VA IG unwinds tale of procurement fraud, abuse involving senior agency officials, FedBid

The Veterans Affairs inspector general issued a report alleging the deputy chief procurement officer at the Veterans Health Administration used her position to ...

A senior Veterans Affairs Department procurement official and executives at a popular federal government contractor are embroiled in a tale of allegedly committing procurement fraud, lying to investigators, retaliating against whistleblowers and misusing agency resources.

VA’s Inspector General detailed in an 82-page report, which it released Sept. 26, a story of fraud and abuse that’s right out of the movies. The IG found Susan Taylor, the deputy chief procurement officer in the Veterans Health Administration’s Procurement and Logistics Office, used her position to promote and award a contract to FedBid, a reverse auction vendor, and improperly acted as an agent of the vendor creating a conflict of interest. Investigators also claimed Taylor “improperly disclosed non-public VA information to unauthorized persons, misused her position and VA resources for private gain, and engaged in a prohibited personnel practice when she recommended that a subordinate senior executive service (SES) employee be removed from SES during her probation period.”

Taylor also allegedly interfered with the IG’s investigation by lying about her involvement with VA’s FedBid contract and her relationship with executives of the company.

Additionally, the IG found FedBid executives acted improperly by allegedly taking “significant measures to disrupt and deprive VA’s right to transact official business honestly and impartially, free from improper and undue influence.”

Company executives under scrutiny

The IG found FedBid promised to pressure Jan Frye, VA’s deputy assistant secretary in the Office of Acquisition and Logistics after he suspended the use of reverse auctions twice — once in March 2012 and again in December 2013. The IG found FedBid said it would “‘storm the castle,’ use a ‘heavy-handed- puncher,’ to ‘rally the troops up on the Hill,’ have ‘enough top cover to overwhelm,’ to ‘unleash the hounds,’ to ‘assassinate [Mr. Frye’s] character and discredit him,’ and to keep ‘close hold’ of nonpublic information Ms. Taylor provided FedBid executives, as well as repeatedly and falsely tell VA leadership that there was ‘no cost to VA for its use of FedBid,’ all for the ‘indomitable world of FedBid.'”

The IG said it referred the matter to the Justice Department for criminal investigation, but it declined to prosecute in favor of the VA taking administrative actions. Investigators also are recommending VA consider suspending and debarring FedBid, Ali Saadat, board chairman, founder and CEO of the company, Luther Tupponce, FedBid’s chief administrative officer, and F. Glenn Richardson, FedBid’s former president and now senior adviser to Saadat.

VA officials concurred with the IG recommendations, and said it will decide on what administrative actions to take against Taylor in 90 days.

“The Department of Veterans Affairs takes any allegations about patient care or employee misconduct very seriously and appreciates the work completed by the Inspector General (IG),” said a department spokesperson by email. “VA will review the evidence collected by the IG to determine whether that evidence is sufficient to support accountability action against the employee. If the evidence is sufficient, accountability action will be proposed. If the evidence is insufficient, VA’s Office of Accountability Review (OAR) will immediately commence its own administrative investigation.”

The spokesperson added Taylor remains employed by VA as of Sept. 29.

A FedBid spokesperson said the company has full cooperated with the IG investigation.

“We believe FedBid took appropriate actions to protect its ability to lawfully perform the business services it was contracted to provide with VHA,” the spokesperson said by email. “Additionally, our company has always been transparent about its fee structure and the savings the FedBid marketplace can facilitate when buying commodity goods and simple services. It is important to point out, as our data demonstrates, that this report does not dispute that the FedBid marketplace stimulated competition that resulted in lower prices for VHA.”

The spokesperson said FedBid offered VHA access to broader competition, including small businesses and service-disabled veteran-owned small businesses.

The IG investigation started about 18 months ago when a group of vendors, and others, brought concerns to the attention of Frye, and congressional and internal auditors about FedBid, Taylor and the use of reverse auctions at VA.

“Personally, I feel our strong belief in the system has been supported. In spite of the influence of powerful people such as Steve Case, the little people like us are listened to,” said Tom Smith, the retired director of government affairs for Quick Medical Government Sales, one of the initial whistleblowers. “What this report shows is that no matter how high up people in government are, illegal actions like those of Sue Taylor will eventually be found out and dealt with. Although most of us are just normal hard working people our voices are heard in the upper levels of government if we are persistent. My only disappointment is that these people will not be prosecuted. I realize the VA has had lots of bad press as of late, but all of the harm to the care of our veterans as a result of the actions of these people deserve more than just administrative rebuke.”

Rep. Jeff Miller (R-Fla.), chairman of the Veterans Affairs Committee, said in an email the IG’s report builds on the committee’s investigation into VA’s use of reverse auctions that began in 2012 and culminated with a hearing in late 2013.

“This report documents extensive unethical — if not illegal — behavior that VA leaders must deal with swiftly and decisively,” Miller said. “I thank the Office of the Inspector General for its thoroughness in this instance, but at the same time I must express my extreme disappointment with the Department of Justice for refusing to prosecute what appear to be clear violations of the law. Right now, it’s incumbent upon Secretary McDonald to use his authority under the Veterans Access, Choice and Accountability Act of 2014 to quickly hold Susan Taylor and any other employees involved accountable. Additionally, VA leaders should initiate a review of Jan Frye’s personnel records to ensure he is not enduring retaliation for simply trying to conduct appropriate oversight of VA’s procurement process.”

Short turn around for the RFQ

The report outlines alleged steps Taylor took as far back as 2010 to give FedBid favor in acquisition.

In one instance, VA issued a request for quotes for reverse auction services with a response time of 48 hours, of which one day was a holiday when the government was closed.

The IG also said FedBid officials claimed its services would cost VA no money. But in the end, the IG said FedBid “took significant measures to disguise who actually incurred the cost of the transaction fees charged by FedBid, making it look as if the seller of the goods or services paid the fees instead of the government.”

Investigators also said Taylor gave FedBid nonpublic information, which violates the standards of employee ethical conduct. The IG claims that FedBid and VA records reflect during the 2012 moratorium on using FedBid that Frye put in place, Taylor “frequently provided comprehensive nonpublic information to Mr. Richardson, the details of which were contemporaneously documented by Mr. Richardson in reports he sent to other FedBid executives. For example, in a January 24, 2012, email Mr. Richardson sent to Mr. Saadat and other FedBid executives, Subject: Notes from Conversation with Susan Taylor, he said, “Spoke with Susan Taylor for an hour during a scheduled call. … Susan reiterated her support for FedBid – sees ours as a true ‘partnership.'”

Taylor continued to send information to FedBid, the IG stated, through April 3 when VA lifted the first moratorium.

Inherently governmental?

Another example of abuse the IG said it found was when Taylor allegedly let FedBid influence government decisions.

“Email records reflected that Ms. Taylor frequently sought FedBid’s assistance with responding to assignments given to her by her supervisors,” the report stated. “In one example, she issued a policy memorandum, October 7, 2011, to all VHA acquisition employees which directed how and when to use reverse auctions within VHA. About two weeks later, after reviewing the memorandum, Mr. Doyle questioned the worth of using FedBid. Ms. Taylor forwarded Mr. Doyle’s email to Mr. Crossett and Mr. Green and asked them to provide her with a response that she could send to Mr. Doyle. Further, we found instances when Ms. Taylor received supplier complaints about VHA’s use of FedBid, and she forwarded the complaint to FedBid executives to craft a response.”

The IG also claimed Taylor lied to them under oath about her participation and influence to get VHA to use FedBid.

Investigators said another employee approached Taylor about FedBid about six months into her time at VHA. But email records show, the IG said, that Taylor initiated the questions about FedBid.

The IG also claimed Taylor denied any involvement in the task order VHA awarded for reverse auction services from FedBid.

“However, in an October 6, 2010, email, Ms. Barrie Kydd [FedBid’s former vice president for business development] reported to FedBid executives that Ms. Taylor’s goal was to obtain ‘buy in’ from Service Area Offices Directors and Network Contracting Managers before implementing FedBid nationally in VHA, and Ms. Taylor’s plan to issue a ‘first consideration’ policy requiring VHA contracting staff to use FedBid. Ms. Taylor also assigned responsibility for the procurement to Mr. [Jeffrey] Ryan, [the former SAO East Director], and told FedBid she wanted to ‘rollout immediately.’ Contracting staff told us that Ms. Taylor pushed to use FedBid and no other vendor; she gave Ms. Kydd information about the solicitation a few hours before the RFQ was issued; and she ‘suggested’ through Mr. Ryan that the contracting specialist go ahead and issue the RFQ rather than wait to obtain the required approvals from the [information security officer] ISO and [privacy officer] PO.”

Overall, the IG concluded that Taylor made conscious decisions not to separate her personal from professional life starting as far back as 2007 when she worked at the Pension Benefit Guaranty Corporation.

“Once employed by VA, Ms. Taylor also made a conscious decision to misuse her position and title as a Senior Executive, as well as violate her oath of office to give allegiance to the United States. She was intimately involved in the decision to award and to administer the FedBid task order, beginning in August 2010 when she pressured contracting staff under her authority to give preference to and award a task order for reverse auction services to FedBid, falsely touting it as ‘free’ to the government,” the IG stated. “Ms. Taylor made it known that FedBid was the contractor she wanted for these services, and she wanted the task order expedited so that it was in place prior to Office of Acquisition and Logistics implementing its own reverse auction capability at the department level. To make this happen, she willingly engaged in a conflict of interest and misused her position for FedBid’s private gain. Moreover, to ensure that VHA contracting staff used no other reverse auction services, she conferred with FedBid officials on writing VHA reverse auction policy that instructed her staff to only use VHA’s contractor, which was FedBid.”


VA puts reverse auctions on hiatus again to study value proposition

Savings from reverse auctions not being maximized

Should contractors cast a wary eye on FedBid reverse auctions?

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