the Agency to solicit at least 3 bids or proposals on many of the contracts we reviewed. Therefore, as stated on page 11, the Agency violated the competitive bidding requirements of the State Administrative Manual. Furthermore, Sections 0002 and 0004 of SAM state:

The State Administrative Manual (SAM) presents to all state agencies a single reference source for policies, procedures, regulations, and information issued by the Legislature, the Board of Examiners, the Department of Administration and other contributing agencies. SAM is an official publication of the Department of Administration and is issued under authority of the Governor and the Board of Examiners. The Governor instructs all state executive agencies to comply with the provisions of this manual to promote economy and efficiency in the government of the State of Nevada.

We confirmed our understanding of the mandatory bidding requirements established in the State Administrative Manual with the Director of the Department of Administration.

In conclusion, we believe our statement on page 11 that in most instances the Agency did not award contracts on a competitive cost basis even though required to by the State Administrative Manual, is correct.