The Department of General Services Contract Administration Performance Audit

Transcription

1 The Department of General Services Contract Administration Performance Audit August 2014 Audit Services Division City and County of Denver Dennis J. Gallagher Auditor

2 The Auditor of the City and County of Denver is independently elected by the citizens of Denver. He is responsible for examining and evaluating the operations of City agencies for the purpose of ensuring the proper and efficient use of City resources and providing other audit services and information to City Council, the Mayor and the public to improve all aspects of Denver s government. He also chairs the City s Audit Committee. The Audit Committee is chaired by the Auditor and consists of seven members. The Audit Committee assists the Auditor in his oversight responsibilities of the integrity of the City s finances and operations, including the integrity of the City s financial statements. The Audit Committee is structured in a manner that ensures the independent oversight of City operations, thereby enhancing citizen confidence and avoiding any appearance of a conflict of interest. Audit Committee Dennis Gallagher, Chair Maurice Goodgaine Leslie Mitchell Rudolfo Payan Robert Bishop Jeffrey Hart Timothy O Brien, Vice-Chair Audit Staff Audrey Donovan, Deputy Director, CIA, CGAP, CRMA Dawn Wiseman, Audit Supervisor, CRMA Anna Hansen, Lead Auditor Emily Owens, Senior Auditor, MPA Carl Halvorson, Senior Auditor You can obtain copies of this report by contacting us at: 201 West Colfax Avenue, Department 705 Denver CO, (720) Fax (720) Or download and view an electronic copy by visiting our website at:

3 City and County of Denver 201 West Colfax Avenue, Department 705 Denver, Colorado FAX Dennis J. Gallagher Auditor August 15, 2014 Ms. Adrienne Benavidez, Executive Director Department of General Services City and County of Denver Dear Ms. Benavidez: Attached is the Auditor s Office Audit Services Division s report of their audit of the Department of General Services (General Services) contract administration. The purpose of the audit was to assess General Services contract monitoring practices through a review of the degree to which General Services ensures that vendors follow the contract scope of work and by comparing General Services policies and procedures to best practices for monitoring contracts. Our 2009 Citywide Contract Procurement audit assessed the City s overall contracting process. However, the current audit focused on one specific aspect of the process General Services establishment of a framework for contract monitoring of Citywide service contracts, for which General Services is responsible. City Charter clearly states that General Services has the authority to manage and control purchasing of all supplies, equipment, and services including the power to establish and control standards and specifications in consultation with other departments or agencies. The audit found that contract monitoring for these Citywide services is inconsistent, which increases the City s risk of paying for services not rendered or receiving poor service delivery. It is essential that vendors are monitored and held accountable through contract management and an established monitoring framework. As you know, my Prevailing Wage team previously identified significant issues related to contract compliance of some Citywide contracts under your purview. The team uncovered these findings by conducting simple monitoring tasks that go beyond their responsibility, such as comparing vendor invoices to contract terms and scope of work. Additionally, I am concerned that we have put all our eggs in one basket by allowing single vendors to deliver services such as janitorial, elevator maintenance, and security. As described in our audit report, allowing one vendor to deliver Citywide services may expose the City to unintended risks. I strongly encourage you to conduct an assessment to quantify the efficiencies gained through the use of a single vendor for Citywide services and any potential limitations. Additionally, an assessment of General Services current usage of minority- and women-owned businesses is in order to determine the degree to which General Services use of a single vendor for Citywide service contracts negatively impacts the City s support of minority- and womenowned businesses. To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

4 If you have any questions, please call Kip Memmott, Director of Audit Services, at Sincerely, Dennis J. Gallagher Auditor DJG/leo cc: Honorable Michael Hancock, Mayor Honorable Members of City Council Members of Audit Committee Ms. Cary Kennedy, Deputy Mayor, Chief Financial Officer Ms. Janice Sinden, Chief of Staff Mr. David P. Edinger, Chief Performance Officer Ms. Beth Machann, Controller Mr. Scott Martinez, City Attorney Ms. Janna Young, City Council Executive Staff Director Mr. L. Michael Henry, Staff Director, Board of Ethics To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

5 City and County of Denver Dennis J. Gallagher Auditor 201 West Colfax Avenue, Department 705 Denver, Colorado FAX AUDITOR S REPORT We have completed an audit of the Department of General Services (General Services) Contract Administration. The purpose of the audit was to assess General Services contract monitoring practices through a review of the degree to which General Services ensures that vendors follow the contract scope of work and by comparing General Services policies and procedures to best practices for monitoring contracts. This performance audit is authorized pursuant to the City and County of Denver Charter, Article V, Part 2, Section 1, General Powers and Duties of Auditor, and was conducted in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The audit found that General Services has failed to establish governance over its Citywide service-related contracts, which exposes the City to risks such as inadequate delivery of services or the payment of funds for services not received. Furthermore, General Services use of a single vendor for consolidated service delivery has several disadvantages. First, contracting with one vendor for certain services reduces the City s leverage and ability to negotiate quality services at a low cost. Also, small businesses such as minority- and women-owned enterprises are often less able to compete with large vendors that can provide services across the City. This undermines the City s effort to increase its support of these small businesses, which was identified as an area in need of improvement in the City and County of Denver s 2013 Minority/Women- Owned/Disadvantaged Business Enterprise Disparity Study. We extend our appreciation to General Services and the personnel who assisted and cooperated with us during the audit. Audit Services Division Kip Memmott, MA, CGAP, CRMA Director of Audit Services To promote open, accountable, efficient and effective government by performing impartial reviews and other audit services that provide objective and useful information to improve decision making by management and the people. We will monitor and report on recommendations and progress towards their implementation.

6 City and County of Denver Audit Services Division REPORT HIGHLIGHTS The Department of General Services Contract Administration August 2014 The audit assessed General Services contract monitoring practices. Background The Department of General Services aims to provide quality, efficient, and value-added support services to entities within the City and County of Denver (the City). Four main divisions enable General Services to function in this capacity: Administration, Purchasing, Facilities Management, and Strategic Initiatives. Administrative activities include policy development, and fiscal management while the Strategic Initiatives program works to reduce energy use and demand across the City. Facilities Management staff work to deliver Citywide facility operations and management services; Purchasing staff use a centralized model to procure goods and services for the City. Purpose The purpose of the audit was to assess General Services contract monitoring practices by reviewing the degree to which the Department ensures vendors follow the contract scope of work and comparing General Services policies and procedures for monitoring contracts to best practices. Highlights The audit had two findings; Finding 1 found that the Department of General Services (General Services) has failed to effectively oversee Citywide service contracts. This impairs the City s ability to consistently monitor vendor performance and ensure the City receives all services required by the contract. Not only is there no policy guidance for General Services and other staff regarding monitoring requirements and expectations, but the Department has not created a centralized monitoring position responsible for overseeing the monitoring process. Additionally, the limited monitoring that has occurred has been fragmented, inconsistent, and not communicated back to or tracked by General Services. Without a monitoring framework that includes policy guidance and a centralized monitoring position, General Services cannot enforce contract compliance and ensure that taxpayer money is spent only on the quality and quantity of services for which the City contracted. Finding 2 determined that General Services current use of a single vendor for some Citywide service contracts may limit the City s leverage to acquire quality services at the best price and may reduce the City s support of minority- and women-owned businesses (M/WBE). Specifically, if the sole vendor can no longer provide needed services, the City may be unable to provide certain services such as building security without other available vendors. Also, small businesses such as M/WBEs are often unable to compete against large vendors for these Citywide service contracts. For a complete copy of this report, visit Or Contact the Auditor s Office at

7 TABLE OF CONTENTS INTRODUCTION & BACKGROUND 1 SCOPE 7 OBJECTIVES 7 METHODOLOGY 7 FINDING 1 9 The Department of General Services Failure To Effectively Oversee Citywide Service Contracts Exposes the City to Significant Risks 9 RECOMMENDATIONS 15 FINDING 2 17 The Department of General Services Use of a Single Vendor for Some Citywide Service Contracts Could Reduce the City s Bargaining Power and Support of Minority- and Women-Owned Business 17 RECOMMENDATIONS 20 APPENDICES 21 Appendix A: Denver City Charter Title I, Subtitle B, Article 2, Part 9. General Services 21 Appendix B: Economies of Scale 24 AGENCY RESPONSE 25

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9 INTRODUCTION & BACKGROUND The Department of General Services The Department of General Services (General Services) fulfills an important role for the City by managing, maintaining, and repairing City facilities. General Services also purchases goods and services for City agencies. Other responsibilities include the administration of the City s printing, copier, and mail services contracts and oversight of Citywide sustainability, records management, and energy efficiency programs. 1 General Services manages 126 City buildings covering six million square feet of office space, $230 million in City procurements, and $28 million in annual utility costs. In 2014, General Services was allocated a budget of approximately $49 million with more than 140 employees to carry out its responsibilities. Table 1 lists General Services budget over the last five years. Table 1: General Services Budget Year Budget 2010 $45,739, $46,233, $44,448, * $46,216, ** $49,038,100 Source: City and County of Denver Budget Books 2012 through *2013 amount represents appropriated funds. **2014 amount is the recommended budget. There are four main divisions within General Services: Administration, Purchasing, Facilities Management, and Strategic Initiatives. Administration Division Plans and oversees the development of General Services policies and goals and oversees the activities of the three operating divisions. According to the 2014 budget, the Administration Division began the process of developing and implementing a department-wide contract management program using the following strategies and performance measures: 2014 Strategies: Develop department-wide contract administration policy and procedures Ensure receipt of all contract deliverables and timely payment to vendors Increase City agency use of Citywide contracts for support services Identify and renew all General Services contracts on time 1 City and County of Denver 2014 Budget Book. P a g e 1

10 Performance Measures The Administration Division reported performance measures on the percent of City agencies participating in the contracts for printing and mailing services and on the percent of copy machines under Citywide bid. Although contract management and oversight are key activities of this Division, no related performance measures have been developed according to the 2014 Budget. Purchasing Division Facilitates the City s procurement process by working with outside vendors interested in providing goods or services to the City. The Purchasing Division s program goal is to procure goods and services at the best possible value for City agencies using the following strategies and performance measures: 2014 Strategies: Achieve cost savings, efficiencies, transparency, and accountability through the management of procurement spending Utilize purchase orders to ensure price-related compliance 2 Increase agency efficiencies in other transactions for services using Procurement Cards (PCards) Performance Measures Metrics included an increase in spending on Purchase Orders, PCard payments, and higher cost savings, among others. Facilities Management Division (FM) Oversees the operation, repair, and maintenance of 126 City office buildings and other facilities. FM consists of staff from various trades organized into six teams that oversee specific areas of the City. Some of the services provided by these teams include plumbing, electrical, painting, janitorial, and fixture maintenance. FM provides its services using the following strategies and performance measures: 2014 Strategies involve using the City s work order system to: Measure the ability to complete all preventative maintenance work orders within one month Quantify staff productivity and effectiveness Measure response time for all types of maintenance Performance Measures Metrics included the number of preventative maintenance work orders completed on time, and the number of days to complete work orders for regular and emergency repairs. Strategic Initiatives Division Analyzes, oversees, and makes recommendations for the implementation of efficient energy use, sustainability initiatives, and the management of Citywide records, using the following strategies and performance measures: 2014 Strategies: 2 Purchase Orders (PO) are written sales contracts between the City and a vendor. POs contain sale details such as quantity of the merchandise or the service that the vendor will deliver, and shipping and payment terms. POs allow the City to track outstanding orders and accounts payable. City and County of Denver P a g e 2

11 o o Educate and instruct Facility Managers on how to track, analyze and communicate energy performance of their respective facilities to its occupants Achieve energy-related sustainability goals through the management of energy usage and performance o Increase Citywide engagement and education of the Records Management Program via an interactive website Performance Measures Metrics include Citywide energy reduction and conducting an inventory assessment of Citywide records. Citywide Services Prior to 2005, the City assessed the effectiveness and efficiency of its functions and services in response to worsening economic conditions. As a result of this assessment, the City identified opportunities to implement more cost effective methods of service delivery by centralizing and consolidating City functions that are common across all City agencies, such as payroll, information technology, human resources, and purchasing. This consolidation was accomplished using either internal or third-party service providers. Internally, new centralized City functions were created to provide services to City agencies. For example, the City created a centralized Technology Services agency in 2005 to provide information technology services Citywide. Similarly, in 2010, the City s purchasing function was centralized within General Services as part of Procure-to-Pay (P2P). In addition to achieving cost savings, the goal of these centralization efforts was to provide a higher and more equitable level of service across the City. Another mechanism for providing Citywide services is using external third-party vendors instead of an agency within the City. For example, as the contracting agency, General Services procures and manages contracts for certain goods and services to be provided by third-party vendors to many City agencies (user agencies). 3 Although a variety of City agencies are the recipients of these goods and services, General Services initiates, solicits, awards, and manages these consolidated services contracts according to City Charter. General Services Authority Over Citywide Services The City has delegated authority over the management and control of some Citywide services to General Services. According to City Charter, General Services has exclusive management and control of the purchasing of goods and services for the City; in addition, General Services manages and controls all facilities owned or established by the City as well as all services established by the City to provide for the operation, care, 3 The types of goods that General Services procures through contracts or MPOs include paper products and janitorial and plumbing supplies; services provided by vendors include janitorial services, elevator maintenance and repair services, language services for telephonic language interpretation, motor vehicle towing, landscaping, and security services, among others. Goods are normally physical items such as books, folders, and pens; once received they can be easily accounted for. On the other hand, services are often delivered over a period of time but may be more difficult to account for and measure. Goods can be returned but services, once delivered, cannot. P a g e 3

12 repair, or maintenance of City buildings when such services have been consolidated and centralized. 4 See Appendix A for more details regarding the authority of General Services. Management and control of consolidated services includes providing oversight on all contract phases, from beginning to end, including not only the procurement of a contract but also the administration and monitoring of the contract. The Contract Process Governments contract out goods and services for different reasons but mainly to reduce costs and to obtain better products and services. The contract process, from beginning to end, includes three main phases: contract procurement, the contract period, and the post-contract period. There are different activities that take place during each phase of the process. Contract Procurement The contract procurement process typically involves a number of activities, including defining the scope of work to be performed, obtaining a qualified vendor or contractor through the appropriate procurement process preparing the contract, and submitting the contract for the appropriate levels of review and approval. Contract Period Following procurement, the contract period includes the administration and monitoring of the contract. The Office of the Federal Procurement Policy (OFPP) specifies that contract administration involves all those activities that government representatives must carry out to determine how well the government and the contractor are performing to meet the requirements of the contract and to ensure that the government is receiving the benefits for which it paid. Contract monitoring is among the activities that the government needs to perform to ensure contract and vendor compliance and that all legal requirements are met. Contract monitoring is often the shared responsibility of program personnel and the contract administrator. Specifically, the program personnel usually carry out the day-today monitoring of the goods and services delivered since they are best suited for determining whether the vendor is adequately providing the contracted goods and services, based on their proximity to the goods and services delivered. The contract administrator is involved in the procurement process and ensures that all contract documentation is valid and updated. The contract administrator also monitors vendor performance through communication with the program personnel, invoice review and approval, and methodical documentation to determine the quality of vendor performance. 5 Post-Contract Period Once the contract reaches its term limit, the contract process advances into the post-contract period, where all activities related to the contract are closed out and a final determination is made regarding vendor performance for possible contract renewal or for future reference. 4 However, Denver City Charter (B) (D) allows the Mayor to assign a centralized activity or facility to another department, agency, board, commission or authority. 5 A Guide to Best Practices for Contract Administration, Office of Federal Procurement Policy, accessed via website on June 19, City and County of Denver P a g e 4

13 For the purpose of this audit, we focused on the contract monitoring process. Important Elements of Effective Contract Monitoring To effectively monitor contracts and vendor performance, professional and industry organizations recommend the development of policies and procedures for monitoring contracts, including the identification of those responsible for monitoring. Other recommended actions include the following: Developing steps for addressing non-compliance Monitoring vendor performance throughout the life of the contract Measuring customer satisfaction Reporting on contract performance Performing closeout and post-contract review Sound contract administration assures that the end users are satisfied with the product or service being obtained under the contract. 6 Although enhanced monitoring of contracts can be achieved through technical inspections of the services delivered, documenting vendor technical performance is key to effective contract administration. Additionally, another valuable method for monitoring performance is through contractor reporting using progress or status reports, which can uncover potential cost overruns, late deliveries, and poor contractor performance. Additionally, best practices for contract monitoring call for offering training on contract monitoring, using contingency plans, and implementing a contract administration plan. Training related to contract monitoring increases the likelihood that individuals will monitor contracts reliably by providing the appropriate background knowledge related to contracts. Contingency plans reduce the risk of interrupted services when vendors default on their obligations. A contract administration plan ensures that all agency personnel have a common understanding of the respective roles and obligations of the vendor and the agency. 7 Contracting Mechanisms Although the City has different categories of contracting mechanisms, the three main contract types used by General Services to purchase Citywide goods and services are contracts, master purchase orders, and on-call contracts. Contracts are legally binding agreements between two or more parties to exchange something of value such as goods, services, or money. All parties are bound by various terms and conditions specified in the contract, which must be signed by the Mayor. 6 City and County of Denver Executive Order 8, Contracts and Other Written Instruments of and for the City and County of Denver. 7 Best Practices in Government: Components of an Effective Contract Monitoring System, State of Georgia, accessed via website on March 17, P a g e 5

14 Master Purchase Orders (MPOs) are contractual agreements used by multiple agencies to purchase goods or services in volume, at fixed prices. MPOs are typically used for goods or services needed by agencies on a regular basis, but the City is not bound by terms and conditions other than payment requirements and the Mayor s signature is not required. General Services Purchasing Division utilizes a process in which master purchase orders are solicited among multiple vendors. This allows the City to secure better pricing and service arrangements with the vendor(s). This also reduces costs because individual agencies are not respectively allocating time to choose a vendor and purchase goods and services on their own. MPOs are typically for a one-year term with extension and renewal options, and they are not bound by the City s three to fiveyear term limitation. 8 MPOs are administered by buyers in the Purchasing Division. Buyers are assigned specific MPOs to monitor. 9 On-call contracts are agreements to provide services on an as-needed basis during the contract term. Work is usually commenced by written task or work order, which sets forth the scope of work or services to be provided and a price determined by rates or unit costs agreed upon in the contract. 10 Both contracts and MPOs can have on-call elements or terms. As of January 2014, General Services was managing a total of 120 active agreements, including contracts and MPOs, totaling approximately $345 million. 11 Table 2: Comparison of General Services Agreements January 2014 Type of Agreement Number Dollar Amount Percentage Contracts 20 $78,985,369 23% MPOs 100 $266,489,971 77% Total 120 $345,475, % Source: General Services data provided by the Contract Compliance Technician. Note: Contracts and MPO categories above include contracts that are on-call or have on-call elements. 8 City and County of Denver Executive Order 8, Contracts and Other Written Instruments of and for the City and County of Denver. 9 MPO assignments are rotated amongst buyers on an as needed basis. 10 City and County of Denver Executive Order 8, Contracts and Other Written Instruments of and for the City and County of Denver. 11 During the course of the audit, auditors requested from General Services a list of all active agreements for 2014 that the Department is administering. Auditors received two sets of data from General Services, however the two sets of data did not agree. For the information in Table 2, auditors selected the data set provided by the Contract Compliance Technician because it included MPOs. We define as active those agreements that have not expired. City and County of Denver P a g e 6

15 SCOPE The audit assessed the monitoring of active contracts for Citywide services by the Department of General Services. OBJECTIVES The audit addressed two objectives. The first objective was to assess the degree to which General Services ensures that contractors follow the contract scope of work. The second objective was to assess whether General Services policies and procedures for monitoring contracts align with best practices. METHODOLOGY The methodologies applied during the audit process included various methods to gather and analyze information pertinent to the audit scope and to assist with developing and testing the audit objectives. The audit steps included the following: Interviewing key employees from General Services to gain an understanding of the contract monitoring process Interviewing accounts payable subject matter experts to understand the accounts payable process and how it relates to General Services contract monitoring strategy Conducting research on contract monitoring best practices in both the municipal and private sector environments Analyzing General Services policies and procedures regarding contract monitoring practices and comparing policies against best practices Sampling General Services contracts and MPOs to capture current contract monitoring practices and how they compare to best practices Conducting interviews with other City agencies that receive Citywide services from vendors to determine: If they receive adequate support and guidance from General Services What type of monitoring occurs for General Services contracts from a compliance and accounts payable perspective The frequency of communications between General Services and user agencies regarding contract monitoring Whether General Services collects and evaluates customer service satisfaction and feedback Conducting telephone interviews with five municipalities to assess the effectiveness of utilizing a single vendor to provide a Citywide service including P a g e 7

16 Los Angeles County, California Mecklenburg County, North Carolina Mesa, Arizona San Antonio, Texas Seattle, Washington City and County of Denver P a g e 8

17 FINDING 1 The Department of General Services Failure To Effectively Oversee Citywide Service Contracts Exposes the City to Significant Risks The Department of General Services (General Services) fulfills an important role for the City by managing, maintaining, and repairing more than one hundred facilities as well as purchasing goods and services for those facilities. General Services facilitates the City's procurement process by working with outside vendors to provide goods and services to City agencies (user agencies) at the best possible value. With $230 million in annual City procurements, establishing oversight for the City s contractual arrangements is critical to ensure that outside vendors adhere to contract terms and provide the agreed-upon goods and services. 12 Although the General Services Purchasing Division has established controls to govern the acquisition of goods, the audit found that governance over the provision of Citywide services is severely lacking in two areas. First, General Services has failed to develop a robust policy to facilitate the monitoring of Citywide services. Second, General Services has not dedicated sufficient staff resources to carry out necessary contract monitoring activities. As a result, there is confusion within the City agencies that are the recipients of these services regarding what kind of monitoring is expected and who is responsible for monitoring activities. In the absence of clear direction, some agencies have self-initiated contract monitoring activities, which have been inconsistent and not communicated back to or tracked by General Services. The audit revealed some breaches of contract specifications regarding documentation requirements and proper payments, both of which could have been avoided with a monitoring framework in place. City Charter clearly states that General Services has the responsibility for the control and management of City buildings, some other facilities, and consolidated services necessary for the operation and maintenance of City buildings. As such, General Services has a governance role over these service contracts and the ultimate responsibility for establishing a monitoring framework. Without establishing policy guidance and dedicating sufficient staff for the purpose of monitoring contracts, inconsistent tracking of vendor performance will persist and the City will be unable to enforce compliance with contracts or assure taxpayers that their funds are being used only for the services provided and required under the contract. General Services Contract Compliance Policy Provides Inadequate Guidance Regarding Monitoring City Charter assigns several powers and duties to General Services that include the control of municipal office buildings and operation of other municipal facilities. More specifically, General Services shall have the management and control of the occupancy and of the operation, care, repair and maintenance, either by the 12 City and County of Denver 2014 Budget Book. P a g e 9

18 Department or under contracts let by the Department, of all structures [ ] owned or leased by the City and County General Services is also responsible for the management and control of all centralized services established by the City and County to provide for the operation, care, repair or maintenance of other buildings owned or leased by the City and County when such City Charter requires General Services to manage and control the operation and maintenance of City buildings, centralized services, and facilities essential to providing centralized services. services have been consolidated and centralized by the Mayor for operational and administrative efficiency. In addition, General Services must manage and control facilities essential to providing centralized and consolidated services to multiple agencies or other City entities. Despite this Charter-granted authority, General Services has not acted in this capacity, nor has General Services management established a governance structure to carry out these responsibilities. According to the International City/County Management Association (ICMA), a defined governance structure and clearly defined roles and responsibilities are essential components of sound contract management. General Services failure to establish a comprehensive monitoring policy and to assign sufficient resources for carrying out the policy fall short of established best practices. Although General Services has a contract compliance policy (policy), it lacks critical components when compared to best practices. For example, the policy does not include guidelines regarding the type and frequency of monitoring that should occur for Citywide service contracts. The policy specifies that all master purchase orders (MPO) or regularly executed contracts must have a buyer or contract administrator/project manager who is responsible for the daily administration of the contract. 13 However, for some buyers and contract administrators/project managers, we found that the extent of their monitoring-related activities is limited to the receipt and approval of vendor invoices, as needed. 14 We compared the policy established by General Services to best practices issued by a variety of organizations, such as the Office of Federal Procurement Policy (OFPP) and the National State Auditors Association (NSAA), as well as the states of Colorado and Georgia, which have formal contracting guidance documents. Through our review, we determined that the General Services policy lacks several key elements. Monitoring Processes The policy does not establish monitoring processes, which promote consistent, effective, and equitable vendor monitoring. Examples of monitoring processes include cross-checking invoices to contract terms and 13 According to General Services policy, regularly executed contracts are necessary when a vendor and the City will be bound by terms or conditions other than payments, or if a Purchase Order does not adequately protect the City. The Mayor, and in some cases City Council, must sign this type of contract. 14 General Services policy specifies that buyers are responsible for the daily administration of MPOs which includes monitoring of spend levels and renewal and expiration dates, and issue resolution as needed. Contract administrators, or project managers, perform similar duties for General Services regularly executed contracts. City and County of Denver P a g e 10

19 conditions and the regular review of progress or status reports on vendor services provided. Performance Evaluation Current General Services policy does not describe how vendor performance should be evaluated as recommended by the NSAA. Half of the contracts we reviewed did not include clear performance measures, and two-thirds of the contracts we reviewed did not include language that ties vendor performance to payments. Customer Satisfaction The policy does not have provisions for measuring the satisfaction of City agencies that are the recipients of these services. This could be achieved by instituting a formal complaint system, which is also lacking. Remedies for Non-Performance The policy has not established penalties or corrective actions for vendor non-performance. Training General Services has not specified what type of training or certification is necessary for personnel who are responsible for monitoring contracts. Personnel from user agencies explained to auditors that they have not received training related to contract monitoring. Contract Administration Plan General Services does not use this tool in managing Citywide service contracts, even though it is considered a best practice by the OFPP and the State of Georgia. Contract Administration Plans specify both the vendor and agency s responsibilities and typically describe deliverables, due dates, contract modifications, vendor performance expectations, and the methods that will be used for inspecting services rendered. In the absence of a robust contract monitoring policy, the City is at risk of not getting as much value as possible from third-party vendors. General Services Has Not Dedicated Sufficient Staff Resources for Monitoring Citywide Service Contracts In addition to lacking a robust contract monitoring policy, General Services does not have a centralized monitoring position, or contract manager, which is considered a best practice. General Services does have a position called Contract Compliance Technician (Technician). However, the Technician s job description and general activities do not align with established best practices for contract monitoring. By expanding the Technician position, or adding a position such as a Contract Compliance Coordinator (Coordinator), General Services could ensure that it carries out the essential roles and responsibilities recommended by best practice. 15 According to the City s official job description, the Technician is primarily responsible for managing contract development, compliance, and renewal rather than monitoring vendor performance. 16 The audit found that the Technician is not fully carrying out the 15 The Contract Compliance Coordinator is a position within the City and County of Denver whose job duties resemble those of a contract manager referenced by best practices. 16 The job description lists the following Technician duties, among others: support maintenance of contract files; identify areas needing adjustment and make suggestions to management to improve future contracts; generate financial spreadsheets to P a g e 11

20 few performance monitoring duties required by the job description and General Services policy. 17 Specifically, the Technician could not provide examples of written reports that document the monitoring activities and outcomes of vendor performance. Further, the only documentation kept by the Technician in the contract files is hard copies of the contracts and any communications from user agencies or General Services staff regarding vendor performance. Auditors noted that the frequency with which the Technician is provided with performance-related documentation, or informed of vendor performance issues, appears haphazard; specifically, the Technician is involved in vendor-related issues only if user agency or General Services staff escalate the issue to the Technician. The Technician explained to auditors that contact with staff in agencies receiving Citywide services is infrequent. In fact, representatives from General Services, user agencies, and a vendor referenced having little to no contact with the Technician. Overall, the Technician s current work approach results in a more reactive method of contract monitoring rather than a proactive approach that would involve the regular tracking of vendor performance and services received. The City has a job classification known as the Contract Compliance Coordinator that manages contract compliance, enforces performance requirements, and evaluates overall vendor performance. By expanding the Technician s role to include such robust monitoring activities, or by adding a contract manager such as a Coordinator, General Establishing a dedicated contract manager who has the authority, resources, and time to monitor vendor performance is a critical component of contract management. Services could ensure it carries out the essential roles and responsibilities described by best practices. Establishing a dedicated contract manager who has the authority, resources, and time to monitor Citywide service vendors is a critical component of contract management, according to ICMA and NSAA. Lack of Effective Oversight of Citywide Service Contracts Has Several Negative Effects In the absence of clear direction from General Services, we found that user agencies are generally uncertain about who is responsible for monitoring the services delivered under Citywide service contracts. Some individuals indicated that it is the responsibility of General Services while another staff member suggested that it is the user agency s responsibility. User agencies have not been provided with any formal or informal policy guidance or training on the monitoring that should occur. track expended funds, contract balances, and concession revenues; prepare written reports to document vendor and contractor performance and closes out contract activities; provide technical support; and review required submissions and documents necessary for payment. 17 The Technician s current activities include reviewing invoices, assisting with the contract initiation process in the City s document management system ( Alfresco ), monitoring contract expiration dates, and other administrative duties. City and County of Denver P a g e 12

21 The IBM Center for The Business of Government identifies close communication between all parties involved as a success factor for effective contract administration. The Center recognizes poor communication as a trigger for several problems including conflict, unnecessary work, low employee morale, and strained relationships among key stakeholders. Poor communication in both directions between General Services and user agencies has resulted in inconsistent monitoring, poor documentation, and payment issues, and ultimately diminishes the City s ability to manage vendor performance and ensure sound vendor relations. Inconsistent Monitoring Practices Robust governance sets clear expectations for all parties involved in a process, and in its absence, self-initiated activity often emerges. Although this kind of initiative is commendable and often gives rise to internal best practices, it nonetheless leads to inconsistency and vulnerability to risk. Although the audit team identified examples of certain City personnel successfully monitoring and overseeing services received through General Services contracts, these staff members appear to be acting on their own initiative without the support or guidance of General Services. Following are some of the self-initiated monitoring activities that user agencies have put into place in the absence of formal policy guidance: One recreation center supervisor: o o o Developed a checklist for use in validating the janitorial services provided to the center; Uses a log book that was provided by the center s janitorial-services vendor, which serves as a valuable communication aid between the cleaning crew, crew supervisor, and recreation center supervisor; and Contacts the vendor directly to resolve vendor-performance problems. One buyer with the Purchasing Division: o Cross-checks services listed on invoices against the contract scope of work. When issues emerge, the buyer contacts the vendor directly for resolution. This ad-hoc approach to monitoring, although commendable in the absence of General Services oversight, does not ensure consistent quality of service delivery. Further, the tools being used by some agencies are useful, but by not being deployed across agencies, their usefulness is limited. Monitoring and documenting vendor performance is necessary to ensure that contract terms and requirements are followed and that the City utilizes only those vendors that successfully provide the required services at agreed upon prices. ICMA references the need to track issues and action items and assign individuals and deadlines to the resolution. Further, a defined and consistently followed process for monitoring services received and escalation of issues is a recommended best practice. OFPP guidance also states that documenting surveillance and monitoring is a key component of contract administration. For example, collecting vendor performance data in a central repository so that all stakeholders within General Services and user agencies can access the information is a tool that can improve the quality and consistency of performance P a g e 13

22 information available to the City and assist General Services in utilizing vendors that are able to provide quality and timely services. Even though individual staff have acted proactively in some cases to provide some degree of monitoring, we found that oversight performed by other staff and management is severely lacking, especially in the areas of documentation and proper payment of the employees working for the vendors. Lack of Documentation When auditors asked General Services staff to provide examples of monitoring activities for select contracts, we were informed that General Services and in some cases the user agency does not retain any documentation evidencing the monitoring activity. Instead, the vendor is asked to keep the monitoring information on hand in the event that the City requires it. Some contracts actually do require the City to retain documentation. For one contract in particular, which requires that the vendor give a report to both the user agency and General Services Purchasing Division on a monthly basis, General Services could not provide two different reports. Another contract administrator explained that monitoring documentation is typically provided in the form of communication, if it is documented at all. However, General Services could not provide auditors with any examples of these types of messages. For one vendor, General Services was using a report card to evaluate services received, but the tool has not been utilized since Best practices suggest that the contract files should contain a variety of documents including modifications to the contract, a contract monitoring plan, a business contingency plan for vendor noncompliance, methods of contract and performance evaluation, and copies of progress reports, among other items. Underpayment of Vendor Employees In addition to this lack of monitoring documentation, General Services has experienced problems with vendor billing and accurate payments by vendors to their staff. For It is impossible to ensure that the City does not pay for services not received, or pay more than allowable under the contract, without consistent and thorough monitoring of these Citywide service contracts. example, between 2010 and 2014, one vendor neglected to pay approximately $60,000 for staff overtime, parking, and other required payments. Further, in 2009 and 2010, multiple vendors attempted to bill the City for an hourly rate greater than the rate allowed by the contract and requested payments for work that was not completed. These problems were discovered by the Auditor s Office s Prevailing Wage Division (PW) despite the fact that monitoring invoices for delivery and quality of services is not the responsibility of PW employees. 18 Although some of these invoicing and billing errors were caught, it is impossible to ensure that the City does not pay for services not received, or pay more 18 The Prevailing Wage Division is responsible for monitoring invoices and payments by City contractors to contract workers to ensure that payments meet prevailing and living wage standards. These responsibilities are set out in Denver Revised Municipal Code and City and County of Denver P a g e 14

23 than allowable under the contract, without consistent and thorough monitoring of these Citywide service contracts. Failure to Effectively Monitor Citywide Service Contracts Puts the City at Risk of Retaining Low-Performing Vendors Over the long-term, ineffective monitoring and documentation of vendor performance and poor communication between General Services and user agencies regarding vendor performance renders the City unable to promptly identify and react to vendors that do not provide timely and quality services and to avoid doing business with those vendors in the future. Specifically, by not requesting and storing important monitoring documentation, the City cannot track services provided on a real-time basis or prevent the falsification of that information when requested from the vendor at a later date. Overall, General Services current lack of governance over contracts for Citywide services means that the City cannot reasonably ensure that taxpayer dollars are being safeguarded and not being misspent to pay for services the City did not receive. To remedy these significant deficiencies, General Services should develop a contract monitoring framework that includes more robust policy guidance, expectations for communication between General Services and user agencies regarding vendor performance, and regular training for staff to help them carry out their duties as established by the policy. Formal The lack of governance over contracts for Citywide services means that the City cannot reassure taxpayers that their funds are not being misspent to pay for services the City did not receive. agreements such as service level agreements should be pursued, as needed, between General Services and user agencies to define monitoring roles and expectations. Further, General Services should establish a centralized monitoring position within the Department responsible for overseeing vendor performance monitoring, whether carried out by General Services or user agency staff. Finally, General Services should regularly survey user agencies receiving services through contracts for Citywide services to identify potential problems or areas in need of improvement. RECOMMENDATIONS 1.1 The Executive Director of the Department of General Services should develop a contracting monitoring framework for Citywide service contracts that includes, at minimum, a monitoring policy that identifies monitoring roles and responsibilities for all users of Citywide services as well as the baseline type and frequency of monitoring that should occur, a communication strategy to communicate performance issues to General Services management, regular training for all contract compliance staff in General Services and user agencies, and performance measurement, documentation, and tracking tools. As necessary, General Services should establish a Service Level Agreement (SLA) or P a g e 15