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Unusual bidding process let ILO avoid standard 1% fee on $5.2M contract

Target 12

PROVIDENCE, R.I. (WPRI) — The atypical bidding process that led to ILO Group LLC’s controversial state contract worth up to $5.2 million also wound up letting the company avoid a standard fee on such contracts, Target 12 has discovered.

Avoiding the usual 1% fee on similar state contracts — known as “master price agreements,” or MPAs — would be worth up to $51,708 on the maximum value of ILO’s deal. But after Target 12 asked questions about the exemption, ILO announced plans Friday to pay the fee anyway.

The issue was revealed in the thousands of pages of documents related to the ILO deal obtained by Target 12 under an Access to Public Records Act request. The education consulting contract has come under intense criticism since Target 12 revealed its existence on Sept. 7, and R.I. Attorney General Peter Neronha is now investigating how it came together.

Under a law enacted in 2017, state vendors awarded government work under an MPA are required to pay a 1% fee on the contract. The fee — which is earmarked to fund the creation of an electronic procurement system — caused controversy back when vendors first learned it would take effect.

However, an email message obtained by Target 12 shows ILO wasn’t required to pay the 1% fee despite the McKee administration deciding to award its contract as an MPA.

Nina Lennon, the state’s interdepartmental project manager, wrote in a June 10 email to other state purchasing officials: “We created a new MPA (598) but this will not have the 1% to it.”

Target 12 first asked the McKee administration on Monday morning to confirm ILO had been exempted from the 1% fee. The administration was unable to answer the question for most of the week. But on Friday, R.I. Department of Administration spokesperson Derek Gomes confirmed ILO wasn’t paying the fee.

Gomes chalked it up to the fact that the McKee administration initiated the procurement process for what became the ILO contract as a competitive bid intended to lead to the selection of a single vendor. (The initial blueprint for the contract was drawn up by Mike Magee, one of the governor’s most influential outside advisers, whose subordinate set up ILO the week McKee took office.)

As Target 12 has documented, despite two rounds of bidding in April and May, ILO still wanted millions of dollars more than WestEd, its chief rival for the contract.

Rather than award the contract to WestEd, a review team gave the governor’s office the green light to switch to an MPA, allowing McKee and his advisers to negotiate how much money each company would get. In June, the governor’s office awarded ILO a contract worth up to $5.2 million, while giving WestEd a deal worth just under $1 million.

Gomes said the change of approach about how to award the contract is the reason both ILO and WestEd avoided the 1% MPA fee.

“The K-12 School and Higher Education Reopening Plan Consulting Services procurement did not include the administrative fee language,” Gomes told Target 12 in an email, referring to the original bidding document. “When this procurement was first posted, the state did not contemplate the result being an MPA; therefore, the standard language advising the vendors of the MPA fee was not included in the original solicitation document.”

Gomes added, “Unilaterally assessing the 1% fee without providing advance notice to the vendor would be problematic.”

However, Gomes indicated there were now discussions happening about having ILO and WestEd pay the fee anyway.

“Both approved vendors on this MPA have since expressed interest in paying the fee, and the Department of Administration is working to determine if and how this can be done,” he told Target 12.

Within an hour of Gomes’ email, ILO spokesperson Frank McMahon told Target 12: “ILO has just learned about the issue and ILO will be paying the 1% fee.”

ILO has yet to submit its first invoice for payment from the state under the contract, which is being funded with federal coronavirus relief money. State officials have said ILO is expected to bill quarterly.

It’s unclear if WestEd will also start paying the MPA fee.

“Our agency first became aware of the 1% fee on Wednesday, and we are currently awaiting additional information from the state regarding the fee so that we can reach agreement on how to proceed,” WestEd spokesperson Pamela Polk told Target 12 late Friday.

McKee has staunchly defended the procurement process that led to ILO’s selection despite criticism from lawmakers and others, while also denouncing news coverage of the deal.

Ted Nesi (tnesi@wpri.com) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter, Facebook, LinkedIn and Instagram

Eli Sherman and Tim White contributed to this report.

Copyright 2021 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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