Companies were paid millions with no bidding or price comparisons.
By John Hill -- Bee Capitol Bureau
Published 2:15 a.m. PST Thursday, March 27, 2003
California's Web site has won awards, but it's also a prime example of flawed and potentially wasteful state contracting practices, State Auditor Elaine Howle said in a report released Wednesday.
The redesign of the state's Web site was orchestrated by two officials in Gov. Gray Davis' office. They told departments what companies to hire, bypassing competitive bidding or simple price comparisons, the audit found.

The state paid one vendor $3.2 million and another $8.4 million without comparing prices or analyzing other factors, as called for in state guidelines. As a result, the audit said, the state will never know if it paid a reasonable price.

The audit did not name the officials. But lawmakers said -- and references in the audit made clear -- that they are former e-government director Arun Baheti and former director of executive information services Vin Patel. Both resigned last year amid controversy over state information technology projects.

Several of the companies that made money from the Web portal had been members of a council that advised the state on how to design the project. That created "an appearance of unfairness," the audit said.

As the project costs ballooned, officials failed to justify them, the audit said. And some cost estimates shown to state officials who oversee spending were too low and "possibly misleading," it found.

Because the project was divided among various state offices, a consultant was paid more than once for providing essentially the same service, the audit said.

"I think if you read between the lines, it simply says it was people who knew how to manipulate the system," said state Sen. Dean Florez, D-Shafter, who as chairman of the Joint Legislative Audit Committee requested the audit last year. "These are people that gamed the system. They know the system; they're part of the system; they come from the system."

The audit also leveled more general criticisms at state programs that allow departments to buy goods and services without going through time-consuming competitive bids.

The biggest of these, the California Multiple Awards Schedules, allowed departments to use a screened list of vendors without comparing prices. About $889 million in state purchases were made through CMAS in fiscal 2000-01.

Last May, Davis issued an executive order to tighten the procurement rules, requiring state officials to check prices with at least three vendors.

But before that, the audit found, departments generally ignored rules that called for comparing prices. In one case, the Department of Corrections bought $4.6 million in computer maintenance services without comparing prices.

The flouting of protocol extended into emergency and sole-source purchases. Departments are allowed to bypass competitive bidding in emergencies or if only one business can provide what the state needs.

But departments often failed to document that their purchases fell into these categories, or just ignored the policy. The Department of Motor Vehicles, for instance, spent $125,000 on teddy bears to use at promotional events encouraging people to fill out their census forms. The Department of General Services, which oversees state procurement, approved it as an emergency purchase.

Assemblywoman Rebecca Cohn, D-Saratoga, said such practices won't be tolerated, especially in the context of a staggering budget shortfall. Cohn is the chairwoman of the Joint Legislative Audit Committee.

"These small stuffed toys will bring no comfort to the children of California who are asked now to go without health care, textbooks and teachers in this terrible budget year," she said.

Florez said he plans to ask Attorney General Bill Lockyer to investigate Baheti and Patel. The two officials did not cooperate with the audit. Florez said the audit committee should subpoena them to force them to explain their actions in the portal project.

"It certainly is one of the options," Cohn said. But she stopped short of saying she would push for subpoenas. The committee she chairs plans to hold a hearing on the audit April 9.

The Bee in May reported that Baheti and Patel had familial connections with companies that worked on the portal project. Patel's brother worked for BroadVision, a Redwood City software company, and Baheti's brother-in-law worked for Sunnyvale-based Verity Inc.

In response to the audit, Clothilde Hewlett, outgoing director of General Services, and her replacement, McGeorge School of Law professor Clark Kelso, outlined steps taken to correct state procurement practices.

Departments must document the need for emergency and sole-source contracts, they said. And complex information technology projects no longer can be handled through CMAS or a related technique, master service agreements.

The state's Web portal now is overseen by one state office, the Stephen P. Teale Data Center, to avoid confusion from the involvement of several departments. The company that maintains the Web portal, Deloitte Consulting, was recently forced to bid against other companies, lowering the project cost.

But despite improvements, Kelso said, the state procurement program does not yet have "a clean bill of health."



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