State contractor for efficiency study to charge $1.6 million more than lowest bidder

Kansas lawmakers signed a contract Monday with Alvarez & Marsal to perform an efficiency study of state government for nearly $2.6 million.

Another firm, McGladrey, had offered to do the job for less than $1 million. Two other firms bid $2.5 million and $2.8 million.

Rachel Whitten, spokeswoman for House Speaker Ray Merrick, said in an e-mail Monday evening that lawmakers weighed expertise before cost when choosing a firm to conduct the study.

“McGladrey’s scope of work was not as extensive as A&M. A&M’s executive professionalism and experience made them the top technical choice. While McGladrey’s price was much lower, their bid was not as thorough,” Whitten said in an e-mail.

The efficiency study and lawmakers’ decision to go with Alvarez & Marsal over three other firms have come under scrutiny in recent weeks.

The firm was hired by the state of North Carolina to oversee its Medicaid program’s finances. An initial contract of $3.2 million had grown to nearly $9 million as of this year, according to the Raleigh News & Observer, and last month it was reported that the contract was one of several state contracts under review as part of a federal investigation.

A news release from Republican lawmakers announcing the finalization of the Kansas contract with Alvarez & Marsal touted its work in North Carolina, saying that the firm helped the state’s Medicaid program go from a $487 million shortfall in 2013 to a $130 million surplus last year.

“I’m impressed that A&M employs executives who routinely step in to act as interim CFOs, comptrollers, and other top leadership positions in organizations around the world,” Merrick said in the release. “That kind of experience combined with a fresh perspective should provide us with the recommendations we need to make state government more efficient and effective.”

The firm made a presentation to lawmakers in a closed meeting last month. Details of their bid and the bids of the other three firms did not become public until Monday.

Another firm, Deloitte, had submitted a bid for $2.5 million, and the Boston Consulting Group submitted a bid for $2.8 million.

The consulting contract has three main tasks: a diagnostic analysis of the state’s budget, an evaluation of the state’s budget process and the submission of a set of cost saving recommendations. The Legislature is exempt from the study.

Alvarez & Marsal, which has an office in Kansas City, Mo., donated to both of Gov. Sam Brownback’s gubernatorial campaigns, putting $2,000 toward his 2010 campaign and $1,000 toward his 2014 re-election campaign. None of the other firms made donations to Brownback.

The firm has also donated thousands of dollars to the Republican Governors Association and the Republican National Committee. Brownback’s office did not respond when asked about the campaign contributions.

The consulting firm was chosen by a legislative committee, not by the governor.

Sen. Laura Kelly, D-Topeka, who sat on the committee that selected the firm, said there was no political pressure to pick Alvarez & Marsal. But she said Republicans on the committee did not want to select the Boston Consulting Group, which has former Democratic U.S. Rep. Jim Slattery’s son as an employee.

Kelly said she supported selecting Alvarez & Marsal at the time, but felt the process was rushed. Lawmakers decided to enter into negotiations with the firm hours after hearing its presentation.

“There was no time for due diligence. We didn’t do any sort of outside investigation, doing some research to find out the reputation of these firms,” she said. “It was just all sort of hurried up and let’s ‘get-’er-done’ approach. … The only background we got was what the companies gave us.”

In Louisiana, the firm recommended a number of deep cuts that saw political opposition. Despite the firm’s consultation, Louisiana ended its last budget cycle with an estimated shortfall of $50 million, according to the New Orleans Times Picayune.

Kansas lawmakers have continued to point to the firm’s work in Louisiana

“A&M has produced positive results for clients that range from the State of Louisiana to the New York City school system,” said House Appropriations Chair Ron Ryckman Jr., R-Olathe, in a release. “I believe their efforts will lead to better services in a more efficient manner for all Kansans, which, they deserve and should expect. I’m very confident that this investment will deliver long term benefits for our state.”

This story was originally published October 5, 2015 at 7:18 PM with the headline "State contractor for efficiency study to charge $1.6 million more than lowest bidder."