Overspending on Outsourcing

Louis Dezseran

Many people think of outsourcing as a way to save on expenses by having help from outside firms that can do specialized jobs for less. When it comes to government in Nevada, however, outsourcing too often appears a way for the politically connected to pull in taxpayer dollars.

Open records requests examined by the Nevada Policy Research Institute revealed that from July 1, 2006 until December 31, 2007, the state purchasing department alone spent almost $40 million on 107 contracts. (The state had 130 contracts, but said data on the other 23 would not be provided, as it was not available in any standard report.) Large spending items included over $12.5 million on vehicles, and over $8.8 million in the area of information technology.

At the county level, tiny Mineral County spent $16 million on contracts over about two years, with $600 allocated to a rock band, $990 for wrist bands, and a total of $1,750 for a magician. Humboldt County exceeded $10 million in just one year. Construction and insurance were the largest expenditures.

In Washoe County, contracts call for more than a quarter of a million dollars to be paid per month to clean county buildings, raising the question of whether existing staff could clean at least some of those buildings at no additional cost. Clark County staff reported spending over $20 million on contracts, including such odd entries as: tens of thousands of dollars total for performers like pirate impersonators and comedic acrobats, $200 for a petting zoo, $1,225 for a Santa and Mrs. Claus and three elf characters for two hours, $9,675 for a lawnmower available elsewhere for $7,485, and $200 for four pigs.

Even some contracts that were for important items involved overspending or were not subject to proper bidding processes. For instance, the Las Vegas Housing Authority hired a consulting firm for $50,000 without free and open competition, and then increased that contract, without board approval, to $200,000. In another example, the state paid $7 million to an architect to design an intersection. When those plans were deemed defective, fixes cost another $9.4 million for the contractor and an additional $211,149 for another consultant.

And by now, we've all heard about the problems facing University Medical Center, whose former CEO, Lacy Thomas, is charged with paying $10 million to his friend's consulting firm for a no-work contract. UMC also paid millions to Dr. Dipak Desai, whose medical offices allegedly caused the country's largest mass infection of Hepatitis C through the reuse of syringes and single-dose vials of medicine on multiple patients.

These contracting problems are evidence of a system that badly needs reform. Under current state law, Nevada has a threshold for the sealed bid process that is much higher, at $50,000, than the median threshold found across the fifty states ($7,500) or the mean threshold across the states ($15,438.80). Indeed, given that some states have bidding thresholds as low as $1,000, there is no reason why Nevada's threshold should be fifty times higher.

However, the laxity does not end with state sealed-bid thresholds. Audits have found expenditures above $50,000 not reported in several cases. Worse, Clark County until recently allowed some bureaucrats to personally approve any spending under $500,000 with no formal oversight – far too much spending power for any single government official to possess, and one of the causes of the county's UMC mess.

Other needed reforms would include legislation that prohibits contractors from backing out of contracts in order to simply re-bid to provide taxpayers the same services at higher costs. This happened in Dr. Desai's case, where his clinic backed out of a five-figure contract with UMC to then perform the same services for seven figures.

Additionally, no one should be able to be paid as a government employee while receiving another check as a government contractor for providing similar services at the same time. A case in point: The Clark County Water Reclamation District first hired a vendor at $34,000 per month and then hired that vendor's lab manager as a regular employee – allowing the latter to be paid as both an employee and a contractor.

Greater transparency in government spending – allowing all government contracts to be subject to easy public view – is a vital need in Nevada. Comprehensive transparency has the power to effectively deter wasteful spending and allow taxpayers a fuller understanding of how their money is being used.

Louis Dezseran is fiscal policy analyst at the Nevada Policy Research Institute.