IRS awards $7M fraud-prevention contract to Equifax

The no-bid contract, which pays $7.25 million, is listed as a “sole source” acquisition, meaning the IRS has determined Equifax is the only business capable of providing this service—despite its involvement in potentially one of the most damaging data breaches in recent memory.

By now my opinion about single source/direct award/request for quote(s) contracts should be well known to regular readers. This is yet another example of a decisions which may have been the correct one (or maybe not) but just by using a non-transparent procedure it can look terrible.

The contract itself is available here.

More from Politico:

The IRS defended its decision in a statement, saying that Equifax told the agency that none of its data was involved in the breach and that Equifax already provides similar services to the IRS under a previous contract.

”Following an internal review and an on-site visit with Equifax, the IRS believes the service Equifax provided does not pose a risk to IRS data or systems,” the statement reads. “At this time, we have seen no indications of tax fraud related to the Equifax breach, but we will continue to closely monitor the situation.”

Equifax did not respond to requests for comment.

 

 

 

 

 

The death knell for PFI contracts in the UK

This week, the shadow chancellor John McDonnell suggested a future Labour Government would bring PFI contracts in house. Details are sketchy (as always...) but the issue has been extensively covered in the media. Even the FT joined in the chorus with some pieces on the shortfalls of the scheme (here, here and here - all gated). At the very least, this conversation will give pause to potential future investors and make the current ones think twice about their portfolio.

It should not come as a surprise for regular readers that I am staunchly pro-competition and see it (with transparency) as the twin engines that should be setting the course for any public procurement legal regime. Having said that, I never warmed to the whole PFI idea and think, in general, they tend to lead to poor results. These has been my view for the past decade or so.

The reasons for them are two fold. First is asymmetry of information. Once a PFI is in place it is usually followed by the hollowing out of capacity on the public side which soon translates into an absolute inability to monitor the contract properly. Contract monitoring is a perennial problem in procurement, but even more so when it comes down to long standing contracts. In consequence, if and when a contract is re-tendered 10 or even 30 years later the public side will be putting it out without fully knowing what it needs and how it is done. Plus, from a competition perspective the incumbent has an incredible head start over everyone else (same happens with many other contracts though).

Nothing of the above is new, and Jean Tirole built a good part of his career writing about incomplete contracts in the public sector - and there are few contracts less complete than long term public contracts. Aligning interests is hard. Damn hard.

Second, there is also an issue of regulatory/supervision capture. Everyone likes to talk about relationships in public procurement and how we need more of those. I for one, digress and like to see procurement contracts as transactions with a beginning and an end. The cosier the relationship the more likely it is for the supervisor/regulator to not enforce the terms of the contract. No surprise then that we sometimes see former public officials (politicians, aides or civil servants) ending up working for the same firms they were supervising or regulating. It is just human nature.

That is not to say that all PFIs are bad or that all lead to bad results. I have seen them being well used (i.e., with a clear logic and achievable outcomes) for example in the Spanish health sector. But as with so many other procurement 'tools' designed to be used only by those who know how to handle them (competitive dialogue, I am looking at you) the overall score is negative. 

As a conclusion, a point about the World Bank. For the last few years they have been singing the praises of PFI contracts in the developing world. I have been wary about their use even in the UK, where public sector capacity is certainly above average, so I can only shriek in horror thinking how those would be deployed in countries with limited capacity. It doesn't help that when talking with colleagues much more experienced on dealing with those countries, their view is very similar.

 

Lisbon City Council and direct awards of public works in Portugal

One of Portugal's top newspapers investigated the direct award of a €5.179.873,44 public works project by the Lisbon City Council to Teixeira Duarte, one of the largest construction companies in the country. The piece is an example of how direct award (negotiated procedure without competition or notice) is wrongly used and abused in the country. The contract covered works to repair/sustain the Miradouro de Sao Pedro de Alcantara, one of the many scenic viewpoints in the city which is alleged to be in risk of collapse.

The Council claims the urgency of the works required the contract to be awarded quickly, therefore justifying the need to award the contract directly and without competition. Needless to say, this is an exceptional use of direct award and the material justification is supposed to reflect such exceptionality. Herein lies part of the problem: that specific reason to use the direct award procedure does not appear to comply with the requirements for its use.

The Miradouro de Sao Pedro de Alcantara has been monitored since 2006, with a detailed study carried out in 2016 so there is no factor external to the Council justifying the use of the direct award procedure. In other words, if it became urgent to repair the Miradouro its because the Council did not act as quickly as it should and created itself the situation of urgency (i.e., an internal reason for the urgency). By itself, this amounts to poor management at the very least, since the detailed report was handed to the Council in December 2016 and the decision to award the contract directly taken in May, on the same date another company was commissioned to prepare the works project. And surely by coincidence it is the same exact consultancy which produced the 2016 report. The works contract itself was signed only on July 4th, again raising the question of what 'urgent' really means in the context of this contract.

But it gets worse. It appears the National Civil Engineering Lab produced an opinion sustaining that the intervention was not urgent, contradicting the consultants' view from 2016.

Without seeing the actual decision and the arguments produced by the Council, I frankly cannot accept at face value that it was a clear cut case of urgency which would justify the use of this 'exceptional' approach to procurement. 

There is, unfortunately even more to this case. According to the newspaper piece, it seems the works contract covers not only the repairs on the wall (i.e., the 'urgent' bit) but also the works at the surface. Using the contract available on BASE.gov.pt it is impossible to confirm this information. However, if true those works (~€1,000,000) were not strictly needed and therefore not urgent at all. They could (and should) have been subject to the regular public procurement rules in the country.

One final note for the value of contract: €5.179.873,44. The current EU financial thresholds for public works are €5.225.000 and until January 2016 they were €5.186.000. There* is a growing body of evidence that contracts valued close to the thresholds are more likely to have been manipulated and are associated with corruption risks.

PS: I will be publishing soon a paper about the excessive use of direct award in Portugal. Will link it here when it happens.

 

*Thanks for pointing out the typo Domingos :)

 

Links I Liked [Public Procurement]

1. Belgian Govt. approves procurement of software to track down terrorists. Gosh I would love to see the tender specifications for this one. Was it an output/outcomes based spec? Or did Belgium just accidentally acquired Twitter?

2. Albert kickstarts a big thinking discussion about what procurement should look like. I have a couple of ideas on this as well. As I said last year at the Global Revolution conference in Nottingham, our current system was designed on (and for) an analog world. It has aged as well as BladeRunner's imagination of 2015.

3. House of Commons Library publishes its view on Brexit implications for public procurement.

4. UK Government has a 6 point plan to open up the market for suppliers of all sizes. I for one, welcome any measure which lowers transaction costs for all participants in public procurement. I am worried however about 'continuing engagement.' In any case, the Guidance document is here and the public consultation open for the next three months. 

5. Michael Bowsher mentioned earlier this week at the Catolica Summer School, the recent case of EnergySolutions vs Nuclear Decommission Authority, where the contracting authority took conscious steps to render its decision-making process non-auditable. It is a very long judgment, but a great read.

Debunking Vote Leave procurement "misconceptions"

Last month, Vote Leave came up with some "new research" on the terrible, terrible plight inflicted by EU procurement rules on UK contracting authorities (well, those of England, Wales and Northern Ireland I suppose). Colin Cram put out a very polite rebute in The Guardian earlier this week, but I think a firmer answer is in order.

Here's Vote Leave claims:

EU public procurement law imposes extremely onerous requirements on public authorities, which can apply regardless of the value of a contract and/or whether any tenderers are from outside the UK. The Government pledged to change this, but EU procurement law remains unaffected by the renegotiation.

Right. I don't even know where to start. Are some features of the rules onerous, yes particularly if your own processes are lacking. If you already have good internal processes then the rules are not that onerous. Same claim could be laid against any project management standards. The fact they are more onerous than the alternative "roll your own, every time you want to tender" creates a degree of uniformity, standardisation and legal security. By and large they do not enable great procurement - but that is not why they exist in the first place. Their primordial job is to prevent really bad procurement. Not only the corruption kind of it, but just plain lack of knowledge.

Does EU public procurement law apply "regardless of the value of a contract and/or whether any tenderers are from outside the UK." Lie. It does apply to all contracts above the thresholds (ie, depends on value) and below-thresholds only the Treaty principles (equal treatment, non-discrimination) apply and *only* to contracts where there is a certain cross-border interest. That needs to be determined in advance of course as otherwise Vote Leave would be suggesting defining what is the applicable law after the fact. I have written extensively about this problem here and here.

It is true that EU procurement law remains unaffected by the negotiation, but as Colin Cram rightly points out the current procurement Directives have the UK's fingerprint all over them. Plus, Michael Gove was a minister in the Government who transposed Directive 2014/24/EU into the Public Contracts Regulations 2015 in a rush...

 

EU public procurement law imposes an annual cost of at least £1.69 billion to the taxpayer. This is five times what is spent on the NHS Cancer Drugs Fund, 34 times what is spent on the Government’s dedicated Pothole Action Fund, or enough to pay for 273,000 basic state pensions.

Apparently £1.69 billion is the average yearly cost of running procurement procedures in the UK between by taking the 0.7% expenditure rate calculated by this PwC study from 2011 and applying it to all years. If spending 0.7% of the contract value in the procedure is a bad outcome (due to those, onerous, onerous rules) I would like to know how Vote Leave would magically make procurement processes be free. Are they suggesting them being done by a commune of volunteers? A third sector organisation working for the greater good? There is no such thing as free unicorns in the procurement sky...

 

Between 2010 and 2014, EU public procurement legislation imposed costs of at least £8.4 billion in real terms on the taxpayer. This is three times what will be spent on flood defences in England between 2015 and 2021, six times the cost of the new Queensferry Crossing in Scotland, or enough to build 25 new hospitals.
It is also possible to calculate the delays to the execution of public contracts caused by procurement rules. A 2011 study for the European Commission found that the mean length of time between the tendering of a contract and its award in the UK was 193 days, longer than every member state other than Greece and Malta

One has to wonder however if Vote Leave is the proverbial bad carpenter blaming his tools. Every time I hear "the rules do not allow me to do it" there is usually a lack of capacity (or willingness to take risk) from the people involved. It is so much easier to blame the rules instead.

I love the claim about the slowness of procurement in the UK in comparison with the EU average. If the rules are the same (or similar) across the EU, whose fault is it if the UK practice is so below average? How can the other countries do better with the same sets of rules?

Let's talk about two UK examples of practice: restricted procedure and competitive dialogue.

Under Directive 2014/24/EU (as with its predecessor Directive 2004/18/EC) the open and restricted procedure are the standard procedures which may be used alternatively for any procurement process. It is up for the contracting authorities to decide which one to use. The restricted procedure allows contracting authorities to reduce the number of economic operators before the tender stage by making them go through a pre-qualification questionnaire which allows it to select the ones to invite forward. Until recently, the only Member State in the EU which used more the the restricted procedure than the open procedure. Now, the restricted procedure by definition is longer than the open procedure (which can now be reduced to a single stage). No surprise then the UK is a laggard in "procedure race" with the average procedure lasting 120 working days, 53 more than Germany. The situation got so bad the last Government (yes, the one where Mr. Gove was a minister) decided to clamp down on the use of pre-qualification questionnaires and by definition the restricted procedure as well.

Competitive dialogue is another good example. Under the 2004 Directive, it was supposed to be used only if certain grounds were met. It was not a standard procedure, but lo and behold again the UK decided to use it very often. So often that in 2012 the previous Government decided to ban its use, throwing the baby out with the bath water. While the competitive dialogue was being widely used, a "good practice" developed of racing towards identifying the preferred bidder and then having negotiations with said economic operator with no one else in the frame. Again, I have written at length about the limitations of this approach (clawing back of concessions, longer procedures, etc) here.

 

‘If we Vote Leave we can scrap the EU’s foolish rules on how Whitehall runs procurement processes which add billions to the cost of Government every year. I’ve experienced firsthand in the Department for Education how these rules add significant operational costs and generate expensive delays to construction projects. Across Whitehall, there are billions to save after we Vote Leave.’

Michael Gove is really channelling the bad carpenter here. Gosh, he really does not like equal treatment, non discrimination and standardised procurement rules. Much better to allow each contracting authority to just tailor the procedure to their needs and pick up a couple of "random" economic operators it trusts to bid for the contract. What could possibly go wrong in the Govean view of procurement nirvana? By the way, was it the rules fault that led to the G4S 2012 Olympics scandal? Or the Serco one? Or the West Coast mainline fiasco? Just imagine how much worse procurement would get without the safety net afforded by the current rules.

The elephant in the room is that most procurement spend actually happens below the thresholds where EU Member States are pretty much free to do whatever they want. (Sketchy) data from 2010 indicated that over 80% of EU procurement spend occurred below thresholds. Slightly sketchy data from Portugal puts the figure at 50% but probably this figure is under represented.

So where is the magnificent regulation the UK can today have without interference of that pesky EU law Directive? In Sections 109 to 112 of the Public Contracts Regulations 2015 and in countless guidance and policy documents available on the Government's website. Easy as pie to follow.

As for his diatribe against the "EU's foolish rules", remember, it was the Coalition Government that:

i) negotiated the current round of Directives;

ii) implemented them by copying and pasting way too quickly the Directive 2014/24/EU into national law (to the point the Public Contract Regulations have already been amended);

The irony here is that Directives set the objectives and it is up for the Member States to decide how to best achieve them. I concede the point that Directive 2014/24/EU is particularly detailed but there is always scope to tweak the rules. But hey, that takes time, knowledge and risk taking. Much easier to kick those difficult decisions to the long grass of judicial review, guidance and policy notes.

What can citizens do when public contracts data gets released into the wild?

Well, in Slovakia we have seen (via Transparency International) that around 10% of the population goes into the procurement portal to check what is being purchased by whom and from what suppliers.

In Portugal numbers are probably not as high, although every now and again the local press decides to publish something. Well, some people are taking matters into their own hands and blogging about potentially shady contracts at Ma Despesa Publica. It roughly translates into "Bad Procurement".

I like the style and most of the content is good (if not from a gossipy type of way). It is great to see pressure being gently applied upon public servants to explain why and how they spend taxpayers money. For example, monthly security services contracts being awarded without competition smells of fractioning/unbundling, something completely illegal under EU law. Well spotted ladies and gents.

However, as one professor of economics once told me, the downside of putting this information out there is that a lot of people which do not understand how public procurement works will be blowing whistles where there are none to blow.

Case in point, a stated owned company (although in the process of being wound up) hired some lawyers via the negotiated procedure (direct award in Portuguese). My views about legal services not being subject to the rules of Directive 2014/24/EU and Directive 2004/18/EC are probably well known by now, and no one more than me would like to see them changed. However, "we are where we are" and unfortunately legal services can legally be awarded directly. Furthermore, this particular contract was well below EU thresholds and the national law also allows for this type of action. Instead of railing against a decision that is (unfortunately) entirely legal, this energy would be better spent lobbying to change the legislation.

I hope the next Government shows some spine and starts chipping away at the discretion of contracting authorities to use these type of procedures be it for legal services or any others. It would be great if started in the legal services though.

Links I Liked [Public Procurement]

1. PPP/PFI risks (in Spanish). I would add to the list information asymmetry and regulator capture. Very good points nonetheless.

2. Damages and re-tendering awarded in Woods Building Services vs Milton Keynes Council [2015] EWHC 2172 (TCC). Interestingly enough although Judge Coulson recognised that the decision should be set aside and there was a loss of profit, the damages awarded did not cover loss of profit as the contract is to be re-tendered. Apparently the claimant did not request in its claim for the contract to be awarded to it. Fascinating. Full decision here.

3. UK public procurement rules 'hinder digital purchases'.  "A bad carpenter blames his tools."

4. Borisbus is now known as the Roastmaster. My first impression upon reading this piece was to rail against the whole idea and how it was conceived. The more nuanced part of my brain counter argued that failure is part of the price of innovation and for the most part hybrid diesel/electrical bus fleets are still under development. Having said that, the door opening on the back is a gimmick that has nothing to do with innovation as do the small windows on the top or the lack of proper ventilation. That is just poor design, sorry.

5. The new World Bank Procurement Framework has been approved. Here we go into uncharted territory. Or maybe not as there is a lot in there based on European experience.