New Jersey Township Faulted for Denying Private Insurer Contract

December 3, 2009

A New Jersey municipality cost taxpayers hundreds of thousands of dollars by awarding an insurance contract to a favored public insurance fund over the low-bid private insurer, a state audit claims.

A report released by State Comptroller Matthew Boxer found the Parsippany-Troy Hills Township Council overstepped its power in order to award an insurance contract to a high bidder it considered, according to one township council member, “family.”

Under its form of government, a township council can approve or reject a vendor recommended by the mayor, but it may not award a contract to its own preferred vendor. Yet at a public meeting in December 2008 the Parsippany-Troy Hills council decided not to vote on the mayor’s recommendation to go with the low bidder, Travelers Companies Inc., and instead awarded a three-year contract to the Morris County Joint Insurance Fund (MCJIF) to provide insurance services at a cost of approximately $3.7 million, according to the comptroller’s report.

During the meeting, several council members made public comments expressing concern that the mayor’s administration had used a competitive process to select a vendor for the contract. The council member who backed MCJIF explained his support for MCJIF was based on his familiarity with the fund’s representatives and the fact that they were public officials in the county, stating, “They, as far as I’m concerned, are part of our family. They are us.”

Boxer said various comments made during the council meeting raise questions about whether cost and quality of services were the primary factors driving the selection of MCJIF.

“The law required a competitive selection process for the township’s insurance contract, yet council members publicly expressed their displeasure with having to consider competing vendors,” Boxer said. “It’s not okay for government to award insurance contracts based on the friends and family plan – particularly when that plan is not offering savings but instead costs taxpayers hundreds of thousands of dollars.”

The annual premium for MCJIF was the highest of the three bidding vendors and $250,274 (or 20 percent) higher than that of private insurer Travelers. The township’s business administrator had deemed Travelers’ coverage the best of the three options, even aside from cost considerations.

The OSC report also criticizes the handling of the procurement process by the mayor’s administration, noting for example that the process was late in getting started and then conducted in a rushed manner.

Representatives for Travelers were not present at the December 2008 council meeting and had not been invited, according to the report. MCJIF had 11 representatives at the council meeting including senior public officials from six municipalities.

Travelers’ proposal was presented by the township’s risk management consultant who was advising the township on which vendor to select while simultaneously serving as the executive director for a third competing vendor, Statewide Insurance Fund. The OSC report found that the dual role “tainted” the procurement and may have violated the Local Government Ethics Law.

OSC sasid it is referring the matter to the Local Finance Board for further consideration.

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