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Verma’s PR Consultants Violated Contracting Rules, Watchdog Says (1)

July 16, 2020, 1:55 PMUpdated: July 16, 2020, 2:45 PM

The head of the Centers for Medicare & Medicaid Services violated federal contracting regulations in awarding $6.4 million for public relations services, the HHS Inspector General’s office said in a report Thursday.

The CMS and its administrator, Seema Verma, allowed contractors to make management decisions, improperly treated them as employees, and paid some questionable costs, the Department of Health and Human Services Inspector General said.

In response, the Department of of Health and Human Services agreed to improve its contracting oversight going forward, but the agency disagreed with how the inspector general characterized the contractors’ tasks.

“Despite attempts by some in the media and highly-partisan members of Congress to make a mountain out of molehill, the Office of the Inspector General found no fault with how strategic communications contracts were awarded—nor does the report mention specious accusations surrounding boosting one’s personal brand. Its findings are based on arcane contracting rules that remain the subject of longstanding confusion and debate across the entire federal government,” HHS spokesman Michael Caputo said.

The CMS awarded three contracts to outside firms, Deloitte, Porter Novelli, and Nahigian Strategies. The contracts were active from June 2017 through April 2019.

During the almost two years the contracts were active, the CMS Office of Communications had about 200 full-time staff and eight to 15 vacant roles, according to the inspector general. The CMS told the inspector general’s office that it needed the support of contractors because the Office of Communications couldn’t manage the large amount of outreach needed, the staff didn’t have the expertise to perform that work, and projects were short-term.

But the OIG said the CMS allowed subcontractors to perform governmental functions like making management decisions and directing CMS employees.

Personal Services Contracts

The contracts were managed as personal services contracts, which creates an employer-employee relationship between the government and contractor staff, the OIG concluded. Personal services contracts require congressional authority, which the inspector general’s office said the CMS didn’t use.

The inspector general also found the CMS didn’t manage the delivered products, didn’t provide written consent for the use of a subcontractor, and paid some questionable costs—including $150,000 cancellation fee for a bus tour.

The inspector general said in a statement that the “agency has a duty to provide objective oversight of HHS programs, which includes reviews of contract matters that could potentially impact the economy, efficiency, and effectiveness of the Department’s activities.”

The audit of these contracts was performed in accordance with government auditing standards used by other federal oversight agencies, the OIG said.

The OIG recommended the HHS reevaluate whether other contractors are performing inherently governmental functions or are operating under personal services contracts, work with the CMS to improve contract management, and provide training to senior leaders on contract administration.

The HHS concurred with those recommendations and said it would implement them.

The OIG recommended that the CMS train program and contracting staff on contracting regulations, ensure contracting personnel review contracts, and review contractor costs to make sure they’re necessary.

The CMS said that the report “relies on mischaracterizations of contractor tasks” and that some of the contracts didn’t include governmental or personal services work. “OIG implies that no one besides the contracting officer or COR are allowed to communicate with the contractor.”

The OIG maintained that its findings are still valid in light of the agency’s comments.

(Updated with comment from HHS in the fourth paragraph.)

To contact the reporter on this story: Shira Stein in Washington at sstein@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com

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