Modesto awarded $3.7 million contract without following normal bidding rules
Modesto officials say that in giving a $3.7 million, seven-year contract to Rank Investigation & Protection for security guards, they picked a company with a long record of providing excellent service to the city and at a price the competition could not beat.
That may be true, but the city did not follow its normal competitive practices in picking Rank, whose owner also is the Modesto Chamber of Commerce board chairman.
The city typically requires companies to compete for its business through what is called a request for proposals. Companies provide pricing, audited financial statements, solutions to problems the city wants solved, and other information the city evaluates in deciding which firm to hire.
Modesto solicits formal bids when price is the primary factor in its decision.
City officials did not use a request for proposals in choosing Modesto-based Rank Investigation & Protection, but if they had, they might have learned the company had tax problems.
The state Franchise Tax Board filed a $40,355 lien against company owner Steve Rank in June 2017 (the tax board released the lien in March 2019), the IRS filed a $53,718 lien against Rank in May 2014 (the IRS released the lien in August 2018), and the IRS filed a $50,327 lien against Rank in September 2016 (the IRS released the lien in October of this year.) The liens are against Rank but are for his business.
That is $144,400 in tax liens that the city did not know about.
Modesto Finance Director DeAnna Christensen said in general she expects the city would learn about a tax liability as part of evaluating the audited financial statements included in a company’s response to a request for proposals. The city asks for a company’s last three annual financial statements.
“There would be follow-up discussions with the business to evaluate their financial situation due to not paying their taxes,” Christensen said in an email. “Each situation could vary based on the (corrective) action made by the business to address their payment of taxes situation.”
City officials said they were good and appropriate reasons for awarding the contract to Rank Investigation & Protection, including that it offered the lowest price for armed guards, according to an informal city evaluation. “We have an obligation to our taxpayers to present the lowest costs,” Christensen said.
And city officials said Modesto used an approved exemption to its normal contract practices in awarding the Rank contract.
Keeping the public’s trust
But spokesman Sean McMorris with the good-government group Common Cause California said in an interview that if Modesto believes Rank Investigation & Protection is the best company, then the city should have proved it by having it compete through a request for proposals.
“If this is the best person for the job,” he said, “they still will get the contract if it goes out to an RFP.”
McMorris said there is no justifiable reason for a city not to issue a large contract through a request for proposals or other formal competitive process that will draw a lot of responses, giving a city a full range of companies to evaluate before picking one.
He said that should be done at a minimum to maintain the public’s trust in City Hall and avoid questions of favoritism or special deals.
Modesto uses armed and unarmed security guards at several locations, including city parks, its water and wastewater facilities, Modesto Centre Plaza — its downtown convention center — and its parking garages.
The optics surrounding this agreement are not great.
Steve Rank has served as chairman of the board of the Modesto Chamber of Commerce for nearly two years. But he said in an interview that he has provided security guards to the city for a decade, well before his current leadership position with the chamber.
“It’s disheartening when people think I get some type of favoritism because of my position with the chamber,” he said, adding he believed the city’s decision was based on his company’s track record.
Rank said the liens were filed against him but were for his business. He said the business is structured in such a way that its financial results are reported on his personal tax returns. He said his accountant told him the amount of the liens would be reflected in the balance sheet of his company’s financial statements as a tax liability.
Rank said he was late paying his taxes because of a timing issue with his company’s cash flow. He said payments from customers were not coming in at the same pace as the company’s expenses. But he stressed he paid off the liens and his company is financially sound. He incorporated the company in 2009.
“The tax liens are embarrassing, but I paid them off,” Rank said. “I met my obligations. We didn’t fold. I still have 110 employees.”
Sweetheart deal?
Rank has not contributed to council members’ political campaigns except one time three years ago when Rank Investigation & Protection gave $250 to Councilman Tony Madrigal. Rank did not contribute to Madrigal’s unsuccessful 2018 campaign for county supervisor.
The $3.7 million agreement is the largest one the city has awarded him. The city said it paid Rank Investigation & Protection $727,764 for security guards from April 2011 though Nov. 15 of this year.
Modesto resident and longtime local government watchdog Emerson Drake called the city’s agreement with Rank Investigation & Protection a “sweetheart deal” at a September City Council meeting.
“Are we going to continue forward and put over $3 million in Steve Rank’s pocket for something he has not bid on? It’s a fair question,” Drake said.
The $3.7 million agreement is made of up two actions approved by the City Council.
Based on staff’s recommendation, the council on Feb. 4 awarded an $891,916 contract to Rank Investigation and Protection to serve as the city’s backup security provider for seven years.
The council at the same meeting awarded a $5.88 million, seven-year contract to Allied Universal Security Services as the city’s primary security provider. But in that contract, Modesto used the results of a request for proposals conducted by Stanislaus County.
The county ranked Allied the top firm among the seven it evaluated. Rank Investigation & Protection did not submit a proposal.
Rank said his company, with about 110 employees, did not have the staffing for the contract. He said he would have to hire about 40 employees to meet the contract’s requirements. He said hiring that many quality employees would be difficult because of the low unemployment rate.
Need for backup security firm
The city report for the Feb. 4 council meeting said Modesto needed a secondary security provider because its then provider — Cypress Security — had recently experienced a “mass exodus of employees who found more secure employment” as Cypress’ contract with the county was ending. The report said the city asked Rank Investigation & Protection to fill in the security guard gap.
The report added Modesto needed a backup provider because of the homelessness crisis. The city opened the Modesto Outdoor Emergency Shelter, a tent city of more than 400 residents, in February.
“Staff believes that it is in the best interest of the City to have two suppliers to provide security services,” the city report states. “Rank Investigation & Protection was chosen based on pricing, quality of service and familiarity with City structures and needs.”
The report said Modesto can bypass its formal competitive practices, such as issuing an RFP, when the city determines another process will result in the same services at a lower price. Christensen, the finance director, said Modesto compared Rank’s price for armed guards against the results of the county’s RFP, and Rank’s was the lowest.
Christensen said the city’s contract with Allied is for unarmed guards, and the cost is less than Rank’s.
The two contracts were part of the meeting agenda’s consent items. These are considered routine business and typically approved together with one council vote. The contracts were among nine consent items council members approved on a 7-0 vote without discussion.
City officials then came back to the City Council at its Sept. 24 meeting and asked it to increase the Rank agreement to $3.7 million, again without going through a request for proposals. Drake, the watchdog, spoke at this meeting before council members voted 7-0 to approve the increase.
‘That should go out to bid’
“That the amendment (increase) is worth more than the original contract is extremely troubling,” said McMorris with Common Cause California. “That should go out to bid.”
The increase is for Rank’s armed guards to provide security for the city’s transit system, though nearly $236,000 was for security at the Modesto Outdoor Emergency Shelter.
The increase pays for an armed guard at the Modesto Transit Center — the downtown hub for city buses — and for an armed guard in a car to respond to calls for service on city buses and to patrol bus stops. City officials say this is cheaper than what Modesto had been doing while providing more security.
The annual cost is $328,500, according to the city, compared with the $409,545 Modesto had been paying to have Rank security guards and off-duty police officers on overtime patrol the transit center.
While city officials say Rank’s price for armed guards is less than the prices the county received through its request for proposals, there is a wrinkle. The county did not ask for pricing for an armed guard in a car. The city conducted its own informal comparison to determine Rank offered the lowest cost.
City officials say Rank’s price is $21.50 per hour for an armed guard and $25.50 for an armed guard in a vehicle. They said Allied charges $27.34 per hour and would charge the city an additional $700 a month for putting a guard in a car plus gas, which could cost $100 to $150 per week.
Hylton Security — which offered the lowest price for armed guards among the seven firms the county evaluated — charges $23.83 per hour, according to the city. City officials said Hylton did not respond to a request for pricing for an armed guard in a vehicle. Hylton did not return two phone calls from The Bee.
This story was originally published December 8, 2019 at 6:00 AM.
BEHIND THE STORY
MOREHow we did this story
We decided to do this story after the City Council in September increased the Rank Investigation & Protection contract from about $900,000 to $3.7 million. The original contract and the increase were done without the city following its normal competitive bidding practices. That seemed odd for a contract worth so much, and we want city officials to explain why this was a good decision.
