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Sunday, December 28, 2008

The "No Bid" Mess Once Again Raises It's Ugly Head

From Betsy Combier: See below this last line of Ms. Montefinise's NY POST article:
"The DOE argues no-bid contracts get business done quickly, and when it comes to curriculum, quality is more important than price."

(Who determines what the word 'quality' means, and at what cost? The public should look at the NYC Campaign Finance Board on a regular basis- Editor)

Is this the statement of a public agency, handling public funds? Let's hope that Betsy Gotbaum (pictured below, center) does away with this outrage, and stops the Tweed ring cold. We all remember the Snapple snafu (where Snapple was made the drink for NYC in a no bid contract),right?

Snapple Snafu
Promo magazine, Dec 1, 2003 12:00 PM

New York City's comptroller (William Thompson - see below -Ed.) has called for the city to cancel $166 million in deals with Snapple Beverage Group that gave the company the right to sell its drinks in city schools and buildings, saying the city violated standards for public bidding.

Comptroller William Thompson also charged that the five-year deal was improperly negotiated by marketing firm Octagon Corp., which does business with Cadbury Schweppes, Snapple's parent, and a city official who struck a deal to make Snapple the New York Yankees' official drink.

At press time, the comptroller had asked that bidding be re-opened to fair competition. He began investigating the deal after competitors complained. Snapple bid $40.2 million for the school distribution deal, the report said. The comptroller has also questioned the $126 million deal for vending in public buildings.

The partnership with the Department of Education, announced in September, was for Snapple to sell juice drinks and bottled water in the city's 1,200 schools. Distribution was to begin within 30 days. In the second, more lucrative deal, Snapple was to put vending machines in all 6,000 of the city's public buildings to sell its iced tea, water and Yoo-Hoo chocolate drink. This deal is set to begin Jan. 1, 2004.

Other bids were considered for the school deal but not the public building arrangement. Thompson claimed the deal went way beyond what had been made public, according to news reports.

“We followed the guidelines as set forth by the city,” Steven Jarmon, a spokesperson for Snapple Beverage Group, said. “[The city] told us that there is not a violation here.”

NYC Mayor Michael Bloomberg said at a press conference: “This is the one company that submitted a bid in the city's interest.” The city expected to generate $1 million in revenues and was guaranteed $60 million in marketing and promotion value. As part of the deal, Snapple was to financially support the schools through commissions on sales from vending and via sponsorships supporting sports and physical education programs. To promote its products, Snapple agreed to sponsor concerts, events and use city-owned media including outdoor, TV and online media, the city said.

The deal replaced a previous system that allowed each school to make its own contracts with companies.

But Snapple had some fun with New Yorkers, too, and got the Department of Sanitation a nice bit of change cleaning up the mess:

Wendy the Snapple Lady helped launch Snapple on Ice pops with an attempt at breaking the Guinness World Record for the World's Largest ice pop. Even though the 35,000 pound, 24 foot tall ice pop didn't break the world record, New Yorkers had a great time kicking off the first day of summer. (Photo: Business Wire)


The city Department of Education paid nearly $10 million to a nonprofit group to train Big Apple teachers to "demystify" their students - but the group trained less than one-fifth of the teachers planned, The Post has learned.

The organization, All Kinds of Minds, was co-founded by famed Harvard pediatrician Dr. Melvin Levine, who is facing new allegations that he sexually abused young, male patients.

The group scored a no-bid contract worth up to $12.5 million in 2004 - one of hundreds of no-bid contracts issued by the DOE since mayoral control of the school system began in fiscal year 2003.

According to city-comptroller statistics, the surge of no-bid contracts since then totals $342 million.

"We don't know what we're getting for our money," said Public Advocate Betsy Gotbaum, who sparked an ongoing state-comptroller audit of no-bid contracts.

"In the case of All Kinds of Minds, what we were told at the beginning was wrong."

Although the group's contract did not mandate training for a particular number of teachers, when the contract was first signed, All Kinds of Minds touted its plan to train 20,000 educators in its Schools Attuned program. When the contract expired in June, only 3,000 had been trained.

In the meantime, Levine, who developed the program, was sued by five men who claim he sexually abused them when they were young patients.

Attorney Carmen Durso said nearly 50 other victims have come forward since the suit was filed, and may also sue.

Levine has strongly denied all allegations.

The DOE has a second contract, for $218,000, with All Kinds of Minds through 2009 that had been bid out.

Education officials said the pacts are with Levine's organization, not Levine.

It also said it paid only $9.7 million of the no-bid contract for the training, and called the program "very successful."

But teachers who received the multipart training had mixed reviews.

Some thought the program, which requires teachers to have informal conversations with students called "demystifications" to target weaknesses, help students identify trouble areas and improve performance, was useful. Others called it "impractical" and "a total waste of time."

"It can be the best program in the world. That's not the issue," Gotbaum fumed. "The issue is [that] it was contracted through a secretive process."

According to city-comptroller statistics, in fiscal year 2000 under Mayor Rudy Giuliani, the DOE signed seven no-bid contracts worth a total of $693,000. In fiscal year 2007, under Mayor Bloomberg, 76 no-bid contracts were signed for a total of $72 million. The numbers dropped to $12 million in fiscal year 2008.

An internal board that reviews no-bid contract requests has approved 120 of them since January 2006, and denied only one.

That rejected request - a $2.2 million deal with the New Teacher Center in California - was approved the following month with an almost identical description, but a higher price of $2.8 million.

Gotbaum said the commission she created to evaluate mayoral control, which expires with Mayor Bloomberg's term, is taking a "very close and careful look" at no-bid contracts.

The DOE argues no-bid contracts get business done quickly, and when it comes to curriculum, quality is more important than price.


Comptroller Files Objection with Mayor, Citing Tainted Vendor Selection Process;
Audit Finds School Snapple Deal “Flawed” and “Defective”

View Audit
View Letter to Mayor Bloomberg

New York City Comptroller William C. Thompson, Jr. today announced that he has rejected the $126 million contract naming Snapple as the exclusive beverage vendor for all City public buildings.

“After thoughtful and thorough review of the matter, I have concluded that Snapple was selected through a tainted process with a predetermined outcome that was not the best deal for the City of New York,” Thompson said.

Thompson’s decision was triggered by his audit – which also was released today - of the separate agreement to exclusively place Snapple in the City’s 1,200 schools. The audit found that the Department of Education (DOE) conducted a flawed and inconsistent selection process.

The audit found that Snapple’s monetary offer to the DOE was less than that offered by other beverage suppliers. “Despite the low offer, the DOE continued negotiations solely with Snapple,” Thompson wrote the Mayor in a letter of objection to the Citywide pact.

Thompson cited two clauses in the City Charter as additional grounds for his actions. Under Charter Section 328 (b), Thompson is refusing to register the contract because the Administration failed to submit the entire Citywide agreement to the Franchise and Concession Review Committee (FCRC). Instead, only the licensing portion of the agreement was submitted for review.

Charter Section 328(c) allows the Comptroller to object to the registration of a contract if “in the Comptroller’s judgment there is sufficient reason to believe that there is possible corruption in the letting of the contract.”

Supporting Thompson’s citing of Charter Section 328(c) is evidence of misrepresentation by the New York City Marketing Development Corporation (MDC) about its role in the selection of a vendor for the DOE as well as potential conflict of interest issues concerning Octagon, Inc., the marketing agent for the DOE selection process.

“Notwithstanding the gross deficiencies in the DOE process,” Thompson wrote, “NYC Marketing selected Snapple for the $126 million Citywide Agreement based solely on the DOE award.”

Last year, the MDC signed the Citywide deal with Snapple to exclusively sell water, iced tea, and chocolate drinks in all City buildings. The contract was sent to Thompson’s Office on February 20th.

Thompson’s letter cites the following problems with the Citywide agreement:

• MDC President Joseph Perello, when testifying before the FCRC, misstated when discussions began on the Citywide deal. Perello at the time said there was no citywide marketing opportunity contemplated prior to the DOE selection of Snapple.

However, email communications reviewed during the audit counter that. On August 21, five days before the MDC’s recommendation of Snapple to the DOE, Perello told Deputy Mayor Dan Doctoroff of the “larger City deal.”

• Octagon has potential conflict-of-interest issues in its selection of Snapple. Octagon represents Cadbury, which is owned by Snapple’s parent company, Cadbury-Schweppes, which stands to benefit substantially through the sale of its products Citywide.

• The Comptroller maintains that the Citywide contract was illegal under the City Charter because it pre-empts the authority granted to the Comptroller and Borough Presidents as members of the FCRC to review all franchises and concessions for City property. The marketing portion of the agreement was never submitted to the FCRC for approval.

Today’s audit reviewed the process by which the DOE awarded the vending machine agreement to Snapple. In June 2003, the DOE, based on a 2001 request for proposals (RFP), signed an interim authorization for Octagon, Inc. to serve as the DOE’s agent for a vending machine marketing and administration program. Octagon began a process to pick a vendor. In September 2003, the DOE signed an interim agreement giving Snapple the exclusive right to sell water and 100 percent fruit juice products in machines in schools, guaranteeing that Snapple would pay it a minimum of $40.2 million by August 2008.

The DOE is not required to adhere to the New York City Procurement Policy Board or FCRC rules that other City agencies must follow. Instead, New York State Education Law authorizes the Schools Chancellor to establish DOE contract rules. The audit noted that the DOE did not even follow its own rules. The audit found that:

• Snapple’s "best and final offer" was not the most lucrative deal for the City: it was the lowest combined juice and water bid placed by an individual company, was lower than three juice only bids and was lower than three possible combinations of juice only and water only bids placed by different beverage companies. Inexplicably, Snapple was the only beverage company given the chance to improve its "best and final offer." (See Audit, Table 1, Page 13)

• There were significant inconsistencies in the information provided to potential bidders. This led to vendor confusion.

• Octagon’s evaluation of bids was flawed and led to incorrect conclusions about the most lucrative offer.

• The DOE did not follow a fair vendor selection process. The process for awarding the deal was “fundamentally flawed” and the DOE failed to properly monitor the marketing agent it selected to implement the process.

• Octagon made minimal efforts to solicit bids, prepared an “inadequate” RFP and failed to hold a pre-proposal conference. The DOE’s RFP manual states that selection committee members should complete rating sheets on bids received. A summary sheet showing each evaluator’s scores also should be prepared; this was never done.

• The process for selecting the marketing agent became questionable when its ownership changed hands prior to the interim authorization. The DOE did not reopen the process or require a revised proposal from Octagon after the ownership change.

• Octagon stands to collect “exorbitant compensation” for its DOE services. The amount initially was $11.6 million, but rose to $15.3 million, according to the DOE’s Jan. 29, 2004 contract with Octagon. After the audit raised these concerns, the DOE informed the Comptroller that the contract would be amended. If the DOE does amend the contract, Octagon’s compensation could be reduced to a still staggering $7.6 million.

• Thompson called the additional compensation expected to go to Octagon for the Citywide deal “unwarranted.” Part of this compensation is an effort by the MDC to assume some of the financial burden of the DOE agreement with Octagon.

“We conclude that the fundamentally flawed DOE vendor selection process did not ensure that the New York City schools received the best offer for the school vending opportunity, and was neither fair nor reasonable,” Thompson said. “A better vendor selection process could have led to additional and higher bids.

“A more careful review of the bids that were received could have led to a more lucrative deal for DOE and our schools. This has a direct effect on the level of funding for athletic programs for our children."

Thompson made 10 recommendations, urging the DOE to cancel the school vending machine contract with Snapple and conduct a new process that complies with the DOE’s RFP manual and ensures a “fair and reasonable result.”

He also recommended the DOE ensure that any concession and sponsorship opportunities be handled through a well-structured RFP process in which there is extensive public notification of potential bidders. Such a process must provide detailed specifications and clear standards to evaluate proposals; include a pre-proposal conference to ensure all bidders receive consistent information, and, include a written assessment of each proposal based on the stated standards.

Additionally, Thompson asked the DOE to: reopen an RFP process or require a revised proposal before entering into any agreement with a company that has experienced a change in ownership after being selected through an RFP process; restructure and greatly reduce Octagon’s compensation for its marketing and administration work on the vending machine deal; not award any new marketing assignments to Octagon in relation to the 2001 marketing RFP; and, seriously consider the benefits of implementing the concession and sponsorship RFP process itself or seeking the assistance of other City agencies before hiring a marketing agent for any similar work.

The DOE has challenged many of the audit’s findings and recommendations. Thompson, however, said the DOE’s response contained “numerous falsehoods, misrepresentations, obfuscations and contradictions about our findings.”

April 10, 2006
View Audit report

Comptroller labels Marketing’s payment system “arbitrary and self-serving”

Comptroller William C. Thompson, Jr. today called on the City to strengthen its oversight of the New York City Marketing Development Corporation, charging in a new audit that the corporation has established a payment system that is “arbitrary and self-serving.”

The audit, which covered July 10, 2003 to June 30, 2005, reviewed NYC Marketing’s system of reporting revenue and expenses and remitting excess revenues to the City and found that NYC Marketing owes the City nearly $236,000 in underpaid commissions from the sale of Snapple beverages on City property.

“NYC Marketing was created to generate additional revenue and resources for the City,” Comptroller Thompson said. Yet, “the City has failed to establish effective controls that would allow closer scrutiny of NYC Marketing’s cash position and operating needs. The absence of formal procedures and methodology constitutes a lack of effective oversight that would provide proper accountability of City funds.”

The City established NYC Marketing in July 2003. In March 2004, the City entered into a contract to retain NYC Marketing as the City’s exclusive marketing and licensing consultant.

From July 10, 2003 to June 30, 2005, NYC Marketing received a loan of about $1.2 million from the New York City Economic Development Corporation to cover expenses associated with its development and organization. During that period, NYC Marketing generated about $8.4 million in revenue and expended about $8.3 million.

From April 23, 2004 to June 30, 2005, NYC Marketing entered into marketing and licensing agreements with a potential value of about $159.1 million, including $76.1 million of cash payments (including $36 million in commissions from Snapple sales) and $83 million in other benefits, such as media and promotional advertising.

Recently, New York City Marketing scheduled a public hearing before the City’s Franchise and Concession Review Committee to request an amendment to its agreement with the Snapple Beverage Corporation. That amendment includes Snapple’s agreement to reduce the yearly case sale goal, which will result in a revised payment schedule for NYC Marketing. Accordingly, the City will receive approximately $33 million in potential revenue and other benefits.

The audit found that NYC Marketing has accurately reported its revenues and expenses, and that its expenses were valid. However, auditors noted several issues of concern.

For one, the City has not established formal procedures and a methodology that would allow it to closely monitor NYC Marketing’s financial activities to ensure that funds in excess of NYC Marketing’s cash operating requirements are paid to the City.

During the audit period, NYC Marketing had about $9.6 million available to fund its operation and expended about $8.3 million. NYC Marketing ended FY 2005 with a cash surplus of about $1.6 million. But OMB did not direct NYC Marketing to make any payment to the City.

Additionally, NYC Marketing did not fully compensate the City from the sale of Snapple beverages sold on City property and owes the City $235,834 in additional commission payments.

The Comptroller’s review of NYC Marketing’s financial reports found that from April 23, 2004 to June 30, 2005, NYC Marketing received $507,171 in commissions from Snapple, paid $35,502 to Octagon, Inc., a company retained to develop a vending machine program, and paid the City $235,835.

The Snapple agreement clearly states that NYC Marketing will receive the commission from Snapple “on behalf of the City.” But, according to NYC Marketing officials, once a payment of seven percent is paid to Octagon, the remaining amount is divided evenly between NYC Marketing and the City.

“This payment structure was not established under any agreements among the City, Snapple, or NYC Marketing,” Thompson said. “This method of compensation was determined by NYC Marketing and is arbitrary and self-serving.”

The audit recommended that New York City Marketing pay the City the full commission received as of June 30, 2005 (less the seven percent paid to Octagon) and remit the additional commission of $235,834 to the City, and pay all subsequent commissions it receives from Snapple to the City.
Thompson further recommended that the City: establish written procedures and a methodology that would enable it to closely monitor NYC Marketing’s financial activities to make sure that funds in excess of NYC Marketing’s cash operating requirements are paid to the City; develop financial benchmarks to evaluate NYC Marketing’s budgetary needs and to ensure that the City receives a portion of the revenues generated by NYC Marketing’s activities; and, ensure that MDC addresses the report’s findings and implements the report’s recommendations.

Did Ventyx obtain a no bid contract as well?

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