Paul Hammel
LINCOLN — State lawmakers quickly advanced a bill Monday designed to avoid future multimillion-dollar mistakes in awarding state contracts.
The proposal grew out of the failed contract with Saint Francis Ministries, which underbid its lone competitor by 40% in 2019 to obtain the contract to handle child welfare services in eastern Nebraska.
But the Kansas-based nonprofit ended up costing the state an additional $3.7 million more than the other bidder. Eventually, the contract was cancelled amid financial mismanagement and under-performance by Saint Francis.
State Sen. John Arch of La Vista, the speaker of the Legislature, said his Legislative Bill 461 would allow the state to discern whether a bid is “reasonable” and “responsible” and not just the lowest bid.
‘Huge red flag’
The bill advanced Monday from first-round debate on a 45-0 vote.
The experience with Saint Francis, Arch said, illustrated “a huge red flag” in the state contract procurement process, as did some other contracts that experienced cost overruns and failure to deliver services.
“This was a terrible, terrible, terrible lesson learned ,” said Fremont Sen. Lynne Walz of the Saint Francis contract.
“There’s an old joke, no one wants to use a parachute built by the lowest bidder,” said Omaha Sen. Brad von Gillern.
Arch said that the state’s procurement statutes hadn’t been updated in 20 years and have placed too much emphasis on accepting the lowest bid.
‘Good government’ bill
LB 461, he said, allows the state to reject a bid if it is deemed not reasonable or realistic.
“I consider this bill to be an example of good government legislation,” Arch said.
Omaha Sen. Machaela Cavanaugh, a leading critic of the Saint Francis contract, thanked the speaker for bringing LB 461. She added that it shows “what great things can happen” if lawmakers work together.
In the wake of the Saint Francis debacle, the state hired a contractor to review the state’s procurement process.
That, Arch said, led to 33 recommendations, of which 23 have already been adopted by the Nebraska Department of Administrative Services, the state agency that handles the bidding process.
The senator said LB 461 adopts more recommendations and clarifies who is responsible for the decision to award a bid.
Not clear who was responsible
In the case of Saint Francis, it wasn’t clear, according to Arch, who exactly was responsible for approving the bid. That referred to DAS, the Health and Human Services Department and the Governor’s Office.
Due to its financial troubles, Saint Francis was awarded an additional $158 million by the state on top of its original contracted price of $197 million.
In December 2021, a special investigative committee in the Legislature chaired by Arch cited other procurement disasters in recent years:
- In 2007, the state awarded a $45 million contract, with an additional $25 million option, to provide a computer system to process claims in the Medicaid Managed Care program. But only 18 months into the contract, Arizona-based FourThought Group quit, saying it couldn’t deliver as promised. By then, the state had spent $6.8 million on the contract (90% were federal funds), and DHHS agreed to add another $4.75 million in a settlement with the company. The department’s CEO later admitted it had been a mistake to contract with FourThought because it was a “small company with little track record” and could not fulfill such a large task.
- In 2014, the state awarded an $80 million contract for a modern Medicaid eligibility and enrollment system, replacing a 20-year-old system. But four years later, the state terminated that contract with India-based Wipro, saying there was no evidence any part of the contract had been completed. That was after the state had paid out $6 million and the federal government $54 million. Wipro filed a lawsuit against the state, which was settled out of court in July after the parties entered into mediation. The settlement terms were not disclosed. The state had maintained that Wipro underbid the contract, then sought to obtain additional funds and that the company lacked the capacity to fulfill the contract.