I want to thank blogger Suzanne Downing, unofficial spokeswoman for Gov. Mike Dunleavy, for confirming that it was Dunleavy who wanted a no-bid contract to go to the grandson of Bob Penney, the businessman who spent $350,000 to help get Dunleavy elected.

“The Democrats and their media have had a field day in recent weeks implying it’s improper for the governor to contract with a trusted ally,” Downing wrote on her blog, referring to the $8,000-per-month contract with Clark Penney.

Downing’s connection of Dunleavy to the contract with a trusted ally followed publication in the Alaska Landmine of a draft internal AIDEA document that said the deal was made by the request of the governor’s office.

The administration has gone to great lengths to cover up or deny any involvement of the governor’s office, but we can dispense with the posturing and half-truths.

Downing, who travels on a high horse, writes that $8,000 a month “seems like a lot to some” left-wing bloggers and reporters.

Let’s just say that $8,000 a month for 44 months is enough that numerous state procurement regulations had to be ignored by the Dunleavy administration to get the contract in the hands of a trusted ally.

I gained some insight into the rules about handling public money from Barry Jackson, an Anchorage retiree and an expert on the history of state contracting in Alaska. He supervised the Anchorage office that dealt with state contracts for about 25 years.

He walked me through the stringent procedures in state law and regulations. He showed me how the two-page sole-source justification—created after the state had decided to give the contract to Penney—is riddled with errors and unanswered questions. That document by itself reveals numerous violations of state regulations.

The contract was negotiated by top-level officials in the commerce department, including the commissioner, long before it was handed over to AIDEA and the agency invented a sole-source justification. Had the commerce department gone through the normal process, the Department of Administration would have rejected it.

Jackson and I co-wrote the following, an analysis of the “Waiver Request for Alternative Procurement Methods”, the document AIDEA provided as a reason to avoid competitive bidding.

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The Alaska Industrial Development and Export Authority violated state law by giving a no-bid multi-year contract to the grandson of a major benefactor of Gov. Mike Dunleavy.

In AIDEA regulations (3 AAC 460 (c)) all procurements between $10,000 and $50,000 are defined as small procurements and must adhere to the regulations controlling small procurements, including soliciting multiple bids from at least three persons or firms. 

The Penney contract was initially for $44,000 and by definition was considered to be a small procurement under AIDEA's own regulations. Even then, the small procurement regulations were violated because, at $44,000, those regulations require solicitation from at least three firms or persons; no other firms or persons were solicited. 

The much larger follow-on contract with Penney Capital Inc., was for nearly $400,000. The small procurement regulations forbid this type of artificial division or fragmenting of contracts to avoid normal contractor selection procedures. Using a contract garnered as a small purchase, under looser regulation for contractor selection, is not allowed to be the basis of a much larger contract that should have been put out to bid. 

Otherwise anyone wanting to avoid the formal competitive bid process with all its safeguards and rules to prevent corrupt spending of government dollars could just give a desired contractor a less-than-$10,000 contract (AIDEA regulations say that no-bid contracts under $10,000 are acceptable even if no competition is sought) and then later use that contract as the justification to give the same contractor a much larger contract, while not having to follow a formal competitive bidding process. 

Under rules for a no-bid contract (3 AAC 100.490 (a)(3) or (4) or (5)), as applied to the multi-year contract, the Chief Procurement Officer is required to make a determination that 

• time is of the essence and bidding would take too long and 

• the price is reasonable compared to the impact of delay and 

• the contractor is uniquely positioned to meet the authority's needs. 

• Or, when no other procurement process is practicable, the award is in the authority's best interests because no other reasonable source of services is available that could meet the authority's requirements and schedule .

This level of detail is missing from the document in the Penney case. The Waiver Request should have been accompanied by (per 3 AAC 100 490 (a) through (e)) a written statement from the chief procurement officer with “evidence necessary for the independent examination and determination of the material facts of the procurement. The determination by the chief procurement officer that a specific course of action is or is not ‘in the authority's best interest’ means a determination that is reasonable under the circumstances and is not arbitrary, capricious, or prompted by corruption. A request to use a non-competitive procurement method that is based on a determination that it is ‘in the authority's best interest‘ must cite the specific and significant interests to support use of the non-competitive procurement method.”

There is no evidence in the completed sole-source justification that AIDEA's chief procurement officer, or anyone else, made any determinations that met those benchmarks. 

The Penney waiver violates state law and the contract should be canceled for this reason alone.

Here are 10 of its problems:

1. The document is not an AIDEA waiver request form. It is a Department of Transportation and Public Facilities form. However, AIDEA chose not to use or follow Department of Transportation and Public Facilities policies or procedures for filling out that form; those procedures, if followed, would have required sufficient detail to properly justify (or not) the use of a no-bid procurement process.  

   Here are the DOTPF rules that show how this form should be filled out to meet the law. The Department of Administration form for sole-source contracts requires more detail than the DOTPF form, so that may be why AIDEA uses the DOTPF version.

   It didn’t comply with the DOTPF version.

   On the top line of the DOTPF form used by AIDEA, there is a  space for a “bid waiver number.” That part of the AIDEA waiver was left blank, even though three lines below the form says that regardless of the contract amount "any purchase must be assigned a Bid Waiver Number. . . “

    In the Department of Transportation and Public Facilities, that bid waiver number would have been assigned by procurement managers in DOT/PF only after receiving and reviewing a purchase requisition or other similar document requesting a bid waiver and which offered reasonable justification to do a no-bid procurement. Clearly there was no such review at AIDEA.

2. Part 2 of the form asks for a specific description of procurement requirements to be waived. AIDEA quoted regulations from the wrong agency. The Penney waiver alleges, “Waiver requested to waive solicitation process fro 3 AAC 109 AIDEA’s procurement regulations.”

   Those regulations are for the Alaska Energy Authority, not for AIDEA. And they only apply if AEA is conducting a procurement action on behalf of a recipient of an AEA grant.

   Since there was no legitimate citation of authority in the waiver request, the document is technically void.

3. Part 3 of the waiver seeks documentation that the state did not provide. It asks for “contract requirements with attached schematics, planning documents or narratives as appropriate.”

   The inadequate one-line response given for contract requirements was: “Oversight of the new Industry Development Team and working with other staff in promoting the business and economic development interests of Alaska.”

4. Part 3 also asks for “a cost estimate that is linked to the contract requirements.”

   The inadequate one-line response given did not link the cost estimate to contract requirements at all: “40 months @$8,000/month + travel expenses= $441,000, RSA from DCCED.”

   (The letters mean a Reimbursable Services Agreement with the Department of Commerce, Community and Economic Development. There are no real deliverables in the contract other than vague monthly reports.)

5. Part 3 also seeks “a timeline depicting the project schedule from inception to completion.”

   The inadequate one-line response did not depict a project schedule, but only a duration: “FY 19-4 months; FY 20, 21 and 22=36 months for a total of 40 months.”
   
   (That section proposed a violation of the AIDEA regulation prohibiting stringing together no-bid contracts to avoid competition.)

6. Part 4 of the form requires a description of the “need for services.” AIDEA did not do that, but only said Penney’s company is capable and has contacts that “align with the goals of the Governor’s New Industry Development Team.”

7. Part 4 also requires a reason to avoid normal competitive bidding methods. AIDEA did not give a reason, but only said Penney’s “combination of experience, background and networks is difficult to find within Alaska.” That is not a reason to avoid competitive bids. There are no details on his qualifications and experience.

8. Part 4 also requires a statutory and regulatory authorization. This means citing chapter and verse of the Alaska Statutes and Administrative Code Regulations that authorize AIDEA to conduct this work.   AIDEA did not reply, but claimed the contract was “within AIDEA’s mission.”

   (The internal draft document mentioned above had claimed that the contract was requested by the governor.)

9. Part 4 also requires a detailed explanation of what would happen if the waiver is not approved. AIDEA did not provide any details, instead offering a vague overarching unsupported claim that there would be a “delay in achieving tangible results to the governor’s ‘Open for Business’ strategy.”
   The first agreement expired June 30. Competitive bids should have taken place during the months before that decision, under state regulations.

   (There is no reason to believe that a delay of a couple of months to seek competitive bids last spring would have had any real consequences. State officials testified last week to the House Finance Committee that the Alaska Development Team is still in its organizational stage.)

10. Part 4 asked for “any other documentation/justification” the agency figured would be helpful in evaluating the request. AIDEA did not include any other documentation.

All of the comments used as justification were marketing statements, not anything based on specific facts and evidence.

Michele Hope, interim chief procurement officer, recommended approval of the waiver and the acting executive director of AIDEA signed for AIDEA director Tom Boutin on March 19, the same day that Clark Penney signed his AIDEA contract.

Penney was paid for the full month of March, apparently as a favor. Work undertaken prior to achieving a signed contract is forbidden and is not to be paid. If the work was impermissably undertaken under the small procurement no-bid regulations, then it still shouldn't have been paid. Either way, the work performed prior to the improperly approved March 19 replacement contract shouldn't have been paid.   

There was never any doubt about approving the sole-source justification. In fact, this document was created weeks after the decision had been made to give a contract to Penney. It was simply an attempt to create a paper trail to evade the rules requiring competition.

A week earlier, the chief financial officer of AIDEA wrote, “We will also need to put together a sole source justification.”

AIDEA ignored and violated their own internal regulations, state regulations, and state law in adopting this contract.

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