making local government more ethical

Miami Beach Procurement Misconduct: Access, Discretion, Bid Alternatives, and Debarment

The arrest of Miami Beach's former procurement director last October may not be news, but there's a lot to be learned from this case. The issues include personal discretion, alternatives to fully competitive bidding, access to information, and debarment rules.

According to the affidavit of arrest (attached; see below), the procurement director was arrested on charges of bid tampering, bribery, and money laundering. He became a silent partner with another man (a public school employee) in a consulting company that effectively sold information on the bidding process to prospective contractors, so that they could win bids via a limited bidding process.

Most of the contracts involved were part of the Job Order Contracts (JOC) program which, with a pool of pre-selected contractors, allows for quick response to construction projects, bypassing the formal, fully competitive bidding process. The procurement director appears to have been the only individual who could see the cost proposals of the pre-selected contractors. This is just the sort of discretion, outside of formal processes, that leads to pay to play via kickbacks.

What he did was tell a preferred company (the one making payments to the consulting company) what the others had bid, so that they could bid a bit less. This is a classic case of disclosing truly confidential, and very useful, information for the benefit of a particular individual or company. In the government ethics context, there would not even have to be evidence of a payment. In fact, with a "Cone of Silence" provision, communicating with a contractor or a contractor's representative (that is, the consulting company) would itself be an ethics violation.

Being a silent partner in a consulting company that supposedly provides legitimate services to the very same contractors makes it easy to hide the kickbacks. “When they pull my bank records . . . they’re not going to be able to draw the line from A to B,” the procurement director told his partner, not realizing that the partner was wired. Together, they made about $600,000 in kickbacks.

According to an article in the Miami Herald, the procurement director resigned last March due to allegations involving a convention center district redevelopment project. He was in charge of overseeing bids for the project. The concern was that he was "rigging the process by assembling his own development team" with the help of a local businessman. Apparently, the procurement director's easy success with his pay-to-play scheme made him feel he could get a piece of a bigger action.

How did they discover that something was going on? They noticed odd amounts of cash being deposited into his accounts, and huge amounts of communications with his partner. But they had to have access to his bank accounts and cellphone communications.

What can be done to prevent this sort of misconduct? No individual should have this amount of discretion and access to important confidential information. Bids should not be opened, or openable, until they have all been made. Discretion should be in the hands of an independent procurement committee rather than in the hands of one individual. And there should not be so many projects that are excluded from the formal bidding process.

Another way to ensure that this sort of thing doesn't happen is to have effective debarment rules. Miami Beach does have such rules (attached; see below - not underlined), but a contractor can be debarred only when it has been convicted of a crime or there has been a finding of a civil offense related to criminal accusations. The problem with this is that contractors can, as they did in this case, work with the prosecutor to ensure themselves protection. This allows them to get away with their misconduct and prevent themselves from being debarred from getting further contracts, in Miami Beach and elsewhere. In other words, it gives them no incentive to refuse to participate in pay to play.

The prosecutor loses nothing by allowing them to do this; in fact, sparing contractors ensures the prosecutor has a solid case against the official. Yes, it is the official who has the fiduciary obligation not to misuse his office to help himself and his business associates. But government ethics stresses prevention, not enforcement. To prevent misconduct, there need to be disincentives on both sides of each illegal transaction. The requirement of both parties to disclose their relationship is one check; debarment rules are another.

According to another article in the Miami Herald, only one company has been even considered for debarment since the ordinance was passed in 2000. Considering the apparent amount of ethical miscondcut in Miami Beach, the debarment rules have not been working.

The city attorney has drafted language that would make the debarment rules stronger (attached; see below - underlined language). The language would allow the debarment of any contractor that commits “any offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a City contractor or subcontractor.” It would also allow the suspension of any contractor that admits to an offense but is not prosecuted for it, or for "knowingly failing to disclose criminal or fraudulent conduct relating to public procurement, public officials, or the public trust."

Some of this language sounds unusually vague to me, but according to a short essay by Rosemary Hayes, "Understanding Government Debarment Proceedings" (attached; see below), this is common language. The reason it is allowed appears to be that debarment is considered remedial, not punitive, and therefore due process rules are not so strict.

Robert Wechsler
Director of Research, City Ethics