State announced $150,000 contract to wife of key Kitzhaber advisor before competitive bidding

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The Oregon state Capitol in March.

(Yuxing Zheng/The Oregonian)

Oregon Health Authority officials announced the selection of the wife of a former top aide to Gov. John Kitzhaber for a $150,000 contract before any formal bidding took place, The Oregonian has learned.

A state manager internally announced the hiring of Kate Raphael to produce videos about the governor's health reforms on July 31, documents show. That was eight days before a formal competitive-bidding solicitation was issued, and nearly a month before a contract was signed.

Two other firms bid on the contract, including one with a $100,000 lower price tag. Raphael got the job.

Internal emails obtained by The Oregonian and interviews reveal the personal relationships among those involved in the contract, raising questions about the openness of the bidding process.

Raphael's husband, Tim, served as Kitzhaber's communications director until December 2013. Now advising the Democratic governor's re-election campaign, he also works with First Lady Cylvia Hayes, coordinating her Oct. 9 public apology for an illegal green card marriage in 1997.

In addition to Kate Raphael's political ties, her husband shares mutual friends with the health authority official who signed the contract, Cathy Kaufmann. The other key player in the contract, Chris DeMars, is close friends and neighbors with the Raphaels. The connection is reflected in an email chain concerning the video project, when DeMars refers to a recent vacation and invites the Raphaels over.

"You guys should walk down tonight for a beer and to see Peru pictures!" DeMars wrote to Kate Raphael on Aug. 20.

Contract officials blocked no-bid

State officials say the July 31 internal email announcing Raphael's hire went out because Kaufmann and DeMars did not realize they lacked legal authority to issue a $150,000 no-bid contract to Raphael.

After the contract was rejected by state contracting officials, the health authority invited Raphael and two other video companies to bid, allowing the contract to be legally issued. Raphael's bid came in $1,100 lower than the highest bid and significantly higher than the low bid from Silverman Studios.

The belated competitive bidding doesn't satisfy the low bidder. Told of the state's emails, Jeff Silverman said Raphael's contract looks like "an inside choice." He doubts he ever had a shot, despite his low bid and being recommended by OHA's sister agency, the Department of Human Services.

"It sounds unethical and maybe immoral," he said, "and wasted a lot of people's time to produce a proposal that probably wasn't even looked at."

Linda Hammond, the health authority's chief operating officer, said she doesn't think there should be any "dark cloud" over the contract, but will review it in light of The Oregonian's inquiries. She said she's asked the Department of Administrative Services to assist.

Kate Raphael and DeMars declined to comment. Kitzhaber's office issued a statement by email: "If there have been missteps in the contracting process, the Governor expects that DAS and OHA conduct a review, which is currently underway."

Tim Raphael called any connection between him and the contract "total nonsense. I can't speak to OHA's contracting, but I can tell you I had no role. I did not have any conversations with anyone about this. And I think it is a disservice to Kate, who does terrific work. I'm sorry she is having to go through this."

Kaufmann, who signed the contract Aug. 27, heads the health authority's Transformation Center, which uses a $45 million federal grant to foster health reforms. Kaufmann was friendly with DeMars before she went to work under Kaufmann for $124,000 a year.

Kaufmann called her effort to issue the contract without bidding "a simple and short-lived mistake" that was corrected.

State agencies can only issue no-bid contracts for sums of less than $10,000, except in special circumstances.

But lawmakers granted OHA an exemption from normal contracting rules in 2011. Its "special procurement" rules allow no-bid contracts of unlimited value to "consultants" when "federal guidelines or timelines require an expedited procurement process."

DeMars described Raphael as a "consultant" in emails, but agency officials said her firm is a video production company, not a consultant.

It's unclear why Kaufmann and DeMars believed they could use the health authority exemption. There are no federal deadlines requiring the videos. And on March 20, Kitzhaber announced a directive to block OHA's special exemption and make the agency follow standard state rules on all contracts.

The governor's directive came after a report found that poor contracting by OHA was largely to blame for the Cover Oregon technology debacle. In an interview Friday, state administrative services director Mike Jordan said Kitzhaber's directive to OHA remains in effect.

However, OHA Director Suzanne Hoffman said the agency interpreted Kitzhaber's directive to apply only to technology contracts -- which his staff now says was the intent. The agency has continued using its exemption to issue large, no-bid contracts.

Hoffman said the federal grants overseen by Kaufmann have to be spent before they expire in a few years, meeting the requirement that the no-bid exemption only be used if consultants are needed to meet federal timelines.

Belated bidding, same result

Emails obtained under Oregon Public Records Law show how the contract unfolded:

On July 25, DeMars contacted Raphael about making videos for a Dec. 3-4 "summit" to discuss Oregon Health Plan reforms spearheaded by Kitzhaber. The governor is slated to attend.

After meeting with Raphael and other officials to plan the project on July 31, DeMars sent an email to staff announcing the "exciting" news that Raphael would produce videos for the summit.

The same day, Raphael sent Kaufmann a proposal for eight to 12 videos of one to four minutes each, at a cost of $120,000 to $150,000.

Kaufmann forwarded it to an OHA contracting official on Aug. 1, who soon forwarded it to colleagues saying the job didn't fit the health authority contracting exemption. "Do we have any other options?" he wrote.

The next day, DeMars told Raphael of the hang-up, according to an Aug. 8 email documenting the conversation.

"Earlier this week, we learned that a video production company does not meet the definition of a consultant, which is a necessary requirement for this type of procurement," DeMars wrote, adding that the agency will be using the '3-quote method' to identify the video production company we will use."

The same day, the health authority contracts office sent a solicitation to Raphael and two other firms. The solicitation echoed Raphael's proposal, calling for eight to 12 videos of one to four minutes in length for no more than $150,000.

"The proposal with the lowest cost will not necessarily be selected," said the document.

The first to respond was Silverman's firm, which has done extensive health care work, with a bid of $32,250 on Aug. 12. A DHS contracting official recommended Silverman, citing a video he made for DHS. "I think this turned out really well," wrote contracting specialist Coral Ford.

On the morning of Aug. 14, Allied Video, which has done extensive health care work including a video for OHA, submitted a $146,886 bid.

Late that afternoon, Raphael, who also has done extensive health care-related work, bid between $140,250 and $145,740, depending on how many cameras were used.

The next day, DeMars sent an email to OHA procurement saying she and Kaufmann decided on Raphael.

"Of the three proposals, that submitted by Studio Kate did the best job demonstrating a clear understanding of the products we need," DeMars wrote. "Of the two proposals that indicated an ability to deliver the high-quality products we need -- Allied Studios and Studio Kate -- Studio Kate's price was lower, thus a better use of government funds."

David Friedman, a contracts law specialist at Willamette University College of Law, said questions about Raphael's hire could have been avoided by clearly disclosing potential conflicts of interest.

"That's what we don't like to hear as the public, is anything that doesn't sound right -- like it could be an insider's game," he said.

Tom Jovick, a recently retired state manager, headed the Oregon Medical Insurance Program. When people involved in awarding a contract had personal ties with a bidder, his agency would turn the decision over to an independent group .

In light of the scrutiny OHA has received over its poor contracting with Oracle, "it doesn't make any sense" to give the job to Raphael without extra transparency, Jovick said. "The problem is the perception that the public would have."

--Nick Budnick

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