Improving ProcurementState of Hawaii:

Overview and Recommendations

White Paper

Presented By

Industry Partner: Lokahi C&T

September 2015

Executive Summary: Based on recent procurement issues (e.g. Hawaii Health Connector, Department of Transportation, OIMT ERP etc.) this white paper suggests the following action items for the State of Hawaii to consider:

Immediate Solution: Develop an Acquisition Oversight/Contract/Project Management “A”-Team for high dollar/high risk projects. The team would be responsible to monitor and remediate problem contracts. Oversee the formulation of new contracts and insure “best practices” are strictly adhered to (pre-acquisition to close out).

Short/Medium/Long-Term Solutions (3-5 years)

•Implement Top 10 list- Focus areas for State Government, National Association State Chief Procurement Officers (see enclosed for details),

•Prioritize the engagement of Hawaii Small Businesses in State Procurements

● Create an Office of Small Business-State of Hawaii

● Establish Small Business goals and objectives

● Create a Small Business Advocate/Ombudsman position

● Prompt Payment for Small Business (payment 30 days after invoice submittal-burden on Gov’t to provide a proper review and approval)

•Borrow from the Feds

● GSA Schedule 70 for IT procurements (goods/services)

● Acquisition and Procurement “Best Practices”

● Education and Training of Acquisition and Contract Management Staff

○ Follow the Federal Acquisition Institute (CO, COR and P/PM Level I, II, and III certifications)

Why Improve Procurement?#State of Affairs: Excessive spending on contracts, lack of accountability/contract oversight (waste/abuse of public funds; potential for fraud, loss of control on project(s), ultimately failing taxpayers and putting at risk continued funding from Federal agencies and related sources.

#Recent Examples:

Feds critical of Hawaii's $820 million highway project backlog The money is "waiting to be spent on vital transportation projects http://www.hawaiinewsnow.com/story/28948850/exclusive-feds-critical-of-hawaiis-820-million-highway-project-backlog

Hawaii Abandons $13.9 Million Financial Accounting System Apr 24, 2015 - The "FAST" project was supposed to automate the division's project and ... system that handled accounting for the state Department of Transportation ... Efforts to launch the system failed or were aborted http://www.govtech.com/transportation/Hawaii-Abandons-139-Million-Financial-Accounting-System-Transportation-System-.html

Hawaii Health Connector Cuts Contract with Vendor for Sub-par Performance http://www.govtech.com/state/Hawaii-Health-Connector-Cuts-Contract-with-Vendor-for-Subpar-Performance-.html

Aging system needs repair The EPA tells the state to “get it together” or lose millions http://www.staradvertiser.com/newspremium/20150810_aging_system_needs_repair.html?id=321231091

$200 MILLION OF YOUR MONEY WASTED-State procurement squanders cash and delays services http://www.hawaiibusiness.com/200-million-of-your-money-wasted/

MEDIA-EXCLUSIVE: State spends nearly $14 million on failed DOT system : Apr 23, 2015 By Keoki Kerr

*"They have failed every single intermediate step in the project," Ige said. "This is typical of how a lot of state projects have been conducted in the past." "As of today we still have nothing. No system. No working system," said State Senate President Donna Kim, who said she's working with the governor to prevent failures like this in the future.

*"Over $13 million. What do we have to show for it? Zero. If this was the private sector, somebody's heads would roll," Kim said. Kim and Ige are upset that the two consultants – BEI and Gartner -- who the state hired to monitor the contractor and manage the project were paid $6.9 million, the same amount that the main contractor – Ciber -- was paid by the state. Usually consultants are paid a fraction of the overall project cost.

Improving Procurement-How?•Action items to consider.

•Develop a State of Hawaii Acquisition/Contract Management “A”-Team for high dollar/high risk projects. (immediate solution)

•Implement Top 10 list- Focus areas for State Government, National Association State Chief Procurement Officers (short/long term solutions)

•Prioritize Small Business involvement in State Procurements

● Create an Office of Small Business-State of Hawaii

● Establish Annual Small Business goals and objectives.

● Create a Small Business Advocate position.

● Prompt Payment for Small Business (payment 30 days after invoicePrompt Payment rule makes sure that valid and proper invoices submitted by vendors are paid on time)

•Borrow from the Feds

● GSA Schedule 70 for IT procurements (goods/services)● Implement Acquisition and Procurement “Best Practices”● Mandatory Education and Training of Acquisition and Contract

Management Staff○ Raise the Competency Bar: Federal Acquisition Institute (CO, COR

and P/PM Level I, II, and III certifications)○ Annual Ethics and Procurement Integrity training

Improving Acquisition Performance and Successful Project Completions

● Establish an acquisition “A”-Team for high dollar/high risk projects. Highly experienced and trained team of acquisition professionals empowered to address the most challenging and high risk State Government projects. Empower the team to take necessary corrective action to insure on-time/on-budget completion.

Follow the Feds: The White House and Federal agencies have adopted this best practice approach (examples).

US Digital Service (started from the team that “fixed” Healthcare.gov) https://www.whitehouse.gov/digital/united-states-digital-service

GSA 18F (assisted acquisition-fee for service) https://18f.gsa.gov/

48 CFR 1.102-4 - Role of the acquisition team. Detailed info:https://www.law.cornell.edu/cfr/text/48/1.102-4

● (e) The FAR outlines procurement policies and procedures that are used by members of the Acquisition Team. If a policy or procedure, or a particular strategy or practice, is in the best interest of the Government and is not specifically addressed in the FAR, nor prohibited by law (statute or case law), Executive order or other regulation, Government members of the Team should not assume it is prohibited. Rather, absence of direction should be interpreted as permitting the Team to innovative and use sound business judgment that is otherwise consistent with law and within the limits of their authority. Contracting officers should take the lead in encouraging business process innovations and ensuring that business decisions are sound.

Small Business Goals-State of Hawaii 2016

Federal SB Goals v. State of Hawaii SB Goals

(DRAFT)

Overview The Acquisition Team and ProcessThe acquisition team consists of all participants in the acquisition process: requiring activity, contractor, finance, Contracting Officer, legal counsel, COR, resource manager, quality assurance representative, and others, as applicable.

No one person has all the necessary skills for successful contract management. It requires a team with each member having specialized expertise and responsibilities. Successful acquisition teams typically assign specific duties, develop performance measures and milestones, and hold team members individually and collectively accountable. Everyone ensures the team has the target in sight — it is a team effort.

Figure 4-1 illustrates the acquisition team functions involved in the successful completion of the acquisition process.

1. State Procurement Reform and Reengineering of Procurement Processes

Streamlined procurement processes, modernize procurement law, reduce laws and regulations complexity, increased focus on negotiations, levels of

delegation to customer agencies, strategic sourcing.

▪Elevate Procurement Reform as a Top Priority (commitment from the Executive and Legislative Branches)

▪Establish Procurement goals and objectives (performance/small business)

▪Implement Best Practices-Fed, State and Local▪Performance Based Acquisitions (service contracts)

Performance-based contracting allows government to acquire services via contracts that define what is to be achieved, not necessarily how it is done. This creates a boon for government procurement, providing best-value products and services and pre-screened contractors.

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Recommendations:

2. Spend Analytics and Greater Procurement Oversight and Efficiency

Procurement data collection, analysis and output, spend management analytics solutions, benefits, data categorization and mapping, reports, scorecards.

Establish a Procurement database to collect, track, analyze, all procurements actions in State Government. (spending patterns-find ways to buy smarter)

Effective Communication- monthly newsletters/updates to Agencies, Industry partners and constituents (performance scorecards, forthcoming bid opportunities etc.) Key: Provide effective communication and transparency in the procurement process.

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Recommendations:

3. Technology Procurement

Planning and managing large IT procurements, early involvement of state central procurement offices.

*Implement Best Practices approach (pre-bid market research-RFI to industry, utilize performance based acquisition tools such as: statement of objectives-a problem statement approach designed to have industry provide “their” best solution to solve the business need.

*Extensive Market Research during the pre-bid phase to identify the best solutions and vendors in the category. (Market research is defined as collecting and analyzing information on the market for a government requirement).

*Acquisition/Project Management “A-Team” Oversight on all high risk (mission critical)/high dollar projects (over 2m)

* ???

Recommendations:

4. Measuring Success in State Procurement

Metrics, performance measures, benchmarking, cost savings benefits, data analysis, spending patterns.

*Establish a Procurement database to collect, track, analyze, all procurements actions in State Government. (spending patterns-find ways to buy smarter)*Implement a Statewide Project Management database (Governor’s Office to oversee effort) to collect, track, analyze, all major projects in State Government. (identify Green/Yellow/Red projects; A-Team to provide oversight and engage on Yellow/Red projects)

*Effective Communication-issue monthly newsletter to Agencies, Industry partners and constituents (scorecard, forthcoming bid opportunities etc.) Key: Provide Transparency on how public funds are spent.

▪???

Recommendations:

5. Procurement Preferences and Socio-Economic Policies Impact on state procurement and the procurement process; direct and indirect effect on job creation, economic growth and tax revenue nationwide; small businesses, minority-, disabled-, veteran-owned businesses; implications of other states’ reciprocity laws; the value of local preferences in today’s global marketplace.

*Create an Office of Small Business-support passage of Legislation (e.g. SB1236--SD1-Establishes the small business office to administer the state small business program) ref: http://www.capitol.hawaii.gov/measure_indiv.aspx?billtype=SB&billnumber=1236

*Identify Hawaii based Small Businesses that match up to known State requirements (Small Business Advocate…Local vendors support the local community and keeps Hawaii dollars in the local economy)

*Partner with the US Small Business Administration, Veterans Administration, City and County of Honolulu Workforce Development, High Technology Development Corporation and other programs.

*Mentor-Protégé program (links high potential Hawaii SBs’ with global firms—build new capabilities/knowledge transfer to the Hawaii community-Lockheed Martin, General Dynamics, etc.

*???

Recommendations:

6. Transformation of IT Procurement to Address Rapidly-changing Market Trends

Changing role of central IT authority in statewide procurement; cloud strategies and new contracting models; Anything-as-a-Service (XaaS), standards for XaaS providers addressing requirements for handling data that is managed through these systems; data governance, service management, security, privacy, data classification, data ownership, cyber insurance; move from low cost, base configuration approaches toward high choice, technical flexibility model.

•Utilize innovative procurement approaches to transform IT procurement (industry is a up to date on the latest and can help educate the government customer)•Develop relationships with Industry during the market research, pre-bid phase.•Leverage existing government systems (e.g. City and County of Honolulu ERP system available capacity…can the State pay a user fee instead of buying a whole new system $200M est.? http://www.honolulu.gov/it.html) Lease vs. Purchase Analysis. Cloud Computing and SAAS (software as a service) is becoming the “enabler” for Government to do more with less.•Outsource IT to vendors who can leverage economies of scale: example-email and file storage: Google for Government used by 45 States Google Apps costs less than $5 per employee per month – providing cost savings of as much as 50% annually for many government organizations. https://www.google.com/work/apps/government/benefits.html•???

Recommendations:

7. Expansion of ERP and eProcurement Systems

Role of tracking ERP deployments, ROI of e Procurement investments, funding mechanisms.

• ERP--City and County of Honolulu’s system may have unused capacity-accounting, finance, HR and Payroll…can the State pay a user fee instead of buying a whole new system and save $200M est.?) Lease vs. Purchase Analysis. Given the rate of change in technology it might be “smarter” to lease vs. buy (buy the service instead of the whole system-plus/maintenance and operation costs)

•Acquisition/Project Management “A-Team” Oversight on enterprise system related procurements.

•Develop a Center of Excellences (ERP and Government Enterprise Systems)•Educate the acquisition team and do extensive market research (free) before spending $$$ on systems.•Engage industry early on in the market research phase.•Engage our schools so we train the next generation on these enterprise systems

Recommendations:

8. Increased Professionalization of the State Procurement Workforce

Standardized training, training management systems, certifications.

Example: The Office of Federal Procurement Policy and the Federal Acquisition Institute have established the following certification programs. Each program includes education, training, and experience requirements.

Contracting (FAC-C)Contains useful information about the FAC-C Certification, including requirements, training, and contracting competencies.

Contracting Officer's Representative (FAC-COR)Contains useful information about the FAC-COR Certification, including requirements, training, and COR competencies.

Program and Project Managers (FAC-P/PM)Contains useful information about the FAC-P/PM Certification, including requirements, training, and P/PM competencies.

9. Procurement Ethical Practices and Principles

Ensuring compliance with ethical codes and practices, transparency, integrity of the procurement process; zero tolerance for conflicts of interest, gratuities, kickbacks, unfair and anticompetitive practices.

Example: Code of Ethics *Integrity in Your Decisions and Actions

*Value for Your Employer*Loyalty to Your Profession

1. Perceived Impropriety. Prevent the intent and appearance of unethical or compromising conduct in relationships, actions, and communications.

2. Conflicts of Interest. Ensure that any personal, business, or other activity does not conflict with the lawful interests of your employer.

3. Issues of Influence. Avoid behaviors or actions that may negatively influence, or appear to influence, supply management decisions.

4. Responsibilities to Your Employer. Uphold fiduciary and other responsibilities using reasonable care and granted authority to deliver value to your employer.

5. Supplier and Customer Relationships. Promote positive supplier and customer relationships.

6. Sustainability and Social Responsibility. Champion social responsibility and sustainability practices in supply management.

7. Confidential and Proprietary information. Protect confidential and proprietary information.

8. Reciprocity. Avoid improper reciprocal agreements.

9. Applicable Laws, Regulations, and Trade Agreements. Know and obey the letter and spirit of laws, regulations, and trade agreements applicable to supply management.

10. Professional Competence. Develop skills, expand knowledge, and conduct business that demonstrates competence and promotes the supply management profession.

10. Strategic Role of State Central Procurement

Procurement operations and solutions for operationalizing state-wide policies, active participation in the state laws and executive decisions addressing procurement, seat at the table, elevated role and hierarchy in the executive branch for central public procurement office.

Notes and References

Addendum

www.acqnet.gov/Library/OFPP/Best Practices/pbsc

> High Risk > Improving the Management of IT Acquisitions and Operations

Improving the Management of IT Acquisitions and Operations

This information appears as published in the 2015 High Risk Report.

View the 2015

We have identified nine critical factors underlying successful major acquisitions that support the objective of improving the management of large-scale IT acquisitions across the federal government: (1) program officials actively engaging with stakeholders; (2) program staff having the necessary knowledge and skills; (3) senior department and agency executives supporting the programs; (4) end users and stakeholders involved in the development of requirements; (5) end users participating in testing of system functionality prior to end user acceptance testing; (6) government and contractor staff being stable and consistent; (7) program staff prioritizing requirements; (8) program officials maintaining regular communication with the prime contractor; and (9) programs receiving sufficient funding.[1]

Seven Steps to Better Procurement1. Develop a full time, professional procurement staff in all departments: For most staff, state

procurement is now an added responsibility to their usual duties.

2. Make salaries of procurement professionals competitive with private industry: You get what you pay for.

3. Re-centralize supervision of procurement in the State Procurement Office: Decentralizing, which was meant to expedite the process, resulted in waste and fraud.

4. Remove exemptions from state procurement code: Far from promoting autonomy, granting exemptions from the code to certain agencies exposes them to litigation, waste and fraud.

5. Encourage, rather than discourage, reasonable protests of contract awards: A lively, expeditious protest system is our most effective way to check misconduct and inefficiency in the solicitation process.

6. Educate, educate, educate: And not only about Hawaii procurement laws, but about innovative procurement practices in the federal government and elsewhere. Remain open to novel or mainstream procurement innovations.

7. Invest time and resources in acquisition planning: Up-front planning will make for a smooth process during the formation and administration of a contract.

Source: Danielle Conway. professor of Law at the University of Hawaii, and Director of the Hawaii Procurement Institute

Acquisition Team (Federal Model)

Define Roles and Assign Responsibilities

It is important that the members of the team understand their roles and responsibilities.

Successful teams are typically ones where specific duties are assigned, performance measures and milestones are developed, and members are held accountable for individual as well as collective work products.

Normally, leadership of the team is shared between the Program Manager and the Contracting Officer. The Program Manager is responsible for ensuring that the resulting contract meets the long-range and short-range requirements of the activity’s mission and that it is designed to produce the intended result.

The Contracting Officer is responsible for managing the contracting process and ensuring all legal and regulatory requirements are satisfied. It is highly desirable, especially on more complex acquisitions, that a written Project Plan Agreement be developed that documents the duties, responsibilities, standards and milestones agreed upon by the team members.

Once a decision is made to acquire products or services through the contracting process, a partnership is formed between the Program Manager, or the responsible manager from the requiring activity, and the Contracting Officer. These individuals play a critical role in ensuring that the contracting process is successful. Assisting them is an integrated team of individuals based upon the complexity and nature of the acquisition. While anyone who can contribute to the success of the acquisition can be a member of the acquisition team, the following individuals are normally involved either as direct participants or advisors to the team:

Small Business Office

The Small Business Office provides advice and counsel to the Acquisition Team on all small business matters and assists them to develop acquisition strategies to maximize participation by small and disadvantaged businesses (Small Business Set aside or Small Business Subcontracting plans).

Competition Advocate

The role of the Competition Advocate is to develop acquisition strategies that foster competition and are consistent with public law. The Competition Advocate provides advice to the Acquisition Team on all matters involving competition.

General Counsel

The role of General Counsel is to provide legal advice to the Acquisition Team and review Acquisition documents for legal sufficiency.

Contracting Officer

A Contracting Officer is an individual expressly authorized to enter into, administer and/or terminate contracts. Contracting Officers are responsible for ensuring that all contract actions comply with appropriate laws, executive orders, regulations and other applicable procedures, including clearances and approvals.

They are also responsible to ensure that both the government and the contractor comply with the terms and conditions of the contract. Contracting Officers act as our focal point for customer service, communications and product delivery and coordinate with our customers to plan and execute acquisition strategies.

While a Contracting Officer may delegate some of his or her duties, for example, a Contracting Officer may designate a Contracting Officer’s Representative to assist in monitoring the technical aspects of a contract, the Contracting Officer may never delegate the responsibility to enter into, modify or terminate a contract to anyone else, unless that person is also a Contracting Officer.

Contracting Officer’s Representative (COR)

A COR is an individual appointed, in writing, by a Contracting Officer who monitors the technical or performance aspects of a contract and performs other duties specified by their appointment letter. The individual who will serve as the COR once the contract is awarded, should participate in developing the requirement and other pre-award activities so that he/she is familiar with all aspects of the contract.

Contract Specialist

The Contract Specialist is an acquisition professional who works directly for the Contracting Officer. The Contract Specialist performs most of the day-to-day functions required to advertise and award government contracts, i.e. synopsizing (advertising) the requirement, preparing contract documents for the Contracting Officer’s review and approval, answering questions from prospective contractors, etc. The Contract Specialist is also responsible for assisting the Contracting Officer in the administration of the contract.