Rutgers Report Says State Shares Blame for Problems With Fired Sandy Contractor
Study finds state oversight of third-party contractors inadequate, leaving taxpayers vulnerable to poor service, financial waste
- Credit: Governor's Office/Tim Larsen
Three months after the Christie administration secretly fired a Louisiana-based firm that had been awarded the state’s largest post-Hurricane Sandy contract to distribute reconstruction funds to homeowners, authors of a new Rutgers University report on governmental oversight say the state -- and not the contractor -- may ultimately be to blame for substantial cost overruns and poor service.
“There’s a stunning lack of effective oversight in the state,” lead author Janice Fine told reporters on a conference call yesterday to announce the report’s findings. The state’s lack of contractor oversight caused it to fail in its “duty of protecting vulnerable citizens from poor service and taxpayers from wasted funds,” she said.
Fine and other speakers said that the Sandy contractor, Hammerman & Gainer International (HGI), serves as one of countless examples that indicate a broad pattern of neglect by the state to properly staff, fund, and set policy for contract management. Not only is this “a matter of life and death” for residents who rely on outsourced social services like mental health, child-abuse prevention, and monitored prisoner release, they said, it cost Sandy victims and taxpayers undue anguish and expense.
According to Fair Share Housing Center lead attorney Adam Gordon, who joined the call because he looked into complaints against HGI, homeowners seeking answers and financial aid were exposed to a “chaotic and error-ridden process” that denied claims from African-Americans and Hispanics at more than double the rates of whites. He said HGI never filed any required weekly or monthly reports or held a mandated series of meetings with the Department of Community Affairs (DCA), while the treasury department never set up an integrity monitor called for by the Legislature.
“The state ends up spending tens of millions of dollars and doesn’t get the results of getting people into their homes,” he said.
Several weeks after facing criticism for hiring, then quietly firing HGI with scant explanation, the administration fired a second contractor hired to oversee Sandy housing funds. Before that, Fair Share had found that three-quarters of Sandy appeals filed against URS Corp. had been won.
Yesterday, however, Gov. Chris Christie celebrated a victory following what had been a string of questions about other contractors he’d hired to manage hurricane recovery. The U.S. Homeland Security Office of the Inspector declared in an audit report that the administration had acted appropriately in hiring the politically connected AshBritt to clean up debris in a no-bid process.
Although the post-Sandy contracts gave researchers from Rutgers some meaty cases to examine, they’d already been at work on the study before Hurricane Sandy hit in 2012. Even though they say these types of problems started before Christie -- and his predecessor Jon Corzine -- took office, they decided to explore the topic after Christie received recommendations from a task force he’d set up to study expanded privatization of governmental functions. What they found was that the dysfunction runs deep and the blame spreads far.
Key Finding One: Short Staff
“At the core of the problem,” admonishes the report, “is a complete lack of priority given to oversight despite a preference for contracted service provision.” Illustrating the issue, according to the authors, is a profound shortage of staff to manage the state’s third-party contracts. Case in point: New Jersey lost 36,319 state employees between 2004 and 2011. Among them were almost half the workforce of the Office of Information Service, which provides the data necessary for oversight; half the health department’s Office of Auditing; and half the employees at the Department of Transportation. This at a time when the value of contracts remained steady overall.
Noted Fine, “When we went to the various agencies to do our research we would pass empty carrel after empty carrel. One person couldn’t possibly handle the number of contracts they were supposed to be handling.”
This, the report finds, leads to a yawning gap in capacity to handle any of the four identified elements of contractor oversight: staffing and training; contract-costing and design; communication between contractors and managers; and monitoring and delineation of benchmarks or performance standards.
Key Finding Two: No Protocols
But the fault doesn’t just lie with attrition, the report found. A lack of protocol makes the problem worse. No budgetary mechanisms exist to provide resources for oversight, and no state agency oversees the monitors within individual departments. The State Commission of Investigation (SCI), the Independent Office of the State Comptroller (OSC) and the legislative Office of the State Auditor (OSA) have varying degrees of authority to check in but have few mandates or resources to do so.
“As a consequence, largely what we have is oversight by audit and expose, which only catches problems after they arise and in many cases only once they have become quite severe,” reads the report.
When an agency does have a mandate to handle contracts in other departments, loopholes can too often stymie the outcome. For instance, according to the report, the Department of Public Purchasing (DPP), which has chief responsibility for procurement, enforces just the bidding part of the process.
And within this narrow realm, the DPP only accounts for an estimated half of the state’s outside contracts and can’t interfere with services contractors provide directly to citizens. Had this not been the case, report authors argue, the state may have selected different operators to manage the Department of Correction’s Residential Community Release Program -- a program that has gained notoriety for releasing two inmates since 2010 who committed murder while enrolled.
“As a result of this exemption, regulations governing the contracting process for these critical services are left to the individual departments. While some departments have created their own regulations, others have not. In all cases, the regulations fail to ensure sufficient protections,” the report reads.
The authors, who hail from the university’s Department of Labor Studies and Employment Relations in New Brunswick and the Department of Public Policy and Administration in Camden, offer a host of recommendations on both the statutory and regulatory side.
Among them, the state should: + Put all human services contracts out for rebid every three years.
Cover all state contract managers, state employees, contractors, and contractors’ employees under whistle-blower protection laws.
Restrict contractors and outside parties from managing their own oversight.
Require agencies to conduct a cost comparison before letting any contract.
Standardize language for Requests For Proposals (RFPs).
Eliminate the DPP exception for third-party contracts
Create a centralized system that contains data to hold contractors accountable for previous actions. And lawmakers should:
Ensure that service contracts contain enough money to pay for oversight (20 percent of a contract’s cost is suggested).
Rebuild Trenton’s contract management corps with staff that possesses expertise in contracts and the “substantive area of the agency.”
Establish an ombudsman for the Department of Human Services.
Make SCI’s recommendations binding under certain circumstances.
National Perspective and Next Steps
Donald Cohen, executive director of In the Public Interest, a national research organization working on issues of privatization and responsible contracting that helped fund the study, ranked it as among the most comprehensive in the country. New Jersey’s oversight landscape may be rocky, he said, but it’s not much different from others.
“We’ve found this inadequacy is not unique to New Jersey. We see examples every week,” he said.
In Utah, for instance, it was discovered that the company running online charter schools was overcharging taxpayers, and in Florida and California, the same company botched unemployment checks generated from online claim filings.
Now that new Jersey’s problems have been highlighted, he said, “The Legislature has the information it needs to pass legislation for New Jersey taxpayers to get what they pay for,” he said.
Fine said she and fellow researchers have already held several positive meetings with members of the General Assembly, including the Senate Legislative Oversight Committee led by Bob Gordon (D-Fair Lawn). Gordon’s office couldn’t be reached for comment, but Fine characterized him as excited about the ideas outlined in the study.
She added that despite privatization’s status as a controversial, sometimes partisan issue, the report makes clear that blame lies with both parties, and that she and fellow authors believe privatization can work for the betterment of the state’s residents as long as the motivations remain pure and the management becomes more effective.
As the authors summarize in the report, they believe “the simple principle that quality oversight should be seen not as a luxury to be dispensed with in the face of austerity but as an inseparable element of the contracting process.”
The NJ AFL-CIO, which represents Rutgers faculty, helped fund the study.
DCA spokesperson Lisa Ryan responded to the study by saying that the agency has been using the Manhattan accounting firm CohnReznick “as an extension of DCA’s internal audit group.”
“They are responsible for ensuring that the Sandy recovery programs managed by DCA meet and comply with applicable state and federal regulations and are assisting with contract-related issues,” she said in an email.
Christie spokesperson Michael Drewniak said the governor’s office had no comment on the report.