CPO Testimony on Progress Toward Reforming the District's Procurement System - Testimonies

Government of the District of Columbia

Office of Contracting and Procurement

Public Oversight Roundtable
on
Government Contracting Reform

Before the
Committee on Government Operations and the Environment
Mary Cheh, Chair
Council of the District of Columbia

Testimony of
David P. Gragan
Chief Procurement Officer

John A. Wilson Building
1350 Pennsylvania Avenue, NW
Washington, DC 20004

Wednesday, December 16, 2009
3:00 pm

Introduction. Good afternoon Chairperson Cheh and members of the Committee on Government Operations and the Environment. I am David P. Gragan, the Chief Procurement Officer (CPO) and Director of the District’s Office of Contracting and Procurement (OCP). Thank you for the opportunity to present testimony about OCP’s contracting reform efforts. My prepared testimony will be posted on my agency’s Website after this hearing.

OCP’s Challenges. During my confirmation hearing in September 2007, I testified about my vision for OCP: To make this the model municipal procurement operation in the United States, delivering the best value out of every dollar entrusted to us and doing so at the highest levels of customer service.

At the time, I was somewhat prepared for the challenges that I would face. I had reviewed the January 2007 GAO Report entitled “District of Columbia Procurement System Needs Major Reform” and, within weeks of my arrival, I had read about 10 years worth of reports on OCP, including findings from the Office of Inspector General and CAFR Audits. I read the 2006 Procurement Task Force recommendations and spoke with former District CPOs and current officials. Not surprisingly, there were common themes, the same issues, concerns and problems over and over.

What was needed in the summer of 2007 was not another redundant report of reforms required to bring the District’s procurement process in line with emerging and established best practices in government contracting, but rather a roadmap from where we were to where we aspired to be. In furtherance of that goal, through a competitive RFP process, I selected the Procurement Management Assistance Program of the National Institute of Governmental Purchasing (NIGP) to deliver just that. What was delivered was a clear set of objectives with budget impacts and dependencies that could be used to guide us through the complicated reform effort that lie ahead.

Although at one point I counted well over 60 findings, it was apparent that there were a handful of recurring themes:

Processes were cumbersome;
No standard operating procedures;
Procurement administrative lead times were too long;
The contracting staff was focused on the process itself rather than the results it should deliver;
There was a lack of adequately trained procurement staff and professional development opportunities;
There was constant turnover in leadership and leadership was not empowered;
Procurement staff was organized by agencies rather than by the goods or services that they bought;
Customer agency personnel were unclear about their responsibilities with respect to the procurement process;
There were very few term contracts;
There was poor control of procurement files; and
There was a low level of response to many solicitations.

To address these challenges, I grouped the reforms I determined to be needed into six categories:

Streamlining the procurement process;
Developing a cadre of procurement professionals who are solution-oriented problem-solvers and trusted experts in how to make the process deliver results;
Allowing procurement decisions at the lowest appropriate level;
Increasing the level of competition;
Ensuring compliance; and
Modernizing the regulatory environment.

At the time of my confirmation hearing, I felt confident about my blueprint for reform – and still do. What I was not prepared for was the amount of time and effort even the smallest changes seem to take. Nothing is a quick fix and there is no silver bullet. In fact, all of our reform efforts are interrelated and mutually supportive. While I believe there has been great progress in all areas of procurement reform, unfortunately, it doesn’t mean much to any of you - or to me - until we reach that tipping point.

Streamlining the Procurement Process. To date, I have implemented a number of changes to simplify and streamline the procurement process. Since my confirmation I:

Realigned staff into five commodity groups (covering goods, services; transportation and specialty equipment, information technology, and construction) instead of grouping them by agency;
Combined the purchase card and travel card into one unified program, established an electronic reconciliation process to replace a cumbersome paper one, and provided a new level of customer service and training including a dedicated hotline and email, and a robust PCard DCPedia site with training modules and templates;
Increased procurement transparency in many ways, including posting all purchase orders, purchase card transactions and contracts awarded over $100,000 online and reorganizing the vendor portal section of our Website to make it easier and more intuitive to navigate; and
Revised the annual procurement planning process by replacing Service Level Agreements with Annual Procurement Plans tied to the budget formulation process.

There are a number of other process improvement efforts underway which include:

Establishing term contracts for the goods and services that we most frequently buy;
Implementing a green procurement program by developing environmentally preferable standards for products to be included in term and other contracts;
Simplifying the DC Supply Schedule by automating the 1% fee collection process, allowing vendors to check their application status online, and exploring the use of longer base terms;
Conducting a complete business process redesign of our bid process using a six sigma methodology; and
Rolling out an electronic sourcing module in PASS to build solicitations with electronic templates, allowing all registered vendors to receive relevant alerts and enabling vendors to respond electronically.

Training our Procurement Professionals. Early in my procurement career, I realized how important it is for contracting staff to view themselves as professional, trusted business advisors who serve their customers by consultatively developing the best right solution to their procurement needs. To that end, in order for staff to see themselves as a member of a well-functioning team, they have to be educated and given the tools to succeed, especially given that the public procurement process is, by design, deliberative.

Consequently, no matter how streamlined our process is or becomes, we still must have a workforce that has mastered a body of knowledge about public procurement and our regulatory environment. Public procurement professionals are also required to make critical judgment calls and plan for all sorts of contingencies, but these sorts of competencies are harder to “train” for. I have invested time and resources in a number of procurement-related training and educational opportunities that include:

Providing four of the core procurement classes offered by the National Institute of Governmental Purchasing on-site for all staff interested in becoming certified. The courses included Introduction to Public Procurement, Sourcing in the Public Sector, Managing Requests For Proposals, and Legal Aspects of Public Procurement;
Introducing monthly professional development sessions, including Negotiation Basics, Green Procurement, and Preparing Contracts for Council Approval;
Introducing annual PASS training designed for procurement staff to clarify system standards and ensure consistent usage;
Co-sponsoring annual procurement training sessions with the DC Bar; and
Requiring annual ethics training for all procurement personnel.

In addition to ensuring my staff has the tools they need, we are committed to supporting our customers in their critical role in the procurement process. We have:

Established mandatory annual refresher training for Contracting Officer’s Technical Representatives (COTRs);
Created an OCP intranet and internet wiki on DCPedia with updated templates, required lead times and basic guidance;
Rolled out a monthly Procurement 101 class to ensure they understand procurement fundamentals and their responsibilities;
Resurrected bi-annual PASS user forums in conjunction with OCTO; and
Added a procurement basics module to the Department of Human Resource’s New Employee Orientation.

Allowing Procurement Decisions at the Appropriate Level. Our procurement code authorizes me to delegate procurement authority to employees of a department, agency, or other entity commensurate with my judgment of each person's ability to meet the objectives of the Procurement Practices Act. Over 70% of the purchase orders awarded in my agency are under $25,000, yet all these transactions cover less than 5% of the total dollars spent. Across the country, procurement agencies have adopted a hybrid model of a centralized procurement responsibility with some level of delegated procurement authority both for relatively low dollar procurements and for specialized areas like construction. I have adopted this best practice in DC and:

Delegated contracting authority to nine agencies for procurements under $25,000 after instituting a training and certification program for hand-selected Agency Contracting Officers (ACOs); and
Further delegated authority for construction-related contracts to the District Department of Transportation and the Department of Real Estate Services.

Increasing Competition. OCP’s reform efforts also include increasing competition and expanding the size and quality of our vendor base. Thus far, we have:

Improved vendor outreach by establishing the Vendor Relations Unit to provide guidance, recruitment and troubleshooting support;
Automated and refined the vendor evaluation process to ensure accountability including requiring monthly and final assessments on all contracts over $100,000;
Enhanced vendor interaction through the portal that allows vendors to register online, view upcoming procurement opportunities, market their goods and services to District agencies, view live webcasts of bid openings, and foster alliances with other businesses;
Routinely held procurement roundtable discussions for the vendor community;
Removed all DC Supply Schedules with fewer than three vendors; and
Introduced legislation that reduced the competition threshold from $10,000 to $5,000.

An Ariba Sourcing Module is also in the deployment stage that will automate the solicitation process. Once it is completed, solicitations will be electronically distributed to registered vendors which should also increase competition.

We also plan to focus more on outreach and recruiting more of the District’s best vendors to respond to our solicitations. This will include partnering with trade groups and hosting events like a vendor trade show (which we have scheduled for February 18, 2010), as well as finalizing a vendor resource guide to take the mystery out of winning business with the District.

Ensuring Compliance. I am committed to ensuring OCP complies with District law and regulations. I want to spend a few moments discussing a new unit I established to help spearhead this critical effort.
Office of Procurement Integrity and Compliance. The Office of Procurement Integrity and Compliance (OPIC) was created 2007 to both audit individuals with delegated procurement authority and, more importantly, to establish internal controls and provide operational assessments to preempt audit findings from even occurring. Since its initiation, OPIC has:

Established the proper organizational structure and staffing for the unit by hiring three personnel with the credentials and experience necessary to properly perform internal audit and compliance functions;
Instituted a dedicated OPIC hotline including an e-mail address and telephone and fax lines;
Conducted targeted District agency reviews for the University of the District of Columbia and the Fire and Emergency Medical Services Department, and assessed the purchase card program;
Developed a simplified framework for consistently documenting our processes, including vendor evaluations and delegations of contracting authority, and testing plans for Agency Contracting Officers;
Built a semi-automated process designed to help ensure the timely, accurate and complete management of delegated contracting authority; and
Hosted procurement compliance roundtables with other local and international governments, including Prince Williams County, Virginia, and the International Delegation of Procurement Compliance Specialists.

During FY 2010, OPIC will:

Develop a comprehensive anti-fraud program for managing procurement risks and controls;
Continue providing OPIC-related training and education opportunities for OCP staff, COTRs, and ACOs;
Review and standardize OCP policies and procedures;
Partner with the Agency Ethics Officer to deliver annual ethics training;
Develop an automated compliance testing approach which will enable OPIC staff to detect instances of potential fraud and unusual transactional activity;
Conduct ongoing risk and controls assessments of the procurement processes;
Conduct a risk-based physical asset inventory; and
Develop a comprehensive, risk-based testing methodology (factors to include ARRA funding sources, transaction activity & size, prior audit history, etc.).

In addition to the work provided by OPIC, there have been a number of successful compliance efforts implemented. Thus far, we have:

Established a “three true quotes” rule by implementing a policy that requires contracting staff to obtain, at a minimum, three written quotations from potential vendors for all small purchases between $5,000 and $100,000;
Established and trained procurement staff on file management procedures, refined checklists, developed a file tracking database, reconfigured our file room and hired a dedicated Records Management Officer to manage the filing system;
Developed a system for tracking certificates of insurance and trained all staff on the new process;
Significantly enhanced COTR training and support resources; and
Eliminated the formerly standard practice of ratifying improper contract actions.

Unauthorized Commitments. Under certain conditions established in the DC Code, the CPO can approve unauthorized commitments or payment requests from vendors who have provided goods or services without a valid written contract. Unauthorized commitments were initially reviewed by a Ratification Committee that included my designee, two contracting officers and an attorney, as well as agency representatives. I either approved or disapproved their recommendations.

In Fiscal Years 2007 and 2008, there were approximately 140 requested ratifications. In March 2008, I issued a directive abolishing the Ratification Committee and announcing the end of the routine approval of ratifications. No ratification requests have been approved since August 2008. I have a chart as an Appendix to my testimony that shows the dramatic decrease in ratifications.

Additional steps are planned to enhance compliance, including:

Redefining and limiting sole source contracts;
Implementing the Ariba Contracts Compliance Module, which will provide a central repository for all District contracts; and
Scanning and posting all contracts on our website.

Modernizing the Regulatory Environment. As you know, at the beginning of this year the Mayor forwarded four bills to the Council for introduction that were favorably considered by this Committee and the full Council. Those bills, which became law on October 22, 2009, include:

Law 18-61 that transfers an interest penalty reporting requirement from the CPO to the CFO who is better able to track the requested data;
Law 18-62 that replaces the cumbersome Debarment and Suspension Panel with a single responsible person who is qualified to make the decisions;
Law 18-63 that allows agencies to more efficiently enter into intra-District agreements for materials, supplies, equipment, work, or services of any kind; and
Law 18-64 that:

(a) Reduces the small purchase limit of the Metropolitan Police Department and the Office of the Chief Technology Officer from $500,000 to $100,000;

(b) Shortens the period for public notice of solicitations from 30 to 21 days;

(d) Authorizes the CPO to cancel solicitations without having to notify the Inspector General.

Pending Legislation. This past June, the Mayor also forwarded for introduction Bill
18-332, the Procurement Efficiency Act, that would significantly streamline the procurement process. I look forward to our January 11, 2010 hearing on the bill. If passed, the legislation would revise the Procurement Practices Act by:

Revising the definition of a sole source procurement by deleting contracts for the purchase of real property or interests in real property, and moving the two provisions authorizing the adoption of Federal supply schedules to a new section on the DC Supply Schedule;
Revising the competitive sealed proposal provisions in the Procurement Practices Act by:

(a) Authorizing a contracting officer to issue a request for qualifications before soliciting proposals and to rank the offerors from the least to the most qualified, and requiring a contracting officer to solicit proposals from at least the top two offerors based upon their qualifications; and

(b) Authorizing a contracting officer to negotiate with the highest ranking offeror; and

Adding a provision that explicitly lists certain limited purchases that are exempt from competition.

Draft Omnibus Procurement Reform Legislation. We are also in the process of drafting an omnibus procurement bill that will replace the Procurement Practices Act. Some of the more significant proposed changes based on known best practices and what I believe to be best for the District are in this bill, which will:

Redefine sole source procurements as a procurement that exists when there is only one available source for a good, service, or construction item, or when are being purchased under emergency conditions;
Allow a solicitation to be issued electronically and a response to be received electronically;
Authorize the use of reverse auctions for all types of procurements when it is deemed appropriate;
Authorize the payment of stipends to unsuccessful responsible offerors to cover their estimated bid or proposal development costs to ensure that businesses are not at a competitive disadvantaged;
Authorize the procurement of goods, services or construction items under a pilot, experimental or demonstration project;
Adopt language allowing special procurements defined as purchases above the small purchase limit determined by a contracting officer to be so unusual or unique that it makes the application of all requirements of competitive sealed bidding or competitive sealed proposals contrary to the public interest;
Adopt the language establishing the project delivery methods authorized for procurements relating to infrastructure facilities and related services;
Require a protestor to post with OCP at the time of filing their formal written protest a bond payable to OCP in an amount equal to 5% of the estimated contract amount;
Adopt language that would allow the CPO to reduce the level or change the types of bonding normally required or accept alternative forms of security to the extent reasonably necessary to encourage procurement from small and disadvantaged businesses; and
Adopt language recommended by the Office of the Attorney General (OAG) amending the False Claims Act provision in DC Code § 2-308.14 to make it consistent with the Federal False Claims Act so that OAG can adjust civil penalties for inflation via rulemaking.

A number of these proposed changes also have been included in recently passed reform legislation and proposed the Procurement Efficiency Act that I previously mentioned to ensure consistency if an omnibus bill is eventually approved.

Green Purchasing Program. Given the importance of the environment, the attention currently being given to green purchasing, and the fact that the procurement and disposal of goods and services can have a profound impact on the environment, I would be remiss if I failed to add this to our procurement modernization efforts. Consequently, as a large consumer in the marketplace, OCP aims to purchase environmentally preferable products and services (EPPS) to the maximum extent practicable, while accounting for factors such as cost, availability, and functionality. Use of EPPS will reduce the District’s carbon footprint, lessen our contribution to area landfills, and protect the health of our community and our employees.

To achieve this end, OCP established a Green Purchasing Program (GPP) to develop and apply environmental standards for recycled content, energy usage, toxicity, water usage, and end-of-life disposal toward the purchase of goods and services procured through term contracts. GPP’s initial goal is to provide a green alternative to OCP end-users in all applicable contracts, and when advisable, require the purchase of environmentally preferred products.

Personal Property Division. Prior to January 2005, OCP conducted auctions for DC surplus property at the Personal Property Division (PPD) warehouse under previous PPD leadership. According to audit findings, OCP sold property to the customer well below its market value and, in turn, the customer could sell the property well above the PPD auction price. As a result of this finding, OCP terminated the prior PPD Chief and contracted the auction process to an outside vendor.

PPD has improved its processes since the last audit by obtaining the services of Liquidity Services Inc. (LSI), a contractor that advertises and auctions DC Government surplus property. PPD, with LSI’s assistance, has also implemented and improved the way it manages the property by screening in-house surplus property to be sold. PPD provides quarterly reports to the DC City Council of property sold, as well as the sale totals.

PPD is constantly looking for ways to improve its processes and procedures. The next major goal for PPD is to implement an automated inventory tracking database. Once this project is implemented, PPD will be able to have 100% accountability of surplus property at all times.

Since the September 2004 audit, OCP has greatly improved the surplus property disposal process, provided high financial returns of property sales for the District, and implemented stronger property accountability practices.

Conclusion. Let me sum up by stating unequivocally that I am optimistic about the outlook for the District contracting and procurement process. I believe that in this, as in all control-oriented functions, continuous reform carries the day. The most significant improvements we must accomplish fall into three broad categories: (1) the process: it must be carefully analyzed and improved; (2) personnel: we need to continue to hire the right people, provide them the training and tools required for success, and make each person fully accountable when they do not perform. These two pieces result in the right people doing the right things. And finally, (3) technology and tools: most importantly bringing our Ariba eProcurement suite fully online and finalizing a Procurement Manual that captures our refined processes.

As I finish assembling a cadre of skilled and capable procurement professionals, I am certain much can be achieved given the strong and unwavering support I receive from the Mayor and the City Administrator, as well as from many vendors and citizens. I believe that the open dialogue -- both formal and informal -- that exists between the Council and my agency, the Council’s demonstrated willingness to consider new legislative and regulatory options, my commitment to the institutionalization of best practices within my agency, and the continued hard work and dedication of OCP’s procurement staff will ensure success.

Although much progress has been made, there is much still to be done. And it will only get done if we keep pushing forward, with consistent leadership, a strong vision, and fortitude.

This concludes my prepared testimony. I will be happy to answer any questions you might have.

Appendix A Ratification*