LINCOLN — Nebraska’s auditor says the state may be overpaying for goods and services by failing to seek competitive bids for contracts worth tens of millions of dollars.

In a report released this week, State Auditor Charlie Janssen said the Department of Administrative Services should have obtained competitive bids for at least three contracts worth more than $30 million combined.

In addition, the Auditor’s Office took issue with the department’s practice of advancing state funds to some vendors. Such advances put public funds at greater risk, in violation of state law, the report stated.

Bo Botelho, deputy director of the Department of Administrative Services, defended how some of the larger contracts were awarded, particularly when they involved computer equipment and software. But he also said the audit will help the department improve.

“This audit is another tool for us to look at where our gaps are and to fix them,” he said Friday.

Administrative Services is responsible for state budgeting, accounting, personnel, materiel procurement and other services. Director Byron Diamond did not return a phone message left with his office Thursday afternoon.

State auditors zeroed in on three contracts that they said should have been put up for bid. Instead, the department relied on exceptions to the competitive bidding requirement that allows contracts to be awarded in emergencies or to contractors who are the only vendors who can provide the goods or services.

The largest of those contracts was awarded to IBM. The contract for computer software, hardware and maintenance was initially valued at nearly $12 million, but with numerous renewals it grew to nearly $27 million.

In response to the auditors, the department said it considered IBM a sole provider because the company could offer substantial discounts based on consolidation of all equipment and maintenance services that it provided the state.

In another contract, a company called Kronos obtained a $2.1 million deal to provide timekeeping services to the Department of Roads. Over time, the state awarded six additional contracts to the company worth a combined $4.7 million without seeking new requests for proposals.

In response, the department said no other vendor was able to provide the services needed for the Roads Department and that using the same timekeeping provider for multiple departments provided “synergy.”

“We have found the time and expense of integrating platforms — making systems talk together — exceeds any benefit you get from a cheaper bid,” Botelho said.

Finally, the auditors criticized the state for awarding a $2.3 million emergency contract to Peridot Solutions for a software upgrade. The auditors said that because the upgrade was scheduled, it should not have been considered an emergency.

The state risks paying more than necessary when the department fails to follow competitive bidding requirements, the audit report stated.

“We recommend (the department) competitively bid service contracts worth millions of dollars as a matter of course, to ensure the fair and reasonable expenditure of public funds as well as to make certain that the state receives the best services for the lowest possible price,” auditors stated.

In response, the department pointed out that it has no approval authority over emergency contracts entered into by external state agencies.

Auditors also found that the department had advanced millions of dollars in state funds to vendors who manage the state’s workers’ compensation payments, flexible spending benefits and insurance liability claims. The advance payments were made to help the vendors maintain monthly cash flow.

When such vendors hold the advanced funds in banks not authorized to do business in Nebraska, the state loses potential investment income and the money is at a greater risk of loss. Such arrangements conflict with state law, the auditors said.

In response, the department said it would work with the vendors and the State Treasurer’s Office to determine if the outside accounts could be eliminated or to develop an alternate means of payment.

Contact the writer: 402-473-9587, joe.duggan@owh.com

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