Audit: State departments fell short when it came to reporting and justifying some pandemic emergency contracts
The Senate co-chair of the General Assembly’s Joint Legislative Audit and Evaluation Committee said changes to state procurement law will likely prevent future mishandling of emergency contracts, such as those during the recent COVID-19 pandemic identified in a recent report by the Office of Legislative Audits.
The Office of Legislative Audits found that the Office of State Procurement within the Department of General Services skirted some record-keeping requirements and failed to provide timely notification on millions of dollars in contracts. Sen. Clarence K. Lam (D-Howard and Anne Arundel) said the report provides more detail of a problem highlighted in a 2021 audit that triggered lawmakers to tighten state law.
“Certainly, part of the challenge is that, by nature, things that are an emergency are intended to bypass a lot of the routine checks that would be in place,” said Lam. “So did the legislation that we passed previously help strengthen some of the requirements of oversight? I think so. Is it airtight when it comes to being able to ensure that none of the mismanagement and poor oversight that occurred before could ever happen again? I think we’ve greatly limited the circumstances that might happen.”
Still, Lam said the ability to bypass the changes made in 2022 leaves an open question. Departments may find other ways to bypass laws meant to make government contracting fair and transparent.
“Is it airtight to ensure that those things would never happen again?” asked Lam. “That’s really hard to say. I think we probably did as strong of a job as we could to put proper limitations in place, to clean up a broken procurement system, and to ensure that there’s better reporting and overall oversight back to the legislature and Board of Public Works.”
Auditors found the Office of State Procurement within the Department of General Services did not always comply with state emergency procurement regulations during the COVID-19 pandemic.
The findings in the May 2023 report focused on purchases made during Republican Gov. Larry Hogan’s second term. The findings were similar to a review conducted by state auditors in 2021.
The Department of General Services was tasked early with assisting state departments including the Department of Health, in finding and purchasing supplies and equipment during the pandemic. Many items including ventilators, personal protective equipment — masks, gowns, gloves and face shields — and tests were hard to find. States found themselves in bidding wars not only against each other but in some cases other countries that were also short on supplies.
State law allows agencies to speed up sometimes lengthy procurement processes.
Those regulations allow for the waiver of some government oversight provisions. In lieu of the typical oversight and vote by the three-member Board of Public Works, departments are required to report emergency contracts in excess of $50,000 to the board within 45 days.
One of the changes made by the legislature in 2022 was to require emergency procurements to be reported to the board in 15 days.
And while the 2022 law tightened the definitions of emergency procurement, it also created a new expedited process meant to speed up contracts that aren’t exactly emergencies.
Lam pointed to one pre-pandemic incident where state transportation officials used the emergency procurement process to address empty vending machines at a state rest stop.
“I think we’ve put some guardrails in place to make sure that those are instances of immediate bodily harm to the public,” said Lam. “It’s not vending machines going unfilled.”
In its response, the Office of State Procurement agreed in part with some of the auditor’s findings but justified its actions as necessary to address a world-wide health crisis.
“The state of Maryland’s COVID-19 response was organized around one core mission: to prevent as many deaths and hospitalizations as possible while ensuring that Marylanders can go about their normal business in a reopened economy safely,” the agency wrote. “Maryland has been recognized as one of the best COVID-19 responses in the nation.”
As part of the review, auditors tested four contracts for commodities and information technology between March 2020 and May 2021 — the initial year of the pandemic. The agreements, valued at nearly $55 million, did not have any documentation justifying the reason for using emergency procurement methods or how vendors were selected.
In its response, the agency said procurement officers should retain procurement records including those justifying using the emergency procurement method. But the agency disagreed with auditors who recommended the records include information on how vendors were selected saying that state law didn’t require it.
“In many cases (the Department of General Services) was buying from any and all qualified vendors for PPE and ventilators as the supply chain basically did not exist,” the agency wrote in its response. “If a qualified vendor was found, and the products deemed genuine and appropriate for the needs of (Maryland Department of Health), or whoever the requesting agency was, DGS OSP purchased the requisite quantity. There was a critical shortage of PPE and ventilators and therefore the rationale for purchasing was because we could get the products needed at a reasonable price from a qualified vendor.”
But auditors noted in the final report that the department’s interpretation of state law was wrong as it pertains to why specific vendors are selected.
The auditor’s report found that purchase orders did not include provisions for delivery and acceptance of goods, compliance with state laws, anti-bribery statements and registration of the businesses with the State Department of Assessments and taxation.
The department agreed with the finding but said state law allowed for some flexibility.
“The entirety of the state government was being asked to rise to meet the challenges posed by a world-wide health crisis, the likes of which had not been witnessed in over one hundred years,” the agency wrote.
“The emergency procurements were made in a streamlined and expedited way for Maryland to order and receive critical supplies that otherwise would not have been able to be obtained,” according to the agency, which added the documentation associated with the purchases was “deemed legally sufficient by the Office of the Attorney General.”
Auditors also found that nearly one in four purchases in a more than two-year period were not publicly disclosed to the Board of Public Works. The analysis of 129 such purchases valued at over $110 million between September 2020 and February 2022 included 31 contracts valued at more than $32 million that were not reported to the board by March 2022.
And while the agency agreed with the findings, it argued that emergency commodity contracts had never been reported to the Board of Public Works until the pandemic hit.
“The effort to create a new process to accommodate this new reporting component was lengthy and time consuming, and meanwhile (the department) was still expected to continue to acquire critically needed supplies and services where, in many cases supplies were scarce,” the agency wrote in its response. “Due to health and public safety reasons, sourcing and acquiring the items were higher priorities than reporting commodities purchases to the BPW, when prior to the pandemic, that was never a requirement.”