State auditors are questioning how an estimate for a new $1 million phone system grew into a $105 million deal.
According to a report released December 30th, the Texas Health and Human Services Commission did not comply with state rules when it signed a contract with AT&T Global Services. Auditors found that during the planning process, the Commission estimated the new phone system would only cost $1 million, but in 2008 the price was set at just under $50 million. In 2011 the contracted was amended and increased to $80 million. Two years later the deal was extended and the contract price increased to $105 million. Auditors also said the state agency had a conflict of interest problem and did not adequately verify bills which resulted in improper payments made to the company.
In response, officials with the Commission said the original "$1M figure was noted on the pre-requisition form (PRF) to trigger the procurement process," essentially a starting point in the process. It was also confirmed two employees, who were assigned to the project, were former AT&T employees which was inappropriate. That issue prompted the review by auditors.
The contract is being re-bid, according to HHS, although auditors say the agency has already spent at least $72 million since 2008.
The full audit report can be read here.
Below is the full statement by HHS:
TMS Audit Response:
In February 2014 HHSC IT received allegations about possible improper relationships between two IT employees and our telecommunications services vendor. We asked the HHSC Office of Inspector General to investigate the possible conflict of interest involving one employee and that investigation is ongoing. At the same time, HHS Executive Commissioner Dr. Kyle Janek also contacted the State Auditor and asked for an audit of the contract. One employee has been reassigned to a different area of IT, the other is deceased.
"I appreciate the State Auditor's Office reviewing this contract at my request," said Dr. Janek. "We have new policies and procedures in place that take a very strict stance on disclosure of potential conflicts of interest and increase oversight and transparency. HHSC is a big agency with a lot of high dollar contracts and we must be vigilant in our efforts to be fair and transparent as we safeguard taxpayer dollars."
HHSC has issued an RFP and is re-bidding the telecommunications contract. We have a new lead over the project in IT and have added staff and expanded staff responsibilities to more closely monitor the contract, verify invoices, and provide technical oversight. In addition, HHSC has made a number of changes in recent years to safeguard against conflicts of interest including requiring all employees to receive ethics training, requiring bid evaluators to fill out a nepotism form, and providing face to face training to bid proposal evaluators prior to the evaluation process.
The telecommunications contract was competitively bid and was not purchased through the Department of Information Resources.
Executive Commissioner Janek is announcing new polices to ensure greater transparency and accountability for products and services the agency purchases through Department of Information Resources contracts. "DIR is the state's authority on information technology purchases, and agencies are required to buy off the DIR contracts when possible," Janek said. "These changes help ensure a level playing field for all bidders and that we get the best value for taxpayers."
Here is additional explanation of the $1 million figure:
The $1M figure was noted on the pre-requisition form (PRF) to trigger the procurement process and the appropriate amount of oversight both internally as well as from the Comptroller of Public Accounts (CPA) Contract Advisory Team. The PRF is required prior to initiating any solicitations. Upon execution of the contract, policy requires a revised PRF with the actual contract amount to be prepared. The original contract amount of $47.9 was determined through a competitive procurement process and subsequent negotiations.
The new policies include:
-Projects valued at $25,000 or more will be sent to all companies approved by DIR for that service or product category so that all eligible companies have the opportunity to submit a bid. State law allows agencies to send the solicitation to only one company, and HHSC previously recommended seeking at least three bids, but will now allow all eligible companies to bid.
-All solicitation documents outlining the project requirements must be reviewed by agency legal and IT staff before seeking bids. Previously HHSC did not require an IT review of the requirements.
-All contract awards will be posted on the HHSC website.
-The new policies will apply to all five state health and human services agencies and are effective January 5.