Here in Pittsburgh, there never seems to be a long respite between public procurement scandals. The latest involves Michael Kenney, the executive director of the Pittsburgh Water & Sewer Authority, who reportedly has close ties to one of the companies with whom the city has a contract.
Don’t miss updates on Procurement & Supply Chain, Subscribe here!
Here’s the situation…The city has a contract with a company called Utility Line Security (ULS) to offer to city water customers a warranty (read: insurance) on their sewer pipes which, if they collapse, could result in huge repair bills for those customers. The problem lies with the relationship between Kenney and ULS.
According to three articles in the Pittsburgh Post-Gazette (here, here and here), these aspects define the Kenney/ULS relationship:
- In Kenney’s previous role as operations manager of the Municipal Authority of Westmoreland County, he reported to executives of ULS’ sister company, Resource Development and Management (RDM), who also paid Kenney for consulting work
- Kenney hired RDM to do consulting work shortly after transitioning to his role in Pittsburgh
- Around a year after joining the Pittsburgh agency, the city “invited proposals from firms interested in offering line warranties to its customers, who could opt to have the charge added to their bills.” ULS was the only challenger who bid against the incumbent. This concerned City Council, who felt that there should have been “dozens of companies that bid on it,” and suppliers, who claim to have not been aware of the opportunity.
- After ULS won the Pittsburgh contract, they “went on to employ two of Mr. Kenney’s relatives”
- After implementation of the contract that saw less than 3% of customers opt in, the city changed the process from an opt-in process to one in which the warranty is assigned to all households, but allowing them the opportunity to opt-out. Only 8 – 9% have opted out, increasing ULS’ Pittsburgh customers from 3,000 to 90,000. Though ULS did reduce its price in exchange for such an arrangements, some question whether the entire relationship should have been rebid to reflect this new scope of work. After all, there is no contemporaneous, apples-to-apples benchmark for whether or not the adjusted price is fair.
- Kenney has had a “long professional and personal relationship with” ULS’ founder
In procurement, you oversee contract awards daily. Is overseeing a contract award to a friend unethical?
In one of the above-linked articles, Barry Kauffman, executive director of Common Cause Pennsylvania, said the litmus test under state ethics law would be whether Kenney’s decision brought financial benefit to Kenney or his immediate family, stating “If you just gave a contract to your friends and don’t have any financial remuneration in any way, shape, or form, it’s kind of slippery, but it’s probably not against the law.” Furthermore, the chairman of the water and sewer authority stated that relationships “can be useful” but should be disclosed.
However, City Councilman Doug Shields was quoted as saying “It just looks absolutely terrible, the way this was done, the cozy relationships, the affinity for one another.”
My take: when it comes to purchasing ethics, perception is reality. If you have a relationship with a current or prospective supplier, go above minimum requirements to make the relationship known to management and recuse yourself from the decision.
Or – to be safest – simply avoid having friends who may be suppliers to your organization. That may not seem fair, but such is the way of responsible procurement.