This article by Gennady Sheyner is the most detailed critique reprise of the State Auditor Report which we included and discussed on this blog a day or two ago. It deals with not only the errors and oversights, but what are apparently intentional manipulations of information on the part of the rail authority and its contractors.
One example is particularly egregious and reeks of illegality worthy of investigation by the state attorney general. Here is what Sheyner's article reports, taken from the State Auditor findings:
Among the report's most damning findings is its conclusion that the authority engaged in "inappropriate contracting practices" involving information-technology services. The agency split its $3.1 million IT contract into 13 individual contracts with one vendor, the company Paperless Knowledge, and awarded these contracts to the vendor without obtaining proper bids, the audit found. 'The State Contract Manual', the report notes, "expressly forbids agencies from splitting contracts to avoid competitive bidding requirements and purchasing thresholds for any series of related services that would normally be combined and bid as one job."
"As a result of the Authority's actions, we believe that it violated the prohibitions set forth in the 'State Contracting Manual.' Further, the nature of the problems we discovered suggests that the Authority needs to significantly improve its internal controls to ensure that it effectively manages its contracts," the report states.
Let's look at this in somewhat greater detail because it is so outrageous and transparently fraudulent. Going beyond Sheyner's article, here is what I have been told by colleagues (who I won't name).
The key player in this contracting scandal is someone named Michael Edward Wasco. He heads three interlocked companies; the Paperless Knowledge Company, Maxime Management Systems and the M.R.Z Investment Group, LLC. The MRZ group is filed as "foreign."
Paperless Knowledge is the company that got the Information Technology contract with the High-Speed Rail Authority for $3 million. They are listed as a Disabled Veteran Business Enterprise (DVBE). This is what the State Auditor Report is talking about.
Initial Information technology (IT) services and consulting:
$406,041.25 Paperless Knowledge
IT technology consulting services
$249,999.99 Paperless Knowledge
IT maintenance and technical services
$249,999.99 Paperless Knowledge
Monthly IT expenditures, including one-time database set up and training
$105,655.00 Paperless Knowledge
IT maintenance and technical services
$249,999.99 Paperless Knowledge
Relocation of office headquarters
$249,999.99 Paperless Knowledge
IT technology consulting services
$249,999.99 Paperless Knowledge
Development electronic document management solution
$249,999.99 Paperless Knowledge
Operate the High-Speed Rail Authority (Authority) IT intranet
$249,600.00 Paperless Knowledge
Host the Authority IT servers
$249,270.00 Paperless Knowledge
All IT maintenance and technical services desktop for the authority
$245,440.00 Paperless Knowledge
IT Web maintenance
$245,440.00 Paperless Knowledge
IT database administration
$243,360.00 Paperless Knowledge
IT network administration
$249,600.00 Paperless Knowledge
Total IT contracts, excluding the initial contract
-----------------
$3,088,364.94
The key issue here is that State contracting rules say if the contract is over $50,000 then you must follow state rules. Loophole says if you are a disadvantaged business (small) (such as a Disabled Veterans Business Enterprise) you can spend up to $250,000 before following state rules.
So, this company broke up a $3 million contract into 13 smaller serial contracts for $249,999.99 or less, each in order to circumvent these rules. And we have no idea who this company is...
I confess that my information here is fragmentary and scanty. It comes from second-hand sources. However, there's enough to suggest that a much more thorough examination is called for. Everything here comes from the diligent efforts of my colleagues. It's enough to turn on the red flashing light and call out the appropriate law enforcement agency to dig further into this.
While this is not my turf, I've been told that the same thing promised by this contract can be performed at a fraction of those costs. What's going on here?
We can safely assume that this particular contract shenanigans is merely the tip of the iceberg. And, just to remind you, this is the project that our state Governor insists on pursuing.
We're not done yet. More examinations and reports are coming. I would urge the Governor to terminate the project and separate himself from it or otherwise risk becoming an "accessory after the fact."
======================================
Uploaded: Tuesday, January 24, 2012, 2:36 PM
Rail authority slammed for lax contract oversight
State Auditor's review finds agency broke law in procuring IT services, struggles to manage its contractors
by Gennady Sheyner
Palo Alto Weekly Staff
The agency charged with building a high-speed rail system between San Francisco and Los Angeles violated state law when it awarded contracts for information-technology services without going through the mandatory bidding process, according to a [www.bsa.ca.gov report] released Tuesday by State Auditor Elaine Howle.
The audit is a follow-up to the Bureau of State Audits' April 2010 report, a scathing survey titled "High-Speed Rail Authority: It Risks Delays or an Incomplete System Because of Inadequate Planning, Weak Oversight, and Lax Contract Management." The new audit offers a mixed picture of the $98.5 billion project. While it credits the California High-Speed Rail Authority with implementing four of the previous audit's nine recommendations from last year, it also faults the agency for lax contract management and a flawed business plan.
Among the report's most damning findings is its conclusion that the authority engaged in "inappropriate contracting practices" involving information-technology services. The agency split its $3.1 million IT contract into 13 individual contracts with one vendor, the company Paperless Knowledge, and awarded these contracts to the vendor without obtaining proper bids, the audit found. The State Contract Manual, the report notes, "expressly forbids agencies from splitting contracts to avoid competitive bidding requirements and purchasing thresholds for any series of related services that would normally be combined and bid as one job."
"As a result of the Authority's actions, we believe that it violated the prohibitions set forth in the 'State Contracting Manual.' Further, the nature of the problems we discovered suggests that the Authority needs to significantly improve its internal controls to ensure that it effectively manages its contracts," the report states.
In its response to the audit, the authority stated that it will develop procedures to detect and prevent contract splitting and that it has already "significantly revised the contract administration manual to ensure more effective management of the contract management process." It is also holding discussions with California Technology Agency (as the office of the state's Chief Information Officer is called) about possible service options.
"To the extent that services cannot be obtained through the California Technology Agency the Authority will obtain needed services through the appropriate procurement process," the authority's response states. "In addition, the Authority is reviewing current IT agreements to determine what if any can be canceled immediately."
The auditor's findings have prompted the state's Department of General Services to take a fresh look at the authority's IT contracts. The department, which oversees information-technology procurements, had approved the authority's proposal to non-competitively award six of its IT contracts to the same provider. Even so, the report notes, the authority entered into these contracts before it had received the approval and it allegedly agreed to terms that were longer than what was approved by General Services.
Fred Klass, director of the Department of General Services (DGS), wrote in a letter to Howle that his department would conduct its audit of the rail authority's procurement process by Jan. 1, 2013.
"The DGS will contact the Authority to confirm that appropriate actions are being taken to competitively bid the services," Klass wrote. "As part of this process, the DGS will ensure that all services that cannot be fully justified as separate and distinct will be combined into one contract."
The authority's failure to follow state regulations about bidding is one of many deficiencies the audit uncovered in its survey of the agency's contract management. The audit paints a picture of a severely understaffed state agency that is struggling to keep track of its contractors, who outnumber the rail authority's staff by a factor of about 25 to 1. As of last August, the authority had only 21.5 filled positions and more than 500 contractors.
The agency's reliance on contractors, some of whom may have conflicts of interest in this project, further compromise its ability to effectively oversee the project, the report found. It particularly hinders the authority's ability to be involved in the project's risk-management process, a problem that the auditor had also identified in her 2010 report.
"The Authority's current organizational structure places the largest portion of the program's planning, construction, and most importantly, oversight in the hands of contractors who may not have the best interests of the State as their primary motivation," the report states. "As a result, the Authority lacks assurance that the program is implemented in a way that best serves the public."
For example, the audit found more than 50 errors or inconsistencies in the progress reports submitted by the agency's contracted program manager, the firm Parsons Brinckerhoff. The firm has more than 100 full-time-equivalent employees working on the project and is charged with providing day-to-day management for the project and overseeing subcontracts managing regional segments of the proposed line, according to the audit. But the audit found that the reports from the program manager "were often inaccurate and that at times the Program Manager misinformed the Authority about the speed with which contractors for each region -- called regional contractors -- performed tasks."
In some cases, the program manager "altered dates to make it appear that the regional contractors would perform work either more or less quickly than they estimated they could in their progress reports," the audit states. The lack of accurate reports "has compromised the quality of the information the Authority relies on."
The audit also reaffirms some of the scathing findings from other nonpartisan agencies, including the Legislative Analyst's Office and the rail authority's Peer Review Committee. All three agencies found major flaws in the rail authority's business plan, including questionable ridership projections and a reliance on federal funds that may never show up. It concludes that the "program's funding situation has become increasingly risky."
On the question of ridership, the audit gives the rail authority some credit for including more information about its methodology in the latest business plan than in the prior version. But the audit also states that "the Authority's process for overseeing the development of the model lacked transparency, which may raise concern about the model's credibility." For example, the peer-review group charged with reviewing the authority's ridership projections was selected by the agency's CEO Roelof van Ark -- a fact that undermined the panel's independent status.
"By handpicking the ridership review group, the chief executive officer may have inadvertently raised concerns about the objectivity of the members," the report states.
The audit's findings echo similar concerns from a growing number of critics of the increasingly controversial project. The Palo Alto City Council has consistently disputed the rail authority's financial and ridership figures, as has the local rail-watchdog group, Californians Advocating Responsible Rail Design.
The Palo Alto council also took the dramatic step last December of adopting as the city's official position a call for legislators to terminate the project.
Find this article at:
No comments:
Post a Comment