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If the state were able to nip potentially problematic contracts in the bud, before they cost taxpayers too much or resulted in embarrassing failures, it should presumably save money. Fiscal prudence benefits all Nebraskans.
Sen. Mark Kolterman has proposed creating an appeals process for companies that believe agencies have awarded contracts in error. He believes – as does the Journal Star editorial board – the addition of judicial review to state contracts exceeding $5 million will provide another layer of security to ensure Nebraskans’ tax dollars are spent wisely.
The Journal Star’s Chris Dunker detailed shortcomings in Nebraska’s existing procurement laws and how single-source contracts and the lack of a judicial review process have been problematic. A company that felt it should have been able to bid on a 2017 Department of Labor contract awarded without a bid, for instance, had no formal avenue to protest when the deal was awarded to another vendor.
At the time, business attorneys and state senators worried the lack of such recourse – which most states have in some fashion – hurt Nebraska’s reputation. Driving away bidders and deterring competition, they surmised, costs us all.
Then, consider a pair of technology upgrades that Nebraska formally canceled last December, for instance. The projects cost the state – and its taxpayers – about $6 million apiece before new administrators pulled the plug following a reviewing of the progress.
Nebraska got little more than heartburn for that $12 million. State officials decided to make do for the time being with one system while pursuing an update through a different vendor for the other. A transition to streamline payroll and personnel operations was estimated by the Department of Administrative Services to run $12 million over budget before it was canceled.
We applaud these officials for cutting their losses – which are all of ours, too – before additional cost overruns. We believe that Kolterman’s proposal decreases the likelihood the state finds itself in this type of fiscal pickle going forward.
The Seward senator expressed a willingness to craft “a process everyone can live with.” That process will need to be designed to address such matters expediently, calming state officials’ concern over an appeals process they fear could delay projects.
But cost-effectiveness by and confidence in state government must drive this idea. As Labor Commissioner John Albin told the Journal Star about the 2017 contract: “I’d rather suffer a little bit of embarrassment being late than a lot of embarrassment in a failure.”
As would all Nebraskans, we presume. Hence, extra protection against a failure makes sense for the state’s procurement process.
A 2017 article for the Nebraska state bar bluntly described problems, saying the state’s current appeals procedures “fail to account for the potential that agencies awarding state contracts sometimes make mistakes or fail to follow applicable agency rules, laws, official guidance or the term of the RFP at issue.”
The appeals process for unsuccessful bidders contains “no discernible standards of any kind, nor any limits on (the deciding agency’s) discretion,” the article stated. Nebraska could greatly boost the competition for bids if it remedied such problems, the article said.
Several years ago, the state needed to create a large-scale replacement of its Medicaid eligibility software. The state chose a small Arizona company for a $50 million contract over a Fortune 100 company with extensive experience in such software. The Arizona company ultimately failed at its duties, and the state pulled the plug midway through the contract — after $7 million in state tax dollars had been spent, for naught.
A similar failure involved another terminated computer project, with $5 million in state losses. Including federal dollars, the losses on the two projects totaled $60 million.
The Nebraska official who terminated the Medicaid software contract was Kerry Winterer. Last month Winterer, a former head of the Nebraska Department of Health and Human Services, testified before a legislative committee to voice strong support for legislation to address flaws in the state’s procurement process.
Legislative Bill 21, by State Sen. Mark Kolterman of Seward, would insist that the state follow a sounder appeals process. Unsuccessful bidders on projects exceeding $5 million would have a clearer, formalized process to present evidence and advocate their cause to the state.
An unsuccessful bidder would be able to appeal to District Court. More than half the states, including Iowa, Missouri and Colorado, use such an approach. Having an independent agent, a judge, scrutinize the state’s procurement process would go far to spur state agencies to adhere to rigorous professional standards for contracts, Kolterman and other testifiers told the committee.
Opponents say that allowing a court appeal would cause delays and increase costs. The fiscal note for LB 21 is about $200,000 annually for handling appeals.
But the state is already experiencing delays — an example is the on-again, off-again status of state contracting for child welfare in the Omaha area. And the current system already can have high costs, as shown by the $12 million in state funds in wasted spending on the computer contracts.
The committee should forward LB 21 to the full Legislature so state senators can debate the pros and cons on this important issue. Nebraska state contracting deserves such scrutiny by the Legislature. LB 21 provides an important opportunity to understand the current problems and decide whether Kolterman’s proposal is the best solution.
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