State Agency ContractsState Agency Contracts

Considerations for Performance Reviews

Introduction

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Performance reviews of contracts are not mysterious

Your audit goals and findings will remain the same

What’s typically unknown: criteria, audit tasks, and evidence

Training Objectives

Participants should be able to:

Identify the bodies of criteria that your state has developed to ensure high quality contracts

Identify the key players in contract management and accountability

Develop a checklist of issues to cover in your audit and ideas on how to address those issues

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Part 1 of 3

Audit Criteria:Audit Criteria:

State Laws and Rules State Laws and Rules for Contractsfor Contracts

Audit Criteria:State Laws and Rules

Contract Components

Contract Controls or Review

Contract Management

Contract Administration (if separate)

Ethics

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Contract Components

Section 287.058, Florida Statutes

“Every procurement of contractual services in excess of the threshold amount … shall be evidenced by a written agreement embodying all provisions and conditions…”

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Contract Components(continued)

State and federal statutes… specify components or even specific

language that must be a part of any state agency contract

require basic language (e.g. terms of payment) and details unique to the state (e.g. adherence to public records laws), and

are often specific to the type of purchase, e.g., service, construction, or commodities

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Contract Review

“Each agency shall establish a review and approval process for all contractual services contracts ….which shall include, but not be limited to, program, financial, and legal review and approval. Such reviews and approvals shall be obtained before the contract is executed.”

s. 287.057(19), F.S.

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Contract Management

For each services contract, state agencies should

designate an employee to enforce the contract terms,

establish procedures to ensure that contractual services have been rendered according to the contract terms, and

pay the vendor if these terms have been met

s. 287.057(15), F.S.

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Contract Administration

“Agencies shall designate at least one employee who shall serve as a contract administrator responsible for maintaining a contract file and financial information on all contractual services contracts and who shall serve as a liaison with the contract managers and the department.”

s. 287.057 (16), F.S.

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Ethics of Contracting

Solicitation or acceptance of gifts Conflicting employment or contractual

relationship Unauthorized compensation Misuse of public position Unauthorized commitment of state funds

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Discussion: Part 1

1. What’s the point of these criteria? Do they need to exist?

2. Do these criteria encourage efficiency or are they merely symbolic safeguards? Discuss.

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Players and roles: who will be enforcing the criteria?

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Part 2 of 3

Players and Roles:Players and Roles:

Who Will Be Enforcing Who Will Be Enforcing the Criteria?the Criteria?

Who Ensures Contract Accountability?

Finance and Accounting

Contract Manager

Contract Administrator

Legal Counsel

Auditors

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Finance and Accounting

Source for: Payment history and related support, warrant copies, compliance information

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Contract Planning: Cost principles evaluation Contract Selection: Contractor financial viability

assessment Coordination: Relationship with state financial entity Accountability:

Allocations and Encumbrances Invoice Processing Warrant Distribution

Contract Manager

Source for: Documentation of day-to day vendor communications, activity log, and of changes made based on their feedback to the vendors

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Provider Selection

Contract Preparation

Ongoing Oversight

Review reports and deliverables

Contract Amendments

Monitoring

Closeout

Contract Administrator

Source for: Contract files (correspondence, deliverables), solicitation and award documentation, monitoring results

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Maintain Files

Financial Information

Liaison with contract manager and state purchasing entity

Management Reporting

Legislative Analysis

Technical Research

Legal Counsel

Can be internal or external, and can:

Advise on solicitation methodAssist in negotiations with vendorsApprove contract componentsProvide enforcement support to contract

manager

Source for: resolving questions about contract content, documentation of approval of contract, documentation on actions taken against vendors

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Auditors

Financial, information technology, and performance audits

State audit entities

Third party CPAs (single audit)

Internal Audit/Inspector General

Source for: historical information on the contract that will help determine cause, as well as implications for ongoing performance and compliance.

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Discussion: Part 2

1. Review/Discuss: What kinds of evidence/documentation (beyond the content of the contract) would you look for to determine whether agency staff were adequately safeguarding the state’s interests?

2. Why might it be problematic for a contract manager to also be a contract administrator?

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Players and roles: who will be enforcing the criteria?

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Part 3 of 3

Developing an Audit Checklist Developing an Audit Checklist for Contract Reviewsfor Contract Reviews

Components of the Contracting Process

Planning Decision to Contract Vendor Performance Requirements Solicitation Process (e.g. RFP process) Award Process Award Decision Contract Provisions Monitoring

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Audit Checklist: State Agency Planning

An agency’s plan to contract for services should demonstrate:

what services are needed

how they should be provided

what provisions should be in the contract

how services will be evaluated

what approvals will be required, if any

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Audit Checklist: The Decision to Contract

The agency should have:

Determined whether state law either prohibits contracting for these services or requires the agency to demonstrate its need to contract

Analyzed its business needs, goals, objectives

Conducted a cost/benefit analysis and evaluate options

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Audit Checklist: Vendor Performance RequirementsThe contract should: Clearly state the services expectedClearly define performance standards and

measurable outcomesIdentify how vendor performance will be evaluatedInclude positive or negative performance incentivesIdentify the staff that will be responsible for

monitoring vendor performanceDefine procedures and conditions for modification to

the contract25

Audit Checklist:Solicitation Process

An RFP should…

Clearly state performance requirements and scopeInclude a statement of workIdentify constraints, deadlines, mandatory itemsSpecify required deliverables and payment termsClearly state pricing requirements and evaluation

criteriaAllow sufficient time for vendors to prepare good

proposals

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Audit Checklist: Solicitation Process (continued)

An RFP also should:

Avoid specifications that favor a particular bidder

Specify qualifications for the vendor personnel who would be assigned to the project

Identify federal and state requirements vendors need to know

Outline all communication devices the agency will use to ensure equal access to information by bidders

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Audit Checklist: Award Process

The contract award process should:

Ensure proposals are responsive to agency needs

Ensure contracts are awarded fairly

Assure best value and defensible award decisions

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Audit Checklist: Award Decision

When an agency makes an award decision, it should: Control bids upon receipt to prevent leaks and additional

opportunities to cure deficits. Have appropriate procedures for handling late or

incomplete proposals Ensure that an adequate number of proposals were

received Use a trained, independent evaluation committee Use fixed, clear, consistent scoring scales to measure

proposals against RFP Check vendor references Document award decision and keep supporting materials 29

Audit Checklist: Contract Provisions

Goals of the contract provisions:

Protect the interests of the agency

Identify the responsibilities of all parties to the contract

Define what is to be delivered

Document the mutual agreement, substance, and parameters of the terms

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Audit Checklist: Contract Provisions (continued)

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Scope, terms, renewals

Deliverables and reporting

Payment amounts, schedules

Limits on the state’s liability

Performance standards/incentives

Audit and inspection

Conditions for termination

Conditions for renegotiation and/or price escalation

Tying payments to deliverables

Appropriate signatures/review

Audit Checklist:Contract Monitoring

Goals of monitoring:

Ensure that contractors comply with contract terms

Ensure that performance expectations are achieved

Identify and resolve problems

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Contract Monitoring(continued)

Proper monitoring includes:Assigning a contract manager with adequate skills,

authority, resources, and timeTracking budgets and compare charges to terms an

conditionsEnsuring on-time deliverables and document

acceptance/rejectionWithholding payment until deliverables are receivedRetaining documentation supporting charges against the

contractEvaluating the contractor’s performance against

pre-established criteria33

Discussion: Part 3

Review/Discuss: What controls should be in place to ensure a defensible award?

What did we miss today, or what additional information would your team need to develop findings related to the contracting process?

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Links

National State Auditors Associationwww.nasact.org/

National Association of State Procurement Officers www.naspo.org/

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For More Information

Contact the Florida Legislature’s

OFFICE OF PROGRAM POLICY ANALYSIS AND GOVERNMENT ACCOUNTABILITY

(850) 488-0021