NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A6355A
SPONSOR: Peoples-Stokes TITLE OF BILL: An act to amend the state finance law and the educa-
tion law, in relation to enacting the "New York state procurement integ-
rity act"; and to repeal section 6283 of the education law relating to
procurements of the fund (Part A); to amend the public authorities law,
in relation to requiring public authorities to comply with certain
provisions of the state finance law relating to procurements (Part B);
to amend the public authorities law, in relation to prohibiting certain
third party contracts (Part C); to amend the state finance law, in
relation to authorizing the state comptroller to oversee certain
contracts of the research foundation of the state university of New York
(Part D); to amend the economic development law, in relation to expand-
ing requirements for state authorities to publish procurement opportu-
nities (Part E); and to amend the state finance law and the public
authorities law, in relation to prohibiting conflicts of interest by
state officers and employees in state procurements and prohibiting
conflicts of interest by state authority board members, officers and
employees in state and authority procurements (Part F)
PURPOSE:
The purpose of this legislation is to enhance the integrity, transparen-
cy and accountability of the State's procurement process by:
*Restoring the State Comptroller's independent oversight of SUNY, CUNY,
and OGS centralized contracts that was removed in 2011 and 2012.
*Expanding the State Comptroller's oversight of the procurement process
to include contracts in excess of one million dollars awarded by the
SUNY Research Foundation.
*Prohibiting state contracting through state-affiliated not-for-profit
(NFP) entities unless explicitly authorized in law.
*Strengthening ethical requirements for state procurement officials.
*Standardizing the contracting process used for all State authorities
spending State money by applying uniform procurement rules.
*Increasing procurement transparency for vendors and the public at each
stage of the process.
JUSTIFICATION:
The recent criminal charges filed by the US Attorney and the Attorney
General relating to the way the upstate economic development programs
have been managed are a troubling reminder that the lack of independent
oversight for procurements creates an environment ripe for corruption,
bid rigging and kickbacks. Billions of state dollars are being funneled
by State agencies and authorities to third party entities of the agen-
cies' or authorities' own creation, allowing for the circumvention of
longstanding checks and balances that protect taxpayers and ensure a
level playing field for bidders. Further, billions of additional State
dollars are being spent under contracts that no longer benefit from
independent review. An effective antidote to self-dealing in government
procurement is independent oversight of State contracting and spending.
Historically, the Office of the State Comptroller (OSC) has performed
this essential oversight function, but in recent years OSC's ability to
do so has been eroded by executive and legislative-action.
PART A:
Restore the State Comptroller's independent oversight of certain
contracts of the State University of New York, the City University of
New York and centralized contracts of the Office of General Services.
Part A of the bill amends the State Finance Law and the Education Law to
restore OSC contract oversight over SUNY, CUNY and OGS contracts, while
increasing the flexibility threshold for SUNY and CUNY to 250 thousand
dollars from 20 thousand dollars while maintaining the ability to nego-
tiate for even higher thresholds for contract approval with OSC. It also
requires that SUNS 's use of any non-profit corporation be for academic
objects or purposes only, and that all such contracts continue to be
reviewed and approved by OSC.
OSC oversight is restored for several categories of contracts where such
oversight was eliminated in 2011 and 2012, including:
*All SUNY and CUNY construction and construction related services
contracts (e.g. architects and engineers); all contracts for commod-
ities, including computer equipment; and printing.
*All SUNY Construction Fund and CUNY Construction Fund contracts for
construction and construction-related services: all other services: and
all commodities.
*All OGS centralized contracts that are used by. among other groups,
state agencies, public authorities and local governments, for the
purchase of goods. services and technology (the value of which in 2016
amounted to more than $7.1 billion).
The rationale for eliminating the Comptroller's oversight in 2011 was
that it slowed critical procurements. But the data collected since that
time clearly shows this is not true; on average , OSC spends approxi-
mately nine days to complete its work for more than 20,000 transactions
reviewed annually. The agency procurement process itself may take
several weeks or months. The limited additional time for independent
oversight to ensure that taxpayer dollars are being spent appropriately
is well worth it. as demonstrated in the following examples where OSC
pre-review authority was eliminated:
*A SUNY Downstate Medical Center consultant contract failed to include
important cost controls, which resulted in over-spending and question-
able decision-making, including pricey hotel rooms, inappropriate meal
expenses. limousine drivers and extensive spending on alcoholic beverag-
es.
*Another SUNY Downstate Medical Center contract for healthcare informa-
tion technology (IT) services was not bid competitively, resulting in up
to $1.3 million in costs that could have been avoided.
*A $3 million SUNY Stony Brook contract for medical devices was procured
without appropriate advertising and bidding in violation of SUNY's own
procurement procedures. This was discovered on an OSC payment audit and
SUNY is now rebidding the contract.
In addition, high dollar value OGS centralized contracts used by state
agencies, public authorities and municipalities, among other groups, are
being procured without independent oversight or review. This includes a
recent OGS award of $3.3 billion in IT consultant services to 122 firms.
Overall in 2016, OGS let approximately $7.1 billion in centralized
contracts and that value is expected to grow substantially.
*Prior to 2012, during an OSC review of school bus contracts submitted
by OGS it was discovered that other states received better pricing than
NY. As a result, OGS was able to negotiate a 1.68% savings over the
original award amount: a savings of $11.2 million. The current suite of
school bus contracts are estimated by OGS at over $700 million.
The 2012 law that exempted OGS centralized contracts from OSC pre-review
also requires state agencies to purchase services and technology from
OGS centralized contracts if a centralized contract meets an agency's
needs. This requirement was also already in place for state agency
purchases of commodities: they must purchase off of OGS centralized
contracts. As OGS expands its portfolio of centralized contracts, fewer
and fewer independent agency contracts will be subject to oversight by
the Comptroller. In fact, a new group of OGS centralized IT contracts
will not be subject to OSC pre-review for agency IT consultant projects
below 25 million dollars and other high dollar value purchases, such as
those for computer software and hardware of any size.
For those state contracts where OSC independent oversight remains in
place. OSC has found excessive bill rates, costs for charges outside the
contract scope, vendors with unresolved allegations of fraud and other
serious misconduct. and vendors who plainly attempt to circumvent state
law. For example, OSC rejected an Office of Alcoholism and Substance
Abuse Services contract with a vendor whose senior management were
arrested on fraud and money laundering charges. OSC rejected the
contract a second time when the agency resubmitted it and OSC found that
the new executives and a board member were also charged.
In another circumstance, SUNY Stony Brook requested a contract be reas-
signed to a new vendor. OSC found the original vendor had significant
tax liens, and the new company was owned by the original vendor's daugh-
ter, operating from the same address, in what appeared to be an attempt
by the original vendor to avoid tax liabilities. OSC declined to approve
the contract assignment. OSC contract pre-review and approval ensures
that the State of New York is only doing business with responsible
vendors.
PART B:
Ensure State authorities adopt best practice procurement procedures
based on those in place for State agencies.
Part B of the bill amends the Public Authorities Law to require State
authorities to adopt procurement guidelines that are consistent with
those required for state agencies, unless otherwise permitted by law.
OSC then, pursuant to its authority under Public Authorities Law section
2879a, could review those contracts subject to its oversight against
these standardized guidelines, determining, as necessary, the consisten-
cy of the authority's guidelines with the procurement procedures
required for state agencies. In addition, OSC and the Authorities Budget
Office has the ability under existing law to conduct performance audits
of authorities, and thus also could have the ability to assess whether
an authority's guidelines were achieving the required degree of stand-
ardization. At present, State authorities generally follow their own
guidelines for conducting procurements. These guidelines vary from
authority to authority and usually are approved only by the authority's
board of directors. In light of the recent criminal charges alleging
favoritism and potential bid rigging in contracting by State authorities
and related entities, the establishment of standardized practices to
ensure transparency and restore public confidence is imperative.
State law prescribes best practice processes for agency procurements,
including: requiring open competition when practicable; ensuring a level
playing field for bidders with standard advertising and evaluation
criteria; the opportunity for losing vendors to be debriefed on awards;
determining whether the price is reasonable based on the type of
procurement; ensuring vendors comply with appropriate worker protections
such as prevailing wage, workers' compensation and disability insurance,
and equal employment/nondiscrimination requirements; and confirming that
vendors are responsible and responsive and deserve to participate in
state contracting.
PART C:
Prohibit the use of state-affiliated not-for-profit (NFP) entities for
State contracting unless explicitly authorized in law or subject to the
approval of the State Comptroller.
Part C of the bill amends the Public Authorities law to prohibit public
authorities from entering into or extending third party contracts or
agreements with NFP entities where the primary purpose is to act as a
conduit for state procurement initiatives, including economic develop-
ment. The Comptroller is authorized to issue regulations to enforce this
section and define those contract types that are prohibited.
Billions of dollars of state money is flowing through entities that have
been created outside the State's normal statutory structure. removed
from view of both the public and independent oversight agencies. The
results have been predictable: exploitation of these organizations by
self-serving public and private individuals. and their eventual indict-
ment for a host of charges related to fraud and abuse of this alterna-
tive procurement system. Proliferation of this kind of public contract-
ing cannot continue. This bill would prohibit public authorities from
using these state-affiliated NFPs for this purpose unless expressly
authorized by the Legislature to do so.
PART D:
Require OSC pre-approval of SUNY Research Foundation contracts greater
than $1 million that include State monies.
Part D of the bill amends the State Finance Law to extend OSC contract
oversight to the SUNY Research Foundation where state funding is
involved. The proposed approval threshold is identical to that for
public authorities.
The recent alleged bid-rigging and other schemes involve entities affil-
iated with the SUNY Research Foundation. Enhanced oversight will provide
much needed sunshine on an organization responsible for stewardship of
billions in state funding. While the SUNY Research Foundation and other
similar organizations at campuses around the state provide a means to
manage ongoing federal and private grants, taxpayers deserve to know how
their state funds are being spent and that the contracting process is
fair and in their best interest. This provision will subject State
moneys managed by the SUNY Research Foundation to additional oversight,
ensuring sound contracting practices are followed.
Strengthen requirements on the ethical performance by state officials
and vendors.
Part E:
Increase transparency of contract opportunities and results through the
Procurement Opportunities Newsletter.
Part E of the bill amends the Economic Development Law to expand the
requirements for agencies and public authorities to publish public
information about procurement opportunities for the benefit of vendors
and the public.
At present, agencies and authorities must advertise most contract oppor-
tunities in the Procurement Opportunities Newsletter (also known as the
Contract Reporter), which is widely used by the vendor community to
learn of and compete for state business. This helps the State notify the
widest pool of vendors and creates transparency and robust, fair compe-
tition. In addition, when an agency intends to conduct a single source
or sole source procurement, they must obtain from OSC an exemption from
advertising and thereafter must place a notice of the selected vendor in
the Procurement Opportunities Newsletter.
New provisions would expand the use of the Procurement Opportunities
Newsletter to enhance transparency and strengthen procurements in New
York by requiring agencies to place notice of all requests for exemption
from advertising procurements in the Procurement Opportunities Newslet-
ter 15 days before they seek such an exemption and before they award a
contract. Authorities would also be required to advertise noncompetitive
procurements in the Procurement Opportunities Newsletter 15 days prior
to award. Such notice would provide opportunity for other potential
vendors to identify themselves and enhance the state's position in find-
ing a qualified vendor at the best price.
PART F:
Part F of the bill amends the State Finance Law and the Public Authori-
ties Law to strengthen ethical requirements for state procurement offi-
cials.
Specifically. the bill would:
*Create specific requirements for state officials to recuse themselves
from any conflict of interest in writing and include that recusal in the
procurement record.
Currently, while officials are expected to recuse themselves when they
face a conflict of interest in their official duties, there are no
explicit guidelines to ensure transparency and compliance. These
proposed changes would reduce potential abuse and increase transparency.
FISCAL IMPLICATIONS FOR STATE:
This bill may require additional resources for the State Comptroller to
take on expanded oversight of contracts depending upon future workload.
