Flawed bid process hiked income for Deal’s business by $415K
By JIM WALLS
A flawed state bidding process indirectly allowed Nathan Deal’s Gainesville auto salvage business to nearly double its annual income from state inspections.
The business co-owned by Deal, the Republican nominee for governor, hosted inspections of salvaged vehicles for 10 north Georgia counties for nearly 20 years. Gainesville Salvage Disposal provided the service under an exclusive agreement with state officials who oversee vehicle licensing and registration.
News accounts have described the arrangement as a no-bid contract, but documents obtained by Atlanta Unfiltered show Gainesville Salvage Disposal in 2004 bid on and won a contract for the work. The business — also known by its initials, GSD — soon lost the contract on a technicality but was allowed to continue hosting the inspections.
The abrupt reversal became a financial boon, allowing GSD to earn about $415,000 more since 2007 than the contract would have allowed, an analysis of state records shows. Records were not immediately available to calculate similar profits for previous years.
For more than a year, Deal‘s campaign has been dogged by ethics questions concerning meetings at which he questioned the state Department of Revenue’s plan to privatize the inspection system. The federal Office of Congressional Ethics dropped its inquiry when Deal resigned in March but later released its investigative findings.
Deal has said he was concerned about the safety of salvaged vehicles, not his business’s bottom line, when he challenged the privatization plan. He later endorsed the plan.
Under the proposal, GSD could have lost its monopoly on hosting the inspections in its 10-county territory, known as Region 3. The newly released records show the plan, by setting a much lower fee for the service, also would have cost GSD more than $100,000 a year in pure profit.
State procurement records, obtained by Atlanta Unfiltered last week under the Georgia Open Records Act, show:
- The state Department of Administrative Services in May 2004 solicited bids for seven regional stations where state inspectors could examine salvaged vehicles twice a month before they were put up for auction. The stations would provide a climate-controlled facility, office staff and equipment, for which vehicle owners would pay $60 per car. Bidders were asked to quote how much of that fee would be paid to the state as a commission, with a minimum of 10 percent.
- Gainesville Salvage Disposal submitted the only bid in its territory. The bid was rejected for offering a commission of only 5 percent, although officials briefly considered accepting it.
- Bids were resolicited in June 2004. GSD was again the only bidder, this time offering a 10 percent commission.
- Gainesville Salvage won the contract, which Ken Cronan, Deal’s business partner, signed in early August 2004. The agreement was to run through June 2005 and could be renewed for four one-year extensions.
- Then-DOAS Commissioner Dana Russell in late August 2004 announced he was canceling a similar requisition because of confusing language in his agency’s solicitation for bids. Russell said the problem would be corrected and the contract rebid. Gainesville Salvage had won its contract in response to a solicitation with similarly flawed language.
- A handwritten “CANCELLED” is scrawled across a summary of the procurement process that shows contracts awarded to GSD and two other inspection stations. DOAS officials have no record of GSD’s contract being terminated, but they speculate that cancellation of the other contracts affected GSD’s, as well.
Procurement records contain nothing to suggest that Deal, then Georgia’s 9th District congressman, or any of his staff members played a role in the bid cancellation. Nor do they explain why the state did not rebid the contracts in 2004.
Neither Russell, now an executive at the Georgia Student Finance Commission, nor Joe Kim, DOAS’s director of legal services, could recall why the contracts were not rebid.
“We served as purchasing expertise on the solicitations, but we didn’t get into the business of the agency in terms of [deciding] what they were bidding out,” Russell said this week.
Uncertainty about the future of the state Department of Motor Vehicle Safety, which oversaw the inspection stations, may have doomed any effort to rebid the work. Soon after the contracts were canceled, Gov. Sonny Perdue announced plans to dissolve the department and distribute its functions among other state agencies. Responsibility for the inspection stations was transferred to the Revenue Department in 2005.
It is unclear when Gainesville Salvage Disposal began charging a higher fee for hosting the inspections.
But by July 2006, a Revenue Department document shows, GSD was collecting $100 per vehicle, the highest rate in the state by a substantial margin. (Three other stations charged $75.) To win the 2004 contract, the company had agreed to give the state a 10 percent commission on the $60 fee, for a net of $54.
The $46-a-car difference, multiplied by the 6,384 inspections performed in fiscal years 2007 and 2008, netted GSD $293,664 more than the contract would have allowed. State revenue officials say GSD hosted another 2,654 inspections at $100 a pop after that, earning another $122,084 in extra profits.
Deal and Cronan decided in August 2009 not to participate in the revamped inspection system. Stations are now paid $50 per inspection.
DOAS officials said documents describing the procurement process have been available to anyone who requested them. But, until last week, no one had asked.