State Procurement Process (08/22/2005)

Final
STAFF SUMMARY OF MEETING

STATE PROCUREMENT PROCESS

Date:	08/22/2005	ATTENDANCE

Time:	09:00 AM to 03:31 PM	Adams	X
		Felice	X
Place:	HCR 0107	Garcia	E*
		Hanna	E*
This Meeting was called to order by		Houlihan	X
	Senator Groff	Kerr	X
		Liston	X
This Report was prepared by		Marshall	X
	Janis Baron	Owen	X
		Takis	X
		Teck	X
		Terry	X
		Weissmann	X
		Groff	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
3rd Meeting of the State Procurement Committee Department of State Presentation Colorado Association of Commerce and Industry		- - -

9:00 AM

Senator Groff called the meeting to order and invited representatives from the Department of State to the table.

9:05 AM

Bill Hobbs, Deputy Secretary of State, introduced Patti Fredrick, Co-Director of Elections, and Brian Mouty, SCORE Project Manager for the Help American Vote Act Program (HAVA). Mr. Hobbs's testimony centered on the department's contracting procedures as they relate to the department's many IT projects. Mr. Hobbs noted that the department dispenses information to the public in an e-government format. To this end, the former Secretary of State, Donetta Davidson, sought funding for IT projects as soon as she assumed her position. Mr. Hobbs noted that all information available on the department's website is accessible for free.

As its primary approach, the department contracts for IT services off of the state's bid list because a state rate has already been negotiated. This approach makes contracting go more quickly and efficiently. All state agencies file their rules with the Department of State. Due to the volume, the department contracts with an outside vendor to perform this function.

Mr. Hobbs discussed several problems with the state contracting process:

• vendors know how much the agency has to spend because of the state's appropriation process;
• estimating the cost of pending legislation for fiscal notes is difficult due to the limited time to do so, and sometimes results in estimates which are either too low and/or too high;
• the process is very slow — it is not uncommon to take up to 12 months to finalize a project due to in-house analysis, inclusion in the annual budget submission, JBC staff analysis, and final approval through the annual budget process;
• technology may be obsolete once the project is implemented if the process moves too slowly;
• although elected officials are exempt from certain constraints of the contract process, if they choose to take the exemption path they do not benefit from the contract review process in the State Controller's Office;
• comments received back by the State Controller or the Attorney General's Office can prove problematic — although both agencies provide good contract language, objections to the contract seem to go beyond the legal review; and
• the IMC and JBC reviews of IT projects add to delaying a project's start date and, in effect, require the department to make its arguments for technical approval/funding twice — requiring more staff time.

9:25 AM

Mr. Hobbs took questions from the committee. Senator Groff asked for the total dollars spent on contracting annually in the department. Mr. Hobbs stated that the department's overall budget is approximately $15.0 million (does not include $15.0 million from the Federal Elections Assistance Fund for HAVA), but he did not know the specific amount spent on contracting. Sen. Groff also pursued whether past performance of contractors was considered prior to entering into a contract. Mr. Hobbs said that the department did look at past performance of contractors.

Senator Teck asked for recommendations for change in light of the problems the Department of State identified in the procurement and IT process. Mr. Hobbs noted that the procurement process is much like the personnel system — very slow but may have to be to ensure fairness. Mr. Hobbs will get back to the committee with more concrete solutions/recommendations.

Mr. Felice asked what happens if money runs out at the end of the fiscal year? Mr. Hobbs noted that often times the department requests multi-year funding to ensure that funding does not run out, in addition to using its "roll forward" spending authority. There has never been a time when the department ran out of money to continue a contract — perhaps because of its use of the elected officials' exemption. All this said, the department cannot spend more than its appropriation. Should the department require added funds due to unforeseen circumstances with potential contract overruns, the department seeks supplemental funding. Only once has the department selected a vendor who failed to fulfill its contract requirements and that was for e-filings.

Mr. Houlihan asked if there are problems with an "advisory" manual. Mr. Hobbs stated that the department is small with limited staff to manage and keep up to speed with contract management. There is no single full-time person dedicated to its contract process. The department may exercise its exemption status but never works off of a separate set of rules — the department follows the state's fiscal rules. He recommended involving the Controller's Office and the Attorney General's Office earlier in the process, not just fiscal and legal review at the end of contract negotiations but during the negotiations. Mr. Hobbs said that timetables and deliverables are written into their contracts to ensure a good time track.

9:38 AM

Mr. Brian Mouty began his testimony on the SCORE project — a federally-funded project designed to replace all county voter registration systems with one statewide system. In 2003, a team was selected from all counties prior to issuing the 175-page RFP for the SCORE project. Additionally, the department hosted a pre-bid conference on the RFP for vendors to allow them to better develop their bids. Inquiries could be submitted in writing, without the knowledge of other vendors, to ensure competition. The department received 13 responses. Evaluation of the bids was done by the team (county representatives) with no influence or voting by the Secretary of State. Additionally, an administrative review was done on all the bids to ensure each had met the requirements of the RFP (one failed to meet RFP requirements). The evaluation team was provided a list of items to examine and evaluate, reference checks were performed, and numerical scoring was used to determine the bid award. Although the award could have been made after the first review, the evaluation team chose to select three vendors to enter the competitive range. The selection of the final vendor was unanimous.
The SCORE project has 44 deliverables spread across 20 months with payments tied to milestones. No payment is made without a deliverable, and each payment has a 20 percent holdout to ensure final acceptance of the deliverable. The vendor gets its profit at the end of the project. An active steering committee meets monthly, updates are regularly provided to the IMC, and the project has had high level participation from the Secretary of State. Independent verification of project deliverables is ongoing.

9:50 AM

Representative Weissmann asked how Mr. Mouty, as the contract manager for the SCORE project, was selected to roll out project implementation - what process was used to hire him. Mr. Hobbs stated that Donetta Davidson did not do formal bids for Mr. Mouty's position and selected Mr. Mouty because he had the necessary skills and she was familiar with his work.

Mr. Houlihan asked what types of background questions were asked of bidders on the project. Were there standard statewide questions or statutorily required questions regarding past performance and experience? Did the department have ample time to canvas the counties on the matter of reference checks? Mr. Mouty stated that the evaluation team developed questions to be asked of all contract bidders.

Senator Teck asked about the current status of SCORE. Mr. Mouty responded that it is about 4 months behind schedule but a pilot is to begin in 5 counties in December with full statewide rollout by April 15, 2006. Senator Teck asked for Mr. Mouty's perceptions of the IT procurement process. Mr. Mouty responded that it is difficult to award a contract and take a hands off position and hope for the best from the vendor. Monitoring is essential to ensure that the vendor is developing the product to the state's specifications and that the project is not meandering. Ambiguity can still play a factor — the vendor must be monitored to ensure they don't go off track. Senator Teck rhetorically asked how the state can get the necessary expertise to ensure that these IT contracts are effectively and properly implemented with accountability.

Representative Marshall asked about Mr. Mouty's relationship with Accenture. (Accenture LLP has the contract for the SCORE project.) Mr. Mouty stated that he had no relationship with Accenture other than his role on the IV&V team on the Genesis project in the Department of Labor and Employment. He had no voting role when Accenture was selected for the SCORE project.

Senator Groff followed up and asked if the past performance of Accenture was considered given the lawsuit pending in Wisconsin and the purging of African Americans from the voter rolls in Florida during the 2000 presidential election. Were these problems taken into account before Accenture was selected? Mr. Mouty responded that the problems in Wisconsin came to the surface after Accenture was selected in Colorado, and he did not known whether the problems which occurred in Florida were considered. He will get back to the committee.

10:00 AM

Committee recessed for 30 minutes.

10:33 AM

Committee reconvened. Senator Groff invited Heidi Heltzel, Colorado Association of Commerce and Industry (CACI), to discuss state procurement from the business perspective.

Ms. Heltzel testified that CACI members were queried on their impression of the state procurement process and she received an overwhelming response to her e-mail. CACI identified five areas that need to be addressed: accountability; consistency; oversight; clarity; and transparency. She stated that the process is shrouded in mystery and too complex to navigate for many companies to consider, too many variables across state agencies. Once a company is a verified vendor it should be easier to be considered for contracts across agencies but that is not always the case. Vendors allocate their staff/resources on time availability which often times conflict with state time availability.

She discussed the "direct contract" concept wherein state agencies could purchase services directly from a company without the benefit of a bid award, but questioned whether this amount to a noncompetitive process. The business community is opposed to any restraint/prohibitions on state outsourcing or off-shoring. It does encourage streamlining the state contracting process. Vendors see the state's contract process benefitting the state in a lopsided manner — state contract requirements are often times too cumbersome to meet.

Representative Marshall requested that Ms. Heltzel identify the types of companies/businesses CACI includes in its membership, and to put their recommendations into a memo format for the committee to consider relative to any proposed legislation. Ms. Heltzel said that the companies which belong to CACI are varied and provide a wide range of goods and services. She will provide a memo for the committee on CACI's recommendations.

Senator Groff raise the issue of accountability and asked if it would create an undue burden on the business community, when bidding on a state contract, to ask them to identify their subcontractors. She did not perceive a problem — there should be balanced accountability on both ends.

Mr. Felice asked how off-shoring benefits the people of Colorado. Ms. Heltzel responded by using an example of contracting with a firm in New Jersey with all U.S. employees vs. a Colorado firm with one component of its operations supported offshore — isn't it better to employ a greater number of Colorado workers even though a component is supported offshore. Mr. Felice responded that all work can be met at comparable costs within the state vs. outsourcing to another state or contracting for any services offshore. Ms. Heltzel responded that it is a global economy and Colorado cannot be made an island.

Representative Garcia asked how off-shoring hurts the people of Colorado. Ms. Heltzel has seen no evidence of the state or its people hurt by off-shoring. She noted that Canadian companies have invested considerable money into Colorado and hired Colorado workers. Because companies are multinational, operations won't want to be located in Colorado if they are required to use only Colorado workers. Investment goes both ways.

Senator Hanna asked how many companies come to Colorado to establish operations and actually want to conduct business with the state. Sen. Hanna's perception is that those numbers are negligible.

Mr. Felice stated that he is a technologist and a globalist, and he acknowledged that there are no clear cut answers to the global economy. When considering both China and New Jersey, how do we determine that reciprocity is equal? How much human cry might there be if Colorado awarded a service contract to a company in New Jersey and proceeded to hire a handful of workers from Colorado to work on that contract — would the taxpayers of New Jersey sit still for that? Would the government of China sit still for hiring Colorado workers to fulfill contract work in its country? Can a U.S. or Colorado firm export both its work and its workers in a reciprocal manner? Mr. Felice noted that where the company is located makes little or no difference, what is key is where the jobs are. Mr. Felice stated that varying degrees of standards can be written into statute or contracts, i.e., "preference shall be given to Colorado workers" or "preference shall be given to companies that use Colorado raw materials".

Mr. Houlihan posed several questions on competition. Additionally, he wondered what was meant by transparency. What does the business community mean when it states it wants transparency in the state contracting process? Ms. Heltzel noted that a degree of communication is desired. Mr. Houlihan talked of the need to prominently post when a contract has been approved and awarded. How do people find out when and to whom awards are made, is this information posted on the state's website?

Senator Owen noted that it is not about jobs it's about attracting capital. If we attract the capital, the jobs will come. He does not advocate restrictions, rather he emphasized the need to bring capital into Colorado either through changing Colorado's tax laws, regulatory scheme, state procurement procedures, and not by putting restrictions on companies. Additionally, the U.S. is losing jobs to China and India because those countries are turning out engineers and the brain power that help countries in today's service economy.

Senator Takis asked how we can ensure that the work is being done as requested when being done offshore, where is our ability to leverage accountability. Ms. Heltzel noted that contracts include specific language on what is to be provided and when.

Mr. Felice posed questions about the state of K-12 education and higher education in Colorado from the perspective of Colorado businesses. Ms. Heltzel noted that most are concerned about the reduced funding for higher education and the lack of science/technical education. Mr. Felice asked whether CACI does anything to facilitate increased education in the sciences. Ms. Heltzel stated that CACI is supporting referenda C and D because they will provide increased funding for higher education. Beyond that, CACI does not involve itself with the development of curricula or areas of study in higher education.

11:12 AM

Jessica Wright, Executive Director, American Electronics Association (AEA) Mountain States Council, testified. AEA includes technology companies. She compared Colorado's state procurement process with those in Utah, New Mexico, and Wyoming. Colorado is similar to its neighboring states, but is somewhat more complex. She noted that on-line bidding is essential to technology companies. Utah has a very easy system to navigate for technology companies — one-stop shopping. Complexity of Colorado's website makes it tough for companies to even try to engage in business with the state, especially for small companies. Businesses can grow if they can take advantage of state contracts. Processing costs are greater in a complex process. Vendors usually bid people on an award date — if delayed, the people may not be available 2 or 3 months later. Awards must be made in a timely fashion. Short notice on bid response is difficult, the bid response time must be lengthened.

Senator Teck asked what is delaying contract awards, what is the weakness in the system. Ms. Wright replied that companies aren't always told why an award is being delayed, which speaks to the transparency issue. Senator Teck noted that a vendor's tightly scheduled personnel may be an area which can be remedied and a good place to start in improving the state's contracting process.

Utah's procurement is more centralized, with 4 contracting vehicles. In comparison, Colorado has 11 contract vehicles. This should be cut down and streamlined, it would make things easier and save money. Ms. Wright stated that low value awards can result in the vendor stumbling/failing to provide deliverables. Colorado charges a fee to be a qualified vendor on the state bidding list, while our neighboring states do not.

Mr. Felice asked what the advantages/disadvantages are to a centralized system of procurement. Ms. Wright noted that with one contract only, there is no need to resubmit information to multiple agencies when using a centralized system.

Senator Groff, using Utah as an example, asked what measures of accountability it uses. Ms. Wright stated that Utah uses milestones and a time track for deliverables to ensure contract monitoring is being accomplished.

Senator Teck asked how big Utah's economy is relative to Colorado's. Ms. Wright did not know. Ms. Wright summarized by saying there is a greater margin of error using a decentralized vs. a centralized system.

11:25 AM

Tony Milo, Colorado Contractors Association (CCA), testified. CCA does not offshore job functions, workers are required here to build the road, build the dam, etc. Mr. Milo provided the committee with Attachment A, which summarizes his presentation.

11:32 AM

Representative Weissmann asked how the Colorado Department of Transportation (CDOT) is working with CCA to ensure capable contractors. Mr. Milo responded that a prequalification process is necessary to ensure that "bad actors" are not on the bidding list. Rep. Weissmann noted that there is no process to "dequalify" a contractor. Mr. Milo stated that there is a process to dequalify a contractor but it is quite cumbersome. CCA is working with CDOT to develop a less cumbersome process.

Mr. Adams requested greater information on best value contracting for construction contractors vs. technology contractors. Mr. Milo stated that tools and trends are currently in development for construction contractors, i.e., performance warranties.

Mr. Houlihan referred to recommendations made in the 2004 performance audit on CDOT and the prequalification process.

Senator Groff asked if CCA members have contracts with built-in deliverables. Mr. Milo responded that state contracts with CCA members include timelines which are monitored by CDOT engineers. Senator Groff asked whether CCA members would object to having their subcontractors monitored on a contract? Mr. Milo responded that there would be no objection, monitoring of subcontractors is currently occurring.

11:40 AM

The committee recessed.

1:30 PM

The committee reconvened.

Andre Fall, KPMG LLP, testified. Mr. Fall provided the committee with Attachment B, his Powerpoint presentation on the use of costing in the procurement process. His testimony centered on activity based costing (ABC). ABC assigns costs to products or services based on their consumption of resources, and is a process to align revenues and costs to business processes and activities.

Mr. Adams asked who has ABC down and does it well, and where performance monitoring fits into the ABC scheme. Mr. Fall stated that the City of Indianapolis does it well, both county management and labor are involved, take ownership of projects, and better monitor the projects. Management and labor benefit because the ABC method is based on concrete data.

Mr. Felice commented that Mr. Fall seemed to be stating that private industry can do things better than government, then asked if that was his position. Mr. Fall stated that, from a theoretical standpoint, government may do best at administering services rather than providing them directly. Mr. Felice followed up with the example of trash collection and who does it best. From a cost benefit perspective, Mr. Fall has seen it done well by both and gave an example of school transportation in Florida; it depends on both the activity and the community.

Senator Hanna asked to what extent cost consideration is the major factor in determining how best to perform a function, be that by government or private providers. Is there ever an instance when cost is the only factor?

1:50 PM

The committee waited as Mr. Waites and Senator Groff discussed topics for discussion at the September 22nd meeting. Committee recessed.

2:00 PM

Committee reconvened. Although not on the agenda, Senator Groff noted that Jeff Chostner, Pueblo City Council, would be joining Gerard Waites, O'Donoghue & O'Donoghue LLP, Washington, DC, for a presentation.

Mr. Waites introduced himself and Mr. Chostner, and provided the committee with Attachment C (overview of his presentation), which centered on best value contracting (BVC) and related reforms to improve public works procurement.

Mr. Waites testified that his expertise is in public works construction. A BVC equals price plus qualifications, and this is the best combination for good contracting. He noted that the RFP has been used by government for decades and is used for both goods and professional services. Mr. Waites noted that 40 percent of Colorado's current procurement is under the RFP process. It can be beneficial to expand BVC which is an alternative to the low-bid system. Best practice for the BVC is to use a systematic RFP process which determines past performance, present performance capabilities, management plan, craft labor capabilities, and other items.

Mr. Chostner testified about his practical application observations of BVC while working as the senior JAG at Boeing Corporation in Washington, DC. (The corporation had considerable contracts with the U.S. Air Force.) In his present position, he noted that the Pueblo City Charter has contemplated BVC since 1954, and that an ordinance has recently been introduced to ensure that goods and services are procured through BVC.

Senator Groff asked Mr. Chostner if he could identify the savings realized by the U.S. Air Force as a result of using BVC. Mr. Chostner indicated he could not pinpoint an exact number, but that the procurement attorneys who worked in his unit noted savings between 25 to 35 percent. Most striking was time saved in getting projects up. Mr. Waites noted that studies have shown that unforeseen costs are reduced and that the projects themselves are undertaken for the cost savings/cost benefit.

Senator Takis asked how long BVC has been in practice to fully evaluate its effectiveness. Mr. Waites indicated that it has a good decade-long track record. Growing use of BVC is occurring on the federal, state, county, city, school, and university levels. Federal construction money for 2002 used BVC for 70 percent of its contracts and 30 percent through a sealed bid process. In Colorado, only the University of Colorado uses BVC. Alaska, California, Delaware, Georgia, Kentucky, Tennessee, Pennsylvania, New Jersey, New Mexico, Texas, and Utah have BVC in their state statutes.

Senator Groff noted the University of Colorado in relation to the other states using BVC and asked whether these states were using either a decentralized or centralized process. Mr. Waites said that it was a mixed bag wherein states were using both — quite diverse. One significant observation of the BVC process is that city, county, schools and state governments talk to one another.

2:20 PM

Mr. Houlihan asked about price — is price fixed for architects and engineers. Mr. Waites said that qualification is the primary requirement, price is negotiated secondarily. Price can be set on the needs of the project.

Mr. Waites noted that the driving forces of the low bid system result in the fact that qualifications, reliability, and integrity are not taken into consideration. Price, quality and service work together. If the price is low, quality and service may be compromised. Low bid contract awards do not give incentives to the contractor to provide excellent performance. Low bids breed mediocrity. Under BVC, a performance score is considered in awarding contracts and gives incentives to contractors to provide a high level of service and quality. BVC addresses poor quality related to low bids. Low bids encourage mediocre performance. The failures of the low bid process include poor quality, schedule delays, cost overruns, changes, and claims. The results of BVC include better quality, faster schedule, reduced costs, and fewer claims. Contract negotiations can include other factors beyond price.

Mr. Waites briefly discussed the flexibility factor — there is no flexibility in the low bid process. Under BVC, value added items can be included, such as guarantees/warranties, positive community impacts, worker safety, apprenticeship training, and local hiring. Governments can give "points" for these factors when awarding contracts using BVC.

2:38 PM

Mr. Waites described the basic process of BVC. First, the RFP is designed and issued, with key evaluation factors and weighting identified. Second, contractors submit price and technical proposals, and information is collected on contractor prior performance and other evaluation factors identified in the RFP. Third, proposals are evaluated or scored on both price and qualifications, including past performance.

Mr. Waites identified three recommendations for reform:

1. Create a uniform contractor performance tracking and reporting system. Give contractors a "report card" at the end of a contract, and track the evaluations through a database. Then, use this information when awarding future contracts.

2. Establish a progressive contractor pre-qualification system for state projects. Require all contractors to pass a basic pre-qualification test, then examine key performance factors.

3. Expand the use of the sealed competitive proposal procurement method. The state should require this method unless there is a compelling reason for a low-bid award.

In responding to questions of the committee, Mr. Waites stated that the federal government has the most systematic approach to BVC. He also explained that public disclosure of contract performance is appropriate unless there is a concern over proprietary information. For new companies, past performance of the management team could be considered in lieu of the company's past performance.

3:02 PM

Mr. Phil Holtmann, Contract Unit Supervisor in the State Controller's Office, explained that he was before the committee to answer questions about what is going on in the trenches. He noted that his opinions do not necessarily reflect those of the State Controller, the Division Director or the Executive Director of the Department of Personnel and Administration.

Senator Groff asked if contracts of elected officials are monitored, and Mr. Holtmann replied that all state agencies are responsible for monitoring their own contracts, including elected officials. The Department of Personnel and Administration provides training and a contract manual available to all departments and agencies. However, elected officials may opt-out of the state procurement rules.

Mr. Holtmann discussed the issue of cost overruns. He explained that the Controller's Office reviews contracts and settlement agreements. Causes of overruns include contractors "playing the game" by giving a low bid then declaring cost overruns later. BVC could greatly ease and address this problem. Currently, contractors can be disbarred but it is very difficult, and there is no system to review past performance of contractors in awarding contracts. He noted that rule changes could address many of these issues.

Mr. Holtmann suggested that it should be mandatory that the Attorney General's Office be involved in large IT RFPs in addition to reviewing final contracts, thus allowing the identification of legal concerns earlier in the process.

Senator Owen asked how the rules of both the Controller's Office and the Attorney General's Office and state purchasing policies could be brought together. Mr. Holtmann stated that this used to be the case, but significant decentralization has taken place over the years. The State Controller and the Procurement Director should be able to bring both offices toward the same goal. He explained that the working relationship between the two offices is good, but the question is who is in charge.

Mr. Felice asked if there is better accountability with centralized procurement. Mr. Holtmann replied that a centralized system provides for more accountability, but it also requires more staff. When the system was more centralized, the workload became overwhelming, and the state moved toward decentralization.

Mr. Houlihan asked if Mr. Holtmann had recommendations for the state's contract monitoring system. Mr. Holtmann replied that if he had the power, agencies would be required to monitor and report contract performance. Currently, the evaluation process is many times lost to other demands on staff time.

Mr. Holtmann commented on IT contracts. Many times the state goes into IT RFPs without knowing what is available in the market. One recent requirement is to document all changes to contracts. Large IT contracts require dedicated personnel to manage the contract. If staff is not dedicated to the project early in the process, costs may escalate dramatically. The Department of Personnel and Administration is always working to improve the process through training, updating rules, and other measures.

Representative Weismann asked if requiring the Attorney General's Office and the Controller's Office to review RFPs can be made through rule changes. Mr. Holtmann explained that it could be required through a rule change, and indeed it was a requirement as described in the 1988 Contract Manual.

3:31 PM

Committee adjourned.9:00 AM -- Department of State Presentation

Senator Groff called the meeting to order and invited representatives from the Department of State to the table.

9:05 AM

Bill Hobbs, Deputy Secretary of State, introduced Patti Fredrick, Co-Director of Elections, and Brian Mouty, SCORE Project Manager for the Help American Vote Act Program (HAVA). Mr. Hobbs's testimony centered on the department's contracting procedures as they relate to the department's many IT projects. Mr. Hobbs noted that the department dispenses information to the public in an e-government format. To this end, the former Secretary of State, Donetta Davidson, sought funding for IT projects as soon as she assumed her position. Mr. Hobbs noted that all information available on the department's website is accessible for free.

As its primary approach, the department contracts for IT services off of the state's bid list because a state rate has already been negotiated. This approach makes contracting go more quickly and efficiently. All state agencies file their rules with the Department of State. Due to the volume, the department contracts with an outside vendor to perform this function.

Mr. Hobbs discussed several problems with the state contracting process:

• vendors know how much the agency has to spend because of the state's appropriation process;
• estimating the cost of pending legislation for fiscal notes is difficult due to the limited time to do so, and sometimes results in estimates which are either too low and/or too high;
• the process is very slow — it is not uncommon to take up to 12 months to finalize a project due to in-house analysis, inclusion in the annual budget submission, JBC staff analysis, and final approval through the annual budget process;
• technology may be obsolete once the project is implemented if the process moves too slowly;
• although elected officials are exempt from certain constraints of the contract process, if they choose to take the exemption path they do not benefit from the contract review process in the State Controller's Office;
• comments received back by the State Controller or the Attorney General's Office can prove problematic — although both agencies provide good contract language, objections to the contract seem to go beyond the legal review; and
• the IMC and JBC reviews of IT projects add to delaying a project's start date and, in effect, require the department to make its arguments for technical approval/funding twice — requiring more staff time.

9:25 AM

Mr. Hobbs took questions from the committee. Senator Groff asked for the total dollars spent on contracting annually in the department. Mr. Hobbs stated that the department's overall budget is approximately $15.0 million (does not include $15.0 million from the Federal Elections Assistance Fund for HAVA), but he did not know the specific amount spent on contracting. Sen. Groff also pursued whether past performance of contractors was considered prior to entering into a contract. Mr. Hobbs said that the department did look at past performance of contractors.

Senator Teck asked for recommendations for change in light of the problems the Department of State identified in the procurement and IT process. Mr. Hobbs noted that the procurement process is much like the personnel system — very slow but may have to be to ensure fairness. Mr. Hobbs will get back to the committee with more concrete solutions/recommendations.

Mr. Felice asked what happens if money runs out at the end of the fiscal year? Mr. Hobbs noted that often times the department requests multi-year funding to ensure that funding does not run out, in addition to using its "roll forward" spending authority. There has never been a time when the department ran out of money to continue a contract — perhaps because of its use of the elected officials' exemption. All this said, the department cannot spend more than its appropriation. Should the department require added funds due to unforeseen circumstances with potential contract overruns, the department seeks supplemental funding. Only once has the department selected a vendor who failed to fulfill its contract requirements and that was for e-filings.

Mr. Houlihan asked if there are problems with an "advisory" manual. Mr. Hobbs stated that the department is small with limited staff to manage and keep up to speed with contract management. There is no single full-time person dedicated to its contract process. The department may exercise its exemption status but never works off of a separate set of rules — the department follows the state's fiscal rules. He recommended involving the Controller's Office and the Attorney General's Office earlier in the process, not just fiscal and legal review at the end of contract negotiations but during the negotiations. Mr. Hobbs said that timetables and deliverables are written into their contracts to ensure a good time track.

9:38 AM

Mr. Brian Mouty began his testimony on the SCORE project — a federally-funded project designed to replace all county voter registration systems with one statewide system. In 2003, a team was selected from all counties prior to issuing the 175-page RFP for the SCORE project. Additionally, the department hosted a pre-bid conference on the RFP for vendors to allow them to better develop their bids. Inquiries could be submitted in writing, without the knowledge of other vendors, to ensure competition. The department received 13 responses. Evaluation of the bids was done by the team (county representatives) with no influence or voting by the Secretary of State. Additionally, an administrative review was done on all the bids to ensure each had met the requirements of the RFP (one failed to meet RFP requirements). The evaluation team was provided a list of items to examine and evaluate, reference checks were performed, and numerical scoring was used to determine the bid award. Although the award could have been made after the first review, the evaluation team chose to select three vendors to enter the competitive range. The selection of the final vendor was unanimous.
The SCORE project has 44 deliverables spread across 20 months with payments tied to milestones. No payment is made without a deliverable, and each payment has a 20 percent holdout to ensure final acceptance of the deliverable. The vendor gets its profit at the end of the project. An active steering committee meets monthly, updates are regularly provided to the IMC, and the project has had high level participation from the Secretary of State. Independent verification of project deliverables is ongoing.

9:50 AM

Representative Weissmann asked how Mr. Mouty, as the contract manager for the SCORE project, was selected to roll out project implementation - what process was used to hire him. Mr. Hobbs stated that Donetta Davidson did not do formal bids for Mr. Mouty's position and selected Mr. Mouty because he had the necessary skills and she was familiar with his work.

Mr. Houlihan asked what types of background questions were asked of bidders on the project. Were there standard statewide questions or statutorily required questions regarding past performance and experience? Did the department have ample time to canvas the counties on the matter of reference checks? Mr. Mouty stated that the evaluation team developed questions to be asked of all contract bidders.

Senator Teck asked about the current status of SCORE. Mr. Mouty responded that it is about 4 months behind schedule but a pilot is to begin in 5 counties in December with full statewide rollout by April 15, 2006. Senator Teck asked for Mr. Mouty's perceptions of the IT procurement process. Mr. Mouty responded that it is difficult to award a contract and take a hands off position and hope for the best from the vendor. Monitoring is essential to ensure that the vendor is developing the product to the state's specifications and that the project is not meandering. Ambiguity can still play a factor — the vendor must be monitored to ensure they don't go off track. Senator Teck rhetorically asked how the state can get the necessary expertise to ensure that these IT contracts are effectively and properly implemented with accountability.

Representative Marshall asked about Mr. Mouty's relationship with Accenture. (Accenture LLP has the contract for the SCORE project.) Mr. Mouty stated that he had no relationship with Accenture other than his role on the IV&V team on the Genesis project in the Department of Labor and Employment. He had no voting role when Accenture was selected for the SCORE project.

Senator Groff followed up and asked if the past performance of Accenture was considered given the lawsuit pending in Wisconsin and the purging of African Americans from the voter rolls in Florida during the 2000 presidential election. Were these problems taken into account before Accenture was selected? Mr. Mouty responded that the problems in Wisconsin came to the surface after Accenture was selected in Colorado, and he did not known whether the problems which occurred in Florida were considered. He will get back to the committee.

10:00 AM

Committee recessed for 30 minutes.
10:33 AM -- Colorado Associatio of Commerce and Industry Presentation

Committee reconvened. Senator Groff invited Heidi Heltzel, Colorado Association of Commerce and Industry (CACI), to discuss state procurement from the business perspective.

Ms. Heltzel testified that CACI members were queried on their impression of the state procurement process and she received an overwhelming response to her e-mail. CACI identified five areas that need to be addressed: accountability; consistency; oversight; clarity; and transparency. She stated that the process is shrouded in mystery and too complex to navigate for many companies to consider, too many variables across state agencies. Once a company is a verified vendor it should be easier to be considered for contracts across agencies but that is not always the case. Vendors allocate their staff/resources on time availability which often times conflict with state time availability.

She discussed the "direct contract" concept wherein state agencies could purchase services directly from a company without the benefit of a bid award, but questioned whether this amount to a noncompetitive process. The business community is opposed to any restraint/prohibitions on state outsourcing or off-shoring. It does encourage streamlining the state contracting process. Vendors see the state's contract process benefitting the state in a lopsided manner — state contract requirements are often times too cumbersome to meet.

Representative Marshall requested that Ms. Heltzel identify the types of companies/businesses CACI includes in its membership, and to put their recommendations into a memo format for the committee to consider relative to any proposed legislation. Ms. Heltzel said that the companies which belong to CACI are varied and provide a wide range of goods and services. She will provide a memo for the committee on CACI's recommendations.

Senator Groff raise the issue of accountability and asked if it would create an undue burden on the business community, when bidding on a state contract, to ask them to identify their subcontractors. She did not perceive a problem — there should be balanced accountability on both ends.

Mr. Felice asked how off-shoring benefits the people of Colorado. Ms. Heltzel responded by using an example of contracting with a firm in New Jersey with all U.S. employees vs. a Colorado firm with one component of its operations supported offshore — isn't it better to employ a greater number of Colorado workers even though a component is supported offshore. Mr. Felice responded that all work can be met at comparable costs within the state vs. outsourcing to another state or contracting for any services offshore. Ms. Heltzel responded that it is a global economy and Colorado cannot be made an island.

Representative Garcia asked how off-shoring hurts the people of Colorado. Ms. Heltzel has seen no evidence of the state or its people hurt by off-shoring. She noted that Canadian companies have invested considerable money into Colorado and hired Colorado workers. Because companies are multinational, operations won't want to be located in Colorado if they are required to use only Colorado workers. Investment goes both ways.

Senator Hanna asked how many companies come to Colorado to establish operations and actually want to conduct business with the state. Sen. Hanna's perception is that those numbers are negligible.

Mr. Felice stated that he is a technologist and a globalist, and he acknowledged that there are no clear cut answers to the global economy. When considering both China and New Jersey, how do we determine that reciprocity is equal? How much human cry might there be if Colorado awarded a service contract to a company in New Jersey and proceeded to hire a handful of workers from Colorado to work on that contract — would the taxpayers of New Jersey sit still for that? Would the government of China sit still for hiring Colorado workers to fulfill contract work in its country? Can a U.S. or Colorado firm export both its work and its workers in a reciprocal manner? Mr. Felice noted that where the company is located makes little or no difference, what is key is where the jobs are. Mr. Felice stated that varying degrees of standards can be written into statute or contracts, i.e., "preference shall be given to Colorado workers" or "preference shall be given to companies that use Colorado raw materials".

Mr. Houlihan posed several questions on competition. Additionally, he wondered what was meant by transparency. What does the business community mean when it states it wants transparency in the state contracting process? Ms. Heltzel noted that a degree of communication is desired. Mr. Houlihan talked of the need to prominently post when a contract has been approved and awarded. How do people find out when and to whom awards are made, is this information posted on the state's website?

Senator Owen noted that it is not about jobs it's about attracting capital. If we attract the capital, the jobs will come. He does not advocate restrictions, rather he emphasized the need to bring capital into Colorado either through changing Colorado's tax laws, regulatory scheme, state procurement procedures, and not by putting restrictions on companies. Additionally, the U.S. is losing jobs to China and India because those countries are turning out engineers and the brain power that help countries in today's service economy.

Senator Takis asked how we can ensure that the work is being done as requested when being done offshore, where is our ability to leverage accountability. Ms. Heltzel noted that contracts include specific language on what is to be provided and when.

Mr. Felice posed questions about the state of K-12 education and higher education in Colorado from the perspective of Colorado businesses. Ms. Heltzel noted that most are concerned about the reduced funding for higher education and the lack of science/technical education. Mr. Felice asked whether CACI does anything to facilitate increased education in the sciences. Ms. Heltzel stated that CACI is supporting referenda C and D because they will provide increased funding for higher education. Beyond that, CACI does not involve itself with the development of curricula or areas of study in higher education.