Report finds flaws in how Escambia County contracted with utility for broadband service

A third-party review of the deal Escambia County’s Board of Commissioners made with Escambia River Electric Cooperative (EREC) to build a broadband network in the north end of the county found they failed to follow federal, state, and county guidelines when they negotiated the contract.

As a result of that failure, the accounting firm’s findings say Escambia County “significantly increases the risk of disallowance and recoupment of funds by the U.S. Department of the Treasury,” meaning the county could be on the hook to "pay back" millions of dollars if a federal audit were to find fault in the process.

The report also found that parts of the contract negotiation process between commissioners and EREC “could appear as bid tailoring.”

Certified public accountants Thomas, Howell, Ferguson, P.A., (THF) a firm that works with the Florida Department of Economic Opportunity on broadband projects, reviewed the contract and procurement process at the request of Escambia County Clerk of Court Pam Childers. Childers questioned discrepancies in the contract and negotiations process and requested a third-party review before signing off on it.

Escambia County is footing $6.3 million of the $24 million dollar bill to build a fiber optic network with funds from its share of the American Rescue Plan Act (ARPA).

The county received $64 million in ARPA funds, a federal economic stimulus bill passed in 2021, and there are federal regulations as to how it’s spent.

The accounting firm issued its report to the county in September, saying the county failed to follow the federal regulations that guide the contract and procurement process, as well as other county code ordinances and state statutes.

What the accountants found

The following is a list of THF’s six observations:

• The BCC did not record their reasoning for determining why a Request for Proposal was the best procurement method to use. This includes determining why an Invitation to Bid was not used or practical for these services. Not recording the reasons for procurement falls outside of the required procurement steps as defined by Escambia County Code of Ordinances.

• The procurement guidelines set forth in the Escambia County Code of Ordinances for purchasing threshold are less stringent than what is set forward in Florida Statutes and 2 CFR 200. Not following federal threshold guidelines or more stringent thresholds for procuring services can lead to the potential for funding from the Treasury to be recuperated.

• The BCC waived the recommendation of the evaluation committee on the original Request for Proposal for Broadband Services and awarded a vendor based on their evaluations. After a vendor protested, the BCC cancelled the original Request for Proposal, re-issued the Request for Proposal and revised the awarding committee to be the Board of County Commissioners. The actions of the BCC could appear to be a non-competitive procurement and be disallowed by the U. S. Treasury. The use of American Rescue Plan Act funds requires following the Procurement Standards in 2 CFR 200. If the U. S Treasury determines a non-competitive procurement was used, the Treasury could recoup the ARPA funds used. When following Florida Statute 287.057, the statute sets forth requirements for the selection committee to be used when competitively procuring services. If the awarding committee does not meet those qualifications, the award for these goods and services can be determined to be out of compliance.

• The BCC procured professional services from a qualified contractor to prepare the project plan for the County’s Broadband Network. The BCC selected Magellan Advisors to build the project and used their recommended scope of work in the solicited Requests for Proposals. Based on THF’s understanding of the re-solicited Request for Proposal, there were significant changes made to the proposal language for the services requested and the final executed agreement with EREC. These changes were based on negotiations that took place between the BCC and EREC.

• If EREC is considered a pass-through entity, several areas in the agreement require amendments to be compliant with 2 CFR 200. These include federal contract provisions, federal bonding requirements, federal award identification number, subrecipient unique entity identifier, and the federal award date. The American Rescue Plan Act’s Final Rule notes the awardee needs to comply with the guidelines set out in the Final Rule and 2 CFR 200 for procurement services when using federal funds. Since the BCC’s intent is to use $6.3 million dollars awarded from the American Rescue Plan Act to fund the services agreed upon with EREC, the BCC can appear to be out of compliance with federal guidelines. Without including the required amendments, Escambia County could potentially be required to pay back the funds received by not following federal guidelines.

• After evaluation of the executed agreement between the BCC and EREC, the agreement does not appear to have a detailed timeline associated with the completion of the project and project milestones. The American Rescue Plan Act’s Final Rule states that all recipient and subrecipient entities receiving federal funds must comply with the guidelines set out in 2 CFR 200. Payments with the federal funds should be made based on detailed project milestones showing the entity completed the milestone with a level of effort made to reach the milestone. Without a detailed project timeline and corresponding project milestones that show the completion of the work, Escambia County could be at risk for not complying with the guidelines set out in the American Rescue Plan Act’s Final Rule.

“In summary, the Escambia County Board of County Commissioners should follow the Final Rule for Coronavirus State and Local Fiscal Recovery Funds (SLFRF), the 2 Code of Federal Regulations 200, Florida Statutes, and the Escambia County Purchasing Ordinance,” the THF report stated. “Failure to follow these laws, rules and regulations significantly increases the risk of disallowance and recoupment of funds by the U. S. Department of the Treasury. It is recommended the BCC should follow a procurement checklist when procuring services. A checklist will assist the commissioners with following the applicable local, state, and federal guidelines for procurement.”

Why the independent review was requested

The board first selected Escambia River Electric Cooperative, an electric utility company that serves the north end of the county, to build a fiber optic network and provide much needed broadband services, at the end of last year.

Much of that area is in District 5, Commissioner Steven Barry’s district.

Cox Communications, another bidder that scored higher than EREC under the county's first selection criteria, questioned the fairness of the procurement process saying it was the only provider who could serve the entire geographic area included in the original request for proposal or RFP.

Cox then filed a protest to the selection of EREC after Barry asked the communications blackout period be waived for him during the bidding process to conduct direct negotiations with two bidders, one of which was EREC.

After Cox filed its protest, Escambia County issued a new call for bids. The second round criteria was all but identical to the service area of EREC which covered part, but not all of the north end of the county. The original RFP project area called for coverage of north Escambia County.

Cox did not bid on the second round.

Shortly thereafter, the Board of County Commissioners then appointed themselves as the selection committee to choose the vendor that would build the north end broadband network.

The commission also held a special meeting to provide the county and EREC enough time to meet an early December deadline to apply for a state grant from the Department of Economic Opportunity to fund the rest of the project.

In January, Escambia County again selected Escambia River Electric Cooperative's proposal to build a fiber optic network across the co-op's service area covering 4,000 homes and businesses in northern Escambia County.

Both times, the only commissioner to oppose the selection was District 2 Commissioner Mike Kohler.

The first time he objected because he was newly elected and didn’t have much information about the project. The second time Kohler voted against the measure was because he felt it was still too expensive, and he thought the county American Rescue Plan Act funds could be used for other things.

Childers, who is tasked with cutting checks for payment to the vendor, noted discrepancies in the contract and the procurement process, concerns she raised with County Administrator Wes Moreno and County Attorney Allison Rogers.

Correspondence between them over the issue in May, was obtained through a public records request.

“A review of the minutes, negotiations, RFP and the EREC agreement raises concerns about the competitive bid process to award federal funds,” the clerk’s office said in a document sent to the county administrator and legal staff titled, “Escambia County Broadband Procurement Summary & Deviations. “EREC and Conexon were permitted to “red-line” the agreement and significantly deviate from the requirements of the re-solicited RFP. This action of tailoring the agreement to EREC’s specifications provided significant benefits to them, including additional compensation from retained fiber and a possible sole-source ISP (Internet Service Provider) relationship.”

It's one of a long list of discrepancies the clerk’s office noted in the document, which also shows a list of changes from the county’s RFP to what EREC agreed to provide in the final agreement.

For example, the RFP asked applicants for proposals that would include building an “underground backbone” for a fiber-optic network in the north end of the county. It also asked for the vendor to provide four tubes, or 48 fibers, for county use, as well as operate and maintain county fiber, and connect it to 40 county buildings for no monthly cost if the vendor receives capital funds from the county.

The document says the final agreement has the network service being provided “on electrical poles” and EREC will only provide one tube of fiber, or 12 fibers, for county use, to 27 county buildings and only in the EREC electrical service area.

It will also be “dropped at the nearest pole” to connect to county facilities at no cost for two years, then the county will have to pay for the service, although EREC is receiving $6.3 million from the county in federal funds.

The county will be expected to own, operate and maintain its optic-fiber instead of the vendor and instead of having no restrictions on its use per the RFP, according to the final agreement with EREC the county is restricted from selling or leasing it to competitors and commercial use is prohibited.

In the correspondence, Childers also points out that the price was not specified in the proposal and was not a criteria for selection.

“There were no recorded/documented negotiations by the Selection Committee, only email references to undocumented discussions with Alison Rogers, Wes Moreno and Commissioner Steven Barry (District 5),” the clerk’s document read.

“This EREC agreement could be in violation of SLFRF (ARPA) funds that states the vendor should be selected following state and local procurement, contracting, and conflicts of interest laws and regulations. (Federal register page 4431),” the document continues. “’Reversion of funds’ clause was deleted from the EREC agreement, putting Escambia County Government at risk for repayment of $6.3M to the federal government for ineligible project costs. Removing this requirement absolved EREC from its repayment responsibility under the federal grant.”

In response to Childers’ concerns, Moreno replied that the agreement was approved by the board of county commissioners following a “competitive procurement process that complied” with county code and any “additional regulatory requirements.”

“To reiterate, proposers were invited to propose solutions responsive to the county’s stated ‘desire’ to partner with a firm who may provide service for the identified under/unserved areas in northern Escambia County,” Moreno wrote. “The proposals were evaluated based upon the selection criteria provided in the RFP. The terms, as approved by the board, were deemed to be in the best interest of the county.”

The county attorney also told the clerk the RFP requirements were not required and the contract terms were subject to negotiation.

Why select Escambia River Electric Cooperative?

Barry did not return a request for comment on the THF’s review of the EREC contract and procurement process.

In previous commission meetings, Barry said that based on all the proposals, ECER's was the best as far as cost to the county and the number of homes served, with more than 4,000 homes and 700 miles of new fiber internet infrastructure.

"I think this partnership is exactly what was intended with the ARPA funds," Barry said.

He said he had no doubt that both companies that bid in the second round could successfully build the project, but he said EREC offered a better price because it has the strategic advantage of already having the infrastructure in place that it can add to.

Escambia County has set aside $22 million from its ARPA funds to dedicate to broadband infrastructure, with $10 million for the northern half of the county and $12 million for the southern half.

Commissioners will also put out for bid the contract to provide broadband to the southern part of the county.

This article originally appeared on Pensacola News Journal: Escambia County broadband contract could be seen as "bid tailoring"