THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review

Report # 603

State Government Purchasing: A Review of State Agencies’ Implementation of Recent Statutory Changes and Other Selected Issues

Executive Summary

Introduction

In response to perceived and actual malfeasance and mismanagement at state agencies regarding purchasing,1 in recent years the Legislature has made statutory changes designed to yield improvements in the transparency, accountability, and oversight of state government purchasing. PEER received a legislative inquiry regarding whether these statutory changes have resulted in the desired improvements.

PEER sought to determine in this review:

• whether the state’s primary control agencies for purchasing (i. e., the Department of Finance and Administration, the Department of Information Technology Services, and the Personal Service Contract Review Board) have implemented relevant 2015 legislation (specifically, Senate Bill 2400 and House Bill 825, 2015 Regular Session) in a manner that will likely result in improved oversight, transparency, and accountability; and,
• whether the training and certification requirements for certified purchasing agents and certified purchasing offices, enacted by the Legislature in 2013,2  are achieving the desired results.

Additionally, in response to one of the recommendations of the Governor’s Task Force on Contracting and Procurement in the Mississippi Department of Corrections that was specifically directed to PEER, the Committee reviewed statutes regarding “net-of-fee” contracts.

This report will serve as a description of the purchasing and procurement regulatory environment at the beginning of the biennium for which the PEER Committee will be required by H.B. 825, 2015 Regular Session, to produce a study.

Background

Since FY 2010, state agencies have spent over $1 billion on purchases of goods and services. Proper stewardship of public funds requires that the agency making such purchases and the state as a whole make efforts to ensure that public money is being wisely used.

Oversight of purchasing decisions ensures that the state receives the best value for its purchase, that agencies comply with the required laws and regulations of the state, and that public funds are used in the most cost-beneficial way for the state to accomplish its mission. Within the public sector, procurement is increasingly being seen as an important component in delivering value to government and ultimately, service delivery to the taxpayers. The need for accountability is further reinforced by the amount of money that state government purchasing represents within a given fiscal year, especially the amount represented by contracts.

The three state control agencies for purchasing--the Department of Finance and Administration, the Department of Information Technology Services, and the Personal Service Contract Review Board--are the ones chiefly charged with administration and oversight of purchasing of state agencies.

2015 Amendments to Procurement Laws and Regulations and Their Potential Effects on the Procurement Environment

In 2015, the Mississippi Legislature acted to address several areas that it believed created risk to the integrity, transparency, and accountability of the procurement process.

What changes were made to state procurement laws in the 2015 session?

During the 2015 Regular Session of the Legislature, two pieces of legislation, S. B. 2400 and H. B. 825, were passed to address and alleviate concerns regarding accountability and transparency within the state’s procurement system. Additionally, changes were made to the membership and jurisdiction of the Personal Service Contract Review Board. While now implemented in the three control agencies, the legislation’s true impact on the number and dollar amounts of emergency and sole-source contracts awarded and reviewed cannot yet be determined.

What has been the response of the control agencies to the new legislation?

The departments of Finance and Administration and Information Technology Services have adopted rules in conformity with the changes in laws in 2015. The Personal Service Contract Review Board is in the process of adopting rules to give effect to the changes in law.

What are the potential effects of the changes on the procurement environment of state agencies?

While increased accountability and transparency are expected for emergency and sole-source contracts under the revised laws and regulations, the control agencies also expect that the new laws will impact the timeliness of procurements and require better planning by state agencies to ensure that procurement laws are followed and ultimately approved. Because these changes have been in force and effect for less than a year, it is premature at this point to project their impact on agency budgets and workload.

Training and Certification Requirements Established by State Law and DFA Regulations

Successful implementation of the recent purchasing reform efforts enacted by the Legislature will depend on trained and competent purchasing officials within the various state agencies. The Legislature has mandated the establishment of certification and training requirements to assist state agency employees in carrying out their purchasing duties.

As required by state law, the Office of Purchasing, Travel and Fleet Management has created a procurement training and certification school to instruct purchasing officials regarding the state’s laws and regulations. However, OPTFM cannot definitively determine the number of employees who are subject to receive purchasing training or what percentage of purchasing officials within the state are already certified.

Agencies that complete the statutory requirements to be a Certified Purchasing Office are allowed to make purchasing decisions based on best value (rather than lowest and best price) and are allowed to participate in cooperative purchasing agreements. As of September 1, 2015, five state entities had been designated by OPTFM as certified purchasing offices.

The Uses and Status of Net-of-Fee Contracts in State Government

“Net-of-fee” contracts do not involve the expenditure of appropriated funds, but do involve commitments on the part of state government for the use of some government benefit--e.g., space or access to a market.

Under a net-of-fee contract, a vendor makes an agreement to conduct activities that will result in the vendor being paid. Such contracts are generally not subject to state procurement laws and, without regulation, could be let in a manner that is not transparent or competitive. Such contracts became a subject of concern following indictments associated with the Mississippi Department of Corrections’ use of net-of-fee contracts for the delivery of commissary services.

Some state agencies use net-of-fee contracts as a means of offering food and vending services to staff, customers, and inmates. Despite the fact that public funds generally are not used to compensate contractors with net-of-fee contracts, state agencies have an interest in seeing that their staff, clients, and inmates receive quality services from their contractors.

Recommendations

To address the procurement issues identified by PEER in this report, the Legislature should enact the following legislation:

• Amend MISS. CODE ANN. Sections 31-7-3 and 25-9-120 (1972) to require the Department of Finance and Administration, Personal Service Contract Review Board, and Department of Information Technology Services to compile the following information regarding the implementation of Senate Bill 2400, 2015 Regular Session, and House Bill 825, 2015 Regular Session:
  
  
  • additional costs associated with the development and monitoring of compliance with rules and regulations adopted subsequent to the passage of the legislation;
  • changes in control agencies (i. e., DFA, PSCRB, and ITS) and state agencies’ workloads subsequent to the passage of the legislation, specifically identifying any impediments to service, oversight, or transparency;
  • frequency and value of contracts using alternate means of procurement, such as sole-source or emergency contracts; and,
  • conflicts among rules and regulations adopted by the control agencies subsequent to the passage of the legislation.
  This information should be collected for fiscal years 2016 and 2017 and reported to the Executive Director of the PEER Committee and the chairs of the Senate and House committees on Accountability, Efficiency and Transparency by September 30, 2017.
• Amend MISS. CODE ANN. Section 31-7-9 (1972) to require the Department of Finance and Administration to survey annually all state agencies as defined in MISS. CODE ANN. Section 25-9-107 (d) (1972) to determine the names and position titles of employees directly or indirectly responsible for procurement actions within the agencies. Once identified, DFA should maintain a list of such employees and update it periodically. Such employees should be required to enroll in the Mississippi Purchasing Certification Program as established in MISS. CODE ANN. Section 31-7-9 (3) (1972) and complete the program within twenty-four months of the effective date of this amendment or, for persons employed subsequent to the effective date of this amendment, within twenty-four months of employment.
• Amend MISS. CODE ANN. Section 31-7-1 and 31-7-9 (1972) to require the Department of Finance and Administration to promulgate rules and regulations regarding the procurement of net-of-fee contracts by state agencies. Such contracts should be submitted to DFA regardless of the amount to be remitted to the state agency--i. e., $0 threshold. Such rules and regulations should exempt contracts specifically within the purview of the federal Randolph-Sheppard Act.
  
  Also, the Legislature should amend MISS. CODE ANN. Section 37-101-15 (1972) to require the Board of Trustees of Institutions of Higher Learning to adopt a policy that requires state institutions of higher learning to obtain the approval of the board prior to entering into net-of-fee contracts. Such contracts should be submitted to the board regardless of the amount to be remitted to the state institutions of higher learning--i. e., $0 threshold. Such board policy should exempt contracts specifically within the purview of the federal Randolph-Sheppard Act.

1  In August 2014, the Commissioner of the Mississippi Department of Corrections (MDOC) was indicted on forty-nine counts of conspiracy, bribery, fraud, and money laundering in relation to transactions that had occurred between him and a private contractor doing business with MDOC. In February 2015, the commissioner pleaded guilty to money laundering conspiracy and filing a false tax return. See Appendix A, page 33 of this report, for more details.

2  See H. B. 502, 2013 Regular Session.

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