PROVIDENCE — After a months-long inquiry last winter, the Senate Government Operations Committee yesterday issued a report slamming the Carcieri administration for giving a state staffing contract worth up to $11 million annually to a fledgling company under terms — offered no other potential bidders — that amounted to an “interest-free loan” from the state.

In its final report, the committee chaired by Sen. J. Michael Lenihan, D-East Greenwich, posed this question: “At what point do pervasive errors and omissions of state officials constitute incompetence and a blatant disregard for statutory process?”

The answer: “At this time, the committee cannot make a determination as to whether the incompetence was due to ignorance, or arrogant and willful violation of the law. However, the committee is certain that the public deserves better.”

Among the key findings: The executive branch “inhibited” the Senate inquiry, “violated the spirit of the Access to Public Records Act” by withholding requested documents; and undermined the basic tenets of competitive bidding by offering to front the money to make each biweekly payroll to the newly incorporated Smart Staffing Services Inc., without giving the same opportunity to any other company.

Before it was replaced by a less expensive staffing company last August, the Foxboro, Mass.-based Smart Staffing placed upwards of 276 contract workers in state government — dentists at the state prison, homeland security specialists, health-data analysts — and became the face of a contentious inquiry during the last legislative session into Governor Carcieri’s increasing use of private employees to do state jobs.

With the administration pushing again this year to “privatize” an array of state services, from housecleaning and food preparation at hospitals, to prisoner counseling at the Adult Correctional Institutions to operation of the state supply warehouse, many of the same concerns are rising again about the state’s hiring of private workers who are outside the reach of civil-service testing, affirmative action, the public-records law and the Ethics Code.

What began during the latter months of the Almond administration as a relatively small, limited-scope contract between DataLogic Consulting and the Department of Health was expanded by the Carcieri administration into a multimillion-dollar, statewide staffing contract without again being put out to bid. The committee’s finding: “The lack of documentation and absence of a new bidding process undermines the basic statutory tenets of competition, accountability and transparency.”

After reading the draft report approved unanimously yesterday by the Senate committee, the governor’s spokesman Jeff Neal said: “The Senate report fail[s] to identify any substantive problem with the Carcieri administration’s efforts to save money through more effective purchasing strategies.”

“In particular, it does not call into question the tens of millions of dollars that the Division of Purchasing has saved in recent years on various state contracts, including the Capital Records contract [and] the state employee health-insurance contract,” he said. “Instead, the report largely concentrates on how paperwork could be more effectively completed. In summary, the report is long on process and very short on substance.”

But Lenihan yesterday called the administration’s handling of the Smart Staffing contract a “microcosm” for others in the Department of Transportation and beyond that started small and then mushroomed, without ever again going out to bid, into multimillion awards to private contractors.

As the hearings heated up last winter, Carcieri denounced the Senate inquiry as a union-driven witch-hunt. He accused the lawmakers of “abusing,” “manhandling” and “verbally berating” state workers at their public hearings. He accused the committee of creating “chaos within state government” and jeopardizing the year-end close of books with “its voluminous inquiries.” He vowed to post on the Internet a “log” of all lawmakers seeking jobs and contracts for their friends. He also threatened to call in the state police.

Top Carcieri aides said the administration should have been commended, not criticized, for engaging Smart Staffing as quickly as it did in September 2006 after its predecessor, DataLogic Consulting Inc., advised the state it could no longer meet payroll.

The Carcieri administration has since gone out to bid, however, and found a company willing to provide the same recruitment and payroll services that Smart Staffing Services provided at less cost.

Smart Staffing charged the state a 22.5-percent markup over-and-above the salaries paid the employees it provided the state. The administration gave the New York-based Adil Business Systems Inc. a three-year contract in August after it offered to provide the same services in exchange for a 16.7-percent premium. The lower rate is expected to save taxpayers an estimated $700,000 each year. The Senate committee did not focus on how much more, or less, a Smart Staffing employee costs versus a full-fledged state employee. But the hearings drew attention to the thin line between many of the Smart Staffing employees and the state workers with whom they worked side by side, doing the same job.

As the committee delved, it found that many had been on the state contract payroll for years. The jobs were not limited to temporary clerical help. The chief financial officer at the DOT was a Smart Staffing employee, as was the public-relations officer for the Executive Office of Health & Human Services and dozens of core-staffers at the state hospital, including respiratory therapists.

The oversight committee cited “17 areas of concern” that extend beyond Smart Staffing. They include the State Properties Committee’s failure to adopt regulations for the purchase and disposition of state property, and what is described as an illegal attempt to loosen — by memorandum issued by the governor’s chief staff Brian Stern in his then-role as chief of purchasing, rather than by a regulation aired at a public hearing — the rules that allow state agencies to eschew formal bidding on small purchases.

But most of the report deals with Smart Staffing, the Department of Administration’s failure to document the oral negotiations with company owner Craig Provost, and its failure — “in violation of law” — to produce a “written determination” that explains “why Smart Staffing was chosen over other vendors.”

The report covers much of the same ground as last year’s hearings: “The CEO of a foreign corporation with no previous business with the state introduced himself to the purchasing agent at an economic conference. Two days later, the corporation was the only vendor invited to give a presentation to an ad hoc selection committee at DOA, a member of which attended high school with the CEO…On the same day, the corporation filed papers with the Secretary of State to do business in Rhode Island.”

It remains unclear who negotiated with Provost and who first suggested the prepayment by the state of each payroll.

“It is clear, however, that none of the other vendors contacted were offered this rather unusual and potentially cost-saving condition. We also know that six days after introducing himself to the purchasing agent, and four days after filing to do business in Rhode Island, the CEO won a short-term contract…with the state valued at between $7 million and $11 million annually.

“While the committee did not find any malfeasance, the facts of this case study illustrate that the process followed by the division of purchasing to procure emergency temporary employee services undermined public confidence in the state purchasing.”

The report suggests the need for a new law “to require a contract to be re-bid if it substantially increases in value or its terms materially change.”

kgregg@projo.com