Annually, entities of State Government expend millions of dollars on contractual services contracts.  The dynamics relating to governmental purchasing and contracts are not only complex but many are newly emerging.  The processes that are involved consist of various interrelationships that factor in technology and human resources, competition and fairness, as well as costs and related savings.  Utilization of the applicable processes should contribute to: (1) forging relationships between the public and private sectors; (2) deriving the best contractual prices, terms, and conditions; and (3) establishing effective operating procedures that promote accountability. 

The People First project is an outsourcing initiative of State Government where the issues are complex and investments of time and money are great.  Current contracts for this project total over $350 million (including the third-party monitor).  The Department’s Long-Range Program Plan for Fiscal Years 2003-2004 Through 2007-2008, dated January 3, 2003, states that “DMS [Department of Management Services] is committed to developing and implementing key initiatives which focus on increasing citizen access to government, delivering cost effective products and services, promoting and supporting economic development in Florida and improving government productivity. . . . These initiatives cut across agency lines and help create partnerships with other government entities and the private sector. . . . Several of the key initiatives are eProcurement, HR outsourcing, and the modernization of the human resource infrastructure.”

Realizing the importance of this initiative and its Statewide implications, we performed an audit of the Department, the State contracting agency for this project.  Our audit included a review of selected controls, policies, and procedures over the evaluation, negotiation, and contract processes as applicable to People First contracts during the period July 2002 through February 2004, prior related actions resulting in the issuance of the Invitation to Negotiate (ITN No. 32-973-400-Z), and other selected actions through August 31, 2004.  The design of this project, whereby critical human resource management functions and responsibilities are to be transferred to contracted entities, necessitates a strong monitoring function to ensure that services provided are efficiently and effectively contributing to the desired outcomes.  Therefore, our audit also included a review of contractual provisions and deliverables relevant to the selected contractor and third-party monitor.  State law[1] provides that each agency shall establish and maintain management systems and controls that promote and encourage compliance; economic, efficient, and effective operations; reliability of records and reports; and safeguarding of assets.  This must be done while ensuring that service delivery is not disrupted.

Effective operating procedures must be established that promote accountability for public resources.  Our audit determined that the Department is fully committed to implementing this initiative; however, we noted control deficiencies in areas relating to planning; evaluations and negotiations; contract provisions; deliverables; financial compliance; conflicts of interest and restrictions on executive lobbyists; and contract administration that should be addressed to ensure compliance with current legal requirements, enhance internal controls, and improve the economic and efficient performance of this important initiative of State government and other projects that cut across agency lines and partnership with other governmental entities and the private sector.  These control deficiencies are noted below:

Planning

Proper planning is a necessity for ensuring the success of a project, especially one as important as the People First initiative.  The Department planning process did not include the timely completion of cost-benefit analyses, a risk analysis, or a needs assessment.  Also, the documentation utilized in the planning phase could have been more accurately depicted to provide a better projection of the potential savings.  Further, the Department has not established a system to track Statewide costs associated with the Project and necessary to determine the actual cost savings.  Similarly, Department management failed to make sufficient inquiry of a product (Project Monitoring Web-based Tool) prior to purchase; and, as a result, the item is no longer being utilized for purposes intended.   

Evaluations and Negotiations

Greater reliance can be placed on information that is complete and well documented, and supports the final decisions made by management.  The Department failed to adequately document the competence and independence of the evaluators and negotiators who participated in the review process.  Additionally, evaluation forms of the ITN responses did not always include the signatures and dates of the evaluators, or cross-references on the ITN responses to support the decisions and requirements.  Furthermore, when a contractor was selected, it was not always evident that the best vendor received the contracting award.  Neither was it evident that the State obtained the best prices, terms, and conditions in contracting the required services.

Contract Provisions

Contractual agreements are legal documents that include provisions and stipulations to help identify the terms and conditions of an arrangement.  In general, we noted that the contractual agreement entered into by the Department as the State contracting agency failed to include sufficient provisions that addressed a definition of “material obligation,” identification of the State’s legal requirements for records retention, consent authority over new or changes in subcontractors, and background history checks for subcontractors.  Further, there was no documentation to support the decisions made by Department management relative to the default and termination provisions of the contractual agreement.  Lastly, the contract specified that changes, modifications, or deletions should be signed by the Department Secretary.  Contrary to this provision, these items were signed, in some instances, by the Chief of Staff and Director of the Division of Human Resource Management. 

Deliverables

Many contract deliverables were not timely provided.  Additionally, three of the four primary functions did not “Go-Live” as planned.  The Convergys contract has been amended six times and, although no payments had been made to Convergys under the contract as of August 31, 2004, the contract totals $349.9 million.  (Subsequently, on September 9, 2004, a $11,162,326.33 payment was made.)  Also, the Department paid additional amounts to the third-party monitor (Acclaris) for performing services already required.  Likewise, additional amounts were paid to the third-party monitor when the required services and deliverables were reduced. 

Financial Compliance

Contrary to State law,[2] the Department entered into a contract with a third-party monitor to spend more money than the amount that was appropriated by the Legislature.  Additionally, the amounts expended under this contract exceeded the total amount approved by the Legislature for the 2002-03 and 2003-04 fiscal years.  Further, some disbursements under the contract were made from trust funds and categories other than that authorized by the General Appropriations Act.  Also, the Department attempted to acquire a loan payment under the Florida Minority Business Loan Mobilization Program for the third-party monitor although the vendor was not eligible to participate in the Program. 

Conflicts of Interest and Restrictions on Executive Lobbyists

Department management did not establish policies and procedures that defined organizational conflicts of interest including procedures for disclosure provisions in all solicitations and contracts and steps to be taken to avoid or mitigate actual organizational conflicts of interest.  In addition, the Department’s general employment procedures do not inform Department staff how to avoid an improper lobbying relationship and how to report such, should it occur.  Such procedures and training would reasonably ensure that employees are fully cognizant of the postemployment restrictions on executive lobbyists. 

Contract Administration

The proper administration of contractual services includes, but is not limited to, ensuring compliance with contractual provisions and maintaining adequate contract files. Contrary to law,[3] the Department failed to designate a contract administrator to maintain contract files and financial information.  In addition, the Department has not established an effective contractual services monitoring program that includes written policies and procedures for monitoring contractor performance. 

The Department of Management Services Secretary's written response to the audit findings and recommendations is included in the audit report on the Auditor General Web site.