In mid-October, we ran a story about Susan Taylor, the former Deputy Chief Procurement Officer (DCPO) at the U.S. Department of Veterans Affairs (VA) Veteran’s Health Administration (VHA), who was found by the VA’s Office of Inspector General (OIG) to have engaged in procurement fraud before and during her tenure at the VA. She, her subordinates, and her fiance violated Federal Acquisition Regulations (FAR) when they contracted with FedBid to provide reverse auction services to the VA. Taylor then conspired with FedBid executives to compel Deputy Assistant Secretary, Office of Acquisition and Logistics, Jan Frye, to reinstate FedBid after he issued a moratorium on its use at the VA.

Although the U.S. Department of Justice decided not to prosecute her or her conspirators, U.S. Congressional leaders announced in early December that they would also investigate the scandal. Pending this investigation, we have taken a closer look at the OIG report and offer some preliminary insight into the breakdown that allowed procurement fraud and the misuse of power to occur at the VA.

Lying Up and Down the Chain of Command

Throughout the OIG report, it is clear that Ms. Taylor abused her position of power and public trust to mislead her superior, Mr. Norbert Doyle, VHA Chief Procurement and Logistics Officer, as well as her staff, concerning FedBid. Ms. Taylor stated, falsely and intentionally, that FedBid’s services to the government would be free or at no cost. Although FedBed did not directly charge the government to use its reverse auction services, either on a flat rate or a per-transaction basis, it charged transaction fees to government vendors that used the service that were ultimately built into their price quotes. Ms. Taylor insisted otherwise.

She also advised her superior and subordinates differently on how they were to use FedBed’s services; about a U.S. Government Services Administration (GSA) reverse auction solution; and their comparative capabilities and expenses. Ms. Taylor advised Mr. Doyle that her staff was not mandated to use FedBid’s solution exclusively, but in emails to her staff, she referenced prior guidance she had issued to her staff instructing them to only use FedBid’s solution. Moreover, Ms. Taylor advised Mr. Doyle that the GSA’s reverse auction solution limited the scope of their buying power (for  “IT purchases”, only), and was more expensive than FedBid’s solution. In fact, GSA’s solution allowed for more procurement events, and was ultimately less expensive than FedBid’s after accounting for the transaction fees that the government ultimately paid to participating vendors. But the OIG concluded that Ms. Taylor advised her superiors and subordinates otherwise.

Downward Pressure

In addition to misleading her superior and staff about the true nature and costs of FedBid, Ms. Taylor exerted significant downward pressure on her staff to award FedBid a contract to serve as their reverse auction provider, even as the VA’s own Office of Acquisition and Logistics was developing its own solution. After viewing a presentation by FedBid on their solution, Ms. Taylor inquired with her staff as to whether they were using FedBid’s solution for reverse auctions, and then why they were not using it given its zero cost to the government or taxpayer. She then pressured her subordinate contracting officers to scramble to issue an RFQ for a reverse auction solution provider, giving the providers just two days to respond (with one being a federal holiday). FedBid successfully responded, having received prior notice that VHA would issue an RFQ shortly, which helped them prepare their bid. Ms. Taylor would later mandate that her staff use FedBid’s solution, even though GSA had a comparable solution and OAL was working on their own for the VA.

External Forces at Work

On March 3, 2012, Mr. Jan Frye, Deputy Assistant Secretary, Office of Acquisition and Logistics, issued a moratorium on the use of FedBid’s reverse auction services at VHA, citing a litany of pricing, policy, and oversight concerns. Until he could sort out issues related to how VHA procurement staff were using FedBid’s services to conduct reverse auctions, Frye prohibited VHA staff from using the service. In the hours and days that followed, Ms. Powers, her fiance, Mr. William Dobrzykowski, FedBid executives, and one of its principal investors, Steve Case (founder of AOL) discussed how they could leverage internal and external powers to overturn the moratorium. As the OIG report notes, they intended to ‘“storm the castle,” use a “heavy-handed-puncher,” to “rally the troops up on the Hill,” have “enough top cover to overwhelm,” to “unleash the hounds,”’ and ‘“assassinate [Mr. Frye’s] character and discredit him” if needed.

One of the first substantial things that these individuals did was to meet the following day at FedBid’s Vienna, VA office and write a point-by-point rebuttal to Mr. Frye’s moratorium. Later that day, Mr. Case leveraged his personal connection with then-Director of the VA, General Eric Shinseki by emailing this rebuttal to the Director’s personal email address. “Blindsided” by the moratorium, Shinseki tapped former VA Deputy Secretary, Mr. Scott Gould, and the Director’s Chief of Staff, Mr. John Gingrich, to look into the matter. What followed was a month-long series of emails and phone calls between VHA, senior VA staff, and FedBid executives in which all parties exerted their influence to overturn the moratorium, as noted in the OIG report. The matter even made its way to Congress, with current VA vendors offering to testify regarding FedBid’s duplicitous business practices. But before it could reach Capital Hill, the moratorium on FedBid-administered reverse auctions was lifted on April 3.

Lack of Effective Oversight

From the OIG report, it is clear that internal and external forces were allowed to exert undue influence and power on the VA procurement system due to a lack of effective oversight of the process. Ms. Taylor abused her position of trust by knowingly forcing her staff to improperly award FedBid a sole-source contract for reverse auctions, despite the fact that OAL was already developing a comparable solution. When questioned by her superior, Mr. Doyle, Ms. Taylor misled him, stating that FedBid’s solution would save the government and taxpayers more money than GSA’s solution, among other untruths. Although Mr. Doyle acted in good faith to provide oversight, it was not effective.

After receiving many complaints from vendors regarding FedBid, Mr. Frye attempted to provide oversight by halting FedBid-administered reverse auctions until he and his staff could confirm that the VHA’s procurement staff was adhering to FAR policies and not allowing FedBid to conduct “inherently governmental work.” But his attempt was thwarted by external and internal powers (notably, the VA’s Deputy Director and the Director’s Chief of Staff) that had conspired to remand FedBid as the sole provider of reverse auctions at VHA. Rather than serve the interests of the government and taxpayer, they served the interests of FedBid and its investors under the guise of serving the government and taxpayer. Moreover, the fact that then-Director Shinseki was, in his own words, “blindsided” by the moratorium is further evidence that the VA suffered from a general lack of oversight.

Final Thoughts

This is not the first, and unfortunately, it will not be the last time a senior procurement official abuses their power to enrich themselves or friends in high places. Ms. Taylor’s motive remains unclear – we do not know why she chose to abuse her power on FedBid’s behalf. Perhaps she truly believed that they would provide the best value to the government and taxpayer. But even if this is the case, she abused her position of trust, mislead her superiors and subordinates, pressured them to break the law, provided inside information to a private entity, and conspired with that entity to subvert and smear the good work and name of a fellow federal contracting officer. As Ms. Taylor and FedBid have illustrated, trust takes a lifetime to earn but an instant to lose.


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