CSA

Summary

California State Auditor · 99028.4 · 1999-01-01

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Child Support Enforcement Program: The State Has Contracted With Bank of America to Implement the State Disbursement Unit to Collect and Disburse Child Support Payments March 2005 99028.4 rotiduA etatS ainrofilaC S T I D U A E T A T S F O U A E R U B The first five copies of each California State Auditor report are free. Additional copies are $3 each, payable by check or money order. You can obtain reports by contacting the Bureau of State Audits at the following address: California State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, California 95814 (916) 445-0255 or TTY (916) 445-0033 OR This report is also available on the World Wide Web http://www.bsa.ca.gov/bsa/ The California State Auditor is pleased to announce the availability of an on-line subscription service. For information on how to subscribe, please contact the Information Technology Unit at (916) 445-0255, ext. 456, or visit our Web site at www.bsa.ca.gov/bsa Alternate format reports available upon request. Permission is granted to reproduce reports. � � � �� March 8, 2005 99028.4 The Governor of California President pro Tempore of the Senate Speaker of the Assembly State Capitol Sacramento, California 95814 Dear Governor and Legislative Leaders: As required by Chapter 479, Statutes of 1999 (Chapter 479), the Bureau of State Audits (bureau) presents its final audit report concerning the procurement of a single, statewide automated child support system by the Department of Child Support Services (department) and the Franchise Tax Board (board) acting as its agent. The statute requires the bureau to monitor the evaluation and selection process for any signs of bias or favoritism. There are two distinct components of a single, statewide automated system: the Child Support Enforcement (CSE) system and the State Disbursement Unit (SDU). The California Child Support Automation System (project) procured the first component on July 14, 2003, when the State signed a contract with the IBM Group, a business consortium led by IBM, to design, develop, and implement the CSE system, for a total of $801 million. In September 2003, we reported that during our monitoring of the negotiation sessions, nothing came to our attention that would lead us to believe that the negotiations resulted in significant changes in the contract that might violate the requirements of Chapter 479 or the solicitation document. Our limited review of the contract found that it included the major business needs areas that the CSE system must address and the compensation method agreed to by the parties did not violate the law and was within the parameters of the solicitation document. With the CSE system contract in place, the project team turned to procuring a vendor for the SDU. This report discusses the final stages of the project team’s process for selecting a vendor to provide SDU services. During our monitoring of the process used to evaluate the draft and final proposals submitted by qualified business partners to provide SDU services, the development of the feasibility study report required by the Department of Finance, and the final award of the SDU contract to the consortium led by the Bank of America, nothing came to our attention that would cause us to conclude that the project team, comprised of staff from the department and the board, deviated from its predefined process for evaluating and scoring vendors’ proposals as outlined in the SDU request for proposal. Nor did we see anything to indicate any bias or favoritism toward any bidder. Respectfully submitted, ELAINE M. HOWLE State Auditor �� CONTENTS Summary 1 Introduction 5 Audit Results The Second of Two Procurements for the California Child Support Automation System Has Been Completed Without Apparent Bias 11 The Project Team Invited the Qualified Business Partners to Submit Draft Proposals for Review 12 Using Established Procedures, the Project Team Evaluated Four Final Proposals From Its Qualified Business Partners 13 One Dissatisfied Bidder Initially Protested the Procurement but Ultimately Withdrew Its Protest 18 Finance Conditionally Approved the Feasibility Study Report to Fund the SDU 19 The Board and the Department Signed a Contract With B of A to Develop and Implement the SDU 20 Responses to the Audit Health and Human Services Agency, Department of Child Support Services, and the State and Consumer Services Agency, Franchise Tax Board 21 SUMMARY Audit Highlights . . . RESULTS IN BRIEF In 2003 the federal Office of Child Support Enforcement Our monitoring of the estimated that accumulated unpaid child support was Department of Child Support Services and the Franchise approaching $100 billion for the nation as a whole and more Tax Board’s (project team) than $18 billion for California. To better enforce payment of procurement of a single, court-ordered child support, Congress passed the Family Support statewide automated child support enforcement system Act (act) in 1988, mandating that each state have a single, revealed the following: statewide automated system for child support enforcement by October 1995. Although Congress extended this deadline by two þ Nothing came to our years, California has yet to complete development of a system attention that would cause us to conclude that for child support enforcement. By failing to meet the deadline, the the project team deviated State has incurred sizeable federal penalties, which may total almost from the predefined $1 billion by the end of fiscal year 2004–05. evaluation process it established to review and score each of the bidders’ To address these delays and the mounting penalties, the final proposals for the Legislature restructured the State’s child support enforcement State Disbursement Unit activities in 1999 by establishing the California Department (SDU). Nor has anything come to our attention of Child Support Services (department) and giving it the that would have resulted responsibility, using the Franchise Tax Board (board) as its agent, in unfair treatment of of procuring, developing, implementing, and maintaining the bidding vendors. statewide automated system for child support enforcement. The þ The project team rejected legislation also requires the Bureau of State Audits to monitor final proposals from two the evaluation and selection stages of the procurement process vendors for administrative for signs of bias or favoritism toward any bidder; this report, violations of the request for proposal (RFP). covering part of that process, finds no such bias or favoritism. þ One disqualified vendor The single, statewide automated system for child support initially lodged a protest that was ultimately enforcement, called the California Child Support Automation withdrawn. System (CCSAS), will have two distinct components: the Child Support Enforcement (CSE) system and the State Disbursement þ The project team prepared Unit (SDU). The CSE system will manage and enforce child a feasibility study report to obtain the Department support obligations of noncustodial parents, and the SDU will of Finance’s (Finance) perform the banking function of collecting and disbursing child approval to fund the support payments. In 2003 a project team of members from SDU contract with Bank of America, the winning the board and the department, responsible for procuring the bidder, which Finance statewide automated system, selected the IBM Group to design, conditionally gave. develop, and implement the CSE system for $801 million. þ Final approval for the SDU is subject to legislative With the CSE system contract in place, the project team consent during the annual turned to procuring a vendor for the SDU. Our June 2004 budget review process. report discussed the project team’s procurement process for the California State Auditor Report 99028.4 11 SDU contract, whereas this report discusses the project team’s selection of a business consortium led by the Bank of America (B of A) to develop and implement the SDU using a request for proposal (RFP). After four business entities that had qualified to partner with the State to provide SDU services (qualified business partners) submitted their final proposals for review in June 2004, the project team began following its established procedures to conduct three evaluations—administrative, business services, and financial—of the bidders’ proposals. After the project team disqualified two vendors for administrative violations of the RFP requirements, it gave B of A the highest evaluation score and named it the winning bidder. The board announced its intent to award the SDU contract to B of A on September 9, 2004. The project team’s evaluation report found that the B of A proposal addressed the SDU business problems, demonstrated successful past performance, and provided the better value to the State. One of the disqualified vendors filed a protest alleging that its proposal had fully met all the RFP’s requirements; however, before the scheduled hearing by the Office of Administrative Hearings, the vendor withdrew the protest. In our review of the evaluation process and vendor selection, we saw nothing to indicate bias or favoritism toward any bidder. To obtain approval from the Department of Finance (Finance) to fund the contract with B of A, the project team prepared and submitted a feasibility study report (feasibility report) to Finance in November 2004. The feasibility report includes a baseline analysis to compare the existing system for collecting and disbursing child support payments to the SDU solution. The feasibility report also analyzes the two proposals that met the RFP requirements and examines the project team’s rationale for selecting B of A as the winning vendor. Finance has approved the project team’s proposed funding for the SDU subject to several conditions, including requirements that the project team submit two documents: a benefits measurement plan within six months of the contract signing and another feasibility report before the end of the contract term. Concluding that B of A’s proposal meets the RFP requirements and objectives and offers the lowest risks and the best value to the State, the feasibility report concurs with the evaluation of the proposals. In reviewing the feasibility report, we saw nothing to indicate any bias or favoritism toward any bidder. 22 California State Auditor Report 99028.4 California State Auditor Report 99028.4 33 On December 27, 2004, the executive officer of the board and the director of the department signed a contract with B of A to develop and implement the SDU. Also, although Finance has conditionally approved the SDU project funding, funding now requires the Legislature’s approval during the annual budget process. AGENCY COMMENTS 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 procurement effort. n 22 California State Auditor Report 99028.4 California State Auditor Report 99028.4 33 Blank page inserted for reproduction purposes only. 44 California State Auditor Report 99028.4 California State Auditor Report 99028.4 55 INTRODUCTION BACKGROUND In 1988 Congress passed the Family Support Act (act), a legislative initiative directed at Some Federally Required Functions of enforcing the payment of court-ordered child the California Child Support support. Partly to prevent noncustodial parents Automation System from escaping child support payments by crossing state lines, the act mandated that each state have • Locating parents or alleged parents a single, statewide automated system for child who are not fi nancially supporting their children. support enforcement. The initial operational deadline for the system was October 1, 1995, later • Establishing paternity through blood testing and court hearings and assessing extended to October 1, 1997. Still in development, the amount of fi nancial support owed. California’s system, the California Child Support • Processing, tracking, and controlling Automation System (CCSAS), will locate and bill cases after initiation. parents who are absent from their children’s homes, • Billing absent parents regularly for all disburse payments to custodial parents, and enforce obligations, and collecting and disbursing delinquent payments (see textbox for some of payments. the federally required functions of this system). • Monitoring, tracking, and remedying cases The CCSAS will have two components: the Child with delinquent payments, through such Support Enforcement (CSE) system and the State means as attaching wages and intercepting tax refunds and other income. Disbursement Unit (SDU). The State has contracted with the IBM Group to implement the CSE system, • Generating various reports for federal, state, and county managers. an automated data processing and information retrieval system. The IBM Group will design, develop, and implement the CSE system, including performing data conversion and system integration. Linked to the CSE system, the SDU will be a separate centralized system for collecting and disbursing child support payments. The SDU will make preliminary identifi cations of the involved custodial and noncustodial parties and receive and process child support payments, then forward the payment and identifi cation information to the CSE system. The CSE system will then use this information to positively identify the involved parties, allocate and distribute information about payments to the appropriate cases and parties, manage the fi les relating to the child support obligations, and perform the appropriate enforcement activity. The CSE system will also maintain the case fi les and provide disbursement instructions to the SDU. The SDU will then disburse support payments to the appropriate parties and provide the controls, logs, records, and reports (state and federal) needed to accommodate fi scal and SDU operational units. 44 California State Auditor Report 99028.4 California State Auditor Report 99028.4 55 Staff from the Department of Child Support Services (department) and the Franchise Tax Board (board) make up the project team that has been working on procuring the CCSAS. To complete implementation of the CCSAS, the project team has selected Bank of America (B of A), which, in consortium with Deloitte Consulting, First Data/GovConnect, and Informatix, Inc., will implement, maintain, and operate the SDU. In December 2004 the board and the department signed a contract with B of A for the SDU services. According to a Department of Finance (Finance) analysis of the project team’s feasibility study report (feasibility report), B of A is responsible under the SDU contract for collecting child support payments from noncustodial parents or their employers and issuing payments to custodial parties. To coincide with the CSE system’s timing, B of A will implement its solution in two phases. In the first phase, the SDU will interface with the statewide system created in the CSE system and with the two county consortia systems for collections and disbursements. The project team estimates that this phase will begin in September 2005. In the second phase, which the project team estimates will be complete by August 2008, the SDU will interface exclusively with the CSE, eliminating all interfaces with county consortia. With the completion of phase two, CCSAS, the single, statewide automated system, should be fully implemented and comply with federal and state requirements. According to a November 2004 letter that Finance sent to the Joint Legislative Budget Committee, the total project cost for the SDU is $217 million, of which $186 million is for the contract and $31 million is for state operations and staffing dedicated to the project. Federal financial participation will generally cover 66 percent of the costs for the SDU, and the State’s General Fund will provide the remaining 34 percent. B of A’s seven-year contract for $185.9 million includes an initial term of five years of service, with an option for two additional years, with compensation for B of A primarily based on the volume and types of transactions it processes. In its February 2005 report, titled Analysis of the 2005–06 Budget Bill, the Legislative Analyst’s Office (LAO) estimated that the CSE will cost $1.3 billion ($876 million in federal funds and $465 million in state funds) over 10 years. Of these total costs, $815 million is earmarked for IBM Group to develop and maintain the CSE system and the remainder set aside for the associated state costs. 66 California State Auditor Report 99028.4 California State Auditor Report 99028.4 77 THE LEGISLATURE HAS RESTRUCTURED THE STATE’S CHILD SUPPORT ENFORCEMENT ACTIVITIES California has incurred signifi cant fi nancial consequences from failing to meet the federal deadline to develop an automated system for child support enforcement. According to the LAO, as of February 2004, federal penalties had grown to about $562 million by fi scal year 2002–03 and were estimated to reach a total of almost $1 billion by the end of fi scal year 2004–05. To address these mounting penalties, the Legislature passed several laws in 1999 that restructured how the State conducts its child support enforcement activities. Chapter 478, Statutes of 1999, created the department and transferred responsibility for enforcing child support from the Department of Social Desired Outcomes of the California Services to the new department. Chapter 479, Child Support Automation System Statutes of 1999 (Chapter 479), designated • Certifi cation: Meet federal certifi cation the department as responsible for procuring, requirements, thereby relieving the State developing, implementing, and maintaining from federal penalties. the statewide automated system and named the • Worker effectiveness: Provide timely board as the department’s agent in fulfi lling these access to accurate and uniform data, thus improving state and federal workers’ responsibilities. In other words, the department program performance. is responsible for procuring a system that meets • Customer service: Enable custodial federal requirements, and the board plays a major parents, noncustodial parents, children, role on the department’s behalf. and related institutions greater access to timely, accurate, and consistent information and to uniform business The department and the board established services. fi ve desired outcomes for the statewide CCSAS • System maintainability: Allow for timely (see textbox). To procure the CSE system, which and cost-effective system modifi cations required information technology (IT) design to accommodate required changes in and development, the project team used a business needs of the Child Support Enforcement system. performance-based procurement method that included a solicitation for conceptual proposals. • System implementation: Implement the system on schedule and in a manner that Using this approach, the project team asked mitigates risk to program performance, vendors to propose a technical solution based business disruption, and user acceptance. on achieving the fi ve desired outcomes and on solving the business problems that the Source: SDU feasibility study report. department, the counties, and other stakeholders in the bid proposal had identifi ed. To procure the SDU, the project team followed a different path to achieve the fi ve desired outcomes, sending vendors a request for proposal (RFP) rather than a solicitation for a conceptual proposal. Because the SDU’s function is to receive payments from noncustodial parents and issue payments to custodial parties, the board considers the SDU contract to be fundamentally for IT services rather than for IT design and development. As a services 66 California State Auditor Report 99028.4 California State Auditor Report 99028.4 77 contract, according to the project team, the SDU procurement is not subject to federal requirements for reviewing data processing systems. THE BUREAU OF STATE AUDITS HAS ISSUED PREVIOUS REPORTS ON THE VENDOR SELECTION PROCESS FOR THE CCSAS Chapter 479 requires the Bureau of State Audits (bureau) to monitor the process of evaluating and selecting vendors for the CCSAS to determine whether the project team chose vendors according to the methodology and the criteria contained in the RFP and the solicitation for conceptual proposals. In December 2002 we reported on the progress of the procurement process through June 2002, before the department and the board had completed contract negotiations for the CSE system. In that report, we concluded that we saw nothing during the process used to score the proposal to indicate that the project team had deviated from the evaluation criteria or materially deviated from the predefined evaluation process so as to create unfair treatment of the potential vendors. In our September 2003 report, we discussed the procurement process through July 14, 2003, when the State signed a contract with the IBM Group to design, develop, and implement the CSE system. In monitoring the contract negotiating sessions and comparing the business requirements and compensation approach included in the contract to the terms outlined in the solicitation for conceptual proposals, we found no indication that the project team deviated from its predefined negotiating process or deviated from the business requirements and compensation approach in the solicitation for conceptual proposals. In our June 2004 report, we discussed the procurement process for the SDU prior to the June 8, 2004, deadline for the qualified business partners to submit their final proposals. In the Audit Results section of this report, we describe the June 2004 report and our finding of no deviation from the established process or bias toward vendors. 88 California State Auditor Report 99028.4 California State Auditor Report 99028.4 99 SCOPE AND METHODOLOGY Chapter 479 requires the bureau to monitor the process of evaluating and selecting vendors for the CCSAS to determine whether the evaluation is based on the criteria contained in the RFP or the solicitation for conceptual proposals. Further, Chapter 479 requires the bureau to monitor the process to determine whether the project team chooses the vendor or vendors according to the methodology in the RFP or in the solicitation for conceptual proposals and to determine whether the project team makes its choice without showing bias or favoritism toward any bidder. Our most recent report on the CCSAS, issued in June 2004, focused on the SDU procurement process, including our observations of the vendor qualification process, the development of the RFP, and the compliance phase. This report again focuses on the SDU and contains our observations of the draft and final evaluation of proposals that the project team conducted, the project team’s development of the feasibility report, and the final SDU contract award. To monitor the draft and final evaluation of proposals, we reviewed the evaluation process and outcomes and attended various planning and development meetings, as well as meetings at which the project-team evaluators scored each of the proposals. To monitor the project team’s development of the feasibility report and the final contract award, we attended a variety of meetings and reviewed documents, including the draft and final versions of the feasibility report as well as the final contract. n 88 California State Auditor Report 99028.4 California State Auditor Report 99028.4 99 Blank page inserted for reproduction purposes only. 1100 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1111 AUDIT RESULTS THE SECOND OF TWO PROCUREMENTS FOR THE CALIFORNIA CHILD SUPPORT AUTOMATION SYSTEM HAS BEEN COMPLETED WITHOUT APPARENT BIAS To implement the California Child Support Automation System (CCSAS), a project team of staff from the Department of Child Support Services (department) and the Franchise Tax Board (board) in July 2003 selected the IBM Group to design, develop, and implement the Child Support Enforcement (CSE) system, one arm of the CCSAS. Using a request for proposal (RFP), the project team has now selected a vendor to implement the State Disbursement Unit (SDU), the other arm of the CCSAS. In May and June of 2004 the project team invited business entities that had qualified to partner with the State to provide SDU services (qualified business partners) to submit draft and final proposals of how they would provide SDU services. Three qualified business partners submitted draft proposals (an optional step in the process) for evaluation; and, by the June 8 deadline, four qualified business partners submitted final proposals for the project team’s review. Following established procedures, the project team began to conduct the administrative, business services, and financial evaluations of the four bidders’ proposals. After the project team disqualified two vendors for administrative violations of the RFP requirements, the board notified the bidders of its intent to award the SDU contract on September 9, 2004, to the bidder whose proposal scored the highest on the evaluation. Finally, the project team developed a feasibility study report (feasibility report), which describes the justification for selecting a particular vendor, as well as the costs of implementing the SDU. In November 2004 the Department of Finance (Finance) conditionally approved the feasibility report. As we monitored these activities, we saw nothing that indicated that the project team had deviated from established procedures or showed bias or favoritism toward any bidder as it evaluated the final proposals for the SDU contract. In our June 2004 report, Child Support Enforcement Program: Acquiring the State Disbursement Unit to Collect, Disburse, and Record Child Support Payments Will Complete the Procurements for the California Child Support Automation System, we discussed 1100 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1111 the project team’s procurement process for the SDU contract: how the team developed interest in the SDU, established and selected qualified business partners, and developed the RFP. As we monitored the process that the project team used to qualify vendors and develop the RFP, we saw no indication that the project team deviated from the predefined qualification process or the process it had established to develop the RFP. Nor did we notice anything that would have resulted in unfair treatment of potential vendors. THE PROJECT TEAM INVITED THE QUALIFIED BUSINESS PARTNERS TO SUBMIT DRAFT PROPOSALS FOR REVIEW To assist vendors in submitting a final proposal that fully met Project-team evaluators the RFP requirements, the project team encouraged qualified reviewed the draft business partners to submit draft proposals; three qualified proposals and business partners did so. Project-team evaluators reviewed provided comments the draft proposals and provided comments indicating any indicating any faulty faulty administrative aspect of the proposals that could administrative aspect cause the project team to reject final proposals for material of the proposals that noncompliance with the RFP. As we observed the evaluators’ could cause the project administrative review of draft proposals, we saw nothing that team to reject final would indicate bias or favoritism toward any bidder. proposals for material noncompliance with Although the project-team evaluators indicated that they would the RFP. inform bidders of potential defects in draft proposals, this administrative evaluation was cursory, intended to minimize the risk that the evaluators might reject the final proposal for material noncompliance with the RFP. Even though the evaluators provided this review to any bidder who submitted a draft proposal, the project team told bidders that the evaluators would not necessarily identify all defects or notify the bidder of them. The RFP instructions indicated that the bidder was not to include cost figures in the business services portion of the bid, warning that the presence of such figures could be a basis for rejecting the proposal. The evaluators’ procedures indicated that if they found a draft proposal with cost figures, the evaluators would suspend their review of that proposal and notify the bidder of that defect. During this review, the evaluators noted that the draft proposal from Maximus, Inc., in a consortium with Bank One, IBM, US Bank, and Wells Fargo Bank (Maximus), included cost figures in the business services portion of its bid, a material deviation that the RFP rules strictly prohibited. When the project team requested that Maximus submit replacement pages without the cost figures, Maximus complied. 1122 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1133 USING ESTABLISHED PROCEDURES, THE PROJECT TEAM EVALUATED FOUR FINAL PROPOSALS FROM ITS QUALIFIED BUSINESS PARTNERS The project team received fi nal proposals from four qualifi ed business partners, and certain members of the project team conducted the evaluation. Using the project team’s established procedures, the evaluators conducted an administrative review of the proposals and awarded scores to those proposals they deemed materially compliant with the RFP. As we discuss later in this report, during the administrative evaluation of two of the four fi nal proposals, the evaluators noted material deviations from the RFP requirements, which disqualifi ed both bidders. After scoring the remaining two proposals using predetermined evaluation procedures, the evaluators identifi ed the proposal that was more responsive to the RFP and provided the better value to the State. As we monitored the process that the evaluators used to review and score the fi nal proposals, we saw nothing to indicate that the project team deviated from its established evaluation procedures or that the evaluators showed bias or favoritism toward any bidder. The Project Team Developed Procedures to Evaluate Each of the Final Proposals Questions to Determine the The RFP required that each bidder submit a two- Materiality of a Proposal’s Deviations part fi nal proposal. The fi rst part was to contain From the RFP the bidder’s proposed solution in several business • Is the proposal not in substantial accord services categories: implementation, integration, with the solicitation requirement? testing, turnover, operations management, collections, and disbursements. The second part of • Does the proposal provide the bidder an advantage over other bidders? the proposal was to contain the bidder’s description of the cost to provide the SDU. As Table 1 on the • Does the proposal have a potentially signifi cant effect on the delivery of the following page indicates, for both of these parts, the item quoted? RFP established a process for the evaluators to review • Does the proposal have a potentially and award points and use these points to determine signifi cant effect on the quantity of the which bidder would receive the SDU contract. items quoted? • Does the proposal have a potentially Before the evaluators did any scoring, the RFP signifi cant effect on the quality of the required them to conduct an administrative items quoted? evaluation of each part of the fi nal proposal to • Does the proposal have a potentially ensure its compliance with the list of general signifi cant effect on the amount paid to the bidder? administrative requirements that the RFP outlined. If the team identifi ed areas in which the proposal • Does the proposal have a potentially signifi cant effect on the cost of the project? deviated from RFP requirements, the RFP instructed the team to determine whether the deviation was material by subjecting it to a set of questions 1122 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1133 established in the RFP (see textbox on previous page). If the team Before the evaluators determined the deviation to be material, the proposal would fail did any scoring, the the administrative review; the evaluators would then reject and RFP required them to therefore not fully score the proposal. conduct an administrative evaluation of each part For each final proposal that passed the administrative of the final proposal to evaluation of the first part, the business services portion of the ensure its compliance with proposals, the RFP required the evaluators to review and score the list of administrative the implementation and operations management elements of requirements that the each bidder’s proposal. Further, for final proposals that passed RFP outlined. the administrative evaluation of the second part, the financial portion of the proposals, the RFP required the evaluators to evaluate each bidder’s total estimated contract cost and proposed rate to perform each transaction. The evaluators would then award points to each proposal in several categories. A summary of this process appears in Table 1. The project team would award the SDU contract to the bidder whose proposal earned the greatest number of points. After reviewing the materiality test and general administrative requirements in the RFP, we saw nothing that would favor or create a bias toward any bidder. TABLE 1 Summary of the Evaluation Process for Proposals Total Points Evaluation Area Evaluation Categories Available Administrative Compliance with RFP requirements Pass/fail* •· Implementation • Integration • Testing Business services • Turnover 650 • Operations management • Collections • Disbursements Financial • Cost 350 Total points possible 1,000 Source: Project team’s evaluation and selection report for the State Disbursement Unit. * Failure to pass the administrative evaluation results in the bidder’s disqualification. 1144 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1155 The Evaluators Followed Established Procedures When Evaluating Final Proposals By the deadline of June 8, 2004, the evaluators received four final proposals from the following qualified business partners: • ACS State and Local Solutions, in consortium with Union Bank of California (ACS). • Bank of America, in consortium with Deloitte Consulting, First Data/GovConnect, and Informatix, Inc. (B of A). • EDS/US Government Solutions (EDS). • Maximus, Inc., in consortium with Bank One, IBM, US Bank, and Wells Fargo Bank (Maximus). After reviewing and evaluating the four proposals, the evaluators determined that the final proposals from B of A and ACS had no material deviations from the RFP. Therefore, the evaluators fully scored and compared these two proposals’ scores to one another, with B of A’s total score exceeding that of ACS, as Table 2 indicates. The evaluators did not completely score the EDS and Maximus final proposals because they contained material deviations; the evaluators eliminated the proposals from the procurement. TABLE 2 Final Proposal Ratings ACS B of A EDS Maximus Administrative evaluation score Pass Pass Fail Fail Part One—Business services score 519.30 490.20 594.10 Not evaluated Part Two—Financial score 288.00 338.26 Not evaluated Not evaluated Total score 807.30 828.46 Not evaluated Not evaluated Source: Project team’s evaluation and selection report for the State Disbursement Unit. Based on the proposals’ scores, the project team awarded the SDU contract to B of A. In its evaluation and selection report for the SDU, the project team indicated that the B of A final proposal met the RFP requirements, addressed the business problems, demonstrated successful past performance, provided 1144 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1155 costs and benefits consistent with the predefined evaluation criteria, demonstrated lowest risk, and provided the best value to the State. In our observation and review of the final evaluation process, scoring, and ultimate selection of an SDU contractor, we saw nothing to indicate bias or favoritism toward any bidder. The Evaluators Rejected the Maximus Proposal During the Final Administrative Review of the Business Services Portion of the Proposals During the administrative evaluation of the final proposal from Maximus, the evaluators noted the presence of cost information in the business services portion of the proposal. Determining that including such cost figures constituted a material deviation from the RFP, the evaluators terminated further evaluation, and the board rejected the proposal. During their review of the Maximus draft proposal, the During their review evaluators had noted and reported to Maximus that the business of the Maximus draft services portion of its draft proposal contained cost figures, proposal, the evaluators which, if they appeared in the final proposal, would constitute had noted and reported a material deviation and cause the board to reject the final to Maximus that the proposal. Maximus corrected this deviation in its draft proposal business services portion and submitted revised pages to the evaluators for review. of its draft proposal However, the business services portion of the Maximus final contained cost figures, proposal eliminated only some of the cost figures. Thus, the which, if they appeared in board notified Maximus on June 15, 2004, that it was rejecting the final proposal, would the Maximus proposal because of this material deviation. In its constitute a material letter, the board outlined the deviation that the evaluators had deviation and cause noted in the Maximus proposal, as well as the board’s action to the board to reject the reject the proposal on those grounds. final proposal. On June 21, 2004, the Maximus attorneys responded to the rejection letter, stating that they disagreed with the determination that the proposal contained a material deviation and asking the board to reconsider its decision to reject the Maximus proposal. On June 30, 2004, the board responded to the Maximus request for reconsideration, citing the Public Contract Code, which establishes rules for separating cost from other information and states that agencies must complete the evaluation of all criteria other than cost before the cost portions of proposals are opened. Further, the board explained that it was 1166 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1177 bound to follow the rules of the procurement outlined in the RFP and that because it deemed this deviation to be material, the board must reject the Maximus proposal. In our review of the rejection of the Maximus proposal because of a material deviation from the RFP conditions, we saw nothing to indicate bias or favoritism toward any bidder. The Evaluators Also Rejected the EDS Proposal During a Final Administrative Review of the Financial Portion of the Proposals During their administrative evaluation of the financial portion of the final proposal from EDS, the evaluators noted that this During their administrative proposal contained a series of pricing assumptions, which evaluation of the financial the evaluators identified as a material deviation from the portion of the final RFP. Therefore, the evaluators terminated further evaluation, proposal from EDS, the and the board rejected the EDS proposal. According to the evaluators noted that this evaluation and selection report that the project team prepared proposal contained a series after the evaluation, once the evaluators identified the pricing of pricing assumptions, assumptions, they conducted the materiality tests outlined which the evaluators in the RFP and concluded that these pricing assumptions identified as a material constituted a material deviation of the RFP requirements. Thus, deviation from the RFP. the evaluators concluded that if they had not rejected this proposal, these pricing assumptions would provide EDS an unfair advantage over the other bidders. Because the evaluators deemed these pricing assumptions to be material deviations of the RFP requirements, they did not score the financial portion of the EDS proposal. On August 3, 2004, the board notified EDS in a letter that the board had identified 38 pricing assumptions in the financial portion of the EDS final proposal, many inconsistent with the RFP’s specific requirements. For example, according to the letter, EDS stated in its bid that it would require the project team to negotiate a “standby” payment to protect EDS from any financial damage if the project team delayed the SDU implementation schedule. The letter also indicated that the project staff had informed bidders through the RFP that such a “standby” payment would not be permitted. The evaluators concluded that this pricing assumption would provide EDS with an unfair bidding advantage; therefore, the board rejected EDS from consideration for the SDU procurement. On August 5, 2004, EDS responded, asking the board to reconsider its rejection of the EDS proposal. EDS’s letter argued in support of its position that the pricing assumptions merely 1166 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1177 provided the board with insight into its bid construction and did not alter or change the contract’s terms and conditions. Further, on August 10, 2004, EDS followed up on its earlier communication, providing several arguments to persuade the board to reconsider its decision. One argument was that the deviation, if any, of the assumptions from RFP requirements was immaterial and that the board had additional options, such as not accepting the pricing assumptions when evaluating the proposal, rather than outright dismissing EDS from the procurement. On August 11, 2004, the board responded to EDS, indicating that it had reconsidered its decision to reject the EDS proposal but had come to the same conclusion: EDS’s pricing assumptions essentially made the EDS final proposal a conditional bid, which the RFP expressly prohibited; this material deviation required the board to reject the EDS proposal. In our review of the board’s rejection of the EDS proposal over a material deviation from the RFP’s conditions, we saw nothing to indicate bias or favoritism toward any bidder. ONE DISSATISFIED BIDDER INITIALLY PROTESTED THE PROCUREMENT BUT ULTIMATELY WITHDREW ITS PROTEST According to the RFP, once the board announces the intent to award the contract, the proposals become public record; thus, EDS, one bidder that the each bidder can review the contents of all final proposals. EDS, evaluators disqualified for one bidder that the evaluators disqualified for deviating from deviating from the terms the terms of the RFP, initially lodged a protest alleging that of the RFP, initially lodged its proposal met all the RFP’s requirements but that the other a protest alleging that its vendors’ proposals had material deviations from the RFP. In its proposal met all the RFP’s protest, EDS made several allegations against the board, saying requirements but that the that the board had failed to follow its solicitation procedures other vendors’ proposals when finding those other bidders’ final proposals met all the RFP had material deviations requirements and had erred in determining that the EDS proposal from the RFP. materially deviated from the RFP. For each of these issues, the EDS attorneys provided EDS’s interpretation in its protest. In response, the board enlisted counsel from the attorney general to defend its decision to disqualify EDS from the SDU procurement. Further, the Office of Administrative Hearings (OAH) scheduled a hearing for September 27, 2004, to consider the protest. However, EDS formally withdrew its protest on September 24, 2004, before OAH could conduct the hearing. Because EDS withdrew its protest, OAH cancelled the hearing. 1188 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1199 In our review of EDS’s protest of the SDU procurement, we saw nothing to indicate bias or favoritism toward any bidder. FINANCE CONDITIONALLY APPROVED THE FEASIBILITY STUDY REPORT TO FUND THE SDU To obtain approval from Finance and the Legislature to fund the SDU contract with B of A, the project team prepared a feasibility study report (feasibility report). This feasibility report comprises several components, including a business case analysis that gives the SDU’s objectives, as well as a baseline analysis that describes the existing systems and processes for collecting and disbursing child support payments and compares them to the proposed SDU solution. The feasibility report also describes and analyzes the two proposals (and their respective costs) that met the RFP requirements and provides the project team’s rationale for selecting B of A’s as the winning proposal. Concluding that B of A’s proposal meets the RFP requirements and objectives and offers the lowest risks and the best value to the State, the feasibility report concurs with the evaluators’ recommendation for awarding the contract. On November 23, 2004, the project team received approval of its feasibility report from Finance for the proposed plan On November 23, 2004, of spending and resources for the SDU, subject to various the project team received conditions, including the following: approval of its feasibility report from Finance for • The contract with B of A cannot be signed until 30 days after the proposed plan of the project team notifies the Legislature of the contract. This spending and resources 30-day period was completed on December 22, 2004. for the SDU, subject to various conditions. • The federal Office of Child Support Enforcement must approve an accelerated schedule for implementation of the CSE system and changes to the CSE vendor contract. Both were granted on November 26, 2004. • Within six months of signing the contract, the project team must submit a benefits measurement plan to Finance for review and approval to ensure that anticipated SDU project benefits can be confirmed as a result of implementing the project. • No later than April 2006, the project team must conduct another feasibility report to determine the recommended approach for continuing SDU operations after the contract expires. 1188 California State Auditor Report 99028.4 California State Auditor Report 99028.4 1199 In its approval letter, Finance indicated that its approval does not in itself guarantee that funds or spending authority for the project will be available. The initiation and continuation of any information technology project remains subject to the availability of funding and to legislative concurrence for funding and spending authority in accordance with the normal state budget process. Based on our review of the feasibility report and its conditional approval, we saw nothing to suggest bias or favoritism toward any bidder. THE BOARD AND THE DEPARTMENT SIGNED A CONTRACT WITH B OF A TO DEVELOP AND IMPLEMENT THE SDU On December 27, 2004, to On December 27, 2004, to complete the procurement of the complete the procurement SDU, the executive officer of the board and the director of of the SDU, the executive the department signed a contract with B of A to develop and officer of the board implement the SDU. According to the project’s deputy director, and the director of the Finance has approved the request for an appropriation for the department signed a SDU project and has indicated that the governor’s 2005–06 contract with B of A to budget bill will include the necessary funding. However, before develop and implement the State can appropriate the funds to implement the SDU the SDU. project, the Legislature, including various legislative budget committees, must approve this budget item. We conducted this review under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. We limited our review to those areas specified in the audit scope section of this report. Respectfully submitted, ELAINE M. HOWLE State Auditor Date: March 8, 2005 Staff: Doug Cordiner, CGFM, Audit Principal Matt Taylor 2200 California State Auditor Report 99028.4 California State Auditor Report 99028.4 2211 Agency’s comments provided as text only. Health and Human Services Agency 1600 Ninth Street, Room 460 Sacramento, CA 95814 February 15, 2005 Elaine M. Howle, State Auditor Bureau of State Audits 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Dear Ms. Howle: Thank you for forwarding a draft copy of the Bureau of State Audits’ (BSA) report titled, “Child Support Enforcement Program: The State Has Contracted With Bank of America to Implement the State Disbursement Unit to Collect and Disburse Child Support Payments.” Enclosed is a joint response from the Department of Child Support Services and Franchise Tax Board to the draft report. We appreciate the ongoing monitoring of the processes to evaluate and select vendors for the California Child Support Automation System (CCSAS). If you have any questions regarding the procurement, please contact Mr. David Maxwell-Jolly, CCSAS Project Director, Franchise Tax Board at (916) 845-3500. Sincerely, (Signed by: Kimberly Belshé) (Signed by: Fred Aguiar) KIMBERLY BELSHÉ FRED AGUIAR Secretary Secretary Health and Human Services Agency State and Consumer Services Agency Enclosure 2200 California State Auditor Report 99028.4 California State Auditor Report 99028.4 2211 California Department of Child Support Services P.O. Box 419064 Rancho Cordova, CA 95741-9064 February 10, 2005 Ms. Elaine M. Howle, State Auditor 555 Capitol Mall, Suite 300 Sacramento, CA 95814 Dear Ms. Howle: SUBJECT: CHILD SUPPORT ENFORCEMENT PROGRAM: THE STATE HAS CONTRACTED WITH BANK OF AMERICA TO IMPLEMENT THE STATE DISBURSEMENT UNIT TO COLLECT AND DISBURSE CHILD SUPPORT PAYMENTS The Department of Child Support Services (DCSS) and the Franchise Tax Board (FTB) would like to thank you for the independent validation of the objectivity of our State Disbursement Unit procurement. We concur with your report and believe that it accurately reflects the procurement effort. We appreciate the extensive efforts that you and your staff have made in monitoring this procurement through observation and review of all of the important activities undertaken. Your careful monitoring of the process DCSS and FTB took in conducting this procurement are sincerely appreciated. Sincerely, Sincerely, (Signed by: Greta Wallace) (Signed by: Gerald H. Goldberg) GRETA WALLACE GERALD H. GOLDBERG Director Executive Officer Department of Child Support Services Franchise Tax Board 2222 California State Auditor Report 99028.4 California State Auditor Report 99028.4 2233 cc: Members of the Legislature Office of the Lieutenant Governor Milton Marks Commission on California State Government Organization and Economy Department of Finance Attorney General State Controller State Treasurer Legislative Analyst Senate Office of Research California Research Bureau Capitol Press 2222 California State Auditor Report 99028.4 California State Auditor Report 99028.4 2233