OFFICE OF THE STATE AUDITOR. Procurement Compendium October 2017

Transcription

1 OFFICE OF THE STATE AUDITOR Procurement Compendium October 2017

2 GAO Government Accountability Office New Mexico Office of the State Auditor October 2017 The Office of the State Auditor brings transparency and accountability to the New Mexico Procurement Process Procurement Compendium The New Mexico Procurement Code ( Code ), Sections , et seq., NMSA 1978, is aimed at providing a fair and equitable public procurement process and maximizing the purchasing value of public funds. However, the Code is a complex web of requirements, exemptions, exceptions and processes, which makes compliance sometimes difficult. These complexities, coupled with historically minimal reporting requirements of government agencies, made understanding the use public funds daunting. The Office of the State Auditor (OSA) sought to fill the gaps in understanding that intricate process, beginning with the Audit Rule, NMAC et seq., pursuant to which the OSA required all audited agencies to selfreport all contracts with a value that exceeded $60,000 entered into within a fiscal year, regardless of procurement method. Drawing on this data reported in New Mexico Procurement Code in a nutshell Local governments and state agencies enter into contracts to purchase a wide variety of goods and services each year and must ensure that each dollar is awarded fairly and transparently in accordance with the New Mexico Procurement Code. The Procurement Code (New Mexico Statutes Annotated Sections et seq., and related regulations) governs the purchases of goods and services made in New Mexico. The New Mexico Procurement Overview on the GAO website explains these requirements in more depth. Fiscal Year 2015 (FY15) and Fiscal Year 2016 (FY16) and capitalizing on its unique oversight mandate, the OSA launched a series of efforts to make government purchasing more transparent. In addition to aggregating and analyzing that data, the OSA designated the General Services Department, Department of Finance and Administration and Department of Information Technology for a special audit to examine the procurement practices of state agencies. While these efforts approach procurement in New Mexico from different angles, they all challenge the myth of scarcity, which assumes the New Mexico is too poor of a state to address some of our biggest problems. State and local government agencies play a vital role in building our state s economy. Those agencies have the capacity to lead the charge in becoming and staying compliant with the Code, increasing efficiency in procurement practices, and maintaining transparency and accountability in agency reporting. This compendium includes the following procurement-related reports: 1. Statewide Report on State and Local Government Contract in all sectors 2. Transparency Report on state and local information technology contracting 3. Transparency Report on state and local food contracting 4. Special Audit of state agency procurement practices 5. Risk Advisory regarding requirements pertaining to Chief Procurement Offices ( CPOs ) 6. New Mexico Procurement Overview 7. OSA s Executive Order to support New Mexico businesses The OSA has also hosted a series of procurement presentations and trainings across the state, during which Auditor Keller and staff have presented findings from these projects and gathered procurement experts to discuss making the government procurement process more accessible to New Mexico businesses. Each report contains best practices and recommendation. Supporting data can be accessed here. Each report can also be found separately at Financial reporting plays a major role in fulfilling government s duty to be publicly accountable in a democratic society. Governmental Accounting Standards Board, Concept Statement No. 1.

3 OFFICE OF THE STATE AUDITOR Report on State and Local Government Contracting, FY15 and FY16 Updated: October 2017

4 TABLE OF CONTENTS Executive Summary... 1 Statewide Overview... 2 Selected Industries: Construction... 6 Selected Industries: Insurance & Benefits... 7 Selected Industries: Corrections... 8 Selected Industries: Educational Goods & Services... 9 Procurement Types Overview Emergency Procurement Sole Source Procurement State Agency Procurement School Procurement Municipality Procurement County Procurement Best Practices and Recommendations Purpose, Scope and Methodology... 19

5 EXECUTIVE SUMMARY Drawing on data that the Office of the State Auditor (OSA) collected from Fiscal Year 2015 (FY15) and Fiscal Year 2016 (FY16) audits, this Report on State and Local Government Contracting examines government procurement in all sectors statewide. This is the first report in recent times to bring transparency to procurement data from state and local governments, which was possible because of the OSA s unique oversight mandate. The Report covers over $6 billion of large government contracts, and over 6,000 procurements. This Report is part of a series of OSA efforts to connect the dots between the areas of significant need in our state and the resources that are available with proper government management. These reports challenge the myth of scarcity, which assumes that New Mexico is too poor of a state to address some of the biggest problems we face. State and local government agencies play a vital role in building our state s economy. When governments contract with New Mexico businesses, money flows directly into the local economy, helping to build tax revenue, creating jobs, and further strengthening the New Mexico economy. Overall, governments reported that 68% of contract dollars went to companies located within New Mexico. However, when construction, architecture and engineering (A&E), and insurance and benefits contracts are removed, the in-state contract percentage drops to less than half (48%). Local procurement has many benefits in addition to creating economic opportunities. By developing a local procurement program, agencies can work with educational institutions to build a pipeline in careers for which the government creates demand. Buying local can be good for the environment, by reducing the ecological impacts of transport. Especially in the area of food services, in-state purchases can offer increased safety and security. Finally, intangible benefits may arise from a vendor being personally invested in the community it is serving, and from agencies having direct relationships with vendors. Benefits of In-State Procurement Earlier this year, the OSA released a Special Audit of State Agency Procurement, which revealed instances in which state agencies avoided the lengthy and complex full competitive bidding processes by using loopholes to procurement laws. In this Report, the OSA connects these practices to their outcomes, including the prevalence of out-of-state contracts when agencies use methods other than competitive bidding. This Report highlights opportunities and recommendations for improvement, including the following: After understanding the dynamics that currently exist, agencies can improve in-state purchasing by establishing institution-wide local purchasing goals. The industries of corrections (96%), information technology (IT) (87%), and food services (87%) have very high rates of out-of-state and national contracts, although the data also suggest that instate vendors are offering some of the necessary services. Only 10% of emergency procurements and 32% of sole source procurements resulted in contracts with in-state vendors. By reducing reliance on emergency and sole source procurements, agencies can increase transparency and provide more opportunities for New Mexico vendors. 1

6 EXECUTIVE SUMMARY By recognizing the patterns behind out-of-state contracting, higher education institutions can work with local vendors to build capacity in areas like educational goods and services (over $91 million in out-of-state contracts) and program management and assessment (over $41 million in out-ofstate contracts). Agencies can increase the positive local impact of contracts with national vendors by requiring minimum numbers of local employees or graduates of local educational institutions to be used on New Mexico projects. Although this Report focuses on large contracts with a value of $60,000 or more, opportunities exist to expand opportunities for local businesses in their smaller purchases as well. For example, State Auditor Keller issued an Executive Order that gives New Mexican businesses an even playing field by removing taxes from the consideration of price in procurements, to take into account the fact that tax rates for out-of-state bidders are often more favorable. STATEWIDE OVERVIEW State and local government agencies reported over $6.5 billion in government contracts in FY15 and FY16. As shown below, state agencies make up over half of reported contracts (52%), but significant contracting occurs at the school district, municipal and county levels. Total Government Contracts, by Agency Type 2

7 STATEWIDE OVERVIEW Statewide in all industries, 68% of contract dollars went to in-state companies. Twenty-one percent went to out-of-state companies. Another 11% went to national vendors, a category the OSA created to capture national firms with a local presence who may have varying degrees of a physical or employer presence in New Mexico. Total Government Contracts, All Industries, By Location of Vendor While these figures are promising, an industry-by-industry evaluation reveals that certain large industries with strong in-state procurement shift the overall numbers in a positive direction. Specifically, when construction, architecture and engineering (A&E), and insurance and benefits contracts are removed, the in-state contract percentage drops to less than half (48%). Total Government Contracts, All Industries Except Insurance, Construction & A/E, By Vendor Location The initial data that the OSA received suggested that most agencies are not keeping track of whether their purchases are with in-state or out-of-state vendors. Tracking in-state purchases is a necessary first step. Unfortunately, for state agencies using the Statewide Human Resources Accounting and Reporting system (SHARE), vendor files do not provide an option to identify vendors as in-state or out-of-state. 3

8 STATEWIDE OVERVIEW Agencies currently need to compile every purchase file manually to understand their in-state purchasing dynamics, instead of generating a report from SHARE. After understanding the dynamics that currently exist, agencies can improve in-state purchasing by establishing institution-wide local purchasing goals. Achieving these goals may also involve active outreach with local vendors or adding in-state factors to procurement scoring criteria. With over $703 million in contracts, national vendors, meaning vendors with a nationwide presence and varying degrees of local presence, also figure prominently in the statewide procurement picture. State and local governments can increase the positive local impact of contracts with national vendors by requiring minimum numbers of local employees or graduates of local educational institutions to be used on New Mexico projects. Statewide trends also suggest the need for training. Agencies reported that for contracts awarded through competitive procurement to in-state vendors, about one-third of the vendors did not utilize the in-state vendor preference. It would be useful to understand any institutional barriers to taking advantage of this program, which is offered through the Taxation and Revenue Department. In addition, interviewees from the in-depth OSA reports on the IT and food sectors highlighted the need for training and technical support regarding the procurement process and how to find bidding opportunities, including Spanish translations of requests for proposals (RFPs). Statewide, the industries with the largest contract values were insurance and benefits, construction, IT, A&E and corrections. Appendix A contains the in-state and out-of-state data for all industries. Top Ten Industries by Total Contract Value, Ordered by Out-of-State and National Vendor Percentage 4

9 STATEWIDE OVERVIEW With regard to procurement types, the majority of reported procurements statewide (89%, or over $5 billion) were competitive. The extent to which procurement methods yielded contracts with in-state vendors varied widely. Competitive procurements resulted in 71% of contract dollars going to in-state vendors, while emergency procurements resulted in only 10% going to in-state vendors. Percentage of Contract Value Going to In-State Vendors, by Procurement Type (Total contract dollars from each procurement type) 5

10 SELECTED INDUSTRIES: CONSTRUCTION The construction industry saw the highest value of reported contracts, and reported 95% of contracts going to in-state vendors. This likely reflects the use of the in-state preference in RFP scoring (see page 17) as well as the need for local licensure to do construction. Construction Contracts, By Location of Vendor Construction Contracts, By Procurement Type Procurement Type Contract Value % Competitive $1,898,352,747 99% Sole Source $3,576,377 <1% Cooperative $3,345,774 <1% Price Agreement $1,464,614 <1% Emergency $1,289,185 <1% Federal Contract $1,227,250 <1% Exempt $699,345 <1% Largest Reported Construction Contracts Statewide 1. KBK Construction contract with City of Gallup, $51,436,489, FY15 2. Bradbury Stamm contract with Deming Public Schools, $47,159,000, FY16 3. Bradbury Stamm contract with Carlsbad Municipal Schools, $41,654,484, FY15 4. Bradbury Stamm contract with Carlsbad Municipal Schools, $32,133,680, FY16 5. James Hamilton Construction contract with Department of Transportation, $25,199,423, FY16 Agencies with Most Reported Construction Contracts, By Dollar Value, FY15-FY16 Agency Total Value of Construction Contracts Location of Vendors Department of Transportation $333,631,111 In-State 93.8% Out-of-State 6.2% Albuquerque Public Schools $135,728,016 In-State 100% Out-of-State 0% Cooperative Educational Service $135,192,922 In-State 99.9% Out-of-State 0.1% City of Albuquerque $96,184,662 In-State 99.8% Out-of-State 0.2% Carlsbad Municipal Schools $73,788,165 In-State 100% Out-of-State 0% 6

11 SELECTED INDUSTRIES: INSURANCE AND BENEFITS Contract data for insurance and benefits was strongly affected by the fact that the Retiree Healthcare Authority (RHCA) procured several multi-year contracts with providers. Insurance and Benefit Contracts By Location of Vendor Insurance and Benefit Contracts, By Procurement Type Procurement Type Contract Value % Competitive $2,103,221,598 99% Exempt $18,299,629 <1% Emergency $7,500,000 <1% Sole Source $3,110,418 <1% Cooperative $100,000 <1% Largest Reported Insurance and Benefit Contracts Statewide 1. Blue Cross Blue Shield of New Mexico contract with RHCA, $424,575,000, FY16 2. Blue Cross Blue Shield of New Mexico contract with RHCA, $258,100,000, FY15 3. Presbyterian Health Plan, Inc. contract with General Services Department, $162,129,000, FY16 4. Express Scripts contract with RHCA, $160,000,000, FY16 5. Presbyterian Health Plan, Inc. contract with RHCA, $154,225,000, FY16 Agencies with Most Reported Insurance and Benefit Contracts, By Dollar Value, FY15-16 Agency Total Value of Location of Vendors Insurance & Benefit Contracts Retiree Health Care Authority $1,424,190,000 In-State 71% Out-of-State and National 29% $302,604,464 In-State 31% Out-of-State and National 69% New Mexico Public Schools Insurance Authority General Services Department $263,129,000 In-State 62% Out-of-State and National 38% University of New Mexico Hospital $36,500,000 In-State 0% Out-of-State and National 100% Doña Ana County $25,869,556 In-State 32% Out-of-State and National 68% 7

12 SELECTED INDUSTRIES: CORRECTIONS Contracting in the industry of corrections includes private management of correctional facilities and contracts for pharmaceuticals, goods and services within government-run facilities. Contracts related to construction undertaken by the Corrections Department are categorized within the construction industry. The Procurement Code contains an exception for contracts entered into by a local public body with a private independent contractor for the operation, or provision and operation, of a jail. Corrections Contracts By Location of Vendor Procurement Type Corrections Contracts, By Procurement Type Contract Value Competitive $143,654,177 62% Emergency $49,721,609 21% Sole Source $16,579,406 7% Cooperative $14,370,668 6% Exempt $5,948,042 3% Price Agreement $3,100,732 1% % Largest Reported Corrections Contracts Statewide 1. Correctional Healthcare Companies contract with Bernalillo County, $49,190,499, FY15 2. Centurion Correctional Healthcare contract with Corrections Department, $41,000,000, FY16 3. Corizon, Inc., contract with Corrections Department, $36,394,471, FY15 4. Corrections Corporation of America contract with Corrections Department, $16,500,000, FY16 5. Community Education Centers contract with Corrections Department, $15,280,247, FY16 Agencies with Most Reported Corrections Contracts, By Dollar Value, FY15-16 Agency Total Value of Location of Vendors Insurance & Benefit Contracts Corrections Department $ 149,563,063 In-State 6% Out-of-State and National 94% Bernalillo County $63,763,719 In-State 0% Out-of-State and National 100% Doña Ana County $12,301,139 In-State 0% Out-of-State and National 100% Otero County $2,156,760 In-State 0% Out-of-State and National 100% Chaves County $1,480,836 In-State 0% Out-of-State and National 100% 8

13 SELECTED INDUSTRIES: EDUCATIONAL GOODS AND SERVICES The Procurement Code exempts regional educational cooperative purchases from State Purchasing Division (SPD) oversight, although such purchases are still subject to the Procurement Code. The Procurement Code does not apply to contracts for public transportation services. Educational Contracts By Location of Vendor Educational Contracts, By Procurement Type Procurement Type Contract Value % Competitive $121,562,503 72% Exempt $28,973,697 17% Sole Source $14,561,002 9% Cooperative $3,545,792 2% Price Agreement $613,288 <1% Federal Contract $125,985 <1% Largest Reported Educational Contracts Statewide 1. PC Specialists contract with Cooperative Educational Services, $54,330,759, FY16 2. STS of New Mexico contract with Las Cruces Public Schools, $5,080,963, FY16 3. Boone Transportation, Inc. contract with Gadsden Independent Schools, $4,569,120, FY15 4. Boone Transportation, Inc. contract with Gadsden Independent Schools, $4,144,395, FY16 5. Measured Progress contract with Public Education Department, $2,374,634, FY16 Agencies with Most Reported Educational Contracts, By Dollar Value, FY15-FY16 Agency Total Value of Location of Vendors Educational Contracts Cooperative Educational Services $58,446,167 In-State 5% Out-of-State and National 95% Gadsden Independent Schools $14,873,758 In-State 88% Out-of-State and National 12% Department of Health $ 13,079,002 In-State 96% Out-of-State and National 4% Children, Youth & Families $6,992,380 In-State 100% Department Out-of-State and National 0% Public Education Department $ 6,170,921 In-State 3% Out-of-State and National 97% 9

14 PROCUREMENT TYPES OVERVIEW The data on procurement types illustrates a strong correlation between competitive procurement and contracts with in-state vendors (71%). In contrast, emergency and sole source procurements resulted in only 10% and 32% of contracts, respectively, going to in-state vendors. By reducing reliance on emergency and sole source procurements, agencies can increase transparency and provide more opportunities for New Mexico vendors. Total Government Contract Values, By Procurement Type, FY15 and FY16 Procurement Type Competitive: Contracts that went through a full competitive procurement through an invitation to bid or request for proposals. Exempt: Contracts that were not subject to the Procurement Code because of the nature of the transaction or the agency. Sole Source: A purchase for which there is only one source that meets the requirements; the service or good is unique; and other similar services or goods cannot meet the intended purpose of the contract. Cooperative: This Report uses this as a broad term for multiple-agency procurements, including cooperative procurements or procurements by one agency on behalf of other agencies. Emergency: Contracts arising from an immediate and serious need for services or goods, the lack of which would seriously threaten: the functioning of government; the preservation of protection of property; or the health or safety of any person. Price Agreement: Contracts that result from the General Services Department s State Purchasing Division s competitive procurements on behalf of the State, as well as agency-procured price agreements. Federal Contract: Pursuant to Section , agencies may also purchase a good or service using the terms of a federal contract if the contract is submitted to and approved by the General Services Department. Total Government Contracts $5,838,260,737 89% $287,020,464 4% $212,551,203 3% $87,783,067 1% $66,097,086 1% $64,295,397 1% $12,033,317 <1% Location of Winning Bidders for this Procurement Type In-State 71% Out-of-State & National 29% In-State 63% Out-of-State & National 37% In-State 32% Out-of-State & National 68% In-State 24% Out-of-State & National 76% In-State 10% Out-of-State & National 90% In-State 30% Out-of-State & National 70% In-State 45% Out-of-State & National 55% 10

15 EMERGENCY PROCUREMENT Section , NMSA 1978 of the Procurement Code defines an emergency procurement as a purchase made in situations that create a threat to public health, welfare or safety, such as may arise by reason of floods, fires, epidemics, riots, acts of terrorism, equipment failures or similar events and includes the planning and preparing for an emergency response. Furthermore, the existence of the emergency condition must create an immediate and serious need for services, construction or items of tangible personal property that cannot be met through normal procurement methods and the lack of which would seriously threaten: (1) the functioning of government; (2) the preservation of protection of property; or (3) the health or safety of any person. The Governor of the State of New Mexico issued guidelines for contract review and re-evaluation in which she stated that a true emergency must exist for an emergency contract and states that emergencies do not exist simply from a need to procure the services now or from time pressure to implement a new contract. As the following figure illustrates, emergency procurements result in contracts with out-of-state vendors for 90% of large contracts by value, in contrast to 71% of contract value remaining in-state when contracts are competitively procured. When examined by industry type, it becomes apparent that emergency procurements in just five industries creates this uneven result. Emergency Procurements, By Industry and Location of Vendor, FY15 and FY16 The OSA s August 2017 Special Audit of State Agency Procurement identified the risk that agencies were using the emergency exemption in circumstances that are not permitted by law, including a desire for convenience and misconceptions about the regular procurement process. That report recommended that agencies, especially their chief financial officers (CFOs) and chief procurement officers (CPOs), should review the model accounting practices issued by the Department of Finance and Administration (DFA) Financial Control Division related to emergency procurements. 11

16 SOLE SOURCE PROCUREMENT The Procurement Code defines a sole source procurement as a purchase wherein (1) there is only one source for the required service, construction or item of tangible personal property; (2) the service, construction or item of tangible personal property is unique and this uniqueness is substantially related to the intended purpose of the contract; and (3) other similar services, construction or items of tangible personal property cannot meet the intended purpose of the contract. Section , NMSA Such contracts may be awarded without competitive bids or proposals regardless of the estimated cost when SPD and/or DFA determines in writing that these criteria are met. IT is by far the outlier in the sole source category, with over $86 million in large sole source contracts reported statewide, of which 96% went to out-of-state and national vendors. The next largest industry for sole source procurement was utilities, with over $21 million in large contracts reported statewide. However, while most of IT sole source procurements went to out-of-state vendors, only 9% of utilities sole source procurements went to out-of-state vendors. The following figure illustrates that there is more complexity regarding the industries in which agencies are using sole source procurement and whether those contracts go to in-state or out-of-state vendors. Sole Source Procurements, By Industry and Location of Vendor, FY15 and FY16 The OSA August 2017 Special Audit of State Agency Procurement identified several risk factors related to sole source procurement. Agencies excluded from oversight by DFA or SPD appeared to be less compliant with the Procurement Code requirements for sole source procurements. Procuring state agencies used the sole source exemption in circumstances that are not permitted by law, including a desire for convenience and assumptions about price. Oversight agencies, including DFA, Department of Information Technology (DoIT) and the SPD, did not always provide adequate scrutiny of sole source justification forms, resulting in the acceptance of forms that do not meet the requirements of a sole source purchase. 12

17 STATE AGENCY PROCUREMENT State Agencies constitute more than half of all reported contracts statewide in FY15 and FY16 (52%). This is due in part to the large multi-year procurements of the RHCA. State Agency Contracts By Location of Vendor Top Five Industries for State Agency Contracts Industry Contract Value % of Total Insurance & Benefits $1,997,343,464 58% Construction $374,489,819 11% IT $183,745,191 5% Corrections $150,013,063 5% Health & Medical $137,250,853 4% Top Ten State Agencies, By Reported Contract Value In-State Out-of-State and Total State Agency National Retiree Health Care Authority $1,014,510,765 71% $412,425,000 29% $1,426,935,765 General Services Department $288,496,923 69% $128,090,814 31% $416,587,737 Department of Transportation $367,246,586 94% $25,257,956 6% $392,504,542 New Mexico Public Schools Insurance Authority $95,251,589 31% $210,804,004 69% $306,055,593 Department of Health* $119,946,420 53% $103,267,731 46% $225,333,511 Corrections Department $22,086,889 12% $159,521,799 88% $181,608,688 Human Services Department $12,969,343 14% $78,213,246 86% $91,182,589 Children, Youth & Families Department $46,049,724 85% $8,192,302 15% $54,242,026 Public Defender Department $38,717,237 99% $331,019 1% $39,048,256 Taxation and Revenue Department $322,000 1% $37,500,600 99% $37,822,600 Department of Tourism $11,540,917 37% $19,624,601 63% $31,165,518 * No vendor location data was reported for Department of Health contracts with a value of $2,119,360 (<1%). 13

18 SCHOOL PROCUREMENT School contracts made up the second-largest share of all reported contracts statewide in FY15 and FY16 (13%). The category of schools include 89 school districts and three special schools: New Mexico School for the Deaf, School for the Blind and Visually Impaired, and the New Mexico Military Academy. Not surprisingly, schools closer to the borders of the state were more likely to contract with out-of-state vendors. School Contracts By Location of Vendor Top Five Industries for School Contracts Industry Contract Value % of Total Construction $532,012,870 63% Food Services $82,635,662 10% Educational $63,321,130 7% Utilities $37,536,088 4% IT $30,420,492 4% Top Ten School Districts, By Reported Contract Value School District In-State Vendors Out-of-State and National Vendors Total Albuquerque Public Schools $175,213,299 79% $46,513,065 20% $221,726,364 Carlsbad Municipal Schools $85,207,666 91% $8,702,037 9% $93,909,703 Gallup-McKinley County Public Schools $51,528,571 71% $21,350,458 29% $72,879,029 Deming Public Schools $49,568,382 97% $1,296,082 3% $50,864,464 Gadsden Independent Schools $22,508,088 73% $8,289,805 27% $30,797,893 Las Cruces Public Schools $16,481,707 59% $11,236,140 41% $27,717,847 Zuni Public Schools $25,892,407 99% $210,000 1% $26,102,407 Grants Cibola County Schools $23,381,872 91% $2,250,460 9% $25,632,331 Santa Fe Public Schools* $22,993,350 92% $1,128,794 5% $25,022,644 Reserve Independent Schools $22,829, % $0 0% $22,829,343 Rio Rancho Public Schools $16,689,120 73% $6,043,565 27% $22,732,685 * Santa Fe Public Schools did not report vendor location data for contracts with a value of $900,

19 MUNICIPAL PROCUREMENT Municipalities contracts made up the third-largest share of all reported contracts statewide in FY15 and FY16 (12%). The category of municipalities includes only those that required full audits under the tiered system of the Audit Act. Twelve entities throughout the state are exempt from the Code as a result of home rule, a system of self-government allowed for by the State Constitution, including the municipalities of Alamogordo, Albuquerque, Clovis, Gallup, Grants, Hobbs, Las Cruces, Las Vegas, Rio Rancho, and Santa Fe. Municipal Contracts By Location of Vendor Top Five Industries for Municipal Contracts Industry Contract Value % of Total Construction $487,896,737 61% A&E $90,657,261 11% Equipment & Equipment Maintenance Water Maintenance & Rights Building Maintenance $41,376,961 5% $24,523,190 3% $21,111,591 3% Top Ten Municipalities, By Reported Contract Value Municipality In-State Vendors Out-of-State and National Vendors Total City of Albuquerque $177,433,863 82% $39,335,576 18% $216,769,439 City of Gallup $74,726,086 93% $5,383,606 7% $80,109,692 City of Farmington $45,265,930 75% $15,230,292 25% $60,496,223 City of Las Cruces $38,680,463 87% $5,791,628 13% $44,472,091 City of Rio Rancho $42,980,219 97% $1,460,908 3% $44,441,127 City of Santa Fe $32,022,759 93% $2,254,380 7% $34,277,139 City of Carlsbad $26,740,580 90% $3,082,236 10% $29,822,815 Town of Taos $26,768,029 99% $357,000 1% $27,125,029 City of Hobbs $14,492,890 56% $11,577,270 44% $26,070,160 Albuquerque-Bernalillo County Water Utility Authority* $22,295,751 98% $456,842 2% $22,752,593 * The OSA included the Albuquerque-Bernalillo County Water Utility Authority under municipalities because it was historically included as a component unit of the City of Albuquerque but now reports as a standalone special purpose government. 15

20 COUNTY PROCUREMENT Counties contracts made up the fourth-largest share of all reported contracts statewide in FY15 and FY16 (7%). Los Alamos County (which is combined with the municipality of Los Alamos) is a home rule entity. Bernalillo County became a home rule county on January 1, 2017, but was not for the fiscal years covered by this Report. County Contracts By Location of Vendor Top Five Industries for County Contracts Industry Contract Value % of Total Construction $125,888,757 29% Corrections $82,830,385 19% Insurance & Benefits $50,162,720 12% Equipment & Equipment $27,550,061 6% Maintenance IT $16,674,236 4% Top Ten Counties, By Reported Contract Value County In-State Vendors Out-of-State and National Vendors Total Bernalillo County $54,868,376 40% $84,276,894 60% $139,145,270 Doña Ana County $68,121,714 56% $53,934,335 44% $122,056,049 Los Alamos County $44,055,343 83% $9,173,220 17% $53,228,564 Santa Fe County $13,909,308 65% $7,463,989 35% $21,373,297 Eddy County $13,608,217 90% $1,566,296 10% $15,174,513 Socorro County $7,667,035 95% $423,800 5% $8,090,835 Lea County $6,732,972 87% $992,997 13% $7,725,969 San Juan County $5,124,919 69% $2,262,983 31% $7,387,901 McKinley County $5,154,549 76% $1,666,328 24% $6,820,877 Rio Arriba County $6,591,160 97% $199,063 3% $6,790,222 16

21 BEST PRACTICES AND RECOMMENDATIONS In the process of preparing this Report, the OSA learned of a number of innovative best practices and pilot programs occurring across the state and the nation. These included: Centralizing local purchasing efforts has been successful in a number of localities. For example, cities like San Diego and Phoenix have established local small business enterprise programs, with which they work to solicit heavily from local vendors, sometimes directing a minimum percentage of contracts to local vendors. Similarly, the city of Cleveland opted to move local procurement to the forefront of its governmental goals by assigning local contracting its own department within the mayor s administration. The availability of the in-state and veteran s preferences in competitive bidding processes appears to have bolstered in-state contracting. It is difficult to ascertain the precise effect of those preferences, but the data in this Report illustrate that competitive bidding is most likely to lead to in-state contracts. Cooperative Educational Services has a number of initiatives to help school districts to facilitate local purchasing. The Corrections Industries Division (CID), launched a pilot program to in-source food for state correctional facilities. Working with New Mexico State University, the program works with inmates to build hoop houses for growing vegetables at the correctional facility in Santa Fe. CID is in the process of expanding the program to the correctional facility in Springer, New Mexico. In addition, CID s contracted food intermediary is on call to make up any gaps in the hoop house harvest. Santa Fe Public Schools structures its local food contracts in such a way that other school districts can piggyback and purchase those same goods without going through a new procurement process. Albuquerque Public Schools issues two food commodity requests for proposal: one targeted to local suppliers and one targeted towards larger intermediaries and food suppliers. The New Mexico Department of Agriculture has been working with smaller farm operators to develop relationships with processors and packagers that would not ordinarily be accessible to them. Evaluating the data presented in this Report, the OSA determined the following conclusions and recommendations. In addition, the in-depth reports that the OSA has released regarding IT and food service procurement include detailed recommendations for those industries. The data reported to the OSA suggests that most agencies are not currently tracking their in-state purchases. After understanding the dynamics that currently exist, agencies can improve in-state purchasing by establishing institution-wide local purchasing goals. To help state agencies track in-state purchases, it would be helpful to establish a check the box option to denote in-state vendors in SHARE. The industries of corrections (96%), IT (87%), and food services (87%) have very high rates of out-of-state contracts, but the data also suggest that in-state vendors are offering some of the necessary services. 17

22 BEST PRACTICES AND RECOMMENDATIONS Only 10% of emergency procurements and 32% of sole source procurements resulted in contracts with in-state vendors. By reducing reliance on emergency and sole source procurements, agencies can increase transparency and provide more opportunities for New Mexico vendors. By recognizing the patterns behind out-of-state contracting, higher education institutions can work with local vendors to build capacity in areas like: o o o o o Educational goods and services (over $91 million, 55% of contracts went out-of-state) Program management and assessment (over $41 million,100% of contracts went out-ofstate) Human resources (over $1 million, 44% of contracts went out-of-state) Technical writing (over $2 million, 41% of contracts went out-of-state) Speech, language, occupational and physical therapy (over $485,000, 100% of contracts went out-of-state) Agencies can increase the positive local impact of contracts with national vendors by requiring minimum numbers of local employees or graduates of local educational institutions to be used on New Mexico projects. Initiatives similar to State Auditor Keller s Executive Order Supporting New Mexico Businesses can level the playing field for local businesses by eliminating the uneven impact of tax rates on bids and price quotes. Learn More For more information on the studies and programs involving local purchasing, visit: Business Alliance for Local Living Economies, BALLE Institute for Local Self-Reliance The Democracy Collaborative To learn more about procurement, read the Legislative Finance Committee s 2016 Report. For more information on the OSA s work on procurement in New Mexico, visit: Chief Procurement Officer Risk Advisory Special Audit of State Agency Procurement OSA Executive Order Supporting New Mexico Businesses To learn more about programs that incentivize national companies to hire local people and the legal issues involved in those programs, read the American Bar Association primer on local hiring programs. 18

23 PURPOSE, SCOPE AND METHODOLOGY Purpose The OSA set out to examine contracts and procurement because, prior to these efforts, a comprehensive picture of procurement statewide, across various agency types, was not readily available. Because it oversees the financial audits and examinations of every state and local government agency in New Mexico, the OSA is uniquely positioned to gather and analyze this data. Scope The scope of this Report is Fiscal Year 2015 (July 1, 2014 to June 30, 2015) and Fiscal Year 2016 (July 1, 2015 to June 30, 2016). This Report does not include vendor data from any audit report released after June 2, Methodology Through the Audit Rule, NMAC et seq., the Office of the State Auditor required all audited agencies to self-report all contracts with a value that exceeded $60,000 entered into during FY15 and FY16, regardless of how they were procured. Specifically, all audited agencies were required to prepare a Schedule of Vendor Information for contracts exceeding $60,000 (excluding gross receipts tax) that included the following information: Type of procurement process Name and address of all vendors that responded to requests for bids or RFPs during the fiscal year The name of the vendor that was awarded the contract Whether the vendor identified as an in-state vendor for purposes of the in-state vendor preference If the vendor was in-state, whether they chose the veterans preference instead of the in-state preference A short description of the scope of work The maximum dollar amount of the resulting contract These are snapshots of just a portion of the contracts awarded by New Mexico state and local governments, as the data covers only those self-reported contracts for over $60,000 in two fiscal years (FY15 and FY16). Therefore, any contracts, including professional services contracts, totaling less than $60,000 were not required to be disclosed. The same data will be collected again for FY17, allowing for analysis of government contracting over three fiscal years. Self-reported data should always be interpreted with caution, as such data can be prone to subjectivity and under- or over-reporting on the part of those reporting it. The data that was submitted in the schedule of vendors was unaudited, and was often incomplete, unclear, or inaccurate. The OSA used its best efforts to obtain clarifications on data that was clearly incorrect. The OSA also modified the instructions and template used to collect contract data for FY17 in an effort to provide for better accuracy and transparency. The OSA removed entries for salaries, intergovernmental agreements that were not in the nature of a procurement (such as grants), contributions to benefit plans and other transactions that were not purchases of goods or services. 19

24 PURPOSE, SCOPE AND METHODOLOGY Contract Value The data used for this Report included contracts awarded in FY15 and FY16 (meaning the effective date of the contract was in FY15 or FY16) even if nothing was spent under those contracts. Maximum contract value is inherently different from expenditures. An agency may enter into a contract but not spend any money under that contract. Conversely, an agency may spend money under a contract awarded in a previous year or through mechanisms other than contracts. The data in this Report should not be combined or compared directly with expenditure data. Certain agencies enter into contracts that do not state a maximum contract value. When a maximum contract value was not available, these agencies provided actual expenditures in order to assign a dollar value to the contract. Alternatively, in some cases, the OSA estimated a contract value using historical expenditure data. The OSA used its best efforts to contact all agencies for which OSA had any uncertainties about contract amount. Specifically, the vendor schedule asks for an amended contract amount. Agencies used various approaches to completing this column: some gave the amount of the amendment, others gave the new total amount. OSA based its contract amount data on the total amount of contract value, including its amendments, to the extent possible. For the Department of Transportation, in order to avoid large overstatements of contract values, the OSA used expenditure data from the Sunshine Portal instead of contract values where the nature of the award was uncertain. Certain agencies reported unclear contract amounts, and when contacted, reported that no expenditures had been made under the contract during FY15 or FY16. As a result, certain contract values in the data set are zeroes. The City of Albuquerque reported certain change orders with a negative contract value in the amendment column. Because it was not always possible to determine which change orders related to which contracts, the OSA left the data as it was reported. As a result, certain contract values in the data set are negative numbers. Procurement Type The OSA did not include in its analysis any contracts that were listed as small purchase procurements, or contracts with a reported value under $60,000 that did not list a procurement type. Because the Audit Rule did not require agencies to disclose small purchases, the OSA determined that including those few small procurements that were reported would be misleading. The procurement type of price agreements includes the statewide price agreement and price agreements that agencies procured. Procurements reported as real estate or land purchase were included as exempt procurements. Procurements reported as professional services were moved into a more appropriate category based on contract size, description of work and discussions with the agency. When agencies provided information on goods and services purchased through multiple agency procurements, the OSA had no way of determining whether the initial procurement was conducted through competitive or non-competitive means. Vendor Location The Audit Rule required agencies to identify whether vendors indicated that they were eligible for the resident business preference, pursuant to Section , NMSA However, the OSA did not consider the answer to this question to completely resolve the issue of whether the vendor was an instate business because the data identified many businesses that were clearly located in New Mexico but 20

25 PURPOSE, SCOPE AND METHODOLOGY had not used the resident business preference. This Report describes vendors as in-state or out-of-state based on the primary address of the vendor, as the agency provided that address information to the OSA. The OSA made the determination of whether to categorize a business as a national vendor based on publicly available information about the business, its locations and its reach in the marketplace. The category of national vendor includes vendors identified as intermediaries in the OSA s report on food services procurement. Other The OSA internally classified all contracts into a number of industry sectors, based on contract descriptions. As mentioned, based on other procurement studies that have been conducted in New Mexico, the OSA believes that agencies may have inadequately reported procurements made under exceptions to or exemptions from the Procurement Code. The OSA used its best efforts to obtain such information where possible and account for any gaps in the data in its analysis. The data used in this study is available at the OSA website: 21

26 GAO Government Accountability Office New Mexico Office of the State Auditor Updated October 2017 Transparency Report State and Local Information Technology Contracting Information Technology Industry Leads in Percentage of Out-of-State Contracts Drawing on data that the Office of the State Auditor (OSA) collected in Fiscal Year 2015 (FY15) and Fiscal Year 2016 (FY16) audits, this Transparency Report examines government procurement in the information technology industry (IT). Large IT contracts (over $60,000) are of particular importance because the IT industry has a low proportion of reported in-state contracting compared to other industries. More specifically, state and local governments reported IT contracts in FY15 and FY16 totaling over $305 million, over $266 million (87%) of which were awarded to outof-state and large national vendors. Even after adjusting that data to remove a single contract with a large national firm EN1 for $47 million, 85 cents of every dollar contracted for government IT goods and services in the last two fiscal years went to a large national firm or to a company that is not located in New Mexico. New Mexico Procurement Code in a nutshell Local governments and state agencies enter into contracts to purchase a wide variety of goods and services each year and must ensure that each dollar is awarded fairly and transparently in accordance with the New Mexico Procurement Code. The Procurement Code (New Mexico Statutes Annotated Sections et seq., and related regulations) governs the purchases of goods and services made in New Mexico. The New Mexico Procurement Overview on the GAO website explains these requirements in more depth. While some IT goods and services can only be purchased from an out-of-state vendor, state and local government contracts are some of the few sources of demand that may help to create and nurture a homegrown IT industry in New Mexico. Beyond serving the needs of New Mexico governmental agencies, our state could become the hub to which purchasers in other states turn to for their IT needs. This Transparency Report includes the following highlights: IT contracting represents low hanging fruit when it comes to creating economic drivers for New Mexico. Research indicates that for every $1 spent at an out-of-state business we lose 25 cents that would have stayed in the local economy if we had spent it locally. Non-competitive sole source purchases made up 34% of all IT procurements but less than 4% of all sole source contracts went to in-state vendors. EN1 Non-competitive procurements diminish the opportunities for New Mexico vendors. Thirty-three percent (over $84 million) of the large contracts for IT goods and services were awarded to large national firms that have operating locations in various states, such as Hewlett-Packard or Pearson. State and local governments may be able to use local hiring programs to ensure that New Mexicans benefit from contracts with national firms. EN1 Local businesses providing general IT services, hardware, standard office software, web design, and enterprise management software can be the foundation upon which to expand New Mexico s IT sector. Best practices include deliberate and transparent tracking of in-state purchases at the agency level, establishing goals for in-state purchases, working with local vendors to build capacity, and identifying institutional barriers to in-state vendor registration. Capturing more of our state and local government IT contracts can create hundreds of jobs each year. Financial reporting plays a major role in fulfilling government s duty to be publicly accountable in a democratic society. Governmental Accounting Standards Board, Concept Statement No. 1.

27 State and Local IT Contracting page 2 Analysis State and local government agencies play a vital role in building our state s economy. When governments contract with New Mexico businesses, money flows directly into the local economy, helping to build tax revenue, creating jobs, and further strengthening the New Mexico economy. When those dollars leave New Mexico, the local economy may receive fewer or none of those benefits. In addition, intangible benefits may arise from a vendor being personally invested in the community it is serving. As the diagram below shows, not every dollar from an in-state purchase stays in New Mexico, and not every dollar from an out-of-state purchase leaves New Mexico. Instead, most businesses will spend the money they receive both in and out of state. However, research indicates that for every $100 spent at a local business approximately $68 stays in the community; in contrast only $43 stays in the community from an out-of-state purchase. Economic Impact of Out-of-State Contracting (Top) vs. In-State Contracting (Bottom) Procurement is the term that state and local government agencies use to describe the process of spending public money to purchase goods and services. The New Mexico Procurement Overview appears at the end of this Report, and discusses the laws and regulations that apply to procurement. In order to better understand procurement patterns, the OSA required all audited agencies to report all contracts over $60,000 entered into during Fiscal Years 2015 and 2016, regardless of how they were procured. The initial compiled data covers over $6 billion dollars in awarded contracts and over 6,000 reported procurements. More details on methodology appear later in this Report. Overview of Large Contracts for IT Goods and Services State and local governments reported contracts in Fiscal Years 2015 and 2016 totaling over $305 million in IT goods and services, over $266 million of which were awarded to out-of-state and national vendors. Even after adjusting for a single contract with a large national firm EN1 for $47 million, 85 cents of every dollar contracted for government IT goods and services in the last two fiscal years went to a large national firm or to a company that is not located in New Mexico. At the agency level, the OSA found that in many cases, 100 percent of an agency s contracts for IT goods and services were awarded to businesses outside of New Mexico. For example, one of the state s biggest purchasers and economic driver institutions, the University of New Mexico Hospital, reported that 100% of

28 State and Local IT Contracting page 3 its large contracts for hospital and medical IT products and services during both fiscal years were awarded to out-of-state vendors. Top Ten Agencies Based on Large IT Contract Dollars, Fiscal Years 2015 and 2016 EN1 Agency New Mexico Taxation and Revenue Department New Mexico Human Services Department Cooperative Educational Service University of New Mexico Hospital New Mexico Department of Workforce Solutions New Mexico Department of Tourism New Mexico Department of Health Albuquerque Public Schools City of Albuquerque University of New Mexico In-State Vendors Out-of-State Vendors National Vendors Total Large IT Contracts $ - $ 33,547,071 $ - $33,547,071 0% 100% 0% $ - $ 22,594,838 $ - $22,594,838 0% 100% 0% $ 11,196,360 $ 4,754,419 $ 575,290 $16,526,069 68% 29% 3% $ - $ 12,981,494 $ 2,273,350 $15,254,844 0% 85% 15% $ - $ 2,121,350 $12,533,363 $14,654,713 0% 14% 86% $ - $ 653,550 $ 12,953,145 $13,606,695 0% 5% 95% $ 4,826,629 $ 4,959,579 $ 1,947,934 $11,734,142 41% 42% 17% $ 38,625 $ 539,456 $ 10,024,302 $10,602,383 <1% 5% 95% $ 560,508 $ 2,302,503 $ 6,491,622 $9,354,633 6% 25% 69% $ 2,055,304 $ 3,927,709 $ 2,948,634 $8,931,647 23% 44% 33% When including the large 2016 HSD contract in the data set, forty-three percent (over $132 million) of the large out-of-state IT contracts were awarded to some of the country s largest companies with operating locations throughout the country, such as Apple, Ellucian, Pearson, Oracle, Microsoft Corporation and Hewlett-Packard Corporation. In some cases, these global or national firms have New Mexico offices, creating an opportunity for New Mexico to capture some of the dollars leaving the state. For example, Deloitte, a large multinational provider of audit, tax, financial advisory and enterprise risk management IT products and services, has offices all over the world, including an office in Santa Fe, New Mexico. When a large company with locations throughout the country does business with New Mexico, state and local governments may be able require the company to hire a certain percentage of local residents or graduates of New Mexico schools. This may help to retain some of the benefit of contracting dollars that are otherwise leaving the state. Types of IT Services Leaving the State Agencies reported large IT contract awards for a range of goods and services in Fiscal Years 2015 and 2016, including, but not limited to, hardware like computers and monitors, specialized software, web design and technical support. Forty-eight percent of these contracts value were for specialized software, such as medical billing software, educational programs and enterprise resource management systems. Specialized software products often come with their own licensing, upgrades, troubleshooting and servicing needs. Thus, once an agency purchases such software, it is far more likely to require further goods and services that only

29 State and Local IT Contracting page 4 the same vendor can provide. Once this type of contract is awarded to an out-of-state vendor, the volume of out-of-state business as a whole is likely to increase by more than just that one contract s dollar value. Largest IT Good and Service Types for Large IT Contracts, Fiscal Years 2015 and 2016 EN1 Software Good or Service Type All Contracts Awarded Out-of-State Vendors National Vendors % of All Contracts to Out-of-State & National Vendors Client/Program Management Software $54,053,641 $49,734,975 $3,893,189 99% IT Services $32,006,868 $15,178,355 $10,115,105 79% Hardware $29,984,962 $4,683,255 $16,847,870 72% Telecommunications $17,045,604 $2,654,911 $9,741,598 73% Hardware, Software & Support Packages $17,023,436 $6,080,403 $ - 36% Web Design and Services $15,420,517 $1,805,972 $13,374,545 98% Enterprise Resource Management $14,709,946 $6,258,622 $8,340,669 99% Human Resources Software $14,132,813 $4,542,548 $9,590, % Software Maintenance $10,689,303 $8,589,574 $527,603 85% Primary Education Software $10,408,903 $7,222,220 $2,569,778 94% Medical Software $10,271,853 $8,569,886 $1,701, % Standard Office Software $6,144,591 $2,100,190 $4,044, % Higher Education Software $4,089,495 $2,330,837 $1,698,658 99% The data on IT service types also illustrate how government demand for IT goods and services could support a flourishing homegrown industry to which purchasers from other states may eventually turn for their IT purchasing needs. To the extent that a service or good is not available from a New Mexico vendor, the data can help to identify whether demand for that good or service is adequate to encourage a local vendor to build capacity. Some examples of large national and out-of-state contracts illustrate where enough government demand may exist for New Mexico to target growth of its own IT sector: Missouri is home to the Cerner Corporation, a producer of medical software and IT products, which received over $8 million in contracts from University of New Mexico Hospital and its affiliates. The Cerner Corporation also received an economic incentive megadeal from the state of Missouri, valued at $1.6 billion. Texas is home to Tyler Technologies, Incorporated, which received 18 contracts in FY15 and FY16, totaling over $6 million, for a variety of goods and services, including specialized software, enterprise resource management and software maintenance.

30 State and Local IT Contracting page 5 Ellucian, a Pennsylvania-based provider of higher education software and technology services, received contracts totaling over $9 million from Central New Mexico Community College, University of New Mexico, Northern New Mexico College, San Juan Community College, New Mexico Military Institute and New Mexico State University. Types of Procurement Resulting in Out-of-State Contracts Connecting the data on how contracts were procured to the in-state contracting data led to the emergence of some interesting patterns. Large IT Contracts Awarded in Fiscal Years 2015 and 2016, by Type of Procurement EN1,2** Type of Procurement Competitive: Contracts that went through a full competitive procurement through an invitation to bid or request for proposals. Sole Source: A purchase for which there is only one source that meets the requirements; the service or good is unique; and other similar services or goods cannot meet the intended purpose of the contract. Price Agreement: Contracts resulting from price agreements agencies procured or General Services Department s State Purchasing Division s competitive procurements on behalf of the State. Exempt: Contracts that were not subject to the Procurement Code because of the nature of the transaction or the agency. Cooperative: This Report uses this as a broad term for multiple-agency procurements, including cooperative procurements, intergovernmental agreements, or procurements by one agency on behalf of other agencies. Federal Contract: Pursuant to Section , agencies may purchase goods or services using the terms of a federal contract if the federal contract is submitted to and approved by the General Services Department. Emergency: Contracts arising from an immediate and serious need for services or goods, the lack of which would seriously threaten: the functioning of government; the preservation of protection of property; or the health or safety of any person. All Awarded Large IT Contracts $140,379,887 54% $86,338,797 34% $14,764,639 6% $8,605,140 3% $3,769,384 1% $2,396,459 1% $1,379,525 1% Location of Winning Bidders for this Procurement Type In State 19% Out of State 53% National 28% In State 4% Out of State 56% National 40% In State 21% Out of State 27% National 52% In State 56% Out of State 41% National 3% In State 17% Out of State 44% National 39% In State 0% Out of State 88% National 12% In State 6% Out of State 55% National 38% In Fiscal Years 2015 and 2016, 34% of the reported large IT contracts awarded outside of New Mexico or to large national firms were procured through non-competitive sole source purchases, but only 4% of those contracts went to in-state vendors. Sole sourcing also means that there is little public notice of the contract. Although the General Services Department publishes the sole source determination forms for some agencies, local providers may never have even known about these opportunities. Exempt procurements were the most likely to result in contracts with in-state vendors, followed by price agreements and competitive procurements.

31 State and Local IT Contracting page 6 In addition, the large contract from the Human Services Department (HSD) to Deloitte that is excluded from the data set above was procured through a competitive process. However, Deloitte was the only vendor that responded to that RFP according to the data that HSD submitted through its audit. In fact, 148 out of the 197 reported competitive procurements (75%) listed only one bidder. While this may reflect errors in reporting, it may also indicate a lack of awareness of RFP opportunities, a lack of willing bidders, or the excessively narrow tailoring of RFPs so that only one company is truly eligible to respond. The OSA did not require agencies to disclose contracts of less than $60,000, which fall within the small purchase exception to the Procurement Code. Significant numbers of small IT contracts may have been awarded to in-state vendors that were not in the OSA data set. Based on anecdotal information, the OSA believes that New Mexico has many vendors currently receiving small purchase contracts that could grow into larger companies with the right opportunities. The Role of Purchasing Agreements Over time, New Mexico has created a number of mechanisms to leverage the purchasing power of the state. The idea behind these initiatives is that because of the cumulative size of its purchases, the state as a whole can negotiate a better deal than individual agencies. The Save Smart program and the statewide price agreement are based on this concept. New Mexico is a participant in the ValuePoint program of the National Association of State Procurement Officials (NASPO), an interstate purchasing cooperative formerly known as WSCA. Participating states propose a type of good or service needed and become the lead state on the competitive procurement process. Other states in the cooperative are charged with advertising the Request for Proposals locally, and may participate in the review and selection process. Once a vendor or vendors are selected, states can elect to participate in the established contract. Vendors can bid to provide the services to all or any combination of the states participating in the ValuePoint program. This enables smaller vendors to bid on ValuePoint opportunities, even if they are not able to service all participating states. Bidding for these solicitations is open to local companies and is not limited to national companies. NASPO encourages all participating states to advertise all solicitations. SPD is responsible for advertising ValuePoint opportunities in New Mexico. Earlier this year, the OSA released a Special audit of State Agency Procurement, which included analysis of expenditures made by the State pursuant to ValuePoint contracts in FY16. In FY16, the state spent over $4.9 million on IT-related ValuePoint contracts, the majority of which was for computer equipment, peripherals and related services. To date, the ValuePoint website indicates that New Mexico is a participant in at least 6 IT-related contracts, all of which are with out-of-state vendors. Are Out-of-State Firms Providing Superior Services? In addition to the non-availability of New Mexico vendors, agencies cite the superiority of out-of-state vendors to justify out-of-state procurement. Measuring the relative effectiveness of in-state and out-of-state IT contractors was outside of the scope of this Report. However, agencies have received audit findings and experienced other high-profile problems related to several large out-of-state IT contracts in the past few years: ufacts. In 2013, the Department of Workforce Solutions (DWS) launched a new, fullyintegrated Unemployment Insurance system called ufacts, which was intended to provide improved integrity, reporting capabilities and maintenance. The Department of Workforce Solutions FY16 audit included Finding , a material weakness in unemployment insurance financial reporting and accounting arising from ufacts that has been repeated since The finding stated: Due to inaccurate automated system entries posted to the UI fund and the lack of an account reconciliation process, adjustments to accounts receivable totaled approximately $12M and adjustments to other liabilities totaled approximately $21M.

32 State and Local IT Contracting page 7 Furthermore, [t]he Department has not established the necessary reports or queries from the system to report timely financial information required to prepare the Department's financial statements. Deloitte, the vendor of ufacts, is headquartered in New Jersey and has offices worldwide, including a Santa Fe office with approximately 100 local employees. The New Mexico Sunshine Portal lists $46,172,817 in payments from DWS to Deloitte since 2010, largely to help replace or repair existing IT systems. DWS again awarded Deloitte contracts for ufacts in FY16, totaling over $6 million dollars. SHARE. The Statewide Human Resource Accounting and Management Reporting System (SHARE) consolidated accounting, payroll and human resource systems within state government. At inception in 2004, 12 state agencies contributed toward the system, with the Department of Finance and Administration (DFA), the General Services Department (GSD), the Department of Information Technology (DoIT) and the State Personnel Office (SPO) leading the project. The problems with SHARE have been well documented. Issues with cash reconciliation forced the State to keep a $100 million reserve on the books while the State spent millions more investigating the problem. It is difficult to determine the exact amount that has been spent on SHARE. A 2008 Legislative Finance Committee (LFC) report documented $28 million in payments to multiple companies. The lead vendor at inception was Maximus, Inc., a publicly traded company headquartered in Virginia, which had been paid $22.8 million as of the 2008 LFC report. Peoplesoft, which is now a division of Oracle and is headquartered in California, had received $3.3 million. ACRO, a Michigan corporation, had received about $600,000. Deloitte has received millions of dollars in consulting services to address problems with the system. The New Mexico Sunshine Portal lists $2.2 million of DoIT payments to Deloitte for services related to SHARE since ASPEN. The Human Services Department (HSD) contracted with Cognosante, LLC, of Virginia for the Automated System Program and Eligibility Network (ASPEN). ASPEN determines eligibility, benefit delivery and case management in support of public assistance programs. In FY16, concerns about employee falsification of records in connection with emergency applications for the Supplemental Nutritional Aid Program led to a discussion of widespread shortcomings in ASPEN. The FY16 audit of HSD contained Findings and , both repeated significant deficiencies regarding eligibility determinations. In addition, Finding identified a significant deficiency related to ASPEN user access. The New Mexico Sunshine Portal lists $3,315,398 in payments from HSD to Cognosante since HSD awarded a contract for the overhaul of ASPEN to Deloitte in FY16, in the amount of $47.6 million dollars. Conclusions and Best Practices The theme that emerged repeatedly as OSA examined IT contract data is that we can capture more government IT spending in New Mexico, and that doing so can create good jobs for New Mexicans and nurture a growing IT industry. The following best practices aim to achieve a better proportion of in-state contracting for large IT contracts: Many state and local governmental agencies are not keeping track of whether their purchases are with in-state or out-of-state vendors. Tracking in-state purchases is a necessary first step. After understanding the dynamics that currently exist, agencies can improve in-state purchasing by establishing institution-wide local purchasing goals. This can also involve active outreach with local vendors. Agency goals may also translate into adding in-state benefits to procurement scoring criteria. By recognizing the patterns behind out-of-state spending, like the need for enterprise resource management software, higher education institutions can work with local vendors to build capacity.

33 State and Local IT Contracting page 8 The tables below illustrate job creation scenarios with the variables of what percentage of contract value goes to labor and how much existing spending we can capture in New Mexico. The highlighted squares indicate the range that OSA has identified as the most realistic in terms of those assumptions for those particular fiscal years. Potential for Job Creation if In-State Vendors Captured More Government IT Spending Centralizing local purchasing efforts has been successful in a number of localities. For example, cities like San Diego and Phoenix have established local small business enterprise programs, with which they work to solicit heavily from local vendors, sometimes directing a minimum percentage of contracts to local vendors. Similarly, the city of Cleveland opted to move local procurement to the forefront of its governmental goals by assigning local contracting its own department within the mayor s administration. Agencies can increase the positive local impact of contracts with national vendors by requiring minimum numbers of local employees or graduates of state educational institutions to be used on New Mexico projects. The data that OSA collected suggests that the in-state vendor preference is under-utilized. The Taxation & Revenue Department should contact local businesses to understand any institutional barriers to taking advantage of this program. While leveraging the purchase power of the state is essential, it is also essential that local firms are aware of and have an opportunity to compete for statewide and ValuePoint contracting opportunities. Non-competitive procurement methods result in local businesses not getting an opportunity to try for many government contracts. Ensuring that sole source procurements are used only when truly necessary would benefit local businesses trying to enter the government contracting market. Learn More For more information on studies and programs involving local purchasing, visit: Business Alliance for Local Living Economies The Democracy Collaborative Institute for Local Self-Reliance Impact Network Santa Fe To learn more about economic incentive megadeals, visit the Good Jobs First Subsidy Tracker. To learn more about procurement, read the Legislative Finance Committee s 2016 Report. To learn more about programs that incentivize national companies to hire local people and the legal issues involved, read the American Bar Association primer on local hiring programs. Methodology

34 State and Local IT Contracting page 9 Through the Audit Rule, NMAC et seq., the Office of the State Auditor required all audited agencies to self-report all contracts with a value that exceeded $60,000 entered into during FY15 and FY16, regardless of how they were procured. This included contracts awarded in FY15 even if nothing was spent under those contracts. Conversely, the data does not include any expenditures made in FY15 and FY16 made under contracts awarded in previous years. Specifically, all audited agencies were required to prepare a Schedule of Vendor Information for purchases exceeding $60,000 (excluding gross receipts tax) that included the following information: Type of Procurement Name and address of all vendors that responded to requests for bids or requests for proposals during the fiscal year Whether the vendor was an in-state vendor for purposes of the in-state vendor preference If the vendor was in-state, whether they chose the veterans preference instead of the in-state preference A short description of the scope of work The name of the vendor that was awarded the contract The dollar amount of the resulting contract The initial compiled data covers over $6 billion dollars in awarded contracts and over 6,000 procurements. These are snapshots of just a portion of the contracts awarded by New Mexico state and local governments, as the data covers only those self-reported contracts for over $60,000 in two fiscal years (FY15 and FY16). Therefore, any contracts entered into for IT goods and services, including professional services, for less than $60,000 were not required to be disclosed. The same data will be collected again for FY17, allowing for analysis of government contracting over three fiscal years. Self-reported data should always be interpreted with caution, as such data can be prone to subjectivity and under- or over-reporting on the part of those reporting it. The data that was submitted in the schedule of vendors was unaudited, and was often incomplete, unclear, or inaccurate. The OSA used its best efforts to obtain clarifications on data that was clearly incorrect. The OSA also modified the instructions and template used to collect contract data for FY17 to avoid similar shortcomings. The Audit Rule required agencies to identify whether vendors were eligible for the resident business preference, pursuant to Section , NMSA However, the OSA did not consider the answer to this question to be dispositive of whether the vendor was an in-state business because the data identified many businesses that were clearly in New Mexico but had not used the resident business preference. This Report describes vendors as in-state or out-of-state based on the primary address of the vendor, as the agency provided that address information to the OSA. The OSA made the determination of whether to categorize a business as a national vendor based on publicly available information about the business, its locations and its reach in the marketplace. This Report refers to the IT industry and IT contract types. The OSA internally classified all contracts into a number of industry sectors, of which information technology was one. The OSA also internally classified all IT contracts within a number of major categories like enterprise management software and web design, relying on the scope of work descriptions that agencies provided. In addition, the OSA combined procurement types reported as cooperative, CES, joint powers agreements, other agency contracts and piggyback contract into one procurement type of cooperative. As mentioned, based on other procurement studies that have been conducted in New Mexico, the OSA believes that agencies may have inadequately reported procurements made under exceptions to or exemptions from the Procurement Code. The OSA used its best efforts to obtain such information where possible and account for any gaps in the data in its analysis.

35 State and Local IT Contracting page 10 New Mexico is also a participant in the ValuePoint program of the National Association of State Procurement Officials (NASPO), a regional interstate cooperative purchasing program that facilitates public procurement solicitations and agreements among its participants. No agencies, including the General Services Department, identified any ValuePoint contracts in their data. This is another potential source of underreporting. When agencies provided information on goods and services purchased through multiple agency procurements, the OSA had no way of determining whether the initial procurement was conducted through competitive or non-competitive means. The data used in this study is available at the OSA website: Endnotes EN1 In FY16, the New Mexico Human Services Department reported a contract awarded to Deloitte for $47.6 million dollars related to the Department s ASPEN system. This single contract accounts for 41% of the total value of IT contracts statewide and would significantly skew the data utilized throughout this report. For this reason, the OSA has removed the contract from its analysis. EN2 Statewide Price Agreement procurements were not required to be reported, but some agencies volunteered this data. This data is incomplete because most agencies reported only what was required. Contracts procured under the exception for small purchases (under $60,000) were also not required to be reported.

36 State and Local IT Contracting page 11 Appendix A: All IT Good and Service Types Contracted in Fiscal Years 2015 and 2016 EN1 Type of IT Goods or Services Contracts to Out-of-State Vendors Contracts to National Vendors Contracts to In-State Vendors Grand Total Specialized Software - Client/Program Management $49,734,975 $51,452,717 $425,477 $101,613,169 IT Services $15,178,355 $10,115,105 $6,713,408 $32,006,868 Hardware $4,683,255 $16,847,870 $8,453,838 $29,984,962 Telecommunications $2,654,911 $9,741,598 $4,649,095 $17,045,604 HSS $6,080,403 $ - $10,943,032 $17,023,436 Web Design and Services $1,805,972 $13,374,545 $240,000 $15,420,517 Enterprise Resource Management $6,258,622 $8,340,669 $110,655 $14,709,946 Specialized Software - Human Resources $4,542,548 $9,590,265 $ - $14,132,813 Software Maintenance $8,589,574 $527,603 $1,572,127 $10,689,303 Specialized Software - Education $7,222,220 $2,569,778 $616,905 $10,408,903 Specialized Software - Medical $8,569,886 $1,701,967 $ - $10,271,853 Standard Office Software $2,100,190 $4,044,402 $ - $6,144,591 Specialized Software - Higher Education $2,330,837 $1,698,658 $60,000 $4,089,495 Servers and Cloud Service $2,835,750 $94,732 $466,843 $3,397,325 Specialized Software - Printing & Postage $ - $ - $2,745,765 $2,745,765 Specialized Software - Courts & Law Enforcement $1,450,176 $ - $240,725 $1,690,901 Specialized Software - Client Tracking $1,044,629 $544,731 $63,223 $1,652,583 Specialized Software - Utilities $1,080,020 $ - $546,054 $1,626,074 Specialized Software - Payment Processing $1,422,681 $ - $ - $1,422,681 Specialized Software - Assessors & Treasurers $1,401,229 $ - $ - $1,401,229 Specialized Software - Elections $1,117,053 $ - $ - $1,117,053 Specialized Software - Records Management $ - $ - $1,098,358 $1,098,358 Specialized Software - Program Management $493,450 $571,773 $17,798 $1,083,022 Specialized Software - Accounting $766,612 $281,793 $ - $1,048,405

37 State and Local IT Contracting page 12 Contracts to Out-of-State Vendors Contracts to National Vendors Contracts to In-State Vendors Type of IT Goods or Services Grand Total Specialized Software - Construction, Planning & Permitting $922,779 $ - $38,625 $961,404 $541,721 $ - $ - $541,721 Specialized Software - Asset Management Digital Signage $389,466 $ - $ - $389,466 Subscription $176,289 $ - $ - $176,289 Specialized Software - GIS $170,939 $ - $ - $170,939 Specialized Software - Purchasing $168,801 $ - $ - $168,801 Specialized Software - Risk Management $87,787 $ - $ - $87,787 Specialized Software - Surveillance $76,826 $ - $ - $76,826 Specialized Software - Weather Systems $11,980 $ - $ - $11,980 Unavailable No Scope of Work Data Reported $133,227 $650,062 $ - $783,288 Grand Total $134,043,163 $132,148,265 $39,001,928 $305,193,357

38 Small Change Can Make a Big Difference in Local Food Purchasing Transparency Report State and Local Food Contracting Drawing on data that the Office of the State Auditor (OSA) collected in Fiscal Year 2015 (FY15) and Fiscal Year 2016 (FY16) audits, this Transparency Report examines government procurement in the food and food service industries. The food industry has a low proportion of reported in-state contracting compared to other industries. More specifically, state and local governments reported food contracts of over $60,000 ( large food contracts ) in FY15 and FY16 totaling over $128 million, most of which were with school districts and correctional facilities. Not surprisingly, 76% of those contracts (over $97 million) were awarded to national vendors, a category the OSA created to capture national firms with a local presence who may have varying degrees of a physical or employer presence in New Mexico. In the case of the food industry, this category consists of full service and intermediary food companies, which aggregate food products and distribute them to users, none of which are headquartered in New Mexico. Only 13% of large food contracts go directly to New Mexico vendors. Updated: October 2017 New Mexico Procurement Code in a nutshell Local governments and state agencies enter into contracts to purchase a wide variety of goods and services each year and must ensure that each dollar is awarded fairly and transparently in accordance with the New Mexico Procurement Code. The Procurement Code (New Mexico Statutes Annotated Sections et seq., and related regulations) governs government purchases of goods and services made in New Mexico. The New Mexico Procurement Overview on the OSA website explains these requirements in more depth. The food sector poses unique challenges. Many local providers of food and food services require time and resources to scale up to meet the demands of government contracts. Government agencies also face challenges that require a long-term, incremental approach to going local. This Transparency Report includes the following highlights and ideas to help agencies and local food providers scale up together: Small increases in local food contracting can make a big impact. Over five years, shifting less than one percent of food contracting to local vendors would have a greater fiscal impact in the State than increasing our bean production by 50%, doubling our peanut production, or quadrupling our honey production. Competitive processes, like requests for proposals, led to 90% of all large food contracts. The food sector did not exhibit over-reliance on procurement code exceptions and loopholes, providing a strong foundation for increasing local purchases. Challenges that make it difficult for local food vendors to compete for government contracts include the quantities of consistent product required throughout the year, the lack of processing and packaging facilities in New Mexico, and a need for more centralized aggregation and distribution facilities. Creative pilot programs, like the New Mexico Corrections Industries Division hoop house program and local buying programs at Albuquerque Public Schools and Santa Fe Public Schools, demonstrate that if sustained long enough, government investment in the local food economy can be mutually beneficial. Best practices include: setting a goal, such as bringing 100% of governmental baked goods or coffee service purchases back to New Mexico; making the RFP process more accessible for smaller food producers; investing in projects to help aggregate products from small food businesses; developing local processing and distribution channels; investing in government agency food facilities like warehouses and kitchens; and making creative connections between these projects and available grants and funding, including the Local Economic Development Act. Financial reporting plays a major role in fulfilling government s duty to be publicly accountable in a democratic society. Governmental Accounting Standards Board, Concept Statement No. 1.

39 State and Local Food Contracting page 2 Analysis State and local government agencies play a vital role in building our state s economy. When governments contract with New Mexico businesses, money flows directly into the local economy, helping to build tax revenue, creating jobs, and further strengthening the New Mexico economy. When those dollars leave New Mexico, the local economy may receive fewer or none of those benefits. In addition, intangible benefits may arise from a vendor being personally invested in the community it is serving. The graphic below illustrates the benefits of the local food economy. Why Buy Local Food? Procurement is the term that state and local government agencies use to describe the process of spending public money to purchase goods and services. The New Mexico Procurement Overview appears on the OSA website, and discusses the laws and regulations that apply to procurement. In order to better understand procurement patterns, the OSA required all audited agencies to report all contracts over $60,000 entered into during Fiscal Years 2015 and 2016, regardless of how they were procured. The initial compiled data covers over $6 billion in awarded contracts. More details on methodology appear later in this Report. To understand the food procurement data, it is also necessary to understand that small farms predominate in the New Mexico agricultural economy. The following chart from the United States Department of Agriculture illustrates that there were nearly twice as many farms in the under $10,000 sales class as in all other classes combined. In addition, the under $10,000 sales class also shrank, with 100 fewer reported farms in 2016 than in This speaks to the volatility and difficulty of maintaining agricultural production at this scale.

40 State and Local Food Contracting page 3 Number of Farms by Economic Sales Class in New Mexico, (USDA) $1,000 to $10,000 to $100,000 to $9,999 $99,999 $249,999 $250,000 to $499,999 $500,000 to $1,000,000 + $999,999 Farms in 2015 Farms in 2016 Overview of Large Food Contracts State and local governments reported large food contracts in FY15 and FY16 totaling over $128 million. Not surprisingly, 76% of those contracts (over $97 million in the aggregate) were awarded to national intermediary food companies, which aggregate food and food products for distribution to users. At an agency level, school districts were the leaders in statewide food spending, accounting for 64% (over $82 million) of all food contracts reported. This results from the fact that public schools serve over 45 million meals per year. Of the top 10 agencies, Cooperative Educational Services (CES) had the highest proportion of in-state spending. Top Ten Agencies Based on Large Food Contract Dollars, Fiscal Years 2015 and 2016 Agency National Vendor Out-of-State Vendor In-State Vendor Total Albuquerque Public Schools $11,583,965 $7,601,645 $6,979,034 $26,164,644 44% 29% 27% Gallup-McKinley County Public Schools $13,409,307 $71,929 $453,565 $13,934,801 96% 1% 3% Cooperative Educational Service $8,382,682 $348,094 $3,963,348 $12,694,124 66% 3% 31% Bernalillo County $9,376,613 $ - $ - $9,376, % 0% 0% New Mexico Corrections Department $6,605,560 $ - $1,034,984 $7,640,544 86% 0% 14% Las Cruces Public Schools $5,314,366 $1,326,698 $198,150 $6,839,213 78% 19% 3% Rio Rancho Public Schools $5,560,135 $ - $ - $5,560, % 0% 0% Gadsden Independent Schools $4,109,349 $1,411,823 $ - $5,521,172 74% 26% 0% Santa Fe County $4,000,000 $ - $ - $4,000, % 0% 0% Roswell Independent Schools $2,750,000 $425,000 $ - $3,175,000 87% 13% 0%

41 State and Local Food Contracting page 4 Food Contract Categories Full-service food contracts represent by far the largest category of food contracts, with 64% of large food contract dollars ($82,115,627), 99% of which was with large national intermediaries. The OSA defined fullservice contracts as contracts that span multiple categories of food contracts. The top five vendors overall in the category of full-service food contracts were: Southwest Foodservice Excellence, LLC: $13,948,222, 14% of intermediary contracts, all schools, no known New Mexico employees. Sysco Food Services: $13,401,710, 14% of intermediary contracts, mostly schools, counties and hospitals, employees. Summit Food Service, LLC: $13,059,513, 13% of intermediary contracts, mostly schools and correctional facilities, five to nine New Mexico employees. Aramark Corporation: $11,395,730, 12% of intermediary contracts, mostly schools and counties including correctional facilities, six to 13 New Mexico employees. Labatt's Food Service: $10,334,089, 11% of intermediary contracts, mostly schools, municipalities and correctional facilities, 100 or more New Mexico employees. While none of the intermediary companies in the top five are headquartered in New Mexico, they have varying degrees of presence in New Mexico. Full-service contracts may include the purchase of food from local suppliers, and the employment of local food preparers, handlers and delivery people. Intermediaries also have varying degrees of connection to the local economy. For example, Labatt s Food Service expanded its New Mexico presence through the acquisition of the then-locally owned Zanios Foods. As a result, the company has a large New Mexico presence and has developed innovative efforts like the whole cow program that helps Native American farmers increase their capacity for growing and improving the quality of cattle herds. Four categories of food service contracts had no reported in-state vendors: prepared and frozen foods; meat; supplies and paper products; and packaging. More detail about these gaps in the food supply chain appear below. The categories in which New Mexico vendors are winning contracts may serve as a foundation for further growth. The chart below shows all in-state contracts, presented by food contract type. It illustrates that dairy contracts represent the largest share of in-state contracts, followed by culinary equipment. Food Contract Types with In-State Vendors

42 State and Local Food Contracting page 5 Intergovernmental agreements, the third largest category (14% of in-state contracts), represent some of the areas of innovation in food sector procurement. The New Mexico Corrections Industries Division was the largest vendor in this category with almost $1 million in intergovernmental agreements. (More details below.) Types of Procurement Resulting in Out-of-State Contracts In contrast to other sectors, such as information technology, reported large food contracts were predominantly awarded through a competitive process. Only three procurement types resulted in significant contract awards: competitive, statewide pricing agreement and exempt procurements. The remaining two procurement methods represented less than 1% of overall food contracts: cooperative ($579,455, 11% to national vendors); and sole source contracts ($242,459, 30% out-of-state). Large Food Contracts Awarded in Fiscal Years 2015 and 2016, by Type of Procurement Type of Procurement Competitive: Contracts that went through a full competitive procurement through an invitation to bid or request for proposals. Statewide Pricing Agreement: Contracts that result from the General Services Department s State Purchasing Division s competitive procurements on behalf of the State. Exempt: Contracts that were not subject to the Procurement Code because of the nature of the transaction or the agency. All Awarded Large Food Contracts $115,223,386 90% $7,320,031 6% $5,250,262 4% Winning Bidders for this Procurement Type In-state 13% Out-of-state 12% Intermediary 75% In-state 4% Out-of-state 0% Intermediary 96% In-state 0% Out-of-state 25% Intermediary 75% Learn More The Power of Public Procurement, by Farm to Table. The 25% Shift: The Economic Benefits of Food Localization for Washtenaw County and Ypsilanti and the Capital Required to Realize Them, by Michael Schuman. For more information on studies and programs involving local purchasing, visit the following websites: Business Alliance for Local Living Economies, BALLE Institute for Local Self-Reliance The Democracy Collaborative To learn more about procurement, read the Legislative Finance Committee s 2016 Report. New Mexico Agricultural Statistics, 2015, United States Department of Agriculture. To learn more about resources for starting or expanding a business, visit the New Mexico Economic Development Department Business Resource Center.

43 Structural Barriers to Local Food Procurement State and Local Food Contracting page 6 To understand why so few large government food contracts go to in-state vendors, it is necessary to understand the structure of the food distribution system and the barriers at each stage. Production Scale and Capacity: Large farms cannot afford to ship relatively small quantities to government agencies, while small farms struggle to consistently supply adequate quantities for government contracts throughout the year. This may explain why produce represents only 4% of in-state contracts. Licensing: Many New Mexico growers do not have the USDA certifications necessary to supply food to schools and other agencies. Awareness: Many New Mexico growers are not aware of opportunities to bid for government contracts. Processing Scale and Capacity: New Mexico is home to very few businesses that freeze, package and process locally grown food on the smaller scale necessary to serve New Mexico farmers. As noted above, in-state businesses did not win any large government contracts for prepared and frozen foods, except to the extent that some prepared foods fell within the New Mexico specialty foods category (for example, frozen, chopped green chile). Connectivity: New Mexico needs more value chain coordinators who connect smaller farmers to each other and to processing facilities, and more investment in those coordinators. Distribution Scale and Capacity: Because government budgets are shrinking, fully coordinated distribution becomes imperative, and only large intermediaries headquartered out-ofstate meet those needs. Price Pressure: Intermediary companies prioritize or exclusively consider price when seeking suppliers and are rarely incentivized to work with New Mexico growers. This makes it less worthwhile for New Mexico growers, who may be able to fetch higher prices from retail or farmers markets and cannot generate the volume of sales to necessary to make up the price differential. Procurement Lack of Facilities and Staff: Many agencies that buy food do not have full kitchens or trained kitchen staff and so must rely on pre-packaged and processed foods. Price Pressure: Shrinking budgets make it difficult for agencies to prioritize anything other than price when making food buying decisions. Price-only or price-predominant bidding opportunities give local food providers a very limited chance to compete. Awareness: Many agencies do not track their in-state spending and do not realize how much money they are spending out-of-state. Sustained Effort: Funding for some pilot programs is not sustained long enough to achieve lasting impacts. For example, many school districts cited a beneficial program through the Human Services Department Food and Nutrition Services Bureau, which has unfortunately been discontinued. That program used to deliver local produce to school cafeterias.

44 Best Practices and Innovations State and Local Food Contracting page 7 Facilities run by the New Mexico Corrections Department historically contracted with a full-service vendor that provided food and management. In an arrangement that is common in correctional facilities nationwide, the Corrections Department historically provided the equipment and paid inmates to work in those kitchens, which essentially increased the profit margin for the food service vendor with the State bearing the cost. Furthermore, food plays a particularly critical role in correctional facilities; grievances about foods are commonly cited in riots and other prison disturbances. In addition, health problems resulting from food safety issues result in medical costs that are also borne by the government. Contracts with the large food service vendors were not improving the situation. There were also concerns that it would be difficult to address food safety issues like recalls when working with large food service vendors who aggregate food from various suppliers under a custom brand label. An innovator in the Corrections Industries Division (CID), which is an enterprise fund of the Corrections Department, proposed a series of changes to address these concerns. CID began to work with an intermediary that allowed CID to meet directly with food suppliers. This enabled CID to take advantage of various discounts and buying opportunities through direct negotiation with the suppliers. CID was also able to direct local sourcing for items like chile from Bueno Foods. With the support of Corrections Department leadership, CID also launched a pilot program, working with New Mexico State University, to build hoop houses for growing vegetables at the correctional facility in Santa Fe. Inmates were involved in the building and planting. The project yields hundreds of pounds of vegetables per harvest, including kale, spinach, cucumbers, tomatoes and zucchini. Inmates get fresh salads during harvest season, which addresses historical grievances about the lack of vegetables. CID has now partnered with a school to build a hoop house for the school s cafeteria, allowing inmates to give back to the community. The Cleveland s Year of Local Foods The City of Cleveland, Ohio, designated 2012 the Year of Local Foods. The City launched local and sustainable purchasing preferences, which provide a 2-4% bid preference to companies that source locally or were certified as sustainable businesses. They combined this program with other initiatives to encourage urban farming, including a land bank program, and an urban gardening zoning district. initiative also connects to the Roots of Success program, a four-week environmental literacy program that engages its inmate participants to think about their role in the community and prepares them for green jobs. CID is in the process of expanding the program to the correctional facility in Springer, New Mexico. In addition, CID s contracted food intermediary is on call to make up any gaps in the hoop house harvest. Considerable innovation is also happening in the schools. For example, Santa Fe Public Schools has invested in warehouses and large, well-equipped kitchens with equipment and tools, so the need to purchase processed foods is less acute. This is possible because of the support from the community through bond elections that allowed the district to access capital outlay funding. They also structure their local food contracts in such a way that other school districts can piggyback and purchase those same goods without going through a new procurement process. Albuquerque Public Schools issues two food commodity requests for proposal: one targeted to local suppliers and one targeted towards larger intermediaries and food suppliers. APS officials also spoke passionately about the need for students to understand where their food comes from, and the critical role that locally sourced food can play in that process. Bernalillo Schools constructed a warehouse that centralizes the district s food distribution and mitigates food safety concerns. State agencies are also working to expand local food purchases and the capacity of local food suppliers. The New Mexico Department of Agriculture has been working with smaller farm operators to develop relationships with processors and packagers that would not ordinarily be accessible to them. Cooperative Educational Services also works with school districts to facilitate local purchasing.

45 Conclusions and Recommendations State and Local Food Contracting page 8 The theme that emerged repeatedly as OSA examined food contract data is that small changes to in-state spending can make a big difference, while helping agencies and local food vendors to scale up together. The OSA has assembled the following conclusions and best practices from vendor schedule data, literature reviews and interviews: Set a goal, such as bringing 100% of governmental baked goods or coffee service purchases back to New Mexico, and direct concerted effort towards implementing and monitoring progress toward the goal. Offer training and technical support to small local food businesses regarding the procurement process and how to find bidding opportunities, including Spanish translations of RFPs. Increase resources to assist smaller food producers in obtaining USDA produce certifications. Invest in websites and applications that enable small food vendors to scale up more efficiently, including linking growers to coordinate crops and connecting local food manufacturers with local growers. Connect local growers with distributors and processors in neighboring states until the volumes exist to develop a local processing industry. Fund value chain coordinators who help farmers scale up to the quantity and consistency of production needed to fulfill government contracts and connect farmers with processing and distribution channels. Invest in food hubs, which are facilities that manage the aggregation, storage, distribution or marketing of locally produced food, using a combination of private funding and capital outlay. Offer additional points in competitive bidding scoring process for local vendors or vendors who can provide locally sourced goods. In addition, when seeking full-service or large intermediary contracts, agencies can include requirements for certain percentages or dollar values of locally sourced food items. Santa Fe Public Schools is already exploring this model. Set specific, achievable targets for increasing local food procurement and monitor results, such as a 0.75% annual increase in local food spending each year for five years. Shifting 3.75% of all food spending to local vendors would mean an increase of $4,187,265. By way of comparison, that fiscal impact is greater than the impact of increasing the production of all beans by 50% or doubling all peanut production in the State, or quadrupling all honey production in the State. Issue food RFPs early enough that growers can plan and plant for anticipated demand, knowing that the government agency will purchase the food. Use small purchase contracts as an effective procurement tool to contract with local food vendors who are trying to scale up their production or work cooperatively with other vendors. Increase and sustain funding to programs that encourage the purchase of New Mexico food products, like the Food and Nutrition Services Bureau local produce delivery program to schools, while ensuring that funding requirements allow enough flexibility for factors like seasonal availability. Expand the use of pilot programs, which give agencies and vendors a lower-risk opportunity to work together than large contracts for multiple years.

46 Moving Beyond the Myth of Scarcity State and Local Food Contracting page 9 Although we often hear that the State does not have money to spend on initiatives like increasing local food consumption, creative connections may be made between available funds and the needs identified in this report. In addition to capital outlay, possible funding sources for expansion of local food procurement activities include: Local Economic Development Act (LEDA) Administered by the New Mexico Economic Development Department and local governments, LEDA enables government agencies to provide land, buildings or funds to economic development projects. LEDA expressly allows funding for commercial enterprise[s] for storing, warehousing, distributing or selling products of agriculture. Local Government Planning Fund (LGPF) Administered by the New Mexico Finance Authority, funds may be available to develop economic development plans that focus on developing the local food economy (FY16 Year-End Fund Balance: $5,259,656) New Markets Tax Credits Administered by the New Mexico Finance Authority, funds may be available to develop warehouses, commodity processing centers or other privately operated businesses that focus on the distribution and processing segments of the food supply chain. Job Training Incentive Program (JTIP) Although not available for agricultural or retail businesses, JTIP funds administered by the New Mexico Economic Development Department may be available to train employees or reimburse businesses for training time for jobs associated with developing technology to increase connectivity across the food supply chain. (FY16 Year-End Fund Balance: $15,125,537) Tribal Infrastructure Fund Administered by the Department of Finance and Administration, this fund makes money available for planning and implementation of infrastructure on tribal land, which could be directed towards tribally owned agricultural processing or distribution facilities. (FY16 Year-End Fund Balance: $393,020, stagnant since FY14). USDA Food and Nutrition Services grants The USDA offers a variety of grant opportunities for projects that include agriculture in the classroom, the Small Socially Disadvantaged Producer Grant, the Small Business Innovation Research Program, and the Federal-State Marketing Improvement Program that have historically provided a significant share of USDA funding for Farm to School efforts. The Department of Defense Fruits and Vegetables Programs (DoD Fresh) allow schools to use their USDA Foods entitlement dollars to buy fresh produce. States can change DoD Fresh allocations on a monthly basis, which allows them to utilize USDA Foods dollars more effectively. Senator Kirsten Gillibrand of New York has an online guide to funding resources for developing food hubs. Methodology In addition to evaluating data, the OSA conducted a number of interviews. OSA gratefully acknowledges the participation of the following people in the research and interview process: Jacqueline Jackie Baca, Chief Executive Officer, Bueno Foods Benjamin Bartley, Enterprise Development Manager, La Montanita Co-op Anzia Bennett, Founder, Three Sisters Kitchen David Chavez, Executive Director, Cooperative Educational Services Betsy Cull, Assistant Director, Student Nutrition Services, Santa Fe Public Schools Dean Gallegos, Food Services Director, Bernalillo Public Schools

47 State and Local Food Contracting page 10 Micaela Fisher, (formerly) Policy Officer, Thornburg Foundation Sandy Kemp, Executive Director, Food & Nutrition Services, Albuquerque Public Schools David Lucero, Division Director for Marketing, New Mexico Department of Agriculture Anna Martinez, Acting Director, Corrections Industry Division, New Mexico Corrections Department Dotty McKinney, Procurement Manager, Cooperative Educational Services Josue Olivares, Executive Director, South Valley Economic Development Center Lori O Rourke, Business Services Coordinator, Cooperative Educational Services Satjeet Pierson, Albuquerque Branch Manager, Labatt Food Service Anthony Potter, Deputy Secretary, New Mexico Department of Agriculture Henry Rael, Program Officer, McCune Foundation Courtney Rich, Programs Manager, South Valley Economic Development Center Pam Roy, Executive Director and Co-Founder, Farm to Table Monte Skarsgard, Owner, Skarsgard Farms Tanner Vickers, National Accounts Sales Representative, Labatt Food Service Through the Audit Rule, NMAC et seq., the Office of the State Auditor required all audited agencies to self-report all contracts with a value that exceeded $60,000 entered into during FY15 and FY16, regardless of how they were procured. Specifically, all audited agencies were required to prepare a Schedule of Vendor Information for contracts exceeding $60,000 (excluding gross receipts tax) that included the following information: Type of procurement process Name and address of all vendors that responded to requests for bids or requests for proposals during the fiscal year Whether the vendor indicated that it was an in-state vendor for purposes of the in-state vendor preference If the vendor was in-state, whether they chose the veterans preference instead of the in-state preference A short description of the scope of work The name of the vendor that was awarded the contract The maximum dollar amount of the resulting contract The data used for this Report included contracts awarded in FY15 and FY16 (meaning the effective date of the contract was in FY15 or FY16) even if nothing was spent under those contracts. Maximum contract value is inherently different from expenditures. An agency may enter into a contract but not spend any money under that contract. Conversely, an agency may spend money under a contract awarded in a previous year or through mechanisms other than contracts. The data in this Report should not be combined or compared directly with expenditure data. Certain agencies enter into contracts that do not state a maximum contract value. When a maximum contract value was not available, these agencies provided actual expenditures in order to assign a dollar value to the contract. Alternatively, in some cases, the OSA estimated a contract value using historical expenditure data. This report does not include vendor data from any audit report released after June 2, These are snapshots of just a portion of the contracts awarded by New Mexico state and local governments, as the data covers only those self-reported contracts for over $60,000 in two fiscal years (FY15 and FY16). Therefore, any contracts entered into for food products and services, including professional services, totaling less than $60,000 were not required to be disclosed. The same data will be collected again for FY17, allowing for analysis of government contracting over three fiscal years.

48 State and Local Food Contracting page 11 Self-reported data should always be interpreted with caution, as such data can be prone to subjectivity and under- or over-reporting on the part of those reporting it. The data that was submitted in the schedule of vendors was unaudited, and was often incomplete, unclear, or inaccurate. The OSA used its best efforts to obtain clarifications on data that was clearly incorrect. The OSA also modified the instructions and template used to collect contract data for FY17. The Audit Rule required agencies to identify whether vendors indicated that they were eligible for the resident business preference, pursuant to Section , NMSA However, the OSA did not consider the answer to this question to completely resolve the issue of whether the vendor was an in-state business because the data identified many businesses that were clearly located in New Mexico but had not used the resident business preference. This Report describes vendors as in-state or out-of-state based on the primary address of the vendor, as the agency provided that address information to the OSA. The OSA made the determination of whether to categorize a business as an intermediary based on publicly available information about the business, its locations and its reach in the marketplace. This Report refers to the food sector and food contract types. The OSA internally classified all contracts into a number of industry sectors, of which food was one. The OSA also internally classified all food contracts within a number of major categories like dairy and produce, relying on the scope of work descriptions that agencies provided. As mentioned, based on other procurement studies that have been conducted in New Mexico, the OSA believes that agencies may have inadequately reported procurements made under exceptions to or exemptions from the Procurement Code. The OSA used its best efforts to obtain such information where possible and account for any gaps in the data in its analysis. When agencies provided information on goods and services purchased through multiple agency procurements, the OSA had no way of determining whether the initial procurement was conducted through competitive or non-competitive means. The OSA contacted certain intermediary vendors to determine the number of employees they maintain in New Mexico. When the vendor did not respond to the OSA request, the OSA used data from the LASER online system provided by the Department of Workforce Solutions. The OSA recorded no known New Mexico employees when the company was not found on the LASER system, did not list a New Mexico office online, did not respond to information requests, and list a New Mexico office on its website. The data used in this study is available at the OSA website:

49 OFFICE OF THE STATE AUDITOR Report on State Agency Procurement Practices For the Period of July 1, 2013 through June 30, 2016 i

50 TABLE OF CONTENTS TABLE OF CONTENTS OFFICIAL ROSTER i ii EXECUTIVE SUMMARY 1 PURPOSE, METHODOLOGY AND SCOPE 3 PROCUREMENT OVERVIEW 4 SOLE SOURCE PROCUREMENTS 8 EMERGENCY PROCUREMENTS 12 EXEMPTIONS TO THE PROCUREMENT CODE 15 SMALL PURCHASES 19 PRICE AGREEMENTS 20 FEDERAL CONTRACTS 21 NASPO VALUEPOINT COOPERATIVE PROCUREMENTS 23 CAMPAIGN CONTRIBUTION DISCLOSURE FORMS 25 OVERSIGHT 27 OTHER ISSUES 30 EXIT CONFERENCE 31 END NOTES 32 LETTER REGARDING CONSULTING SERVICES MANAGEMENT RESPONSES APPENDIX A: PROCESSES AT GSD, DFA, AND DoIT i

51 OFFICIAL ROSTER_ GENERAL SERVICES DEPARTMENT Edwynn L. Burckle Lawrence O. Maxwell Cabinet Secretary State Purchasing Agent DEPARTMENT OF FINANCE AND ADMINISTRATION Dorothy Duffy Rodriguez Cabinet Secretary DEPARTMENT OF INFORMATION TECHNOLOGY Darryl Ackley Cabinet Secretary ii

52 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 I. EXECUTIVE SUMMARY The New Mexico Procurement Code ( Code ), Sections , et seq., NMSA 1978, applies to all contracts solicited or entered into by state agencies and local public bodies after November 1, i The purposes of the Code are to provide for the fair and equitable treatment of all persons involved in public procurement, to maximize the purchasing value of public funds and to provide safeguards for maintaining a procurement system of quality and integrity. ii The New Mexico Supreme Court has stated that the Code protects against the evils of favoritism, nepotism, patronage, collusion, fraud, and corruption in the award of public contracts. iii The Code is a complex web of requirements, exemptions, exceptions and processes. The State of New Mexico (State) administers the Code through a decentralized system. State agencies are in charge of determining in the first instance what path each procurement must follow, what requirements apply, and what exceptions or exemptions may apply. Before a state agency enters a contract, the State Purchasing Division (SPD) of the New Mexico General Services Department (GSD) determines whether it is a contract for professional services. If it is a contract for professional services, the Department of Finance and Administration (DFA) Contracts Review Bureau (CRB) has oversight authority unless otherwise exempted. If it is a contract for goods or non-professional services, SPD has oversight authority. In addition, the Department of Information Technology (DoIT) reviews the requests for proposals and contracts for information technology goods and services. On April 25, 2016, the Office of the State Auditor (OSA) designated GSD, DFA and DoIT for a special audit to address various concerns related to the competitive bidding process, exceptions and exemptions to the competitive bidding process and oversight of state agency procurement (the Special Audit ). The OSA undertook this Special Audit in order to address a number of concerns raised through our Special Investigations Divisions. These concerns included non-compliance with policies and best practices, delays in approvals and other actions, a lack of coordination among oversight agencies, a lack of consistency in processing of requests for proposal (RFPs), and general overuse of non-competitive procurements resulting in higher costs to state agencies. The data regarding the use of exceptions and exemptions to the Procurement Code is a staggering reminder that when laws and regulations are too complex or time-consuming, agencies are more likely to push the boundaries of available short-cuts. The table below shows that over $6.5 billion in state agency expenditures have been made through paths other than competitive procurement. Selected Exception and Exemption Data for Fiscal Year 2016 Sole Source Procurement documented in SPD database $55,358,888 Emergency Procurement documented in SPD database $105,537,965 Expenditures coded in SHARE with exemptions to the Procurement Code $768,664,110 Expenditures under HSD exempt Healthcare Contracts iv $5,600,000,000 Total $6,529,560,963 The State has taken measures to improve procurement in recent years, including posting all state agency contracts to the New Mexico Sunshine Portal and requiring state agencies to have a chief procurement officer (CPO) who receives training on the Procurement Code and is responsible for making procurement determinations for the agency. This reduces errors, decreases the number of protests or other litigation, develops more skilled procurement professionals, increases public trust, 1

53 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 and protects the integrity of the procurement process. In addition, Executive Order established the Task Force on Procurement Reform, which continues to meet regularly. Most recently, the Task Force has followed up from the Legislative Finance Committee s procurement study and electronic signature requirements. These efforts confirm that the State still faces challenges and additional procurement reform may be necessary. With strong support from the agencies being audited, the OSA conducted two major efforts: (1) a high-level data review using the State s centralized database systems and (2) a detailed review of various samples of contracts and procurement files. Through this process the OSA identified 21 risk factors, including the following: Although reliance on sole source has decreased since the requirement to post sole-source justifications was implemented, the sole source exemption from the requirement to obtain competitive bids, resulting in over $56 million of estimated expenditures in FY 2016, still poses serious risks because procuring agencies are using the sole source exemption in circumstances that are not permitted by law and oversight agencies do not always provide adequate scrutiny of sole source justifications. Procuring agencies use the emergency exemption from the requirement to obtain competitive bids, resulting in over $105 million of estimated expenditures in FY In some circumstances, OSA testwork revealed emergency justifications that were not permitted by law, including a desire for convenience and misconceptions about the regular procurement process. The average time from SPD s initial receipt of an RFP packet to completion of a contract is over 180 days (6 months), including time for RFP publication, bidder responses, response evaluation, any required DoIT approvals and SPD approvals. For many types of procurement the time for approval was not tracked under the systems in place during the period being audited. Widespread errors in coding make it very difficult to determine whether agencies are properly claiming statutory exemptions to the Procurement Code. In addition to healthcare contracts, nearly $1 billion of expenditures in FY 2016 were made under contracts for which agencies claimed statutory exemptions to the Procurement Code. The automatic extension provision for Risk Management Division legal contracts, while serving an important function in ongoing legal disputes, creates the opportunity for improper use of the small purchase rules of the Procurement Code. Weaknesses in the price agreement system include loopholes for increases after an initial price agreement is in place and disallowed purchases for goods that are not covered under a price agreement. SPD is using the federal government s Cooperative Purchasing Program in circumstances that, while they may be permitted by law, are discouraged by the Program. Procuring agencies are not complying with Procurement Code requirements to obtain Campaign Contribution Disclosure Forms, which requirements are also inadequate to ensure compliance with the various statutes that prohibit improper influence of procurement decisions through campaign contributions. 2

54 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Procuring and oversight agencies processes for data entry are duplicative and vulnerable to mistakes in entry that inhibit transparency and identification of errors. To address these risk factors, the OSA proposes 27 best practices, including the following: Consolidating the State Purchasing Division and the DFA s Contracts Review Bureau and moving toward a centralized oversight procurement office, as the Legislative Finance Committee has long recommended. Enhanced training for all state personnel involved in procurement. Fostering a culture of support for agency professionals who are trying to enforce the rules and implement best practices in procurement. Following the National Association of State Procurement Officials recommendation: when in doubt, bid it out. Implementing more drop-down menus and control lists to reduce errors in manual data entry in the Statewide Human Resources Accounting and Reporting System (SHARE) and other procurement databases. The Legislature should consider revisiting the Procurement Code and related statutes, including comprehensively reviewing exceptions and exemptions, imposing dollar limitations on exceptions and exemptions, and addressing loopholes in and expanding campaign contribution disclosure laws. II. PURPOSE, METHODOLOGY AND SCOPE The objective of this Report is to provide the public with an understanding of the processes by which billions of dollars in public funds are expended through contracts with private sector businesses, observations based on the OSA s sample basis testing of procurements, and recommendations to increase purpose, transparency and accountability of state governmental entities. In conducting this Special Audit, the OSA engaged in three main efforts. First, OSA staff researched the background and framework for state reporting by reviewing state and federal laws, regulations and policies. The OSA also interviewed constituents, agency staff, and personnel from GSD, DFA, and DoIT. The OSA reviewed existing research and best practices for state procurement. Second, the OSA reviewed and evaluated data from statewide databases to understand the global picture of state agency procurement. This included review and analysis of available data within SHARE, the Sunshine Portal, agency records, and databases provided by the GSD, DFA, and DoIT. Some of the data in this Report from those sources were self-reported by state agencies. Inaccuracies and inconsistencies self-reporting by the agencies and inaccurate input into the various databases may affect the integrity of such data. For sole source and emergency procurements, the OSA used the data available on SPD s website for sole source and emergency procurements ( 3

55 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 The OSA then estimated FY16 expenditures by dividing the total contract value by the number of months in the contract, and multiplying that by 12 to get a one-year estimate. For exemption and NASPO/ValuePoint expenditures, the OSA was able to use actual data from SHARE. Third, the OSA conducted specific test work. This included reviewing select professional services, IT service, and general service contracts and other supporting documentation. On a sample basis for state agencies, and as detailed later in this Report, the OSA reviewed the supporting documentation for: Sole source procurements Emergency procurements Statewide Price Agreements and Agency-Specific Price Agreements Small Purchases Exemptions Federal Contract Mirroring WSCA-NASPO/ValuePoint Cooperative Purchasing Contracts outside of SHARE Campaign Contribution Disclosure Forms The OSA coordinated with the Legislative Finance Committee (LFC) staff, which conducted its own review of procurement prior to this Special Audit. The LFC procurement report is available at: ue%20in%20state%20procurement%20and%20issues%20with%20non- Competitive%20Methods.pdf All dollar figures in this Report represent expenditures reported in SHARE or annualized contract values from SPD s database. The dollar figures in reports from the OSA Government Accountability Office regarding in-state contracting are total contract values, and are not appropriate for comparison with the dollar figures in this Report. Some statutes, regulations and policies refer to the State Purchasing Agent, who is an individual employee of GSD, while others refer to the State Purchasing Department. This Report uses the acronym SPD to refer to both the State Purchasing Agent and the State Purchasing Department. III. PROCUREMENT OVERVIEW The Procurement Process The process of procurement begins with the state agency who identifies a need for goods, services or professional services. Detailed flow charts describing these processes appears in Appendix A. For background purposes, we provide a high-level overview that does not touch on the many permutations that this process may take. When an agency identifies the need for a purchase, the agency develops a scope of work. A competitive bidding process may not be legally required because of the small size of the purchase, because an emergency exists, because there is only one source for the goods or services needed, or because one of the many exceptions or exemptions in the Procurement Code applies to the purchase. 4

56 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Procurements that take these parallel paths are discussed in more detail later in this Report. If the procurement is for professional services, the agency develops the scope of work. The agency then sends the scope of work to Horizons, which is the central nonprofit agency that gives businesses employing people with disabilities the opportunity to participate in state and local governmental contracts pursuant to the State Use Act (Sections 13-1C-1 et seq.). If Horizons declines the procurement, the agency sends the scope of work to the SPD. The SPD determines whether the scope of work is for professional services and notifies the agency of that determination. If the procurement is for professional services in the information technology (IT) sector, the agency sends the draft RFP to the Department of Information Technology (DoIT), which reviews, approves and returns the draft RFP to the agency. The agency then issues the RFP. The RFP remains open for a fixed amount of time and the agency undertakes various smaller processes related to communications with bidders. An evaluation committee at the agency selects a winning bidder. If the procurement is for goods or non-professional services, again the first step is to determine if the goods or services can be provided by Horizons. If Horizons declines the procurement, the agency determines whether the scope of work is in the IT sector. If the scope of work is within the IT sector, the agency sends the draft RFP to the DoIT, which reviews, approves and returns the draft RFP to the agency. Then the agency delivers the RFP packet to the SPD. An SPD employee, known as a buyer, works with the agency to make any necessary changes or clarifications to the RFP and to enter the RFP into the GSD e-procurement system. The RFP is then formally issued, bidders respond, many smaller processes regarding bidder communication occur, and an evaluation committee at the agency selects a winning bidder. Once the vendor is selected, the procurement moves into the contracting stage. Contracts for IT goods and services are prepared using a DoIT template and go to DoIT for review and approval. Contracts for professional services are prepared using a template from the Department of Finance and Administration and are reviewed and approved through DFA. All other contracts use a template from SPD. In each case, the contract is accompanied by an array of supporting documentation, some of which resides with the agency and some of which is transmitted to the appropriate oversight agency with the contract. The Procurement Time Overview In undertaking the testwork described throughout this Report, the OSA also tracked the amount of time it takes for the various agencies to approve contracts, contract amendments and RFPs. As the tables below reflect, each agency tracks data differently, preventing a clear comparison among agencies. Historically, GSD did not track of procurements that went through SPD, and provided OSA access to databases for the price agreements but not the invitations to bid (ITBs) or RFPs. However, GSD now has that capability in place. DoIT provided to OSA an excerpt of its database tracking contracts reviewed and approved, but that did not include data on RFP approval, so RFP approval times are not available. DFA does not have the statutory authority to review RFPs. Average Time for DoIT Contract and Amendment Approval 5

57 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Fiscal Year Type Avg. # of days from receipt for e-review to signature approval Type Avg. # of days 2014 Contract 46 Contract Amendments Contract 31 Contract Amendments Contract 41 Contract Amendments 31 Average Time for DFA Contract and Amendment Approval Avg. # of days from receipt Avg. # Fiscal Year Type to signature approval Type of days 2014 Contract 9 Contract Amendments Contract 15 Contract Amendments Contract 16 Contract Amendments 9 Average Time for SPD Processes Process Avg. # of days For SPD to review and approve a contract based on a federal GSA agreement 7 For SPD to review and approve a Price Agreement Amendment 12 For SPD to conduct an Invitation to Bid process for a statewide or agencyspecific price agreement 64 From SPD s initial receipt of an RFP packet to completion of a contract, including time for RFP publication, bidder responses, response evaluation, any required DoIT approvals and SPD approvals 188 Procurement Exceptions and Exemptions Overview Possibly because the regular competitive bid process is so time-consuming and cumbersome, many agencies rely on exceptions and exemptions from the Procurement Code or certain provisions within the Procurement Code. Details on exceptions and exemptions are available in the OSA s Procurement Overview, located on our website. Selected Exception and Exemption Data for Fiscal Year 2016 Sole Source Procurement documented in SPD s database $55,358,888 Emergency Procurement documented in SPD s database $105,537,965 Expenditures coded in SHARE with exemptions to the Procurement Code $ 768,664,110 Expenditures under HSD exempt Healthcare Contracts v $5,600,000,000 Total $6,529,560,963 6

58 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Centralization, Training and Staff Empowerment: Three Key Best Practices for a Better Procurement Process For a variety of reasons detailed throughout this Report, the OSA agrees with the Legislative Finance Committee s long-standing recommendation to consolidate the State Purchasing Division and the DFA Contracts Review Bureau and move toward a centralized oversight procurement office. DFA s review focuses on compliance, form and legal sufficiency requirements after RFPs are complete, while the SPD is focused more on the entire procurement process and compliance with the Procurement Code. Combining and centralizing the procurement process would enable state agencies to benefit from the strengths of both agencies. As just one example of the inefficiencies of the current system, SPD uses a tracking and numbering system for purchases of goods and services, which enables users to trace the procurement from requisition, to request for proposal or invitation to bid, to the contract. In contrast, professional service contracts have a requisition number, a request for proposal number, and a contract number that are each different, and none of the numbering is consistent from agency to agency. This decreases transparency and the ability to trace each procurement. Centralizing procurement would enable all contracts to go through SPD s e-procurement system. In addition, centralization would allow procurement professionals to focus more on the requirements of Procurement Code exemptions and exceptions. For example, NMSA 1978, Section and NMAC (C) allow agencies to apply for an exemption from CRB review and approval when the secretary of DFA determines that efficiency or economy so requires. However, the Procurement Code specifically states that, All contracts for professional services with state agencies shall be reviewed as to form, legal sufficiency and budget requirements by the general services department or the department of finance and administration if required by the regulations of either or both of the departments. Section , NMSA One agency has availed itself of the CRB exemption, resulting in no oversight for professional service contracts. Training is another key element to strengthening the state agency procurement process. Pursuant to NMSA 1978, Section (2013), state agencies must designate a CPO who is certified by GSD. The CPO is responsible for the control of procurement of items of tangible personal property, services or construction. As of July 1, 2015, only an Agency s CPO may make procurement determinations (such as exemptions under the Code); issue purchase orders (POs); authorize small purchases; and approve procurements. All CPOs must complete a certification program and register with the GSD. A CPO certification must be renewed every two years. While the CPO program is a strong step in the right direction, additional training needs emerged throughout this Special Audit. This Report identifies many areas in which additional training is necessary, including: How to identify RFPs and contracts that require DoIT review Proper use of exceptions to competitive procurement, especially emergency and sole source procurement methods Proper coding of exemptions, exceptions, sole source and emergency procurements Campaign contribution disclosure forms and related requirements 7

59 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Finally, empowering procurement professionals at the agency level to do their jobs correctly would also address many of the concerns OSA received and observed throughout this Special Audit. For example, the OSA observed one instance in which a CPO asserted that they approved a PO under duress, and refused to approve a change order related to this same PO. Under the process in effect at the time (which has since changed), the CPO sent the scope of work to DFA s legal counsel who determined that the scope of work stated would be general services. Therefore the procurement must be conducted through State Purchasing using SPD processes and procedures. The CPO agreed with this determination, however the agency s legal counsel disagreed and believed this purchase qualified for an exemption. Despite the statutory requirement that the CPO is responsible for making these determinations, the agency ignored this statute and bypassed the CPO s authority. Other states have pursued a model in which the statewide purchasing agency, in our case SPD, oversees CPOs for all agencies. Employees remain physically located at their respective agencies and are funded through the agency. However, this approach mitigates the risk that the CPO will be fired or removed from the position because of a disagreement on proper procurement procedures. This model also increases the likelihood that Procurement Code violations will be reported to SPD, which currently relies on the honor system of self-reporting. IV. SOLE SOURCE PROCUREMENTS Overview The Procurement Code defines a sole source procurement as a purchase wherein (1) there is only one source for the required service, construction or item of tangible personal property; (2) the service, construction or item of tangible personal property is unique and this uniqueness is substantially related to the intended purpose of the contract; and (3) other similar services, construction or items of tangible personal property cannot meet the intended purpose of the contract. Section , NMSA Such contracts may be awarded without competitive bids or proposals regardless of the estimated cost when SPD and/or DFA determines in writing that these criteria are met. Sole source procurements require an agency to post notice for 30 days pursuant to Section , NMSA 1978, and NMAC F to give other possible vendors a chance to protest. Agencies must also submit a Sole Source Request and Determination Form to DFA for proposed purchases of professional services, or to SPD for all other purchases. In addition if the agency did not post notice to SPD s website, the agency must also submit the form to DoIT for posting on the state s Sunshine Portal and to the Legislative Finance Committee. The notice must describe the parties to the proposed transaction, the contract amount and the nature of the goods or services being procured. The Sole Source Request and Determination Form states: A sole source determination is not effective until the sole source request for determination has been posted for thirty (30) calendar days without challenge, and subsequently approved in writing by the State Purchasing Agent or, for Professional Services Agreements, the Secretary of the Department of Finance and Administration. The form requires an explanation of the scope of work and an explanation of the criteria developed and specified by the agency as necessary to perform and/or fulfill the contract and upon which the state agency reviewed available sources. The form also requires a detailed, sufficient explanation 8

60 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 of the reasons, qualifications, proprietary rights or unique capabilities of the prospective contractor that makes the prospective contractor the one source capable of providing the required professional service, service, construction or item(s) of tangible personal property. The form cautions that stating that a source is the best or least costly is not an adequate justification. In addition to other information, the agency must explain the efforts it made to identify other possible sources. Despite the requirements for qualifying for the sole source purchase exception to competitive bidding that the language of the statute and form impose, the OSA identified an estimated $56 million in sole source purchases by state agencies in Fiscal Year Sole Source Procurement by Agency, FY 2016 Contract value as posted to State Agency SPD s website, annualized Corrections Department $21,197, Public Education Department $4,160, Department of Health $3,294, Taxation & Revenue Department (TRD) $3,233, Department of Public Safety $2,931, DoIT $2,282, Aging and Long Term Services $2,127, Department of Transportation $1,786, Children, Youth & Families Department (CYFD) $1,673, Public Employees Retirement Association (PERA) $1,237, Economic Development Department $1,195, Regulation & Licensing Department $1,063, Department of Cultural Affairs $978, Department of Workforce Solutions $973, Secretary of State $968, Office of the State Engineer $789, Educational Retirement Board $775, DFA $668, New Mexico Border Authority $600, Natural Resources Trustee $553, Environment Department $472, Division of Vocational Rehabilitation $351, NM Spaceport Authority $350, Department of Veterans Service $335, Human Services Department $276, Blanket Code for agencies without individual code $261, GSD $195, Public Defender $150, Public School Facilities Authority $88, Seventh Judicial District Court $85, Higher Education Department $82, Administrative Office of the Courts $73,000 9

61 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Contract value as posted to State Agency SPD s website, annualized Attorney General s Office $63, Workers Compensation Administration $41, Commission for the Blind $26, Public Regulation Commission $14,400 Total $55,358,888 Top 10 Vendors Receiving Contracts Made Pursuant to the Sole Source of the Procurement Code, FY 2016 Vendor Agency Contract value as posted to SPD s website, annualized Corrections Corporation of America Corrections Department $21,197,360 Fast Enterprises LLC TRD $2,700,000 Blackboard Inc. Public Education Department $2,333,883 IBM Corporation DoIT & TRD $1,695,047 Morphotrak Department of Public Safety $1,587,674 New Mexico Senior Olympics Aging and Long Term Services Department $1,505,042 NM Association of the Education of Young Children CYFD $1,291,579 NM Economic Development Corporation Economic Development Department $1,180,000 Maximus, Inc. Department of Health $941,927 Hewlett Packard PERA $937,190 Testwork The OSA reviewed the files of a non-random sample of 13 sole source procurements, obtained from the state purchasing division s database. Ten out of the 13 sole source procurements tested (77%) did not meet all three requirements set forth in the Procurement Code for sole source procurements, as detailed below. In one out of 13 sole source procurements tested, the agency was excluded from the requirement to procure through SPD, but was not exempt from the requirement to comply with the Procurement Code. This agency was unable to provide proof that the notice of sole source contract was posted with all required information for 30 days as required by Section NMSA This agency was also unable to provide proof that, prior to award, the agency sent all required information to the Department of Information Technology for posting to the Sunshine Portal and to the Legislative Finance Committee as required by Section (C) NMSA This sole source and one other (2 out of 13) justified the sole sources by stating that only one vendor was authorized to configure the software. It is 10

62 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 true that in these cases only one vendor could modify their proprietary software, however these agencies could have put out an RFP for a new system that could have meet their current and future needs. There were multiple software systems on the market that could have meet the agency s needs. In five out of 13 sole source procurements tested, the justification contained wording that the vendor was initially contracted through an RFP in years prior and multiple vendors responded to the initial RFP. Although there are circumstances when historical purchasing decisions result in only one source being able to service, maintain or upgrade a purchase, in these instances, this wording should have resulted in a rejection or required revisions of the sole source justification form because the form itself stated that there was more than one source for the required service, construction or item of tangible personal property. In three out of 13 sole source procurements tested, the justification contained wording that the agency researched similar companies, but assumed that these vendors would be unable to provide the services needed or assumed that the price for these vendors to tailor to the agencies needs would exceed budget. This wording alone should have resulted in a rejection of the sole source justification form because the form itself stated that there was more than one source for the required service, construction or item of tangible personal property. Risk Factors The testwork revealed the following risk factors: Agencies excluded from oversight by DFA or SPD appear less compliant with the Procurement Code. Procuring agencies use the sole source exemption in circumstances that are not permitted by law, including a desire for convenience and assumptions about price. Oversight agencies, including DFA, DoIT and the SPD, do not always provide adequate scrutiny of sole source justification forms, resulting in the acceptance of forms that do not meet the requirements of a sole source purchase. Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices to help avoid overreliance on sole source procurement: As the National Association of State Procurement Officials recommends, when in doubt, bid it out. Agencies should make their procurement teams aware of and provide enough advance notice to allow procurement professionals to do market research and comply with the Procurement Code. Oversight agencies should consistently review the substance of sole source justifications to determine compliance with the Procurement Code and reject non-complying forms. Agency internal controls should ensure that sole source notices are timely and appropriately posted and that sole source justification forms are complete, correct and submitted to the appropriate oversight agencies. Amendments to the Procurement Code to require all state agencies post notice of sole source procurement (or a link to that notice) on the SPD website at the start of the 30-day notice and 11

63 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 protest period would increase transparency and accountability. This would also create a complete record of state sole source procurements so that the public can determine how many taxpayer dollars were contracted and spent as a result of sole source procurements by state agencies. House Bill 391 in the 2017 regular Legislative session was the latest bill to propose such amendments. V. EMERGENCY PROCUREMENTS Overview The Procurement Code defines an emergency procurement as a purchase made in situations that create a threat to public health, welfare or safety, such as may arise by reason of floods, fires, epidemics, riots, acts of terrorism, equipment failures or similar events and includes the planning and preparing for an emergency response. Section , NMSA Furthermore, the existence of the emergency condition must create an immediate and serious need for services, construction or items of tangible personal property that cannot be met through normal procurement methods and the lack of which would seriously threaten: (1) the functioning of government; (2) the preservation of protection of property; or (3) the health or safety of any person. The Governor of the State of New Mexico issued guidelines for contract review and re-evaluation in which she stated that a true emergency must exist for an emergency contract and states that emergencies do not exist simply from a need to procure the services now or from time pressure to implement a new contract. vi Agencies must make a written determination of the need for an emergency procurement using the Emergency Determination Form available on both SPD and DFA s website. The form requires, among other things, a detailed description of the emergency and the steps being taken to mitigate its effects. State agencies with DFA oversight must also submit a memorandum for approval to the Financial Control Director pursuant to Model Accounting Practices (MAPS) FIN Emergency Procurement by Agency, FY 2016 Contract value as posted to SPD s website, Agency Number Agency Name annualized Corrections Department $100,540, Energy Minerals & Natural Resources Department $2,408,658 (EMNRD) NM Department of Transportation $1,379, GSD $687, Department of Public Safety $144, Third Judicial District Court $92, CYFD $90, Game and Fish Department $74, Human Services Department $50, Department of Cultural Affairs $36, Department of Health $13,022 12

64 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Contract value as posted to SPD s website, Agency Number Agency Name annualized Public School Facilities Authority $9, Department of Workforce Solutions $6, Regulation & Licensing Department $2,800 Total $105,537,965 The largest emergency procurement in FY16 was an example of an appropriate use of the emergency procurement provisions. A fire or explosion caused a power outage for 450 Corrections Department inmates, with 250 left without power and on a longer term basis. The Corrections Department used an emergency procurement to contract with multiple vendors on contracts of up to $20 million to repair the damages. OSA notes that while these contracts were compiled from the SPD website and listed as emergency procurements, some of the purchases may have been eligible for other exceptions to the competitive bidding requirements of the Procurement Code. Vendor Great Southwestern Construction, RT Electric, Henry Medina, Lowes Company, Blueline Rental, and Hotel Encantado de las Cruces Agency 13 Contract value as posted to SPD s website, annualized Unknown; maximum contract amount totaled $100,000,000 Corrections Department Department of Transportation $1,090,278 Brasier Asphalt, Inc. Transportation Equipment Sales Corp EMNRD $671,598 Community Education Centers Corrections Department $531,111 Alan Kuhn Associates, LLC EMNRD $350,000 All-Rite Construction, Inc. GSD $259,397 Department of Transportation $205,117 Uretek USA Inc. Rock Gap Engineering EMNRD $137,533 Motorola Department of Public Safety $129,830 B&H Mechanical GSD $100,000 Testwork The OSA reviewed the files of a non-random sample of 14 emergency procurements, obtained from the state purchasing division s database. Three out of the 14 sole source procurements tested (21%) did not comply with MAPS FIN In addition, one procurement posted notice under the wrong agency name. In addition, 11 of 14 emergency procurements tested (79%) stated a reason for the emergency procurement that did not appear to meet the definition of an emergency as defined in Statute or the governor s guidelines. While a true emergency may have existed, the documentation did not support

65 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 that conclusion. In all cases except for one (an agency that has an exemption from DFA), DFA approved the emergency procurement. The reasons given for the emergency procurements that did not meet applicable laws and regulations were: The procuring agency stated that in its opinion, replacement or repairs occur within the next week to circumvent any potential litigation or liabilities that could occur with delays and the bidding process. However, the work was not completed until almost three months of the justification posting. The procuring agency stated that it was working to review and release the RFP and that this emergency would be in place for the shortest duration necessary to complete the competitive procurement. The procuring agency stated it needed to remedy a contamination issue that they became aware of a year prior to the request for approval of the emergency procurement. In two instances, the procuring agency stated it was involved in on-going litigation and they required assistance from a highly qualified legal firm and an attorney licensed to practice in federal court. That litigation was in a case that was first filed in The procuring agency's justification stated that the current price agreement did not meet its specifications and this emergency procurement would only be in place until a new price agreement could be established that met it specifications. This agency has an exemption from the requirement that DFA review its contracts, for which the agency re-applies annually. This agency does go through the SPD and DoIT for other approvals. In five instances, the procuring agency was conducting an audit of its current contractor's services and the agency believed this audit would result in one or more contractors being ineligible to provide services anymore. The agency stated it had vetted outside vendors that had the experience necessary to assume the role of providing these services while the other contractors were being audited. However, an audit does not result in termination of services, the contractor could still provide services while also providing documents requested for the audit. Risk Factors The testwork revealed that procuring agencies are using the emergency exemption in circumstances that are not permitted by law, including a desire for convenience and misconceptions about the regular procurement process. Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices to help avoid overreliance on emergency procurement: SPD should update its listing of agencies on the SPD database for sole source and emergency postings so that it encompasses every agency and local public body. This should prevent future mistakes in which one agency selects the name of another agency because the correct agency name is not listed in the drop-down function. 14

66 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Agencies, especially their chief financial officers (CFOs), should review the MAPS issued by the DFA Financial Control Division and ensure that their CPO s are aware of MAPS requirements related to emergency procurements. VI. EXEMPTIONS TO THE PROCUREMENT CODE Overview The Procurement Code contains numerous exemptions from the Procurement Code. Certain agencies are exempt from the Procurement Code, based on the statutes that formed those agencies, including the New Mexico Exposition Authority Act, NMSA 1978, 6-25A-5.W, the University Research Park and Economic Development Act, NMSA 1978, A, the New Mexico Beef Council Act, NMSA 1978, 77-2A-9, the Cumbres & Toltec Scenic Railroad Commission, NMSA 1978, NMSA 1978, and the New Mexico Health Insurance Exchange Act, NMSA 1978, 59A- 23F-3.M. The Procurement Code also provides for a number of exempt transactions, many of which are detailed in the table below. By far, the largest share of exempt expenditures are purchases between a state agency and another state agency, local public body or external procurement unit. Examples of this type of purchase include healthcare contracts with local public bodies, construction and design of facilities for at risk youth, judicial complexes, police and fire, and miscellaneous capital outlay projects. In addition, many agencies use the SHARE code for the Procurement Code exemption for interagency purchases to record transfers of funds between agencies that are not purchases. For example, the Public Education Department uses the SHARE code for interagency purchases to record transfers of public school funding to the state s school districts. As a result, nearly $4 billion was coded under the exemption provided in NMSA 1978, Section A, only one-eighth of which represented actual purchases. This makes it challenging to use the SHARE exemption codes to determine the dollar value of procurements, as opposed to transfers for other reasons. Expenditures Made Pursuant to Select Exemptions from the Procurement Code, FY 2016 Statute A CC Description Purchases between a state agency or a local public body and another state agency, local public body or external procurement unit, except for cooperative procurements Contracts for investment advisory services, investment management services or other investment-related services entered into by the education retirement board, the state investment officer or the retirement board created pursuant to the Public Employees Retirement Act Amount Expended and Coded to Listed Exemption in SHARE $496,882,631 $65,665,634 15

67 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Statute Description Amount Expended and Coded to Listed Exemption in SHARE B An agreement with any other state agency, local public body or external procurement unit or any other person, corporation, organization or association for the purpose of creating a network of health care providers or jointly operating a common health care service, if the state purchasing agent or a central purchasing office $61,156,057 makes a determination that the arrangement will or is likely to reduce health care costs, improve quality of care or improve access to care Hospital and health care exemption $48,734, FF Procurement by or through the children, youth and families department of pre-kindergarten services pursuant to the Pre- $20,308,140 Kindergarten Act D Purchases of publicly provided or publicly regulated gas, electricity, water, sewer and refuse collection services $17,526, V Purchases of advertising in all media, including radio, television, print and electronic $13,252, F Travel or shipping by common carrier or by private conveyance or to meals and lodging $7,148, I Procurement of tangible personal property or services by the corrections industries division of the corrections department pursuant to rules adopted by the corrections industries commission, $6,096,130 which shall be reviewed by the purchasing division of the general services department prior to adoption HH Procurements exempt from the Procurement Code as otherwise provided by law $5,927, EE Contracts entered into by the crime victims reparation commission to distribute federal grants to assist victims of crime, including grants from the federal victims of crime act of 1984 and the federal $5,001,669 violence against women act of R Contracts and expenditures for legal subscription and research services and litigation expenses in connection with proceedings before administrative agencies or state or federal courts, including $4,127,499 experts, mediators, court reporters, process servers and witness fees, but not including attorney contracts Z Procurement of services from community rehabilitation programs or qualified individuals pursuant to the State Use Act $3,831, J Purchases not exceeding ten thousand dollars ($10,000) consisting of magazine subscriptions, web-based or electronic subscriptions, conference registration fees and other similar purchases where prepayments are required $3,286,403 16

68 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Statute Description Amount Expended and Coded to Listed Exemption in SHARE T Works of art for museums or for display in public buildings or places $3,039, AA Purchases of products or services for eligible persons with disabilities pursuant to the federal rehabilitation act of $2,267, A An agreement with any other state agency, local public body or external procurement unit or any other person, corporation, organization or association that provides that the parties to the agreement shall join together for the purpose of making some or all purchases necessary for the operation of public hospitals or $2,125,189 public and private hospitals, if the state purchasing agent or a central purchasing office makes a determination that the arrangement will or is likely to reduce health care costs E Purchases of books, periodicals and training materials in printed or electronic format from the publishers or copyright holders thereof $1,485, B Purchases for the governor's mansion and grounds $303, GG Procurement of services of commissioned advertising sales representatives for New Mexico magazine $205, X Procurement of printing services for materials produced and intended for resale by the cultural affairs department $164, W Purchases of promotional goods intended for resale by the tourism department $64, Q Contracts with professional entertainers $23, B The lease or operation of a county hospital pursuant to the Hospital Funding Act $18, C Printing and duplicating contracts involving materials in printed or electronic format from the publishers or copyright holders thereof $9, Y Procurement by or through the public education department from the federal department of education relating to parent training and information centers designed to increase parent participation, projects and initiatives designed to improve outcomes for students with disabilities and other projects and initiatives relating to the $5,701 administration of improvement strategy programs pursuant to the federal individuals with disabilities education act; provided that the exemption applies only to procurement of services not to exceed two hundred thousand dollars S Contracts for service relating to the design, engineering, financing, construction and acquisition of public improvements undertaken in $5,155 improvement districts and in county improvement districts H Contracts with businesses for public school transportation services $195 Total $768,664,110 17

69 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 In addition to the $1 billion found under these exemptions, the Human Services Department has claimed exemptions and coded as a block grant another approximately $5.6 billion, as noted by the Legislative Finance Committee in their Report #16-09 dated October 27, As noted in the table above, the largest expenditures in FY16 were under exempt intergovernmental agreements. The following were the largest expenditures under exempt contracts other than intergovernmental agreements. Vendors Receiving Ten Largest Expenditures Made Pursuant to Select Exemptions from the Procurement Code, FY 2016 (excluding intergovernmental, utility and State Use Act exemptions) Vendor Exemption Agency Amount Expended in SHARE United Behavioral Health EXE (healthcare) Human Services Department $48,734,284 Talweg Creative Inc. EXE V (advertising in media) Department of Tourism, CYFD $9,840,467 Merck Sharp & Dohme EXE B (healthcare) Department of Health $8,994,632 Pfizer Inc. EXE B (healthcare) Department of Health $5,058,060 Glaxosmithkline EXE B (healthcare) Department of Health $4,164,031 Blackrock Institutional Trust Company EXE CC (investment services) State Investment Council (SIC), PERA, Educational Retirement Board (ERB) $3,738,581 T Rowe Price Associates Inc. EXE CC (investment services) SIC $3,254,023 Harvest Fund Advisors LLC EXE CC (investment services) SIC, PERA $2,702,654 MFS Institutional Advisors Inc. EXE CC (investment services) SIC, PERA $2,541,000 Lithexcel EXE F (travel) Human Services Department $2,400,000 Risk Factors Currently when an agency creates a purchase order it will select the origin code EXE for exemptions and then cite the section of the Procurement Code and the specific item of law (letter A- EE) that exempts the purchase from the requirements of the Procurement Code (MAPS Fin 4.3(B)). In compiling this data regarding exemptions, the OSA noted hundreds of inconsistencies in how individual agencies code exemptions in SHARE, including agencies citing the wrong section of the Procurement Code and citing statutes outside of the Procurement Code. For example, Expo New Mexico/State Fair was coding every transaction as EXC H, which 18

70 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 is the statute that exempts that agency from SPD oversight for purchases under $20,000. However, the agency used this code for purchases above $20,000, which should have required the agency to get the best obtainable price or solicit formal request for proposals. The agency stated that this was an error and that the Chief Procurement Officer approved all exemptions; however, this last assertion was not documented. Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices to help improve the exemption process: SHARE should provide a drop-down function for exemptions that would list the statute numbers to eliminate the errors caused through manual input of the exemption statute. Exemptions are often shaped around a particular purpose or agency intending to accommodate the unique demands and requirements of those activities. However in the decentralized procurement environment in New Mexico, greater oversight of these procurement activities is necessary. The Legislature should consider engaging in comprehensive review of the exemptions in the Procurement Code. The Legislature should consider establishing a threshold that requires all contracts over a certain dollar amount to be approved by SPD, even if an exemption would otherwise apply. The Legislature should consider giving statutory authority to the State Purchasing Agent to oversee and approve the use of Procurement Code exemptions. This would help ensure consistent interpretation and application of the laws and regulations regarding exemptions. VII. SMALL PURCHASES Overview The Procurement Code allows an agency to procure services, construction or items of tangible personal property between $20,000 to $60,000, excluding gross receipts tax, by issuing a direct purchase order to a contractor based upon the best obtainable price, without SPD review. The Procurement Code states that an agency may procure professional services (excluding services of landscape, architects or surveyors) in accordance with DFA rules. Despite the statutory small purchase threshold of $60,000 excluding tax, DFA requires that state agencies must submit professional service contracts that result in expenditures greater than $50,000, including gross receipts tax. The Code states that agencies may not artificially divide purchases into multiple contracts so as to constitute small purchases. Testwork The OSA reviewed the files of a non-random sample of 11 small purchase contracts, obtained from five different state agencies. The test work indicated two vendors for which GSD s Risk Management Division was procuring services under small purchase contracts and subsequently amending these contracts multiple times, resulting in total contract amounts that would have triggered the need for a competitive procurement. Rather than citing the Procurement Code, these transactions identified Section , NMSA 1978, which states that, any valid contract between the risk management division and any law firm, to defend claims against the state or any of its public employees shall be automatically extended for the purpose of and as long as necessary for completing and concluding 19

71 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 any litigation, including appeals, referred to the firm for defense prior to the termination date stated in the contract or any applicable amendment thereto. In both instances, the initial contract was for $50,000. In one instance, the ultimate contract price was $300,000, and in the other the ultimate contract price was $350,000. Risk Factors The testwork revealed the following risk factors: While a technical violation may not have occurred and the volatility of litigation may necessitate extensions of legal contracts, the unlimited automatic extension provision for Risk Management Division contracts creates the opportunity for improper use of the small purchase exception to the Procurement Code. Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices to ensure efficient and appropriate use of the small purchase exception: The Legislature should consider amending the statute to define what best obtainable price means. In line with best practices of other states and the federal government, the Procurement Code should require that at least three quotes be obtained. DFA should consider revising the regulations governing the approval of contracts for the purchase of professional services (NMAC A) to increase the threshold from $50,000 to $60,000 in line with the Procurement Code. GSD s Risk Management Division should exercise due diligence in evaluating litigation against the State and reasonably evaluate the type of legal services required so as to competitively procure the necessary services and obtain the best value for the State of New Mexico. The Legislature should consider amending the Section , NMSA 1978, to limit the automatic amendment provision at a level such as two times the original contract amount. VIII. PRICE AGREEMENTS Overview SPD competitively procures certain goods and services on behalf of the State through the negotiation of statewide price agreements. State agencies and local public bodies can make use of these agreements at any time to procure needed goods or services from vendors listed. Similarly, agencies can also procure price agreements with vendors whose goods or services are needed on a regular basis. In a positive step towards transparency and accountability, SPD recently reorganized its employees and developed a new position similar to an auditor whose duties include auditing price agreements and purchases made by agencies to ensure agencies are abiding by the terms and conditions of the price agreements. Several statewide price agreements contain multiple vendors with a range of prices for similar goods or services. However, agencies are not required to select the lowest price, solicit quotes from 20

72 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 additional sources, or in any way research that the agency is receiving the best value when using a price agreement. In addition, price agreements can be extended after one year and vendors are allowed to increase their prices for the subsequent extension. Testwork The OSA reviewed four statewide price agreements and eight agency-specific price agreements, in addition to an overall review of vendors on the statewide price agreement. In one out of 8 agency price agreements (12%), the price agreement did not match the initial bid provided by the vendor. In 2 out of 8 agency price agreements (25%), the procurement file did not contain evidence that SPD notified in writing any businesses that had signified their interest. Risk Factors The testwork revealed the following risk factor: Weaknesses in the price agreement system that allow increases after an initial price agreement is in place may result in agencies not getting the best price on purchases. Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices to ensure compliance with the Procurement Code: Agencies should always attempt to obtain at least three quotes on purchases, even when a statewide or agency price agreement is available for the needed goods or services. SPD should reconsider its process that currently allows vendors to increase prices in price agreement extensions. VIII. FEDERAL CONTRACTS Overview Piggybacking is the commonly used term for the process by which one jurisdiction uses the contract terms and prices originated by another agency. One form of piggybacking occurs when state agencies make purchases pursuant to federal contracts. The U.S. General Services Administration (GSA) operates a Cooperative Purchasing Program, which allows state and local governments to purchase from pre-vetted vendors at prices that the federal government negotiated. The list of participating vendors and available goods and services is known as a schedule. State and local governments can currently make purchases using GSA Schedule 70 for information technology and schedule 84 for law enforcement and security products and services, at any time, for any reason, using any funds available. These are the only two of the 33 GSA Schedules currently being offered under the Cooperative Purchasing Program. A representative for GSA, FAS, Greater Southwest Region 7 stated that the GSA does not encourage the use of mirroring GSA Schedules [other than 70 and 84] however, GSA has no control over State methods of procurement. Vendors interested in participating in a GSA schedule must file a solicitation document that contains numerous terms and conditions, including a most favored customer clause and a price reduction 21

73 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 clause. The most favored customer clause is based on the premise that the government deserves similar or better discounts than the best discount a vendor offers to a particular customer category. When vendors apply for a GSA schedule they are required to identify the best discounts granted to the following customer categories (1) dealers/retailers; (2) distributors/wholesalers; (3) educational institutions; (4) state, county, city and local governments; (5) original equipment manufacturers; and (6) others. Based on that information, GSA identifies the customer to which the vendor granted the largest discount as the most favored customer, and GSA negotiates a discount that is equal to, or better than, the discount given to the most favored customer. The price reduction clause states that if a vendor violates the contractually agreed-upon pricing/discount relationship by offering a better discount to its most favored customer, the vendor invokes the price reduction clause. This means that from the date the violation took place, the vendor will owe the federal government a discount proportionately equal to that given to the most favored customer. A maximum order threshold is specified in the GSA request for proposal. The amount of the threshold is negotiable in the contracting process by both the contractor and the GSA. The price reduction clause does not allow orders to exceed the threshold. Specifically, the GSA states, while ordering activities are encouraged to seek price reductions for any size Schedule contract order, they are required to seek price reductions if a requirement exceeds a Schedule contract s maximum order threshold. Testwork The OSA reviewed the files of a non-random sample of 10 GSA contracts, obtained from the state purchasing division. Seven of 10 price agreements (70%) mirrored GSA contracts that are not on Schedule 70 or 84, and thus discouraged under the Cooperative Purchasing Program. In one of 10 contracts reviewed (10%), the agency was purchasing items not allowable under the price agreement. One of 10 contracts tested (10%) was over the maximum allowable threshold amount under the GSA contract. Specifically, the GSA contract stated the maximum threshold for purchases under the agreement was $1,000,000 but the contract was for $1,600,000. DFA-CRB had approved this contract. In two out of 10 federal mirroring price agreements (20%), the file contained a memorandum sent to vendors that was on agency letterhead (instead of GSD letterhead) asking whether the vendor would extend the same terms as the GSA. The wording and the letter were not in accordance with SPD s policies, which require the letter to be on GSD letterhead with SPD language for consistency. Risk Factors The testwork revealed the following risk factors: SPD is using the Cooperative Purchasing Program in circumstances that, while they may be permitted by law, are discouraged by the Program, including permitting agencies to purchase goods and services that are not available under this program. Oversight agencies are not providing adequate scrutiny of contracts made through the Cooperative Purchasing Program. Contrary to guidance from GSA, agencies are not obtaining quotes from multiple vendors on the GSA schedules prior to selecting a vendor for a purchase. 22

74 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices to help avoid inappropriate use of the Cooperative Purchasing Program. SPD should amend the intake packet (outlined in Appendix A) to require that each state agency submit proof that it requested quotes from at least three GSA contractors prior to selection of a GSA contract. DFA-CRB should review the procedures for ensuring that agencies making purchases under GSA schedules are not exceeding the maximum order threshold. Vendors that extend the State the same or better terms as a GSA schedule need to consider whether it is necessary to update their most favored customer with the GSA, to avoid civil and criminal penalties. IX. NASPO VALUEPOINT COOPERATIVE PROCUREMENTS Overview The National Association of State Procurement Officials (NASPO) is a non-profit professional and educational association of state chief procurement officers dedicated to advancing public procurement. NASPO ValuePoint is a cooperative purchasing program of all 50 states, the District of Columbia and the territories of the United States. The program is facilitated by the NASPO Cooperative Purchasing Organization LLC, a nonprofit subsidiary of the NASPO, doing business as NASPO ValuePoint. The NASPO ValuePoint management board is comprised of 21 state procurement officials appointed by the National Association of State Procurement Officials who oversee the strategic direction, operations and activities of the organization. NASPO ValuePoint facilitates public procurement solicitations and agreements using a lead state model. NASPO solicitations are worded so that the lead state may accept all or a portion of any proposal received. Bidding is open to local companies and is not limited to national companies. Offerors are free to bid regionally or by state. NASPO encourages all NASPO states to advertise all solicitations. SPD is responsible for advertising NASPO ValuePoint opportunities in New Mexico. Expenditures Made Pursuant to NASPO ValuePoint Contracts, FY 2016 Amount Expended in Vendor Name Description SHARE (All Agencies) Verizon Wireless Wireless Services & Accessories $3,792,209 Grainger Industrial Supply Facilities maintenance, repair and operations $3,459,964 Computer Equipment, Peripherals and Dell Marketing LP related services $2,064,116 Computer Equipment, Peripherals and Hewlett Packard Inc. related services $1,317,172 23

75 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Vendor Name Amount Expended SHARE (All Agencies) Description Public Safety Radio Communication Equipment & Services $1,238,400 Motorola Solutions, Inc. Ricoh USA, Inc. Copier, Printers & Related Devices $777,836 Fastenal Company Facilities maintenance, repair and operations $449,133 Alcohol Monitoring Systems, Inc. Electronic Monitoring of Offenders $290,166 Applied Concepts, Inc. Police Radar, Lidar, Parts $231,533 Mail Room Equipment, Services and Opex Corporation Support $126,826 MSC Industrial Supply Facilities maintenance, repair and operations $127,767 Computer Equipment, Peripherals and Lenovo related services $121,084 Xerox Corporation Copier, Printers & Related Devices $80,401 Pitney Bowes Global Financial Mail Room Equipment, Services and Services Support $59,364 Computer Equipment, Peripherals and Transource Computers related services $59,141 Computer Equipment, Peripherals and Howard Technology Solutions related services $51,654 AT&T Mobility II LLC Wireless Services & Accessories $48,431 Computer Equipment, Peripherals and related services $37,755 Ciara Technologies USA, Inc. Goodyear Tire & Rubber Company Tires, Tubes & Related Services $35,721 Bridgestone Americas Tire Operations, LLC. Tires, Tubes & Related Services $12,630 Public Safety Radio Communication Equipment & Services $10,627 ICOM America, Inc. Voiance Language Services, LLC. Telephone Based Interpreter Services $7,403 Corporate Translation Services, Inc. Telephone Based Interpreter Services $4,455 T-Mobile USA Inc. Wireless Services & Accessories $4,322 Linguistica International, Inc. Telephone Based Interpreter Services $4,045 Sharp Electronics Corporation Copier, Printers & Related Devices $3,248 Kustom Signals, Inc. Police Radar, Lidar, Parts $1,550 Total $14,416,953 Note: Sixteen NASPO ValuePoint contracts in which New Mexico participates had no expenditures in FY16 and are not included in the table. in 24

76 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Testwork The OSA reviewed the files of a non-random sample of 10 NASPO ValuePoint requests for proposal to determine whether GSD had advertised these opportunities in New Mexico. Four out of the 10 (40%) were not advertised in the New Mexico papers of record that GSD ordinarily uses for RFP notice publication. Risk Factors The testwork revealed the following risk factors: The State Purchasing Division did not have documentation to support that it is advertising all NASPO ValuePoint request for proposal solicitations. The SPD s website does not list local fulfilment partners and supply chain distributors for NASPO price agreements. Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices to expand the opportunities available locally under the NASPO ValuePoint program. SPD should post advertisements for invitations for bids or proposals for all NASPO solicitations. This is in line with the State Purchasing Agent s goal of facilitating fair and open competition and it ensures that local vendors have an opportunity to compete for cooperative contracts. DFA and DoIT should work collaboratively with SPD to modify or update the SHARE contract module to allow for multiple vendors in instances where an agency is using the price from a NASPO ValuePoint agreement with a manufacturer, but purchasing through a local retail or wholesale vendor. SPD has stated they would have no problem listing the local vendors for NASPO agreements, but without some change to SHARE agencies cannot buy from local vendors. X. CAMPAIGN CONTRIBUTION DISCLOSURE FORMS Overview The Procurement Code, Section (C), NMSA 1978, requires campaign contribution disclosures in connection with each competitive sealed proposal, sole source or small purchase contract. Section (E) states: A prospective contractor or a family member or representative of the prospective contractor shall not give a campaign contribution or other thing of value to an applicable public official or the applicable public official's employees during the pendency of the procurement process or during the pendency of negotiations for a sole source or small purchase contract. Emergency and exempt procurements do not require the form. The statute states: The disclosure shall indicate the date, the amount, the nature and the purpose of the contribution. The disclosure statement shall be on a form developed and made 25

77 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 available electronically by [DFA] to all state agencies and local public bodies. The state agency or local public body that procures the services or items of tangible personal property shall indicate on the form the name or names of every applicable public official, if any, for which disclosure is required by a prospective contractor for each competitive sealed proposal, sole source or small purchase contract. The form shall be filed with the state agency or local public body as part of the competitive sealed proposal, or in the case of a sole source or small purchase contract, on the date on which the contractor signs the contract. In contrast to the language of the statute, the form developed by DFA currently states that it is only applicable to contracts for professional services, a design and build project delivery system, or the design and installation of measures the primary purpose of which is to conserve natural resources. DFA is the only agency authorized to promulgate the campaign contribution form and, per s exchanged in May 2017, agreed that this concern was valid. SPD has also issued guidance that appears to conflict with the campaign contribution disclosure statute. A guidance memo dated November 9, 2006, stated the following: The new law applies only to procurements that require a competitive sealed proposal process, and to contracts that end up being exempt from the request for proposal ( RFP ) process because they qualify as a small purchase contract or a sole source contract. The new law does not apply to all small purchase contracts or sole source contracts just those contracts that normally would have to follow the competitive sealed proposal process but don t have to because they qualify as a small purchase or sole source contract. The statute does not appear to provide a basis for this interpretation. Currently, each agency subject to the campaign contribution disclosure requirement is solely responsible for determining whether its prospective contractors are submitting a disclosure form. The statute does not require agencies to evaluate the accuracy of that disclosure form by searching the Secretary of State s campaign finance information system. Testwork The OSA reviewed the files of a non-random sample of 34 competitive procurement files, 13 sole source procurement files and nine small purchase procurement files, obtained from various agencies. Eleven out of 34 competitive procurement files (32%), six out of 13 sole source procurement files (46%), and six out of nine small purchase procurement files (67%) did not contain the campaign contribution disclosure forms. Risk Factors The testwork revealed the following risk factors: Agencies are not complying with the requirement to obtain campaign contribution forms. Although the statute imposes an absolute prohibition on contributions during the pendency of a procurement, the statute does not require agencies to confirm whether bidders complied with this prohibition. While agencies can ratify contracts with vendors that violated this prohibition, it is difficult for them to do so in good faith without having the information on contributions during the prohibited period. 26

78 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 The statute also does not require any confirmation that the information is accurate. Absent a list of people who meet the definition of prospective contractor and family members or representatives of the prospective contractor, no agency can perform a meaningful check on the accuracy of the form. The decentralized process for collection and maintenance of the form results in a lack of comprehensive data, which made performing the test procedures very difficult. The OSA noted inconsistent practices regarding whether a new campaign contribution disclosure form should be completed when a contract is amended. The statute states that the prospective contractor shall disclose all campaign contributions during the two years prior to the date on which a proposal is submitted. However, the statute does not address multi-year contracts that may last up to four years. For example, leases may be competitively procured and may have an initial term with options for extensions lasting upwards of 20 years. The statute does not address the validity of a campaign contribution disclosure form filed 20 years ago, despite the fact that subsequent contributions may influence decisions as to whether to extend a lease term. Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices to ensure compliance with the campaign contribution disclosure requirements: DFA and SPD should revise the campaign contribution disclosure form and related guidance to reflect the broader language of the Procurement Code. To address the concerns caused by individual agency collection, the Legislature should consider requiring each agency to submit the campaign contribution disclosure as part of its procurement packet submitted to the appropriate oversight agency, or to post the form to the Sunshine Portal. As of January 1, 2017, the Sunshine Portal includes all state agency contracts and this could be an easy addition to increase transparency and accountability. DFA and SPD should consider processes or potential partnerships that would facilitate comparison of information from campaign contribution disclosure forms to the Secretary of State s campaign finance information system. In order to make this meaningful, the campaign contribution disclosure form would need to be amended to include a full list of people from whom disclosure is required. This cross-check is also necessary after the award of a contract in order for the prohibition on contributions during the pendency of a procurement to be meaningful. The Legislature should consider amending the statute to clarify when and how often the campaign contribution disclosure form should be filed by a prospective contractor, especially addressing the issue of contract amendments and extensions. XI. OVERSIGHT Overview As described in more detail in the Procurement Overview section of this Report and Appendix A, three oversight agencies play a role in procurement. GSD provides review and approval of ITBs, RFPs and contracts for goods and non-professional services. DFA provides review and approval of 27

79 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 contracts for professional services. DoIT provides review and approval of RFPs and contracts for information technology goods, services and professional services. Testwork While conducting the data analysis and test work described throughout this Report, the OSA also observed the following regarding the oversight processes: The OSA noted several errors in the DFA Contracts Database, most commonly misclassifications (e.g. mislabeling a competitive proposal as sole source ). The OSA observed contracts and supporting documentation missing from the DFA contracts files for FY13, FY14, FY15, and FY16 within the test work samples. Missing documentation included DFA Financial Control Division (FCD) approval of emergency procurements. Agencies can bypass DFA CRB entirely by coding a transaction as anything other than EXC A. The other origin codes allowable for use by agencies would only go through DFA FCD, and this division can only audit a sample of transactions received as they are overwhelmed by the sheer volume of transactions processed by each of the agencies. Mistakes in coding are difficult to identify because the volume of transactions FCD receives would make it impractical to review of each transaction for accuracy in coding. DFA and SPD have noted issues with the SHARE contract s module entry screen. The current SHARE system does not have a designated approval person or agency and does not have a locking mechanism once a contract has been approved. Anyone can approve a contract in the SHARE contract module. Anyone can change the contract module once it has been approved by someone at either SPD or DFA. SHARE only shows the date of and person who made the last changes, but it currently does not track how many changes were made after the process of contract approval or by whom. A sample activity log from the SHARE contract module appears below. Note that the contract was approved in 2013, but the last date of modification was in 2017 and there is no way to know what was changed or how many changes were made in between those dates either. Sample Activity Log in SHARE 28

80 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 DoIT s review process included edits to the scope of work in the contract phase for several contracts we sampled. This increases the risk of a bid protest based on the concept that a scope of work becomes final and binding once published in the request for proposal. In five out of 36 (14%) contract amendments we reviewed that were sent to DoIT for approval, the contracts did not go through DoIT s e-review process. It was simply noted that the hard copies of the contracts were received then signed by the Secretary. In one out of 36 (2%) contract amendments, the contract was approved and executed by DFA and the agency, but it was not approved by DoIT despite the fact that previous amendments to the same contract were approved by DoIT. SPD does not have all eligible vendors registered in the GSD e-procurement system. It is vital that all eligible vendors register with SPD (a free service) because SPD sends out automatic notifications to vendors registered with that commodity code for all current solicitations. Instead, various separate systems and lists of vendors exist in different agencies, including the DoIT list of vendors, the Department of Game and Fish s list of vendors, the DFA s list of vendors, and the various lists maintained schools, higher education, and local public bodies. Risk Factors The testwork revealed the following risk factors: Manual and duplicative entry of codes in various databases is designed in a way that can lead to misclassification and other mistakes in data entry, which in turn hinder transparency in the procurement process. Vendors may not always be aware of bidding opportunities because of the processes for registering eligible vendors in GSD s e-procurement system. The risk of bid protests is increased when scope of work revisions occur after bidding is complete. Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices. However, the OSA notes that significant progress in some of these areas is already underway. A SHARE update expected to occur in the fall of 2017 should resolve the issues with the contract module. In addition, SPD is currently updating its policies and procedures for each type of procurement SPD handles and training all SPD buyers in the new procedures. DoIT is currently updating their procedures for RFP, contract, and contract amendment review and approval. DFA should consider developing a new process to track contracts that go to DFA for review, including emergency procurements. DFA s current system is outdated and appears to be prone to manual entry errors because analysts input the same data twice, once in SHARE and once in their internal database. Since the beginning of FY17, DFA scans all contracts and all emergency procurements to its internal servers. We observed this to be true and were able to locate FY17 procurements without issue. DFA should continue this practice diligently. 29

81 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 DFA should consider discontinuing its unique numbering system and adopt the State Purchasing Division s numbering system. Having one consistent means of numbering procurements from start to finish allows for greater transparency and accountability. DFA, GSD, and DoIT should collaborate to develop a mechanism to inform vendors on all state agency approved vendor lists to also register with SPD. For example, when a new vendor is required to submit documentation to DFA, DFA could also have a checkbox on that same document asking if the vendor would like to receive electronic notifications of the State s solicitation opportunities, view and download all pertinent information on one site (SPD s e-procurement system) and have the ability to submit proposals and bids electronically. DoIT should consider revising its review processes to minimize scope of work revisions after bidding is complete, including encouraging agencies to more fully develop their scopes of work in the RFP stage, and raising awareness of when DoIT review is necessary. DoIT should review its procedures for ensuring that all information technology procurements are being reviewed by DoIT staff. DoIT should collaborate with DFA in this effort to ensure that other agencies staff is aware of which procurements require DoIT review, and DFA should continue the practice of sending contracts to DoIT when they are flagged as IT contracts. XII. OTHER ISSUES Testwork The OSA evaluated the procurement files of 13 requests for proposals from various agencies. In three out of 14 files reviewed (21%), the agencies did not complete the evaluation committee scoring or have any proof that the proposals were evaluated for sufficiency. These were RFPs to which only one vendor responded. One RFP bundled 32 total projects into one RFP, and it appeared that each of these projects could have easily been its own separate RFP. It appeared that the agency was trying to save time by submitting one RFP for all services needed. However, the manner in which this RFP was solicited did not foster competition. The advertising for this RFP did not inform vendors that the RFP was inclusive of 32 separate services, consultants, trainers, projects, or services and vendors would have only known about all the bidding opportunities by formally requesting the RFP then reading through the entire 142 pages to identify sections on which they could bid. One state agency has ancillary receivership bank accounts held in trust for the benefit of policy holders and creditors processed outside of SHARE. From fiscal year 2013 through fiscal year 2016, the agency paid $63,261 from these accounts to an attorney vendor. The original and only contract with this vendor was a contract for legal services and transactions related to ancillary receiverships, dated February 26, In 2013, an stated an increase in rates, but the agency did not provide a formal contract amendment. None of these ancillary receivership transactions are processed through SHARE, which violates the MAPS, and DFA did not approve the original contract or amendments. 30

82 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 Recommendations and Best Practices In addition to the centralization and enhanced training recommendations highlighted generally in this Report, the OSA notes the following best practices: Agencies should complete an evaluation/scoring for all RFPs, even when only one vendor responds. This is a best practice according to the State Purchasing Division. Agencies that do not score RFPs leave the agency vulnerable to litigation. In the event of a protest, the agency would have no documentation justifying why that vendor was selected and awarded the contract. Agencies should avoid excessive bundling of goods and services within one RFP and oversight agencies should assist in safeguarding against this practice. Internal controls for both procuring agencies and oversight agencies should have mechanisms to identify expired contracts and to prevent expenditures under those contracts. 31

83 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 EXIT CONFERENCE On June 29, 2017, the OSA held an exit conference with the following individuals to discuss the results of the consulting services engagement and the findings. General Services Department: Edwynn L. Burckle, Secretary Lawrence O. Maxwell, State Purchasing Agent Anna Silva, Strategic Sourcing Bureau Chief Zella Cox, Chief Financial Officer and Director, Administrative Services Division Rebecca Abbo, Internal Auditor Department of Finance and Administration: Dorothy Duffy Rodriguez, Secretary Paul Kippert, Assistant General Counsel Clinton Nicley, Deputy General Counsel Department of Information Technology: Darryl Ackley, Secretary Susan Pentecost, Managing Director, Office of the Chief Information Officer Office of the State Auditor: Sanjay Bhakta, Deputy State Auditor Sarita Nair, Chief Government Accountability Officer & General Counsel Chelsea Martin, Audit Supervisor 32

84 Procurement Special Audit State Agencies Consulting Services Report July 1, 2013 through June 30, 2016 ENDNOTES i See Laws 1984, Chapter 65, Section 176. ii Section C, NMSA iii Planning and Design Solutions v. City of Santa Fe, 118 N.M. 707, 885 P. 2d 628 (S. Ct. 1994). iv As detailed in Legislative Finance Committee Report #16-09: The $6 billion spent on HSD-related healthcare is listed in SHARE as a block grant, but HSD has claimed an exemption from state purchasing oversight and the Procurement Code and it is missing from the sunshine portal. Previous Medicaid contracts (2009) followed the typical procurement procedure through DFA. v As detailed in Legislative Finance Committee Report #16-09: The $6 billion spent on HSD-related healthcare is listed in SHARE as a block grant, but HSD has claimed an exemption from state purchasing oversight and the Procurement Code and it is missing from the sunshine portal. Previous Medicaid contracts (2009) followed the typical procurement procedure through DFA. vi Governor's Guidelines for Contract Review and Re-Evaluation. Available at: 20Contract%20Review%20and%20Re-Evaluation.pdf. 33

85

86 Management Responses

87

88

89

90

91

92

93

94

95 APPENDIX A: PROCESSES AT GSD, DFA AND DoIT

96 RFP FOR GOODS OR SERVICES RESULTING IN A CONTRACT >$60,000 PART 1 of 2 State Purchasing Division (SPD) Receptionist receives intake packet. Receptionist date stamps the packet. Receptionist creates a folder to house packet contents. Receptionist delivers folder to SPD s staff manager Staff manager adds procurement into SPD s online eprocurement tracker Staff manager will assign an SPD buyer in the eprocurement tracker (buyers are typically assigned by commodity) The eprocurement tracker will send an notification to the buyer informing them they have been assigned a new procurement. Staff manager will deliver folder to the assigned buyer No Agency Complete RFP procurement authorization form available on SPD website Draft RFP Is this an IT procurement? Create intake packet for SPD to include: (1) Signed RFP procurement authorization plan (2) Draft RFP; (3) Horizons decline ; (4) List of recommended sources, if known; (5) Approved Requisition; (6) Commodity Codes; and (7) DoIT approval (if applicable) Yes Submit draft RFP to DoIT No Need for goods or services Develop scope of work (SOW) and/or specifications or items needed. Contact Horizons for right of first refusal Can they provide the service? Yes Proceed with Horizons (exempt from Proc. Code) Appendix A Department of Information Technology (DoIT) Note: Information Technology (IT) is defined as computer hardware and software and ancillary products and services including: (1) systems design and analysis; (2) acquisition, storage and conversion of data; (3) computer programming; (4) information storage and retrieval; (5) voice, radio, video and data communications; (6) requisite systems; (7) simulation and testing; and (8) related interactions between users and information systems. Receive and review the RFP for compliance with the DoIT Act and Executive orders relating to IT issued by the Governor of the State of New Mexico. Buyer will work with the agency through several iterations of the request for proposals (RFP). Once the buyer believes the RFP is finalized the buyer will submit the RFP to their supervisor. Buyer s supervisor will review and approve the RFP or make revisions then approve the RFP. Buyer can prepare to issue the RFP to include: (1) Adding the RFP to SPD s internal advertisement log a week in advance of issue date (The SPD buyer in charge of advertising will review the log and coordinate purchasing advertisement notices for the upcoming week); (2) Upload a copy of the RFP to the eprocurement system and upload a copy to SPD s website (these uploads can be configured to not publically release until the issue date, the date of advertisements. The eprocurement system will send an to all vendors registered with the commodity codes listed and to any additional recommended sources given by the agency on the issue date. Hand deliver packet to SPD The procurement manager will work with the buyer to clarify RFP specifications, evaluation criteria, qualifications, technical parameters, etc. until the buyer believes RFP is an accurate, thorough document Note: SPD buyers are assigned other tasks in addition to procurements on behalf of agencies. For example a buyer might be responsible for handling procurement violations and protests, while another buyer is assigned to handling placing advertisement orders on behalf of all buyers. Receive approval from DoIT and proceed with the process Note: DoIT staff may make edits and corrections to the RFP and send the RFP back to the agency to revise. The agency will then resubmit the RFP and this process will continue until the RFP is deemed appropriate by DoIT. Approve RFP. Obtain the Cabinet Secretary s signature on the RFP cover sheet. approved RFP including signed cover sheet to the agency. Issue RFP Buyer collects acknowledgment of receipt forms (ARF). Failure to return the ARF signed will constitute a presumptive rejection of the RFP. Buyer holds pre-conference proposal and keeps log of attendees. Buyer holds Question and Answer (Q&A) session with prospective vendors. Buyer creates RFP amendments, if necessary, as a result of Q&A session RFP closes To Part 2 of Appendix A 34

97 State Purchasing Division (SPD) From Part 1 of Appendix A Buyer meets with the procurement manager (PM) privately Buyer returns with the logs, box tops, original technical proposals received, and unopened cost proposals received (binder two) Buyer schedules kickoff meeting which all evaluation committee members must attend RFP FOR GOODS OR SERVICES RESULTING IN A CONTRACT >$60,000 PART 2 of 2 Agency Together the PM and buyer open the technical proposals received (binder one). They inventory, create a log of proposals received and keep box tops with the date stamp. They review technical proposals looking for non-responsive proposals (those which did not conform to requirements set forth in the RFP. The PM will make copies of the technical proposals (binder one) received Note: SPD s RFP procurement guide states that at a minimum binder one should include: (a) Signed letter of transmittal; (b) Table of Contents; (c) proposal summary (optional); (d) response to specifications with the exception of cost; (e) response to SPA s terms and conditions; and (g) Offeror s additional terms and conditions. Binder two should at a minimum include: (h) Completed cost response form; (i) campaign contribution form; (j) signed employee health coverage form; (k) resident vendor or resident veteran certificate (if applicable); (l) resident veterans preference certificate (if applicable); (m) conflict of interest affidavit (if applicable); and (n) other supporting material (optional). Appendix A Department of Information Technology (DoIT) Buyer holds kickoff meeting which principally is held to inform members what they can and cannot do as part of the process. Evaluation committee members (ECM) sign confidentiality agreements. Buyer keeps signed originals Note: The buyer may make edits and corrections to the draft and send the draft back to the agency to revise. The agency will then re-submit the draft and this process will continue until the ECM report is deemed sufficient by the buyer Buyer releases copies of the cost proposals (binder two) received to the PM after buyer deems ECM report is sufficient After kickoff meeting and signature of confidentiality agreements the procurement manager can proceed in the process. The PM releases copies of all technical proposals received (binder one) to each individual ECM and provide score sheets. ECM s review and score all proposals received individually The PM schedules a group meeting for all ECMs. At the meeting, all ECMs will rate all technical proposals (binder one) received as a group The PM drafts the ECM report based on the ECMs consensus from meeting The PM submits the draft ECM report to the buyer The PM schedules a group meeting for all ECMs. At the meeting, all ECMs will rate the cost proposals (binder two) received as a group and make the recommendation(s) for award(s) Buyer forwards the final ECM report to the State Purchasing Agent (SPA) or his designee for signature The PM prepares the final ECM report and submit to the buyer Buyer sends an electronic copy of the final signed ECM report to the PM. Receive signed approved ECM report and file in procurement file Prepare contract using SPD s contract template No Is this an IT Yes Prepare contract using procurement? DoIT s template Obtain agency, vendor, and NM Taxation and Revenue Department s signatures on four hard copies of the contract Submit contract to DoIT Receive approval from DoIT and proceed with the process Receive and review the contract for compliance with the DoIT Act and Executive orders relating to IT issued by the Governor of the State of New Mexico. Note: The protest period starts upon contract award (SPA or his designee s signature). The protest period lasts for 15 days. Receive hard copies of contract. SPA or his designee will review and sign the contract Buyer uploads an electronic copy to SPD s server and places a copy of the signed contract in the procurement file. Buyer inputs the contract details into SHARE s contract module Buyer returns the originals to the agency No Is this IT? Submit hard copies of contract to SPD for final approval Receive signed hard copies from SPD and proceed with procuring the needed services Yes End Drop off hard copies of contract at DoIT Receive signed hard copies from DoIT and proceed with the process Note: DoIT staff may make edits and corrections to the contract and send the contract back to the agency to revise. The agency will then resubmit the contract and this process will continue until the contract is deemed appropriate by DoIT. Notify agency of approved contract and request hard copies of contract for signature Receive hard copies. Obtain the Cabinet Secretary s signature on hard copy contracts Return signed hard copies of contracts to the agency 35

98 State Purchasing Division (SPD) SPD receives SOW Strategic Sourcing Bureau Chief (SSBC) makes the determination of whether the SOW is general or professional service in nature No RFP FOR PROFESSIONAL SERVICES RESULTING IN A CONTRACT >$60,0000 Need for a professional service Develop scope of work (SOW) and SOW to the SPD from SPD Is SPD s determination that SOW is professional? Yes Agency Contact Horizons for right of first refusal No Prepare request for proposal (RFP) Can they provide the service? Yes Proceed with Horizons (exempt from Proc. Code) Department of Information Technology (DoIT) Note: Information Technology (IT) is defined as computer hardware and software and ancillary products and services including: (1) systems design and analysis; (2) acquisition, storage and conversion of data; (3) computer programming; (4) information storage and retrieval; (5) voice, radio, video and data communications; (6) requisite systems; (7) simulation and testing; and (8) related interactions between users and information systems. Appendix A DFA s Contracts Review Bureau (CRB) SSBC s the determination to the agency Proceed with RFP through SPD, Appendix A No Is this an IT procurement? Yes Receive and review the RFP for compliance with the DoIT Act and Executive orders relating to IT issued by the Governor of the State of New Mexico. Note: Determinations remain effective for a period of 180 days from the date of the . Once a determination is received by an agency, the RFP must be issued within 180 days of the date the determination is received. After 180 days a new determination must be acquired. Note: The contract brief is a form developed by DFA and available on DFA s website. This form is to be filled out by the agency for each and every contract submit to DFA. The form requests basic information about the contract such as vendor name, address, phone number, agency code, contract number, contract term, a brief description of service and a checklist of requirements for submission including: (1) the agency certifies to DFA that all relevant requirements of the procurement code have been followed; (2) the agency certifies to DFA that the contractor will perform at all times as an independent contractor for the purpose of IRS tax compliance and is not performing services as an employee of the agency; and (3) the agency certifies to DFA that the agency has performed a legal review and the contract is in compliance with all federal and state laws, rules and regulations. Issue RFP, provide public notice, evaluate proposals received, negotiate best and final offers, and make an award to the offeror whose proposal is most advantageous to the agency. No Is this IT? Yes Prepare contract using DFA s professional services contract (PSC) Template. Create requisition and obtain SHARE approval. Create contract in SHARE s contract module No Obtain agency, vendor, and NM Taxation and Revenue Department s signatures on four hard copies of the contract Is this IT? Create contract packet for DFA s CRB to include: (1) Contract brief; (2) DFA Agency Certification Form; (3) SHARE contract module print screen; (4) Approved requisition; (5) Determination of Services from SPD; (6) Horizons decline ; (7) copy of RFP and (8) hard copies of signed contracts Submit packet to DFA s CRB Yes End Submit RFP to DoIT Receive approval from DoIT and proceed with the process Prepare contract using DoIT s PSC template Submit contract to DoIT Receive approval from DoIT and proceed with the process Drop off hard copies of contract at DoIT Receive signed hard copies from DoIT and proceed with the process Receive signed hard copies from DFA s CRB and proceed with procuring the needed services Note: DoIT staff may make edits and corrections to the RFP and send the RFP back to the agency to revise. The agency will then resubmit the RFP and this process will continue until the RFP is deemed appropriate by DoIT. Approve RFP. Obtain the Cabinet Secretary s signature on the RFP cover sheet. approved RFP including signed cover sheet to the agency. Receive and review the PSC for compliance with the DoIT Act and Executive orders relating to IT issued by the Governor of the State of New Mexico. Note: DoIT staff may make edits and corrections to the contract and send the contract back to the agency to revise. The agency will then resubmit the contract and this process will continue until the contract is deemed appropriate by DoIT. Notify agency of approved contract and request hard copies of contract for signature Receive hard copies. Obtain the Cabinet Secretary s signature on hard copy contracts Return signed hard copies of contracts to the agency CRB receives the packet. CRB s analysts are assigned to review contracts by agency (i.e. only one staff will review all documents for agency X). CRB dates the contract brief to acknowledge receipt date CRB s analyst reviews the packet s contents. The analyst reviews that all items on DFA s checklist were included in packet. The analyst reviews that scope of work in RFP and scope of work in contract match. If the analyst believes supporting documentation are sufficient the contract is approved. If the supporting documentation is insufficient, the analyst will reject the contract and send comments to the agency for correction and re-submittal The analyst approves the contract module in SHARE. The analyst signs off on the contracts. The analyst keeps a copy of the contract for their files and return the remaining signed contracts to the Agency. The analyst dates the contract brief to note the date the contract left CRB 36

99 ITB FOR GOODS OR SERVICES RESULTING IN AGENCY PRICE AGREEMENTS OR STATEWIDE PRICE AGREEMENTS State Purchasing Division (SPD) Agency Appendix A Need for goods or services Receptionist receives intake packet. Receptionist date stamps the packet. Receptionist creates a folder for packet contents. Receptionist deliver folder to SPD s staff manager Staff manager adds procurement into SPD s online eprocurement tracker Staff manager will assign an SPD buyer in the eprocurement tracker (buyers are typically assigned by commodity) The eprocurement tracker will send an notification to the buyer informing them they have been assigned a new procurement. Staff manager will deliver folder to the assigned buyer Buyer will work with the agency through several iterations of the invitation to bid (ITB). Once the buyer believes the ITB is finalized the buyer can prepare to issue ITB. Buyer can prepare to issue the ITB to include: (1) Adding the ITB to SPD s internal advertisement log a week in advance of issue date (The SPD buyer in charge of advertising will review the log and coordinate purchasing advertisement notices for the upcoming week); (2) Upload a copy of the ITB to the eprocurement system and upload a copy to SPD s website (these uploads can be configured to not publically release until the issue date, the date of advertisements. The eprocurement system will send an to all vendors registered with the commodity codes listed and to any additional recommended sources given by the agency on the issue date. Issue ITB ITB closes Create intake packet for SPD to include: (1) Approved requisition; (2) Specifications and/or items needed; (3) Horizons decline ; (4) Recommended sources; and (5) Commodity codes Hand deliver packet to SPD The procurement manager will work with the buyer to clarify ITB specifications and items needed until the program manager believes ITB is an accurate, thorough document Note: SPD buyers are assigned other tasks in addition to procurements on behalf of agencies. For example a buyer might be responsible for handling procurement violations and protests, while another buyer is assigned to handling placing advertisement orders on behalf of all buyers. No Develop scope of work (SOW) and/or specifications or items needed. Contact Horizons for right of first refusal Can they provide the service? Yes Proceed with Horizons (exempt from Proc. Code) Buyer holds public opening of all bids received. All vendors who bid are welcome to attend the public opening. Buyer will read aloud all bids received at this meeting including electronic bids received (which will be viewed directly from the online eprocurement system). Buyer informs vendors that although they are aware of who had the lowest bid, the award is not official until SPD factors in any preferences Buyer will log all bids received in the procurement file. Buyer will print all electronic bids received for the hard-copy procurement file Buyer prepare bid tabulation of all bids received taking into account any preferences. Buyer will agency the bid tabulation Receive and review bid tabulation Buyer will make the award(s). Buyer sends a copy of the award(s) to the agency and the vendor(s). Provide input about the award(s) Buyer prepares price agreement. SPD will evaluate whether or not there is sufficient demand amongst the other state agencies and local public bodies to warrant turning this into a statewide price agreement otherwise it will remain an agency price agreement Buyer s supervisor reviews the price agreement and supporting documentation Forwards to the State Purchasing Agent or his designee for signature Buyer uploads an electronic copy to SPD s server and places a copy of the signed price agreement in the procurement file. Buyer inputs the contract details into SHARE s contract module. If it was determined that this needed to be a statewide price agreement (SWPA), the buyer also uploads the contract to SPD s website listing of SPWAs Buyer s a copy of the signed executed price agreement to the agency 37 Receive executed price agreement from SPD and proceed with procuring the needed goods or services End

100 EMERGENCY PROCUREMENTS Appendix A Note: Determine if an emergency condition exists that requires the purchase of services or items of tangible personal property, or immediate construction, which cannot be met through normal procurement methods. Emergency condition means that without the purchase, any of the following would be seriously threatened: (a) the functioning of government, (b) the preservation or protection of property, or (c) the health or safety of any person The Governor of the State of New Mexico has also issued guidelines which states, a true emergency must exist (i.e. a threat to the function of government, lives, health or property). Emergencies do not simply exist from a need to procure the services now, or from time pressure to implement a new contract. Agency Emergency need for a goods, services, or professional services Complete the written emergency justification form Obtain appropriate signature approvals Prepare a memorandum addressed to FCD s director stating the emergency, identifying the category (a,b,c, left) within which the emergency is justified. The memo should originate from the chief financial officer of the agency DFA s Financial Control Division (FCD) Yes FCD receives the emergency memorandum and any supporting documentation FCD s director reviews the memo and supporting Documentation, if any Is emergency justification sufficient? No Note: The following is required by Statute to be made public: (1) the contractor s name and address; (2) the amount and term of the contract; (3) a listing of the services, construction or items of tangible personal property procured under the contract; (4) state it was an emergency procurement contract; and (5) the justification for the procurement method The State Purchasing Department (SPD) has on its website an emergency/sole source database where agencies can post such procurements. Agencies are not required to publish their procurements through SPD s website, however those that choose to do say will fulfill their statutory obligations by entering the required information only one time and in only one place. Once an emergency procurement is entered into SPD s database this information is forwarded to the LFC and DoIT to be posted on the sunshine portal. Submit the memo and any supporting documentation within five working days to FCD Receive approved memo and original documents. Proceed with the process Procure needed emergency goods or services Within three business days of awarding the emergency procurement contract the agency shall provide the information described (left) to the department of information technology for posting on the sunshine portal and forward the same information to the legislative finance committee End Sign and date emergency memorandum and return to agency FCD receptionist makes a copy of the approved signed emergency memo for FCD files FCD returns documents and original approved emergency memo to agency Prepare letter addressed to the agency outlining why the emergency was rejected and inform the agency to proceed with competitive procurement methods Send letter and return memo and documents received to the agency 38

101 SOLE SOURCE PROCUREMENT FOR GOODS OR SERVICES State Purchasing Division (SPD) SPD receives SOW Strategic Sourcing Bureau Chief (SSBC) makes the determination of whether the SOW is general or professional service in nature Need for a goods, services, or professional services Develop scope of work (SOW) and SOW to the State Purchasing Agent Agency Contact Horizons and provide SOW for right of first refusal Appendix A Department of Information Technology (DoIT) SSBC s the determination to the agency Note: Determinations remain effective for a period of 180 days from the date the sole source procurement completes its 30 day posting required by law. Receptionist receives intake packet. Receptionist date stamps the packet. Receptionist creates a folder to house packet contents. Receptionist delivers folder to SPD s staff manager Staff manager adds procurement into SPD s online eprocurement tracker Staff manager will assign an SPD buyer in the eprocurement tracker (buyers are typically assigned based on work load) The eprocurement tracker will send an notification to the buyer informing them they have been assigned a new procurement. Staff manager will deliver folder to the assigned buyer Buyer will compare the hard copy documents received to those posted on SPD s website. The buyer will verify the appropriate signatures were obtained. The buyer will research to see if there are multiple vendors available and reject the sole source if that is the case. If buyer deems the sole source and support is sufficient the buyer will forward the file to their supervisor Supervisor will review the file and if supervisor determines the sole source is appropriate the supervisor will initial one of the forms in the document (typically the sole source justification form) and return file to the buyer Buyer will publish the sole source posting. The buyer and the agency will receive an automatic notifying them that the sole source has successfully posted Buyer and the agency will receive an automatic notifying them that the sole source has been posted for 30 days. Receive hard copies of contract. SPA or his designee will review and sign the contract No from SPD Is SPD s determination that SOW is professional? Yes Create intake packet for SPD to include: (1) Signed written sole source justification form (2) Approved Requisition; (3) Horizons decline ; (4) A cost estimate of the contract value of the sole source; (5) DFA s approval for terms longer than one year, if applicable; and (6) Other supporting documentation as necessary Post sole source to SPD s website and hand deliver packet to SPD No Can they provide the service? Note: Posting to SPD s website is not official and remains in pending status until an SPD buyer clicks publish on SPD s website for the sole source. The sole source posting from the agency will be not be visible to the public and the 30 day count will not start until SPD approves the sole source. Buyer and the agency will receive an automatic notifying them that the sole source has been posted for 30 days. Agency can proceed with process No Prepare contract using SPD s contract template Obtain agency, vendor, and NM Taxation and Revenue Department s signatures on four hard copies of the contract No Is this IT? Submit hard copies of contract to SPD for final approval Proceed with process through CRB, Appendix F Is this an IT procurement? Yes Yes Prepare contract using DoIT s template Submit contract to DoIT Receive approval from DoIT and proceed with the process Yes Proceed with Horizons (exempt from Proc. Code) Drop off hard copies of contract at DoIT Receive signed hard copies from DoIT and proceed with the process Note: Information Technology (IT) is defined as computer hardware and software and ancillary products and services including: (1) systems design and analysis; (2) acquisition, storage and conversion of data; (3) computer programming; (4) information storage and retrieval; (5) voice, radio, video and data communications; (6) requisite systems; (7) simulation and testing; and (8) related interactions between users and information systems. Receive and review the contract for compliance with the DoIT Act and Executive orders relating to IT issued by the Governor of the State of New Mexico. Note: DoIT staff may make edits and corrections to the contract and send the contract back to the agency to revise. The agency will then re-submit the contract and this process will continue until the contract is deemed appropriate by DoIT. Notify agency of approved contract and request hard copies of contract for signature Receive hard copies. Obtain the Cabinet Secretary s signature on hard copy contracts Return signed hard copies of contracts to the agency Buyer uploads an electronic copy to SPD s server and places a copy of the signed contract in the procurement file. Buyer inputs the contract details into SHARE s contract module Buyer returns the originals to the agency Receive signed hard copies from SPD and proceed with procuring the needed services End 39

102 Appendix A SOLE SOURCE PROCUREMENT FOR PROFESSIONAL SERVICES State Purchasing Division (SPD) SPD receives SOW Strategic Sourcing Bureau Chief (SSBC) makes the determination of whether the SOW is general or professional service in nature SSBC s the determination to the agency Note: Determinations remain effective for a period of 180 days from the date the sole source procurement completes its 30 day posting required by law. Note: The contract brief is a form developed by DFA and available on DFA s website. This form is to be filled out by the agency for each and every contract submit to DFA. The form requests basic information about the contract such as vendor name, address, phone number, agency code, contract number, contract term, a brief description of service and a checklist of requirements for submission including: (1) the agency certifies to DFA that all relevant requirements of the procurement code have been followed; (2) the agency certifies to DFA that the contractor will perform at all times as an independent contractor for the purpose of IRS tax compliance and is not performing services as an employee of the agency; and (3) the agency certifies to DFA that the agency has performed a legal review and the contract is in compliance with all federal and state laws, rules and regulations. Need for a goods, services, or professional services Develop scope of work (SOW) and SOW to the State Purchasing Agent No Proceed with process through SPD, Appendix E from SPD Is SPD s determination that SOW is professional? Prepare contract using DFA contract template Enter contract details into SHARE s contract module. Obtain agency, vendor, and NM Taxation and Revenue Department s signatures on four hard copies of the contract No Is this IT? Yes Yes Create contract packet for DFA s CRB to include: (1) Contract brief; (2) DFA Agency Certification Form; (3) SHARE contract module print screen; (4) Approved requisition; (5) Determination of Services from SPD; (6) Horizons decline ; (7) Sole source request justification form; (8) Copy of 30 day posting on SPD website; (9) Confirmation of 30 day posting from SPD and (10) hard copies of signed contracts Submit packet to DFA s CRB No Agency Contact Horizons and provide SOW for right of first refusal Can they provide the service? Create and approve the purchase requisition in SHARE Prepare the written sole source justification form Yes Proceed with Horizons (exempt from Proc. Code) Obtain appropriate signature approvals Post to SPD s website and print confirmation of successful posting Print the from SPD stating that the sole source has been posted for 30 days No End Is this an IT procurement? Yes Prepare contract using DoIT s template Submit contract to DoIT Receive approval from DoIT and proceed with the process Drop off hard copies of contract at DoIT Receive signed hard copies from DoIT and proceed with the process Receive signed hard copies from DFA s CRB and proceed with procuring the needed services Department of Information Technology (DoIT) Note: Information Technology (IT) is defined as computer hardware and software and ancillary products and services including: (1) systems design and analysis; (2) acquisition, storage and conversion of data; (3) computer programming; (4) information storage and retrieval; (5) voice, radio, video and data communications; (6) requisite systems; (7) simulation and testing; and (8) related interactions between users and information systems. Receive and review the contract for compliance with the DoIT Act and Executive orders relating to IT issued by the Governor of the State of New Mexico. Note: DoIT staff may make edits and corrections to the contract and send the contract back to the agency to revise. The agency will then re-submit the contract and this process will continue until the contract is deemed appropriate by DoIT. Notify agency of approved contract and request hard copies of contract for signature Receive hard copies. Obtain the Cabinet Secretary s signature on hard copy contracts Return signed hard copies of contracts to the agency DFA s Contracts Review Bureau (CRB) CRB receives the packet. CRB s analysts are assigned to review contracts by agency (i.e. only one staff will review all documents for agency X). CRB dates the contract brief to acknowledge receipt date CRB s analyst reviews the packet s contents. The analyst reviews that all items on DFA s checklist were included in the packet. If the analyst believes that the supporting documentation are sufficient, the staff will proceed to the next step. If the analyst believe that the supporting documentation is insufficient, the analyst will reject the contract and send comments to the agency for correction and re-submittal The analyst prepares a sole source information sheet (SSIS) addressed to DFA s cabinet secretary and DFA s legal counsel containing the details of the sole source The analyst forwards the SSIS to DFA s legal counsel and the state controller. Both of which sign off indicating their approval and add any comments they may have regarding the sole source The analyst delivers the packet (including the SSIS) to DFA s cabinet secretary DFA s cabinet secretary reviews the sole source and signs off on the sole source justification form if approved and returns to CRB The analyst approves the contract module in SHARE. The analyst signs off on the contracts. The analyst keeps a copy of the contract for their files and returns the remaining signed contracts to the Agency 40

103 NASPO ValuePoint PROCUREMENT WHEN NM IS THE LEAD STATE IN A NASPO COOPERATIVE PROCUREMENT RESULTING IN A MASTER AGREEMENT State Purchasing Division (SPD) Note: The sourcing team (also the evaluation committee) is comprised of individuals from member states. The team is a multi-discipline team of both procurement and subject matter experts for the commodity or service being procured. Note: The buyer may receive intent to participate forms member states during the solicitation process. This will provide information for contractors to contact states interested in signing a participating addendum and be included in the RFP. The intent to participate includes any significant terms and conditions specific to their state or State specific provisions required by laws, regulations, or procurement practices of that State. Final participation in the master agreement is signified through execution of the participating addendum. After the solicitation is closed and an award is made, additional NASPO procurement cooperative member states may be added with the consent of the contractor and the Lead State (on behalf of the NASPO participating states) through execution of a participating addendum (see process in Appendix H). SPD will receive an notifying them that NM has been selected to be the lead state of this cooperative procurement The State Purchasing Agent (SPA) will notify SPD buyers at a staff meeting that NM has been selected to lead a NASPO cooperative procurement. The SPA will ask for volunteers to lead the procurement. The volunteer will be assigned as buyer. The buyer will send an to all member state s CPOs asking for participants for the sourcing team The buyer will draft the request for proposal (RFP) with input from the sourcing team. Discussion amongst the sourcing team members is over the phone. This process of finalizing the details of the RFP can last anywhere from six months to a year Appendix A National Association of State Procurement Officers (NASPO) Need for a goods or services expressed by member states to the NASPO ValuePoint management board The NASPO board will authorize a survey be conducted of all member states 2 1 Note: If the board approves the RFP an will be sent to this effect. If the board rejects the RFP, the board will provide their comments and edits for the buyer to revise and re-submit for approval. The buyer will submit the final RFP to the NASPO board for approval. Once approved the buyer can proceed with issuance 10 Yes Is there sufficient interest or need amongst the member states? No Note: Other states are encouraged to advertise the solicitation on their websites. NASPO will add the solicitation to their NASPO ValuePoint emarket center which lists all current solicitations in one location. Buyer prepares the master agreement. Buyer obtains vendor(s) signatures and the SPA s signature. The vendor(s) and the lead state keep a hard copy of the signed master agreement for their files Buyer notifies the NASPO board that the award(s) have been made. The NASPO board will announce to all member states that the award(s) was made Buyer can prepare to issue the RFP to include: (1) Adding the RFP to SPD s internal advertisement log a week in advance of issue date (The SPD buyer in charge of advertising will review the log and coordinate purchasing advertisement notices for the upcoming week); (2) Upload a copy of the RFP to the eprocurement tracker and upload a copy to SPD s website (these uploads can be configured to not publically release until the issue date, the date of advertisements. The eprocurement system will send an to all vendors registered with the commodity codes listed. Issue RFP 12 Buyer issues any amendments necessary as a result of questions received from vendors Proceed and authorize cooperative procurement solicitation NASPO s board meets to determine which state will lead the cooperative procurement. Determination is based on interest and capability NASPO s board sends an to NM s CPO (the SPA) Decline solicitation and inform interested member states to proceed with their own individual state procurement Buyer schedules the kickoff meeting with all awarded vendor (s). The kickoff meeting outlines the entire procurement process, the master agreement and award details, and the participating addendum process. This meeting emphasizes how to work with NM with the main focus of informing vendors what is and what is not permitted in the contract. 21 RFP closes 14 Buyer inventories proposals received in log and keeps box tops with date stamp. 15 Note: Continue to page 42, to see the process involved when another state is the lead state and NM only wishes to use a NASPO cooperative master agreement (the participating addendum process). Buyer prepares the template participating addendum for this master agreement and posts it to the NASPO website Buyer can expect to be contacted by states interested in participating. The buyer may answer questions and provide details regarding the RFP or master agreement. Buyer is responsible for centrally administering any resulting master price agreements with the permission of the Signatory States (those states that submit intent to participate forms) End Buyer sends confidentiality agreements to evaluation committee members (ECM). After ECMs return signed agreements, the buyer can release electronic copies of the proposals received and score sheets. The ECM will score each proposal received individually Buyer schedules a meeting for all ECMs. ECMs travel to NM to review the proposals received collectively as a group. The buyer will prepare a bid tabulation or ECM report containing the recommended award(s). The buyer will forward the ECM report to the NASPO board for approval Buyer receives signed approved ECM report and can proceed with the process Note: If the board approves the ECMs report an will be sent to this effect. If the board rejects the ECM report, the board will provide their comments and edits for the buyer to revise and re-submit for approval. NASPO s board receives the ECM report. NASPO s board review the recommended award(s) and reviews that the procurement process was appropriate. NASPO s board signs ECM report. 41

104 Appendix A NASPO ValuePoint FOR A CURRENT SOLICITATION WHEN NM IS NOT THE LEAD STATE AND WANTS TO USE THE NASPO ValuePoint COOPERATIVE MASTER AGREEMENT State Purchasing Division (SPD) The State Purchasing Agent (SPA) becomes aware of cooperative procurement opportunity through the survey conducted by the NASPO ValuePoint management board and in which NM expresses interest in the goods or services under consideration. ***Other lead state will proceed with steps 1-9 as outlined in Appendix G*** The SPA will notify buyers of a new solicitation NM will participate in Staff manager adds procurement into SPD s online eprocurement tracker Staff manager will assign an SPD buyer in the eprocurement tracker (buyers are typically assigned based on work load) The eprocurement tracker will send an notification to the buyer informing them they have been assigned a new procurement. Note: The ITP contains five sections: (1) the purpose; (2) scope of the contract(s); (3) term of the contract; (4) solicitation; and (5) contract development/additional information. The additional information section allows each state to include its specific terms and conditions. In addition, the ITP requires the state to fill out the annual estimated volume (units expected to be purchased by the state in a year) or annual estimated dollars anticipated to be spent in a year. Buyer prepares an intent to participate (ITP) form (template provided by lead state) Buyer forwards to the SPA who will review and sign the ITP. Buyer scans and s the signed ITP to the lead state and copies NASPO s liaison. Buyer will prepare a one page notice with information from the RFP and include commodity codes. The notice will refer vendors to the lead state s website for more information. This one page notice will be published by: (1) Adding the notice of ITP to SPD s internal advertisement log a week in advance of issue date (The SPD buyer in charge of advertising will review the log and coordinate purchasing advertisement notices for the upcoming week); and (2) Uploading a copy of the notice of ITP to the SPD s website (these uploads can be configured to not publically release until the issue date, the date of advertisements. The eprocurement system will send an to all vendors registered with the commodity codes listed. ***Other lead state proceeds with steps as outlined in Appendix G*** Buyer will receive an from the lead state (as a result of filing the intent to participate) informing the buyer that an award has been made and the lead state will post a template participating addendum to be completed to document use of this contract with a specific contractor. NASPO ValuePoint FOR A CLOSED SOLICITATION (FINAL MASTER AGREEMENT SIGNED) AND NM WANTS TO USE THE NASPO ValuePoint COOPERATIVE MASTER AGREEMENT State Purchasing Division (SPD) SPD receives an intake packet requesting certain goods or services or SPA can receive notification for local public bodies of a need for goods or services and the request for a price agreement The SPA will review NASPO contract portfolios to see if there is already a master agreement for the needed goods or services. If there is SPA will proceed to notify the staff manager of a new NASPO ValuePoint cooperative master agreement that NM wishes to use Staff manager adds procurement into SPD s online eprocurement tracker Staff manager will assign an SPD buyer in the eprocurement tracker (buyers are typically assigned based on work load) The eprocurement tracker will send an notification to the buyer informing them they have been assigned a new procurement Buyer searches NASPO ValuePoint s website for the participating addendum template Buyer sends PA to each contractor for signature and/or negotiations The SPA and the contractor sign the final copy of the PA Buyer sends an electronic copy of the PA to NASPO Valuepoint Buyer enters the price agreement into SHARE s contract module. Buyer assigns a statewide price agreement number to the contract. Buyer creates a folder for the price agreement and its supporting documentation Buyer posts a copy of the master agreement, the signed participating addendum, and statewide price agreement cover to SPD s website listing of all statewide price agreements State agencies and local public bodies can proceed to procure needed goods and services from this price agreement End Buyer will receive an from the lead state (as a result of filing the intent to participate) informing the buyer that an award has been made and the lead state will post a template participating addendum (on NASPO s website) to be completed to document use of this contract with a specific contractor. Buyer completes participating addendum (PA) for each contractor Buyer sends PA to each contractor for signature and/or negotiations The SPA and the contractor sign the final copy of the PA Note: The PA is a contractual document that binds the contractor and the participating entity to the terms and conditions of the master agreement. Participating entities have the flexibility of negotiating additional terms and conditions to meet the unique needs of their state. Negotiations of the PA are between the participating entity and the contractor. The lead state or NASPO ValuePoint generally do not become involved in these negotiations. Buyer sends an electronic copy of the PA to NASPO Valuepoint Buyer enters the price agreement into SHARE s contract module. Buyer assigns a statewide price agreement number to the contract. Buyer creates a folder for the price agreement and its supporting documentation Buyer posts a copy of the master agreement, the signed participating addendum, and statewide price agreement cover to SPD s website listing of all statewide price agreements State agencies and local public bodies can proceed to procure needed goods and services from this price agreement End 42

105 MIRRORING A FEDERAL GENERAL SERVICES ADMINISTRATION (GSA) CONTRACT State Purchasing Division (SPD) Receptionist receives intake packet. Receptionist date stamps the packet. Receptionist creates a folder to house packet contents. Receptionist delivers folder to SPD s staff manager Agency Need for a goods or services Appendix A Note: The Cooperative Purchasing Program allows states and local governments to purchase from Schedule 70 for information technology and Schedule 84 for law enforcement and products and services. Staff manager adds procurement into SPD s online eprocurement tracker Staff manager will assign an SPD buyer in the eprocurement tracker (buyers are typically assigned based on work load) The eprocurement tracker will send an notification to the buyer informing them they have been assigned a new procurement. Staff manager will deliver folder to the assigned buyer Staff manager reviews current price agreements in place and NASPO agreements to see if the needed goods or services have already been solicited. If not, buyer can proceed Buyer visits the GSA s acquisition service elibrary to download a copy of the contract Buyer researches the contract to see if the contract is allowable under the cooperative purchasing program Yes Proceed with Horizons (exempt from Proc. Code) Develop scope of work (SOW) Contact Horizons and provide SOW for right of first refusal Can they provide the service? No Search the GSA s acquisition service elibrary for the needed goods or services Locate a contractor that can provide the services needed Create intake packet for SPD to include: (1) An approved requisition; and (2) A letter requesting approval to use the pricing, terms and conditions of the desired GSA contract and expressing their need for the contract Hand deliver packet to SPD Note: The U.S. Government s General Services Administration (GSA) maintains a large list of multiple award purchasing schedules. Contractors are selected through an open and continuous qualification process instead of competitive bids or proposals. Note: There is currently no requirement in NM that agencies research multiple GSA contractors and their pricing before selecting a contract. The GSA encourages entities to receive the best value from GSA schedule contractors by using the GSA s Schedule Ordering Procedures which guides entities on how to obtain quotations from multiple GSA contractors, evaluate then award. For more information see page 21. Buyer determines whether or not the agency needs the entire GSA contract mirrored or just individual products or services. Buyer prepares a memorandum on General Services Department letterhead addressed to the GSA contractor asking if contractor is willing to extend the pricing, terms and conditions in their Federal Supply Schedule. Buyer sends memorandum to the contractor Buyer prepares SPD s contract cover sheet containing pertinent details about the GSA contract award. SPD will evaluate whether or not there is sufficient demand amongst the other state agencies and local public bodies to warrant turning this into a statewide price agreement otherwise it will remain an agency price agreement Buyer s supervisor reviews and approves contract and supporting documentation. Forwards contract to the State Purchasing Agent or their designee for signature Buyer receives signed final contract. Buyer enters contract into SHARE s contract module. If it was determined that this needed to be a statewide price agreement (SWPA), the buyer also uploads the contract to SPD s website listing of SPWAs Buyer sends an electronic copy of the contract award to the Agency Receive PDF copy of contract award from SPD and the agency can proceed with procuring the needed services End 43

106 Updated October 2017 Risk Advisory Chief Procurement Officers The Office of the State Auditor ( OSA ) has issued this Risk Advisory to alert state agencies and local public bodies ( Agencies ) of requirements pertaining to Chief Procurement Officers ( CPOs ). Agencies should ensure they have a designated CPO and procedures in place that grant appropriate authority to the CPO when making procurement decisions. The Procurement Code ( Code ), Sections through NMSA 1978, is aimed at providing a fair and equitable public procurement process and maximizing the purchasing value of public funds. However, due to the complexities of the Code, its requirements, including the many exemptions and exceptions, are not easily applied. To promote compliance with the Code and safeguard public funds, the Legislature enacted a provision requiring Agencies to designate a person with knowledge of procurement processes to make purchasing decisions and determinations. This law is relatively new and many Agencies appear to be non-compliant. This is especially true with respect to smaller political subdivisions of the state, such as mutual domestic water consumer associations, land grants and acequias. The General Services Department ( GSD ) is charged with maintaining a list of each agency s CPO. However, of the approximately 1,500 Agencies throughout the State, only about 480 are registered with the GSD. As a result, many of those handling public dollars may not be receiving appropriate training and entities may not be getting the guidance they need to comply with procurement rules designed to protect taxpayers and ensure fair processes. Additionally, even with respect to Agencies that have designated CPOs, the actual day-to-day internal operations of the entities often do not reflect the authority provided to CPOs. Only designated CPOs are authorized to approve purchases Chief Procurement Officers in a Nutshell Pursuant to NMSA 1978, Section (2013), state agencies and most local public bodies are required to designate a CPO who is certified by the General Services Department. The CPO is responsible for the control of procurement of items of tangible personal property, services or construction. As of July 1, 2015, only an Agency s CPO may make procurement determinations (such as exemptions under the Code); issue purchase orders (POs); authorize small purchases; and approve procurements. Persons using procurement credit cards may continue to issue POs and small purchases. All CPOs must complete a certification program and register with the GSD. A CPO certification must be renewed every two years. A list of certified CPOs is available on the GSD website. and make exemption determinations. CPOs must be empowered by management to make procurement decisions without the threat of executive override or reprisals for raising concerns regarding particular transactions.

107 Risk Advisory: Chief Procurement Officers (March 2017) page 2 For the purpose of the Procurement Code, which entities are considered a State Agency or Local Public Body? State agency means any department, commission, council, board, committee, institution, legislative body, agency, government corporation, educational institution or official of the executive, legislative or judicial branch of the government of this state. "State agency" includes the purchasing division of the general services department and the state purchasing agent but does not include local public bodies. "Local public body" means every political subdivision of the state and the agencies, instrumentalities and institutions thereof, including two-year post-secondary educational institutions, school districts and local school boards and municipalities, except as exempted pursuant to the Procurement Code. Risks The failure to comply with CPO statutory requirements can result in a number of risks, including, but not limited to: Tips Waste of public resources. One of the key objectives of the Code is to enable the government to obtain reasonable prices for goods and services through open and competitive practices. If Agencies are circumventing procurement rules, the risk of fraud, waste and abuse is increased. Civil and criminal liability. Knowingly and willfully violating the Code may subject employees to civil or criminal penalties. Agencies may face costly lawsuits if they take adverse actions against a CPO for refusing to take a particular action the CPO believes is inappropriate, or for highlighting areas of noncompliance. Audit findings. Noncompliance with procurement laws and rules may result in public audit findings. Agencies should promptly assess their compliance with the CPO statute and evaluate their internal procedures. These steps should include, but are not limited to: Verifying that a CPO designation has been made. The designated individual should have the authority to sign procurement documents, however, if possible, the designee should not be a member of top management. This segregation of duties is important in establishing strong internal controls but may not always be possible with regard to smaller entities and during times of staffing vacancies. Checking that the GSD website lists the agency s current CPO and certification. Implementing policies and procedures that clearly define roles and responsibilities of parties involved in the procurement and contracting processes and provide appropriate training, including explaining the role of the CPO. Visit our website at:

108 Risk Advisory: Chief Procurement Officers (March 2017) page 3 Ensuring that the CPO s authority to make procurement decisions is reflected in the agency s operating practices. Although a CPO is vested with the primary authority to make procurement decisions, the position is often a mid-level employee supervised by upper management. It is important that CPOs receive the support of management when valid concerns are raised and that recommendations about how to adhere to the Code are followed. Resources General Services Department, State Purchasing, Chief Procurement Officer Training Procurement Code Regulations, NMAC Visit our website at:

109 GAO Government Accountability Office New Mexico Office of the State Auditor February 2017 Procurement in New Mexico An Overview Overview of Public Purchasing before the New Mexico Procurement Code ( ) As early as 1887, Territorial New Mexico enacted statutes relating to public procurement at the county level. Section NMSA 1978, now repealed, applied to any board of county commissioners. When contracting for public works paid out of county funds exceeding $300, the statute required a county to advertise the work for at least 20 days in a newspaper in the county where the work was to be done, to post notices in a least 10 conspicuous places for bids for the work, and to let (i.e., award) the contract to the lowest responsible bidder. The winning bidder was required to post bonds for double the amount of the work for the faithful performance of the contract. 1 Specific state statutes governed procurement for individual public works projects at the State level, such as for the State Capitol, the Territorial Penitentiary of New Mexico in Santa Fe and the New Mexico Insane Asylum in Las Vegas. For example, the state statute governing the building of the Territorial Penitentiary contained a residential business purchasing provision. 2 In 1939, the New Mexico Legislature enacted a broader public purchases statute applicable to public purchasers, including all New Mexico school boards, all boards of county commissioners, all State departments except the State Highway Department, bureaus and boards, all municipalities, and all boards of State institutions. 3 It included a 5% resident preference for the purchase of goods and required three bona fide written bids for the purchase of materials or labor or both if the expenditure involved more than $200 but less than $500. It also prohibited the purchaser from having a financial interest, directly or indirectly, in the vendor. The Public Purchases Act ( PPA ), enacted in 1967, applied to state agencies and local public bodies. 4 It repealed the untitled 1939 procurement law. 5 Its competitive bid process applied only to the procurement of materials and services; but exempted contracts for technical and professional services, which a rule or regulation of the central purchasing agent would define. 6 The PPA introduced terms that carried over into the subsequent New Mexico Procurement Code such as central purchasing office, state purchasing agent, responsible bid and responsible bidder. The non-executive branches of government (judicial, legislative, state educational institutions, the State Fair and the Inter-Tribal Indian Ceremonial Association) were excluded from the requirement of purchasing through the state purchasing agent. It also clarified the concept of emergency purchases and continued the five percent (5%) resident supplier preference. 1 See Laws of 1887, Chapter 8, Section 3, as amended; repealed by Laws of 1984, Chapter 65, Section 175 when the New Mexico Procurement Code was enacted. 2 See Laws of 1889, Chapter 76, Section 31; repealed by Laws of 1967, Chapter 250, Section 20 when the Public Purchases Act was enacted. 3 See Laws of 1939, Chapter 233, Sections 1-8; compiled at Section through , through 6-7-7, through and through NMSA See Laws of 1967, Chapter 250, Sections 1-20; repealed by Laws of 1984, Chapter 65, Section 174 when the New Mexico Procurement Code became law; compiled at Section , et seq., NMSA See Laws of 1967, Chapter 250, Section See Laws of 1967, Chapter 250, Section 18.B.

110 New Mexico Procurement Overview page 2 Overview of Public Purchasing under the New Mexico Procurement Code (1984 Present) In 1984, the New Mexico Legislature enacted the current New Mexico Procurement Code ( Code ), Sections , et seq., NMSA It applies to all contracts solicited or entered into by state agencies and local public bodies after November 1, The purposes of the Code are to provide for the fair and equitable treatment of all persons involved in public procurement, to maximize the purchasing value of public funds and to provide safeguards for maintaining a procurement system of quality and integrity. 9 The New Mexico Supreme Court has stated that the Code protects against the evils of favoritism, nepotism, patronage, collusion, fraud, and corruption in the award of public contracts. 10 The American Bar Association s ( ABA ) Sections of Public Contract Law and State and Local Government Law jointly developed the ABA Model Procurement Code ( MPC ), adopted by the ABA House of Delegates in The MPC aimed to help standardize state procurement statutes by creating transparent, competitive and reliable processes by which billions of dollars in public funds are expended through contracts with private sector businesses. It is a model code as distinguished from a uniform code developed by the National Conference of Commissioners on Uniform State Laws. Between 1997 and 2000, the MPC was studied further with recommended revisions and updates reflected in the 2000 MPC. 11 In 1984, New Mexico became the eleventh state to adopt the 1979 MPC following Kentucky, Arkansas, Louisiana, Utah, Maryland, South Carolina, Colorado, Indiana, Virginia and Montana. 12 New Mexico s Code is a distillation of the final draft of the 1979 MPC and provisions of previous New Mexico procurement statutes. 13 The Code covers the purchases of goods, which are those tangible items of personal property required for agency operations, such as pens, paper, computers, and office equipment and furniture. 14 The Code also covers the purchase of services, such as those for construction or transportation, means the furnishing of labor, time or effort by a contractor not involving the delivery of a specific end product with certain exceptions. 15 Unlike previous versions of New Mexico procurement law, the Code also covers the purchase of professional services that are typically performed by a person or similar business holding a professional license, such as engineering, architecture, or legal services. 16 The Code requires formal solicitations of sealed bids or proposals for procurements expected to be greater than $60,000 (or $50,000 for agencies under the New Mexico Department of Finance and Administration ( DFA ) oversight), excluding applicable state and local gross receipts tax. In contrast, procurements less than $60,000 are handled by the individual agency in need and are based on three valid quotes for values over $20,000 and not exceeding $60,000, or from the vendor offering the best price at or below $20,000. When a state agency needs a good or service, it issues a formal solicitation, to which vendors/bidders/offerors will respond. In the case of invitations to bid, contracts are awarded to the lowest responsible bidder. 17 Requests for proposals, in contrast, are administered through a longer, more complex process involving weighted evaluation factors in addition to cost, and professional services contracts are 7 Laws 1984, Chapter See Laws 1984, Chapter 65, Section Section C. NMSA Planning and Design Solutions v. City of Santa Fe, 118 N.M. 707, 885 P. 2d 628 (S. Ct. 1994). 11 The 2000 Model Procurement Code for State and Local Governments, American Bar Association, Second Supplement Annotations to the Model Procurement Code, American Bar Association, See Laws 1984, Chapter 65, Section See Section , NMSA See Section , NMSA See Section , NMSA See Section , NMSA 1978.

111 New Mexico Procurement Overview page 3 ultimately awarded based on the best value of what is most advantageous to the procuring agency. 18 While the competitive process takes considerable time and effort, its eventual aim is achieving best value through increased competition, leading to more value added and increased efficiency in governmental public purchasing. The Code s exemptions and exclusions, described in more detail below, allow non-competitive procurements. The object of the procurement and the cost of the procurement affect not only how procurement is conducted but also who is responsible for the oversight, review, and approval of such purchases. For example, before a state agency enters a contract, DFA determines whether it is a contract for professional services. If it is a contract for professional services, the DFA Contracts Review Bureau reviews and approves it. If it is a contract for goods or non-professional services, the New Mexico General Service Department s State Purchasing Division ( SPD ) oversees the purchase. 19 The legislative and judicial branches of government, state educational institutions and local governments are not required to seek approval from these state agencies; instead, their chief procurement officers are responsible for oversight, review and approval of contracts. 20 Despite this basic structure, the rules and regulations regarding public purchase of goods, services and professional services are not centralized or standardized in New Mexico. Exemptions to the Code result in all purchases of certain agencies and entities, or all of certain types of purchases, being completely excluded from Code regulation. Exceptions to the Code may also provide for different or less onerous compliance obligations and oversight. There are many exemptions from and exceptions to the Code, but the three elements of compliance they affect are: (1) following the Code; (2) being subject to SPD oversight; and (3) requiring the competitive sealed or proposal process to make the desired purchase. Sole Source Procurement (NMSA 1978, , and 128) Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal Yes Yes No The Code defines a sole source procurement as a purchase wherein (1) there is only one source for the required service, construction or item of tangible personal property; (2) the service, construction or item of tangible personal property is unique and this uniqueness is substantially related to the intended purpose of the contract; and (3) other similar services, construction or items of tangible personal property cannot meet the intended purpose of the contract. Such contracts may be awarded without competitive bids or proposals regardless of the estimated cost when SPD and/or DFA determines in writing that these criteria are met. Emergency Procurement (NMSA 1978, and 128) Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal Yes Yes No The state purchasing agent may make emergency procurements under certain conditions, defined as situations that create a threat to public health, welfare or safety such as may arise by reason of floods, fires, epidemics, riots, acts of terrorism, equipment failures or similar events and includes the planning and preparing for an emergency response. The statute further states, the existence of the emergency condition creates an immediate and serious need for services, construction or items of tangible personal property that cannot be met through normal procurement methods and the lack of which would seriously threaten: (1) the functioning of government; (2) the preservation of protection of property; or (3) the health or safety of any 18 See Section , NMSA See Section , NMSA See Section , NMSA 1978.

112 New Mexico Procurement Overview page 4 person. As is the case with sole source contracts, emergency procurements must be recorded in writing by the state purchasing agent. Small Purchases (NMSA 1978, ) Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal Yes No No Purchases of professional services less than $60,000 (or $50,000 if the Agency is subject to DFA oversight) and purchases of goods for less than $5,000 are exempt from the competitive bidding process. Statewide Price Agreements Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal Yes Yes For initial procurement only SPD competitively procures certain goods and services on behalf of the State through the negotiation of statewide price agreements. State agencies are then required to purchase these goods or services from vendors with statewide price agreements, unless they provide a justification to exclude themselves from such purchases. Cooperative Procurement (NMSA 1978, , et seq.) Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal Yes Maybe Maybe Formally, this term refers to two or more agencies participating in, sponsoring or administering an agreement for procurement. This OSA uses cooperative procurement as a broad term for multiple-agency procurements, including formal cooperative procurements, intergovernmental agreements under NMSA 1978, , or procurements performed by one agency on behalf of other agencies. While agencies may make purchases using the terms of a contract already entered into by another agency, a process referred to as piggybacking, this practice was strongly discouraged in a 2013 memo issued by the General Services Department, which states that doing so would be to frustrate the purposes of the Procurement Code (fairness to vendors and transparency of purchasing). Unless otherwise specified, OSA reports also include within cooperative procurement any purchases through agencies like Cooperative Educational Services. Cooperative Educational Services is a purchasing cooperative created by a joint powers agreement comprised of New Mexico s 89 school districts plus many other public education institutions, including charter schools, and two and four-year post-secondary institutions. This state agency solicits competitive bids and proposals on a state and national level and awards contracts on behalf of all the agencies that comprise the cooperative. Those schools and other education institutions then make purchases based on the contracts into which Cooperative Educational Services entered. Federal Contracts (NMSA 1978, ) Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal No Yes For initial procurement only Agencies may purchase a good or service using the terms of a federal contract. The federal agency is called an external procurement unit, whose contracts other agencies may participate in, but the contract must be submitted to and approved by SPD. Exempt Agencies Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal No No No Some agencies are entirely exempt from the requirements of the Code based on the statutes that govern the agency. These include:

113 New Mexico Procurement Overview page 5 New Mexico Exposition Authority Act, NMSA 1978, 6-25A-5.W University Research Park and Economic Development Act, NMSA 1978, A New Mexico Beef Council Act, NMSA 1978, 77-2A-9 Cumbres & Toltec Scenic Railroad Commission, NMSA 1978, NMSA 1978 New Mexico Health Insurance Exchange Act, NMSA 1978, 59A-23F-3.M Exempt Purchases (NMSA 1978, , 98.1 & 98.2) Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal No No No Statutory exemptions to the Code state that the provisions of the Code do not apply to a wide range of purchases, including: Purchases between a state agency or a local public body and another state agency, local public body or external procurement unit, except for cooperative procurements Purchases for the governor's mansion and grounds Travel or shipping by common carrier or by private conveyance or to meals and lodging Contracts with businesses for public school transportation services Purchases not exceeding ten thousand dollars ($10,000) consisting of magazine subscriptions, webbased or electronic subscriptions, conference registration fees and other similar purchases where prepayments are required Contracts entered into by a local public body with a private independent contractor for the operation, or provision and operation, of a jail pursuant to Sections and -27 NMSA 1978 Contracts and expenditures for services or items of tangible personal property to be paid or compensated by money or other property transferred to New Mexico law enforcement agencies by the United States department of justice drug enforcement administration Contracts for retirement and other benefits pursuant to Sections through -52 NMSA 1978 Contracts with professional entertainers Purchases of advertising in all media, including radio, television, print and electronic Purchases of promotional goods intended for resale by the tourism department Contracts for investment advisory services, investment management services or other investment-related services entered into by the educational retirement board, the state investment officer or the retirement board created pursuant to the Public Employees Retirement Act Home Rule (NMSA 1978, K.) Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal No No Depends on local ordinance Eleven entities throughout the state are exempt from the Code as a result of home rule, a system of selfgovernment allowed for by the State Constitution. These include Alamogordo, Albuquerque, Clovis, Gallup, Grants, Hobbs, Las Cruces, Las Vegas, Rio Rancho, Santa Fe, and Los Alamos (combined with Los Alamos County). In home rule jurisdictions, a local charter is established, transferring authority and responsibility of local government from the state legislature to the local community, unless otherwise forbidden by state law. Entities that operate under home rule have procurement rules and regulations that govern instead of state law and thus exempt those entities from the Code unless the local rules refer to the Code. For example, the City of Albuquerque conducts its public purchasing operations according to its Public Purchasing Ordinance ( 74 Code, 5-7-2) (Ord ; Am. Ord ), which pursuant to Article I of the City Charter and Article X, section 6 of the New Mexico Constitution, shall serve to exempt the city from all provisions of the New Mexico Procurement Code, as provided in Section K NMSA1978.

114 New Mexico Procurement Overview page 6 Exclusion from Purchasing through Central Purchasing (NMSA 1978, ) Subject to Procurement Code SPD/DFA Oversight Competitive Bid or Proposal Yes No Maybe A number of transactions and agencies are excluded from the requirement of procurement through the state purchasing agent but not from the requirements of the Code. These include: the procurement of professional services (which must be approved by DFA after the competitive sealed proposal process is undertaken by a state agency); small purchases having a value not exceeding one thousand five hundred dollars ($1,500); procurement of highway construction or reconstruction by the Department of Transportation; procurement by the judicial or legislative branches of state government; procurement by the boards of regents of state educational institutions; procurement by the State Fair commission of tangible personal property, services and construction under ten thousand dollars ($10,000); purchases from the instructional material fund; procurement by all local public bodies; procurement by the Public School Facilities Authority, regional education cooperatives or charter schools; and procurement by each state health care institution that provides direct patient care and that is, or a part of which is, Medicaid certified and participating in the New Mexico Medicaid program. The Office of the State Auditor acknowledges the research and writing assistance of Clifford M. Rees, JD, in the preparation of this Overview.

115

116