The San Diego Association of Governments failed to reform its system for awarding no-bid contracts despite past pledges to do so, awarding at least $74 million in no-bid contracts over 2022 and 2023 amid a persistent lack of basic oversight and skirting its own policies, according to a new audit.
Major concerns about no-bid contracting flagged by SANDAG’s independent auditor include potential favoritism for a trio of companies, as well as changes to improper contracts that in one case boosted project costs by 3,300%.
Auditors also unearthed that SANDAG staff had given a blanket approval of 50 no-bid contracts all at once via email, in violation of the agency’s policies and federal best practices.
Scrutiny about how the agency contracts out the region’s infrastructure projects has intensified in recent years, in part because of a failed toll-collection system on state Route 125 that could not properly for charges and penalties assessed to drivers.
One company tasked with overseeing the failed software — HNTB — was named by the audit as potentially enjoying favoritism by SANDAG project managers. Two no-bid contracts HNTB had for rail projects saw amendments raising the contract price by 281% and 1,539%, the audit found.
An audit of SANDAG’s relationship with the Kansas City-based firm is slated for release in the summer.
Contracting practices landed the regional planning agency in the crosshairs of federal investigators last year. But the probe was closed in December with no charges filed.
Following past audits of the agency’s contracting system in 2022, former SANDAG executives vowed to make changes. But the new review of no-bid contracts at the agency since then found that actual improvements were limited.
“Given the agency’s significant capital projects budget, contracting must be above reproach,” wrote Courtney Ruby, an independent auditor for agency.
“While the agency intended to address these matters sooner, ability and leadership issues found in prior audits and investigations prevailed,” the audit report said. “This audit found these sole source procurement problems persisted and were largely attributed to insufficient oversight throughout the process and contributed to an excessive utilization of sole source procurements by SANDAG.”
The SANDAG leaders who were in charge during most of the two-year audit period have since resigned, and new CEO Mario Orso has promised reforms and greater transparency.
In his response to the audit’s findings, Orso agreed to implement all of the audit’s recommendations for the agency’s contracting practices.
Orso noted that all no-bid contracts have been subject to his personal review since October and that staff received updated rules for issuing no-bid contracts in February. The agency has been working to implement past audit recommendations as well, Orso said.
“Also mentioned in the audit report are additional actions that can and should be taken to continue to implement organizational changes that drive ability, enhance internal controls and further instill a continuous improvement culture at SANDAG,” Orso said.
SANDAG’s audit committee will take up the audit’s findings at a meeting Thursday afternoon.
The findings
SANDAG’s over-reliance on no-bid contracting surprised even investigators, the audit report said, since the agency is only supposed to permit no-bid contracts in a narrow set of circumstances.
Over a period of a year and a half, at least 18% of the agency’s nearly 1,400 contracts and ensuing contract amendments never went out to bid, the audit found.
There are limited cases where official SANDAG policy allows no-bid contracts — including when only one contractor can provide a given service, when only one bid is received for a project or when it’s follow-up work for a contract handed out through a competitive bidding process.
Of the 35 contracts examined by auditors, 11 contracts worth $6.7 million used that cited follow-up work despite the original contract also being awarded without going to bid.
Auditors examined only 35 of the 139 no-bid contracts over a year and a half but noted that ongoing issues with SANDAG’s record-keeping software prevented them from ing exactly how many no-bid contracts the agency has.
Eleven of the 35 contracts were a part of an improper mass approval of 50 no-bid contracts in mid-2022, the audit found. All 50 were for projects not yet finished by the time that the initial contracts expired.
Auditors speculated that the reason so much work went unfinished may have been poor project planning by SANDAG and its failing to hold its contractors able for delays.
A handful of those contracts were for companies auditors worried may have enjoyed favoritism from SANDAG project managers — HNTB, AECOM Technical Services and Kimley-Horn and Associates.
When SANDAG went back to change some of the 50 contracts, five contracts held by those companies enjoyed substantial increases. In addition to HNTB’s rail contracts, AECOM saw its contracts grow by 229% and 180%. Kimely-Horn received a 64% increase in one its contracts.
Further underwriting the agency’s poor contracting practices was confusion among staff about who is in charge of g off on no-bid contracts and requirements for how they get approved, the audit found.
Agency response
In tandem with their findings, auditors compiled 19 recommendations to improve SANDAG’s contracting practices. Many of them aim to clarify for staff when no-bid contracts are prudent and how to properly document them.
SANDAG management agreed with all of the auditors’ recommendations and set targets of either the end of this year or the middle of next year to implement them.
One of the recommendations calls for evaluating who at the agency should control approvals of no-bid contracts — an authority that currently rests with Orso. A review expected by the end of year will determine who will be in charge of g off on contracts and under what circumstances.
Other recommendations call for revisiting how much a no-bid contract should cost for it to go to the SANDAG Board of Directors for approval. The currently threshold is $5 million. Auditors also recommended changes to the software system the agency uses to track contracts, which limits its tracking of key details
The agency will transition to its old contract software system this summer.
