Contract Killer: Laughs & Legal Threats

Categories: Fact Check
Not every City Council hearing features threats of legal action or a cackling city comptroller, but hey, contracting policy always generates high emotions—at least when someone's making $450 an hour on a no-bid deal.

The deal in question is the $17 million no-bid contract the Department of Education awarded this summer to Alvarez & Marsal—a firm that specializes in "turnarounds" of government entities and corporations—for 18 months of advice on how the DOE can streamline its budgeting and administration. The pricey deal is just the latest instance in a behind-the-scenes bureaucratic turf war that's raged since Mayor Bloomberg won control of the schools.

When city agencies buy stuff from outside vendors, they have to go through a process dictated by the city's procurement board that demands competitive bids except under specific circumstances, requires a hearing whenever a non-competitive bid is contemplated, and allows the Comptroller oversight of the process.

But when the city's schools came under mayoral control, they didn't become a city agency. According to the Green Book (which is a gaudy orange this year in a belated homage to The Gates), the DOE "was created by the State Legislature and derives its power from state law." So the DOE says its billions of dollars of annual contracts are exempt from the city's contracting rules. And in the past four years the DOE has awarded hundreds of millions of dollars in no-bid contracts; for instance, on the same day the Alvarez deal was approved, the DOE okayed $42 million in other no-bid deals. While the no-bids are a very small percentage of its overall spending, the DOE is doing no-bid deals way more than it used to.

Critics have cried foul about the practice, be it on the infamous Snapple contract or my own bizarre obsession: the school food delivery system. Contracting rules make the process boring and slow, these critics argue, but they're there for a reason: to prevent inflated costs and sweetheart deals that screw the taxpayer.

The DOE says it only goes no-bid when there's a pressing need and only one vendor who can fill it. Which is what the DOE says was the case with Alvarez. Contracting chief David Ross says he told Chancellor Joel Klein not to waste time with a competitive bidding process that "everyone knew" Alvarez would win.

How did they know Alvarez would win? Well, Alvarez had done work in other cities, but most importantly, Ross said, "They had people on the ground." Why did they have people on the ground? Because Alvarez was already working in the schools on a contract funded by the private Fund for Public Schools. Who chairs the Fund for Public Schools? Chancellor Joel Klein.

So that was, like, a good "in."

"It's sort of a 'front-door' deal," commented soon-to-be-Congresswoman Yvette Clarke. "These folks got a leg up. Any way you slice it, they had a leg up because they had an entree to the system that others did not have." But that's cool, as long as Alvarez do good work, right? And DOE insists Alvarez does very good work that has already saved the city $89 million dollars.

But when Robert Jackson asked for copies of the Alvarez contract with the Fund for Public Schools, Deputy Chancellor for Finance and Administration Kathleen Grimm first said the schools weren't a party to the deal, then said she didn't have a copy of the contract and didn't know if Klein did. When the councilmembers asked the DOE to provide a copy of Alvarez's recommendations on cost savings, a school department lawyer said no: They're inter-agency communications, which don't have to be publicly disclosed.

"We will legally challenge that," Jackson vowed. It seemed to irk the councilman that the schools could award a multimillion-dollar no-bid deal to a firm on the basis of its performance under an earlier no-bid deal whose terms were secret.

Asked if the DOE would simply play nice and operate under the city contract rules in the future, DOE counsel Michael Best said the schools have "been moving in the direction of mirroring" those rules, but that since the school system has so many administrative layers and a unique September deadline, "the rules, we don't really feel are appropriate for us to be under." That's what had Comptroller Bill Thompson, waiting patiently to testify, chuckling in the audience.

"To say that it's different from any other agency and so they need flexibility is false, and is really hiding behind our children," Thompson told the committee. "The DOE is not above the law, even if they act like it." He promised an audit of the contract.

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