2020-11-18 CMS B-16581 BOSS SUP Personal Care Recommendation.pdf

TO: Ellen H. Daley, Chief Procurement Officer for General Services

FROM: Barbara K. Myers, Sole Source Hearing Officer

DATE: November 19, 2020

SUBJECT: November 18, 2020 Sole Source Hearing Recommendation

On November 18, 2020, I presided as hearing officer over a hearing to consider comments regarding the following agency determination to contract on a sole source basis:

Agency: Illinois Department of Central Management Services (CMS), Bureau of Strategic

Sourcing (BOSS)

Vendor: Elm City Rehabilitation Center, Inc.

Brief Description: State Use Program joint purchasing master contract for personal care products (toothbrushes, hairbrushes, combs, razors, etc.)

Procurement Bulletin Reference: B-165581 (not to exceed $174,200)

Factual Background:

Section 45-35 of the Illinois Procurement Code permits agencies to procure certain supplies and services from qualified not-for-profit agencies for persons with significant disabilities

“without advertising or calling for bids.” This is known as the State Use Program.

On August 15, 2019, the CPO-GS issued CPO Notice 2020.01, which set forth a way for agencies to procure joint purchase master contracts (JPMCs) via the State Use Program. CPO

Notice 2020.01 instructed agencies to submit a proposed State Use JPMC to the State Use

Committee and request the State Use Committee review the proposed pricing and, provided the

Committee determines the pricing is fair, to approve the contract. The agency then must use the sole economically feasible source method of procurement to publish notice of the JPMC. The

CPO’s rationale for this method is that a qualified not-for-profit agency for persons with significant disabilities is “a sole economically feasible source due to the organization’s employment and empowerment of persons with disabilities.”

On September 9, 2020, CMS-BOSS received the State Use Committee’s approval for the state use JPMC at issue. The State Use Committee determined the prices for the JPMCs were fair and reasonable and that the contracts would provide 9 persons with disabilities employment and job training.

CMS-BOSS published a sole source justification form (SSJF) for the proposed state use

JPMC on October 28, 2020. In the SSJF, CMS-BOSS wrote that Elm City Rehabilitation Center, Inc. is the sole economically feasible source for these items because it is the only vendor approved by the State Use Committee to provide them.

Ms. Angela Penny of Ocean Hair Supply, LLC requested the hearing.

Summary of Hearing:

The hearing was held remotely via Webex. The notice of intent to contract on a sole source basis as well as the sole source justification form (SSJF) and Ocean Hair Supply, LLC’s request for a hearing were incorporated into the record. The following summary incorporates and paraphrases several back-and-forth exchanges.

1. Testimony of Will Stephens

Will Stephens of CMS testified that CMS determined contracting for the items at issue with a qualified not-for-profit agency was in the best interests of the State and that section 45-35 of the Code permits CMS to enter into such contracts. Mr. Stephens testified that CMS was using the sole source procurement method for the sake of transparency and to meet the requirements of the Governmental Joint Purchasing Act (30 ILCS 525). He also pointed out that section 1.4535(f) of the administrative rules for the Chief Procurement Officer for General Services prohibits protests of an agency’s decision to purchase from a sheltered State Use workshop rather than issuing a competitive solicitation. Mr. Stephens also provided a general explanation of what sole source procurements are and how they work.

In response to questioning from the hearing officer about why CMS uses retail prices instead of wholesale prices as a basis for price comparison when it appears CMS will be purchasing hundreds of thousands of items, Mr. Stephens indicated the items covered by this JPMC have not been competitively procured for several years, so CMS does not know what current wholesale prices are.

2. Testimony of Angela Penny

Angela Penny indicated she requested the hearing because she received an email from a third party procurement notification system and believed it meant the State was soliciting Ocean

Hair Supply to be part of the JPMC. She indicated she did not object to the State Use JPMC.

Applicable Statutes and Rules

“Sole economically feasible source procurement is permissible when only one supplier is deemed economically feasible.” 44 ILL. ADMIN. CODE 1.2025(b). A hearing on a proposed sole source contract must be held if an interested party submits a written request for one subject to the

CPO-GS Rules. 30 ILCS 500/20-25(a); 44 ILL. ADMIN. CODE 1.2025(c), (d).

“An agency's decision to purchase from a [State Use] sheltered workshop rather than issuing a competitive solicitation is not protestable.” Id. at 1.4535(f).

Analysis and Recommendation

I recommend this sole economically feasible source be approved because, while it is before me procedurally as a sole economically feasible source contract, it is ultimately the result of CMS’s decision to purchase from a State Use vendor, and the CPO-GS does not permit a protest of that decision. Id. A request for a hearing on a proposed sole source contract is not a protest under section 1.5550 of the CPO-GS Rules (44 ILL. ADMIN. CODE 1.5550). However, it serves a similar function. Members of the public may submit protests to object to an agency’s proposed specifications for a contract. 44 ILL. ADMIN. CODE 1.5550(a)(1). Likewise, members of the public may request a hearing to object to an agency’s proposed sole source contract. 1.2025(c), (d);

1.5740(c). CMS’s decision to use a State Use vendor rather than issuing a competitive solicitation for this JPMC is not protestable. The only reason CMS’s decision is subject to a hearing is CPO

Notice 2020.01, which exists to provide a mechanism for agencies to use State Use vendors for

JPMCs. In that Notice, the CPO-GS has deemed State Use vendors to be a sole economically feasible source for State Use JPMCs because of State Use vendors’ unique nature and service to the community. Moreover, Section 45-35 of the Procurement Code and section 1.4535 of the CPO-

GS Rules require the State Use Committee to approve proposed State Use Program contracts. The

State Use Program reviewed the proposed pricing for these JPMCs and approved the contracts – and, as the SSJFs point out, Elm City Rehabilitation Services is the only vendor the State Use

Committee has approved for these contracts. In that sense, it is the sole source. Neither the

Procurement Code nor the CPO-GS Rules clearly permit protests of or objections to the State Use

Committee’s approval of a contract.

That said, I see a potential problem with this and future State Use Program JPMCs. For this and the previous State Use Program JPMC that was the subject of a sole source hearing, it appears CMS used retail prices from retailers like Walmart and Amazon as basis for comparison when considering the State Use Program vendors’ pricing. However, given the volume of goods involved, it would make more sense to use wholesale prices for comparison. For example, Line

Item 43 in this JPMC refers to disposable twin-blade shavers, 10 per bag, 720 bags per case, which is a total of 7,200 shavers per case. In correspondence with Ms. Penny, CMS indicated it anticipates buying 67 cases. 7,200 razors per case times 67 cases is a total of 482,400 disposable razors. It seems unlikely that CMS would purchase 482,400 disposable razors at Walmart or from Amazon because it would be needlessly expensive given the retailers’ markup. Accordingly, it does not entirely make sense to compare the State Use vendor’s proposed pricing to retail pricing. CMS testified at the hearing that the personal care items in this JPMC have not been competitively procured in several years, so CMS cannot look to the pricing in a recent contract for these goods.

This is true, but other sources to estimate wholesale or bulk pricing for similar goods might be available, such as other State agencies’ competitively procured contracts, competitively procured contracts in other states, purchasing consortia’s master contracts, or even informal quotes from wholesalers. I recommend CMS look to these or similar sources for future price comparisons rather than relying on retail prices.

Based on the foregoing, I find the justification for this sole economically feasible source procurement to be sufficient, and I recommend that the CPO-GS approve the JPMC with Elm City

Rehabilitation Center.