University System of Maryland University of Maryland Baltimore County

							                             Special Review




              University System of Maryland
         University of Maryland Baltimore County
Contract Evaluation Criteria Was Modified After Receipt of Related Proposals


                            September 2004




                 OFFICE OF LEGISLATIVE AUDITS
               DEPARTMENT OF LEGISLATIVE SERVICES
                 MARYLAND GENERAL ASSEMBLY
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                               September 27, 2004


Senator Nathaniel J. McFadden, Co-Chair, Joint Audit Committee
Delegate Van T. Mitchell, Co-Chair, Joint Audit Committee
Members of Joint Audit Committee
Annapolis, Maryland

Ladies and Gentlemen:

We conducted a review of allegations received through our fraud hotline related
to possible procurement and contract monitoring improprieties at the University
System of Maryland – University of Maryland Baltimore County (UMBC).

Our review disclosed that UMBC did not document its rationale for significant
modifications made to the food service contract technical and financial proposal
evaluation criteria after the receipt of original proposals. In addition, UMBC had
not established procedures to ensure that the food service contractor complied
with all terms of the contract.

                                             Respectfully submitted,




                                             Bruce A. Myers, CPA
                                             Legislative Auditor
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               Scope, Objectives, and Methodology
We conducted a review to address allegations received through our fraud hotline
related to the University System of Maryland—University of Maryland Baltimore
County (UMBC). The allegations related to possible favoritism by certain UMBC
employees in the awarding and monitoring of the food service contract.

Our purpose was to review the procurement and subsequent monitoring of the
food service contract. This review was performed in accordance with the State
Government Article, Section 2-1220 of the Annotated Code of Maryland.

Our review consisted of tests, analyses, observations, and discussions with
UMBC personnel as we deemed necessary to determine the validity of the
aforementioned allegations. Our review did not constitute an audit conducted in
accordance with generally accepted government auditing standards. Had we
conducted an audit in accordance with generally accepted government auditing
standards, other matters may have come to our attention that would have been
reported. Our review was conducted primarily during May 2004.

The response from the University System of Maryland Office, on behalf of
UMBC, to our findings and recommendations is included as an appendix to this
report. As prescribed in the State Government Article, Section 2-1224 of the
Annotated Code of Maryland, we will advise the System regarding the results of
our review of its response.




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                      Background Information
In August 2000, UMBC publicly advertised for a contractor to provide food
service on campus. Financial and technical proposals were received from two
food service companies, and the proposals were evaluated by a committee
consisting of two UMBC students and six UMBC employees. UMBC contracted
with the food service company for the period from July 1, 2001 to June 30, 2003
with eight one-year renewal options. The renewal options for fiscal years 2004
and 2005 were exercised in July 2003 and April 2004, respectively.

Under the contract, UMBC pays the contractor for student meal plans and catered
events held on campus, and receives commissions on certain transactions (such as
cash sales). During the period from July 1, 2003 to April 30, 2004, the State’s
accounting records indicated that payments to the contractor totaled
approximately $5.6 million, and UMBC’s records indicated that commissions
received totaled approximately $370,000.




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                  Findings and Recommendations

Modifications to Proposal Evaluation Criteria

Finding 1
UMBC did not document its rationale for significant modifications made to
contract technical evaluation criteria after the receipt and opening of the
original proposals from contractors, as well as for modifications made to the
financial evaluation criteria after the receipt of financial proposals.

Analysis
Documentation was not maintained to substantiate the rationale for significant
modifications made by UMBC to the food service contract technical and financial
proposal evaluation criteria after receipt of the proposals. Specifically, we noted
the following conditions:

   •   The request for proposal (RFP), issued in August 2000, identified eight
       technical evaluation criteria listed in descending order of importance.
       Modifications were made to the RFP—including the elimination of one of
       the technical evaluation criteria contained in the original RFP and the
       addition of two new technical evaluation criteria. The bidders were
       notified of these modifications, which were made prior to the receipt of
       the original technical proposals. We were advised by UMBC management
       personnel that the original technical proposals were received and
       preliminarily reviewed by UMBC procurement office personnel in
       October 2000 to ensure that all required documentation was submitted.
       Subsequently, procurement office personnel modified the RFP in
       December 2000 to change the order of importance of the technical
       evaluation criteria, and the contractors resubmitted their technical
       proposals. However, documentation was not maintained to substantiate
       the rationale for any of these modifications to the RFP. According to
       UMBC management personnel, the committee responsible for evaluating
       the proposals only reviewed the final technical proposals submitted by the
       contractors in January 2001.

   •   The two financial evaluation criteria, listed in order of importance in the
       original RFP, were the commission percentage to be paid to UMBC and
       the capital investment to be made by the contractor. The December 2000
       modification to the RFP reversed the order of importance of these
       evaluation criteria; however, UMBC did not document the rationale for
       this modification to the RFP. We were advised by UMBC management


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       personnel that the financial proposals received from the contractors in
       October 2000 were not reviewed, and were returned to the contractors; the
       resubmitted financial proposals were opened in January 2001.

The aforementioned modifications were generally beneficial to the incumbent
contractor that was awarded the contract. For example, as previously stated, the
December 2000 modification reversed the order of importance of the financial
evaluation so that the contractor’s capital investment became the most important
evaluation criteria. In that regard, the capital investment proposed by the
incumbent contractor (approximately $1.5 million) was significantly higher than
that proposed by the other contractor (approximately $1 million), but the
commission percentage was lower (15 percent versus 17 percent). The evaluation
using the modified financial criteria resulted in the incumbent contractor
receiving a higher score than the other contractor.

Although such modifications are not specifically prohibited by State procurement
regulations, we believe that modifying evaluation criteria after proposals have
been received and/or opened, without documenting the rationale for doing so,
violates the spirit of the regulations. Specifically, the stated purpose of the
regulations is, in essence, to provide for a fair and equitable procurement process
in both fact and appearance.

Recommendation 1
We recommend that, if modifications to contract evaluation criteria are
needed in the future, UMBC maintain documentation to substantiate the
rationale for such modifications that are made after RFPs have been issued.



Contract Monitoring

Finding 2
UMBC had not established procedures to ensure that the food service
contractor complied with all terms of the contract.

Analysis
Procedures had not been established to ensure that the food service contractor
complied with all terms of the contract. Specifically, we noted the following
conditions:

   •   UMBC personnel did not verify that the actual capital investment made by
       the contractor satisfied the contract requirement. Specifically, the contract



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       required the contractor to make a total financial investment of
       approximately $1.5 million over a ten-year period, including $1 million in
       the first two years of the contract (fiscal years 2002 and 2003). However,
       UMBC did not obtain documentation (such as copies of invoices paid by
       the contractor) to substantiate that the contractor had made the required
       capital investment. After we brought this matter to UMBC’s attention, the
       contractor provided UMBC with paid invoices supporting its capital
       investment during fiscal years 2002 and 2003, and it appears that the
       contractor did make the required capital investment.

   •   The contract requires the contractor to pay UMBC a 15 percent
       commission on cash sales, but not less than $250,000 per year. However,
       UMBC had not established procedures to verify that the cash sales
       commissions paid by the contractor met the contract terms. Based on our
       review, the payments made by the contractor to UMBC during fiscal year
       2004 met the minimum cash sales commission requirement.

Recommendation 2
We recommend that UMBC establish procedures to ensure that the food
service contractor complies with all contract terms. Specifically, we
recommend that UMBC obtain documentation from the contractor (such as
paid invoices) to substantiate that the contractor made the required capital
investment. In addition, we recommend that UMBC monitor cash sales
commissions received from the contractor and ensure that such commissions
meet the terms specified in the contract.




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                   RESPONSE TO THE LEGISLATIVE AUDIT REPORT
                        UNIVERSITY SYSTEM OF MARYLAND
                  UNIVERSITY OF MARYLAND BALTIMORE COUNTY
                                SPECIAL REVIEW


Finding 1
UMBC did not document its rationale for significant modifications made to contract technical
evaluation criteria after the receipt and opening of the original proposals from contractors, as
well as for modifications made to the financial evaluation criteria after the receipt of financial
proposals.

Recommendation 1
We recommend that, if modifications to contract evaluation criteria are needed in the future,
UMBC maintain documentation to substantiate the rationale for such modifications that are
made after RFPs have been issued.

Response
The University agrees. The standard UMBC practice is to maintain documentation
substantiating the rationale for proposal modifications. Although it was not followed for the
modification referred to herein, it was not our intent to violate the spirit of the State Procurement
Regulations either in fact or in appearance when the modifications were made. We will ensure
that our standard practices are strictly adhered to for future procurements.


Finding 2
UMBC had not established procedures to ensure that the food service contractor complied with
all terms of the contract.

Recommendation 2
We recommend that UMBC establish procedures to ensure that the food service contractor
complies with all contract terms. Specifically, we recommend that UMBC obtain documentation
from the contractor (such as paid invoices) to substantiate that the contractor made the required
capital investment. In addition, we recommend that UMBC monitor cash sales commissions
received from the contractor and ensure that such commissions meet the terms specified in the
contract.

Response
The University agrees. We have already obtained from the contractor copies of all paid invoices
and verified that the contractor made the required capital investment. Additionally, we have
already implemented a monitoring process to ensure that cash sales commissions meet the terms
specified in the contract. We will ensure that these procedures are consistently followed in the
future.
  AUDIT TEAM

Mark A. Ermer, CPA
  Audit Manager

 Julia Gorner, CPA
   Senior Auditor