This report presents information gathered relative to the administrative services agreement of Hawaii Pacific Medical Referral (HPMR) with the Northern Mariana Islands Retirement Fund (NMIRF). OPA is currently conducting an audit of various issues related to HPMR's contract. During the course of the audit, the Office of the Public Auditor (OPA) has identified a number of procurement issues which it believes need to be reported promptly and separately from the audit. This compilation of information contains OPA's analysis of certain procurement issues identified.

The objectives of OPA's compilation are: (1) to determine the procurement process utilized to solicit, award, and issue the administrative services contract to HPMR, and (2) to determine if the process followed in selecting, awarding, and negotiating the contract, and the terms contained therein, comply with applicable procurement regulations.

Results of Compilation

This procurement was administered by the NMIRF, and was processed under the competitive sealed proposals method in the NMIRF's Procurement Regulations (NMIRF-PR). In establishing the NMIRF-PR, the Board of Trustees adopted the CNMI Procurement Regulations (CNMI-PR), with modifications on the government officials involved in the procurement process.

On May 11, 2000, the NMIRF released an RFP for utilization review services. The RFP requested proposals from interested and qualified individuals and firms to review medical claims for the Government Health and Life Insurance Trust Fund (GHLITF) program. The Investment Committee of the NMIRF Board of Trustees was tasked to review the proposals submitted by two firms. After evaluating the background, administrative services, management team, client references and the like, the Committee found, on August 30, 2000, Hawaii Western Management Group or HWMG (an off-island-based company) to be the more experienced of the two firms. Nearly a year later, the contract was awarded to HPMR on August 1, 2001.

OPA's analysis of the HPMR procurement identified the following issues:

• Whether NMIRF can independently administer its own procurement function given that its enabling legislation has not specifically set forth such authority, and no delegation of authority from the Procurement and Supply (P&S) Director exists;
• Whether award of a contract to a party who had not responded to the RFP, HPMR instead of HWMG, violated applicable procurement regulations;
• Whether the scope of contract services with HPMR deviated significantly from the utilization review service sought in the solicitation, and the effect of any deviation on compliance with the applicable procurement regulations;
• Whether NMIRF followed proper selection procedures given that the final terms of the contract appear to have been negotiated after the selection of HWMG; and
• Whether the payment structure set forth in the HPMR contract is permissible under the applicable procurement regulations.

As OPA had previously advised NMIRF in 1997, it is OPA's position that the NMIRF does not have authority to administer its own procurement since its enabling legislation does not specifically set forth such authority, and there has been no delegation of authority from the P&S Director as required in the absence of statutory authority.

Aside from the issues associated with the authority of the NMIRF to independently administer its own procurement, there are additional issues with respect to the manner of the procurement, the selection of the contractor and the contract terms that call into question the validity of the contract. The fact that the proposer and the contractor are different entities does not appear compliant with the CNMI-PR. The differences between the RFP's scope of work, HWMG's proposal and the HPMR contract contravene the spirit of equal and fair negotiation and do not appear consistent with the CNMI-PR.

In addition, the negotiation of the final price and contract terms after selection without permitting the alternative proposer to amend its proposal also does not appear to comply with the CNMI-PR. Finally, the compensation mechanism contained in the HPMR contract does not appear compliant with the CNMI-PR.

Section 1-107 of the CNMI-PR states that "No government contract shall be valid unless it complies with these regulations." While any one of the issues raised above would call into question the validity of the NMIRF-HPMR Administrative Services Agreement, together the deficiencies noted indicate significant deviation from the CNMI-PR. Given the legal nature of these issues, OPA defers legal determination to the Attorney General's Office.

Please note that this compilation of information has been issued as an investigative report. It was not conducted in accordance with Government Auditing Standards issued by the Comptroller General of the United States and, therefore, should not be considered an audit report.

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