Inspector General finds flaws in DNER contract

By John McPhaul

The Office of the Inspector General of Puerto Rico (OIG) has conducted an examination of a contract awarded in the Department of Natural and Environmental Resources (DNER), in which it identified and confirmed deficiencies that threaten public funds and the administration of the agency.

The referral for the evaluation of the contract, which was formalized in 2019, came from the current DNER secretary, Rafael Machargo Maldonado, who upon his arrival at the agency determined to address concerns about the content and clauses established in the case.

The contract was agreed for the amount of one dollar, annually and for a term of five years.

However, despite the fact that it is established that the contract was to be for one dollar, the company will receive a profit representing the amount of the convenience charges for all procedures or transactions that entail some type of cost, charge, fee, right or tariff by the DNER.

The purpose of the contract, according to its wording, is to facilitate the establishment of an electronic system for the submission of applications for permits and renewals, and integration into the Puerto Rico Government Services Platform. A convenience charge is to be charged simultaneously with the charge for any of the aforementioned items and is attributable to anyone who requires the service.

According to the OIG, the DNER did not carry out a feasibility study that could determine the projection of stamp sales or procedures requested by citizens, for which there is no estimate of the income that the private contractor would receive as part of the convenience charges that would be charged to people when implementing the new system. There is also no evidence that the DNER evaluated the possibility of paying a fixed amount to the contractor for the implementation of the contract and maintenance charges, and of the income received going to the island treasury.

In addition, the contract provides a clause for a penalty of up to $50,000 a month, in favor of the contractor in a single payment, if the contract is canceled before its expiration date, and if the DNER makes a judicial challenge, the compensation or penalty will increase to a liquid sum equivalent to $75,000 per month.

That clause could be a highly costly one for the DNER, the OIG said.

The analysis identified other deficiencies, such as the formalization of a contract despite its lacking the certifications required by law, the lack of an analysis of the cost and feasibility studies of the contracting to be carried out, and onerous and harmful clauses for the DNER and the government of Puerto Rico.

The clauses could have the effect of unilaterally favoring a contractor against the best interests of the government, the OIG said. Moreover, the government watchdog agency said, under no circumstances should the private interests of a contractor prevail or in any way affect the fundamental duty to assure citizens that their public funds are being used to provide a quality service, at the lowest possible cost.

The deficiencies found in the evaluated contract could be in contravention of the regulations and the public policy of sound administration and government contracting, for which the OIG instructed the DNER not to proceed with its implementation until all the deficiencies indicated are remedied, and to conduct a feasibility study together with the Puerto Rico Innovation and Technology Service, in accordance with Law No. 75-2019. The examination report is available on the OIG website

The OIG said it approves of the management of the DNER secretary in the case, and emphasized the importance of any person or public employee who identifies irregularities in executive branch agencies making the corresponding referrals to the OIG.

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