Contract headaches: The Long Beach Story
We’ve read multiple audits about the flaws in contract administration in cities, counties and states. The findings often have a similar theme – too little attention is paid to contracts after they are bid. Performance objectives, even when they exist, are ignored. Payments exceed agreements. Project schedules stretch past contractual completion dates. Documentation is often terrible.
All these problems, and many more, crop up in this month’s summary report of contract administration in Long Beach, California. As the report points out, the risks of poor practices are extensive. At least $574 million was spent by the city on contracted services in 2015. That’s about 40 percent of its total spending for that year.
The auditor, Laura Doud, and her staff compared the city’s own practices to “best practices” with depressing results. The summary report was based on eight contract-related audits that occurred between fiscal years 2012 and 2016, as well as nine limited-scope audits that were targeted as part of the auditor’s 2015 work plan. Contracts involved both goods, such as the purchase of firefighter protective equipment or personal computer replacement , and a variety of services, such as consulting and training, custodial help, professional security services, and graffiti abatement.
The limited scope audits yield plentiful examples of typical contracting problems in this very well-documented report. An appendix with best practices also provides a useful guide for managers in Long Beach and elsewhere.
Among the problems cited:
The city doesn’t have a central database or contract monitoring system. This makes it hard to find even basic information and since contracting is highly decentralized it’s even difficult to know how much is contracted out.
Each department has different processes, resulting in a lack of citywide consistency.
Poorly drawn scopes of work and inadequate reporting requirements make it difficult to determine whether contracts achieve desired results.
Major changes to work scope, changes to contractual payment terms, and the addition of unrelated work without a new contract, compromise competitive practices.
The report describes in depth how the inadequate monitoring of contracts has led to payment for services that were not satisfactory, as well as to payments far in excess of contract agreements. For example, the summary report cites a limited scope audit of a water department contract in which 65 percent of “miscellaneous security services” were billed at higher rates than were spelled out in the contract.
According to the report, “The most concerning findings repeatedly identified were the limited verification of vendor’s work, allowing work to be performed without a contract in place, and paying for work based on pricing that is no longer current or competitive.”
The city now aims to rectify its contracting problems with a massive training program for employees who often have been given oversight and monitoring responsibilities with little knowledge of what that entails. The training will be given in three parts, with topics including “the importance of specifications and scopes of work, roles and responsibilities, and guidelines on how to evaluate performance, identify deficiencies and document anomalies.”