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Phoenix's bid rules for contracts called ripe for abuse

November 20, 2014

Phoenix has no uniform set of procedures and policies for outside contracting and the guidelines it has relied on have been kept from both public view and City Council oversight, a situation that critics say could lead to unfairly awarded contracts and the waste of taxpayer dollars.

The nation’s sixth-largest city issues hundreds of contracts each year for millions of dollars in goods and services from private companies for everything from copy paper to multimillion-dollar services such as airport-restaurant concessions.

Most other Valley cities have uniform procedures in their local laws, which are publicly available and show how companies can bid on the contracts and how officials pick the winning bidder.

Although Phoenix has guidelines for contracting, the city has allowed individual departments to handle their own contracting decisions for multimillion-dollar contracts for services, such as the recent food-and-beverage contract for Sky Harbor International Airport’s Terminal 4.

“That’s the way it’s always been,” Assistant Finance Director Susan Perkins said.

Most departments do not publish their rules online, and the departments have no procedure for a bidding company to protest if it thinks it lost out unfairly.

Critics say the departments’ control leads to inconsistencies in the bidding process that can enable some companies to have an advantage over others.

“If you rely on each department to come up with their own (process) each time, it just seems kind of inherent that you’re going to have a hard time maintaining a quality process,” said Kevin O’Malley, a Phoenix attorney who has represented bidding companies, including airport concessions and physical-therapy services for city workers.

Phoenix did not publish its contracting guidelines online until City Council members, at a recent subcommittee meeting, learned of their existence and asked that they be posted on the city’s website for the public and potential contractors.

“Regardless of the policy, it needs to be public,” said one critic of the city’s contracting procedures, Byron Schlomach, an economist at the Goldwater Institute.

“Obviously, if you have some sort of secret policy, whether intentionally or not, you’ve benefited certain companies that have some clue as to what the policy is over companies that don’t.”

Guidelines defended

Phoenix officials do not know how many complaints or protests the city receives each year.

They also are unsure how many contracts the city issues per year. Finance Director Jeff DeWitt said that information is kept by individual departments.

City officials stand by their contracting process, arguing that each department needs the leeway to determine how it should handle each of its contracts because some services and needs are unique to the department.

Assistant City Manager David Krietor said it doesn’t make sense to have a uniform contracting system in the city code.

Departments such as those covering aviation and water need leeway to make decisions on their unique needs for services, he said.

“Not all procurements are equal,” Krietor said. “Some of them are just incredibly complicated and nuanced – and they become very politicized.”

City Manager David Cavazos said there is no perfect system for bidding and contracting.

Complaints will happen no matter what system is in place, he said.

But City Council members want to review the city’s guidelines for contracting, which were developed 10 years ago by city officials without council input.

“I want to make it very clear that I want us to make every effort to make this process clean, clear, concise and transparent,” Councilwoman Thelda Williams said after voting last month on the controversial food-and-beverage contract at the airport.

Councilman Bill Gates, chairman of the Finance, Efficiency and Innovation Committee, said the city’s contracting policies need close review, particularly because the city outsources a lot of work.

Other contract deals also raised council members’ concerns.

– In 2007 the city decided to hire Arizona Golf Foundation to run the popular Papago Golf Course. A competitor, Lyon Golf, contested the deal, but it missed the filing deadline for protests.

AGF failed to build a clubhouse at Papago that it had promised; and this year, the city found the non-profit group in default on its contract.

Phoenix now is looking for a new company to manage the course.

AGF blamed the recession for its stumble at Papago.

But activist Larry McLennan, a former avid golfer at Papago, contends that AGF failed to follow the requirements of the city’s bidding process when it failed to disclose that it had unsuccessfully run a Scottsdale golf course, Villa Monterey, which closed in 2006.

– In September, the U.S. Federal Transit Administration began questioning how Phoenix awarded a $385 million, five-year contract to Veolia Transportation Services to run bus routes in the city.

Critics alleged unfairness. Mayor Phil Gordon’s former campaign fundraiser and girlfriend had worked for Veolia as a consultant, and his friend, Billy Shields, was a lobbyist for the company.

Gordon, who recused himself from the January 2009 contract vote, has denied any wrongdoing.

The FTA is still investigating.

Fewer protests

State laws regulate contracting and bidding processes for public-works projects, such as new construction and renovations. But Arizona cities must develop their own rules for handling bids for goods and various services – from toilet paper and office furniture to concessionaires or caterers to manage the city hall cafeteria.

Officials with Valley city governments and Maricopa County officials have heard complaints from bidders about unfair bidding practices and, in some cases, poor transparency; and a few have tried to limit such complaints by writing a special set of contracting laws.

Mesa and Tempe are among them.

Michael Greene, Tempe Central Services administrator, said the city’s contracting laws, developed in the late 1990s, have helped limit the number of bidder protests because it ensures every contract is handled the same through bidding, review and award, and it outlines the steps a company must take to protest the city’s contract decision. The rules are clear, he said.

“It’s a really prescriptive outline for how you do formal procurements,” Greene said.

Tempe issues about 140 contracts per year, and it typically receives about three or four protests from companies each year, he said.

Mesa, which has a similar prescriptive law, puts out 117 contracts to bid each year and handles about 10 protests per year, said Jim Ruiz, the city’s protest officer.

Citing his experience as an attorney involved with big contracts, O’Malley said there are examples of best practices in contracting in Arizona, such as at the State Procurement Office, that instill public confidence in the process.

At the state level, he said, bids are reviewed by a panel that involves experts from the department or agency that needs the contract fulfilled.

The entire contracting process is overseen by another expert who ensures the panel sticks to the state’s process for contracting and bidding.

“All the way through the process, you have professional input to make sure it runs smoothly and fair,” O’Malley said.



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