City Auditor Reports Faults City Purchasing Department In Handling Of Temporary Staffing Contract

Friday, November 10, 2017

A report from the office of City Auditor Stan Sewell faults the city purchasing department in the handling of a contract for providing temporary staffing to city departments.

Despite a recommendation from the city staff to award the $1.8 million contract to both the longtime provider, Outsource Staffing, and a startup, Msi Workforce, the City Council on two occasions voted to stay with Outsource Staffing only.

Msi Workforce is headed by Marty and Donna Christian Lowe. Auditor Sewell said that firm was formed just eight months prior to submitting a bid, got a county business license on Jan. 15 and still does not have a city business license.

He said, "Prior to recommending an award to Msi, we would have expected the Purchasing Division to document an analysis in the procurement files including, but not limited to areas such as: ?

"Verification the company has a City Business License and is current.

"Financial Statement/condition analysis. Does the company have the capital and financial liquidity to provide a reasonable assurance they are capable of providing services in the short and long-term?

"Confirmation with current or previous clients of service delivery at a level comparable to that expected with the City. Does the company have a sufficient number of temporary employees currently hired and on staff to meet the needs of the City?

"Does the management staff of the company possess a sufficient level of demonstrated experience in the temporary staffing industry to provide a reasonable assurance they can recruit and manage a quality pool of temporary employees?" 

Mr. Sewell noted that the City Council on Sept. 26 awarded the contract to Outsource Staffing despite a city staff recommendation that both firms get a share of the award.

He noted that prior to that vote that the city used a Request for Proposals, rather than the normal competitive bidding, leading to its dual recommendation.

Mr. Sewell said, "Per the State’s Municipal Purchasing Act, the default process for procurement is competitive bidding. TCA 12-3- 1207 allows for a competitive request for proposal process as an alternative to competitive bidding.

However, this code section appears to mandate some specific action and criteria prior to the process being utilized for a procurement:

"1. The City Council must make a determination that the use of competitive sealed bidding is either not practicable or not advantageous, prior to the use of the competitive request for proposal. We found no evidence indicating the City Council made such an advance determination and we found no evidence indicating City Council authorized the use of a competitive RFP prior to the process being utilized. 

"2. The competitive RFP can only be utilized when one of the following two tests is passed: a. When there is more than one solution to a purchasing issue and the competitive sealed proposals will assist in choosing the best solution, or b. When there is no readily identifiable solution to a purchasing issue and the competitive sealed proposals will assist in identifying one or more solutions. The City has contracted for temporary employee services for many years. The competitive bidding process has historically been utilized to facilitate this procurement. The need (and solution) is specific and clear: Temporary staffing. It does not appear this procurement meets either of the above criteria." 

Mr. Sewell said the city attorney's office recently "provided an opinion that appears to indicate it is within the purchasing agent’s authority to make the determination. The city attorney has indicated a need to do further research and noted other municipalities are using a process similar to Chattanooga."

The city auditor said, "The competitive RFP is a competitive process resulting in an award winner. “The award shall be made to the responsible respondent whose proposal the governing body determines is the most advantageous to the municipality….”2 [Emphasis added] Although City Council approved an award to a single vendor, recommendation from Administration was for an award to two vendors.

"In addition, we noted an item on the City Council agenda for October 17, 2017 to add a second vendor. TCA 12-3-1207 does not appear to allow awards to multiple vendors for the same procurement. Similarly, with regard to competitive bids, City Code Section 2-553 appears to limit awards “to the bidder presenting the best value….” [Emphasis added]

Mr. Sewell said, "We did not conduct a thorough review of MSI’s background or experience as it is beyond the scope of this project. However, we would recommend a prudent review take place prior to the award of a contract by City Council." The Lowe couple has twice filed personal bankruptcies.

He said, "This procurement was initially processed as a competitive bid with the Purchasing Division recommending a contract award to two vendors and formally notifying the selected vendors. Subsequent to this recommendation and notification, but prior to presentation to the City Council, the Purchasing Division rejected all bids. There was no clear and logical documentation in the procurement file substantiating this decision.

"In addition, City Code Section 2-553 states “The City Council may reject any and all bids submitted regardless of the amount involved.” We did not note any similar language assigning this responsibility/authority to the purchasing agent. Therefore, it appears (but is not certain to us) the decision to reject all bids is intended to be placed in front of the City Council. If this is not the intent, the practice would serve to enhance transparency in the procurement process.

"With regard to competitive RFP’s, TCA 12-3-1207 and City Code Section 2-554 state “The purchasing agent shall place in the contract file a statement containing the basis on which the award was made.” An evaluation committee was utilized resulting in the ranking of Outsource as the overall best proposal. However, there was no statement by the purchasing agent included in the file containing the basis of the award recommendation (a dual award to MSI and Outsource). After a complete review of both the competitive bid and the competitive RFP files, we remain unclear as to the basis of the award recommendations made by the Purchasing Agent." 

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