Legislative Oversight of State Government Contracts April 2021 By Professor Marjorie Sarbaugh-Thompson and Jennifer Giallombardo, Sean Kammer with Madelyn Lardner Wayne State University Political Science Department This report is sponsored by the Levin Center at Wayne Law and Wayne State University's Center for Urban Studies TABLE OF CONTENTS 1. EXECUTIVE SUMMARY ................................................................................................................. 3 A.RECOMMENDATIONS ON BEST PRACTICES ......................................................................................... 4 B.BRIEF OVERVIEW OF CONTRACT OVERSIGHT IN THE SIX STATES EXAMINED ................................... 7 C.CONCLUSIONS .................................................................................................................................. 11 2. STATE LEGISLATIVE OVERSIGHT OF STATE GOVERNMENT CONTRACTS: DETAILED REPORT ................................................................................................................................................. 12 A.MOTIVATION FOR THE RESEARCH.................................................................................................... 12 B.THE RISING USE OF CONTRACTS BY STATE GOVERNMENTS ............................................................ 12 C.GOOD LEGISLATIVE OVERSIGHT IN GENERAL ................................................................................. 15 D.ADDITIONAL RECOMMENDATIONS SPECIFIC TO CONTRACT OVERSIGHT ......................................... 16 3. LEGISLATIVE OVERSIGHT OF STATE CONTRACTS IN SIX STATES THAT ENACTED REFORMS .............................................................................................................................................. 20 A.CONTRACT OVERSIGHT IN IDAHO .................................................................................................... 20 i. Overview .................................................................................................................................... 20 ii. Three Idaho Case Studies ........................................................................................................... 25 iii. Conclusions ................................................................................................................................ 36 B.CONTRACT OVERSIGHT IN LOUISIANA ............................................................................................. 38 i. Overview .................................................................................................................................... 38 ii. Three Louisiana Case Studies .................................................................................................... 40 iii. Conclusions ................................................................................................................................ 47 C.CONTRACT OVERSIGHT IN HAWAII .................................................................................................. 49 i. Overview .................................................................................................................................... 49 ii. Three Hawaii Case Studies ........................................................................................................ 54 iii. Conclusions ................................................................................................................................ 63 D.CONTRACT OVERSIGHT IN MARYLAND ........................................................................................... 66 i. Overview .................................................................................................................................... 66 ii. Three Maryland Case Studies .................................................................................................... 69 iii. Conclusions ................................................................................................................................ 73 E.CONTRACT OVERSIGHT IN ALABAMA .............................................................................................. 75 i. Overview .................................................................................................................................... 75 ii. Three Alabama Case Studies ...................................................................................................... 80 iii. Conclusions ................................................................................................................................ 84 F. CONTRACT OVERSIGHT IN TENNESSEE ............................................................................................ 85 i. Overview .................................................................................................................................... 85 ii. Three Tennessee Case Studies .................................................................................................... 89 iii. Conclusions ................................................................................................................................ 97 4. REFERENCES ..................................................................................................................................... 98 This report summarizes information gathered in the second of two investigations funded by the Levin Center at Wayne State University Law School examining oversight efforts by state legislatures. The first report, completed in 2019, delineated the oversight capabilities and activities in all 50 states.1 It also identified legislative oversight of state-issued contracts as a particular weakness nationwide. This second report takes a closer look at that issue in six states where legislatures have taken steps in recent years to strengthen contract oversight. Both reports seek to strengthen oversight efforts by elected representatives serving in state legislatures. 1 Checks and Balances in Action: Legislative Oversight Across the States, Wayne State University Center for Urban Studies (2019), http://stateoversightmap.org/. 2 1. Executive Summary State governments pay private vendors substantial amounts of money to provide public services, a practice that i ncreased dramatically beginning in the 1990s. This reliance on private for-profit and non-profit vendors to deliver public services typically involves contracting, which means that states continue to pay for public services using taxpayers’ dollars, but private sector actors deliver the public services. The six states t haw e investigate in the work summarized here spent billions of dollars per year on state government contracts, often accounting for more than half of their state’s general fund discretionary spending. These contracts are typically entered into by the executive branch of t he state government, and often oversight of these services is handled within the executive branch itself rather than through the checks and balances between branches of government. Moreover, to monitor these contracts, many state governments rely almost entirely on financial audits evaluating the amounts charged and paid, rather than on performance audits assessing the quality of the services delivered. In the wake of the privatization surge, many states discovered how hard it is to ensure that private vendors fulfill their contractual obligations. We documented several instances of contracting scandals in our comprehensive study of legislative oversight in the 50 states—many with disastrous consequences for the public welfare and the public treasury. Sometimes states were sued and fined large sums of money; sometimes members of vulnerable populations died or were harmed; sometimes important activities and services, such as reporting student test scores or the state’s ability to pay its bills, were disrupted. If the services provided by these contracts were delivered by state agency employees, most state legislatures would have the authority, responsibility, and mechanisms they need to oversee the work performed. But as states “reinvented government,” state legislatures often lacked the authority or the resources needed to oversee contract execution. As a result, some legislators expressed frustration about their inability to monitor vendor performance in state agency contracts. To examine the ways legislators might be able to oversee contractor performance, we selected six state legislatures that we found in our previous work had made effort s to improve their contract oversight. These states are Alabama, Hawaii, Idaho, Louisiana, Maryland, and Tennessee. We wanted to follow up to see where their efforts led and how the changes they made did or did not improve their legislatures’ ability to oversee executive branch contracts. We found that some catastrophic failure or scandal involving a state government contract appeared to open a window of opportunity for the state legislatures to reform their oversight of these contracts. In four of these six states the legislature passed laws that permitted state legislative oversight of contracts; some legislatures added state performance audit staff; 3 some legislatures worked with the state procurement office to improve their Requests for Proposals (RFPs) and train state agency contract monitors. The state legislature that we consider the most successful was Idaho. After a high-profile scandal, Idaho’s legislative audit staff produced a detailed performance audit of the contracting process itself. Based on this audit,