The District recently lost the chance to obtain tens of millions of dollars from the federal government because of a lengthy delay in hiring a firm that specializes in recovering money owed to state and local governments, according to interviews with D.C. officials and a review of city contracts.
It took the District more than 15 months to hire Maximus Inc. to go after additional federal money available to the city in a range of programs--including Medicaid, the health care program for the poor. The State of Maryland, which put a similar contract out for bid last fall, hired the same firm after just four months' consideration.
The city's difficulty in settling the Maximus contract reflects some of its longtime problems with procurement. In this case, disorganization and bureaucracy led not only to a delay in reaching the agreement but also to a contract that could cost the District far more than the one Maryland signed.
In August 1998, after various city officials had wrangled over the contract for eight months, the D.C. Council passed "emergency legislation" approving it. Seven more months went by before the District actually signed the deal with Virginia-based Maximus, which will get a cut of the money it helps the city collect.
The delay cost the District millions of dollars in revenue, officials said, because under federal rules, the city may recover funds retroactively for only those services delivered in the prior two years. Thus, as time marched on, potential federal funding that was not recovered within that two-year window was lost to the city.
The Maximus contract process was "too long," said Mayor Anthony A. Williams (D). "That is inexcusable. That is ridiculous."
A review of the Maximus deal reveals that the District's procurement system remains dysfunctional in many ways, despite recent efforts to improve it. Besides delays caused by a Byzantine contracting process and oversight from the presidentially appointed D.C. financial control board, power struggles over the Maximus contract within Williams's administration appear to have contributed to the problems.
"I think the District has had a difficult time with procurement. The process around this project speaks to that," said Lynn Davenport, who heads the Maximus division that won the contract.
And the District's deal with Maximus does not appear to be as good as Maryland's.
The District's contract with Maximus gives the firm the opportunity to earn 10 percent of whatever funds it recovers from the federal government in the next three years, a total that officials say could be in the hundreds of millions of dollars. In contrast, Maryland is requiring Maximus first to outline all possible ideas for revenue recovery. Then Maryland officials will decide which items the state wants to recover on its own--for which Maximus will receive no fee--and which money the state wants the firm to pursue for an 8.5 percent fee.
"It sounds like there are some features in the Maryland contract we should have included in our own, particularly . . . deciding what is a government prerogative versus what is a contractor prerogative," said D.C. Council member Kathy Patterson (D-Ward 3).
The D.C. contract also includes hourly fees that Maximus can earn if it provides consulting outside the realm of revenue recovery, provided those services are approved by the city's chief financial officer. The Maryland contract includes no similar consulting provision and is strictly a performanced-based contract.
While the District is just beginning to recover lost federal money, Fred Puddester, secretary of Maryland's Department of Budget and Management, said social service agencies in his state have been doing that sort of work on their own for years. He said giving Maryland the contractual right to pursue revenue recovery ideas on its own--after the targets are identified by Maximus--was essential to protecting taxpayers' interests.
"I was worried about the potential of being cherry-picked by consultants," Puddester said. "I was afraid these folks would come in and get ideas my people already had, take some of those ideas and make money off it when it was really an internal idea anyhow. . . . If we thought we could do it with existing resources, we have the option of not paying them their 8.5 percent. It keeps the state in the driver's seat in terms of how to pursue it."
D.C. Council member Carol Schwartz (R-At Large), the only member who voted against the Maximus contract, said she feared the city would end up giving the firm the chance to garner millions of dollars in fees when D.C. officials have the capability to recover federal funds on their own. Schwartz said she came to that view after the Williams administration said it was adding several well-paid workers to the D.C. Office of Grants Management to go after additional federal funds.
"To me, this seems like duplication of effort and expense," Schwartz said.
But officials in several states that have hired Maximus say the firm has done a good job recovering funds in a highly specialized field. They say most jurisdictions lack the internal capability to identify and recover all the money they may be able to obtain, since the process involves a complex matching of federal programs with the reconstruction of spending patterns in various agencies.
"People think this is an easy thing, like taking a can of soup off the counter," said Peter Walsh, Maine's deputy commissioner of human services. "Federal regulations are complicated and subject to interpretation. . . . They have specialists." He added that Maximus has helped Maine obtain about $50 million in additional federal funds in recent years.
In the District, which has had difficulty obtaining and spending routine federal grants, employees still lack the necessary expertise to recover that sort of money on their own, the mayor said.
"If other states and other localities were pursuing this kind of recovery and were managed well, and thought there was a significant windfall out there, my thought was, with the mess we had . . . there must be a huge potential windfall," Williams said. "I know it is significant, and I am counting on [Maximus] to come through on that. It is a bad cloud with a silver lining."
Part of the reason the District took so long to hire Maximus was the circuitous route the contract took before approval. In its latest incarnation, the idea was launched in the chief financial officer's operation in 1997. Then the University of the District of Columbia--which sometimes handles procurements for other city agencies---was asked to put the revenue recovery contract out for bid in early 1998.
After a selection committee chose Maximus from among the bidders, an official from the city's independent office of contracting declared that UDC should not have been involved and seized the contract file in the spring of 1998, sources said. Richard P. Fite, whom the mayor asked to resign last week as head of procurement, apparently wanted to restart the contracting process, sources said.
Then there was a power struggle within the Williams administration over the Maximus contract, sources said. Ultimately, the chief financial officer's mission support unit, which has authority to issue contracts, won the fight and regained control. It then took months to get approvals, first from the D.C. Council and later from the control board, which undertook a months-long review. More time went by as D.C. officials negotiated with Maximus or focused on other priorities, costing the city the chance to recover millions of dollars that could have been used to provide health care and other services, officials said.
"The delay is frustrating," said Phyllis Campbell-Newsome, director of community relations for the Washington Council of Agencies, which represents 660 nonprofit groups and social service providers. "It is another example of the District wasting an opportunity."
Despite the delay, Maximus officials and Williams remain optimistic about the potential for recovering millions of dollars for the city.
"We think there is potential for pretty substantial recoveries," Davenport said.