Bacon's Rebellion

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Who is Contractor A?

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by

James A. Bacon
in

Contractor AAn audit of MWAA management practices found that a mysterious “Contractor A” charged more than other contractors for the same work — and kept getting business. Who is this company? Who got the money? And why doesn’t anyone seem to care

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by Bob Bruhns

At the request of Representatives Frank Wolf, R-VA, and Tom Latham, R-IA, the Office of the Inspector General of the U.S. Department of Transportation audited the management of the Metropolitan Washington Airports Authority last year. On November 1, 2012, the Inspector General issued the final report on its audit. The title said it all: “MWAA’s Weak Policies and Procedures Have Led to Questionable Procurement Practices, Mismanagement, and a Lack of Overall Accountability.”

Not only were high-priced contracts awarded improperly, the auditors found, but one particular contractor was winning an inordinate number of contracts despite the fact that it charged much more than other contractors.

MWAA mismanagement was endemic. States the report:

MWAA issued out-of-scope contract actions over $200,000 — including contract modifications and task orders — without required Board approval. From our statistical sample of 24 out of 343 active MWAA contracts, we identified 8 for which MWAA issued a total of 20 out-of-scope contract actions with a combined value of $57 million. Based on these findings, we project that MWAA has issued $107.6 million in out-of-scope contract actions on contracts active as of June 2011.

The report goes on to discuss an unidentified “Contractor A” that won a disproportionate number of contracts even though it charged more for its services:

Over the past 8 years, MWAA awarded more than 80 percent of work under three groups of multiple- award contracts to a single contractor (“Contractor A” in table 2). However, the contractor’s rates were often higher than the other multiple-award contractors’ rates. For example, the contractor’s rates in a 2012 contract were between 28 percent and 234 percent higher. While MWAA may have had non-price related reasons for selecting Contractor A, this unbalanced distribution of work to a single contractor with significantly higher rates appears contrary to the purpose of multiple-award contracts..

So, the inspector general’s report estimates that there was about $108 million in improper contracting — just in the contracts that happened to be active in 2011 – and that Contractor A benefited from eight years of contracts billed at a rate that the report typifies as 1.28 to 3.34 times what other contractors charged for the same work.

The report continues: “In addition, MWAA allowed Contractor A to add job categories to a contract but did not offer the other multiple-award contractors the same opportunity. Thus, when MWAA ordered work related to those additional job categories, they were effectively sole-source awards because only one contractor was able to accept the work.”


It is hard to avoid the appearance that MWAA was funneling multimillion-dollar contracts to Contractor A at higher-than-market rates.

The report continues: “In July 2012, MWAA’s Procurement and Contracts Department established guidelines requiring contracting officers to select contractors under multiple-award contracts for temporary staff. However, this policy only applies to temporary staffing contracts rather than to all multiple-award contracts.”

In other words, as of July 2012, MWAA policy apparently still allowed the selective multiple award contracting that it undertook for years with Contractor A. Read more.

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17 responses to “Who is Contractor A?”

  1. DJRippert Avatar
    DJRippert

    I am glad you are staying on this topic. A dollar saved is a dollar earned.

    However, there should be some perspective included in the analysis. Phase I was budgeted to run $2.8B. The auditors took a sample, found some “out of procedure” contracts and extrapolated the amont of “out of procedure” contracts if all contracts followed the statistical distribution of their sample. Their extrapolated total was $107.6M.

    That’s 3.8% of the Phase I total.

    Let’s say those contracts were twice as expensive as they should have been. That’s $53.8M in over-payments or 1.9% of the total.

    I don’t like the fact that any contracts are awarded outside of the approved process. However, an overspend of 2% does not represent systematic fraud or mismanagement.

    All things considered, the MWAA’s execution of the Phase I contract seems to have been quite competent.

    1. reed fawell III Avatar
      reed fawell III

      That perspective is good. The concern is that where there’s a little rot, likely there’s more in train, whether yet uncovered, or the start of more to follow.

      1. James A. Bacon Avatar
        James A. Bacon

        One good way of determining whether there is still rot at MWAA is to find out how the “Contractor A” business was handled. Is Contractor A still doing business with MWAA? Did MWAA ever investigate the circumstances of the Contractor A contracts? Did it try to claw back any of the over-payments or cooperate with a possible investigation? Was/is Contractor A politically connected and getting off easy because of those connections? I applaud Bruhns for raising the issue.

        1. reed fawell III Avatar
          reed fawell III

          Right – the very fact that the contractor is labelled “Contractor A” demands answers necessary to determine what happened and why.

          This includes why the hell is “Contractor A” receiving special and privileged treatment by the auditors, including anonymity?

          1. DJRippert Avatar
            DJRippert

            My guess is that the contracts and pricing for all contractors is proprietary. So, the internal audit report names the contractor but the public version does not. This is the equivalent of redacting information in a public bid.

            Mr. Bruhns asks a good question about follow-up. The auditors did their job and identified a small percentage of contracted dollars that seem to have been let outside of the approved process. Obviously, there was a failure of internal controls. A really well run operation would have a separation of duties whereby the procurement / legal department would not have signed the final contracts without knowing that the required approvals had been received. Obviously, that didn’t happen in the case of these contracts. Have the internal controls been fixed? Beyond that, it’s possible that somebody wasn’t doing their job in negotiating the rates for Contractor A. This could be malicious or not. An investigation needs to determine how those contracts were let at a high price. If this was intentional, law enforcement needs to be contacted. If it was just sloppy then employees need to be sanctioned and perhaps the vendor needs to be sanctioned as well.

          2. reed fawell III Avatar
            reed fawell III

            “My guess is that the contracts and pricing for all contractors is proprietary.”

            That’s interesting. Proprietary interests trump disclosure to a point, I suspect. Here perhaps that point has been passed.

  2. larryg Avatar
    larryg

    and I pretty much agree with DJ with the proviso that authorities like MWAA are created with too much autonomy and too little external oversight and that leads to shoddy practices that are not industry standard or best practice.

    I was going to say that most State agencies in Va are subject to random audits of various flavors by JLARC and why not MWAA and I found this at the
    JLARC site: Potential Audit of the Dulles Metro Extension Project
    http://jlarc.virginia.gov/meetings/June11/APAbrf.pdf

    did this ever get done?

  3. Darrell Avatar
    Darrell

    The pdf says VA agencies don’t have authority to do the audit. Makes sense. It would be like JLARC auditing a MD agency. They pointed to the audit that this article is about.

  4. Bob Bruhns Avatar
    Bob Bruhns

    The $108 million was not a total of bad spending in a multi-Billion dollar project, it was an estimate of the total of badly let contracts that happened to be active in 2011. I continue to assert that Phase 1 and Phase 2 of the Dulles Rail / Silver Line project appear to be about double priced – meaning that there is about $2.5 Billion to $3 Billion of overcharge in this rail extension project. That’s a lot of money!

    To my great disappointment, the audits, so far, have not examined the pricing in the project. For example, the Inspector General did not address the 2.4 to one price ratio of the $101 Million Rt 28 / Innovation station, with 8-car train capacity and half-length canopy on its single platform, compared to the $42 million Fairfield, Connecticut Metrorail station, with its 12-car train capacity and it’s full length canopies over both of its platforms. Nor has anybody (but me) asked about the double price of the five Phase 2 parking garages in this project. $34,014 per space is a very high price for simple above-ground parking garages.

    I challenged my hometown (Herndon VA) to confirm that their own estimate of $15,000 per space was valid for their planned municipal parking garage in Herndon Virginia – right in the middle of Phase 2 – and they say that it is. The Town Manager actually cited possible prices lower than $14,000 per space.

    There WAS an audit of Phase 1, conducted by KPMG and released on April 17, 2012.
    http://www.metwashairports.com/file/MWAA_KPMG_Phase1_Audit.pdf

    The April 17, 2012 KPMG audit reveals some price numbers from Phase 1. Professional Services for Phase 1 was budgeted at $717,483,957, but it was expected to come in at $772,870,177. See page 7 of the report (Page 11 of the pdf), Table 2, Project Cost Summary by SCC Code, dated January 31, 2012 – it’s the FTA/SCC Code 80 line item.

    Hmmmm, so it was $717 million heading toward $773 million, not the $700 million that I remembered. Is that good? Bad? Or indifferent? All I know is that there must be some VERY happy professionals out there! And Phase 2 probably made them very happy too.

    And beyond Phase 1, I think it is very evident that 2.4X pricing on a Metrorail station, and 2X pricing on parking garages, does not suggest reasonable pricing in Phase 2. I have previously linked to my publication that compares the Franconia-Springfield Metro extension to the Phase 2 job, and finds the Dulles Rail / Silver Line Phase 2 project cost per mile to be high by 2:1. Do a web search on ‘ The excessive pricing of the Dulles Rail – Silver Line Metrorail project ‘ and you’ll see it.

    No auditor or inspector has explained how Metrorail prices have inflated at two times the general inflation rate, between 1997 and now – and I suggest that the FTA and MWAA price estimators should be called out and questioned about this before a Congressional transportation committee, immediately.

  5. larryg Avatar
    larryg

    with respect to per parking space for multi-level parking structures, 15K sounds in the ballpark, perhaps low.

    If not mistaken, parking in a surface commuter lot works out to about 10K per spot depending on the land cost.

  6. TMT Avatar
    TMT

    The protection given the Dulles Rail contracts is absurd. I’ve negotiated radio spectrum leases for Virginia public school divisions that contain the lessee’s sensitive pricing information. But these are publicly available. To the dismay of the successful bidder (I used an informal auction approach), the information is online.

    What’s the difference? Bechtel was able to lobby for a specific exemption from Virginia’s FOIA.

    I was able to protect the information in one case, as the unsuccessful bidder was in Maryland and couldn’t submit a FOIA request.

  7. larryg Avatar
    larryg

    not sure I am following what TMT is saying.

  8. Bob Bruhns Avatar
    Bob Bruhns

    TMT must be involved in price bids, and efforts are probably made in such bidding to shield information like line item prices.

    So, apparently line item pricing information in competitive contracts is considered hush-hush information. I don’t see why this should be – certainly it should not be allowed to conceal prices in any public infrastructure project like this Dulles Rail / Silver Line project. But indeed the line item price information was redacted in every document I could find for Phase 2 of the Dulles Metrorail project, except for a few items that appear in the FTA’s July 3, 2011 White Paper on ‘savings’ for this project.

    Once you get past the $53 million 7/3/2011 USDOT/FTA blunder on the price of the Rt 28 station (they said $136 million, but three weeks later that number suddenly changed to $83 million without explanation, and it turned out that they had wrongly included the price for the Rt 28 parking garage in the $136 million station price number), the information was interesting: $26,382 per space for the parking garages, $83 million for a Metrorail station, $15 millions of savings for cutting full-length canopies to half-length canopies in the five Phase 2 parking garages.

    And then, in the finest tradition of shameless auctioneering, MWAA then said “I hear $83 million, do I hear $101 million?” for the Rt 28 Metrorail station, and “I hear $26,382 per space, do I hear $34,014 per space?” for the five Phase 2 parking garages, in their March 6, 2012 price estimate. And nobody questioned or even mentioned these skyrocketing price estimates (except for a fellow calling himself ‘Tax Pig’, and later me, when I found out about the sneak estimate hike).

    It is strange that these prices went up so much (an average of about 26%), when the overall project estimate dropped very slightly over the same time period. But the excesses built into these prices is even stranger. It appears that the station should cost more like $42 million, and the parking garages should cost more like $15,000 to $17,000 per space.

    TMT must be involved in price bids, and efforts are probably in such bidding to shield information like line item prices. He appears to be talking about information that was _not_ kept super-secret in one set of informal bids involving Virginia schools, and one case where secret bids remained secret because a competing bidder who might have wanted the information to protest a lower bid, could not access the information for other legal reasons (being out-of-state).

    I submit that our government never tries to price-check any line item price, they just do an up-or-down decision on whether to accept it or not. So contractors are submitting bloated line item prices, figuring that they will pocket a nice chunk of change, whatever line items gets rejected, and whatever line items do not get rejected. And the result is that we pay sky-high prices. And I submit that it is very much in the national interest for this price secrecy policy to be abolished.

    By the way, the Washington Examiner is now picking up on the trick overprice-by-overestimate game. The top may be about to blow off this story… I can only hope.

    Examiner Local Editorial: Silver Line figures don’t add up
    Washington Examiner, April 30, 2013
    http://washingtonexaminer.com/examiner-local-editorial-silver-line-figures-dont-add-up/article/2528520

  9. Bob Bruhns Avatar
    Bob Bruhns

    PS – the line item price information was redacted in the Phase 1 documents too. Big black lines all over the place. It’s time for this to be thoroughly investigated. Why should taxpayers and tollpayers be forced to pay bloated prices?

  10. reed fawell III Avatar
    reed fawell III

    Bob – thank you for raising this line item issue.

    I’ll compete my story about Old Joe by telling how he used line items to so effectively drive down during the bid process and control them during the construction phase after the award of the successful bid which was not necessarily the lowest bid, but always the best bid. The lowest bid in fact under the public bidding process may well be the worst bid. Old Joe didn’t give a damn about the lowest bid. He was after best price at the lowest cost for the best building built so as to assure on time on budget completion.

    Sometimes he got the best and strongest bid for the price of the lowest bid, after he’d worked a higher bid down, or some cases after he’d eliminated the original lowest bid of all its weaknesses owner-wise. Just as often he’d walk away from the lowest bid, saying these guy’s not serious, don’t want the job.

    Anyway, I’ll alert you when I finish old Joe’s story here or on later post.

  11. reed fawell III Avatar
    reed fawell III

    Correction 1st sentence: “I’ll compete my story about Old Joe by telling how he used line items to so effectively drive down THEIR COST during the bid process …”

  12. Bob Bruhns Avatar
    Bob Bruhns

    Well, it turns out that 25% is a rather high percentage for Professional Services in a big-ticket project.

    I found a US EPA document that says that for a project over $10 million, a Project Management Professional Services percentage might be expected to be about 5%. Even Project Management and Construction Management together would be 11%. And even Project Management, Construction Management and Remedial Design (hopefully we will not need remedial design) put together would be 17%.

    A Guide to Developing and Documenting Cost Estimates During the Feasibility Study
    US Environmental Protection Agency, Army Corps of Engineers
    EPA 540-R-00-002
    OSWER 9355.0-75
    July 2000
    http://www.epa.gov/superfund/policy/remedy/pdfs/finaldoc.pdf
    (See Exhibit 5-8, ‘Example Percentages for Professional/Technical Services Capital Costs’, Page 5-13 of the report, Page 32 of pdf)

    So now I am wondering why the Professional Services cost for the Dulles Rail project is about 25% of the total price of the whole job.

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