Overview
EOHLC did not consider an opportunity to accept a flat rate for delivery services on its emergency no-bid contract with Spinelli. In our examination of the email exchanges between EOHLC and Spinelli, we observed that EOHLC proactively inquired about the delivery rates for services. In response, a representative from Spinelli proposed an option for a flat rate for these delivery services. However, it appears that EOHLC did not pursue this offer any further. Additionally, we did not find any evidence that EOHLC even inquired with Spinelli to find out what the flat rate opportunity would cost. EOHLC has a fiduciary duty to review offers such as the one Spinelli made and to perform a cost-savings analysis to determine whether the flat rate offer would have saved money for EOHLC and ultimately the taxpayers. While EOHLC may have chosen one vendor initially, it has a fiduciary duty to seek out more long-term solutions using the normal procurement process instead of using a no-bid procurement process to establish long-term contracts for services well beyond the time period of any reasonable procurement emergency. EOHLC did use the normal procurement process for food services by submitting a request for response (RFR) on September 25, 2023, the same day EHOLC signed the emergency no-bid contract with Spinelli. By entering into the emergency no-bid contract with Spinelli, EOHLC had committed to an eight-month contract (the terms of the contract covered August 1, 2023 through March 31, 2024) with this vendor. EOHLC did issue a regular procurement, but it could not be in force or effect until after the expiration of the emergency no-bid contract. There could be no competitively procured contract until March 31, 2024 at the earliest. EOHLC should have considered using an emergency no-bid contract with shorter terms while it sought to utilize the normal procurement process.
EOHLC was unable to provide a sufficient procurement file it should have compiled and used for food services. This file should contain the evidence that would show how EOHLC made the determination to use a specific vendor, or vendors, to provide a service. In this case, EOHLC could not demonstrate:
- how the decision was made to pursue or accept a no-bid contract with Spinelli;
- who made the decision and when was it made;
- how it negotiated the cost and terms with the vendor;
- how it awarded the contract; and
- how the length of the contract was determined.
In our review of communications between Spinelli and EOHLC, it appears that the first communications with Spinelli concerned establishing the company in the Commonwealth’s accounting system, rather than introductions, exploration of qualifications, determination of its capacity to meet the requirements of the contract, consideration of alternative vendors, etc.
By not exploring the vendor’s flat-rate delivery offer, EOHLC may have missed an opportunity to lower delivery charges, potentially resulting in higher costs throughout the duration of the emergency contract. Because of EOHLC’s failure to perform its due diligence, we were unable to determine the cost and terms of the flat-rate offer. Therefore, we could not determine the cost savings that EOHLC may have received from accepting a flat-rate delivery offer because EOHLC never responded to Spinelli’s offer or considered this option.
Because EOHLC did not maintain a sufficient procurement file, as required by 801 CMR 21.05(3), it cannot be determined whether the vendor it chose was the best option for EOHLC, the people who were being served, or the taxpayers. Without a complete procurement file, the public cannot examine the processes used, which erodes public trust and undermines faith in EOHLC, its procurement process, and the government in general.
EOHLC may have found additional cost savings had it considered different options before entering into a no-bid contract with Spinelli to provide food services. For example, instead of hiring one vendor located in East Boston to provide food services for the entire state, including locations in northern, central, and western Massachusetts, EOHLC could have considered hiring multiple food vendors located in different regions. The agency’s procurement team, potentially supplemented by procurement assistance from other agencies of state government, could have been better positioned to adhere to emergency procurement laws and regulations. This could have reduced delivery and other costs, including embedded costs that are likely built into the total cost for the food services, including higher rent and labor costs in the Boston area. This also could have served to assist multiple food vendors throughout the Commonwealth instead of relying on one single vendor. It may have been in the best interest of EOHLC and the taxpayers, had EOHLC considered alternatives for food delivery services. In the final analysis, however, EOHLC could not demonstrate the appropriateness of the decisions it made, or even that it considered other options, because it failed to comply with applicable regulations and procurement best practices and assemble or maintain sufficient evidence in a procurement file.
We note that the Operational Services Division’s mission is to facilitate and manage the acquisition of goods and services. This agency issues regular procurements for a variety of goods and services and publishes Statewide Contracts that can be used by the Commonwealth and other public entities without additional procurement. Given the lack of a sufficient evidence in a procurement file, we cannot determine why EOHLC issued its own no-bid contract for food services rather than relying on the Commonwealth’s existing contract with large grocers (contract number GRO39), who may have been able to meet some or all of the agency’s needs, or if the six vendors on the School Nutrition Products statewide contract (GRO42) could have met some or all of EOHLC’s needs.
Authoritative Guidance
Part 15.4 of the Federal Acquisition Regulation encourages negotiating pricing to achieve the best possible outcome, regardless of whether a contract is awarded competitively or noncompetitively. Negotiations should focus on fairness, reasonableness, and achieving value for the government.
Further, 801 CMR 21.06(1) requires procuring departments to keep records to support their decision for the selection of a vendor. These records should be maintained in a procurement file, as follows:
A Procuring Department shall maintain a paper or electronic procurement file for each Procurement of Commodities or Services, or both. The file shall contain the original, copies or the file location of the RFR and data or other information relevant to the Procurement and selection of a Contractor, the executed Contract form(s), correspondence with the Contractor and any applicable approvals or justifications.
The Office of Inspector General’s The Chapter 30B Manual: Procuring Supplies, Services and Real Property states,
If the time required to comply fully with Chapter 30B would endanger the health or safety of people or their property due to an unforeseen emergency, you may procure the needed item or service without complying with all of Chapter 30B’s requirements. Even under emergency circumstances, however, you must comply with Chapter 30B to the extent possible (emphasis added). For example, if you do not have time to advertise for two weeks, you can shorten the advertising period; or, if you have no time to advertise, you can solicit quotes. You may procure only those supplies or services necessary to meet the emergency.
You must maintain a record of each emergency procurement, documenting the basis for determining that an emergency exists, the name of the vendor, the amount and type of contract, and a list of the supplies or services purchased under each contract. We recommend that you also include in your record all procedures followed to elicit competition. Your record of an emergency procurement must be submitted as soon as possible to the Goods and Services Bulletin for publication.
Reasons for Noncompliance
EOHLC officials informed us that the email communications between EOHLC and Spinelli show that EOHLC staff members had asked for an explanation about the nature of the varying delivery charge rates after reviewing the invoices and that EOHLC staff members had received a satisfactory answer to their question. EOHLC stated that it did not have reason to believe that a standard rate would have been lower at the time. However, EOHLC was unable to demonstrate how it came to this conclusion without inquiring further into the offer.
EOHLC said that it did not maintain sufficient evidence in a procurement file because it deemed the situation to be an emergency. Setting aside the fact that it is required under regulation, we believe a procurement file should always be kept, especially in an emergency. Emergency procurements often receive a high level of scrutiny after the fact, and, absent a true procurement process, this file is the legally required evidence that demonstrates the legality, ethics, and propriety of EOHLC’s decision-making processes in executing any contract.
Recommendations
- During an emergency, EOHLC may be forced to use no-bid procurement, but it has an obligation to use the normal procurement processes as quickly as possible to address longer-term procurement needs.
- EOHLC should follow state regulations by creating and maintaining a procurement file with sufficient evidence and should establish a formal process for documenting and considering cost-saving opportunities to avoid wasting taxpayer resources.
- EOHLC should ensure that all vendor proposals, including alternate pricing structures like flat rates, are thoroughly evaluated in all contracts, including no-bid or emergency contracts, and are documented in a procurement file.
Auditee’s Response
EOHLC agrees that maintaining a complete procurement file ensures the retention of sufficient documentation supporting decisions to enter into emergency contracts. In its procurement files for the Spinelli emergency contract, EOHLC included the executed Spinelli’s contract and the written justification for an emergency contract, both of which were produced to the SAO.
EOHLC acknowledges that the additional documentation described in the report would further document the basis for procurement decisions. EOHLC commits to further clarifying its internal policies and procedures on the collection and retention of thorough documentation for emergency contract procurement files and for documenting processes to ensure that cost-saving opportunities were thoroughly evaluated.
The SAO report appears to misunderstand an email chain in which EOHLC inquired about Spinelli’s delivery rates. In the email, EOHLC noted that invoices showed different delivery rates for certain locations, asked about the reason for this variation, and received an explanation that Spinelli’s delivery rates varied by geography. This exchange demonstrates that EOHLC exercised appropriate diligence in reviewing the Spinelli’s invoice, not that EOHLC was offered a fixed single-rate delivery fee. EOHLC acknowledges the SAO’s point that cost-saving opportunities should be considered. However, at best, it is speculative to find that a single-rate delivery fee could have resulted in lower delivery costs if accepted. In fact, EOHLC believes that such an analysis would not have been reasonably possible given the variable factors not known at the time.
Auditor’s Reply
In its response, EOHLC stated that it provided us with the executed contract with Spinelli and the written justification for the use of Spinelli. Our finding is that EOHLC’s procurement file did not contain sufficient evidence and documentation to support the agency’s decision to contract with Spinelli; we examined the evidence provided by EOHLC and determined it to be insufficient. We would expect to see, for example, how vendors were advertised for or (for an emergency contract) how the chosen vendor first came to the attention of the agency, notes of initial and subsequent communications, etc. This information and other relevant information were missing from the file, preventing us or the public from determining how such important contracting decisions were made. We also found that EOHLC did not consider an opportunity to accept a flat rate on an emergency no-bid contract with Spinelli for food delivery services. That option may or may not have saved money for the Commonwealth, and we believe due diligence should have been performed to inform a decision to accept, reject, or ignore that offer.
In its three-page justification to explain the choice to use Spinelli to provide food services, which EOHLC provided to us, EOHLC only included one paragraph explaining Spinelli’s qualifications for this contract. This paragraph appears below, in full.
Spinelli Ravioli Manufacturing Co., Inc. is a full-service catering company based in Massachusetts. Its headquarters are located at 282 Bennington Street in East Boston. Since August 26, Spinelli has been providing emergency catering services at various hotels operating as shelter without providers. Spinelli has competitive pricing and more than 30 years of experience operating as a full-service and drop-off catering company within Eastern Massachusetts.
It would appear that EOHLC’s decision was based solely on the following factors:
- Spinelli Ravioli Manufacturing Co., Inc. is a full-service catering company located in Massachusetts.
- Its headquarters is located in East Boston.
- Spinelli had been providing emergency catering services at various hotels operating as shelters since August 26, 2023, less than one month before the emergency contract was signed with Spinelli on September 25, 2023.
- Spinelli had competitive pricing and had more than 30 years of experience operating as a full-service and drop-off catering company within Eastern Massachusetts.
This is not sufficient justification. First, there are numerous full-service catering companies located in Massachusetts. Second, EOHLC does not explain in its justification the benefit of this company being located in East Boston. This may actually be a disadvantage, as Spinelli was required to provide services to the entire state. Third, EOHLC does not explain in its justification why a company that has been providing a service for less than one month should be chosen to provide food services for all of the hotels and motels throughout the state. This issue also raises the question of whether the opportunity to provide these pre-contract catering services—and thereby be given the same opportunity to receive a similar positive assessment from the Commonwealth—was also offered to other, similarly situated companies that could have provided these services and then been considered qualified to conduct this work. Fourth, EOHLC stated that Spinelli had competitive pricing. We were not provided with proof that the pricing was fair or even compared to the price of other vendors to help inform such a determination. This pricing and the vendor’s experience may or may not have distinguished it from other potential vendors. These are all reasons to keep and maintain an appropriate procurement file.
We also note that, as previously mentioned in the finding, in documentation EOHLC provided to us, EOHLC inquired Spinelli about the delivery rates after the fact and not before selecting the vendor, thereby preventing delivery rates from being a consideration during vendor selection.
We did not find EOHLC’s justification for selecting Spinelli (provided above, in full) to be sufficient. For this and other reasons, we believe the procurement file was inadequate.
Additionally, EOHLC suggested that we misunderstood an email chain in which EOHLC inquired about Spinelli’s delivery rates. In this email, EOHLC did inquire about the delivery rates and Spinelli did offer a flat rate for delivery services. EOHLC stated that it is speculative to find that a single-rate delivery fee could have resulted in lower delivery costs if accepted. We did not find that EOHLC would have saved money by adopting a single rate, but rather that EOHLC should have considered such alternative pricing that was offered by its vendor. We cannot determine whether a single-rate delivery fee would have resulted in lower delivery costs because EOHLC never inquired further about the option. That is the problem we identified in this finding.
We strongly encourage EOHLC to implement our recommendations regarding this matter. As part of our post-audit review process, we will follow up on this matter in approximately six months.
| Date published: | May 20, 2025 |
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