THE MISSISSIPPI LEGISLATURE

Introduction

The Department of Finance and Administration (DFA) provides Mississippi state government with a broad range of financial services including claims pre-audit, administration of employees' health insurance plans, management of office buildings, and executive budget preparation and oversight. DFA also provides support to the Tort Claims Board and the State Agencies' Workers' Compensation Pool.

DFA has chosen to contract out some of its activities, including actuarial services, some accounting services, and third-party administrator's services for health insurance, workers' compensation, and tort claims administration.

To assess DFA's contracting practices, PEER evaluated DFA's personal services contracts for fiscal years 1992, 1993, and 1994 with annual expenditures of more than $5,000. PEER excluded from its review service and repair contracts, as well as contracts for architectural and engineering service. DFA had procured forty-six contracts that met these review criteria.

Because personal services contracting in Mississippi is not a highly regulated activity and few statutes address the process, PEER evaluated DFA's personal services contracts against eight criteria determined to be elements of fair and efficient contracting:

• documentation of need;
• preparation of a formal request for proposals;
• notice of intent;
• formal proposal review;
• approval of competitive selection;
• development of a written contract;
• contract monitoring; and,
• contract evaluation.

Findings

Of the forty-six contracts reviewed by PEER, the Department of Finance and Administration did not use a competitive process to procure twenty-six, or fifty-seven percent, of the contracts. (See page 12.)

The Department of Finance and Administration has a general, but unwritten, policy that requires the department to procure personal services through a competitive process. DFA also periodically extends personal services contracts beyond their initial period, usually through amendments to the original contract. Failure to select contractors competitively could deprive the state of potential savings.

The Department of Finance and Administration failed to comply with MISS. CODE ANN. Section 25-9-107 because it did not submit some contracts for third-party administrator and utilization review services to the State Personnel Director for approval. (See page 14.)

State law requires agencies to obtain approval of the State Personnel Director for personal services contracts (excluding those for physicians, dentists, architects, engineers, veterinarians, and attorneys). DFA did not obtain approval for third-party administrator and utilization review contracts for the state and public school employees' health plans. While PEER does not contend that state employees could perform the functions of a third-party administrator or of the utilization review organizations, the department should not be allowed to bypass obtaining contract approval.

DFA did not execute a written contract with the third-party administrator selected for the State Agencies' Workers' Compensation Pool until six months after the effective date of the contract. (See page 16.)

In early 1994, the State Agencies' Workers' Compensation Pool commenced the process of selecting a new third-party administrator. Although DFA and the pool followed fair and efficient contracting procedures in selecting a contractor, the department did not prepare and execute a written contract until December 1994, even though the new contract was to become effective July 1, 1994.

Lack of a written contract could confuse the parties involved as to their respective tasks and responsibilities. In this instance, the department's failure to formalize its agreement in written form resulted in a six-month delay in payment to the contractor.

The Tort Claims Board did not develop a formal request for proposals to procure third-party administrator services. (See page 17.)

The Tort Claims Board never developed a formal request for proposals to solicit potential bidders for its third-party administrator contract. The board alerted potential bidders through newspaper advertisements, then sent out a letter to interested parties that requested information from them, but that did not state the evaluation factors the board would use when analyzing proposals.

The lack of a formal request for proposals caused confusion for one bidder with respect to exactly what he should bid. DFA and the Tort Claims Board could have avoided such a problem by using a more formalized selection process.

A contract consultant's error delayed selection of a third-party administrator for the Tort Claims Board and cast doubt on the integrity of the board's selection process, because one of the firms that bid on the Tort Claims Board contract subsequently employed that consultant. (See page 18.)

PEER could find no evidence that any employee of the firm involved committed or intended to commit any wrong that could result in a claim against the employee or the firm. However, the sequence of events that took place caused some bidders and others to question the integrity of the board's process in obtaining this contract because a person involved in evaluating proposals ultimately was employed by one of the bidders, albeit an unsuccessful bidder.

Recommendations (see page 21)

1. The Department of Finance and Administration should abide by its internal policy regarding the competitive selection of contractors. This policy should be expanded to require that the department issue a formal invitation or request for proposals, and that this request be advertised. Further, the request should inform the potential respondents of the job to be performed, the criteria that will be used for evaluating respondents, and any other material provisions.
2. The Department of Finance and Administration should comply with state laws regarding the State Personnel Director's approval of personal services contracts unless the Legislature specifically chooses to exempt the department.
3. The Department of Finance and Administration should exercise due diligence in preparing a written contract that parties can agree to prior to the intended date for service commencement. The parties should have a signed contract on or about the effective date of the service agreement.
4. The Department of Finance and Administration should require that any consultant or professional who contracts with the department to provide services to also agree in the contract that the consultant or professional service provider shall not contract with any person or firm upon whose work the consultant or professional has been required by the department to review or give advice. This prohibition should be effective during the term of the contract and for one year thereafter.
5. The Department of Finance and Administration should limit extensions to personal services contracts to a period not to exceed two years.

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