Our continued monitoring of the Department of Child Support Services and the Franchise Tax Board's (project team) procurement of a single, statewide automated child support enforcement system revealed the following:
In 1988, Congress passed the Family Support Act (act), a legislative initiative directed at enforcing the payment of court-ordered child support. The act mandated that each state have a single, statewide automated system for child support enforcement. Although Congress extended its initial operational deadline of October 1995 to October 1997, California has yet to fully develop a system for child support enforcement. The State's failure to meet the deadline has resulted in the federal government imposing penalties on the State that, according to the Legislative Analyst's Office, will total almost $1 billion by the end of fiscal year 2004-05.
In 1999, the Legislature attempted to address the situation by restructuring the way the State conducts its child support enforcement activities. Chapters 478 and 479, Statutes of 1999, established the California Department of Child Support Services (department) and gave it the responsibility, through the Franchise Tax Board (board) as its agent, of procuring, developing, implementing, and maintaining the statewide automated system for child support enforcement. The legislation required the Bureau of State Audits to monitor the evaluation and selection stages of the procurement process for signs of bias or favoritism toward any bidder.
The single, statewide system for child support enforcement, called the California Child Support Automation System, has two distinct components: the Child Support Enforcement (CSE) system and the State Disbursement Unit (SDU). The team responsible for procuring the statewide automated system (project team), which comprises members from the board and the department, selected a vendor for the first component on July 14, 2003. On that date, the State signed a contract with the IBM Group, a business consortium led by IBM, to design, develop, and implement the CSE system for $801 million. With the CSE system contract in place, the project team turned to procuring a vendor for the SDU.
This audit report discusses the project team's procurement process for the SDU contract, describing how the staff developed interest in the SDU among vendors, selected a pool of business entities qualified to partner with the State to provide SDU services (qualified business partners), and developed the request for proposals. The report also describes the compliance phase, in which the qualified business partners can receive input on preliminary versions of their proposals before finalizing them. During our monitoring of the process used to qualify vendors and develop the request for proposals, nothing came to our attention that would cause us to conclude that the project team deviated from the predefined qualification process or the process it established to develop the request for proposals. Nor has anything come to our attention that would have resulted in unfair treatment of bidding vendors.
In February 2001, the project team attempted to develop interest in the SDU procurement by advertising in the state contracts register and sending requests for interest to business entities that had previously expressed interest in doing business with the State. However, according to the project team, it halted the process in October 2001 to allow time for the SDU procurement to better coordinate with the CSE system development. In March 2002, according to the project team, it sent new requests for interest to the business entities that had responded to the first requests for interest. To all responding business entities, the board sent invitations to partner, which described the details and requirements for submitting proposals for providing a solution to meet the SDU requirements. The project team reported receiving 12 responses to the invitation to partner in April 2002, and by July 2002, the project team had determined that seven business entities were qualified to partner with the State on the SDU procurement.
Following an internal legal analysis, the project team concluded that the SDU procurement was for information technology (IT) services rather than IT development. Therefore, the project team decided it was more appropriate to adopt a procurement approach that uses a request for proposals rather than one that uses a solicitation for conceptual proposals. Consequently, the project team halted the process once again, altered its procurement approach, and then reopened the invitation-to-partner process to vendors on February 13, 2003.
In addition to following established procedures to develop interest in the SDU procurement, the project team developed and followed procedures for evaluating the invitation-to-partner responses and established a qualification team to select a pool of qualified business partners. By May 2004, seven qualified business partners remained in the pool selected by the qualification team. Three of the seven qualified business partners are consortiums of businesses. IBM and Accenture Ltd., which are members of the IBM Group, the contractor for the CSE system, are among those qualified business partners. The former project director requested an analysis from the board's legal counsel to determine whether any members of the IBM Group should be permitted to bid on the SDU procurement. The legal analysis found that, based on several factors, the members of the IBM Group were not restricted by legislation from bidding on the SDU procurement. Under the CSE system contract, the IBM Group must provide a series of deliverables to the State for acceptance before the SDU contract is awarded. One of the deliverables is the CSE System Interface Design Document (interface design document), which must describe how the SDU will integrate with the CSE system. Although the State expects to accept the interface design document before the SDU contract is awarded, the document will not be available to the SDU's qualified business partners before they must submit their final proposals.
Despite IBM's and Accenture Ltd.'s potential advantage over other qualified business partners in understanding how the SDU must integrate with the CSE system, the legal analysis concluded that the State's acceptance of the interface design document provides no bidding advantage to members of the IBM Group. The IBM Group is not scheduled to deliver the interface design document until after all qualified business partners submit their final proposals for the SDU and the project team evaluates them. Therefore, the SDU request for proposals does not require bidders to describe an SDU solution that meets CSE system design specifications. According to its current director, the project team has focused on "leveling the playing field" for all potential SDU vendors to encourage and maintain fair and open competition. In addition, the project team took a number of measures to mitigate the risks of further delay, including a failure to successfully integrate the CSE system and SDU services.
To discuss the procurement approach and to hear concerns about early drafts of its request for proposals, the project team held nonconfidential discussions with the qualified business partners. In addition, the project team provided the qualified business partners and interested state and federal agencies with draft copies of the request for proposals and specifically requested comments from them to develop a request for proposals that would be realistic and fair. Overall, the project team reported that it approved 626 of the 923 proposed changes to the request for proposals. After obtaining Department of Finance (Finance) approval, the project team released the request for proposals to the qualified business partners on December 4, 2003.
Releasing the request for proposals marked the beginning of the compliance phase of the procurement bidding process, which gave the qualified business partners the opportunity to receive input through confidential discussions on whether preliminary versions of their proposals were responsive to the administrative and technical requirements of the request for proposals. Shortly after releasing the request for proposals, the project team held a conference with the qualified business partners, enabling the qualified business partners to review with the project team the information and requirements of the request for proposals and to voice any concerns they had before submitting their final proposals. Confidential discussions, internally generated questions, and communications with other state entities allowed the project team to further clarify and amend the request for proposals. On April 1, April 23, and May 18, 2004, the project team issued addenda to the request for proposals. Qualified business partners' final proposals, due on June 8, 2004, must respond to the request for proposals and the addenda.
Before it awards the contract for the SDU procurement, the project team must evaluate the qualified business partners' final proposals and obtain approval from Finance. It must also complete and submit to Finance a feasibility study report, a document that provides the business reasons that justify investing state resources in procuring the SDU, the reasons for undertaking the SDU procurement, the means of ensuring the success of the procurement, and a comprehensive analysis of its costs and benefits.
The Health and Human Services Agency and the State and Consumer Services Agency, representing the department and the board, concur with the information included in the report and believe that it accurately reflects the steps taken thus far by the department and the board.