State Auditor Questions Covered California's No-Bid Contracts Totaling $200 Million

SACRAMENTO, Calif. (AP) - California's state auditor on Tuesday questioned the use of no-bid contracts at the Covered California health insurance exchange, saying it spent nearly $200 million during a three-year period without seeking competitive bids on 64 contracts.

The total represented about one-fifth of the nearly $1 billion in contracts issued during the period.

While the agency has significantly reduced its reliance on no-bid contracts, State Auditor Elaine Howle found it waited until January to comply with a bill passed last summer requiring tighter contracting rules at the agency.

Auditors reviewed 40 no-bid contracts and questioned the need for three, including one for advertising and another for a data analytics project manager. The auditors found nine other contracts for which Covered California did not supply sufficient justification for avoiding competitive bids.

Covered California says it needed no-bid contracts to rapidly prepare for enrollment under the federal health overhaul and is relying less on them now.

Less than 10 percent of the 166 contracts in the past fiscal year were no-bid, worth $10 million, the agency says. In the 2012-2013 fiscal year, nearly 20 percent of contracts - worth $150 million - were no-bid.

"As the organization matures, the competitive bidding process across the organization has increased significantly," said Roy Kennedy, a spokesman for Covered California.

State agencies are generally required to shop around for large purchases to avoid ethical conflicts and ensure taxpayers get a good deal. Covered California was granted leeway as it raced to meet deadlines in President Barack Obama's health care overhaul.

The Associated Press reported in 2014 about Covered California's heavy use of no-bid contracts, some of which went to people with previous professional ties to the agency's executive director.

Until last month, Covered California allowed no-bid contracts when it was short on time or when only one company could perform the desired work. The auditors said that justification was too broad.

The Legislature last year ordered Covered California to adopt tighter procurement standards in line with the strict policies used by most of the rest of state government.

Under the tougher rules, no-bid contracts are allowed only in emergencies affecting public health and safety, or when there are no known competitors, according to the audit.

The Covered California board adopted the tougher standards on Jan. 21, the first day of the agency's official review of the audit prior to its public release.

Kennedy, the Covered California spokesman, said it took time to develop and adopt new procurement policies.

The auditor also advised Covered California to keep a close watch on its finances and be ready to respond to unpredictable changes in enrollment. The agency has been funded largely through federal grants but by September must fund itself entirely from a surcharge on health insurance policies.

Copyright 2016 The Associated Press.