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UMBC recontracting procedures called into question

Christopher Paul, Retriever Staff Writer, Volume 39, Issue 20, published March 8, 2005

UMBC recently received a warning from the Department of Legislative Services, Office of Legislative Audits, Maryland General Assembly for not documenting its rational in making significant modifications to food service contract evaluation criteria within UMBC’s original Request for Proposal (RFP) after receiving proposals. The auditors claimed the changes benefited Wood Food Service Management and aided them in procuring the contract. In addition, UMBC did not have established procedures to ensure that the food service contractor complied with all terms of the contract according to legislative auditor, Bruce A. Myers, CPA.

         The review was conducted during May 2004, after receiving allegations through the Office of Legislative Audits fraud hotline in regards to possible favoritism by certain UMBC employees in awarding and monitoring the food service contract at UMBC.

         According to audit manager Mark A. Ermer, CPA, and senior auditor Julia Gorner, CPA, the audit team responsible for investigating the allegations, found that the original RFP was issued by UMBC in August 2000. The RFP identified eight technical evaluation criteria in descending order of importance. In December 2000, the UMBC procurement office personnel modified the RFP after receiving bids from two companies; one was from Wood Food Service Management, the second was not identified.

         First, the UMBC procurement office eliminated one of the criteria, secondly the procurement office added two new criteria and lastly, the procurement office changed the order of importance of the evaluation criteria after the deletion and additions had been made. The new RFP was sent out to the two contractors for new bids.

         The first problem the auditing team found was that UMBC did not document its rationale for any of the modifications to the original RFP. The committee that was responsible for evaluating the proposals, UMBC management personnel, said they only reviewed the December 2000 final technical proposals submitted by the two competing contractors and never reviewed the August 2000 proposals.

         The original August 2000 contract held the commission percentage to be paid to UMBC as the most important of two financial criteria and the capital investment to be made by the contractor as second most important. The revised December 2000 contract listed the capital investment to be made by the contractor as first and the commission percentage to be paid to UMBC as second. Reasons for the changes were not documented by UMBC.

         The auditing team said, “The modifications were generally beneficial to the incumbent contractor,” Wood Food Service Management. According to Ermer and Gorner, “Using the evaluation with the modified financial criteria resulted in Wood Food Service receiving a higher score than the competing contractor,” thus allowing Wood Food Service to win the bid.”

         In the second RFP, Wood Food Services proposed a capital investment of approximately $1.5 million, over a ten-year period, while the competing food service provider proposed an investment of $1 million over the same time span. Wood Food Services proposed a 15 percent commission to be paid to UMBC on allcash sales, while the competitor proposed 17 percent commission to be paid back to UMBC.

         “Although such modifications are not specifically prohibited by State procurement regulations, we believe that modifying evaluation criteria after proposals have been received and/or opened, without documenting the rationale for doing so, violates the sprit of the regulations,” Ermer and Gorner said. The auditing team continued, “Specifically, the stated purpose of the regulations is, in essence, to provide for a fair and equitable procurement process in both fact and appearance.” The audit team recommended that if modifications are to be made in the future, UMBC should maintain documentation to clarify the rationale for such modifications once the RFP has been issued.

         The second problem Ermer and Gorner found was UMBC had not established procedures to ensure that Wood Food Service Management had complied with all terms of the contract.

         Specifically, the audit team found that, “UMBC personnel did not verify that the actual capital investment made by the contractor satisfied the contract requirement. The contract required Wood Food Service to make a financial investment of approximately $1.5 million over a ten-year period, including $1 million in the first two years of the contract, fiscal years 2002 and 2003. After this matter was brought to UMBC’s attention, the contractor did provide UMBC with paid invoices supporting the fact that the fiscal 2002 and 2003 capital investment criteria were met.

         In addition, the contract requires Wood Food Service to pay UMBC a 15 percent commission on cash sales, but not less than $250,000 per year. According to the audit team, “UMBC had not established procedures to verify that the commissions paid by the contractor met the contract terms.”

         The audit team recommended that UMBC establish procedures to ensure that the food service contractor complies with all contract terms, specifically obtaining documentation from Wood Food Service to substantiate that Wood Food Service has indeed made the required capital investment and that UMBC monitor cash sales commissions to ensure that such commissions meet the terms specified in the contract.

         UMBC’s response to the audit team’s findings and recommendations stated that they agreed with the audit team’s findings and that they would comply in the future. UMBC would maintain documentation substantiating the rationale for proposal modifications and that UMBC had already implemented a monitoring process to ensure that the agreement of cash sales commissions is met.

         The audit team’s review was not conducted in accordance with generally accepted government auditing standards. If the review had been conducted in accordance with generally accepted government auditing procedures, other matters may have come to the auditor’s attention that would have been reported.

This audit report is within the public domain and a matter of public record. Complete details of the audit may be found at https://www.ola.state.md.us/reportfiles/performance/2005/umbc%20fraud%20report.pdf

Note:

         During "The Retriever" weekly meeting, March 9, 2005, Joe Howley, the managing editor, came to me, shook my hand and gave me a congratulations on this article and said, "Thanks for a well-written article and for uncovering something that was news-worthy for the community."