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May 19, 2009

DiNapoli: Improvements Needed in NYC Department of Education's Awarding of No-Bid Contracts

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The New York City Department of Education needs to improve its procurement requirements and supporting documentation to ensure no-bid contracts are appropriately awarded, according to an audit released today by State Comptroller Thomas P. DiNapoli. The audit focused on 291 contracts totaling $342.5 million that were awarded without competition over the past three years.

“There are rules to make sure that taxpayers don’t pay too much for goods and services,” DiNapoli said. “The New York City Department of Education needs to follow those rules a little closer. When the department awards no-bid contracts, it must document the award to ensure these contracts are in the best interest of the city’s taxpayers.”

The audit, which covered July 2005 to June 2008, was requested by New York City Public Advocate Betsy Gotbaum. The audit found that the department did not always document justification for non-competitive contracts. During the audit period, the department awarded 291 non-competitive contracts that met or exceeded a $100,000 threshold for competitive bidding and required the department’s Committee on Contracts to approve exemptions from the competitive requirement.

Auditors found that 59 percent of the non-competitive contracts had a start date that was prior to the date of the committee meeting during which the contract was approved, even though the department’s procurement procedures state that a contract should not begin until it has been fully approved. One non-competitive contract in the amount of $16.5 million for strategic, advisory and financial management services was approved on June 1, 2006 but was not advertised in the City Record until 25 days later, undermining the openness of the procurement process.

The department has five well-defined categories that provide a basis for the committee to approve non-competitive contracts. However, the department also has a sixth category, called “other special circumstances” that is not so well defined. Auditors found that 96 percent of the non-competitive contracts, 280 contracts totaling approximately $327 million, were categorized as “other special circumstances.” For many of these “other special circumstance” contracts, the department failed to properly document why a non-competitive contract was justified.

When the department categorizes a contract as “other special circumstances,” it also provides for five subcategories to justify the special circumstances. One such subcategory is that it is “cost
effective” to grant the no-bid contract. Auditors determined the department did not follow its own
policies when it failed to perform a cost analysis for four contracts, totaling $14.7 million, that it deemed cost effective to avoid competition.

Auditors also found that the department did not always provide the general documentation necessary to award a contract non-competitively including:

  • seven contracts totaling $43.6 million lacked documentation that efforts were made to meet proper procurement procedures;
  • three contracts totaling $7.2 million lacked an explanation or justification for their exception to competitive bidding; and
  • two contracts totaling $2.1 million lacked any documentation as such documentation was mistakenly destroyed.

DiNapoli’s audit also noted that minutes are not maintained for committee meetings. Such minutes would provide a record of the committee’s decision-making process for non-competitive contracts and provide taxpayers with more transparency and accountability.

DiNapoli’s office recommends that department officials:

  • determine why contracts begin before they are approved and take corrective action;
  • ensure that the committee obtains all required documentation before it approves non-competitive procurements;
  • provide clear guidance for the use of “other special circumstances” as a justification for no-bid contracts; and
  • maintain minutes for all meetings of the committee to enhance accountability.

The department’s full response is included in the audit.

Click here for a copy of the audit.



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