District of Columbia: Procurement System Needs Major Reform
Released: 2007-02-15T00:00:00

Letter

Background

For fiscal year 2005, the District’s Office of Contracting and Procurement—its lead contracting office—reported conducting over 20,000 transactions valued at $1.2 billion on behalf of 55 District entities, five of which accounted for $596 million (see table 1 for the departments, agencies, and other entities reporting procurements through this office). Over two-thirds of the District’s procurement dollars managed through the lead contracting office was spent on professional and public safety services, human care, and road and highway construction. In addition, some District entities, including the Board of Education for District of Columbia Public Schools and the Department of Mental Health, procure independently of the lead contracting office. According to information available from District sources, these entities spent over $600 million in fiscal year 2005.

The District also has special requirements related to being the seat of the federal government. The fiscal relationship between the federal government and the District as well as city governance have been perennial questions for Congress, and the District’s local autonomy has evolved significantly in the last 30 years. In 1973, Congress enacted the District of Columbia Self-Government and Governmental Reorganization Act or Home Rule Act, which established the structural framework of the current District government. The Home Rule Act allowed for an elected Mayor and a council with certain delegated legislative powers. However, Congress explicitly reserved legislative authority over the District. The Home Rule Act generally provides a framework and processes for Congress to enact, amend, or repeal any act with respect to the District. Congress used this authority in the 1990s to enact laws intended to restore the city to financial solvency and improve its management in response to a serious financial and management crisis. Since the 1870s, the federal government has made financial contributions to the District’s operations. In fiscal year 2006, federal government appropriations included $603 million in special federal payments to the District with $75 million for elementary, secondary, and post-secondary education initiatives.

Amendment to the District’s Procurement Law Aimed at Addressing Reported Challenges

In 1997, the council, with the Mayor’s approval, amended the District’s procurement law to centralize procurement under one contracting office, which would be the exclusive contracting authority for all procurements covered under the act. The amendment also authorized the Office of Contracting and Procurement to be headed by a CPO who would be appointed by the Mayor for a 5-year term, with the advice and consent of the council, and could only be removed from office for cause. The CPO was required to have no less than 7 years of procurement experience in federal, state, or local procurement. The CPO, by delegation of the Mayor, was given the exclusive contracting authority for all procurements covered under the law.

The amendment was enacted around the same time that various procurement studies were published, with one describing procurement in the District as “in crisis”—as evidenced by over 600 contracts expiring in 90 days and a rushed response to ensure that vital services were not interrupted. The studies reported that procurement processing was inconsistent and responsibilities were widely distributed across the District; training for procurement personnel was insufficient and few were professionally certified; agencies maintained separate databases; and there was no acquisition planning process to define needs. Centralization under the CPO’s office was expected to improve the quality of the District’s procurement operations by promoting accountability, decreasing procurement costs, eliminating duplication of effort, and increasing financial control and performance. In particular, it was reported that centralization of the acquisition function could allow the District to spend money more effectively by promoting more competition and through bulk purchases of goods and services used by multiple agencies.

Despite the expected benefits, the District’s inspector general’s and auditor’s offices continued to identify deficiencies across the District’s procurement system that frequently produce negative impacts on the integrity and operations of the District. Moreover, for the past 5 years, the inspector general’s annual reports have cited procurement as a significant area of concern due to lapses in contracting operations resulting in costly inefficiencies, fraud, waste, and abuse. Some of the persistent problems reported by District auditors and inspectors include the following—many of which are similar to those that prompted the 1997 law: Outdated procurement law and regulations that fail to effectively address long-standing procurement deficiencies, policies, and procedures for all aspects of the process specifically in the areas of solicitation, awarding, and monitoring of contracts.

Lack of continuity in procurement law, policies, and procedures as applied to some agencies.

Noncompliance with procurement law and regulations, and lax accountability over individuals for not complying with the District’s guidelines.

Ineffective competition and overuse and misuse of sole-source contract awards.

Unauthorized commitments and purchases by District personnel from vendors without valid written contracts.

Failure to conduct advanced planning for known projects and procurement requirements that lead to costly sole-source acquisitions often based on faulty justifications.

Insufficient independent oversight of agencies that expend significant resources for information technology, construction, and communication projects.

Managers not ensuring a sufficient number of experienced procurement personnel, proper training, and certification of procurement workforce.

Characteristics of an Effective Public Procurement System

The objective of a public procurement system is to deliver on a timely basis the best value product or service to the customer, while maintaining the public’s trust and fulfilling public policy goals. The federal government achieves this through guiding principles established in the FAR. NASPO and the ABA model procurement code have also established key guiding principles and practices that are generally accepted and should be incorporated into an effective procurement system. In addition, our work has identified best practices and other accepted elements that are essential for an efficient and accountable acquisition function. Key characteristics of a successful procurement system include: Transparency—Comprehensive procurement law with clear and written policies and procedures that are understood by all sources.

Accountability—Clear lines of procurement responsibility, authority, and oversight. State and local governments recommend the CPO have full- time, sole, and direct responsibility for the procurement program.

Integrity—Public confidence earned by avoiding any conflict of interest, maintaining impartiality, avoiding preferential treatment for any group or individual, and dealing fairly and in good faith with all parties.

Competition—Specifications that do not favor a single source and solicitations widely publicized to benefit from the efficiencies of the commercial marketplace.

Organizational Alignment and Leadership—Appropriate placement of the acquisition function in the organization to cut across traditional organizational boundaries with stakeholders having clearly defined roles and responsibilities. For state and local governments to operate effectively, recommended practice is central leadership in the executive branch.

Human capital management—Competent workforce responsive to mission requirements, with continued review and training to improve individual and system performance.

Knowledge and information management—Technologies and tools that help managers and staff make well-informed acquisitions decisions.

The District’s Procurement Law Does Not Promote Transparency, Accountability, and Competition

The District lacks a uniform procurement law that applies to all District entities and that provides the CPO with adequate authority and responsibility for the entire acquisition function—an essential component to promoting transparency, accountability, and competition. In addition, the law has been amended to exempt certain District entities and procurements from following the law’s competition and other requirements. According to current and former District procurement officials, District entities are seeking to expand independent procurement authority—a move that would undermine attempts to establish a central authority. Finally, the law limits competition by broadening the exceptions under which sole-source contracts can be awarded; authorizing dollar thresholds for small purchases that are higher than those provided for in other city and federal government procurement regulations, including the FAR; requiring the use of a local supply schedule with limited vendors for a variety of goods and services; and encourages agencies under certain circumstances to bypass contracting rules to directly pay vendors without valid written contracts. In contrast, other cities’ procurement laws emphasize the competitive process and having a strong centralized authority for their CPOs in order to safeguard the integrity of their procurement systems.

District Lacks a Procurement Law That Applies to All Entities and Provides Clear Authority to the CPO

Contrary to sound procurement principles and practices as identified by a variety of sources, the District lacks a uniform procurement law that uniformly applies to all District entities and provides clear authority to the CPO. To promote transparency, accountability, and maintain integrity of public procurement, NASPO and the ABA model procurement code for state and local governments describe concepts for creating a uniform procurement law that provides for central management of the entire procurement system and broad discretion and authority to a CPO to implement policies. Similarly, in the federal procurement system, the FAR establishes uniform policies and procedures for acquisition by most executive agencies under the President. Without such a foundation, the District’s procurement system is vulnerable to poor acquisition outcomes and less capable of maintaining public trust.

Twelve District entities, including the Water and Sewer Authority and Housing Authority, are not under the authority of both the District’s procurement law and Office of Contracting and Procurement, and are allowed to follow their own procurement rules and regulations. In many cases, the procurement law specifically exempts these entities from following the law, which is contrary to the central statutory purpose of the District’s procurement law to (1) eliminate overlapping or duplication of procurement activities; (2) improve the understanding of procurement laws and policies by organizations and individuals doing business with the District government; and (3) promote the development of uniform procurement procedures governmentwide. As a result, the District’s law has created a procurement environment where some entities follow different rules and practices, undermining the District’s ability to capture an overall view of its procurements as well as placing an added burden on vendors to understand how to do business with the District.

According to NASPO, it is essential to have one uniform law that applies to all agencies and their procurements and exclude blanket exemptions for any executive agency or department. If exclusions are necessary, the law should define them narrowly by types of goods and services procured. NASPO state procurement leaders we spoke with said that they would be unable to effectively run their own procurement systems without one governing law. Without it, vendors are discouraged from competing since they do not know what rules apply, which increases the risk that taxpayers pay more for goods and services. According to several former and current CPOs in the District, not having a uniform procurement law that governs all entities has been problematic in ensuring transparency, accountability, and oversight. Officials from other cities we reviewed agreed that having a common procurement framework is critical for ensuring transparency and integrity in the procurement system. Atlanta, for example, has one procurement law that governs all agencies, which allows agencies, vendors, and contracting employees to have a clear and consistent view of how procurements should take place.

The law also fails to provide a service agency that would be the exclusive contracting agency for all District procurements under the Mayor’s direction. NASPO calls for a centralized procurement official with the authority and responsibility to, at a minimum, develop standardized policy and procedure, delegate procurement authority to executive agencies, provide expert assistance and guidance on procurement issues, and oversee the acquisition process. While the statutory purpose of the 1996 amendment to the procurement law was to centralize procurement in the Office of Contracting and Procurement headed by a CPO, the law does not give the CPO sole authority over the full spectrum of procurement activities in the District. For example, although the law allows the CPO to delegate procurement authority to employees of District entities covered under the law and to the CPO’s own staff in the Office of Contracting and Procurement, the council, with the Mayor’s approval, has used its authority to pass emergency laws exempting entities and procurement actions from the CPO’s authority.

The council’s use of its emergency act authority has been problematic in certain cases where it exempted District entities from conducting their procurements through the CPO’s office. For example, in October 2006, the council amended the procurement law to provide the District’s Board of Library Trustees procurement authority independent of the Office of Contracting and Procurement and the District’s procurement law—contingent upon the board issuing its own procurement regulations—except for provisions pertaining to contract protests, appeals, and claims. A senior official in the Office of Contracting and Procurement said that circumventing the CPO’s authority in this case was not a solution largely because the library board trustees do not have the contracting experience or staff to exercise the new authority. NASPO recognizes that to ensure the appropriate level of transparency and accountability and to preserve the integrity of the procurement system, it is critical that the CPO have sole responsibility for delegating procurement authority.

According to the District’s current and former CPOs, agencies and the council are pushing to expand independent procurement authority through exemptions. These efforts, if successful, could further undermine efforts to establish a central authority—a key objective of the procurement law amendment more than a decade ago. NASPO state procurement leaders as well as current and former CPOs in the District told us that this is a move in the wrong direction and that amendments to the procurement law should only be made to introduce more effective procurement methods or when current laws no longer make sense.

In addition to authorizing agencies to award their contracts independently of the CPO, the council has eliminated the CPO’s sole authority to debar or suspend contractors from future contracts for various reasons, such as conviction of certain offenses. In 2003, the council eliminated this authority after the then-CPO debarred one vendor who pleaded guilty in federal court to conspiracy in giving cash bribes to District public works officials in return for falsified orders for asphalt-delivery. Prior to this time, the procurement law gave the CPO sole authority for suspensions and debarments. According to both a former CPO and a current senior procurement official who were involved in this case, the procurement law was amended to establish an interagency suspension and debarment panel that reconsidered the CPO’s decision in this case as well as made final decisions in all future cases. After the panel’s reconsideration, the vendor was allowed to resume doing business with the District. To ensure a strong, central procurement system, NASPO recommends that CPOs have sole authority to implement a range of remedies for poor vendor performance, including suspension and debarment.

Other Exemptions in the Law Further Undermine Transparency and CPO Authority

The council, with approval from the Mayor, has further amended the law to exempt temporarily or permanently certain agencies from following the procurement law’s requirements for competition or conducting their contracts through the CPO. For example, in June 2006, the council exempted the Director of the Department of Health from following the competition and other requirements of the procurement law and allowed the Director to select and contract with a vendor for an air quality study of the Lamond-Riggs park within 30 days. In another case, in June 2006, the council, with the Mayor’s approval, exempted the Office of Contracting and Procurement from following its procurement law for awarding a construction contract on behalf of the Department of Youth Rehabilitation Services for a youth center at Oak Hill. A senior District procurement official told us that despite this exemption, the office intends to award competitively.

According to senior procurement officials in the CPO’s office, entities seek exemptions believing that working through the CPO or the competitive process required by the law takes too much time. Current and former District officials noted that in giving some entities their own temporary procurement authority through exemptions in the law, the council and Mayor have, in effect, created a culture of resistance to centralized management and oversight of the acquisition function. One senior District procurement official told us that such exemptions also create inequities among agencies; explicitly discourage competition—contrary to the statutory purpose of the law; and occasionally show preferences for certain agencies and vendors. A former District executive and former CPO told us that such exemptions have over time distorted the procurement law and made it difficult for any vendor interested in doing business with the District to understand how and to whom the procurement law applies. Further, it is questionable why the council would use emergency act authority to make noncompetitive awards given that the procurement law and implementing regulation already establish procedures for these types of procurements.

NASPO state procurement officials we spoke with voiced concerns over exemptions that would give certain agencies the authority to operate under their own rules or no rules at all and jeopardize the integrity of their public procurement system. Moreover, they said that such exemptions further undermine the CPO’s authority over the District’s procurement system and ability to develop consistent procurement policy. Other cities we reviewed have faced similar challenges with what they called “political influence” in the procurement process. New York’s CPO told us the city council plays no role in making procurement policy and under no circumstances would the council be allowed to pass exemptions to the city’s procurement law similar to those passed in the District.

Other Provisions in the District’s Procurement Law Create Barriers to Competition

Long-standing procurement principles, policies, and procedures implemented in the FAR and recommended by NASPO and the ABA model procurement code recognize that maximizing the use of competition ensures governments receive the best value in terms of price and quality. According to a procurement law expert who participated in a GAO forum on federal acquisition challenges and opportunities, contractor motivation to excel is greatest when private companies, driven by a profit motive, compete head to head in seeking to obtain work. Consistent with this fundamental principle, the District’s procurement law mandates that full and open competition is the preferred acquisition method. However, certain provisions in the District’s procurement law have resulted in a public procurement system that emphasizes flexibility and speed over competition. Specifically, the law (1) authorizes sole- source contracting under broad provisions, (2) establishes higher dollar thresholds for limited competition small purchases than are allowed in other cities or the FAR, and (3) mandates the use of a local supply schedule with a limited number of vendors—each of which permits use of streamlined acquisition methods for high dollar procurements that result in limited or no competition.

Broad Authority for Sole- Source Contracting

Both NASPO and the FAR recognize that circumstances sometimes make it difficult or impossible to conduct formal competitive procurements and that in such cases, the use of sole-source procurements is warranted. However, NASPO and the FAR also recognize that such procurements should only be permitted under narrowly defined conditions and should always be properly justified. They state that to ensure transparency in these types of procurements, the law should also require legal notice of intent to initiate a sole-source procurement over a determined dollar value. While recognizing there are situations in which competition must and should be limited, NASPO states that artificially restricting competition when competition is possible defeats a central tenet of public procurement.

Rather than restrict the conditions under which sole-source procurements can occur, the District’s procurement law has been amended—as recently as 2002—to expand exceptions to full and open competition. Although complete data District-wide on sole-source contracting are unavailable, over 14 percent—or $173 million—of the fiscal year 2005 reported procurement spending through the Office of Contracting and Procurement was on a sole-source basis. Of the District’s various sole-source provisions, three account for the majority of sole-source contracts and spending (see table 2). Of the three provisions, one is similar to an equivalent provision in the FAR, while the remaining two provisions have no equivalent. Senior procurement officials and former CPOs pointed out that these provisions in the procurement law establish a wide range of circumstances to bypass competition.

Over 40 percent of the District’s fiscal year 2005 sole-source contracts were awarded under provision (a)(1), which similar to an equivalent FAR provision, requires agencies to justify that there is only one available source for a good or service. Of the 296 contract awards under this provision, 45 percent were made by the Office of the Chief Technology Officer (OCTO) for a variety of information technology and telecommunication services. According to NASPO officials we spoke with, typically more than one vendor in the commercial marketplace provides these services and the services would normally be competed. In 2005, the District’s inspector general reported on questionable single available source justifications involving information technology services. According to the inspector general, there were numerous competing firms that could have satisfied the District’s needs for eight selected single available sole-source contracts they reviewed. For three sole-source contracts for general purpose commercial information technology equipment, software, and service, the inspector general found that there were 700 vendors eligible to compete through the District’s supplier database and another 113 vendors located in the District eligible to compete through the federal supply schedules. Overall, the inspector general concluded that the District could have potentially saved at least $589,000—over 24 percent—of the $2.5 million for the sole-source contracts awarded.

More than half of the fiscal year 2005 sole-source contracts were awarded through the (a) ( 3) and (a) (3A) provisions, which permit agencies to award sole-source contracts to any vendor who agrees to charge according to a schedule of prices for federal agencies. Unlike the District’s single available source provision, these provisions have no equivalent in the FAR or NASPO and ABA procurement guidance for state and local governments. According to a senior District procurement official, these two procurement law provisions were intended to save time in the District’s procurement process by piggybacking off the prices previously set as a result of the prior competition—primarily contracts awarded to District and other vendors under the General Services Administration’s (GSA) multiple award schedule (MAS) program. The use of sole-source provisions as a time-saving measure appears to conflict with the District’s own procurement regulations, which calls for contracting officers to avoid sole-source procurements except where necessary.

GAO’s work has also found that while MAS has provided the federal government with a more flexible way to buy commercial items and services, contract negotiators do not always use the full range of tools to ensure the government effectively negotiated prices. As a result, the federal government has missed opportunities to save millions of dollars in procuring goods and services. By eliminating competition altogether and awarding sole-source contracts to vendors based on MAS pricing, the District may be similarly missing significant cost-saving opportunities. Moreover, the District may be at greater risk because its sole-source use of the federal supply schedule is not subject to the FAR, and the District’s implementing procurement regulation does not provide specific guidance on the use of the (a)(3) and (a)(3A) provisions. A senior procurement official we spoke with noted that the CPO’s office recently started requiring District contract officers to additionally justify their use of these methods after growing concerned about the large number of sole source contracts being awarded.

To ensure they get the best value for the taxpayer dollar, other cities we reviewed have taken steps to emphasize competition over sole source. These officials recommended that a procurement law—similar to statutes implemented in the FAR—narrowly define sole-source contracting and require that such actions be properly justified and documented. For example, in Atlanta, sole-source contracts may only be awarded when the CPO determines after conducting a good-faith, due diligence review of available sources that there is only one available source for the required good or service. Even for emergencies, Atlanta’s procurement law requires the CPO to use competition to the maximum extent practicable, and sole source may only be considered in the case of a threat to public health, welfare, or safety. According to Atlanta’s CPO, in fiscal year 2005, only five sole-source contracts were awarded. Similarly, New York’s procurement rules specify only one condition or circumstance in which sole-source contracting is permitted for purchases above $5,000; there is only a single available source and competition is not possible.

High Dollar Thresholds for Limited Competition Small Purchases

For purchases under a certain dollar threshold, the administrative costs to formally compete may outweigh the benefits of competition. In such cases, procurement systems may permit streamlined acquisition procedures with limited competition for purchases not exceeding a specified dollar threshold. In the District, small purchase procedures streamline the process by limiting competition to oral or written price quotes from only a few vendors, or eliminating competition altogether (see table 3).

For the District, a series of legislative changes since 1985—when the small dollar threshold for small purchases was $10,000—have increasingly raised the threshold for some entities, expanding the opportunities to limit competition. Currently, the District’s small purchase threshold is $500,000 for OCTO and the Metropolitan Police Department and $100,000 for all other entities. The District’s small purchase authority allows for somewhat larger limited competitive purchases than that authorized in the FAR. Under the FAR’s micro-purchase authority, competition is not required for purchases up to $3,000 when the contacting officer determines that the price is reasonable. For small purchases between $3,001 and $100,000, the FAR’s simplified acquisition procedures require that the contracting officer promote competition to the maximum extent practicable. Generally, the contracting officer should consider obtaining at least three price quotes or offers from sources within the local area and evaluating those to determine the most advantageous to the government. Under the District’s small purchase authority, competition is not required for purchases up to $10,000 when the contracting officer determines that the purchase is in the best interest of the District. Moreover, contracting officers in the District are allowed to waive the competitive small purchase procedures under broad circumstances—such as time constraints and lack of available sources—when it is impractical to obtain the required number of quotes.

In fiscal year 2005, over 75 percent of the District’s procurements through the Office of Contracting Procurement were for small purchases totaling $163 million. However, small purchase procurements could increase in the future. According to one senior District procurement official, there is a move to increase the small purchase threshold from $100,000 to $500,000 for all agencies—a limit five times as high as that prescribed in the FAR. State and city procurement officials voiced concern that the District would consider this change in an effort to expedite procurements by allowing limited competition methods. NASPO state procurement officials we interviewed were surprised at how high the District’s small purchase thresholds were set, and viewed this as one of the procurement law’s major barriers to competition. Each of these officials said that they consider such amounts to be large purchases, particularly at the $500,000 level. As one senior procurement official in the District put it, “just about anything can be considered a small purchase in the District.”

Other cities we reviewed see the economic and quality benefits of competition when larger procurements are involved, such as those the District considers small purchases. In Atlanta, for example, the small purchase threshold is $20,000 and New York, which spends over $11 billion per year on procurement, only recently increased its small purchase threshold to $100,000. According to the Atlanta CPO, raising small purchase limits across the board ultimately compromises the integrity of the procurement system by reducing transparency over procurement decisions and source selection. One District official remarked that, if these types of changes continue in their current direction, the District will no longer have a recognizable procurement system.

Reliance on Local Supply Schedule

The District of Columbia Supply Schedule (DCSS) program also limits competition by restricting the pool of vendors for a variety of goods and services to local companies; requiring entities to use the schedule as a first source for all procurements $100,000 and below; and allowing limited competition for purchases over $100,000—to a ceiling as high as $10 million for certain services. At the same time, there is no mechanism in place to ensure that the incumbent vendor does not receive all DCSS contracts for a particular schedule. NASPO has recognized that balancing the need to promote socioeconomic goals with the need to ensure maximum competition is an ongoing challenge. However, NASPO recommends caution in the use of supply schedule programs, such as the DCSS, because while there is the presumption of best value, competition among vendors is often limited with no incentive to offer best price.

The DCSS program was established in 2002 to help achieve the District’s local and small and disadvantaged requirement established in its procurement law and expand the District’s tax base. According to a former District executive, the DCSS program was also intended to expedite agencies’ small purchases of common and routine items for which competition would not be practical, such as office and janitorial supplies. The current program is the primary vehicle for supporting the District’s small, local, and disadvantaged business enterprises (LSDBE) and requires that District entities use DCSS small business entities to make purchases of $100,000 and below. This mandatory use of the DCSS ultimately limits the pool of vendors for a number of goods and services, which for some of the schedules is fewer than three vendors. Though it may appear similar to GSA’s MAS program of federal supply schedule contracts, the DCSS serves a different purpose. Under the FAR, the purpose of the GSA supply schedules program is to provide federal agencies with a simplified process for obtaining commercial supplies and services at prices associated with volume buying. The FAR provides extensive guidance on the use of the schedules to achieve that purpose. In contrast, the DCSS is designed to promote LSDBEs and lacks the type of comprehensive guidance provided to the federal supply schedules by the FAR.

According to NASPO, unlimited use of supply schedules limits competition and can increase costs because vendors have no incentive to meet the best price of their competitors. Further, open-ended contracts for the same goods or services are awarded to many more vendors than needs appear to demand, removing any consideration of need and price from the purchasing decision. In fiscal year 2006, reported contract awards off of the DCSS—which contains 19 categories of goods and services with nearly 200 local vendors—totaled almost $22 million (see table 4).

Some DCSS contracts are valued much higher than $100,000, including some fiscal year 2006 awards to DCSS vendors valued at $1 million and one award for $5 million. Moreover, in 2006, the CPO’s office raised the contract ceilings for individual DCSS vendors on several of these schedules including the information technology services schedule, which is now set at $10 million. As a result, one DCSS information technology vendor could in 1 year potentially receive a single limited competition order worth up to $10 million. NASPO officials we spoke with voiced concern about the ease with which the District makes what they would consider large limited competition purchases off a supply schedule originally intended to limit competition only for small purchases.

In addition, District procurement officials told us that the DCSS program has limited guidance and no procedure in place to ensure that each vendor is provided a fair opportunity to be considered for orders. Under DCSS terms and conditions, contracting officers must follow small purchase procedures as described in table 3 when buying a good or service off DCSS. However, these officials said that it is up to the contracting officer to arbitrarily select three vendors from each schedule to obtain price quotes; according to District procurement officials, this typically includes the incumbent. For the 14 schedules that have more than three vendors, this discretion could prove unfair to certain vendors. The FAR, in contrast, advises contracting officers to request quotations or offers from two sources not included in the previous solicitation. According to District procurement officials, there is currently no requirement to monitor the use of the schedule to determine whether it is promoting small businesses overall or if a pattern of sole-source contracts to the same businesses is occurring. They told us this type of information would be beneficial to evaluating the effectiveness of the program and that an overall assessment of the current program may be needed to determine if it is meeting its original intent.

The District’s Law Allows Payments for Unauthorized Commitments to Vendors

To safeguard the obligation of taxpayer dollars and protect the integrity of a public procurement system, a government’s procurement law should grant exclusive authority to contracting officers for establishing contracts and restrict employees from making unauthorized commitments for goods and services. It should also grant the CPO the authority to ratify contracts and authorize payments for goods and services received without a valid written contract if certain conditions are met. Until recently, the District’s procurement law appeared to emphasize these standards. Under September 1996 CFO guidance, direct voucher payments without having been first obligated in the District’s financial management system could only be made in 21 specific non-procurement related circumstances—all of which were reasonable and included situations where the payees could not be determined in advance, such as court ordered fines, workers’ compensation, jury duty fees, and medical payments for assault crime victims. However, in 2006, the council, with the Mayor’s approval, amended the procurement law that increased the circumstances under which such payments may be made.

Changing the policy may have had the unintended consequence of focusing agency personnel attention on the process of paying for unauthorized commitments rather than focusing on how to get management attention on preventing employees from entering into authorized commitments. According to financial management officials, in 2005, the District’s CFO office reviewed over 21,000 direct voucher payments totaling $556 million made in fiscal year 2004. They stated that the purpose of the review was in part to determine to what extent these direct voucher payments resulted from unauthorized commitments by District agencies for goods and services. The analysis confirmed that of the vouchers reviewed, over 11,000 totaling $217 million were not in compliance with 21 allowed uses under the 1996 CFO policy. Rather than take steps to hold agencies accountable for these violations, the CFO’s policy was changed without consulting the CPO’s office on the merits of the change. CFO officials told us their office determined it was necessary to accommodate agency circumstances for bypassing the procurement process to more promptly obtain goods and services needed for critical operations.

Under Financial Management and Control Order No. 05-002, issued July 22, 2005, and revised October 17, 2005, the CFO added 7 new circumstances for direct voucher payments to the 21 already included in the 1996 financial guidance. Five of the seven added circumstances were for new non-procurement related transactions, such as temporary welfare payments to families and certain lawsuit settlement payments. The remaining two are for procurement-related transactions, however, and are problematic. The first circumstance—which allows direct voucher payments for goods and services needed for an unanticipated and nonrecurring extraordinary emergency—duplicates provisions in the District’s procurement law that establish procedures for handling such circumstances under emergency contracting procedures. A senior District procurement official said that direct voucher payments should not be made for emergency procurements. The second circumstance allows agencies to make direct voucher payments for liabilities incurred through unauthorized commitments to vendors for goods and services without valid contracts after payment has been ratified—a practice that could further encourage employees to bypass established contracting procedures.

The District’s inspector general has voiced a similar concern with this change and in December 2005 testimony called for a reexamination of the CFO’s 2005 policy for allowing direct voucher payments for unauthorized vendor commitments that bypass contracting rules. More recently, the inspector general reported that in fiscal year 2005, District agencies greatly increased payment ratification requests for unauthorized vendor commitments and the procurement office ratified $34 million in payments.

In the federal procurement system under FAR Part 1.6, the policy provides procedures for ratification actions to approve unauthorized commitments, but also states that these procedures may not be used in a manner that encourages such commitments be made by government personnel. Moreover, the FAR provides a ratification procedure that not only discourages unauthorized commitments, but allows for their approval if certain conditions are met. Specifically, under the FAR, the chief of a contracting office may ratify an unauthorized commitment only when the goods or services have been accepted; the ratifying official has the authority; the contract would have been proper if done by approved personnel; the price is reasonable; the contracting officer recommends payment; the funds were and are available; and the ratification complies with any additional agency regulations. In addition, the FAR states that cases of nonratifiable commitments may be subject to further referral and resolution under government claim procedures.

Allowing government agency personnel to circumvent the normal procurement process and enter into unauthorized commitments with vendors to perform services or deliver goods eliminates the opportunity for competition. After reviewing a draft of this report, CFO officials acknowledged the need to work with the Office of Contracting and Procurement to strengthen the District’s ratification policy. They indicated that unauthorized commitments that cannot be ratified should be referred for possible Anti-Deficiency Act violations. Accordingly, we revised our recommendations to the mayor and the CFO concerning the use of direct vouchers and the ratification process.

Other cities we reviewed have taken steps to curb the use of unauthorized commitments. For example, New York’s CPO described the city’s stringent controls and regular monitoring to detect and publicize agencies’ unauthorized commitments with vendors as well as its discipline of employees for bypassing contracting rules—steps that have greatly decreased the number of unauthorized commitments in that city’s procurement system.

The District’s Procurement System Does Not Reflect Sound Management and Oversight Practices

In addition to generally lacking a uniform procurement law that applies to all entities, promotes competition, and provides the CPO the authority to ensure sound procurement outcomes, the District’s management and oversight of its procurements have lacked the rigor needed to protect against fraud, waste, and abuse. Specifically, the Office of Contracting and Procurement is positioned too low within the District’s executive governmental structure to enforce agency compliance with policies and procedures, effectively coordinate procurement activities and acquisition planning, and sustain leadership. At the same time, the District’s contracting managers and staff, agency heads and program personnel, and other key procurement stakeholders do not have the basic tools for ensuring sound acquisition outcomes, including written guidance on the District’s procurement policies and procedures, a professional development program and certification requirements for contracting staff, and an integrated procurement data system. Although the District and Congress have taken actions to address management and oversight challenges, many remain largely unaddressed.

Low-Level Position of the Office of Contracting and Procurement Undermines Management and Oversight

The low-level placement of the Office of Contracting and Procurement undermines the office’s ability to effectively manage and oversee the District’s procurements across dozens of agencies and departments. NASPO and GAO have stated that the central procurement office’s effectiveness is clearly linked to its location in the government structure and that placing the office at a high level is critical to ensuring effective direction, coordination, and control over a government’s procurement spending. Procurement is viewed as a strategic, service function within the executive branch with the central procurement authority being a key policy and management resource for the chief executive. The low-level placement of the District’s procurement office has led to high CPO turnover and a lack of sustained leadership, significantly impeding progress expected from the 1996 law.

Within the District’s government structure, the Office of Contracting and Procurement is placed under the Deputy Mayor for Operations— essentially relegating procurement to an administrative and operations support function—as further evidenced by its position in relation to those agencies that procure through this office (see fig. 1).

According to former CPOs and current procurement officials, the low-level position denies the CPO direct access to the city administrator, agency heads, and deputy Mayors other than the Deputy Mayor of Operations. As a result, this limits the CPO’s ability to affect budget, program, and financial management decisions. A former District official told us that to improve management and oversight of the procurement system, the CPO needs to be at all executive meetings to raise procurement issues that cut across agency lines. This official told us that it would be helpful to elevate the CPO’s office to a high level similar to other centralized cross- government functions, such as the Office of the Chief Technology Officer, which is responsible for all meeting all of the District’s information technology needs.

The low-level position of the CPO’s office in the District’s governmental structure has also undercut the CPO’s ability to influence day-to-day procurements across the District. According to several senior District procurement officials, agencies often bypass the procurement office and do not consult the CPO’s designated contracting officer when initiating procurements—a practice that has led to unfavorable acquisition outcomes. For example, the District’s auditor reported in 2005 that the offices of the Mayor and city administrator failed to involve the CPO’s office and violated contracting rules by entering into unauthorized commitments with a vendor for international trade mission services without a valid written contract, making the commitment invalid. Ultimately, the CPO’s office was left to ratify a transaction that did not conform to the procurement law or regulations.

One impact of CPO’s low-level placement is manifested in the inability of the CPO to ensure effective acquisition planning—a critical process for anticipating future needs, devising contracting programs to meet these needs, and arranging for the acquisition to promote competition and use of necessary resources. CPOs from the other cities we reviewed consider acquisition planning as critical to managing the procurement system and maximizing competition, and have put in place mechanisms and tools to regularly address planning. In Atlanta, for example, the CPO requires his contracting staff to meet bi-weekly with agency officials to plan for expiring contracts and new requirements. Agencies are also required to submit a quarterly report to the CPO detailing their procurement needs. In New York, agencies awarding contracts must submit a draft plan detailing anticipated procurement actions. They are also required to hold public hearings on their plan within 20 days of its issuance and provide notice of the hearings 10 days in advance.

While the District has a process in place to facilitate acquisition planning across agencies, the CPO lacks the ability to hold agencies accountable for submitting accurate and timely plans. According to former CPOs and current senior procurement officials, District entities in general do not understand the importance of acquisition planning or involving the CPO’s office in planning efforts. Consequently, agencies largely view the required annual plans as a paper drill. In recent years, the CPO’s office has tried to improve acquisition planning across the procurement system without much success. For example, in 2000 the then-CPO implemented a new acquisition planning tool that was aimed at guaranteeing short turnaround for small and simple buys and sharing workload with partner agencies on larger, more complex buys. Though this was the original intent, CPO contracting officers we spoke with do not use the plans to schedule procurement support activities for their agencies. Our analysis of selected contracts conducted by the CPO’s office in 2005 for three agencies against procurements listed in their 2005 acquisition plans found none of the contracts were recorded in the planning tool. conduct advanced planning for known projects, services, and procurement requirements ultimately manifests in costly internally generated emergency contracts and purchases.” A senior District procurement official agreed and stated that the lack of planning does not constitute an emergency, but all too often the lack of planning occurs and forces emergency-type procurement actions.

Finally, sustaining procurement leadership has been difficult due to the low-level position of the CPO’s office. Former CPOs agreed that in a complex and large-scale procurement system such as the District’s, it is essential to have sustained leadership and a CPO with executive-level procurement experience and qualifications. However, over the past 10 years, the District has had five CPOs—three appointed for 5-year terms and two interim—and none served more than 3 years. According to each of the three CPOs appointed to 5-year terms, the inability to effectively coordinate acquisition activities across all agencies and manage and oversee the District’s procurement function undermined their efforts at reform and ultimately discouraged them from completing their tenures. The lack of sustained leadership is underscored by the 2-year vacancy in the District’s CPO position since September 2004, at which time the Deputy Mayor for Operations became the interim CPO. With no procurement experience—contrary to the District’s law requiring at least 7 years of procurement experience—this official acknowledged that it has been challenging to assume the extra responsibilities of the CPO position.

The cities we reviewed have recognized the importance of elevating the central procurement office in the governmental structure as necessary for sound procurement management and oversight. For example, in 2003, Atlanta recognized that the centralized acquisition function headed by a senior procurement director was buried in the structure and took steps to elevate this office with a newly appointed CPO to report through its chief operating officer to the Mayor. According to Atlanta’s CPO, the office now has a seat at the table with the necessary authority to control and direct procurement across all agencies, and to have the Mayor reinforce the CPO’s role in managing the city’s council and agencies.

The District Lacks Other Tools for Effective Procurement Management and Oversight

The District lacks other basic tools to effectively manage and oversee its procurement system. Specifically, the city lacks (1) a procurement manual with clear standardized policies and procedures to guide procurement and agency staff; (2) certification requirements for procurement staff and training for agency staff so that both workforces have the necessary skills and knowledge to fulfill their responsibilities; and (3) an integrated procurement data system that can provide complete, accurate, and timely information to inform acquisition decisions and management. Other cities we reviewed recognize the benefit of having these tools as a way to effectively manage and oversee their procurement systems.

The District Lacks a Procurement Manual to Guide Staff

Despite repeated recommendations since 1997 to develop a procurement policy and procedures manual, the District has yet to do so. Procurement is a complex process guided by numerous policies, documentation requirements, and procedures. A comprehensive manual—one that lays out in one place these policies and rules and standardized procedures and practices—is critical to ensuring procurement and agency staff have a clear and consistent understanding of contracting rules and processes. An internal study by the CPO’s office in 2004 found that in the absence of such guidance, there was a lack of consistency in how the District’s procurement work is done. This inconsistency creates frustration within and outside the government as well as an impression that the District’s procurement actions are unfair.

Each of the other cities we reviewed have developed and implemented a basic procurement manual for strengthening management, accountability, and transparency in their procurement systems. In Atlanta, for example, when the new CPO was appointed in 2003, he found a comprehensive procurement manual was key and immediately took steps to update the manual, which had not been done in 7 years.

The District Lacks Professional Certifications for Procurement Staff

According to former CPOs and current senior procurement officials, the District has not committed to developing a professional acquisition workforce For example, the CPO’s office has not fully developed professional certification requirements. Although the CPO is not required to develop such requirements, this would ensure staff have the qualifications and skills to carry out the responsibilities commensurate with their delegated contracting authorities. A former District executive told us that the CPO’s office should deliver regular training to agency managers and staff on procurement rules and procedures as well as develop metrics to ensure that agency staff participate in the training and obtain the necessary knowledge for fulfilling their responsibilities in the procurement process.

One former CPO referred to his staff as an “accidental” procurement workforce because some had previously been administrative staff and few had any contracting background. In 2005, the CPO’s office conducted a skills and training assessment and determined that the current procurement and contracting staff required training on fundamental processes, such as source selection, contract negotiation, and contract administration. The CPO’s fiscal year 2006 budget added $668,400 earmarked for procurement training, and the interim CPO developed a program to train the District procurement staff on basic contracting concepts. While the 2006 training program appears to have addressed some of the immediate contracting skill gaps identified in the 2005 assessment, this one-time effort, in our view, does not address the CPO office’s need for longer-term investments in training. Unlike in the federal government, this program is not linked to a certification process or continuing education necessary for maintaining individual employee’s contracting authorities. In the absence of a comprehensive training and certification program, the CPO delegates contracting authority to procurement staff based on his perceptions of individual skill and experience.

NASPO emphasizes the importance of professional development and not only recommends that executive branch officials and the central procurement office encourage professional competence by providing funding for training, but endorse professional certification of staff. Several public procurement organizations, including the National Institute for Government Purchasing, have developed certification programs to ensure procurement staff has attained a prescribed level of qualification. Procurement officials in other cities we reviewed also view training and certification of the procurement staff as critical to the success of their procurement system. For example, New York’s CPO office established a Procurement Training Institute in 2000 and requirements for staff training, including certifications and continuing education minimums.

The District’s Integrated Procurement Data System Has Yet to Be Fully Implemented

The District also lacks an integrated procurement data system to centrally manage and oversee agency and headquarters procurement activities, despite the procurement law requiring such a system over 20 years ago and investment in the Procurement Automated Support System (PASS), which was intended to provide these capabilities. Although the CPO’s office recognizes that capturing and reporting complete, accurate, and timely procurement data would increase transparency and support development of meaningful performance measures to promote competition and discourage excessive use of sole-source contracts and unauthorized vendor commitments without valid contracts, officials have lacked the high-level support from District leaders and OCTO needed to follow through on their plans for improvement.

To make strategic, mission-focused acquisition decisions, organizations need knowledge and information management processes and systems that produce credible, reliable, and timely data about the goods and services acquired and the methods used to acquire them. Our prior work has shown that leading companies use procurement and financial management systems to gather and analyze data to identify opportunities to reduce costs, improve service levels, measure compliance and performance, and manage service providers.

After numerous discussions with procurement, financial management, and auditing officials, we found there is no visibility over total procurement actions and spending in the District. We found it difficult to get even the data on such basics as the number and dollar value of hundreds of millions of dollars in procurements for agencies not supported by the CPO’s office, such as the public schools and the Department of Mental Health. Data for the $1.2 billion in fiscal year 2005 procurement spending reported by the District’s CPO office are captured by several standalone systems. As a result, the CPO’s office cannot readily generate regular reports from these systems to track information on what agencies are buying, how they are buying, and from whom they are buying. When we initiated this review, we requested procurement data on such basics as the number of sole-source contracts awarded in a specified time frame, from the CPO’s office for fiscal years 2005 and 2006. The information was provided to us piecemeal. According to a District procurement official, to obtain this data, the CPO’s office must ask its contracting officers and specialists to manually compile, sometimes from memory, the information—a workaround that is not only time-consuming but at significant risk of error. Because of this, we were unable to obtain reliable fiscal year 2006 data on sole-source awards.

In an effort to obtain complete, accurate, and timely procurement data and to automate and streamline the procurement process, the District has invested almost $13 million in PASS. Yet, almost 4 years since its inception in 2003, the system is only partially in operation. According to District procurement officials, PASS does not provide full information on completed or ongoing procurements across all agencies, nor does it provide CPO and District agency and financial managers reports and other information they need to manage and oversee the procurement system. In August 2006, the inspector general reported concerns over the delays in fully implementing PASS, noting that a conflict between the CPO’s office and OCTO has hindered the installation and full implementation of PASS. According to senior procurement officials, the CPO’s office has not consented to the extra $2 million that OCTO is requesting to fully implement PASS because all upgrades and installation were included in their purchase of PASS in 2003. The inspector general has recommended the CPO’s office seek assistance from the Mayor’s office in expediting the installation and implementation of PASS’s contracting and sourcing modules.

CPOs in the other cities we reviewed told us that a procurement data system is critical to managing and overseeing the procurement system, but some are facing challenges similar to the District’s to develop an integrated tool. New York’s CPO, for example, told us that the city clearly recognizes the importance of an integrated procurement data system and as a result, is engaged in a major undertaking to fully implement a data system sometime in 2007. In the interim, she relies on information contained in the city’s financial management system in compiling various procurement performance indicators.

The District’s Recent Actions to Address Its Procurement Management and Oversight Challenges Have Had Little Effect

Since 2004, the District has taken several actions to improve the management and oversight of its procurement system. These efforts include an internal study for innovation and reform in the CPO’s office and procurement system; changes in staff assignments and review processes in the CPO’s office; and establishment of an expert task force to review CPO, procurement workforce, and competition matters and submit recommendations to the Mayor and council. However, information we obtained from former CPOs and current senior procurement and other officials involved with these efforts indicates that most recommended actions remain under study or are partially implemented at best. Most of these officials voiced skepticism or concern about the merits and benefits of these efforts as well as the absence of high-level and sustained attention from District leaders to address systemic problems that hamper management and oversight of the procurement system and undermine transparency, accountability, and competition.

Following the early resignation of the District’s last full-time CPO in September 2004, the Mayor and city administrator directed the District’s Center for Innovation and Reform to work with the interim CPO’s staff to lead a 6-week internal initiative to create a credible, transparent procurement process that incorporate best practices and innovation. This internal group’s final report made several recommendations to the CPO’s office aimed at streamlining the process, providing tools such as a procurement manual, and leveraging technology. However, 2 years after these recommendations were made, many remained open. Further, none are aimed at the type of legal and organizational changes necessary for effective reform.

More recently, the interim CPO took steps to provide better customer support from the Office of Contracting and Procurement to the District’s agencies and vendors. Specifically, the interim CPO announced in April 2006 the establishment of sole-source contract reviews and implementation of a central tracking data system to ensure that contract ceilings are not exceeded, and to capture vendor performance data for consideration in future source selections affecting those vendors. The CPO also announced a new staffing alignment to assign a lead contracting officer for groups of agencies and several commodity buying groups for certain services that are centrally managed, such as construction and information technology equipment and services. According to senior procurement officials and the interim CPO, they expect that assigning contracting officers will improve communication and efficiency across the District as agencies will have a single point of contact for managing and troubleshooting contracting issues. While these are positive steps aimed at improving internal procurement operations, they are not far reaching enough to address the more fundamental problems impeding overall effectiveness in the District’s procurement system.

The third effort to improve District procurement has been ongoing since December 2005 when the Mayor and council passed legislation to establish a task force of local experts in contracting and procurement. The task force is comprised of 10 members appointed by the Mayor and council and represents a range of professional, legal, and business expertise in District and public procurement operations and policy. Since March 2006, the task force has met to obtain testimony and review other information from District procurement, financial management, auditors, and agency officials. At the time of our review, the task force chairman expected to report final recommendations to the Mayor and council before the end of 2006.

In addition to these actions the District has taken to address procurement system challenges, in December 2005, the Mayor, interim CPO, and CFO separately provided information to the Chairman of the House Government Reform Committee, who requested the information in light of press allegations about possible violations of the city’s procurement laws and procedures, and unauthorized payments to vendors. The Chairman noted that it was essential for the Committee to conduct an assessment of the District’s procurement system and the possible shortcomings in the laws, policies, enforcement and practices. In their separate responses, the Mayor, interim CPO, and CFO provided copies of the law, policies, and procedures in place in the District for procurement and contracting, including sole source and small purchase actions, exemptions for various agencies such as the public schools and Department of Mental Health, approval of voucher payments to vendors, and procurement and contracting oversight mechanisms through the District’s inspector general and auditor’s offices. In addition, the interim CPO provided information on recent actions taken by the Office of Contracting and Procurement to improve customer service and streamline the procurement process. However, information provided did not address the range of concerns and shortfalls in the procurement law and management and oversight that we subsequently identified during the course of our review.

NASPO state government and city procurement officials we spoke with said they have confronted similar management and oversight challenges. They recognized that overcoming these challenges and achieving meaningful procurement reform can take several years and requires sustained executive support from elected leaders and legislatures.

Conclusion

To better ensure every dollar of the District’s more than $1.8 billion procurement investment is well spent, it is critical that the District have an effective procurement system that follows generally accepted key principles and is grounded in a law that promotes transparency, accountability, and competition, and helps to ensure effective management and oversight and sustained leadership. Currently, the District’s procurement system is mired in a culture that thrives on streamlined acquisition processes, broad authority for sole-source contracts, and unauthorized payments to vendors that are eventually papered over through ratifications. Given this culture, it is not surprising that public confidence in the District’s ability to judiciously spend taxpayer dollars is guarded at best. To effectively address the District’s long-standing procurement deficiencies, it is clear that high-level attention and commitment from multiple stakeholders—including Congress—are needed. Until the law provides for the right structure and authority, the District’s procurement reforms will likely continue to fail.

Recommendations for Executive Action

To address needed structural and fundamental revision in the District’s procurement law and to strengthen management and oversight practices as well as facilitate congressional oversight, we recommend that the Mayor of the District of Columbia submit a comprehensive plan and time frame to Congress detailing proposed changes in line with our recommendations. This comprehensive plan, to be submitted to Congress, should include the following recommendations for revising the procurement law: Apply, at a minimum, to all District entities funded through the District’s appropriated budget and specify that if exclusions from its authority are necessary, they be defined narrowly by types of goods and services procured.

Provide the CPO sole authority and responsibility as head of the District’s Office of Contracting and Procurement to manage and oversee the entire acquisition function for all entities, and if exclusions from the CPO’s authority are necessary, they be defined narrowly by types of goods and services procured.

Consider reestablishing the CPO as the sole authority for suspension and debarment decisions.

Eliminate sections 2-303.05(a)(3) and (a)(3A) of the District Official Code that allow noncompetitive procurements with a vendor who (a) maintains a price agreement or schedule with any federal agency; and (b) agrees to adopt the same pricing schedule as that of another vendor who maintains a price agreement or schedule with any federal agency.

Reconsider appropriateness of high dollar thresholds for small purchases to maximize competition.

Revise the DCSS program to (a) cap purchase ceilings at an appropriate threshold; (b) eliminate any schedule that contains fewer than three vendors or combine it with another schedule; (c) establish procedures to ensure all eligible vendors are provided an opportunity to be considered for orders; and (d) require the CPO to monitor and report on patterns of contracting with a limited number of the same vendors.

Require that specific guidance on the use of the DCSS program be incorporated into the District’s regulations.

Eliminate the procurement-related circumstance that allows direct voucher payments for emergency procurements.

To further discourage the use of unauthorized commitments to vendors, we recommend that the Mayor of the District of Columbia, in coordination with the CFO and other stakeholders take the following actions: Revise Directive 1800.04 to be consistent with FAR part 1.6 and clearly state, consistent with the policy of FAR section 1.602-3(b), that these ratification procedures are not to be used in a manner that encourage unauthorized commitments by government personnel.

Refer unauthorized commitments that are not ratified for further resolution under government claim procedures, to include in appropriate cases, possible referrals for Anti-Deficiency Act violations.

Upon revision of the ratification directive, track and evaluate the use of direct voucher payments and ratifications to improve management attention and oversight of agencies’ unauthorized commitments with vendors.

To strengthen management and oversight practices in the District’s procurement system, we recommend that the Mayor take the following actions: Recruit and appoint a CPO with the requisite skills and procurement experience as required in the law.

Elevate the CPO’s position and office so that it is either in line with other critical cross-government functions, such as OCTO, or higher and would allow participation in cross-cutting executive management, budgeting, planning, and review processes.

Direct the CPO to develop a process and tools for frequent and regular interactions with agency heads and program managers to support acquisition planning.

Direct the CPO to develop a procurement manual concurrent with revision in the procurement law.

Direct the CPO to establish a plan and schedule for professional development and certification programs for contracting staff and to track personnel trained.

Direct OCTO to work with the CPO to expeditiously complete installation of an integrated procurement data system.

To help ensure the District makes adequate progress in revising its procurement law and improving procurement management and oversight, we recommend that the Mayor submit periodic reports to congressional oversight and appropriations committees on such elements by agency as (a) competitive actions by agency; (b) number, value, and type of sole source procurements; (c) numbers of procurement personnel trained and the type of training received; and other indicators as appropriate.

In addition, to further discourage the use of unauthorized commitments to vendors, we recommend that the Chief Financial Officer (CFO) of the District of Columbia take the following actions: Revise Financial Management and Control Order No. 05-002 to eliminate the use of direct vouchers payments for emergency procurements.

Work with the CPO and other stakeholders to do the following: (a) Revise Directive 1800.04 to be consistent with FAR part 1.6 and clearly state, consistent with the policy of FAR section 1.602-3(b), that these ratification procedures are not to be used in a manner that encourage unauthorized commitments by government personnel. (b) Refer unauthorized commitments that are not ratified for further resolution under government claim procedures, to include in appropriate cases, possible referrals for Anti-Deficiency Act violations. (c) Upon revision of the ratification directive, track and evaluate the use of direct voucher payments and ratifications to improve management attention and oversight of agencies’ unauthorized commitments with vendors.

Agency Comments and Our Evaluation

We provided a draft of our report to the former Mayor’s office and the office of the CFO. The primary focus of our report deals with procurement reform needed in the District that falls under the responsibility of the Mayor. Therefore, most of our recommendations are made to the Mayor’s office. Given that the comment period coincided with the final month of the administration, the outgoing Mayor chose not to comment. However, the new administration contacted our office and indicated concurrence with most of the findings and recommendations and, as the principal office responsible for ensuring action is taken, plans to provide formal comments and an action plan within 60 days of the report’s public release.

Though most of our recommendations are made to the Mayor’s office, there is a role for the CFO to play in helping curb unauthorized commitments. Therefore, we also made recommendations to the CFO. In that context, the CFO provided written comments, which were limited to our discussion on the use of direct vouchers. Our response focuses only on those comments.

In general, the CFO questions our understanding of the direct voucher process and the CFO’s authority. We recognize the limitations in the CFO’s authority for holding personnel accountable for unauthorized commitments and the CFO’s obligation to pay for accepted goods and services. However, focusing on limited authority and payment obligation does not address the larger issue. Specifically, our report raises a concern about the effect of the lack of management attention on prohibiting unauthorized commitments that may be ratified and ultimately paid through direct vouchers—a process CFO staff acknowledge is broken and in need of more stringent controls. Accordingly, we revised our recommendations to the Mayor and the CFO concerning the use of direct vouchers and the ratification process. Strengthening this process is a small part of a larger procurement reform effort that must be headed by the Mayor and implemented by the CPO, CFO, and other stakeholders in the District. The CFO’s comments state that the office intends to review and clarify Financial Management and Control Order No. 05-002. We encourage them to implement our recommendations as well as work with the Mayor’s office and other stakeholders in coordinating procurement reform actions as applicable.

The CFO’s comments are included in appendix III along with our comments on specific points he raised.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the date of this report. We will then send copies to other interested congressional committees and the Mayor and Chief Financial Officer of the District of Columbia. We will make copies available at no charge on GAO’s Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-4841 or calvaresibarra@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. See appendix IV for a list of key contributors to this report.

Appendix I: Scope and Methodology

We conducted our work at the District of Columbia’s Office of Contracting and Procurement, Office of the CFO, Office of the Inspector General, Auditor’s Office, and Center for Innovation and Reform. We did not conduct detailed audit work at the various agencies that procure independently of the Office of Contracting and Procurement since this is the central office that was established under 1996 reform legislation and it procures for 61 District organizations—a majority in the District. We also visited representatives of the National Association of State Procurement Officials (NASPO) in Springfield, Illinois, and city procurement officials in Atlanta, Baltimore, and New York. In selecting cities to visit, we considered those that have faced similar challenges to the District as well as took various approaches to structuring their public procurement systems and implementing reform. We did not assess the effectiveness of their approaches or reform efforts and our report is not intended to suggest that we evaluated or endorse any particular approach from these cities, but only to draw comparisons to the District where applicable.

In developing our criteria for generally accepted key principles for an effective public procurement system, we relied on a variety of sources. NASPO is a nationally recognized non-profit association comprised of directors of central purchasing offices in each of the 50 states and other member jurisdictions. NASPO has published a series of volumes related to state and local government purchasing with the most recent edition describing principles and suggested practices. We also spoke with state procurement officials representing NASPO to obtain their perspectives on our analysis as well as their own states’ guiding principles and practices for an effective public procurement system. In addition to NASPO, the American Bar Association’s (ABA) model procurement code for state and local governments outlines principles for public procurement and provides a variety of options and strategies applicable to all public bodies. The Federal Acquisition Regulation (FAR) also describes guiding principles of public procurement and though these are aimed at the federal government, many are not unique to the federal acquisition system and are equally applicable to state and local governments. Finally, we leveraged our own work since 2001 on effective procurement and acquisition management practices.

To assess whether the District’s primary procurement law reflects fundamental principles that promote transparency, accountability, integrity, and competition, we did a detailed legal review and analysis of the Procurement Practices Act of 1985, as amended. We did not do a similar review or analysis of laws, policies, or regulations governing the various independent agencies or procurement authorities. In comparing the District’s primary procurement law to generally accepted key principles and assessing the impact of any shortfalls, we focused on several key elements that are recognized by a variety of sources for promoting transparency, accountability, integrity, and competition: (1) uniform application of the law across all District organizations; (2) adequacy of authority granted to the CPO for the full spectrum of acquisition functions; (3) exemptions in the law through various temporary, emergency, or permanent legislative amendments; and (4) provisions in the law that limit or restrict competition, such as authority for sole-source contracting, simplified acquisition procedures, and use of supply schedule. Our review also examined recent legislation that was passed in response to various procurement challenges that had been identified to include changes in law and policy resulting from the CFO’s review of direct voucher payments for unauthorized commitments with vendors for goods and services without valid contracts.

To further understand the rationale and impact of these various provisions and related procurement issues, we interviewed current and former procurement, executive, financial management, and auditing officials in the District. We also spoke to a D.C. Council committee representative regarding legislative actions to address reported procurement problems and related issues. In addition, we interviewed state government procurement leaders of NASPO about sound principles and practices regarding public procurement statutory coverage and their views on issues we raised about the District’s procurement law. We also interviewed city procurement officials in Atlanta, Baltimore, and New York to obtain their views on issues we raised concerning the District’s procurement law and to learn about related challenges they have faced and their responses to these challenges.

To assess the extent to which the District’s management and oversight of the procurement process reflect generally accepted practices, we examined several key elements. First, we examined the organizational alignment and leadership for managing the acquisition function across all District organizations. Second, we assessed management’s commitment to competence including elements required for a professional procurement workforce. Third, we reviewed the District’s development of procurement management and oversight tools, including a procurement manual and automated data systems for recording procurement information. To gain insights on the challenges of procurement management and oversight in the District, we interviewed current and former city procurement and District executive officials to obtain their perspectives. To obtain an historical perspective on the management and oversight challenges in the District that drove legislation reform in 1996, we reviewed various studies done at that time and their recommendations. To understand how the District has addressed those challenges, we reviewed selected District inspector general and auditor reports since 2004, and the resulting recommendations as well as those from the internal study of the Center for Innovation and Reform. We interviewed responsible city procurement officials on the status of addressing those recommendations. We also interviewed the chairman of the Contracting and Procurement Reform Task Force, which was established in 2006 to review the District’s procurement system and attended several public meetings to observe their discussions.

In the course of our review, we relied on various management and other procurement data reports provided by the Office of Contracting and Procurement. Specifically, information on procurement spending in dollars and contracting and competition methods was generated from various procurement data systems or compiled from manual inputs. Though we did not conduct detailed tests of procurement transactions, data reliability was suspect for these various reports based on very limited testing and independent auditors have also raised questions about the data. To fully test data reliability for all the various reports we received would have required resources outside the scope of this review. Moreover, an independent public accounting firm audits the District’s financial statements annually and reports on internal control and compliance over financial reporting. Compliance with procurement regulations was part of the fiscal year 2005 audit in which the District received an unqualified, clean opinion. Despite the limitations, we found the data to be reasonable and sufficiently reliable for our purposes. Further, we have attributed, where applicable and appropriate, this information to the Office of Contracting and Procurement and responsible officials.

This work was done between February 2006 and October 2006 in accordance with generally accepted government auditing standards.

Appendix II: District Governance and Related Procurement Authorities

Home Rule Act

In 1973, Congress enacted the District of Columbia Self-Government and Governmental Reorganization Act or Home Rule Act, which set forth the structural framework of the current District government in the District Charter. The District Charter established the Office of the Mayor and vested the Mayor with the executive power. It also established the D.C. Council and delegated certain legislative powers to it. Despite the powers delegated to the Council, Congress retained the ultimate legislative authority over the District under the Constitution. Generally, the Constitution authorizes Congress to enact legislation on any topic for the District and to amend or repeal any District act.

With regard to the powers delegated to the Council, the Home Rule Act authorized it to pass permanent and emergency acts. A permanent act starts as a bill, which usually gets introduced by a Council member and then gets assigned to and considered by the proper committee. The committee then reports the bill to the Committee of the Whole (the entire Council), which reviews it before it is put on agenda for regular session. Hearings are required for permanent legislation before it is adopted. The Council votes on a bill two times, during first and second readings. However, 15 days before the Council adopts a bill, it must be published in the D.C. Register. The Mayor then can either (1) sign the bill or take no action and it becomes an act or (2) veto the bill and Council can override the veto by two-thirds majority. The act must then be published in the D.C. Register. The Council chair transmits the act to both houses of Congress, which have 30 calendar days (or 60 calendar days for criminal acts) to review the act and if they take no action, the act becomes law.

Congress may disapprove the act by adopting a joint resolution of disapproval, which must be signed by the President. Unless the President vetoes the act, it becomes law within 30 days.

Emergency acts are quicker to pass than permanent acts, since they are not required to go through (1) committee, (2) a second reading, (3) a public hearing, (3) congressional approval, and (4) publication in the D.C. Register before becoming effective, but must be published after that. For an emergency act, the Council must decide by two-thirds of the members that emergency circumstances make it necessary that an act be passed. Emergency acts are effective for 90 days.

With regard to the executive power, the Home Rule Act vested in the Mayor, who is the chief executive officer of the District government, the power to properly execute all laws relating to the District. The Mayor may delegate any function to (1) any officer, employee, or agency of the executive office of the Mayor or (2) any director of an executive department who may, with the Mayor’s approval, further delegate all or part of the functions to subordinates under the Mayor’s jurisdiction.

In addition to establishing these branches of government in the District, the Home Rule Act also established five independent agencies existing outside the control of the executive or legislative branches of the District government. The independent agencies were the (1) Board of Education; (2) Armory Board; (3) Public Service Commission; (4) Zoning Commission; and (5) Board of Elections.

Procurement Practices Act of 1985

In 1986, the Council enacted the D.C. Procurement Practices Act of 1985, pursuant to the Council’s authority to pass acts under the Home Rule Act. One of the primary underlying statutory policies of the act was to provide for a uniform procurement law and procedures for the District of Columbia government. To achieve this policy, the Procurement Practices Act applied to all agencies and employees of District government which were subordinate to the Mayor. The Procurement Practices Act excluded from its application a separate branch of government or an independent agency (as defined in D.C. Administrative Procedures Act) that had authority to enter into contracts or to issue rules and regulations for awarding contracts pursuant to existing law. The Procurement Practices Act applied to every contract, interagency agreement, or intergovernmental agreement for procurement or disposal of goods and services by covered agencies and employees.

The Procurement Practices Act also created in the executive branch of the District government the Contract Appeals Board. The appeals board was the exclusive hearing tribunal for and had jurisdiction to review and determine de novo throughout the District government the following: (1) protests of a solicitation or contract award and (2) appeals from a final decision of the Director of Administrative Services. It allowed disappointed contractors to appeal board decisions to the D.C. Court of Appeals. It also established bid protest procedures for protests of the solicitation or award of a contract.

Procurement Reform Amendment Act of 1996

The Procurement Practices Act was amended by the Procurement Reform Amendment Act of 1996 (reform act) with the primary statutory purpose to centralize procurement in the Office of Contracting and Procurement. The law required this office to be headed by a Chief Procurement Officer (CPO). By delegation of the Mayor, the CPO has the exclusive contracting authority for all procurements covered by the Procurement Practices Act. The reform act further centralized procurement in the CPO by requiring the CPO rather than the Mayor to delegate contracting authority to employees of District entities subject to the act and to employees of Office of Contracting and Procurement who are contracting officers and specialists in procurement. All delegations must be subject to limitations specified in writing.

The reform act also changed some of the requirements for sole-source emergency procurements, which the Procurement Practices Act authorized the executive branch to use. Specifically, the reform act allowed contracting officers to make and justify sole source emergency procurements when there was an imminent threat to the public health, welfare, property, or safety under emergency conditions. The requirement is implemented in the District’s regulations, which defines an “emergency condition” as a situation, such as a flood, epidemic, riot, or equipment failure that created the imminent threat.

The reform act expanded the Procurement Practices Act’s application to include independent agencies, which were previously excluded from its application. Specifically, the act applied to all departments, agencies, instrumentalities, and employees of the District government, including agencies which are subordinates to the Mayor, independent agencies, boards, and commissions. It applies to any contract for the procurement of goods and services, including construction and legal services.

Despite the reform act’s primary statutory purpose of centralizing the District’s procurement authority in the Office of Contracting and Procurement, it excluded many entities from the authority of both the Office of Contracting and Procurement and the Procurement Practices Act. Specifically, it excluded: the D.C. Council; the D.C. courts; the D.C. Financial Responsibility and Management Assistance Authority (Control Board), as Congress previously statutorily excluded the Procurement Practices Act’s application to the Control Board and vested the Board’s contracting authority in its Executive Director; the Office of the Chief Financial Officer (CFO), and required the Chief Financial Office, during a control year, to adopt the Control Board’s procurement rules and regulations, except that during years other than control years, Office of the CFO must be bound by provisions in this act.

Further, the reform act added a new section in the Procurement Practices Act, exempting the following entities from the authority of the Procurement Practices Act and Office of Contracting and Procurement: Redevelopment Land Agency with regard to real property or interests Administrator of Homestead Program Administration under Homestead Housing Preservation Act of 1986 with regard to disposal or transfer of real property; Mayor to sell real property in D.C. for nonpayment of taxes or assessments of any kind; Mayor and D.C. Council pursuant to D.C. Public Space Rental Act; Convention Center Board of Directors pursuant to the Washington Convention Center Management Act of 1979; Sports Commission pursuant to the Omnibus Sports Consolidation Act D.C. Housing Finance Agency; D.C. Retirement Board pursuant to the D.C. Retirement Reform Act; Metropolitan Police Department’s authority to make procurements of $500,000 or less, as provided in the D.C. Appropriations Act, approved April 6, 1996. (Pub. L. No. 104-134).

Since enactment of the 1996 reform act, the Council has amended the Procurement Practices Act many times to exempt additional entities from falling under the authority of the Office of Contracting and Procurement or Procurement Practices Act or both, despite the Procurement Practices Act’s statutory purposes of creating uniform procurement laws in the District and centralizing the District’s procurement authority in the Office of Contracting and Procurement. To date, in addition to those entities mentioned above, the council excluded the following entities from the authority of both Office of Contracting and Procurement and Procurement Practices Act: D.C. Water and Sewer Authority; D.C. Public Service Commission; D.C. Housing Authority, except for the provisions regarding contract protests, appeals, and claims arising from procurements of the Housing Authority; and D.C. Advisory Neighborhood Commissions.

Further, the Council amended to Procurement Practices Act to exclude the following entities from the authority of Office of Contracting and Procurement, but they are subject to the Procurement Practices Act: Director of the Child and Family Services Agency; Criminal Justice Coordinating Council; Director of the Department of Mental Health; and Board of Education to solicit, award, and execute contracts, except for security for the District’s public schools for security contracts to begin on or after June 30, 2005.

Also, the Council exempted delivery of electrical power and ancillary services for the District from certain requirements of the Procurement Practices Act, subject to Council approval.

In addition to these exemptions, the Council continues to use its emergency act authority under the Home Rule Act to exempt the application of all or certain provisions of the Procurement Practices Act or the authority of the Office of Contracting and Procurement for certain District entities or projects. These exemptions can last no more than 90 days or can become permanent if the emergency bill is accompanied by a temporary bill bridging the gap between expiration of the 90-day emergency bill and congressionally-approved permanent legislation on the same matter.

Appendix III: Comments from the Chief Financial Officer for the District of Columbia

The following are GAO’s comments on the CFO’s letter dated January 5, 2007.

GAO Comments

1. As we state in the report, the CFO’s analysis of fiscal year 2004 direct voucher payments showed that $217 million fell outside a 1996 financial management and control order. It was only after the CFO, in 2005, added 7 more acceptable uses of direct vouchers to the original order, that these payments were found to be acceptable. The $4 million in payments referred to in the CFO’s comments are those that fell outside this updated policy. 2. We recognize that the CPO’s office is not directly responsible for developing financial management policies. However, we believe that in order to effect meaningful procurement reform, the CPO should be consulted on any policy changes that affect procurement—particularly as such changes have been amended into the procurement law. Elevating the CPO within the District government, as we recommend, would facilitate needed coordination. 3. Because the District’s procurement law already establishes emergency contracting procedures, we stand by our finding and recommendation that including emergency procurements as an acceptable use of direct vouchers duplicates the provision in the law and allows agencies to bypass established contracting procedures. 4. As we state in the agency comments section, we recognize the obligation to pay for accepted goods and services, but we are concerned that the current policy, now codified in the law, is a symptom of the lack of necessary management focus to minimize the number of unauthorized commitments that may be ratified and ultimately paid through direct vouchers. In meetings with CFO staff, they acknowledged that the ratification process needs strengthening to include, in appropriate cases, possible referrals for Anti-Deficiency Act violations. 5. The scope of our review was on the District’s procurement system as a whole, not on the direct voucher process. As part of this review, we examined and discussed with chief procurement officers reform efforts in other cities. Through these discussions, we learned that other cities have consistently taken steps to curb the use of direct vouchers where at all possible and to ensure strict controls are in place to hold employees accountable when their actions result in an unauthorized commitment to vendors.

Appendix IV: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

In addition to the individual named above, Carolyn Kirby, Assistant Director; Barry DeWeese; Cynthia Auburn; Rachel Girschick; Kevin Heinz; Bill Petrick; Sylvia Schatz; and Karen Sloan made key contributions to this report.