March 18, 2004

Mohave Educational Services Contracts Still Available for Use By Members

On March 17, 2004, the Auditor General’s Office sent an email indicating that Mohave has not followed the Arizona State Board of Education School District Procurement Rules. (Memo shown below.) That email further indicates that as of March 17, 2004, and until such time as MESC's current procurement practices are tested by an independent certified public accounting firm and it is determined that MESC has come into compliance with the rules, it is the responsibility of Mohave’s members to determine whether purchases through Mohave are being made in compliance with the rules.

MOHAVE WANTS OUR MEMBERS TO BE AWARE OF THE FOLLOWING:

Mohave contracts continue to be valid. The examples of noncompliance cited in the email, improperly evaluating vendor responses to requests for proposals, not determining that prices were fair and reasonable, and improperly awarding certain contracts, were based on technical issues, which do not automatically translate into invalid contracts. Those issues were addressed and, where required, corrected several years ago in the normal course of business.

The statement that “…it is the responsibility of a member school district/charter school to determine whether their new purchases/contracts through MESC are being made in compliance with the Rules” is correct. In fact, it applies to every cooperative procurement contract used by a public entity subject to the Arizona State Board of Education School District Procurement Rules or the State Procurement Code. The ultimate responsibility for ensuring compliance with the rules and code always rests with the buying agency, regardless of who issued the contract.

The report cited the following examples of Mohave’s noncompliance with the procurement rules. Our response to each example is included.

Inappropriate use of request for proposal process because MESC’s governing authority has not made the required determination that competitive sealed bidding may not be practicable or advantageous.

Mohave’s Executive Board has made class determinations for using competitive sealed proposals as far back as 1999. Appropriate class determinations remain in effect.

MESC could have followed the more competitive bid process for these solicitations and likely resulted in lower-priced contracts.

This is an unsubstantiated subjective opinion. There is increased use of competitive sealed proposals throughout the public sector. This is particularly true for cooperative procurement entities serving a broad based membership.

MESC awarded contracts without documenting an assessment of any evaluation factors.

This is a technical error regarding documentation and was corrected a number of years ago. All contract awards are fully documented. All awards are, and always have been, based upon the criteria in the solicitation.

MESC’s proposals did not state the relative importance of price and other evaluation factors such as quality, timeliness, warranties, or service.

Not listing the evaluation criteria in relative order of importance was a technical error that was corrected a number of years ago. RFPs have always listed the evaluation and award criteria.

MESC staff decides who shall be awarded a contract; however, there is no documentation to support that process. Contract awards were often unsubstantiated by or in conflict with the “Evaluation Checklist” forms.

The Evaluation Checklist is a tool used by Mohave to determine responsiveness and to obtain information from members as to whether they believe a proposal is advantageous. It is not the sole evaluation tool. Additionally, both members and vendors are aware that Mohave makes the final award determination.

The Evaluation Checklist was revised a number of years ago to obtain more specific responses from members reviewing proposals. However, Mohave still reserves the right to consider the appropriateness of those responses to protect members and help ensure contracts are awarded appropriately. As an example, we recently had a member evaluation form that indicated a vendor was completely responsive to the solicitation and was absent any negative comments. However, the evaluator recommended that the vendor not be considered for award. Mohave was under a duty to continue consideration of the proposal in spite of the member’s recommendation because the recommendation was not substantiated by facts. We do this for all proposals.

As indicated above, all contract awards are fully documented.

Although required by State Board of Education Procurement Rules, when only one bidder submitted a proposal, MESC officials failed to determine that the bidder’s price was fair and reasonable and that other prospective bidders had reasonable opportunity to respond, or there was inadequate time to resolicit the proposal.

This is a technical error regarding documentation and was corrected a number of years ago.

Several vendors reported that they were unable to respond to an MESC solicitation for roofing services because of its restrictive language. Some of the vendors’ observations include: “It is our opinion that the specification as prepared by Mohave was carefully structured to reduce competition rather than foster it”; “Bid seemed to be proprietary”; and “The tight specs prevent others from competing.”

Mohave is in the process of obtaining new bids for roofing. The solicitation was reviewed by two school facilities managers who found the specifications fair and reasonable. The charge of proprietary specifications applied to hypalon flashing. Mohave confirmed this flashing is not proprietary.

MESC’s practice of awarding contracts to multiple vendors for the same goods or services may be inhibiting the economic value of competition.

This is an unsubstantiated subjective opinion.

State procurement rules allow multiple awards to be made only if a single award is not advantageous to the State, and further requires multiple awards to be limited to the fewest number of suppliers necessary.

The school district procurement rules do not contain the referenced requirement. The State procurement rules do include the requirement. However, the State Procurement Code does not.

On at least 24 occasions during fiscal years 1997 through 2000, MESC awarded contracts to two or more vendors responding to the same solicitation without documenting any advantage to its members.

Mohave currently documents all multiple awards as being advantageous to members and substantiates each award.

Certain MESC contracts’ prices were as much as 33 percent higher than other entities’ contracts for the exact same products. We examined contracts for five types of commodities in which MESC and SPO used the same vendors for the same items. All of these items were identical in quality with matching distributors, manufacturers, and model numbers.

Contracts used in the pricing analysis were not for comparable purchases. The analysis used State contracts for School Facilities Board (SFB) large volume purchases for specified requirements. MESC contracts satisfy member requirements at the time of need and in quantities appropriate for any size entity. Additionally, MESC discovered errors in the analysis. Once corrected, the analysis is much different.

Mohave’s contracting program provides a valuable option for all members. Members can use the contracts with confidence. As always, we are prepared to answer any questions or provide substantiating documentation for any member purchase. Please contact Tom Peeler, tom@mesc.org, Craig McKee, craig@mesc.org, or Mark DiBlasi, mark@mesc.org, with any questions regarding MESC contracts.

Rev. 3/18/04, JTP

MEMO FROM THE OFFICE OF THE AUDITOR GENERAL

SENT: Wednesday, March 17, 2004 12:59 PM
SUBJECT: State of Arizona, Office of the Auditor General Investigative Report: Mohave Educational Services Cooperative-Financial Improprieties
TO: School District Administrators, Administrators of School District Sponsored Charter Schools, County School Superintendents, Certified Public Accounting Firms

Our Office issued an investigative report on March 15, 2004, titled Mohave Educational Services Cooperative (MESC)-Financial Improprieties, indicating that MESC has not followed the Arizona State Board of Education's School District Procurement Rules (Rules), as well as several other findings. Some examples of MESC's noncompliance with the Rules include improperly evaluating vendor responses to requests for proposals, not determining that prices were fair and reasonable, and improperly awarding certain contracts.

The purpose of this e-mail is to address concerns that school districts and school district sponsored charter schools may have regarding compliance with the Uniform System of Financial Records for Arizona School Districts (USFR) and Charter Schools (USFRCS) as a result of this investigative report..

Even though MESC member school districts and charter schools may have been in noncompliance with the Rules in fiscal years 2002-03 and 2003-04 as a result of the findings cited in the investigative report, our Office will not include any deficiencies related to MESC purchases in our determination of whether a district or charter school has complied with the USFR/USFRCS for those fiscal years.

However, as of March 17, 2004, and until such time as MESC's current procurement practices are tested by an independent certified public accounting firm and it is determined that MESC has come into compliance with the Rules, it is the responsibility of a member school district/charter school to determine whether their new purchases/contracts through MESC are being made in compliance with the Rules.

Please disseminate this information to the appropriate officials within your district. A copy of the report is available on our Web site at www.auditorgen.state.az.us. If you have any questions concerning this matter, please contact Gregg Rickert or Laura Miller, Accounting Services Managers, at (602) 553-0333.

Sincerely,
Magdalene D. Haggerty, CPA
Accounting Services Director
Office of the Auditor General