Master Services Agreements and the AOC

Posted on November 20, 2010

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A MSA or Master Services Agreement is a blanket agreement to provide either goods, services or both goods and services to the government entity. They are often utilized to avoid the public bidding process by providing a fixed discount on products and a fixed price for services.

But are they a good deal?

The AOC relies on a number of master services agreements to obtain a host of products and services. Some of the more common use of MSA’s in the AOC provide technical equipment and services and construction parts and services. The AOC currently has MSA’s in place with AT&T for networking equipment and UPS equipment, Siemens Building Systems for video security and key card access controls.  Jacobs Project Management Inc, Aleut Global Solutions for courthouse maintenance and SAIC for the California Courts Technology Center operations. One could argue that the deal with Deloitte is too a master services agreement to develop and deliver an application statewide. Because they are master services agreements, there is no low bidder. Indeed, what exists is a captive customer in these agreements that is often a detriment to the taxpayer.

Let’s analyze a representative MSA of the AOC. The MSA indicates that a certain provider will provide a discount of 40% off the list price of equipment that is purchased through them. In another MSA, the provider makes no markup whatsoever on the MSRP on parts they purchase. In both MSA’s, the way around for the providers is to have another party provide these goods and services. The third party is not bound by the terms of the MSA and can charge whatever they like. The service provider under the MSA will then collect a management fee, ranging anywhere from 15-35% on top of the value of the product or service that the third party is providing.

In the case of the MSA that provides a 40% discount off MSRP on equipment, known in some circles as the company that delivers, this company does not necessarily disclose a few other pertinent facts, which is why they were sued (and settled) a false claims action. Their behavior hasn’t changed. But their customer has. In the AOC they have a customer who is not rewarded for and has no interest in the recovery of public funds. Because these MSA’s are as easy as filling out an order form, It matters not that you could obtain both the products and services at a substantially lower price elsewhere as you only have to deal with a single vendor established for this purpose.  The pertinent facts not disclosed are:

1) The company charges a substantial management fee for all goods and services purchased under these agreements.

2) MSRP or the Manufacturers Suggested Retail Price of high end equipment is an astronomical figure that the manufacturer never sells that equipment for. They typically will sell it for less than half as much but since the AOC is willing to accept a 40% off MSRP under an MSA as to directly avoid the bidding process, the AOC is willing to simplify and pay the substantially higher prices.

3) The company gets a kickback, commission or finders fee from the downstream supplier after the sale is made and the AOC isn’t getting the lowest possible price as a result.

What the AOC would discover and what other auditors could easily uncover is that these MSA’s are a bad deal for the taxpayers. Often, by the time a project is finished by being completed under various MSA’s it will cost twice as much as if the whole technology or construction project was put out to public bid.

The irony of it all is that MSA’s are in place for Information Services, Emergency Response & Security and the Office of Court Construction & Management. Since each division of the AOC already knows that MSA’s are in place in the other divisions that would result in jurisdictional crossovers, they avoid the involvement of the other division whenever possible as not to blow their budgets to hell. In some cases, the divisions will complete the project under the guise of the local court to avoid the cross-jurisdictional issues and added expenses. Let me give you an example:

A DVR (digital video recorder) camera system is utilized by Emergency Response & Security and the local sheriff’s department guarding a courthouse. DVR systems contain components that make it necessary to involve information services division or the local IT admins and the construction & maintenance personnel from the Office of Court Construction & Management. All entities likely have overlapping contractual project managers for these projects and all entities are entitled to management fees based on the value of the entire project. As a result, the folks up in a certain unnamed courthouse don’t have their camera system installed by the folks that maintain the courthouse, because that comes with an astronomical figure that includes asbestos abatement. Instead had the camera system installed by other contractors with no asbestos abatement, thereby enabling ERS to meet its budget and everyone looks the other way… (just ignore the lofting asbestos fibers on your desk tomorrow morning..) 

There is no provisions for contractual coordination or going outside of each individuals divisional MSA’s even if one would save a small fortune doing so. There is no incentive for the MSA providers to be the lowest cost because they have a captive customer and as detailed above, there is more than one way to make a fool part with their money. And there is no way for the average AOC employee to point out that the AOC is getting screwed without even being kissed.