Dahlquist Questions State's Competitive Contracting Practices

Editor's Note: The following is a press release issued Tuesday by the office of the Washington State House Republicans.

Rep. Cathy Dahlquist, in a letter dated November 19, and again in a November 29 meeting with the head of the Washington State Department of Enterprise Services (DES), questioned the agency’s competitive contracting protocol. The contract in question is between KONE Inc., an international elevator manufacturer and maintenance service provider, and the state. It was approved by a DES contract specialist and included annual 4 percent pricing increases 2009 through 2012.

The questions raised with regard to the KONE Inc. contract prompted Dahlquist to introduce House Bill 1143, which would further reform the state contracting process to better serve taxpayers and assist small businesses in bidding on the contracts. The bill received a public hearing Feb. 5 in the House Government Operations and Elections Committee.

“When a constituent brought the issue to me, I could not believe that during the worst economy since the Great Depression the state would be boosting any vendor rates. This constituent lost contracts, which cost people their good-paying, union jobs. My meeting with DES confirmed there are some significant issues that need to be resolved in how we contract for services, how rates and increases are determined and how the agency assures the contracts are put out for bid and approved in the best interest of taxpayers,” said Dahlquist, R-Enumclaw. “From what I can tell, it’s time to change how government does business.”

Issues with current state contracting protocol, according to Dahlquist’s research, are:

• Small contractors got weeded out of bidding processes due to the complexity of the Requests for Proposal paperwork;
• The contract could be extended for up to 15 years, far too long to capture any savings that may be possible through contract renegotiations or new vendor opportunities;
• The state is required to review price competitiveness and changes to the marketplace for such a commodity or service before granting a price increase. The information on file in this instance was insufficient to justify the increase; and
• The data used to determine service cost increases for the KONE Inc. contract, which are currently calculated based on inflation and prevailing wage in Seattle, virtually guarantees every contract will be more costly than the previous for the exact same service.

In the letter to DES, Dahlquist questioned contract increases during the recession and lack of oversight that would better ensure every contract is an adequate reflection of the budget reality facing the state and our still-recovering economy. Also of great concern was the admission from DES that the agent in charge of determining contract rates had made a “mistake” when authorizing the rate increases and had determined the rate increases solely by reading a magazine article titled, “Are you paying too much for elevator maintenance?”

 As written, House Bill 1143, would:

• Give the governor the ability to terminate any state contract in accordance with state law, federal law or contractual provisions;
• Limit goods and service contracts to terms of no longer than 3 years with extensions not to exceed 10 years;
• Require DES to get price quotes from local businesses to determine prices and labor costs before granting contractual increases. The findings would be required to be posted for public review 10 days prior to authorizing any contractual increase;
• Require the governor’s approval for contractual increases that are more than the estimated real gross domestic product growth rate for the year as forecast by the State Economic and Revenue Forecast Council;
• Remove sole source contracts from the list of exemptions to competitive solicitation; and
• Limit sole source contracts for goods and services to a term of no more than 3 years, and 10 years with all extensions.

“To my mind, the process was used, maybe unintentionally, to ding the taxpayers more for this contract and weed out small business competition,” Dahlquist said. “This is totally unacceptable and goes against the spirit of the state’s competitive bid process. My bill will ensure we error on the side of taxpayers and force a greater level of accountability for every dollar state government spends.”

DES officials told Dahlquist the initial contract covered 327 conveyances and 23 entities. However, there are actually 1,030 conveyances and 71 entities covered by the contract.

KONE Inc. was awarded the contract in 2007. The original bid estimated $4.5 million worth of purchases over a three-year period, or roughly $1.5 million annually. Yet, the estimated annual worth for the contract now is posted on the Web site as $2,959,742, making the contract noticeably larger over the five years it has been active.

“Labor costs in the private sector actually went down during the past few years, yet big pricing increases were made in the contract with KONE Inc. The head of DES confirmed to me the increases in the contract were out of line and a ‘mistake,’” Dahlquist explained. “It’s unacceptable that no one caught this error, which sticks taxpayers with an ever-increasing cost of government. I also wonder why these issues were not noticed until I brought them to light. Our budget situation is going to be grim again this year. As such, the agency should be reviewing each and every expenditure to ensure the people of this state are getting the best value for the dollars they contribute to state government services.”

For more information, visit our Web site at: www.houserepublicans.wa.gov.