LINCOLN — When a Kansas-based nonprofit offered to oversee Omaha-area child welfare cases for 40% less than the state had been paying, most Nebraskans involved in child welfare saw a disaster in the making.
But no one in state government stopped to question the reasonableness of St. Francis Ministries’ bid before signing a contract with the agency in July 2019.
Nor did the state’s procurement process include an evaluation of the agency’s five-year, $197 million proposal, according to deposition testimony given by a former state materiel director.
The result? At the end of January, the Nebraska Department of Health and Human Services had to sign a 25-month emergency contract with St. Francis to keep it from running out of money and abruptly closing its eastern Nebraska operations.
The new $147.3 million contract wiped out the 40% cost difference and boosted payments slightly above the level bid by PromiseShip, the Omaha-based nonprofit that previously oversaw cases of abused and neglected children in Douglas and Sarpy Counties. It also covered St. Francis’ $10.5 million shortfall from the first half of 2020.
“The procurement system has failed the State of Nebraska, kids and families, and the professionals who work in child welfare,” said Monika Gross, executive director of the Foster Care Review Office and a former PromiseShip executive. “There are no guardrails to prevent what happened here.”
Gross commented during a hearing on Legislative Resolution 29, which would create a special legislative committee to investigate how Nebraska ended up signing the contract and the events that followed, including the discovery of mismanagement by top St. Francis officials and the signing of the emergency contract.
During that hearing and an earlier legislative briefing, HHS CEO Dannette Smith defended the state’s decision to sign with St. Francis.
She said she followed the state’s procurement process and did not know that the contract was underbid when she decided to go forward with it. She blamed the now-terminated St. Francis officials for the situation. The current St. Francis executives have acknowledged that the contract was underbid.
“We made the best decision we could at the time, given what we knew and the options before us,” Smith said. “What we didn’t know was that with St. Francis, we were dealing with two executives whose trustworthiness and integrity were less than impeccable.”
Still, knowing the concerns others had raised about the St. Francis bid, HHS “performed significant due diligence” with the agency, Smith said. That included conducting several reviews of the agency’s financial situation and seeking assurances that St. Francis could comply with Nebraska laws limiting the number of cases per worker.
But according to the deposition, neither HHS officials nor state procurement officials exercised their right to “review all aspects of cost for reasonableness and to request clarification of any proposal” that showed “significant and supported deviation from industry standards.”
Bo Botelho, former state materiel director and now chief operating officer of HHS, was deposed in October 2019 as part of a PromiseShip lawsuit challenging the awarding of the contract to St. Francis. PromiseShip ended up dropping the lawsuit after failing to stop the transition of cases.
Botelho said the state does not submit cost proposals to the evaluation teams that review and score the other aspects of a bid. Instead, the state merely checks the math, then scores the proposals according to a formula.
Under the formula, the low bidder receives full points, and other bidders get partial points, based on the size of the gap between their bids and the low bidder. St. Francis received the full 880 points. PromiseShip received 506.87 points, 58% of the possible points, because the St. Francis bid was 58% of the PromiseShip bid. The difference was enough to overcome PromiseShip’s higher scores on the other areas of the evaluation.
While the state has the right to review the reasonableness of a cost proposal, Botelho said he was not aware of any requests to do so. He also said he did not know the industry standard for child welfare services.
Smith, who has more than 30 years of experience in child welfare, would be more knowledgeable. But she had been in Nebraska for only five months at that time.
She told lawmakers that while many people believed that St. Francis had underbid the contract, she also heard from many people who said PromiseShip was being overpaid. In particular, she pointed to a 2018 state auditor’s report that questioned an estimated $26 million of state child welfare spending, including spending on PromiseShip.
But HHS also had cost comparisons developed by The Stephen Group, a New Hampshire-based consulting firm. HHS hired the firm in 2018 to assess whether Nebraska should continue contracting out case management in the Omaha area and to develop the request for proposal used to bid out the contract.
The Stephen Group concluded that costs per case under PromiseShip were in line with those in other areas of the state, where state workers handle case management. In the fiscal year ending June 30, 2018, average costs ranged from $2,700 per month in the Northern area to $3,400 per month in the Central area, with the Eastern area costs averaging $3,200 per month.
In addition, St. Francis officials told Nebraska in June 2019 that they would need to up their bid by $15 million to comply with the state’s caseload law. The original proposal was built around a target of 25 cases per case manager.
State law limits case managers to 17 cases. Heavy caseloads make it harder for workers to give children and families the attention needed.
HHS officials refused to let St. Francis change its cost proposal and insisted that the nonprofit comply with the caseload law. St. Francis agreed to go ahead with the contract. Smith denied that the $15 million request had been a red flag and said she had relied on the agency’s assurance that they could manage.
Despite overspending its contract, St. Francis has yet to bring caseloads down to the limits set by state law. In addition, three key measures of the quality of child welfare services have worsened under the agency’s management.