State Politics

NC agencies pay millions for contract work

Contract nurse Wendy Vaught, foreground, checks on a prisoner Thursday, April 16, 2015 at North Carolina Central Prison Regional Medical Center and Mental Health Facility. Agencies, like the Department of Public Safety, rely heavily on personal services contracts to hire medical staff because it's difficult to recruit staff healthcare workers in the prison system.
Contract nurse Wendy Vaught, foreground, checks on a prisoner Thursday, April 16, 2015 at North Carolina Central Prison Regional Medical Center and Mental Health Facility. Agencies, like the Department of Public Safety, rely heavily on personal services contracts to hire medical staff because it's difficult to recruit staff healthcare workers in the prison system. tlong@newsobserver.com

In 2012, the state of North Carolina hired a Harvard professor to help prosecute cases in which death-row inmates claimed racial bias.

Donald Rubin analyzed a study that documented statistical evidence of bias in North Carolina and shared his findings with prosecutors, but he didn’t testify or produce a report that prosecutors used in court. He was paid $60,000 for about 70 hours of work.

The state hires hundreds of professionals like Rubin every year on personal services contracts, sometimes at seemingly high rates to fill what are supposed to be temporary needs for more doctors, attorneys, engineers and the like.

Earlier this year a legislative unit that evaluates public services found that agencies are using the contracts to evade oversight. The contracts, which cost the state an average of $22 million a year over the past five years, have been so misused that they should be eliminated, according to its report.

The Program Evaluation Division report, which was released in February and forms the basis of a bill under consideration in the General Assembly, found state agencies are:

▪ Compensating contractors too generously, in some cases at hourly rates greater than the average annual salary of the state’s top executives.

▪ Keeping contractors on the payroll for several years instead of using them temporarily or occasionally.

▪ Breaking the law by circumventing oversight.

Staff of the Program Evaluation Division say the state’s goal should be finding the best contractors at the lowest cost while ensuring transparent competition. It recommends personal services contracts be scrapped altogether in favor of hiring from the state’s Temporary Solutions program for spot work.

“Agencies and institutions are either overlooking or ignoring this objective, which violates the state’s commitment to spend taxpayer money wisely,” the report says.

But agency heads say they need the flexibility to hire the professionals they want without having to use temp workers from the state pool, which costs each department $2 per hour per temp on top of the salary paid. Federal tax law also prevents temporary workers from working more than 11 months in a year.

Lorrie Dollar, chief operating officer for the Department of Public Safety, says eliminating or restricting the use of contracts would make it harder for agencies to do their jobs. That $2 temp pool fee is expected to cost Public Safety at least $700,000 this fiscal year.

“How do we get the most bang for the buck?” Dollar said in a recent interview. “Let’s not create another bureaucracy.”

Her agency accounted for 44 percent of all personal services contracts in 2014. Public Safety spent more than $11 million on doctors, pharmacists, optometrists, psychologists and nurses for the state’s prisons and other facilities. These jobs are often difficult to fill because people are reluctant to work in higher-risk environments and in rural areas where many of the jobs are located.

Dollar thinks the software system already in place – the BEACON consolidated human resources, payroll and accounting program for state employees – has sufficient checks and balances.

High pay

Forsyth County assistant district attorney Mike Silver, one of the prosecutors who argued against prisoners’ claims filed under the Racial Justice Act, told Rubin in a 2012 email the cases were so important that they would “forever shape litigation of the death penalty in North Carolina and the nation.”

To face that challenge, the state paid more than $260,000 for three expert witnesses and four lawyers for those cases between 2011 and 2013, according to the Administrative Office of the Courts.

Rubin was an expensive but smart choice: The study that prisoners were invoking to try to get off death row used statistical methods that he invented or co-invented, and he had experience in litigation consulting.

Rubin agreed to analyze the study and discuss his findings with prosecutors at a reduced government rate of $850 an hour, which would have increased to $1,250 if he had testified. Rubin paid a doctoral student assistant and all expenses, including one trip each made to North Carolina, with some of the money, he said in an email last week.

Finalizing terms of the contract delayed its approval for two months, by which time Rubin said he had already put in 45 hours of work, totaling $38,000. Since the state couldn’t retroactively enter into a contract, it paid him from a fund for expert witnesses and approved a $22,000 personal services contract for the remaining hours of the work.

Rubin was brought in after the state had already spent money on another statistical expert, Joseph Katz, a retired Georgia professor. State records examined by The News & Observer show Katz was paid $107,000 for hundreds of hours of the same type of analysis as Rubin in a different set of cases, although not through a personal services contract. He was paid as an expert witness whose invoices were approved by a judge.

But six-figure personal services contracts are not uncommon.

Former state Auditor Les Merritt was hired on a contract to be the chief financial officer for the state’s mental health division. During the first six months of the contract, in 2013, he put in 200 hours and was paid $52,000, which at $260 an hour made him the highest-paid hourly employee working on a personal services contract in state government that year. The contract paid him $312,000 for a year, after which he left the department.

Program Evaluation Division staff found that between 2010 and 2013, 255 contractors were paid at an hourly rate equivalent to an annual salary greater than $164,150, which is the average salary of the highest-paid state executives and is higher than the $140,000 the governor makes. In contracts going back to 2009, the staff found eight instances in which contractors were paid at rates exceeding an annual salary of half a million dollars.

Sen. Jeff Tarte, a Republican representing Mecklenburg County, said in a recent committee meeting on the Program Evaluation Division report that the hourly rate for the highest-paid state executives – about $80 an hour – shouldn’t raise eyebrows. Tarte, whose background is in commercial financial consulting, said he made more than that in 1979 in his private-sector job.

Staying on payroll

A required annual report on the contracts by the state Office of Budget and Management, released last month, shows the average length of personal services contracts over the past five years amounted to 15 months. The office also reports that almost one-third of the cost of the contracts over the past five years went to a small number of contractors who were awarded contracts three or more times.

While the contracts are supposed to be for temporary or occasional work, nearly one-quarter of them were for one year or more of full-time work, some as much as three or four years in a row, according to the Program Evaluation Division report.

One contractor was brought in to help state Senate Republicans write tax overhaul legislation in 2012, for $12,500 a month, The News & Observer found in a review of the contracts. Michael Hannah, an attorney and accountant with extensive experience in tax issues, had his contract extended to the end of this year; he still has a job as legal counsel to the Senate’s Finance Committee.

In 2011, the legislature ordered that the N.C. Crime Lab have an ombudsman to handle complaints from prosecutors, defense attorneys and law enforcement. But lawmakers didn’t provide funding for the position. So the Department of Justice signed a personal services contract with a former assistant attorney general, Stormie Forte, who was in private practice, to return to the department for up to $110,000 a year at $53 an hour. She is still there.

In 2012, a woman was hired to work on moving the state health plan for employees to the treasurer’s office and then to upgrade a program that returns unclaimed property to people. She worked for two years at $80 an hour with a maximum set at $180,000 in a year. She was paid about $80,000 and remains with the department.

Circumventing oversight

The Program Evaluation Division report also found almost no reported information technology contracts were submitted for approval to the Office of Information Technology Services and the Office of State Budget Management, as required.

One expert was brought in to overhaul the treasurer’s website. At $90 an hour, his contract was for up to $216,000 in each of two years. The department also hired a woman to help him, at $75 an hour up to $115,000. Contractors aren’t always paid the maximum amounts.

It was a big project, remaking a website that serves 900,000 retirees and provides financial information to agencies across the state, including a search engine for unclaimed property. That revamp was so successful, the department says, that page views for unclaimed property increased 456 percent from 2009 to 2014, going from 751,494 views to 4,179,688.

The treasurer’s office justified not seeking approval from the state technology office by deciding that the pair provided content, not programming, and reported to the communications team, and so were not really IT hires.

“Despite attempts to gain additional IT resources for content, the department does not have the available FTE (full-time equivalent slots) to cover the range of responsibilities that they are able to cover,” a spokesman for the treasurer said in an email.

What’s ahead?

The budget office noted that independent contractors aren’t paid benefits, don’t have taxes withheld, don’t make Social Security contributions, and aren’t entitled to workers’ compensation or overtime pay. The financial difference between contractors and employees can be substantial, but the office warns agencies should be careful not to misuse personal services contracts.

A little more than a year ago, Gov. Pat McCrory issued an executive order requiring all cabinet agencies to go through Temporary Solutions for temporary hires and encouraging the university system and non-cabinet, elected agency heads to do the same.

Soon after the report was released in February, a legislative committee began looking into the issue, and a bill was filed that would impose new restrictions but not eliminate the contracts entirely. The bill also would allow active contracts to expire if feasible, and those that can be terminated at any point would be reviewed.

The legislation, Senate Bill 127, cleared a subcommittee of the Joint Legislative Program Evaluation Oversight Committee last week and now goes to the Senate Workforce and Economic Development Committee.

Rep. Nelson Dollar, a Republican from Cary and husband of Public Safety’s Lorrie Dollar, raised many of his wife’s concerns in the subcommittee meeting. He said technical aspects and the practical application of the bill are troublesome.

“I think the concept folks are trying to get at, which is making sure whatever the contract is, it’s responsible, it’s appropriate, it has the required oversight,” Nelson Dollar said. “I don’t think there’s any disagreement with those goals. On the other hand, we also don’t want to set up rules that make it that much harder for agencies to get the job done.”

The subcommittee approved the bill on a split-voice vote, with at least one other lawmaker joining Dollar in voting against it.

Database editor David Raynor contributed.

Jarvis: 919-829-4576;

Twitter: @CraigJ_NandO

Who gets personal services contracts?

Health and medical services account for the largest category of contracts, amounting to one-quarter of the total amount spent. Business and financial services, at 17 percent, are the second-highest category. Appropriations from justice and public safety committees in the General Assembly amount to 44 percent of the total, followed by education at 11 percent.

Here are a few more examples:

▪ In 2012, North Carolina’s auditor hired an outside quality-assurance reviewer to provide a “private sector perspective” at nearly $343,000 for two year’s work, which the office says is comparable to what senior managers there make, including benefits.

▪ Gov. Pat McCrory wanted to update state government technology, so he hired an expert to “create vision,” among other tasks, which included setting up a center to test products from private vendors. The expert was paid $74,000 for four months of work, and then hired permanently as the state’s first chief digital officer.

▪ Fayetteville State University wanted to enrich its theater program and brought in an experienced TV writer and producer to write, cast and stage a play as part of a visiting professorship. He spent about three months on the project and was paid $90,000.

Oversight of goods and services

The Program Evaluation Division staff in a presentation to the legislature last week noted that the amount spent by state agencies, excluding the university system, on personal services contracts increased by 5 percent to $18.7 million last year over 2013 even as the number of contracts decreased by 11 percent, going from 350 to 313.

▪ Non-information technology contracts must go through the Department of Administration’s Division of Purchase and Contract.

▪ Information technology contracts must be approved by the Office of Information Technology Services.

▪ Contracts for goods and services over $25,000 must be reviewed and approved by Purchase and Contract or Office of Information Technology.

▪ The Administrative Code exempts personal services contracts from Purchase and Contract.

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