Report 2007-111 Summary - January 2008
California Highway Patrol:
It Followed State Contracting Requirements Inconsistently, Exhibited Weaknesses in Its Conflict-of-Interest Guidelines, and Used a State Resource Imprudently
Our review of the California Highway Patrol's (CHP) purchasing and contracting practices and use of state resources revealed the following:
- The CHP did not include all the justifications recommended by the State Administrative Manual in its $6.6 million handgun purchase request, nor did it sufficiently justify the cost of its planned $1.8 million patrol car electronics purchase.
- The Department of General Services approved the CHP's purchases even though the CHP's purchase documents did not provide all the requisite justifications for limiting competition or for the cost of the product.
- Despite the deficiencies in the handgun and patrol car electronics procurements, our legal counsel advised us that those deficiencies did not violate the provisions of law that would make a contract void for failure to comply with competitive bidding requirements.
- The CHP has weaknesses in its conflict-of-interest guidelines including not requiring employees who deal with purchasing to make financial interest disclosures, and not consistently following its procedures to annually review its employees' outside employment.
- Between 1997 and 2007, the CHP owned and operated a Beechcraft brand King Air airplane (King Air), but could not substantiate that it always granted approval to use the King Air in accordance with its policy, and its decisions to use the King Air were not always prudent.
RESULTS IN BRIEF
As a law enforcement agency, the California Highway Patrol (CHP) uses various equipment to fulfill its mission. To purchase the equipment it needs, the CHP at times is assisted by the Department of General Services (General Services), the State's oversight agency for purchasing. Since 2004 the CHP and General Services have purchased assorted goods for the CHP's use, including handguns, patrol car electronics, and helicopters. However, neither the CHP nor General Services always followed the State's procurement requirements.
For example, the CHP did not include all the justifications recommended by the State Administrative Manual in its $6.6 million handgun purchase request, omitting a description of the handgun's unique performance factors and why the CHP required those performance factors. The State's procurement policies are designed to foster competition so that the State purchases the goods it needs at the best-offered price, and the State Administrative Manual required that the CHP justify its selection of a specific handgun make and model. Moreover, an analysis conducted in 2005 by the CHP's gun experts did not fully support the rationale that the CHP used for its handgun procurement. Even though the CHP's purchase documents did not fully justify its desired purchase, General Services approved the purchase.
In addition, when the CHP requested a purchase of $1.8 million in patrol car electronics, General Services required the CHP to make the procurement on a noncompetitive basis because General Services rightly concluded that vendor competition did not exist. However, General Services subsequently approved the CHP's revised purchase request even though the CHP did not sufficiently justify the cost of the electronics. In this instance, General Services did not follow its policy to return the purchase documents when they are incomplete. Because the CHP and General Services did not fully comply with the State's purchasing guidelines, neither can be certain that the purchases made were in the State's best interest.
There are several ways that the State can end its contractual relationship with a contractor, two of which could be applicable for the contracts we reviewed. The State's standard contract provisions allow the State to terminate a contract for specified reasons, and state law provides that a contract that is formed in violation of law is void. Based on the contractors' performance under the handgun and patrol car electronics contracts, our legal counsel advised us that General Services would not have a basis for relying on the standard contract provisions to cancel these contracts. Moreover, even though a broadly worded contract provision permits termination of a state contract when it is in the interest of the State, our legal counsel advised us that it is unlikely that the State could successfully cancel the handgun and patrol car electronics contracts on that basis, particularly because the contractors have already performed most of their duties under the contracts.
In addition, although we identified deficiencies in the procurements of the handguns and patrol car electronics, our legal counsel advised us that those deficiencies did not violate the provisions of law that would make a contract void for failure to comply with competitive bidding requirements. The State Administrative Manual recommends, but does not require, that the statements justifying sole-brand procurements1 and noncompetitive bids address certain questions, such as what other comparable products were examined and why they were rejected. Because these statements are merely recommended and not legally required, a failure to provide them did not constitute a violation of law that would make these contracts void. Nonetheless, we believe that it is important for state agencies to demonstrate to General Services that they examined other comparable products and to explain why the products were rejected or, if there are no other comparable products, to explain how the state agency reached that conclusion, to ensure that competitive bidding occurs whenever possible.
The CHP has undergone numerous internal and external reviews over the last few years, and we identified four reviews among the 102 the CHP provided in which the scope of work focused on the CHP's procurement practices. Another 24 reports mentioned certain procurement functions, but these references were part of a larger effort, and the procurement-related information in these reports primarily addressed administrative issues rather than the procurement methods. The CHP characterized all of the reviews as audits, yet we believe that the term audit implies that a review was performed in accordance with recognized auditing standards. Nine of the 102 reviews (8.8 percent) were performed in accordance with recognized auditing standards. The CHP was responsive to recommendations made in the four reviews, one of which was performed in accordance with audit standards, that focused on its procurement practices.
The CHP's conflict-of-interest guidelines consist of four components that work together to help employees identify financial interests that may present conflicts of interest and to periodically remind employees of the CHP's expectations regarding conflicts of interest. However, the CHP has weaknesses in its conflict-of-interest guidelines. For example, the CHP does not require all employees who deal with purchasing to make financial interest disclosures, nor has it consistently followed its procedures to annually review its employees' outside employment. As a result, the CHP cannot be fully aware of or guard against its employees' potential conflicts of interest. In 2006 there was a highly publicized conflict-of-interest case involving a CHP employee. In 2007 the CHP developed a new conflict-of-interest policy pertaining to employees and vendors, but the new policy does not specify the employees affected or the circumstances to which the policy applies. Moreover, the policy lacks a method for vendors to certify that they are conflict free.
General Services, too, has encountered conflicts of interest related to CHP purchases. In June 2005 General Services declared void two statewide contracts for motorcycles for use by the CHP after having determined that a General Services employee had a conflict of interest. Although General Services secured a $100,000 monetary settlement from the motorcycle dealer, General Services let a separate settlement with the motorcycle manufacturer languish without finalizing it for 14 months. When we asked General Services why it had not settled with the motorcycle manufacturer, General Services informed us that it has reestablished negotiations. However, it is too soon to determine the benefit, if any, the State will receive from the pending negotiations.2 According to the CHP, because the two motorcycle contracts were declared void, it has incurred $11.4 million in maintenance costs and lost buyback options from October 2005 to October 2007. The estimate also reflects that the CHP and General Services were not successful in securing another motorcycle contract in 2006 that would have allowed the CHP to purchase new, replacement motorcycles.
Between 1997 and 2007 the CHP owned and operated an eight-passenger aircraft—a Beechcraft brand King Air airplane (King Air). The CHP's policies governing the King Air's use were broad, simply requiring the approval of the Office of the Commissioner. However, the CHP could not substantiate that it always granted approval in accordance with its policy for using the King Air, because the CHP lacked documentary support for some of its King Air flights. In addition, the CHP's decisions to use the King Air were not always prudent. For example, the CHP used the aircraft as transportation to cities in close proximity to Sacramento, where the CHP's headquarters are located. The cost of flying the King Air for these trips was at least $1,980—more than 13 times the cost of driving. In addition, 14 of the King Air's flights during 2006 were authorized for purposes that were not aligned with the CHP's function, as its policy dictates, nor were they for state business. According to the CHP's operating cost calculation, the total cost of these flights exceeded $24,000. In early 2007 the CHP transferred3 the King Air to another government entity, citing economic reasons. However, the CHP had the necessary information in 2005 to conclude that its private air service was not cost-effective, and thus we question why two years passed before it transferred the King Air to another entity.
To ensure that it protects the State's interests and receives the best products and services at the most competitive prices, the CHP should:
- Provide a reasonable and complete justification for purchases in cases where competition is limited, such as sole-brand and noncompetitive bid purchases.
- Provide a complete analysis of how it determines that the offered price is fair and reasonable when it chooses to follow a noncompetitive bid process.
To ensure that state procurements are competitive whenever possible, General Services should revise the State Administrative Manual to require that state agencies address all of the factors specified when submitting justification statements supporting their purchase estimates for noncompetitive or sole-brand procurements.
To ensure that it informs employees about and protects itself against potential conflicts of interest, the CHP should include all personnel that help to develop, process, and approve procurements as designated employees for filing the Form 700, Statement of Economic Interests; consistently follow its secondary-employment policy; and make necessary revisions to its employee and vendor statements regarding conflicts of interest.
General Services should continue negotiating with the motorcycle manufacturer regarding the canceled motorcycle contracts to develop a settlement agreement that is in the State's best interest.
To ensure that the use of state resources of a discretionary nature for purposes not directly associated with the CHP's law enforcement operations receives approval through the Office of the Commissioner, the CHP should develop procedures for producing, approving, and retaining written documentation showing approval for these uses.
The CHP responded that it concurred with the report's recommendations and that its staff had already begun to implement them. General Services stated that it is fully committed to promptly and completely addressing the issues in the audit report.
1 Sole-brand procurements, also known as limited-to-brand procurements, are a form of competitive purchase in that multiple vendors bid to supply a state agency, such as the CHP, with a specific item identified by brand, make, or model.
2 In its response to this audit, General Services disclosed that the motorcycle manufacturer had no interest in buying back the existing motorcycles. We are unaware of any other points General Services and the motorcycle manufacturer may be negotiating.
3 According to the CHP, it received the King Air through a federal program under which states and local governments can acquire surplus military equipment for law enforcement and drug enforcement purposes. Under the program's rules, the CHP could relinquish the aircraft only to another state or local government to use for program purposes.