Below is the HillCo client report from the August 14 Senate Government Organization Committee hearing.

The Senate Government Organization Committee held a public hearing on August 14, 2014 to address the following interim charge:

  • Review and recommend improvements to state agency training, policies, and procedures for monitoring and reporting performance of state contracts, including a review of exemptions to state contracting oversight.

Chair Zaffirini called the meeting to order noting:

  • States procurement and contracting functions are decentralized and operate with limited oversight
  • In last 2 decades more than 10 reviews and audits of state procurement and contracting processes
  • Confident will make more progress in 2015

Panel One
Texas Department of Public Safety (DPS) – Amanda Arriaga, Assistant Director for Administration

  • Have a high volume of contracts
  • Issued awards of over $173 million since beginning of fiscal year
  • Office sets expectations and puts burden on business division to explain request and needs
  • Deadlines and flowcharts created to help explain timeline from request to purchase
  • Training and contract monitoring overview given
  • Monitoring is also a function of the division director

Texas Health and Human Services Commission (HHSC) – Cecilia Whitley, Associate Commissioner for Procurement and Contracting Services (PCS)

  • All five agencies/departments are included
  • Now have deputy in division – realize procurement and contracting is a major item that needs to be monitored and reviewed
  • In process of having contract management staff in process of signing up for training in Comptroller’s to be certified (SB 1681)

Texas Education Agency (TEA) – Norma Berrera, Director for Purchasing and Contracts

  • Contracting internal manual published and have done training for specific staff members (200)
  • All staff in “contract area” have completed the Comptroller’s training and have been certified
  • Further elaborated on forms and training provided to help monitor and review contracts

Sen. Schwertner asked HHSC about where negotiation and bid analysis took place

  • At enterprise level
  • Review and monitoring happens at agency which is implementing contract– no oversight yet at enterprise level
  • Just now developing risk assessment tools and monitoring guidelines to ensure the agencies are implementing guidelines from enterprise level   

Sen. Rodriguez asked HHSC about shortage of providers

  • Regional offices have contract managers in the region  – first open enrollment with non-competitive enrollment as long as provider can meet criteria
  • Contract managers go out in the community and try to generate interest but rates HHSC is paying may not always be competitive

Sen. Garcia is concerned with contract compliance issues and inquired about HUB goals

  • Arriaga/DPS – they have dedicated compliance monitors and has an active HUB program and will provide data to the committee
  • Whitley/HHSC – compliance done within program and in each agency oversight division; in the future will do that at an enterprise level
    • HUB required at $5k level and have met goal but will also provide data to the committee
  • Berrera/TEA – program area monitors but in contact with contract staff as well and have active HUB office as well

Rodriguez – details requested on DPS purchase for border security

  • Can ask the director if there is coordination with purchases being made for recent increase in border security, but at the point the office gets the request this discussion would have already occurred
  • Will follow up to see if vendors being used in purchasing for border are local vendors

Rodriguez – how did TEA end up contracting with Pearson and what is current status

  • It was a competitive bid which resulted in 2 viable vendors and one vendor could only offer the online portion so, in the end, Pearson was awarded the contract
  • Agency has a lessons learned document to help make improvements in next contract that will be awarded in the year
  • Upcoming RFP could be split up so vendors can bid on different portions

Zaffirini – why does DPS need additional in house training and is there a benefit they see moving from decentralized to centralized model

  • Additional training is helpful to build skills and would be helpful for the users
  • Not necessarily different from Comptroller but just more training and increased frequency
  • They have moved to a more centralized model – standardized terms and conditions are beneficial

Zaffirini – inquired of TEA and HHSC on formalizing contract process

  • HHSC – still working on risk assessment and escalation tools so still working on review
  • TEA – have process in progress which includes internal training

Rodriguez – asked each panel if there are guidelines for best value

  • Guidelines are fairly standard among the agencies

Zaffirini – wanted to know why project management tools are encouraged but not required of TEA and if other panel witnesses “encourage” or “require” the tools

  • TEA said the tools are not required because she could not make it a requirement but there are many tools readily available
  • DPS encourages tools, has a pilot and prefers to convince why it is in best interest to use rather than mandate

Panel Two
Texas A&M University System, Billy Hamilton

  • University exempted in many parts of state statute in government code dealing with contract management but education code has a complimentary set and follows closely guidance in place
  • University follows much of what state has in place
  • Construction is significant portion of contract projects – FY 2013 total was $255.4 million across the system
  • Texas A&M has pioneered public private partnerships for facilities, food services, and bookstores

Texas Lottery Commission, Mike Fernandez,

  • Centralizing contract department but once contract is entered into the sponsoring organization is responsible for day to day deliverables
  • Major contracts/high risk contracts require board approval before action is taken
  • Routine updates are provided to the board

Texas Department of Transportation, James Bass

  • Letting process – public notice of intent to received bids, issuing proposals, receiving and awarding the bids
  • Competitive low bid process required – must award to lowest price of most responsive and qualified
  • Comprehensive development agreements – awarded on best value procurement process which include criteria such as team experience and safety to traveling public, etc
  • Contract templates are utilized
  • TxDOT has active and aggressive training program for contract managers
  • Some highway contracts are exempt from state contract requirements and that is vital since some contracts are specialized and require close supervision of engineers, etc.

Garcia – inquired about HUB goals and centralization

  • Texas A&M is meeting all HUB goals but can always do more and looking for opportunities to do so
  • Lottery is meeting all but one of goals in heavy construction – 30% of expenditures going to HUB and very active HUB coordinator
  • TxDOT has implemented veteran category but challenge year to year is on heavy construction
  • Some TxDOT projects do have early completion incentives – only for certain contracts and all have something if contract is not completed within the timeline

Schwertner – when was Texas A&M System Board of Regents policy changed

  • Ray Bonilla, general counsel to Texas A&M system, primary policy was updated last fall in a number of respects
  • He will provide a copy to the committee (he also asked for UT one)

Schwertner – asked Texas A&M system what amount of contractual obligations fall outside of the board of regents

  • Nothing in a global sense – salaries managed at local level and little else except lesser amount contracts for minor goods and services
  • All outsourcing mentioned goes to board

Rodriguez – asked if there are any recommendations for improvement in the process or system

  • TxDOT not sure if it would be a statutory change but TxDOT has implanted a steering committee for larger professional services contract
  • Hamilton who used to work with the Comptroller said state has one of the premier policies for contract management in the nation but there is no substitute for common sense at the agency level
    • Failure may be agency failure to act based on own policy 
  • Lottery Commission witness said early detection is critical

Sen. Taylor inquired about a recent audit report on the Lottery Commission random contracts

  • To knowledge vendor is now performing and sanctions have been applied
  • $245k in state sales tax was paid to contractor – what occurred was a subcontractor paid taxes and Commission has since followed up

Garcia – concerned with list of contracts not requiring Texas A&M System BOR approval

  • Bonilla – sponsored research is receiving payments by third parties so that is not about purchasing
  • They have an IT office with specialized infrastructure that regulate commercializing IT – but they will go to board for certain approval
  • Noted handout to committee may be a bit overstated
  • Athletic events are game contracts and member universities will work with Office of General Counsel to use basic contract but not each contract will go to BOR
  • Sen. Garcia would like to see comparison of other universities

Zaffirini – asked about exemptions and why they are merited

  • Hamilton –  governed by separate statute so main exception is that they see exception from being reviewed by contract advisory team and thinks benefit to University is that many contracts of that scale are construction contracts that need to move in an expeditious way and complex equipment used
  • Hamilton – functions they undertake and cycle they follow because of students is relatively unique; appreciates the measured exceptions to that 
  • Fernandez – they follow the guide very closely but uniqueness allows them to move quickly when making a game change
  • Bass- the volume and in-house expertise at TxDOT is the reason for some exemptions

Zaffirini  – asked about oversight of Texas A&M contracts and delegated authority

  • Hamilton has delegated authority is chancellor in unavailable and thinks all systems have something in place and it is fairly limited
  • They review a majority of contracts but there are 11 universities that will make contracts for pens and papers and those types of items – system provides templates   

Zaffirini – given recent audits of Lottery Commission what steps have been taken to improve

  • Witness with Lottery Commission noted the issue again was regarding payment of taxes and have reviewed and correspondence with major vendors to make sure they understand  proper procedure

Zaffirini – details on contracts reviewed at TxDOT

  • It varies depending on type of contract stated Bass
  • Kenneth Stewart of TxDOT – there is a process
    • Non-low bid at $1 million or more is reviewed
    • Also review any changes to standardized templates

Rodriguez – reason for large number of outside law firms for A&M  

  • Bonilla – will provide more details but most of the list is of firms who represents the system in intellectual property matters and their fees are often paid for by the third party who are working with university to commercialize the IP
  • Other firms include specialized bond, public financing and transactions, immigration for faculty and foreign students
  • In-house handles more standard matters (ie day to day commercial contracting, compliance, etc)

Panel Three
PJ Vilanilam, Texas Department of Information Resources

  • Reviewed QAT (quality assurance team) functions – one member from the following agenices: LBB, SAO, and DIR
  • Also works on maintaining and improving Texas Project Delivery framework – works to ensure project aligns with business outcomes – among other things

Ron Pigott, TPASS Division at Comptroller’s

  • Reviewed current contract process and monitoring of contract
  • Staff all received same training
  • Can respond to problems as they occur but cannot get out in front of the contracts with current staff to contract ratio

John Keel, Texas State Auditor

  • State Contract Management guide is an excellent document
  • Office has been aggressive on auditing of contracts
  • In a later question from Sen. Taylor regarding the Lottery Commission, Keel stated he will provide more follow up information to the committee
  • Have an ongoing audit that will be out around October that will audit multiple elements of HUB program for the following agencies: DSHS, GLO, HHSC, Texas A&M System, TDI, Texas Tech University, University of Texas MD Anderson Cancer Center

Julie Ivie, Legislative Budget Board

  • Listed out the roles of the LBB (technical role to contract advisory team & maintain state contract database
  • The LBB database will only show certain types of contracts as there are a number of exemptions for certain agencies
  • There is a searchable database on the LBB and these are self-reported contracts
  • Amounts are awarded amounts and not necessarily amount expended on the award

Garcia – asked Pigott what is being done to monitor and ensure compliance in HUB

  • In 2010 there was a disparity study conducted and following it the statewide goals were adjusted
  • The annual report for FY 2014 should be coming out in mid-November
  • Each agency is able to set their own HUB goal and Pigott believes they are meeting their goals (but it is not reported to Comptroller) 

Garcia – upon review of SAO audits what is done with recommendations that were made, what is compliance

  • Keel – there is a three stage response and agency is required to provide status of implementation of recommendations   
  • There is a fraud hotline and every state agency is supposed to publish that number
  • Contracts being paid with state money is subject to audit
  • In response to Sen. Rodriguez’s question he will review an audit the Senator requested
  • As to time to complete and preform audits – there are some statutory guidelines they must meet and there is large staffing turnover which does create some concern
  • Some agencies have audit delegation authority so there is much more auditing going on than just from the SAO

Schwertner and Rodriguez – asked about a 2007 GEER recommendation for a statewide oversight office to be created and if it is still a recommendation of the LBB

  • The recommendation would be an assist to agencies to help ensure best practices and contract monitoring
  • Recommendation was to start office off with 12 FTE’s but would need to see what kind of resources would be needed in the long term
  • They experts would provide suggestions and would work with agencies
  • They would have authority to make modifications to the contract if issues came up and received permission from the LBB to do so
  • LBB is not sure if they would make same 2007 recommendation since legislation has been passed and certain changes have been made since 2007

Zaffirini – asked for recommendations in general and specifically about exemptions

  • LBB said it might be helpful to "clarify" and streamline the statutory reporting thresholds
  • TPASS and SAO recommended training and certification
  • Keel also said records retention for contracts is vital and needs to be strengthened
  • DIR echoes statements on training and mandatory annual training for contract managers for new or changing requirements
  • Witness gave limited/no remarks regarding exemptions – Keel suggested reaching out to the vendors directly
  • Witness from DIR stated he did not recommend merging quality assurance teams and contract advisory teams since they have different functions and different expertise so the value of the expertise will not be lost – other witnesses also stated they agreed with not merging

Public Testimony
Dennis Borel, Coalition of Texans with Disabilities

  • Burson-Marsteller was bad experience – they were the subcontractor for Helping Americans Vote Act (HAVA) outreach with the disabled
  • Certain subcontractors do play an important role especially when they bring “subject matter expertise”
  • Agencies could contract directly with subject matter experts

Nick Reynolds, ESI International in San Antonio

  • Experience with City of Austin and worked with them to come up with a training program for anyone who touches contracts (approx. 600+ employees)
  • Listed best practices that many in contracts areas have not focused on (ie looking at history of the contractor, the scope of contract written too broad or too specific, finish with monitoring and putting in place performance measures)