The Delaware Office of Management and Budget has chastised the Department of Insurance for writing purchase orders – after the fact – for no-bid contracts worth more than a half-million taxpayer dollars.
By Lee Williams
Delaware Insurance Commissioner Karen Weldin Stewart awarded a professional services contract last August worth up to $700,000 to a New Mexico firm without seeking competitive bids, an action experts say may violate Delaware’s procurement and contracting regulations.
An ongoing investigation by the Caesar Rodney Institute has revealed this is one of many no-bid contracts awarded by the DOI, and then paid for by an after-the-fact purchase order begrudgingly approved by the Office of Management and Budget (OMB).
The recipient of the insurance department’s most recent no-bid contract, Regulatory Consultants, Inc. (RCI), was incorporated in 2003 by Nestor J. Romero, who is listed as the firm’s president, director and treasurer.
According to the New Mexico Secretary of State’s office, RCI is one of four Limited Liability Corporations created by Romero. None, including RCI, are corporations “in good standing” with the State of New Mexico.
All four corporations share the same address.
Romero said he first met Stewart at an insurance industry convention in 2003. Obtaining the no-bid contract from her was relatively easy – something he was able to do without competitive bidding.
“There wasn’t any RFP. We put a proposal together, submitted the proposal to the department. The proposal went to Karen Weldin Stewart, to Elliott Jacobson and others, and we got the contract,” Romero told the Caesar Rodney Institute.
Romero said RCI was contracted to perform premium tax audits of 24 foreign insurance companies – insurance firms doing business in Delaware that are domiciled in other states. Industry experts say several Delaware firms could have performed the work.
According to the contract, obtained by CRI through a Freedom of Information Act (FOIA) request, Romero’s firm is to be paid up to $25,000 for each of the 24 audits, plus expenses.
RCI has already received more than $72,000 in payments, according to Delaware’s online checkbook, but Romero said the contract is capped much higher.
“The total not-to-exceed number, a rough estimate, is $700,000,” he said.
This amount exceeds the limit on no-bid professional services contracts set by Delaware’s Purchasing and Contracting Advisory Council, and codified into state law.
“Any contract over $50,000 should be bid out,” said Delaware Auditor of Accounts R. Thomas Wagner.
The Delaware Department of Insurance is subject to the state’s procurement laws, including the need for competitive bids, Wagner said.
“The only way around it is to sole-source it, or get a governor’s proclamation, which is usually done only in time of emergency,” Wagner said.
Because there are several qualified firms in Delaware that could have provided the service, Wagner explained, the DOI would have been precluded from sole-sourcing the contract.
Documents obtained by the Caesar Rodney Institute through Delaware’s Freedom of Information Act (FOIA) show Romero met with DOI officials three times last year: once at a conference in San Diego, then twice at the insurance department’s offices in Dover.
Stewart did not respond to numerous e-mails or phone messages left with her personal assistant and chief of staff seeking comment for this story.
OMB Warnings
The contract between the insurance department and RCI states it is “subject to the approval of a purchase order by the Delaware Office of Management and Budget.”
The Caesar Rodney Institute has obtained five memos from OMB Director Ann S. Visalli to Stewart’s chief of staff Elliott Jacobson concerning purchase orders for five other vendors, which were submitted by the DOI for payment from OMB.
All five memos were sent June 11, 2009. All were titled: “AFTER-THE-FACT PURCHASE ORDERS.”
The wording of the memos is identical. Only the names of the vendors were changed.
“Our offices are in receipt of your request for a waiver from the State accounting policy that requires a purchase order for any obligation over $2,500, prior to the purchase of a good and/or service. As you know, the State is not liable for goods or services unless and until proper compliance of accounting procedure has been met. To avoid the loss of a good faith vendor, and per your written request dated May 14, 2009, the After-the-Fact Purchase order 2000581 for $96,000 to Zack Stamp Consulting is hereby approved,” one of the e-mail states.
Visalli wrote that submitting purchase orders after contracts have been signed places a burden on her office and the DOI, “so your future compliance is strongly encouraged.”
“In the event of non-compliance, the vendor may look for payment to the employee who wrongfully purported to obligate the State,” Visalli wrote.
Added together, the five purchase orders cost Delaware taxpayers more than a half-million dollars in payments.
Visalli was not willing to be interviewed for this story.
Delaware Code requires a formal bidding process for any professional services contract that exceeds $50,000. It also prohibits an agency from subdividing or “fragmenting” a contract into chunks in order to stay below the cap.
State law assigns penalties for violating the procurement and contracting regulations. The maximum penalty for a first offense is a $2,000 fine and six months imprisonment.
Visalli copied her memos to the Auditor of Accounts, the director of the Division of Accounting, and to Attorney General Beau Biden.
Contact investigative reporter Lee Williams at (302) 242-9272 or lee@caesarrodney.org
The Caesar Rodney Institute is a 501(c)(3) non-partisan research and educational organization and is committed to being a catalyst for improved performance, accountability, and efficiency in Delaware government.
© Copyright April 13, 2010 by the Caesar Rodney Institute
Delaware Liberal documented one such RFP last year, in May. We never got much explanation from the IC’s office except that we were big meanies who just didn’t understand.
UI,
Your crew has done some incredibly revelatory work on the DOI.
There seems to be a lot about that department that’s difficult to understand.
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