An Audit Report on Procurement for Terrell State Hospital Operations at the Health and Human Services Commission and the Department of State Health Services
March 2015
Report Number 15-030
Overall Conclusion
The Health and Human Services Commission (Commission) did not ensure that its decision to tentatively award a contract to GEO Care, LLC to manage selected operations at Terrell State Hospital provided the best value to the State. The Commission and the Department of State Health Services (Department) did not fully comply with the Commission's contract planning and procurement processes, which are designed to assist with ensuring that contracts are awarded to qualified vendors that offer best value in accordance with applicable state procurement laws and rules.
The Commission and the Department complied with certain contract planning and procurement requirements, such as providing the solicitation to the State's Contract Advisory Team for its review, publicly posting the solicitation, screening vendor proposals for completeness, and evaluating the only vendor proposal that it determined was complete. However, auditors identified significant deficiencies in the Commission's planning and proposal evaluation processes.
The Commission and the Department did not perform planning to identify the business services to outsource and the associated costs.
The Commission's executive commissioner directed the Commission's deputy executive commissioner for procurement and contracting services to initiate a solicitation for outsourcing Terrell State Hospital operations. However, when the solicitation was initiated, the Commission and the Department did not comply with the Commission's policy to conduct a needs assessment and cost-benefit analysis to support outsourcing those operations. Needs assessments and cost-benefit analyses are critical in (1) defining the scope of work for a solicitation and (2) evaluating vendor proposals.
The Commission's $30.0 million estimated contract value was not reasonable.
The draft solicitation that the Commission submitted to the State's Contract Advisory Team for its review specified an estimated total contract value of $30.0 million. However, neither the Commission nor the Department had documentation to support that amount. In addition, auditors determined that the $30.0 million cost estimate was unreasonable when compared to the following:
- The Department reported that the annual operating budget for Terrell State Hospital was approximately $55.7 million for fiscal year 2014 and $59.8 million for fiscal year 2015.
- The solicitation was for a five-year contract term with up to five additional two-year renewal periods. That suggests that the contract term could have been as long as 15 years.
The Commission may not have complied with Texas Government Code, Section 531.018, which requires the Office of the Attorney General to review certain health and human services agency procurements.
Texas Government Code, Section 531.018, specifies that, before a health and human services agency enters into a contract of $250 million or more for "goods or services in connection with the provision of medical or health care services, coverage, or benefits," it must notify the Office of the Attorney General during the initial planning process. The Office of the Attorney General must be given an opportunity to review the procurement process and the contract and to make recommendations. However, because its cost estimate was $30.0 million, the Commission did not provide information about the solicitation to the Office of the Attorney General. As discussed above, however, the $30.0 million cost estimate was not reasonable.
In addition, when considering Terrell State Hospital's annual operating budgets for fiscal years 2014 and 2015 and a five-year initial contract term, the estimated value for the contract could exceed $250 million.
The Commission did not consider price to be a factor in determining whether a vendor's proposal provided the State with the best value.
Title 1, Texas Administrative Code, Section 391.131(b), specifies that every procurement for goods or services must include consideration of price as a best value factor unless the purchasing entity (1) documents the reasons for disregarding price and (2) for a procurement that is estimated to exceed $100,000 in value, obtains the approval of the Commission. However, the Commission's Procurement and Contracting Services unit reported that it erroneously removed price as a best value factor. It asserted that occurred because it created the solicitation from a prior solicitation (used for a 2012 effort to privatize state hospitals) that required a vendor to achieve a 10 percent cost savings, which the Commission's executive commissioner did not want to require in the new solicitation. As a result, when the Procurement and Contracting Services unit removed the 10 percent cost-savings requirement, it also removed price as a best value factor.
The Procurement and Contracting Services unit started drafting the solicitation in March 2014; however, the Department did not submit an approved purchase requisition for the solicitation until June 2014.
The Commission's procurement policies and procedures require the submission of an approved purchase requisition, along with other documents related to a needs assessment and cost-benefit analysis, to the Procurement and Contracting Services unit to initiate the process for drafting a solicitation. That approach assists in ensuring that the need for the goods or services is identified and that the required approvals have been obtained to begin development of a solicitation. However, the Procurement and Contracting Services unit started drafting the solicitation in March 2014, and the Department did not submit an approved purchase requisition for the solicitation until June 2014.
The Procurement and Contracting Services unit did not complete the development of appendices referenced in the solicitation prior to publicly posting the solicitation.
During the procurement process, vendors requested copies of six appendices that were referenced, but not included, in the solicitation. Those six appendices contained information related to hospital guidelines, a required form to describe a vendor's hospital budget, information on Terrell State Hospital facilities, performance indicators that would be used to monitor vendor performance, a list of active buildings at Terrell State Hospital, and accessibility requirements for certain information resources. The Commission's Procurement and Contracting Services unit asserted that, due to the hurried approach taken to complete the solicitation and publicly post it, those appendices were not completed and posted with the solicitation.
The Commission's proposal evaluation process did not provide complete and reliable information to demonstrate that the vendor the Commission selected provided the best value to the State.
The Commission collected, recorded, and calculated evaluation scores for the vendor proposal in an inconsistent manner. That resulted in an unreliable and inaccurate overall evaluation score for the vendor's proposal. In addition, the Commission did not verify the accuracy and completeness of the vendor’s corporate background, qualifications, and experience. Instead, the Commission relied solely on information that the vendor described in its proposal.
The Commission did not document the executive commissioner's approval to tentatively award the contract, as required.
The Commission did not document the executive commissioner's approval to tentatively award the contract, as required. The Commission's deputy executive commissioner for procurement and contracting services stated that, after informing the executive commissioner that there were no impediments to making a tentative award to the one vendor proposal determined to be responsive, the executive commissioner gave a verbal approval to make the tentative contract award to that vendor, GEO Care, LLC. However, the Commission's procurement requirements specify that a recommendation for a tentative award must be documented and submitted to the executive commissioner for review and written approval. The recommendation documentation typically shows the best value criteria and other factors that support the tentative award decision. The Procurement and Contracting Services unit drafted a memorandum for the executive commissioner's review and approval, but the deputy executive commissioner for procurement and contracting services did not send that document to the executive commissioner.
Based on the deputy executive commissioner for procurement and contracting services' assertion of when the executive commissioner gave verbal approval of the tentative contract award, that verbal approval occurred prior to the completion of the proposal evaluation process. Specifically:
- The deputy executive commissioner for procurement and contracting services stated that (1) the executive commissioner gave a verbal approval on October 15, 2014, and (2) the verbal approval included instructions to make a tentative award announcement by October 17, 2014.
- The Commission's Procurement and Contracting Services unit asserted that the tabulation of the evaluation scores was completed on October 16, 2014.
- The Commission's Procurement and Contracting Services unit drafted a memorandum to tentatively award the contract on October 17, 2014.
- The Commission publicly announced the tentative contract award on October 20, 2014.
On September 11, 2014, GEO Care, LLC changed its legal business name with the Office of the Secretary of State to Correct Care, LLC. On February 20, 2015, the Office of the Secretary of State reported a tax forfeiture for Correct Care, LLC. As of February 26, 2015, the Office of the Secretary of State’s records showed that Correct Care, LLC's status was "forfeited existence." According to the Office of the Comptroller of Public Accounts, a "forfeited" status indicates that the vendor forfeited the right to transact business in Texas.
During this audit, the Commission postponed contract negotiations. As of February 26, 2015, the Commission asserted that contract negotiations had been placed on an indefinite hold.
The report contains additional details on issues auditors identified in the Commission's and Department's planning and procurement for Terrell State Hospital operations, recommendations, and management's responses.