Detroit, Emergency Managers, Rick Snyder — October 30, 2013 at 11:54 am

NERD Fund donor CVS Caremark scores $60 million no-bid contract in Detroit


This is why NERD Fund opacity is such a BFD

Photo by Anne C. Savage, special to Eclectablog

NOTE: This story has been updated HERE and HERE.

I (and so many others) have talked a LOT about Michigan Governor Rick Snyder’s NERD Fund, financed by unknown corporate entities and wealthy individuals. Because they have been paying for Detroit Emergency Manager Kevyn Orr’s accomodations in a luxury hotel and for his transportation costs, the complete lack of transparency raises questions about who is paying and what they are getting. In other words, what conflicts of interest exist. Thanks to Snyder shutting down the Fund without revealing its donors, we may never know.

A couple of revelations this past week have brought these concerns into sharp relief. First, Detroit chief procurement officer Andre DuPerry recently resigned due to what he says is a “waste of taxpayer dollars” in awarding contracts for city services without properly going through the competitive bid process. Here’s what he said in his resignation letter:

The actions of the emergency manager (EM), his staff and consultants have made it impossible for me to feel confident that there is currently transparency, fairness and good judgment being exercised in the best interests of the people I serve. The emergency manager’s inconsistency and lack of compliance with the competitive bid and contract approval processes is extremely concerning to me. … I have on numerous occasions raised my concerns both verbally and in writing regarding the lack of contract management with regards to the consultants involved in restructuring.

While there is no question that Detroit’s city government requires significant change, what I have observed is an abuse of authority leading to waste of taxpayer dollars.

A second revelation concerns a contract awarded to Caremark to cover pharmacy benefits for city of Detroit employees. State Representative Thomas F. Stallworth III of Detroit had this to say about this “process”:

Kevyn Orr unilaterally awarded a $60 million no-bid contract to Caremark that seemingly mocks the contract-bidding process. There are serious questions about whether or not the city and its workers got the best deal that both saves money while still providing better benefits.

As part of cost savings in Detroit’s bankruptcy proceedings, the company Jones Day, Ernst and Young and Milliman designed a new health care benefit for city employees. That plan was approved by Orr and lists Caremark as the pharmacy benefit manager. Caremark has Jones Day as its outside council, Ernst and Young as its outside audit firm, and Caremark is a business partner with a Milliman product called Intelliscript.

An alternative proposal for a pharmacy benefit manager was submitted to the emergency manager by ScriptGuide that generated a greater savings, and a better benefit for city workers, than the Caremark proposal. ScriptGuide is also owned by a Detroit resident.

Mr Orr was brought to Detroit to solve financial issues and choosing Caremark raises more questions than it answers. We don’t know why a more expensive proposal was chosen rather than one that would have saved the city more money. Mr. Orr talked to the Detroit Police Lieutenants and Sergeants Association to determine if greater cost savings could be negotiated that he could then take to other city employees. He had such a proposal, but when the final decision was made, he chose Caremark, the more expensive plan that offered less coverage to employees. A more expensive plan is not the best choice for Detroit and state taxpayers, and not the best decision for a city facing bankruptcy.

So Kevyn Orr’s previous employer, Jones Day, who now enjoys a lucrative multi-million dollar contract with the Detroit city government, has Caremark as a client. Then Orr awards Caremark with a contract when a less expensive proposal from a Detroit company was proffered.

Oh, one more thing: the only actual contributor to the NERD Fund that we know about is … wait for it … CVS Caremark Corp. If they got that contract, at least in part, as a result of their contribution, it was a pretty good investment. It only cost them $1,000. That’s a 5,999,900% rate of return on their investment!

And what about Jones Day? Did they influence their former attorney? Did they contribute to the NERD Fund in order to garner favor with Orr and the Snyder administration that gives them an edge when it comes to benefiting from city contracts? Keep in mind that these contracts, including those for consultants, are worth over $100 million all told.

As I’ve said, we may never know. But things like this raise eyebrows and doubts and make the calls for transparency from Governor Snyder and his administration that much more legitimate and important.

Food for thought for all of us.