Taxpayers lose as business exploits loophole to win Shelby County contract
MEMPHIS, TN (WMC) - Shelby County purchasing administrators awarded a bid contract to a company that doesn't have the equipment or capability to do the work, simply because the company is a preferred locally-owned vendor.
Don Sills himself will tell you: his company's expertise is fire extinguishers, not firefighters' oxygen bottles. Yet his company City Fire Extinguisher Co., 3290 Homewood Drive, managed to win the county contract for pressure-testing all 251 of the Shelby County Fire Department's (SCFD) oxygen bottles. The purchase order for the contract indicated Shelby County awarded City Fire the contract because it's a certified Locally Owned Small Business, or LOSB.
Shelby County launched the LOSB program nearly 30 years ago. Its goal is to award at least 20 percent of Shelby County government's purchase contracts to locally-owned Shelby County businesses who have applied and been certified under the program.
Bid proposals indicated City Fire won the oxygen bottle testing job even though its bid cost the county the most money: $36 a bottle for a total of $9,036. Floied Fire Extinguisher & Steam Cleaning, 3050 Lamar Avenue, was the low bidder: $30 a bottle for a total of $7.530. But since Floied never enrolled in the LOSB program, City Fire won the job at an extra $1,506.
The WMC Action News 5 Investigators discovered not only did Shelby County award the job to City Fire at a 20 percent mark-up on county taxpayers, but also the company doesn't have the equipment to do the job.
Sills, by his own admission, bid for the SCFD purchase order knowing his company didn't have the capability to test the oxygen bottles. Instead, he subcontracted the work -- to Floied. "Yes, that is accurate," said Floied's General Manager John Loper. "We charge City Fire what we would charge the customer, what we bid to the county for the job, actually: $30 a tank."
When we asked Loper to clarify if City Fire is just marking up the cost to county taxpayers, taking that off the top, then paying Floied to do the work at its rate, Loper answered, "Well, since you brought it up and put it in those terms, yes, that's exactly what's happening."
We asked Shelby County Deputy Chief Administrative Officer Kim Denbow how this could have happened.
"[City Fire] did not put that they were subbing that contract out on their quote," Denbow replied. "We generally know who LOSBs are going to subcontract to in advance of them performing the work. That was not included on [City Fire's] purchase order, nor was it put on the purchase order requisition."
When we asked Denbow if Sills and City Fire deceived the county, she answered, "I wouldn't say they deceived the county, but for the taxpayer, it would certainly be better if that original competitive bid would have been the one to receive the award."
"Businesses buying products or services from another business to sell to a third party for profit is just capitalism," Sills said in an email response. "It occurs in all types of business. No harm in that. Furthermore, 20 percent is no major profit. Ask John Loper at Floied how much of their sales are for only 20 percent! You do not have a story here, only a disgruntled competitor that had the same options that we had."
State and local government watchdog Common Cause Tennessee Chairman Dick Williams, after reviewing the bid proposals and the purchase order, said Sills gamed the system.
"He should have disclosed to the county that he was not capable of directly performing the contract," Williams said. "Anytime you withhold something that really should be available to the decision-makers, then that's a form of gaming the system."
As a result, Denbow said the county's purchasing administrators will require all LOSB preferred vendors to disclose in writing their capabilities to do the work they're bidding for and to list subcontractors when applicable, "...so that purchasing has all of the information to issue those purchase orders in the future," she said.
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