YORK CITY DEPARTMENT OF INVESTIGATION TO: FILE DATE: FEBRUARY 8, 2016? RE: CMS NUMBER: 15410921 CASE NUMBER: 113-015 CASE NAME: PROCUREMENT OVERVIEW FROM: ASSISTANT COUNSEL CLOSING MEMORANDUM Thejbr't'mring is a tit-tit! pertaining Hi this inverrigrtrirm and in)! cach- rum" m'erjy?rr'r learned during the course rifrhis immiigatinri. ORIGIN OF CASE AND NATURE OF ALLEGATION: The Of?ce of the Inspector General (0K3): fer the New York City I-lnusing Authority (NYCI initiaierl prnnetive investigatidn intn varimts aspects nt? procurement prncess. In 2014. NYCHA awarded contracts in excess of$329 million for constructidn related work. RESULTS OF INVESTIGATION: Overview of the I?rncurcment Process In December nt?2fll4. the United States Office 01? Management and Budget (OMB) issued new regulation 12 CPR. Part 200. in an effort u} streamline Ianguuge from eight different OMB Circulars and provide me uniform standard for procurement procedures. On June 24.. 2015. NYCHA revised its nrneurcment procedure and issued Contract Prueedure Resulutiun (CPR) General Procurement Policy. to comply with the new federal regulations. Procurement 'I'Vpcs A review nt? 2 L713 200 and N?r?CltA?s CPR revealed six. different metheds by which an item or contract can be procured: l) Micro Purchases - Contracts that require no price quotes and are for purchases QIEBSIJIJU or less. 2} Small Purchases Purchases greater than 355.009 and up It) $156,000. which are ul?ten relierrcd to as three bids and a buy. They are advertised and require at least three bids. Sealed Bids - greater than $150,000. They require advertisement. a sealed bid. and generally awards t0 the luwest responsive and respunsiblc bidder. 4i) Procurement by Proposal - This n?tethuti is used when eunditiens are not appropriate for a sealed hid and the contract wiil exceed the small purchases threshold. This type nt?nitieuremcnt Number: {?asu Numher: int)! 5 {?ase Nam-e: Procurement Overview is most commonly used for professional services such as transcription services. construction management sets-?ices. and architectural t? engineering contracts. Sole Source Specialized contracts fer either a unique vendor or item when: there is no competitive market available. U1 u) iinergency Contracts - Contracts that occur due to an emergency and cannot go through normal procurement methods. Procurement Procedures The 016 reviewed NYC-HRS CPR policies and procedures to verify that they comply with 2 L?l?lt. Part Etltt. Additionally. the (MG obtained recrn'ds front the NYCHA Procurement Department of a breakdown ot'all expenditures for the six different types of procurement methods for the time period 01? January 1. Ell-l5 through November 2t]- 2015. The 01G then reviewed the datasets in conjunction with NYCHA's policies and procedures and identi?ed several areas of potential vulnerabilities. Micro Purchases A review of the data revealed that expended $54 million in micro purchases in the reviewed time period. classi?es micro purchases as any contract for less than $5.000. ?liltesc contracts require no price quotes. are for purchases of $5.000 or less. and must be distributed equitably among quali?ed suppliers. Out ot?a total of i.5l2 vendors. 17 had amassed contracts that aggregated in excess and this subset of vendors accounted for 33% at all micro purchases. The 010 conducted a cursory review into the 17 vendors and found two companies that reported on their Vendes submissions annual gross revenue ol.? antler 5100.000. whereas NYCIIA records demonstrated that these two companies had contracts with NYCHA that far exceed this threshold. One ol? the two companies with inaccurate Venues submissions. A review of the type of purchases made revealed that a large portion of these pure roses are tor painting and tiling ot? NYCHA apartments. where the development property manager has the autonomy to choose the vendor. The DIG spoke with Joe Schmidt (Schmidt). the director I'lA?s Procurement Department. who intormed the that is beginning to transition away from micro purchase contracts and toward a greater use of requirement contracts. in an attempt to prevent a small field of vendors from monopolizing micro purchase work at believes that this new process will reduce opportunities for stalil'to conspire with vendors. According. to Schmidt. the Procurement Department currently confiposes a report of all micro purchases to look for patterns or suspicious activity. [I?Procurement stai?f spots suspicious activity. he or she will reicct the micro purchase request and will instruct the requesting department to solicit three competitive bids. i-iowevcr- no examples t-vere provided and the DIG was informed that micro purchases are very rarely rejected. r'tdditiomillv. Procurement has identi?ed potential and is implementing a tour phase plan to reduce the. number ol? small procurement contracts and instead Number: I 5-00934 {Etna Ntunhcr?: .I Suili 5 (?anc Manic: Procurement Overview initiate contracta. Horror-ct: the use of micro purchases cannot be completciy eradicated bccauac sonic rcqucsts for scrviccs or matcrials arc infrequently. such that a contract would not bc i?caaiblc. ?i?hc DIG has idcnti?cd the following corruption hazards "For micro purchases: 1) one vendor or a small pool ot?vcndora tnonopolizing micro purchases: N?r?Cl-tA atat?t? conspiring with vendors to steer contracts to a preferred vendor. or engage in other corrupt contracting practices. Scaled Bids: Tilt: incthod of awarding contracts through scalcd bids lbcuacs on awarding contracts?; to the i) ion-rest 2) rcsponsirc and 3) responsible bitidcr. as identi?ed in NYCHA D). A rcvicw of the data by the 010 indicatcs that procured over $769 million in contracts via scaled bids. iA'a CPR. scaled bid the cost of the bid; term refers to the bid which was the Ion-?cat or closest to the projected cost estimate. ?l?hc ?responsive" rcl'crs to the vendor?s ability to comport with the requirements. listed in the bid solicitation. including submitting the bid on time. submitting the bid at the proper location. submitting the bid in the proper Format. and including a bid bond. The term ?responsible" refers; to consideration of items such an: a contractoria integrity, compliance with public policy. record of past and ?nancial and technical resources. CFR ?200 According to a project administrator in the Procurement the scaled bid process is initiated when rcqucsting NYCHA department noti?es the Procurement Department of a contract to be awarded. Procurement subsequently notifies the City Record. where the bid solicitation is pubiishcd 2.1 days prior to the bid opcning. in 200?). NYCHA l~Suppiicn a wcb?bascd application that provides capabilitics to supplicrs, inciuding bidding. I-Supplicr Portala? Sourcing Supplier mcnu option is designed to provide vendors with remote access to bid status and forms and pertaining to the bid. informed the DIG that as bids are received by Procurement. the}; are kept in a sealed cmclopc and are datcnatampcd and litnc-stampcd, and in a iilc cabinet in a locked oi?iicc. At public hid upcnirt?. NYCHA has at [cast procurement cmploycca prcacnt (one to rcad the hida. onc to record bids. and one supervisor) and one design-rec from requesting NYCHA department. Oncc all the bids havc the bid rccordcr notifies \"?l?iOtiS NYCHA stakeholders via c-tnail oi" bid results.3 'I?hc cwmail from states the contract name and number: time for system docs not have the capacity to track who downloads a bid. Consequently. cannot use l-Suppiicr to distribute to ali particn who picked up hid clocumcmn. The tbliowina departments arc noti?ed oi'thc bid rcsulta: OIG. Financial Planning. Resident licsiun. anti 5 FMS Nut-pheri lS?Od?a??d Case Number: I 5-0 5 Case Name: Procurement Overview completion of the project; bid date and time; development name; the requesting NYCHA department: the amount ot'thc cost estimate; and the names and prices ol?the three lowest bidders." Alter the bid opening. the requesting NYCHA department reviews the bids and selects the ?render within two days from the bid openino. An email is sent to the director of Procurement to initiate Procurement's process oi~ formatting Bid Tabs. and notifying the 016 to initiate a Vendor Name Check and subcontractor approvals. Capital Projects Division (CPD) often requires that the lowest bidder come in to review the contractor's quali?cations, the bid proposal. and ensure that the contractor understands the scope of work. CPD will then prepare and submit a recommendation memo to the Vice? President of CPI), which is forwarded to the Executive Viee~Prcsident of CPD for approval and signature. A signed recommendation memo is prepared by Special Administrator who then prepares a Board briefing memo and resolution for the NYCHA Board calendar meeting. N?r'CllA can elect to refuse to award a contract to the lot-rest responsive bidder [hr the following reasons: The contractor has been selected for too many awards and there is a concern that the contractor does not have the capacity to complete the project; I The bid submitted is unrealistically low. This occurs when the cost estimate and the bid estimate differ greatly. which would indicate that the contractor did not fully comprehend the scope ol?work being soiicited; 'l?here is not a suf?cient response to the bid or there is only a sole bidder; or The lowest bid is too high and deviates too far from proposed cost estimate. . The 016 has identified the following corruption hazards: l) bid collusion two or more vendors coliuding to arti?cially in date or deflate bid. estimates; 2) some potential bidders not receiving addenda. due to limitations on NYCHA procurement software. and being automatically deemed for failing to comply with the bidders? requirements. Procurement by? Proposal A review of the data revealed that 1A procured over $326 mitiion in contracts via. the use ol? a Request for Proposal This method is used when conditions are not appropriate for a sealed bid and the contract will exceed the small purchases threshold. An adequate number ol? quali?ed sources must be solicited and the responsible ?rm whose proposal is most advantageous to will be The ()lG has alrcad}r made a recommendation to N?r?CllA regarding proiected cost estimate. Speciticallv. the GIG noticed that some ot'thc cost estimates did not contain critical information such as the date the estimate was pertornicd or the name ol?the estimator. both critical factors to know in the event that hid fraud or collusion may have occurred. has since the ()lt'i's recommendation to ensure that all cost. estimates contain this inl?m?imttion. EMS Number: I Case Numhcr: I Casc N31116: Procurement Overview The vast Irratioritgr of these: contracts are for construction 111anagcment. and architectural and enginccring services. [111: 01G spoke 111 1th Interim Vice President ot Supply and 11.1113 infomted that the Procurement Department has a Road Map Ior the RFP process which IS the current standard that all RFP 1; must IoIlow. According to - the Road Map incorporates the United States Department of Housing and Urban (HUD) regulations pertaining to publicizing and soliciting RFPS. The 016 reviewed the docunicnt referred to as tho Road Map and Found that 'it does protidc clca1 di1cction on the p1occss an 11111 solicitation must follow. Ilow,cver the Road Map docs not 1711-111 idc 11111 instructions on evaluating RP P11 or factms an 1111' aIuatot should consider it h1lc evaluation an RFP - al so 111Ioimcd OIG that NYC. IIr?t requirca all indit-iduala chosen to sit on RFP selection committees to 1111116111- and acknowledge an onlino PowerPoint presentation rcgardinu selection committee standaria ca - The UIG air-11:1 rot-'icncd Pouanoint proscatation which illustrates factors that should be when rcricxvina a proposal. - has informed the OICI that NYCHA is now revising its Standards and Procedures for Procurement and that now procedure will information containcd in both the Road Map and the PowerPoint. presentation. the UICI has identi?ed the I?oilowing corruption hazards: I I lack of uniformity and written procedure for RFP scicction committee composition: 2] vague standards for selection. E'1111C11zcnc1 onti 111111 procedure for emergency cruttracts speci?es; that 1111113113 an emergency ottiats4 and there is an immediate need for supplies. services. or comtructinn. the normai procurement methods may hr: wait-113d. It? the contract is in of? $25,000.. the rcqucsting 11.1113t prepare 11 expiaitting why such action is in the best interest of at which point an ("fortit?icntc 11111311 bc issucd by the General Managor or his dcsigncc, upon approval by an Opinion oICi-cncrai Counsel. A review of tho procurement data by tho OIG revealed that NYCI-IA 21 emergency contracts. totaling 55 (1175613751 Iiowct'cr. 1:1 acarch of intct'nul database calicd CPD Data Warehouse rcvcalcd that failed to enter these contracts and thus the database 71cm emergency contracts for 20(112111195 1111 cmcracnu 11.1. an own! that would 11111 much thrcatcn puhhc health weltaro or aat?cty. or acriouslt and tid?r'CISCIft a acrossart service. 01 endangers property. 111' untild othcmisc cause serious datnagc to Authmitt- inctudinu without Iimitation cmcrucncics 11111111111 t1}. reason of tire. ?ood earthquake epidemic riot or equipment 111 stlucluralt tuihn'c NYCIIA Standard Procedure 1182:}. ?Jn Number: 1 ??tlttilld Case Number: I Iii-015 Case Name: Procurement Overview According to Capital Projects Standard Procedure: Emergency Work Procedure 060:883). the program director of the emergency project and procurement administrator are authorized to prepare a list of approved eontrz?tctors For solicitation of emergency bids. There is no requirement for public bid or advertisement of these contracts. Per standards, the contractor must have a proven track record of quality performance and integrity. in order to be considered for the approved vendor list. iaiowever, in October 2015. a $5 million emergency contract was awarded to Parsons Construction inc. a corporate entity that had no prior business dealings with and it is unclear why the company was placed on the approved emergency vendor list. The 010 has identified the tollowing corruption hazards: l) the potential to steer emergency jobs to unquali?ed vendors. or preferential vendor treatment: 2) a lack of transparency pertaining, to how a vendor is selected to be placed on the approved vendor emergency contracts list. CONCLUSIONS AND RECOMMENDATIONS: The 010 conducted a review of NYCHA's Contract Procedure Resolution and concluded that N?r?Cl'lA is in compliance with 2 C.F.R. Part 200 procurement regulations. The OlG?s investigation determined that is taking additional measures to prevent a small group of vendors from rnonopoiizing micro purchases. and is creating a standard procedure that will encompass RFP procedures. However. the 010 has identified several areas which warrant implementation of additional measures and safeguards. Regarding micro purchases. NYCHA should remain vigilant with its screening process to ensure contracts are being distributed equitany among qualified suppliers. Based on the above. the 016 makes the following, Policy and Procedure Recommendations: NYCHA should ensure that Procurement stat?t?is trained once a year on bid-rigging prevention: - should implement a method of tracking who downloads bid packages to ensure that all parties who download a bid package are noti?ed to the bid posting; a Staff who will be participating in reviewing proposals should be given a refresher as to procedures and selection guidelines once a year: -- should inciude a corruption prevention component to their RFP Post-'erPoint Presentation: I In order to enable tracking and transparency. CPD should ensure that (L?l?iSt?s Data Warehouse is updated (1 CMS Number: 1 54.30924 Case Nun?ubr-rr: I IS-OI 5 Case Name: Procurement (")veruiew I NYCHA shouid amend SP 060:88:l page 7. Section IV (GHEL to ensure that ali vendors on an approved emergency vendor list have had prcvious contracts with and positive evaluations. The will continue to manitor procurement procedures and practices. [1 is recurmnended that these ?ndings be re?ned to [t is further recommended Ihat this inwstigalion he closedby: Date: 1 Assistant Coun: ~l Recommended Approval by: Date: {o by: