The Hoffer report: an indictment of inertia

State Auditor Doug Hoffer did something unusual on Friday: he pre-released one of his reports, embargoed until this morning at 10 a.m. Usually, he just releases them when he releases them.

The reason he did so, I infer, is that this may be the most explosive document to emerge from his office, and he wanted to give us media folks time to digest it. The report is entitled “Sole Source Contracts: Extraordinary Use in Ordinary Times.” The topline: state agencies issue a whole lot of contracts without any competitive bidding. And while sole-source contracts are absolutely justified in many circumstances, the quantity is staggering — and, too often, the stated rationale for bypassing the bidding process was wafer-thin.

Background: In the course of his work, Hoffer had repeatedly come across instances of sole-source contracts. Eventually he decided to assess the scope of the situation. His team reviewed nearly 1,000 contracts issued during FY2015 by five state agencies. (Reviewing all state contracts would have been a monumental task.)

The report paints a picture of administrative laziness at best, corruption at worst. Some key passages from the Executive Summary:

The SAO [State Auditor’s Office] found that while sole source contracts are intended for extraordinary circumstances, this selection method is commonplace for some departments and agencies. … Sole source contracts accounted for 41% of these contracts, and they valued $68 million, or 27% of the total amount.

… While some sole source selections were justified, many were not. Numerous memos lacked a justification for using a sole source selection, and others lacked evidence to substantiate claims. We identified memos based on erroneous information and time constraints that appeared to be of agencies’ own making. …Furthermore, familiarity with contractors often took precedence over an open and competitive process.

… The high frequency of sole source contracts across the five departments and agencies in this analysis raises serious questions about the effectiveness of the State’s contract management.

Yeah, it sure does.

This is a bad look, a very bad look, especially going into a campaign year. The Governor may not be running for re-election, but his record will be a focal point of the campaign.

I bet the Republican Party issues a press release before noon, condemning the Shumlin administration. It will have ample grounds for doing so. I’m sure that “familiarity with contractors” line will feature prominently in Republican attacks. They’ll allege, or at least imply, corruption and insider dealing.

Which is not necessarily what the Hoffer report says. “Familiarity” means “we know how they work and they know what we want,” not “we’re friends and they donate to the right campaigns.” But it can be interpreted that way.

The chosen agencies were Education, Human Services Central Office, Buildings and General Services, the Department of Children and Families, and the Department of Vermont Health Access.

Which, right there, might have skewed the results somewhat. DVHA has been in crisis mode for a long time now, so it may have taken the expedient path in hiring contractors. AHSCO and DCF have been running on a shoestring for years, and may have been inclined to take shortcuts.

When you dig down into the details, it becomes clear that sole-source contracts are often justified. Many of them, as you can see from that 41/27 discrepancy, are relatively small deals. But 41%, that’s a really big number, and hard to explain away.

Whenever the bidding process is bypassed, the responsible agency is supposed to provide written justification. Hoffer’s team found that in many cases, those justifications fell short:

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.

If you ask me, I doubt there’s any widespread corruption. I do think this is a sign of an administration failing to run a tight ship, and trying to scrimp and save on bureaucratic costs wherever possible. Bureaucrats serve many useful functions, including issuance of contracts. If they’re constantly overworked, they might look for ways to cut corners. One corner here, one there, and pretty soon you’ve got an appalling 41% sole-source rate.

I also wonder how much of this is particular to the Shumlin administration, and how much of it is how the state traditionally does business. Vermont often has a distressingly casual attitude toward standard management practices. Not just government; the private sector as well. Which leads to, among other things, our high embezzlement rates across the board.

The report contains a powerful anecdote that lends credence to the “we’ve always done it this way” interpretation. Under one of its Medicaid programs, DCF pays out $20 million per year — all of it sole-sourced. This has been the case for the past 20 years, and it’s been repeatedly justified by citing a federal ruling that prevents the use of competitive bids.

Funny thing. Hoffer’s team asked the feds about it, and they found nothing to support DCF’s claim. Indeed, a federal official noted that “Typically… we allow states to use competitive bidding to subject rates to market forces.”

So someone, sometime (during the Dean administration, most likely) kinda-sorta made up this federal guideline. Or maybe misinterpreted something they heard and read. And once in place, the justification went unchallenged for two decades. As the Hoffer report says:

It is unclear why the department has relied upon this erroneous justification for sole-sourcing these services. But the repeated approval by administrations over the years raises questions about the level of scrutiny and verification employed when reviewing and approving sole source contracts.

Indeed. And not just in the Shumlin administration, but in past administrations as well. Both Democratic and Republican. It’d be instructive to go back and perform the same analysis for, say, 2010, 2000, 1990, and 1980. I bet we’d find a consistent pattern.

Still, even if excessive use of single-source contracts isn’t a recent phenomenon, the Shumlin administration is guilty of failing to rein it in. As a liberal, I believe strongly that liberal officeholders have a double responsibility to manage public resources wisely and efficiently. It’s a responsibility to the people they serve, and to the ideology they represent: liberals believe that government is, at its best, a powerful and unique force for social stability and progress. If they fail to perform their duties, they are betraying their own principles as well as the people.

Whether the single-source problem is unique to the last five years or not, this Auditor’s report is another black eye on the Shumlin administration’s reputation for good government. That’s a shame and a disappointment, and it’s not a good way to open a campaign season.

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4 thoughts on “The Hoffer report: an indictment of inertia

  1. Cynthia Browning

    I really like what you said in the second to last paragraph. I have found, unfortunately, that sometimes some liberals are reluctant to evaluate programs they support rigorously, because they do not want to undermine the policies. This eventually backfires in two ways, first, through public criticism like Hoffer’s report, and secondly, because the policy goals of the programs may not be actually accomplished effectively. By the way, I find that some conservatives are similarly reluctant to rigorously evaluate business tax credits or other subsidies. EVERYTHING that government does has to be carefully analyzed so that we can actually accomplish our shared goals in the most effective way possible given limited resources.

    Thanks. Rep. Cynthia Browning, Arlington

    Reply
  2. Doug Gibson

    Thousands of VSEA members thank the Auditor’s office for exposing how flawed this practice is. For years, while their services and jobs were being cut, state employees were screaming for someone (read: lawmakers) to look at the millions going out the door via contracts with private vendors that many times it appears were approved without any formal system of checks and balances. VSEA has filed numerous FOIAs over the years, looking at some of these private contracts and many of them we learn have been amended and amended and amended. Often, the costs rise with each amendment.

    The State wants ideas for saving money? Here’s one, reform this system. Central contract clearinghouse?

    Writer is VSEA Communications Director

    Reply
  3. newzjunqie

    As I have said and bears repeating VT is a casino. Love mt town, state and country but digusted with all of them. The sketchiness and thievery is as breathtaking as it is appalling.Lawmakers, cabinet, agency heads and governor(s) and past VT AOA should be ashamed.

    So while state workers have been taking cuts and facing job uncertainty, our state now has structural deficit(s) due to the perpetually tilted roullette wheel — we lose. Not even a gun or blindfold needed.

    VT continues to shovel revenue into the bonfire and those who should be serving taxpayers are serving as ushers into the Casino of VT .

    Reply

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