Corruption or Incompetence at the PA Department of General Services? Racial Set-Asides Case Study [REDACTED]: Excerpts from A Submission Pursuant to the PA Whistleblower Law

The unredacted version of this report and dozens of sensitive exhibits were submitted to Pennsylvania oversight and law enforcement entities on May 8, 2024 by the author while he was an employee of DGS and in fear for his job and life.  As of the posting date of this blog, the author has no evidence that any PA government official ever investigated or even cared about the potentially serious civil, criminal and constitutional violations uncovered herein. Two senior management persons have since been dismissed, but the author has no evidence that the practices described herein have been fully investigated and accountability processes enacted.  Your tax dollars at work....

So, when will WHITE MALE subcontractors actually sue the DGS Secretary, the Governor and other state officials who have received the unredacted version of this report -- yet did NOTHING about the practices described herein -- for violations of their constitutional rights?  When will minority-, women- and Veteran-owned certified small businesses who were enrolled in the BDISBO programs -- but were not awarded opportunities improperly given to others -- sue for breach of contract and possible constitutional violations? 

2024 BDISBO Staff -- The above image of many of the staff of BDISBO and DGS in 2024 is for factual informational purposes only and is not meant to imply or suggest any proper or improper conduct on the part of any of the persons captured in this Annual Report photo.

I. Introduction

My research into systems and contractor payments, that I have been authorized to examine, show that payments targeted to be made to certain types of worthy subcontractors on government contracts in Pennsylvania are, instead, frequently delivered to politically-connected, unqualified firms who manipulate a racial set-aside/goal system with help from the program’s administrator, the PA Department of General Services (DGS) Bureau of Diversity, Inclusion and Small Business Opportunities (BDISBO) in Harrisburg.

The owners of one media entity in Philadelphia, REDACTED (to be referenced as "RS#1"), have illegally received more than $350,000.00 in lucrative racial set-asides/preferences because, at minimum, BDISBO personnel have looked the other way. However, only further investigation will reveal if BDISBO personnel and others were actively complicit in fraudulent payments to RS#1. In the absence of an independent forensic audit, the people of the Commonwealth will never know the true extent and nature of illegal activities, if any, occurring within BDISBO and elsewhere in state government.

Note that on Sunday, 5/5/2024, I emailed an earlier version of this Whistleblower Law complaint to the Auditor General and the DGS Secretary. This morning (5/8/2024), I attempted to recall that message to correct certain aspects, but the Office of the DGS Secretary had already opened/read it. (Ex. X) Yesterday morning, 5/7/2024, BDISBO began deactivating my access to their systems. This had not occurred prior to the DGS Secretary receiving my email. (Ex. X) Also, yesterday, BDISBO co-workers, for the first time, refused to communicate with me and referred me to HR should I wish to speak to them. The timing of these matters suggests that the Office of the DGS Secretary has responded to my email (which introduced my complaint and offered explanations of the evidence) by circling the wagons. Two Boeing whistleblowers have allegedly committed suicide recently. I am now wondering about my fate.

II. Details

Pennsylvania operates a Small Diverse Business (SDB) Program in an effort to remedy past discrimination in the granting of state contracts to women-, “minority-” and LGBTQ+-owned businesses. There is a nearly identical program for veterans, the Veteran Business Enterprise (VBE) Program. In the SDB Program, BDISBO sets participation goals for these businesses so that they have a fair opportunity to win roles as subcontractors on lucrative state contracts. To become an SDB subcontractor, among other qualifications, a small business MUST be certified as such by BDISBO and possess the skills necessary for the assigned work.

In allowing race to be used by programs to remedy past racial discrimination in contract procurement, the courts are temporarily suspending the Equal Protection Clause of the 14th Amendment. However, they extract a price for that constitutional pause, namely, they require such programs to enforce strict adherence to narrowly tailored rules. The rules for gender, LGBTQ+ and veteran status can be progressively less stringent than those for race, but BDISBO uses one set of rules for all categories.

An example of how this strict adherence to narrowly tailored rules is applied is that any business that is not a certified SDB, is not qualified to do the assigned work on a government contract or is not available within the desired geographic area for that contract may not participate in the SDB Program for that contract in any manner whatsoever. So, if one of these uncertified businesses, for instance, somehow manages to win a subcontractor role targeted for SDBs or receives payments targeted for SDBs, it has unconstitutionally (illegally) benefitted from a racial, gender, etc. goal/preference. The use of a racial or gender preference, outside the strict bounds of BDISBO’s SDB Program voids the Equal Protection exception granted by the courts for each occurrence, resulting in clear, unvarnished Equal Protection violations – for each occurrence. In such circumstances, a plaintiff ineligible for the subject work or payment, due to race or gender, is poised for an easy constitutional victory in court and, pursuant to 42 U.S.C. § 1983, BDISBO administrators, right up to the Secretary of DGS and the Governor, could be personally liable.

BDISBO has an affirmative duty to: “ensure compliance with a prime Contractor’s SDB and VBE [veteran-based preference program] commitments” by “monitoring and collecting data on contractor compliance with the prime Contractor’s SDB and/or VBE participation commitments.” See Bureau of Procurement Policy Directive 2023-1, Part XVIII (a) (2) (p.30). To this end, BDISBO inserts clauses into the state procurement contracts of prime contractors requiring them to file “Monthly Utilization Reports” showing the percent of the work that was performed by SDBs (paragraph 3 of a typical contract, as in Ex. A) and requiring SDBs to file similar reports to serve as a “record of fulfillment of Contractor’s Small Diverse Business and Small Business Commitments” (paragraph 14 of the Model subcontractor agreement, as in Ex. B).

When a business that has lost its SDB certification still receives payments targeted for SDBs, the system overseen by BDISBO has broken. This is analogous to a doctor being allowed to perform surgeries after surrendering his license to practice medicine. The reason that the surgeon lost his license does not matter to the patient, hospital or authorities. The doctor and hospital clearly face legal liability. One of three conditions is likely present during such a BDISBO breakdown:

1. The prime contractors and/or SDBs are not filing Utilization Reports;
2. The prime contractors and/or SDBs are filing false Utilization Reports, possibly after failing to perform simple certification status checks of each alleged SDB; or
3. The prime contractors and/or SDBs are willfully misrepresenting a decertified SDB as still having valid credentials.

Unfortunately, in all of these scenarios, BDISBO routinely looks the other way or is complicit in permitting state payments after SDB certifications are lost, withdrawn or revoked. BDISBO’s failed oversight is a dereliction of its constitutional duties, wasting millions of taxpayer dollars and creating potentially significant legal liability for the Commonwealth.

With so much money at stake and zero accountability due to non-existent auditing, the temptations for BDISBO, DGS and other state agencies to take kickbacks to keep this gravy train rolling could be overwhelming.

One example that is particularly alarming and deserving of intense scrutiny is an urban-themed media entity in Philadelphia, RS#1, that has strong political connections in Philadelphia City Hall and Harrisburg. BDISBO’s secretive records show that RS#1 has had to switch its registration with DGS repeatedly, alternating between 2 supplier codes (SAP #: 373457 and 403094) during various periods of being deemed an SDB or losing that certification. (Ex. C) It is unclear whether this instability is related to poor bookkeeping, reorganizations, changes in ownership, regulatory actions stripping it of that designation or other factors. As with the hypothetical of the surgeon losing his license, the reason is constitutionally irrelevant.

As shown in the table below, between 8/12/2023 and 4/24/2024, RS#1 had lost its SDB status, yet it received at least $130,000.00 earmarked for SDBs-only, under the contract AC PRIME #1 (actual name redacted) - Contract #999999997A (actual number REDACTED). (Ex. D) Similarly, RS#1 received at least $227,498.90 under the contract LS Prime #1 (actual name REDACTED) - Contract # 9999999927 (actual number REDACTED) during this same period. (Ex. E, note that the line items total $219,498.90, but the Prism total is $227,498.90)

Table 1. BDISBO-approved SDB payments to RS#1 when RS#1 was not certified by BDISBO to be an SDB. Source: Exs. C, D and E.

RS#1 also has been earmarked for a total of $20,000,000.00 of the $206,000,000.00 budget of the LS Prime #1 project.  For both contracts, RS#1 has been allowed to remain a party, even when it had lost its SDB status.

The BDISBO Compliance Unit, led by Employee #1, who reports directly to Employee #2, is supposed to verify the SDB status of all subcontractors fulfilling goal targets, continually. BDISBO’s status records and notes in a contract tracking system, called Prism, show that he approved these arrangements several times for both contracts and that there does not appear to be any evaluation of the required Utilization Reports, if any have actually been filed, regarding whether the subcontractors being paid from targeted SDB state funds are actually fully certified SDBs. (Ex. F) His oversight has clearly failed. It must be determined whether this is incompetence or willful. Is it not a fair question to ask if Employee #1 received any kickbacks for looking the other way?

Employee #2 has also shown extraordinary favoritism towards RS#1. In an internal BDISBO Microsoft Teams meeting held on or about March 25, 2024, regarding a bid by 99 Prime #3 (actual name redacted), for a $4,000,000.00 advertising contract (sponsored by the Dept. of Community and Economic Dev., Solicitation No.: RFP-9999999935, Project Name: CS Prime #4 -- all information redacted) on which RS#1 wanted to be a subcontractor for a payout of $216,543.00 (Ex. G), I heard Employee #2 tell her employees on that call that:

1. Employee #2 had received a call from the Governor's office regarding RS#1's status on the project. She did not disclose the specific content of the call, but any such call would have the appearance of influence peddling and/or other improprieties; and
2. OGC (Office of General Counsel) lawyers were “trying to figure out” how to get RS#1 approved as an SDB, even though RS#1 was not qualified to be an SDB because it was a subsidiary of a trust. Program rules require that an SDB be an independent business that is majority-owned by female(s) or “minorities.” Advocacy for RS#1 or any other potential subcontractor is not a proper role for OGC lawyers; they are to ensure the integrity of the program. RS#1 should have hired its own counsel to ensure that it was in full compliance with DGS regulations for becoming an SDB. OGC was apparently holding RS#1’s hand, saving them attorney’s fees, giving them special treatment. This, too, has the appearance of influence peddling and/or other improprieties.

On or about March 26, 2024, also in a Teams meeting, I heard Employee #2 order our most experienced goal setter, Employee #3 (who knew the rules and did not require Employee #2 to instruct him on anything), to approve the bid involving RS#1 (Solicitation No.: RFP-9999999935), including making sure that RS#1 was actually listed on the bid, although it was not an SDB or even SB (the lesser designation of “small business”) at the time. (Ex. H) He did as he was instructed. However, this approval was improper because:

1. RS#1 should have been removed from the bid before BDISBO evaluated it. That removal, however, was not executed in what could only be described as an inappropriate gift to RS#1. Removing RS#1 entirely from the bid could have permanently excluded RS#1 from lucrative funding as a sub on the contract and allowed a properly certified SDB to be listed. The new SDB’s role would have been protected by the language of the BDISBO Policy, Part XIII(g)(1), which forces a “prime contractor’s … commitment to utilize SDBs listed within the [pre-bid] SDB Utilization Schedule” to “become contractual obligations of the prime contractor.” RS#1’s friends within BDISBO apparently wanted to ensure its role as a subcontractor by inappropriately listing it as an inseparable and indivisible part of the bid. The question is why was that so important to BDISBO? Was there a kickback involved?
2. BDISBO’s authority under PA Executive Order 2023-18 includes approval, rejection or consideration ONLY of a prime contractor’s SDB/VBE subcontractors when the prime’s bid was evaluated, NOT, NOT, NOT random, miscellaneous subcontractors, such as RS#1 (which was a non-SDB/VBE firm and a non-SB firm in March 2024). The requisite BDISBO forms for BDISBO’s evaluation of each project, namely SDB/VBE-2 and SDB/VBE-3, demonstrate this point concisely because they contain line items SOLELY for SDB/VBE firms! Further, if BDISBO exercised such broad and grand approval power over all subcontractors a prime could choose, then its SDB/VBE programs might not be considered narrowly tailored and the entire regime could collapse under its own weight as being unconstitutional;
3. The UNSPSC codes describing the skill sets of another subcontractor which BDISBO improperly approved for the project, AT Sub #2, objectively showed that it was NOT qualified to perform the work described for it (Ex. I), therefore it could not have been properly approved for the project as either an SDB or VBE (it is dual certified);
4. Without the credit for SDB and VBE participation by AT Sub #2 (3% of the work in the bid), the bid should have been rejected as non-responsive to the goals established by BDISBO (it would have fallen short of both the SDB and VBE goals) (Ex. J);
5. The brand new 4/25/2024 approval of RS#1 as an SDB (Ex. K) cannot, retroactively, be used to approve the Solicitation No.: RFP-9999999935 bid as responsive to goal setting, nor resurrect RS#1 as a viable SDB subcontractor for that bid. RS#1 had no SDB certification or SDB role on the project in March, when BDISBO reviewed the Solicitation No.: RFP-9999999935 bid; only SB’s certified as SDBs could be evaluated for goal setting purposes at that time. RS#1 was neither;
6. It is unexplained why the dozen or so other bids, cryptically listed by DCED for this solicitation in its “responsiveness” review matrix, were never evaluated by DCED or BDISBO (Ex. L).

Employee #2’s oversight and unnecessary interference resulted in an improper approval for RS#1 and the entire bid (Solicitation No.: RFP-9999999935) on which RS#1 was listed as a prospective subcontractor. Her oversight clearly failed. This is clearly willful, there being no question about Employee #2’s intent to go the extra mile to assist RS#1 – unlike the above example involving insufficient evidence to assess Employee #1’s willfulness vs. incompetence. Is it not a fair question to ask if Employee #2 received any kickbacks for actively promoting the improper inclusion of RS#1 on a lucrative contract and the approval of the underlying bid?

We can look further to see which of RS#1’s SAP numbers was used to receive each payment to RS#1. We can then examine the UNSPSC codes used by each SAP number (which identify the skills certified for each SDB) to learn if there is something even more nefarious in the RS#1 contracts, such as RS#1 being unqualified to perform assigned work – even when it possessed SDB certifications. We can ask why BDISBO, charitably put, looked the other way to allow payments to this well-connected Philadelphia-based entity, when there were many qualified and deserving SDBs available.

As of 4/25/2024, RS#1 is magically an SDB, again, and its certificate is signed by Employee #4 (Ex. M). Several questions and action items must be pursued:

1. Was that approval routine or did it involve any exceptional processing?
2. RS#1 went for 8 months without being an SDB (8/12/2023 and 4/24/2024), while receiving at least $350,000.00 in payments that were supposed to go to certified SDBs. What suddenly changed in April 2024?
3. Did Employee #4, Employee #2 or OGC lawyers push this certification through?
4. Someone needs to look at the paperwork that RS#1 submitted and determine how it was approved as an SDB.

Are the illegal payments to RS#1 and its unusual contract approvals emblematic of Commonwealth payments and BDISBO approvals for other entities? If kickbacks or other fraud is involved, is that limited to BDISBO personnel or does this reach the various departments and agencies covered by Governor Josh Shapiro’s PA Executive Order 2023-18? A detailed and arms-length audit is required immediately and all suspected parties should be kept far from the audit, BDISBO systems and pending BISBO processing – unlike a previous “audit” which was, according to Employee #2, run by Employee #2.

Immediate Questions to be Posed/Answered (there is a degree of imprecision in these questions, for the sake of efficiency, but the meanings should be clear from context):

1. Have RS#1 and its prime contractors submitted timely Utilization Reports to BDISBO? How did BDISBO’s Compliance Unit/Employee #1/ Employee #2 use them for the required SDB Program oversight? Did RS#1 accurately state the periods for which it had lost its SDB certifications? Did BDISBO know that RS#1 had no SDB certifications when primes were paying it at least $350,000.00 that was targeted solely for SDBs?
2. Why has RS#1 repeatedly lost its SDB status?
3. Why has RS#1 had to use 2 different SAP account numbers?
4. How has RS#1 been organized over the past 20 years when it was, alternatively, an SB, SDB or neither?
5. Who or what has owned RS#1 over the past 20 years?
6. What paperwork did RS#1 submit to BDISBO to become an SDB on 4/25/2024, who approved it, was any of this processing unusual or required overrides?
7. Who called Employee #2 from the Governor’s office about RS#1 in March?
8. How many such calls have there been, who made them, what was the purpose and result of each of those calls? Employee #2’s cell phone logs and Teams logs should be checked immediately before they are scheduled to disappear. How much money has RS#1 been awarded as a subcontractor with the state of PA over the past 20 years? What have been the roles of BDISBO, Employee #2, Employee #1, Employee #4, the DGS Secretaries, the Governor, the OGC and its lawyers, as well as any others, in these contracts and getting RS#1 approved, paid? Did any of these people or others ever have to intercede to resolve issues for RS#1?
9. Has anyone in government or at the various prime contractors for any of RS#1’s contracts received money from RS#1 or its employees or investors? Has there been an audit of ALL of the funds received by RS#1 and parties on EACH of its state contracts?

Urgent Required Actions:

1. There must be a detailed audit of every BDISBO-approved and BDISBO-rejected bid over the past 5-20 years (at least as long as Employee #2 and Employee #4 have been running BDISBO), exposing: any exceptional processing involved in any aspect of their work; whether the SDB and VBE subcontractors were certified as such at the bid closing period, throughout the duration of the contract and whenever each was paid by the state or prime; whether the work to be performed and which was performed matched the UNSPSC codes in the DGS supplier database for that subcontractor at the time they were approved to be subcontractors for a given project.
2. Historical DGS Database: IT must recreate the DGS supplier database as it existed on each day of the past 5+ years and ID any changes made to it for any business listed there, who made those changes, who authorized those changes, etc. The historical DGS supplier DB should allow searches for any day over the past 5+ years.
3. IT must generate a report for each business listed in the DGS supplier database, showing its profile as it existed when first registered, then, throughout the last 5+ years, the date of any changes made to that profile, the changes made, who made those changes and who approved those changes. For efficiency, the report should be retrievable from the Historical DGS DB, as needed by the auditors, and not otherwise in paper form.
4. Employee #2 must not be present for the audit. She regularly states, with a degree of pride, that she controlled an audit done some time ago, telling the alleged auditors what they should do, what they should look for, etc. That was no audit and must not be repeated.
5. No BDISBO management person should be present for the audit, but may assist with designing the protocols and showing the auditors how to access any and all aspects of BDISBO systems and documents. I can also assist in this regard.
6. Until the audit is complete and depending on what is uncovered, the access to BDISBO systems should be removed for Employee #2, Employee #1, Employee #4 and the rest of BDISBO management as well as their assistants. Their individual and collective authority over the processes and employees of BDISBO must be suspended.

III. Legal Basis for BDISBO’s Programs

A. Constitutional Basis for BDISBO/DGS Remediation Programs in Awarding Contracts

Racial quotas in the granting of government contracts have been ruled unconstitutional by the US Supreme Court, but the Court allows states to establish contract goals, with waiver provisions, in narrowly tailored programs designed to correct demonstrated government discrimination in the awarding of contracts. See Students for Fair Admissions, Inc. v. President & Fellows of Harv. Coll., 600 U.S. 181, 143 S. Ct. 2141, 2154, 216 L.Ed.2d 857, 868 (2023) (holding that the courts must use the “strict scrutiny” standard to evaluate racial preferences, where the standard first tests “whether the racial classification is used to ‘further compelling governmental interests’” and “second whether the government's use of race is ‘narrowly tailored,’ i.e., ‘necessary,’ to achieve that interest”); Richmond v. J. A. Croson Co., 488 U.S. 469, 492, 109 S. Ct. 706, 721, 102 L.Ed.2d 854, 881 (1989) (holding that “any public entity, state or federal, has a compelling interest in assuring that public dollars … do not serve to finance the evil of private prejudice.”); Id. at 509 (holding that “Where there is a significant statistical disparity between the number of qualified minority contractors willing and able to perform a particular service and the number of such contractors actually engaged by the locality or the locality's prime contractors, an inference of discriminatory exclusion could arise.”); Nuziard v. Minority Bus. Dev. Agency, No. 4:23-cv-00278-P, 2024 U.S. Dist. LEXIS 38050, at *67 (N.D. Tex. Mar. 5, 2024) (holding that “If the government actively participated in past discrimination, it can use race to remedy the effects.”).

B. Pennsylvania’s Approach to Remedying Past Discrimination in Awarding State Contracts

Former Governor Tom Wolf commissioned a “Disparity Study” in 2017 which concluded that the state has a track record of failing to award contracts to diverse firms (majority-owned by women, racial “minorities,” veterans or LGBTQ+ persons) that were ready, willing and qualified to perform specific tasks common in state contracts at the rates that their availability suggested would occur. That award disparity was statistically significant and left an inference of discriminatory intent.

As a result of the Disparity Study, current Governor Josh Shapiro signed PA Executive Order 2023-18, "Improving State Government Contracting Opportunities for Pennsylvania’s Small Businesses and Small Diverse Businesses," authorizing BDISBO to set participation goals for the inclusion of two categories of diverse small businesses in most medium-to-large contracts issued by PA government agencies – after it created a constitutionally sound policy to implement goal setting. The categories are Small Diverse Businesses (SDBs) and Veteran-Business Enterprises (VBEs), defined much as one would expect on the DGS website, www.dgs.pa.gov.

The BDISBO policy is careful to state procedures that the Commonwealth government believes implement a narrowly tailored remedial program to address PA’s history of discriminatory contract awards. It sets SDB/VBE participation goals on a contract-by-contract basis, by first identifying the specific skills required to bid on and win current solicitations (as found in the UNSPSC database at www.unspsc.org) and, secondly, using availability data for firms possessing such skills – availability data found solely in the Disparity Study. Participation goals, then, are skill-set specific and based on the meticulously studied availability of firms possessing such skills in 2017.

BDISBO programs require participation (awarding, payment, compliance) in government contracts ONLY from SDBs/VBEs that are: (a) certified by BDISBO as such per their inclusion on the DGS supplier website, https://www.dgs.internet.state.pa.us/suppliersearch and (b) that possess the skills and/or supplies described in a contract solicitation – skills/supplies that were identified by the Disparity Study as available among diverse businesses in 2017, but not utilized by the state at appropriate rates, thereby resulting in an inference of discrimination.

For a little more specificity, we note that the Issuing Officers (contract solicitation managers) in each PA Agency reach an agreement with BDISBO as to the exact skills/supplies to be provided for a contract solicitation by an SDB/VBE. They assign to these skills and supplies the corresponding codes from a standard database, known as the UNSPSC. Concurrently, these same codes are used to define the skills/supplies which an SDB/VBE has the expertise to provide to the state. DGS maintains a supplier database at https://www.dgs.internet.state.pa.us/suppliersearch which stores a profile for each SDB/VBE certified by a third-party as providing the skills/codes listed there. Issuing Officers, BDISBO and prime contractors are required to subcontract ONLY with the SDBs/VBEs registered there, and rely upon ONLY the skills/supplies identified for them there, in evaluating which contract bids are responsive to the diversity participation goals set by BDISBO. To step outside these constraints would be to set racial preferences in areas where no inference of discriminatory intent has been established and would, therefore, be unconstitutional.