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No-name no-bid contract cost San Diego millions, city auditor charges

“Solicitations from other vendors were intentionally ignored or actively rejected”

Ron Villa with wife: "The Vendor was known to the City as an industry leader."
Ron Villa with wife: "The Vendor was known to the City as an industry leader."

Suspicious circumstances involving a multi-million-dollar, no-bid data processing contract awarded by the administration of lame-duck mayor Kevin Faulconer without city council approval has drawn scrutiny from interim city auditor Kyle Elser.

A September 11 audit memo by Elser, entitled “Hotline Report of Abuse Related to the Unfair Award of a Multi-Million-Dollar Contract,” omits key details of the arrangement, including both the identity of the vendor and specific purpose of the work, but portrays a city procurement process gone rogue on the mayor's watch.

Villa reports to city chief operating officer Kris Michel.

"No other vendor was invited to participate in a competitive bidding process with the City. Rather, the City used a cooperative or 'piggyback' contracting process that relied on the competitive bidding process and procedures of another organization," the document says.

Although absent names, the audit report outlines a series of troubling policy calls and potential legal violations, including exclusive access granted to the vendor by city staffers prior to award of the contract.

Auditor Kyle Eiser. "The vendor was known to City staff because of the vendor’s exclusive marketing."

"We determined that the vendor acted as an unpaid consultant to City staff to develop the scope of work for the contract they were awarded," says the document.

"We obtained detailed meeting summaries indicating that City staff participated in meetings with the vendor, to the exclusion of any other potential vendor."

The contractor was allowed "to discuss goals, exchange data, negotiate pricing, and develop an implementation plan," and took advantage of the unusual privileges by "applying pressure to City staff to enter into a contract."

"When asked about the deviations from City policy and best practices, City staff stated that the vendor was 'at the right place at the right time' and they provided advice to [City staff]." according to the document

The report suggests that errors and omissions during a hurry-up review further biased the award process by robbing officials of vital information regarding the deal.

"A City staff person involved with the formation of the contract stated that they did not perform any independent business case analysis to determine what services were needed, but instead relied exclusively on the information provided by the vendor.

"Nor did they personally research the services that other vendors provided. In fact, they did not return calls or emails from other vendors who contacted them before the contract with the vendor was signed."

"A key City staff person involved with the contract acknowledged that the vendor did not have successful competitive bids with other large cities to use as the basis for a cooperative procurement."

"Several City staff involved with the process noted that the contracting process was rushed. One person noted that they were on a 'tight timeline' and did not have the time to complete a normal competitive Request for Proposal process, which could take 'a year or two' to complete."

The haste to cut a deal resulted in an end-run around legal requirements for city council approval, per the audit. "Consultant contracts that do not involve public works projects, and are worth over $250,000, 'must be approved by the City Council.' The City's cooperative procurement contract with the vendor, worth over $250,000 per year, was not approved by the City Council."

A tip to the auditor’s hotline and subsequent investigation resulted in a decision by the city not to renew the no-bid contract, according to the report, which calls for further inquiries by the city council and city attorney to "evaluate whether City Charter violations occurred and take appropriate legal action."

Officials in the mayor’s administration jumped to the deal’s defense.

Per the audit, "In a nine-page memorandum dated September 3, 2019, Assistant Chief Operating Officer Ronald Villa provided a response to our report that included a disagreement with all of our investigation’s opinions but included agreement with all of our recommendations."

The response says that “Management does not agree that the Contract was a consultant contract and therefore the Contract did not require Council approval.”

Continues Villa, who reports to top Faulconer aide and city chief operating officer Kris Michel, "The Vendor was known to the City as an industry leader and demonstrated that it could provide the necessary services.”

The auditors replied: "The vendor was known to City staff because of the vendor’s exclusive marketing and consultation meetings with various City staff over a two-year period."

To the city administration’s argument that sufficient due diligence had been conducted before awarding the contract, the auditors said: "The City only met with one vendor over a period of more than two years, exchanged information with them exclusively, relied on their guidance, and negotiated the scope of the contract that was ultimately awarded to that vendor.

"No other vendor was included in the City’s review of the potential services. Solicitations from other vendors were intentionally ignored or actively rejected. These actions are not consistent with due diligence, fairness, or best practices."

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Ron Villa with wife: "The Vendor was known to the City as an industry leader."
Ron Villa with wife: "The Vendor was known to the City as an industry leader."

Suspicious circumstances involving a multi-million-dollar, no-bid data processing contract awarded by the administration of lame-duck mayor Kevin Faulconer without city council approval has drawn scrutiny from interim city auditor Kyle Elser.

A September 11 audit memo by Elser, entitled “Hotline Report of Abuse Related to the Unfair Award of a Multi-Million-Dollar Contract,” omits key details of the arrangement, including both the identity of the vendor and specific purpose of the work, but portrays a city procurement process gone rogue on the mayor's watch.

Villa reports to city chief operating officer Kris Michel.

"No other vendor was invited to participate in a competitive bidding process with the City. Rather, the City used a cooperative or 'piggyback' contracting process that relied on the competitive bidding process and procedures of another organization," the document says.

Although absent names, the audit report outlines a series of troubling policy calls and potential legal violations, including exclusive access granted to the vendor by city staffers prior to award of the contract.

Auditor Kyle Eiser. "The vendor was known to City staff because of the vendor’s exclusive marketing."

"We determined that the vendor acted as an unpaid consultant to City staff to develop the scope of work for the contract they were awarded," says the document.

"We obtained detailed meeting summaries indicating that City staff participated in meetings with the vendor, to the exclusion of any other potential vendor."

The contractor was allowed "to discuss goals, exchange data, negotiate pricing, and develop an implementation plan," and took advantage of the unusual privileges by "applying pressure to City staff to enter into a contract."

"When asked about the deviations from City policy and best practices, City staff stated that the vendor was 'at the right place at the right time' and they provided advice to [City staff]." according to the document

The report suggests that errors and omissions during a hurry-up review further biased the award process by robbing officials of vital information regarding the deal.

"A City staff person involved with the formation of the contract stated that they did not perform any independent business case analysis to determine what services were needed, but instead relied exclusively on the information provided by the vendor.

"Nor did they personally research the services that other vendors provided. In fact, they did not return calls or emails from other vendors who contacted them before the contract with the vendor was signed."

"A key City staff person involved with the contract acknowledged that the vendor did not have successful competitive bids with other large cities to use as the basis for a cooperative procurement."

"Several City staff involved with the process noted that the contracting process was rushed. One person noted that they were on a 'tight timeline' and did not have the time to complete a normal competitive Request for Proposal process, which could take 'a year or two' to complete."

The haste to cut a deal resulted in an end-run around legal requirements for city council approval, per the audit. "Consultant contracts that do not involve public works projects, and are worth over $250,000, 'must be approved by the City Council.' The City's cooperative procurement contract with the vendor, worth over $250,000 per year, was not approved by the City Council."

A tip to the auditor’s hotline and subsequent investigation resulted in a decision by the city not to renew the no-bid contract, according to the report, which calls for further inquiries by the city council and city attorney to "evaluate whether City Charter violations occurred and take appropriate legal action."

Officials in the mayor’s administration jumped to the deal’s defense.

Per the audit, "In a nine-page memorandum dated September 3, 2019, Assistant Chief Operating Officer Ronald Villa provided a response to our report that included a disagreement with all of our investigation’s opinions but included agreement with all of our recommendations."

The response says that “Management does not agree that the Contract was a consultant contract and therefore the Contract did not require Council approval.”

Continues Villa, who reports to top Faulconer aide and city chief operating officer Kris Michel, "The Vendor was known to the City as an industry leader and demonstrated that it could provide the necessary services.”

The auditors replied: "The vendor was known to City staff because of the vendor’s exclusive marketing and consultation meetings with various City staff over a two-year period."

To the city administration’s argument that sufficient due diligence had been conducted before awarding the contract, the auditors said: "The City only met with one vendor over a period of more than two years, exchanged information with them exclusively, relied on their guidance, and negotiated the scope of the contract that was ultimately awarded to that vendor.

"No other vendor was included in the City’s review of the potential services. Solicitations from other vendors were intentionally ignored or actively rejected. These actions are not consistent with due diligence, fairness, or best practices."

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Comments
9

I think I know how the city will solve this "problem". They will rid themselves of that pesky interim city auditor.

Sept. 12, 2019

Sadly, I think you are correct. I'll admit I wasn't sure about Elser's appointment, especially following so outstanding a truly public servant as Luna. If the city council had good sense, they would welcome such independence in exposing a crooked go-around them, and urge to make him permanent.

Ah, but since when has the city council had good sense?

Sept. 12, 2019

Sounds like this needs to be brought to the attention of the Attorney General.

Sept. 13, 2019

Wow....this sounds very close to the creation of the “San Diego Data Processing Corporation” (SDDPC) during the Pete Wilson Mayoral era. During successor Administrations lot and lots of money was laundered though SDDPC to hide unaffiliated and wasteful spending by corrupt city officials.

I’m just wondering if some of those same practices have re-emerged all these years later. Or worse, some of the officials, bureaucrats or outside well connected players are back for a second “byte” (pardon the pun) at the data processing apple.

You see without institutional memory, AND a wary watchdog over the City, it’s always the taxpayers left holding the debt while corrupt processes reward those who know how to exploit the taxpayer’s treasure.

Sept. 13, 2019

C-O-R-R-U-P-T-I-O-N is what this is called. If some more names were named, we might learn just who did what, to whom, and what it cost the hapless taxpayers. If anyone in the city of SD wants to know why the streets don't get repaired, why the water bills went ballistic, and a whole host of other scandals keep coming and coming and coming, the reason is the "C" word above.

How about redress? Is this new city attorney going to jump on this report and prosecute? I doubt it. Oh, how about the DA? Has she done anything at all about local political corruption? Not that I recall. (But she's very concerned with "human trafficking.") Then there's the attorney general who spends what seems like all his time suing the Trump administration about just-about-everything. Is he a likely candidate for caring about some outrageous corruption in San Diego? My guess is that he could not care less.

Sept. 13, 2019

Anyone want any more proof that the City government is corrupt? This is just the tip of the iceberg. The City Auditor should be independent and not subject to the political whims of the corrupt mayor or idiot city council members. All bidding should be open and fair. It is not about the cheapest price but selecting a bidder that can do the job at a fair price and not one that makes their profit by cutting corners or relying on low pay low/no benefit workers.

Sept. 14, 2019

The city insiders "wired the contract" so that only one vendor would be selected. The city bureaucracy is not staffed with engineers that are talented (or industrious) enough to develop their own RFP so they let their preferred vendor rig it (write it).

Sept. 15, 2019

Lazy is what lazy does.

Sept. 16, 2019

And we think Trump is bad ?

Sept. 24, 2019

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4S Ranch Allied Gardens Alpine Baja Balboa Park Bankers Hill Barrio Logan Bay Ho Bay Park Black Mountain Ranch Blossom Valley Bonita Bonsall Borrego Springs Boulevard Campo Cardiff-by-the-Sea Carlsbad Carmel Mountain Carmel Valley Chollas View Chula Vista City College City Heights Clairemont College Area Coronado CSU San Marcos Cuyamaca College Del Cerro Del Mar Descanso Downtown San Diego Eastlake East Village El Cajon Emerald Hills Encanto Encinitas Escondido Fallbrook Fletcher Hills Golden Hill Grant Hill Grantville Grossmont College Guatay Harbor Island Hillcrest Imperial Beach Imperial Valley Jacumba Jamacha-Lomita Jamul Julian Kearny Mesa Kensington La Jolla Lakeside La Mesa Lemon Grove Leucadia Liberty Station Lincoln Acres Lincoln Park Linda Vista Little Italy Logan Heights Mesa College Midway District MiraCosta College Miramar Miramar College Mira Mesa Mission Beach Mission Hills Mission Valley Mountain View Mount Hope Mount Laguna National City Nestor Normal Heights North Park Oak Park Ocean Beach Oceanside Old Town Otay Mesa Pacific Beach Pala Palomar College Palomar Mountain Paradise Hills Pauma Valley Pine Valley Point Loma Point Loma Nazarene Potrero Poway Rainbow Ramona Rancho Bernardo Rancho Penasquitos Rancho San Diego Rancho Santa Fe Rolando San Carlos San Marcos San Onofre Santa Ysabel Santee San Ysidro Scripps Ranch SDSU Serra Mesa Shelltown Shelter Island Sherman Heights Skyline Solana Beach Sorrento Valley Southcrest South Park Southwestern College Spring Valley Stockton Talmadge Temecula Tierrasanta Tijuana UCSD University City University Heights USD Valencia Park Valley Center Vista Warner Springs
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