Procurement and Social Value – a lesson and warning from Omaha

Programmes that support small, local or minority-owned businesses are increasingly popular it seems the world over. Often they include procurement being used as an element of public policy – so encouraging more public sector spend to go to this sort of supplier for instance. We’ve written regularly about the issues here, and we’re big supporters of the idea that procurement processes need to be open and to avoid the unconscious discrimination we often see against smaller firms (through overly complex tendering processes, for example).

But equally, we’ve worried that going too far might create an environment where corruption or fraud might be made easier. If contracts aren’t being awarded on objective, value grounds, but to support other policy goals, how do we make sure the contract award to the CEO or council leader’s brother-in-law can be identified as dodgy, rather than excused because his firm is local, small and employs disabled staff?

There was a great example of this confusion recently in Iowa. Last week, reported: “Dozens of no-bid state contracts were improperly awarded to a construction company owned by a state purchasing official and her husband, Iowa’s state auditor said in a report released Monday.”

The official, Lois Schmitz, was dismissed, but then incredibly was re-instated in January with $108,000 in back compensation by an arbitrator who found , “that her termination wasn’t justified and noting that her previous bosses determined in 2010 that she didn’t have a conflict because she wasn’t involved in awarding contracts.”

You have to ask how on earth her previous bosses thought that this was OK – even if she wasn’t involved in awarding the contracts, you just can’t have someone in a procurement role receiving money as a supplier too. But what complicated it further was that the firm, BluePrint Homes, was getting business though a scheme to support small and minority-owed business.

"BluePrint Homes could receive contracts up to $10,000 without competition, because it qualified in 2009 for the state’s Targeted Small Business program, which encourages agencies to buy goods and services from disadvantaged businesses. The company cited John Schmitz’s disabilities and Lois Schmitz’s gender."

Ironically, Schmitz even volunteered to handle all supplier questions about contracts for the Targeted Small Business program, and helped to respond to questions submitted by her husband!

But here we have the problem. If we introduce criteria that take objectivity out of the process, and even remove some competitive elements, then we’re open to this sort of thing happening. You might wonder why Omaha couldn't still retain some competition, even if they restricted the process to the targeted businesses.

So all in all, a bit of a mess for the State, and some lessons for anyone looking to support certain types of business through public procurement. There are effective ways of doing that, but be careful.

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First Voice

  1. Bruce Greiner:

    I came across this article while doing some web reseach.
    Thank you for the article. It is good to see someone saw through her scam.
    Six years later this is still a very painful issue to me. She lied and stole from taxpayers; she was allowed to manipulate her co-workers to lie for her. The weak management at the State of Iowa rolled over and assigned a past union attorney to oversee the termination. He hired an arbitrator that had never sided with management. The attorney never met with me prior to the arbitration and when I got my materials back which I had provided him (at the arbitration) he had mixed the exhibits up in my binder. Lois was a good AFSME employee.
    Close to two years after Lois’s reinstatement she was granted a jury trial for the bogus age and sex discrimination claims against me and the state. She hired Roxanne Collin, an ambulance chaser attorney for the case.
    The trial lasted almost two weeks and dozens of employees were brought in. I was on the stand for close to two day. Lois, and Roxanne, lost the lawsuit. To my dismay there was not a story in the newspaper about the trial and there were no retractions concerning the one sided reporting by the AP or on the internet. Months later, after the jury trial, she was finally found to have committed fraud by the State Auditor and was granted a hearing in front of the Campaign and Ethics Board for the State of Iowa.
    The Ethics board found Lois in violation of policy and procurement rules. Lois’s punishment was she was fined $1,000 for the fraud and given early retirement. There were no charges filed against Lois for the $700,000 in contracts that were provided to her husband under the radar. The Attorney General’s office had the audacity to contact me later and congratulate me on being one of the first to have won such a lawsuit and for properly documenting the termination. I was told that Lois’s fine was “a first” in being issued for fraud by the state of Iowa. ($1,000….what a joke). Some may say that her, her husband and co-conspirators should be in jail. Here is what she got: Lois got back pay, back benefits and worked at her six figure job for around three years after the reinstatement then was offered early retirement by the State. I was escorted out and given the bad press she provided.
    To my knowledge, there were never any retractions to the lies. This is the first positive post I’ve seen in six years.

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