The 13th meeting of the Program Review and Investigations Committee was held on Thursday, October 11, 2001, at 10:00 AM, in Room 131 of the Capitol Annex. Senator Katie Stine, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Katie Stine, Chair; Representative Gippy Graham, Co-Chair; Senators Charlie Borders, Brett Guthrie, Paul Herron Jr, Vernie McGaha, Dan Seum, and Ed Worley; Representatives Adrian Arnold, Sheldon Baugh, Dwight Butler, Jack Coleman, Charlie Hoffman, and Dottie Sims.
Guests: Secretary Kevin Flanery, Finance and Administration Cabinet; Commissioner Armond Russ, Department of Facilities Management, Finance and Administration Cabinet; Commissioner Don Speer, Department of Administration, Finance and Administration Cabinet; Gerald Scott and Ellen Frederick on behalf of vendors; Linda F. Frank, Executive Director, Crime Victims Compensation Board, and Jo Ann Phillips, Board Chair of the Crime Victims Compensation Board, and Executive Director of Kentuckians Voice for Crime Victims.
LRC Staff: Ginny Wilson, Ph.D., Committee Staff Administrator, Judy Fritz, Greg Hager, Ph.D., Tom Hewlett, Alice Hobson, Joseph Hood, Margaret Hurst, CPA, Dan Jacovitch, Cindy Upton, and Susan Spoonamore, Committee Assistant.
Minutes of the September 13, 2001 were approved by voice vote upon a motion made by Rep. Baugh and seconded by Rep. Arnold.
Sen. Stine noted that Secretary Marcia Morgan, Cabinet for Health Services, requested that the presentation of the Impact Plus study be held over until the November 8, 2001 meeting so that a response could be prepared on behalf of the Cabinet.
Sen. Stine also told the Committee that the Supreme Court was preparing to hear a case that involved the Economic Development Cabinet and therefore, the Economic Development study had been delayed until the legal action was completed or at least until the information needed by staff could be obtained.
Tom Hewlett, Program Review staff, presented a summary of the findings and recommendations of the study titled: Executive Branch Contracting for Services: Inconsistent Procedures Limit Accountability and Efficiency (a copy of Mr. Hewlett’s summary can be found in the LRC Library file).
Rep. Coleman asked if Memoranda of Agreement (MOAs) were presented to the Government Contract Review Committee for review. Mr. Hewlett stated that MOAs were not reviewed as stringently as the personal service contracts brought before the Government Contract Review Committee. If MOAs were $50,000 and above, then they were reviewed. MOAs below $50,000 were submitted to the Committee for informational purposes only.
Secretary Kevin Flanery, of the Finance and Administration Cabinet, stated that the Cabinet had reviewed the draft report and recommendations as a tool to help improve the processes used in bringing personal service contractors to the state to perform vital functions. Secretary Flanery further stated that the Cabinet agreed with 13 of the 20 recommendations and were in the process of implementing the changes reflected in the report and recommendations. (A copy of the Cabinet’s response to the Recommendations can be found in the LRC library file.)
Sen. Stine asked if the Cabinet had addressed the problem of copying old invoices forward, and then not being able to tie them back to a contract. Secretary Flanery stated that in August 2001, a series of changes were made to address that problem.
Sen. Stine requested that the Finance Cabinet have discussions with Government Contract Review Committee staff to find out what would be helpful to them in doing the best possible job.
Commissioner Don Speer, of the Department of Administration, Finance and Administration Cabinet, stated that the Cabinet agreed with that request. The Cabinet had had extensive mock ups of what the system would look like, and the Government Contract Review Committee gave to the Cabinet a Memorandum detailing the exact changes that were needed in the Proof of Necessity (PON) form.
Sen. Stine asked if the Cabinet had shared the draft report with the agency heads. Secretary Flanery stated that the Cabinet would be sharing the report with agency heads and conduct the necessary training.
Sen. Stine asked how many protests were filed last year and how many were successful. She also asked if information was readily available to the public as to how the specifics of a contract were determined, and how was the decision made to give the contract to a particular contractor. Secretary Flanery stated that there might have been approximately 40 protests filed, with an approximate 10% success rate. He also stated that Recommendation 4.10 addressed the issue of reporting on pre-qualified master agreements, and the Cabinet was in agreement with the recommendation. He stated that there was a score sheet for deliberations on contracts. There was a team that reviewed the particular project or a particular service to be obtained through Master Agreements. Based on the information obtained from resumes and past work experience, it was determined whether or not the qualifications were sufficient to be on the approved Master Agreement list. The score sheets and the determinations were a matter of public record.
Sen. Guthrie asked if pre-qualified master agreements were used for emergency situations. Secretary Flanery stated that pre-qualified master agreements were used in emergency situations and in small things that are routine. They are used if the Cabinet wants to do a preliminary study before making a final project decision.
Sen. Guthrie asked if there were firms who routinely got to the $100,000 mark. Secretary Flanery stated that there are firms who get to $100,000, and there are some who do not. He said the Cabinet would provide that information to the Committee.
Sen. Stine asked how a Transportation contract could be used to employ an attorney to sue the General Assembly. Secretary Flanery stated that there is an issue of the regulation process. The Cabinet needs to know what the constitutional roles are between the legislature and the executive branch. That contract was in place and it allowed for examining the constitutionality of issues and it was an issue that affected transportation.
Sen. Stine asked if any transportation regulations had been found deficient by the regulatory review committee. Secretary Flanery stated that he thought some had.
Sen. Stine asked if any federal highways funds had been used to pay for the contract. Secretary Flanery stated that he did not know the answer. He had not looked at the fund sources from particular agencies. The Cabinet will probably see that there is some pro-rata sharing of the cost of that contract, because it touches so many different agencies.
Sen. Stine stated that she would like to know the answer.
Sen. Stine asked if the Cabinet agreed with the National Institute of Governmental Purchasing and The Reason Foundation’s list of items that made up a good contract monitoring system. Secretary Flanery stated that when talking about national agencies, the Cabinet did need to use the models and determine which parts made sense for Kentucky. The scrutiny of sole source contracts really needs to happen at the front end. After that time contracts should be monitored for performance. The sole source and competitively bid contracts should be monitored in the same fashion and there should be the same process in place.
Sen. Stine asked Tom Hewlett why the recommendation for ongoing monitoring was made. Mr. Hewlett stated that one of the concerns in relation to the sole source contracts and ongoing monitoring was that, at the front end of a sole source arrangement, the competitive forces of the market place were non-existent. There was no competition under way to get the best price for the highest quality service possible. Without the competitive forces, staff felt that there should be a more watchful eye to make sure they were actually performing and performing as well as possible.
Sen. Guthrie asked if the contract for Frost & Brown was out of a pre-qualified Master Service Agreement. Secretary Flanery stated that was correct.
Secretary Flanery stated that the Transportation Cabinet had, at any one time, approximately 2000 lawsuits or actions pending. He also stated that, when it came to legal contracts, the Transportation Cabinet was unique. He stated that it was the decision of the Finance Cabinet to use Sheryl Snyder, who was recognized as an expert on constitutional issues in Kentucky. He was the best lawyer in the area and he had a contract that specifically stated that it could cover work on constitutional issues. There are two separate issues; same “shell”, but different processes.
Sen. Stine stated that when the contract was considered in the Government Contract Review committee meeting, there was not one member who would have voted for a contract that would have allowed someone to sue the General Assembly. The contract was believed to cover constitutional challenges which clearly were intended to be within the jurisdiction of the Transportation Cabinet. She also stated that voting on a contract broad enough to allow the same individual to turn around and sue the General Assembly went way beyond the jurisdiction of a transportation contract. The possibility of federal dollars being used for that was disturbing which further illustrated the problem with the current system. The contract was designed to be about junkyards and billboards.
Secretary Flanery stated that it was his opinion that the contract was established to allow it to be used as a contract when those type of services were needed. Those types of contracts are used when the Cabinet needs quick help, which was not that often. He stated that it was a decision that the Finance Cabinet made based upon the contract language.
Sen. Stine stated that the issue under discussion clearly demonstrated the problem with confirming contracts that were so incredibly broad that they would allow the General Assembly to be sued over nothing that had to do with Transportation.
Upon roll call vote, motion made by Sen. Guthrie and seconded by Rep. Baugh to approve the Executive Branch Contracting for Services Study and Recommendations was approved.
Sen. Stine introduced Gerald Scott and Ellen Frederick as vendors who appeared before the Committee to give testimony on their experience with the procedures of procuring a contract.
Gerald Scott, representing Fuqua Lumber Company, stated that he wanted to bring to the attention of the Committee the frustration of many people in Kentucky trying to do business with the state. He said that approximately five or six years ago he did win a contract to supply parts and building materials for the state. When multi-year block grants came into being, also commonly known as blockouts by participants such as himself, he found out that he could not survive trying to acquire a contract. He also stated he was told that it was easier to do business in Tennessee rather than with Kentucky, and he finally quit trying to acquire any contracts with the state. He said it was a shame to see priority going to out of state companies while the good hardworking people in Kentucky were not even being considered.
Sen. Guthrie asked what was meant by out of state companies. Mr. Scott stated that Lowe’s was one company. The dollar stays in Kentucky for one night, then it goes south, wherein a business locally owned will turn over a dollar at least five or six times.
Sen. Stine asked for the specifics of not being able to do business in Kentucky. She also asked for Mr. Scott’s opinion regarding the bidding process and access to the website. Mr. Scott stated that there needed to be a committee set up who could relate to people and their complaints. When people called in they could never get a response.
Sen. Stine asked Mr. Scott if he was given the opportunity to participate in the protest process. Mr. Scott stated that he had not.
Sen. Seum asked if he had ever had a contract with the state and if so, what was the reason for his not getting another contract. Mr. Scott stated that he had a one year contract with the state about five or six years ago. Then the state started doing block contracts and it blocked him out -- the bureaucracy was overwhelming.
Sen. Seum asked if Lowe’s underbid him or overbid him. Mr. Scott stated that he did not know.
Ellen Frederick, representing Ameriken Laundry System, stated she had problems with just a typical bid situation. She was told by the Cabinet that she had not provided all the information that was required even though she had personally hand-delivered the information to the Cabinet. She stated that she had even tried to find her bid in the public records, but never did find it. She also stated that she did not feel as though she was reviewed as an equal since she was not asked any questions.
Sen. Borders asked that his vote regarding the approval of the Study and Recommendations of the Executive Branch Contracting for Services, be changed to “Aye”. Sen. Stine stated that his vote was duly noted and recorded.
Sen. Seum asked if Ms. Frederick knew who got the bid, and where was her company located. Ms. Frederick stated that her business was located in Lexington, and that REM, located in Versailles, received the bid.
Sen. McGaha asked how the Cabinet went searching for out-of-state vendors, and what instances prompted the Cabinet to look out of state. Ms. Frederick stated that on the internet it was easy to find out who the manufacturers were and the type of product they carried. In order to get competition going, all the Cabinet had to do was to find out who the manufacturers were and send out bids to those companies who were outside of the state.
Sen. Stine introduced Linda F. Frank, Executive Director of the Crime Victims Compensation Board and Jo Ann Phillips, Board Chair and Executive Director of Kentuckians Voice for Crime Victims.
Sen. Seum stated that he was concerned that the Crime Victim’s Board was in the business of saving money rather than giving the monies to the victims of crime. He asked if the Board had plans on how to change the process so that the money would get to the victims of crime. He also asked how many members were on the Board. Ms. Frank stated that there were five board members.
Sen. Seum asked if it was correct that each of the five board members received $1,500 a month as a salary. Ms. Frank confirmed that each board member, who actually serves on two boards, received $1,500 for one meeting per month. The salary was set by the General Assembly.
Sen. Seum pointed out the amount of money that could be saved and put into the Crime Victims Compensation Fund if the salary of each board member was dropped to $500 per month. He also stated that he thought the administrative costs were closer to 50% rather than the 20% that was previously reported.
Jo Ann Phillips, who worked as a volunteer with victims and who was also a member of the Crime Victims Board, stated that the $2.7 million dollars only came into being as of July 1999. Prior to that, the fund never had any remaining money at the end of the year. Now that there was money, the Board was trying to work through the legislature to broaden the compensation.
Sen. Seum stated that his concern was for the victims who were not able to access the system, and the fact that the Board sat on $2.7 million dollars which was pulled out of the fund to be used elsewhere. The money was not spent on victims. Sen. Seum also stated that the administrative costs were out of line, and he asked the Board to examine their administrative costs and adjust it so that more money was actually going to the Crime Victims Fund. He also asked Ms. Frank to explain the Crime Victim’s Board’s agenda for the 2002 Regular Session.
Ms. Frank stated that the legislation died in the 2000 Regular Session and when Rep. Cherry sponsored the same package in 2001, it never got out of the Rules Committee. She also stated the Board had several outreach efforts in process to bring in victims to apply for funding. All the claims that were eligible for compensation were being paid at 100%. The Board was going to ask a legislator to sponsor legislation again in the 2002 Regular Session, which would open the door for pedestrians who were injured by hit and run drivers. It would also increase the amount of loss of earnings and loss of support, and it would allow reimbursement of transportation expenses to medical providers and counseling. The Board was also looking at relocation expenses for victims who needed to secure a safer residence.
Sen. Stine asked if the legislation passed the Senate in 2000. Ms. Frank stated that she was not the Director of the Crime Victims Compensation Board at that time, but the very same legislation was presented again at the 2001 Regular Session, but did not pass.
Rep. Hoffman asked if some counties were not turning in money collected for the Crime Victims Compensation Fund. Ms. Phillips stated that in the beginning it was not being paid, but now most of the counties are complying.
Sen. Stine stated that the next item on the agenda, the Update on the First Steps Program, would be moved to the November meeting agenda.
Sen. Seum requested that the Program Review Committee consider having Paul Coomes and Larry Lynch update their 1999 study entitled “The Economic Effects on Kentucky of Ohio River Boat Casinos” for the upcoming session.
Sen. Stine asked if Sen. Seum was asking that Paul Coomes and Larry Lynch update their 1999 study for the benefit of the Program Review Committee. Sen. Seum stated that was correct.
A motion made by Sen. Seum and seconded by Sen. Worley, to ask Paul Coomes and Larry Lynch to update their 1999 study entitled “The Economic Effects on Kentucky of Ohio River Boat Casinos”, passed.
Meeting adjourned at 12:30.