A tipoff to San Diego’s Fraud Hotline led to the city being rapped by an auditor for failing to follow its own procurement guidelines.
The auditor investigated reports that the city had “unfairly” awarded a multi-million dollar contract to a software vendor using a cooperative procurement process.
As a result of the investigation the contract with the vendor was not renewed.
“Since the cooperative procurement process was used, no other vendor was invited to participate in a competitive bidding process with the city,” said a report.
“Rather, the city used a cooperative or ‘piggyback’ contracting process that relied on the competitive bidding process and procedures of another organisation.”
The auditor said city staff did not perform adequate due diligence before the contract was awarded in part because they were under pressure to get a contract in place quickly.
“We found that only one vendor was included in the due diligence research process, which we determined is not adequate for a multi-million dollar contract,” said the auditor’s report.
Only including one vendor in the process may also have been a violation of a San Diego City Charter Section entitled No Favoritism in Public Contracts.
The audit found that the city’s Department of Information Technology (DoIT) staff reviewed the winning vendor’s services but not those of any other vendors.
Some contracting process steps and best practices were not followed during the tender.
The city had incorrectly certified that the vendor’s services were “unique” because other vendors could have performed the service – which allowed them to classify the deal as a cooperative procurement contract with special terms and conditions.
“We also found that the contract may not have been to the city’s economic advantage because the source organisation is much smaller than the city, which eliminates any potential benefit from an economy of scale,” said the report.
City staff were also accused in the audit of mischaracterising the nature of the vendor’s services to obtain approval from the HR department.
A key member of staff “highly involved with the formation of the contract” failed to mention that city staff were currently providing some of the services outlined in the contract, stating instead that they could not perform services in the contract.
If the HR department had been correctly informed it would not have allowed the contract to proceed.
The audit also found that the vendor appeared to have defined the scope of work for the contract they were awarded – something banned in the city’s procurement manual.
“We determined that the vendor received exclusive access to city management, was highly involved in the planning process, and was influential in the decisions that city management made,” said the audit.
Its investigation found 10 different examples appearing to have defined the scope of work for the contract awarded.
Overall the auditor said it had made nine recommendations and management agreed to implement all of them.
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