Contract Management Performance Audit. Office of Internal Audit

Transcription

1 Performance Audit Office of Internal Audit June 2015

2 Office of Internal Audit The Office of Internal Audit is an independent audit office within the Fairfax County Public Schools. The Office performs performance, compliance, and financial audits, and reports to the School Board through the Board s Audit Committee. Audit Committee The Audit Committee is composed of four School Board members, with the Superintendent, Deputy Superintendent, and Chief Operating Officer serving as nonvoting participants. The Board s Strategic Governance Manual provides that the Audit Committee serves as the Board s liaison with the Office of Internal Audit by: reviewing the annual audit plan prepared by the Office and submitting its recommendation to the School Board for approval; mediating the auditors relationship with management; reviewing audit reports and management responses, and reporting to the Board monthly; following up on the of internal audit recommendations; monitoring progress against the approved annual audit plan; acting as a conduit for School Board member requests for ad hoc reviews; periodically reviewing audit-related policies for approval by the Board; and assisting the Board with the evaluation of the Auditor General in accordance with Human Resources guidelines, policies, and regulations. The School Board has final approval in regard to the audit plan, the audit budget, and the of any significant recommendations. FY 2015 Audit Committee Members Ilryong Moon, Committee Chair (At Large) Pat Hynes (Hunter Mill) Dan Storck (Mount Vernon) Jane Strauss (Dranesville) Audit Staff Chris Horton, Ph.D., CIA, CGAP, CCSA, CRMA, Audit Manager 1

3 TABLE OF CONTENTS EXECUTIVE SUMMARY... 4 Finding 1: Further Developing Central Controls Would Enhance Contract Monitoring... 5 Finding 2: Three Departments Need to Develop and Implement Key Best Practices for Contract Monitoring... 5 Finding 3: Three Functions Have Generally Well-Developed Monitoring Structures, and Additional Refinement is Needed... 6 Finding 4: Audit Findings and Recommendations in This Report Indicate the Value of Reviewing in other Departments and in Schools... 7 INTRODUCTION & BACKGROUND... 8 Overview... 8 Roles and Responsibilities... 8 FOCUS Financial System Audit Independence, Compliance, and Acknowledgements SCOPE, OBJECTIVE, & METHODOLOGY Scope Objective Methodology FINDING Further Developing Central Controls and Practices Would Enhance Contract Monitoring FCPS Provides Some Key Contract Controls Additional Enhancements Are Needed to Improve Central Guidance and Monitoring OPS Can Take Specific Steps to Improve Oversight and Guidance of FCPS Contract Monitoring Practices RECOMMENDATIONS & RESPONSE FINDING Three Departments Need to Develop and Implement Key Best Practices for Contract Monitoring Departments Management of Contract Monitoring Should be Centralized to Improve Effectiveness Improvements Needed to Assist Contract Monitoring Staff Department Monitoring and Reporting Functions Should be Developed and Implemented.. 44 RECOMMENDATIONS & RESPONSE

4 FINDING Three Functions Have Generally Well-Developed Monitoring Structures, and Additional Refinement is Needed Each of the Three Functions has Implemented Numerous Monitoring Best Practices Some Needed Refinements are Common to Each Function Additional Efforts Needed to Monitor Claims and Eligibility in Benefits and to Track SWaM Status in FTS RECOMMENDATIONS & RESPONSE FINDING Audit Findings and Recommendations in This Report Indicate the Value of Reviewing in other Departments and in Schools RECOMMENDATION & RESPONSE

5 EXECUTIVE SUMMARY In accordance with the FY 2015 audit plan approved by the Fairfax County Public Schools (FCPS) School Board, this audit reviewed current practices and procedures related to FCPS contract procurement and contract monitoring within six units. These were: the Department of Facilities and Transportation Services (FTS); the Department of Human Resources (HR); the Department of Information Technology (IT); the Instructional Services Department (ISD); the Department of Special Services (DSS); and the Office of Procurement Services (OPS), within the Department of Financial Services. For FTS the audit only reviewed contract processes for contracts that fall outside the central procurement process managed by OPS. The audit s objective was to determine whether general contract management practices within key FCPS central services departments, including the contract procurement process, the award process, and contract monitoring, adhere to best practices for organizational contract management. Contract management combines the functions of procurement and contract monitoring. In FCPS, primary contract management responsibilities are shared between OPS and various departments and schools, while some contracts related to school construction are both procured and monitored by FTS. The term contract management incorporates both the procurement of goods and services and the monitoring of contractor performance to ensure that goods and services are received with contracted levels of pricing and quality. The audit found that while some key contract controls are in place throughout FCPS, several improvements are needed in both central FCPS controls and in the contract structures and processes in the various departments. While this audit reviewed both procurement and monitoring processes, the findings and recommendations relate primarily to contract monitoring. 1 1 The audit team did not review individual contracts for the purpose of performing an independent assessment of contract compliance. The audit focuses on risks of non-compliance, but does not make any conclusions regarding vendor noncompliance for any specific FCPS contract. 4

6 Finding 1: Further Developing Central Controls Would Enhance Contract Monitoring Further developing FCPS central contract management controls and practices would enhance contract monitoring throughout FCPS. FCPS provides some key contract controls, such as policies, notices, and regulations, while OPS has additional purchasing processes that enhance overall contract management. While these provisions form a helpful structure, additional developments would increase FCPS effectiveness in contract monitoring, helping to ensure that FCPS contractors are providing quality goods and services at contracted prices. FCPS can further strengthen contract management by developing a policy or regulation specifically about contract monitoring, and by continuing efforts to extract helpful contract monitoring data from the FOCUS financial management system. These efforts would help FCPS management overcome current limitations in determining how much money is expended for each contract. Furthermore, FCPS should ensure that updated certificate of insurance information received by Risk Management is provided to OPS when the original certificate of insurance expires. Finally, OPS should implement improvements including additional oversight for sole source and best practicable source contracting requests, regular contract monitoring reports from FCPS departments for which OPS procures goods and services, altering the form of contracts to create a simpler document that is easier to monitor, creating centralized policies and procedures within OPS, codifying OPS internal processes and measures, formally tracking the use of Small, Women-owned, and Minority-owned businesses in FCPS, and considering the formal use of a performance-based contracting approach for FCPS procurement. Finding 2: Three Departments Need to Develop and Implement Key Best Practices for Contract Monitoring Within three departments, the Department of Instructional Services (ISD), the Department of Special Services (DSS), and the Department of Human Resources (HR), some key best practices for an effective contract monitoring system should 5

7 be implemented. 2 Each department has identified individuals who conduct some contract monitoring activities. For example, each of the departments discussed in this finding has designated invoice management personnel to track and process contracting invoice payments through the FOCUS financial system. However, additional development is needed in the departments contract monitoring structure by formally designating a central person responsible for tracking the department s contract monitoring practices. Additionally, the departments should enhance the abilities of its contract monitoring staff by codifying internal policies and procedures assessing the training needs of internal contract monitoring staff. Finally, the departments should improve their monitoring and reporting by assisting with the development of additional contractor performance measures, creating internal contractor performance reports, and implementing internal performance measures. While having a varied set of contractor performance measures in each contract would represent better practice, different contracts carry different levels of risk and a lower number of performance measures may be warranted in some kinds of contracts departments determine to be lower risk. Finding 3: Three Functions Have Generally Well-Developed Monitoring Structures, and Additional Refinement is Needed In two FCPS departments and one FCPS office contract monitoring structures were observed that generally reflect best practices, although some additional refinements to monitoring practices can be made in each. Among the contracting activities that demonstrated best practices were those within FTS, which are conducted outside of normal procurement process administered by OPS. In addition, the Office of Benefit Services (Benefits) and the Department of Information Technology (IT) demonstrated contracting structures and processes with key hallmarks of best practices. Specifically, these functions all contain a central person who is aware of and tracks contracts. All of the functions have a list of contracts, and an associated list of the persons responsible for monitoring the contracts. Each of these functions also has active ongoing monitoring activities, which produce monitoring logs that are available for management 2 References to HR in this finding do not apply to the Office of Benefit Services (Benefits), which is located within the Department of Human Resources. The audit reviewed Benefits and found more developed contract management practices similar to the recommendations presented in this finding. Benefits is discussed further in Finding 3. 6

8 review. Finally, each of the functions has designated invoice management personnel tracking and processing contracting invoice payments through the FOCUS financial system. Some best practices, however, can be implemented in each of the areas. For example, each of the three should further enhance their monitoring activities by developing internal performance measures for contract monitoring, as well as ensuring that all contracts, particularly any sole source contracts, have clear performance measures developed in conjunction with best practice guidelines. Furthermore, FTS, Benefits, and IT should ensure that contractor performance reports are developed and provided to internal management and, as necessary, to OPS. This is particularly important in FTS for contracts that are procured and monitored outside of the OPS procurement process. While FTS Office of Design and Construction has developed very strong internal policies and procedures, IT, Benefits, and FTS Office of Infrastructure and Environmental Engineering would benefit from developing and codifying a central set of internal guidance for contract monitoring. Finally, two developments that would strengthen Benefits and FTS, respectively, are the of claims audits and annual eligibility attestations, and implementing a process that would track, monitor, and assess trends in small, women-owned, and minority-owned business used for construction-related activity. Finding 4: Audit Findings and Recommendations in This Report Indicate the Value of Reviewing in other Departments and in Schools This audit did not review and does not conclude on contract management practices in FCPS departments or schools outside the audit scope. However, the contract management findings and recommendations of this audit strongly suggest that other central departments within FCPS would benefit from a management review of their contracting processes, especially in regard to contract monitoring. Similarly, the findings in the audit indicate that schools would likely also benefit from a management review regarding their contract monitoring structure and processes. 7

9 INTRODUCTION & BACKGROUND Overview Contract management combines the functions of procurement and contract monitoring. In Fairfax County Public Schools (FCPS), contract management responsibilities are shared between the Office of Procurement Services (OPS), within the Department of Financial Services, and various departments and schools. This audit reviewed the contract management practices for non-school based contracts, specifically reviewing the contract management practices in the Office of Procurement Services, the Department of Special Services, the Instructional Services Department, the Department of Human Resources, the Department of Information Technology, and the Department of Facilities and Transportation Services. Roles and Responsibilities Contract management requirements for state and local governments in Virginia derive primarily from the Virginia Public Procurement Act. 3 In Fairfax County, the Department of Purchasing and Supply Management sets forth additional requirements in the Fairfax County Purchasing Resolution, which FCPS follows. Finally, FCPS has developed and implemented 19 unique organization-wide policies and regulations dealing with contract management, as well as allowing for further departmental level guidance. 4 Role of OPS In FCPS most procurement occurs through OPS, which is the central procurement office for FCPS. OPS operates with delegated authority from the Fairfax County purchasing agent, who is the head of the County s Department of Purchasing and Supply Management. OPS is responsible for all procurements except those related to school system facility construction. 5 3 Code , et. seq. 4 The policies are P1801, P4120, P4430, P5011, P5015, P8220, P8240, P8250, and P8320. The regulations are R2671, R3014, R4111, R4120, R4235, R4294, R4421, R4650, R5012, and R8320. While R3861 is listed on the FCPS website as related to contracts, this regulation has been rescinded. 5 See the following page for more information about FCPS authority related to construction. 8

10 Types of procurements overseen by OPS OPS oversees three main types of procurements: Requests for Proposal (RFP); Invitations for Bid (IFB); and sole source (or sole practicable source). 6 RFP This type of solicitation is also called competitive negotiation and is typically used for selecting a contractor for goods or services at an estimated value of $100,000 or more. RFPs may be written with less specificity to allow possible contractors room to offer creative solutions to FCPS needs. FCPS staff may also negotiate with bidders for greater level of service or in relation to price. RFPs look for best value, which means that price is not the only criterion for selection. IFB This type of solicitation is written with great specificity, and potential bidders must be willing to provide the product or service as specified. Price is the only criterion for selection. Sole source Sole source contracts are used when the purchasing environment is determined to be void of competition. Sole source procurements require written justification and formal findings from OPS confirming the lack of a competitive environment. Only then can a sole source procurement proceed. Construction contracts School system facility construction contracting can be performed under FCPS own authority, rather than under delegated authority from the County. The Fairfax County Purchasing Resolution states: The Fairfax County Public School Board shall be responsible for construction, related architectural and engineering services, related consulting services, maintenance, repair and related services in connection with building, furnishing equipping, renovating, maintaining, and operating the buildings and property of the school division in accordance with of the Code of Virginia. The school division's Superintendent or his designee shall have the same authority as the County Purchasing Agent to execute and administer contracts. Execution of contracts under this section shall be conducted under the rules and 6 Under the Virginia Public Procurement Act and the Fairfax County Purchasing Resolution, FCPS has the authority to engage in emergency procurement. This type of procurement is rare and consequently was not reviewed as part of this audit. 9

11 regulations established by the Fairfax County School Board in accordance with the mandatory sections of the Code of Virginia. 7 In FCPS, construction contracts are procured and managed by the Department of Facilities and Transportation Services (FTS), which ultimately reports to the Superintendent. FCPS Policy provides that construction contracts above $100,000 must be awarded to bidders who have been pre-qualified to perform construction work for FCPS. 8 Facility construction contracts under $100,000 should go to bidders who have been registered, and in some cases, such as for time and materials contracts, contractors will need to be pre-qualified. In general, construction contracts must be awarded to the lowest bidder in a competitive sealed bid solicitation. However, FTS has the authority under the Virginia Public Procurement Act and under FCPS Policy to use sole source procurement or emergency procurement as needed. These procurements must be conducted in accordance with Virginia Public Procurement Act requirements. School Board and Superintendent approval levels FCPS has set out thresholds for School Board approval authority in its internal guidance. FCPS Policy provides that School Board shall approve the following contracts: Any contract or contract amendment between the School Board and another government entity that exceeds $250,000. Contracts or amendments greater than $100,000 for professional and consultant services as defined in the Fairfax County Purchasing Resolution. Any facilities contract or contract amendment for the improvement of school system facilities, including architectural and engineering services, construction, renovation, maintenance, and related services that exceeds $250,000, subject to all applicable policies and regulations. 9 7 Fairfax County Purchasing Resolution, July 1, 2014, 36. The Purchasing Resolution is located at 8 Policy is entitled Construction, Maintenance Services, Bids, Contracts, Bonds, and Conflict of Interests and is located at 9 Policy is entitled Authority to Contract and is located at 10

12 In addition, FCPS Policy provides that unless otherwise expressly authorized by the School Board, any change order that, when aggregated with the base contract and all prior change orders for such contract, results in an adjusted contract amount that exceeds $250,000 shall be approved by the School Board. Policy further provides that the Superintendent or her designee may approve contracts below the School Board approval thresholds, with the exception that the Superintendent may approve any contract using local school activity funds. For example, FCPS Policy clarifies that, with some defined exceptions 10, the superintendent approves professional and consultant services contracts ranging from $30,000 up to $100,000, while department heads approve lower amounts. For such contracts, an initial review of the potential contractors must be done by a Selection Advisory Committee (SAC) appointed by the Superintendent or department head. 11 Small and informal purchases Many purchases in FCPS are for relatively small amounts, called small purchases and informal purchases. The current version of the School Finance Handbook, effective September 1, 2014, notes that small purchases are purchases of less than $5,000. For these purchases competition is encouraged, but not required; though the Department of Financial Services strongly recommends using competition, when possible. The School Finance Handbook defines informal purchases are those ranging from $5,000 to $49,999. Purchases from $5,000 up to $9,999 require three oral or written quotes, and purchases from $10,000 up to $49,999 require four written quotes. 12 The School Finance Handbook separately provides for informal solicitations, which are for amounts ranging from $5,000 to $99,999. Informal solicitations involve preparing, soliciting, evaluating and making an award, and may take from two days up to ten days. According to the School Finance Handbook, the preferred 10 One of the exceptions is for the procurement of legal services, which is performed outside the provisions of Policy This Policy is entitled Procurement of Professional and Consultant Services and is located at 11 For the approval thresholds see Policy , VI-F and VI-G. Selection Advisory Committees are covered in multiple areas of the Policy, primarily IV-A, IV-B, and IV-C. 12 See School Finance Handbook (September 1, 2014), p

13 method of informal solicitation is a Quick Quote using eva, Virginia s electronic procurement portal. 13 Contract monitoring Contract monitoring is generally performed by the department or school who requested a procurement. Contract monitoring typically involves a review of invoices against contract terms to assess for pricing discrepancies or work performed out of the contract scope. In some departments contract monitoring delves further into activities that help to assure the quality of goods and services contractors provide. FOCUS Financial System FOCUS (Fairfax County Unified System) is the approved financial accounting system used by FCPS and Fairfax County. The FCPS School Finance Handbook contains a succinct description of how FOCUS is used for the expenditure of appropriated funds. Through FOCUS, users can purchase goods and services through shopping carts that are converted to purchase orders and electronically transmitted to the vendor. As an added benefit, users may also shop through the Marketplace, whereby users may access contracted vendor catalogs, select desired products and finalize purchases via a shopping cart. Marketplace orders do not require a receipt entry in the FOCUS system, which expedites the payment process. Procurement cards (PCards) are widely used to purchase contracted items and to secure travel arrangements. 14 Audit Independence, Compliance, and Acknowledgements The is free from organizational impairments to independence in our reporting as defined by government auditing standards. The office reports directly to the School Board Audit Committee. We report the results of our audits to the Audit Committee and the reports are made available to the public through the School Board Auditor page on the FCPS website ( This audit was conducted in accordance with auditing standards generally accepted in the 13 See School Finance Handbook (September 1, 2014), p. 15. Virginia s e-procurement portal is located at eva.virginia.gov. 14 See School Finance Handbook (September 1, 2014), p

14 United States of America, and the standards applicable to performance audits contained in government auditing standards, excepting peer review, issued by the Comptroller General of the United States. The audit staff expresses its appreciation to the management and staff of the Department of Financial Services especially the Office of Procurement Services, the Department of Special Services, the Instructional Services Department, the Department of Human Resources, the Department of Information Technology, and the Department of Facilities and Transportation Services for their assistance in the performance of this audit. 13

15 SCOPE, OBJECTIVE, & METHODOLOGY Scope Objective This audit reviewed current practices and procedures related to FCPS contract procurement and contract monitoring within six units. These are: the Department of Facilities and Transportation Services (FTS); the Department of Human Resources (HR); the Department of Information Technology (IT); the Instructional Services Department (ISD); the Department of Special Services (DSS); and the Office of Procurement Services (OPS), within the Department of Financial Services. For FTS the audit only reviewed contract processes for contracts that fall outside the central procurement process managed by OPS. The audit team did not review individual contracts for the purpose of performing an independent assessment of contract compliance. The audit focuses on risks of non-compliance, but does not make any conclusions regarding vendor non-compliance for any specific FCPS contract. The audit s objective was to determine whether general contract management practices within key FCPS central services departments, including the contract procurement process, the award process, and contract monitoring, adhere to best practices for organizational contract management. Methodology Audit data was gathered and conclusions were formed using the following primary methods. Gathering information from FCPS staff in the six departments and offices discussed within the scope statement. This was primarily done through face-to-face interviews, although data was also gathered using structured question protocols delivered via . Supporting documentation was obtained and reviewed, as needed, to support staff statements. Reviewing and analyzing central FCPS contracting guidance, including the Virginia Public Procurement Act; FCPS enacted policies and 14

16 regulations; the adopted Fairfax County Purchasing Resolution; and the FCPS School Finance Handbook. Reviewing and analyzing contract procurement and monitoring procedures provided by various departments. Reviewing and analyzing contract monitoring logs provided by various contract monitoring staff. Reviewing the list of FCPS contracts generated by OPS through FOCUS, the FCPS financial system. Reviewing a sample of 42 contracts, including 36 sole source contracts, for various provisions, formatting, recurring terms and conditions, and whether clear contract performance measures were in place. The contracts gathered from IT, DSS, and ISD. ISD contracts were gathered and reviewed on February 20 and 23, DSS contracts were gathered and reviewed on March 3, IT contracts were gathered and reviewed on March 3, 2015 and validated on April 27, No validation of the ISD and DSS was determined to be needed. The validation of the IT contracts resulted in no change to the original findings. All contracts were gathered from the Fairfax County contract register, which provided an opportunity to observe the utility and completeness of the contract register. In all cases, contracts were limited to those procured by FCPS, rather than including contracts procured by Fairfax County. All contract analysis was limited to information contained in the Fairfax County contract register. Additional information regarding the composition of the sample is provided below. Sample information is listed in the order in which contract groups were selected and reviewed. o A judgmental sample of 14 ISD contracts, including 13 sole source contracts, from the Fairfax County Contract Register were reviewed, from a total population of 174 contracts the audit team identified as related to ISD The original sample was 15 contracts. However, one contract did not appear in the Fairfax County contract register. Thus, the sample is reported as 14. The audit team determined that reselecting a sample to ensure 15 results would not result in a material change to the quality of the sample. 15

17 o A systematic random sample of 15 DSS contracts, including 10 sole source contracts, were selected from a total of 32 that OPS identified as related to DSS. o Once it became clear that these contracts were almost all sole source contracts with virtually identical language, the audit team decided to select a group of sole source contracts from IT. Thirteen IT sole source contracts were selected by querying the Fairfax County contract register for all sole source contracts identified as related to IT. The group is likely all of the sole source IT contracts procured by FCPS, so within the realm of IT contracts this group of 13 likely represents a population rather than just a sample. Reviewing contract management best practices from: the Office of Federal Procurement Policy; selected articles in the Journal of ; the State of Texas Guide; the Virginia Information Technology Agency s procurement guide, specifically Chapter 21 on performance-based contracting; a report from the Georgia State Auditor s Office entitled Components of an Effective Contract Monitoring System; and various documents from the State of Washington s performance-based contracting webpage. Reviewing best practices in performance measurement development. Reviewing information from the federal government s guidance on performance-based contracting. Observing a contractor monitoring meeting and site visit performed by a coordinator within FTS Office of Design and Construction. Gathering information from the Fairfax County website and relevant Fairfax County staff regarding its tracking and reporting of Small, Women-owned, and Minority-owned business usage. 16

18 FINDING 1 Further Developing Central Controls and Practices Would Enhance Contract Monitoring Further developing Fairfax County Public Schools (FCPS) central contract management controls and practices would enhance contract monitoring throughout FCPS. FCPS provides some key contract controls, such as policies, notices, and regulations, while OPS has additional purchasing processes that enhance overall contract management. While these provisions form a helpful structure, additional developments would increase FCPS effectiveness in contract monitoring, helping to ensure that FCPS contractors are providing quality goods and services at contracted prices. FCPS can further strengthen contract management by developing a policy or regulation specifically about contract monitoring, and by continuing efforts to extract helpful contract monitoring data from the FOCUS financial management system. These efforts would help FCPS management overcome current limitations in determining how much money is expended for each contract. Furthermore, FCPS should ensure that updated certificate of insurance information received by Risk Management is provided to OPS when the original certificate of insurance expires. Finally, OPS should implement improvements including additional oversight for sole source and best practicable source contracting requests, regular contract monitoring reports from FCPS departments for which OPS procures goods and services, altering the form of contracts to create a simpler document that is easier to monitor, creating centralized policies and procedures within OPS, codifying OPS internal processes and measures, formally tracking the use of Small, Women-owned, and Minority-owned businesses in FCPS, and considering the formal use of a performance-based contracting approach for FCPS procurement. FCPS Provides Some Key Contract Controls FCPS provides some key contract controls, through various contracting regulations and through the work of the Office of Procurement Services (OPS) within the Department of Financial Services. Among these controls are approval thresholds for contracting authority and OPS purchasing processes. 17

19 Purchasing authorization levels have been set FCPS derives its purchasing authority from Fairfax County and from the Virginia Public Procurement Act. Fairfax County s purchasing agent has delegated to FCPS the ability to conduct purchasing on her behalf, and in a memo granting this delegation of authority the County s purchasing agent lays out who may approve purchases up the certain dollar thresholds. These thresholds are reiterated in the Fairfax County Purchasing Resolution, and in various School Board policies. During the audit, staff from various departments demonstrated knowledge of internal guidance provisions regarding the authorization levels. OPS has several contract management processes in place OPS provides additional contract management through its staff and processes. Multiple OPS contract administrators have attained certifications as public procurement buyers or officers, and these OPS staff members play an important role in guiding and counseling department staff. For example, numerous department contracting staff reported that they rely on OPS for guidance and assistance with purchasing. Furthermore, OPS provides an overview of key aspects of purchasing in FCPS through its Procurement 101 training. Moreover, OPS recently implemented a quality control process whereby contract administrators review the contract files of their colleagues for accuracy and completeness. This internal review process helps to reinforce the importance of high quality file maintenance. OPS has also worked with the Office of the Fairfax County Attorney and FCPS s Division Counsel to develop contracting templates that help ensure contract language adequately protects the interests of FCPS. Because the Division Counsel s office is relatively small, using preformed contract language templates allows OPS to process contracting more efficiently than it could if each contract must pass through the Division s Counsel s office prior to execution. While the use of contract templates is generally helpful, the audit identified a small number of cases where FCPS used contract templates directly from the contractor. Though there may be a business need for contractor templates in some cases, it is important to use FCPS templates as much as possible to ensure that FCPS interests are protected adequately. In cases where there may be a business need for using contractor templates to form contract language, the Director of OPS should develop guidance for its contract administrators to assist in making this evaluation. 18

20 OPS works with Fairfax County to complete the contract register Fairfax County provides an online contract transparency tool called the contract register. This tool allows staff of Fairfax County and FCPS, as well as members of the public, to review contract provisions, thus increasing transparency and public accountability for the contracting process. FCPS aids Fairfax County in ensuring that contracts are on the register by placing relevant contract documents in the FOCUS financial system, from which Fairfax County staff can pull forward into the contract register. In reviewing a small sample of contracts, the audit found that the register was generally complete. However, one improvement that should be made is adding the list of items incorporated into the contract s memorandum of negotiation. The memoranda of negotiation exist within contracts that have been competitively bid, and refer to items such as s that include terms to which both FCPS and a contractor agree. While these terms are explicitly incorporated into the contract, they are not available for public inspection on the contract register. In the interest of transparency and public accountability, the Director of OPS should ensure that items referred to in a memorandum of negotiation are included on the contract register unless they are specifically exempted from public inspection by the Virginia Freedom of Information Act. 16 Additional Enhancements Are Needed to Improve Central Guidance and Monitoring While the existing contract control provisions form a helpful contract management structure, the Superintendent and Department of Financial Services can guide two additional developments that would increase FCPS effectiveness in contract monitoring. These are implementing central guidance for contract monitoring, identifying ways to overcome the limitations in the FOCUS financial system on reporting contract expenditure information, and ensuring that current contractor certificates of insurance are provided to OPS. Guidance for contract monitoring needed in central contracting regulations On its website, FCPS lists 19 unique, active policies and regulations that relate to contracting, as well as the Fairfax County Purchasing Resolution, which FCPS has 16 Code , et. seq. 19

21 adopted. These include policies and regulations regarding: contracting authority; construction contracting; school-based contracting; personnel contracts; ethics in procurement; and inventory management. 17 However, none of these policies and regulations specifically cover contract monitoring, nor does the Fairfax County Purchasing Resolution. Specific guidance on how contracts are to be monitored would help in clarifying roles and responsibilities for contract monitoring, providing general guidance for methods of contract monitoring, creating organization-wide consistency for processes such as dispute resolution, and enhancing a culture of accountability. In FCPS, the approach to contract monitoring is left to each department. Consequently, this audit revealed significant variation in how contract monitoring is implemented, and significant confusion regarding whether departments or OPS is primarily responsible for contract monitoring. Furthermore, some departments indicated concern about the lack of staff preparation for contract monitoring. Central guidance can form a starting point for helping staff to see best practices for approaches contract monitoring. Moreover, key processes such as dispute resolution and possible contractor sanctions need clear guidance to help ensure that such processes are managed fairly and in a way that minimizes liability to FCPS. Finally, implementing central guidance regarding contract monitoring reinforces for all FCPS departments that contract monitoring is important and that staff and contractors should be accountable for providing quality goods and services that are best value for the organization. The Superintendent should cause appropriate central guidance to be created, including polices, notices, or regulations as necessary, regarding contract monitoring. This guidance should at minimum emphasize the importance of contract monitoring for all departments in FCPS, clarify the roles of OPS and the contracting departments with respect to contract monitoring and dispute resolution, and help departments identify best practices for developing their own internal contract monitoring guidance specific to their individual business practices. 17 The policies are P1801, P4120, P4430, P5011, P5015, P8220, P8240, P8250, and P8320. The regulations are R2671, R3014, R4111, R4120, R4235, R4294, R4421, R4650, R5012, and R8320. While R3861 is listed on the FCPS website as related to contracts, this regulation has been rescinded. 20

22 FOCUS financial system s contract expenditure information is limited OPS conducts its procurement work within FCPS FOCUS financial system, and contract invoice payments are also made through FOCUS. However, FCPS management s ability to gather the total amount spent on individual contracts is limited. For example, the audit was not successful in determining from FOCUS, or from FCPS staff, how much money has been spent for the audit s sample of 36 sole source contracts. Without easy access to information regarding aggregate contract spending, OPS and the Department of Financial Services are limited in their ability to determine key information about contract usage strategic planning and oversight purposes. To its credit, OPS and the Department of Financial Services recognize this problem and have taken proactive steps to address it. Specifically, according to OPS management, as of March 2015 a contract was being finalized by FCPS and Fairfax County to enlist a third-party contractor for the purpose of using FOCUS data to perform a contract spending analysis for FYs 2013 and A subsequent analysis of FY 2015 is anticipated. In addition, Department of Financial Services management reports that the planned data warehouse under joint development with Fairfax County will also assist in gathering contract spending more readily. To ensure that access to individual and aggregate contract expenditure information is readily available for monitoring and planning purposes, the Assistant Superintendent of Financial Services should continue working to create more regular access to contract expenditure monitoring information that is currently limited in FOCUS. Current contractor certificates of insurance not received by OPS OPS is responsible during the procurement process for ensuring that contractors provide certification that they have obtained the required level of liability insurance. However, after the original certificate of insurance expires, subsequent insurance certifications are provided to FCPS Risk Management rather than to OPS. To ensure that this information is captured in the central contract file, the Assistant Superintendent of Financial Services should ensure that updated certificate of insurance information received by Risk Management is provided to OPS, when the original certificate of insurance expires. 21

23 OPS Can Take Specific Steps to Improve Oversight and Guidance of FCPS Contract Monitoring Practices OPS is not singularly responsible for all improvements to central guidance and tracking for contracts, but it does have authority to effect some changes that would improve contract monitoring practices in FCPS. These include additional oversight for sole source and best practicable source contracting requests, regular contract monitoring reports from FCPS departments, altering the form of contracts to create a centralized document that is easier to monitor, codifying centralized policies and procedures within OPS, formally tracking and analyzing the use of Small, Women-owned, and Minority-owned (SWaM) businesses in FCPS, and considering the formal use of a performance-based contracting approach for FCPS procurement. Additional controls needed for sole source FCPS has the authority under the Virginia Public Procurement Act to enter into some contracts that are not competitively bid. The two main types of non-competitively bid contracts are sole source contracts and best practicable source contracts. Sole source contracts are used when there is only one entity that provides the goods or services that FCPS needs to procure. Best practicable source contracts are used when there are multiple providers, but only one whose service can be practically provided. 18 While these contracts are at times useful, the Virginia Public Procurement Act emphasizes the preference for competition by stating that contracts shall be awarded through competitive means unless otherwise authorized. 19 In accordance with the Virginia Public Procurement Act, OPS requires departments to submit a written sole source proposal (or justification), and then produces a determination and findings regarding the sole source request. Furthermore, when FCPS awards a sole source contract, notice is placed on the eva state procurement website. OPS contract administrators review sole source proposals, typically by conducting their own search for possible competitors or reviewing other available contracts to determine whether they may apply. However, while contract administrators have a generally consistent approach to reviewing the 18 For the remainder of this discussion, both sole source and best practicable source contracts will be referred to simply as sole source. The findings and recommendations of this audit, however, apply to both contract types. 19 Code (A) 22

24 sole source proposals, OPS has not developed guidelines for evaluating these proposals. Guidelines would help to ensure consistency regarding the review of sole source proposals, and would help to create continuity when new contract administrators are hired. The review of sole source contracts and related processes identified three areas that the sole source evaluation process can be enhanced. Performance measures not used consistently Some sole source contracts do not have clear performance measures. Performance measures help to ensure that FCPS is paying contractors for appropriate levels of performance. Performance measures are important for all contracts, and especially in contracts that are entered without a competitive process. Further, developing performance measures outside the language of the contract creates a risk that FCPS will be unable to enforce its performance measures through any contract sanctions. This audit reviewed a sample of 36 sole source contracts to assess whether they demonstrated clear performance measures, and found that 32 of the contracts had a scope of work without specific measures to ensure that the work was performed at an acceptable level. While in some cases performance measures may be difficult to develop, departments requesting a sole source contract should have strategically determined the need for the good or service and created measures that help clarify whether their need is met. Consequently, the Director of OPS should require that departments include performance measures in the sole source proposal, and these performance measures should clearly relate to the overall strategic purpose for the proposed sole source contract. In addition to requiring performance measures, the Director of OPS should ensure it provides departments a common method, such as a standard form, on which performance measures can be provided. Finally, the Director of OPS should provide guidance to departments as needed regarding best practices in the development of these measures. Sole source contract timeframes could be shorter In Fairfax County contracts may extend for up to five years, and may be renewed for an additional three. This applies to sole source contracts as well, though the competitive environment may have changed before a contract must be 23

25 re-awarded. If contracts are awarded for shorter timeframes, however, and more frequent tests can be made for possible changes in the competitive environment for a good or service. Since the preference in FCPS is for competitive contracting whenever possible, the Director of OPS should set a time limitation on sole source contracts that is more restrictive than the five years currently allowed for other contracts. This would allow for more frequent evaluation of the competitive environment for goods or services. Signature authority needs clarification In addition to clarifying performance measures, there is also an opportunity to clarify who has the authority to approve a sole source proposal. The current process requires that OPS contract administrators know who has authority to commit budget resources from a particular department. However, these may change during periods of transition, leading to miscommunication and possible approval by OPS of sole source proposals that have not been properly authorized. To mitigate this risk, the Director of OPS should require that departments designate a specific person(s) to approve sole source proposals. As discussed in Findings 2 and 3, departments who do not have a specific person designated to oversee contract management should assign this responsibility to a specific person. Departments may determine that this person should be the one to approve sole source proposals. OPS needs more information from departments on contractor performance As the office responsible for most FCPS purchasing, OPS has created over 700 current contracts to procure goods and services for FCPS. To perform its role effectively, OPS needs as much useful information as possible about prospective contractors. However, while existing processes allow OPS to gather significant information for prospective contractors themselves, there is no regular, formal process for gathering information about past contractor performance from individual departments. Determining that a contractor has provided sub-standard performance is meaningless, if the procurement officers are unaware of this determination. To close this communication gap, OPS needs additional performance reports from 24

26 the various departments. It would be ideal if the contract performance reports were regular, such as quarterly reports, which could then allow OPS to assist departments in performing early intervention to improve poor contractor performance. Regular reports may also help OPS provide feedback to departments about whether additional training for contract monitors is needed. Consequently, the Director of OPS should require that FCPS departments provide regular reports on contractor performance that are sufficient to allow for both early intervention with contractors, as needed, and for proper evaluation before a contract is extended or re-awarded. Furthermore, the Director of OPS should develop a standard template for this report, and guidance for departments to use in providing their update on contractors performance. Finally, the Director of OPS should consider creating contractor performance ratings, similar to how employees are rated, and providing guidance to departments regarding the performance that should result in each rating level. FCPS contract structure appears to inhibit contract monitoring Most contracts in FCPS are competitively procured, through invitations for bid (IFB) or requests for proposal (RFP). 20 For these procurements, the final contract includes all the original FCPS solicitation documents, negotiated terms (in an RFP), attachments, and the acceptance agreement. During the audit, staff from multiple departments reported that structuring contracts in this way presents a challenge to the contract monitor, since the scope of work, performance requirements, payment information, and other relevant terms and conditions may be presented across several documents. An additional complication is the presence of bidding process information that may no longer be relevant to the final terms of the agreement. Department staff reported that the structure created time inefficiencies in the contract monitoring process. Furthermore, basic management principles suggest that this type of a decentralized contract structure makes orientation of new contract monitors more difficult, as well as raising the risk of missing a key area of performance monitoring. An alternative approach is a centralized contract, where the scope of work, payment information, performance requirements, and other relevant terms and 20 Invitations for bid set out very specific technical requirements for the purpose of identifying the lowest bidder. Requests for proposals provide more general requirements for the purpose of soliciting the best overall value for service, which does not require choosing the lowest bidder. 25

27 conditions are all centralized in one master document. A centralized contract approach is already being used in FCPS for sole source contracts. While a central contract document may have some ancillary documents, such as attachments, the central document would provide contract monitors a clear and consistent location of most or all of the key information needed for effective monitoring. Further, using a central document would eliminate the need to carry forward information that no longer relevant, such as instruction to bidders about the process. Thus using a central contract document would enhance the ability of contract monitors to protect FCPS interests. To improve the ability of departments contract monitor to oversee contracts effectively, the Director of OPS should consider implementing a centralized contract structure in which the scope of work, payment information, performance requirements, and other relevant terms and conditions are centralized in one master document. OPS internal guidance should be codified A key element of good management is clear guidance for internal staff. While OPS has explicable processes for its contract procurement tasks, and uses written templates for its contracts, it has not yet codified these practices in a set of internal written guidance for its staff. Such guidance would help to ensure that staff s activities are consistent and that adequate controls are being implemented to address risks to sub-optimal performance. This improvement would be helpful despite the fact that several OPS contract administrators are experienced in their roles and carry relevant certifications. Moreover, written guidance helps to ensure that new staff is oriented to the correct FCPS-specific processes, so they can be effective more quickly. OPS staff has some guidance, including the Fairfax County Purchasing Resolution, FCPS policies and regulations, and some Fairfax County procedures. The Director of OPS should build on these to develop and codify internal policies and procedures guidance for OPS staff that supplements the broader assistance that exists in central contract management guidance, such as the Fairfax County Purchasing Resolution and FCPS policies and regulations. No tracking of SWaM business usage FCPS does not track the number of contracts or amount of contract expenditures for Small, Women-owned, and Minority-owned (SWaM) businesses. However, Fairfax County, from whom 26

28 FCPS receives its purchasing authority, tracks SWaM utilization and has a supplier diversity coordinator to assist with effort to improve SWaM usage. Furthermore, among the standard terms for Fairfax County contracts that are competitively procured is a provision encouraging small and minority business utilization. FCPS receives all the information it needs to track SWaM usage as part of the procurement process, but does not centrally track this data. By tracking SWaM data, FCPS management and policymakers can begin to determine the level of FCPS supplier diversity and whether additional steps should be taken to increase supplier diversity. The Director of OPS should ensure that for contracts procured through OPS the SWaM status of contractors and subcontractors is formally tracked and reported. Furthermore, the Director of OPS should use the information to develop trends for additional consideration regarding future SWaM usage in FCPS. Performance-based contracting is a best practice Performance-based contracting is used as a best practice in both the federal government and state governments. Performance-based contracting, or performance-based service acquisition, is a holistic approach to contracting intended to drive toward better value for taxpayers and better, more creative contractor performance. Performance based contracting as discussed in such sources as the federal government s Seven Steps to Performance-Based Service Acquisition, and the Virginia Information Technology Agency s Procurement Manual (Chapter 21). 21 The State of Washington also requires its state cabinet agencies to use performance-based contracting for new contracts. 22 This audit uses some of the principles of performance-based contracting in evaluating FCPS contract management, primarily the importance of including clear performance measures within contracts. However, other aspects of performance based contracting may also be useful for the future strategic development of FCPS contracting function. While not every performance based contracting practice may be applicable to FCPS, the 21 See for Seven Steps to Performance-based Service Acquisition, and see the Virginia Information Technology Agency Procurement Manual (Chapter 21) at 22 See more information about performance-based contracting in the state of Washington, including sample contracts and performance measures, at 27

29 Director of OPS should assess how adopting a formal strategy of performancebased contracting would impact contracting practices in FCPS. 28

30 RECOMMENDATIONS & RESPONSE To address the conclusions of Finding 1, these following eighteen recommendations are offered. The recommendations are also in the finding and are presented here in the order they appear in the finding. Following the recommendation is management s responses, including additional narrative used to clarify the response. 1.1 In cases where there may be a business need for using contractor templates to form contract language, the Director of OPS should develop guidance for its contract administrators to assist in making this evaluation. date Agree OPS Q2/FY 2016 The Office of Procurement Services (OPS), within the Department of Financial Services (FS), is presently developing an internal procedures manual. The procedure manual will provide guidance to contract administrators on the best practices for evaluating contractor-provided templates when forming contract language and confirming the conditions where a contractor template is appropriate for use. 1.2 The Director of OPS should ensure that items referred to in a memorandum of negotiation are included on the contract register unless they are specifically exempted from public inspection by the Virginia Freedom of Information Act. 29

31 Agree OPS and Fairfax County Government date Pending coordination with Fairfax County Government We agree that including these items in the contract register is appropriate; however, is contingent upon Fairfax County Government s cooperation to commit the time and resources necessary to address this recommendation. The contract register is part of the joint financial and procurement system (FOCUS). Since Fairfax County Government maintains and also uses the contract register, any changes to the FOCUS system and the contract register would require agreement from both organizations, a jointly approved agreement on the plan, as well as a cross-functional and organizational effort. 1.3 The Superintendent should cause appropriate central guidance to be created, including polices, notices, or regulations as necessary, regarding contract monitoring. This guidance should at minimum emphasize the importance of contract monitoring for all departments in FCPS, clarify the roles of OPS and the contracting departments with respect to contract monitoring and dispute resolution, and help departments identify best practices for developing their own internal contract monitoring guidance specific to their individual business practices. date Agree OPS Q2/FY

32 We will include central guidance on contract monitoring in the School Financial Handbook. 1.4 To ensure that access to individual and aggregate contract expenditure information is readily available for monitoring and planning purposes, the Assistant Superintendent of Financial Services should continue working to create more regular access to contract expenditure monitoring information that is currently limited in FOCUS. Agree OPS and Fairfax County Government date FY 2016/FY 2017 Aggregate contract expenditure information can be made available for monitoring and planning purposes through specialized data extract routines from FOCUS. This does require significant programming and system support from the County. In the interim a joint effort is underway with OPS and the County s Department of Purchasing and Supply Management to implement a spend management and spend analysis reporting tool. This tool will provide opportunities to leverage purchases across the enterprise and enable FCPS to continue to achieve more attractive pricing and contract terms. It is anticipated that the of this reporting tool will be completed in fiscal year A long term solution to build a procurement data warehouse reporting tool is being planned and is dependent on scheduled upgrades to the FOCUS system. It is anticipated that the warehouse will be implemented in fiscal year The Assistant Superintendent of Financial Services should ensure that updated certificate of insurance information received by Risk 31

33 Management is provided to OPS when the original certificate of insurance expires. Agree OPS and Risk Management date Q3/FY 2016 The status of whether a contractor remains insured is fluid, as policy cancellations can occur at any time. To mitigate this risk, an internal procedure will be instituted by OPS and Risk Management within the Office of the Comptroller in Financial Services to ensure that once original certificates of insurance are provided to OPS, the status of these certificates will be monitored regularly to determine whether policies remain in effect. 1.6 The Director of OPS should require that departments include performance measures in a sole source proposal, and these performance measures should clearly relate to the overall strategic purpose for the proposed sole source contract. date Agree OPS Q2/FY 2016 OPS was already in the process of developing an internal procedures manual prior to this audit report, and this issue will be addressed in the manual. Once the manual is complete, it will provide additional guidance on including performance measures in a sole source proposal where appropriate. While performance measures are included in some of the contracts, OPS will work with departments to ensure consistent practices are followed. Additionally, OPS conducts quarterly 32

34 P-101 workshops for departments and will include performance measures as a future topic in these training sessions. 1.7 The Director of OPS should ensure that departments have a common methodology, such as a standard form, on which performance measures can be provided. date Agree OPS Q2/FY 2016 OPS is developing an internal procedures manual to address this issue. As conveyed in the response to 1.6, the manual was in development prior to the audit review and will provide guidance on use of common methodology for formulating performance measures. However, we do not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which performance measures are documented. Our primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and timebound. Additionally, OPS conducts quarterly P-101 workshops for departments and will include performance measures as a future topic. 1.8 The Director of OPS should provide guidance to departments as needed regarding best practices in the development of these measures. date Agree OPS Q2/FY

35 OPS is developing an internal procedures manual to address this issue. As conveyed in the response to 1.6, the manual was in development prior to the audit review and will provide guidance to departments regarding best practices in the development of performance measures. OPS conducts quarterly P-101 workshops for departments and will include this as a future topic. 1.9 Since the preference in FCPS is for competitive contracting whenever possible, the Director of OPS should set a time limitation on sole source contracts that is more restrictive than the five years currently allowed for other contracts. Disagree date We agree that the preference in FCPS is for competitive contracting whenever possible; however, setting a term limit on sole source procurements is not a best practice. 23 Furthermore, the five-term term limit for contracts is a maximum limit; contract administrators may limit certain contracts to lesser terms based on the level of contract risk The Director of OPS should require that departments designate a specific person(s) to approve sole source proposals. 23 (Note to Readers: This footnote is provided by FCPS management in its response as part of its additional narrative.) As the standard for measuring innovation, professionalism, productivity, e-procurement, and leadership attributes of the procurement organization, OPS has adopted criteria set-forth in the Achievement of Excellence in Procurement award (AEP) and the Outstanding Agency Accreditation in Achievement award. These awards are issued respectively by National Purchasing Institute (NPI) and the National Institute of Government Purchasing (NIGP), the two largest organizations in the U.S. specifically dedicated to accrediting local government procurement organizations. Criteria set-forth in the accreditation awards of these organizations do not set contract term limits on sole source purchases. 34

36 Disagree date With the reductions made to central staff and with the ongoing changes in program managers that occur in all large-scale public organizations such as FCPS, it is neither practical nor efficient to manually maintain a list of approvers solely for the purpose of having a list of approvers. OPS sole source forms require program managers to approve sole source proposals and each contract administrator is responsible for verifying the names and identity of program managers. Also, all sole source purchases must ultimately be approved as a purchase order in FOCUS, in which case the approver routing process ensures multi-level approval of sole source purchases The Director of OPS should require that FCPS departments provide regular reports on contractor performance that are sufficient to allow for both early intervention with contractors, as needed, and for proper evaluation before a contract is extended or re-awarded. Agree Additional resources are required for date TBD Although we agree with the recommendation, given multiple staff reductions over the past eight years, OPS does not have sufficient personnel resources to facilitate and manage a contractor performance evaluation program, which requires issuing performance evaluation reports to departments, follow-up with departments on 35

37 due dates for submitting reports, collecting reports, ensuring that each contractor has a completed performance evaluation report at the close of each contract term, documenting performance data and outcomes, reporting performance results across the enterprise for all contractors. This is a comprehensive process that requires the addition of a minimum of one FTE. However, to mitigate risks associated with contractor performance, all problems related to contract performance are presently addressed through frequent interactions between department contract managers and OPS. Additionally, OPS will develop a new work shop, Contract Administration-201 that will be offered to department contract managers The Director of OPS should develop a standard template for this report, and guidance for departments to use in providing their update on contractors performance. 24 See 1.11 (Agree) (Additional resources are required for ) date (TBD) See 1.11 Although we agree with the recommendation, given multiple staff reductions over the past eight years, OPS does not have sufficient personnel resources to facilitate and manage a contractor performance evaluation program, which requires issuing performance evaluation reports to departments, follow-up with departments on due dates for submitting reports, collecting reports, ensuring that each contractor has a completed performance evaluation report at the close of each contract term, 24 For recommendations 1.12 and 1.13, management s written response referred auditors to the response provided for recommendation For example, the response to recommendation 1.12 states see To provide assistance to readers while maintaining fidelity to management s response, we have reproduced the full, applicable management response and additional narrative for all recommendations and marked these insertions by the inclusion of open and closed parentheses. 36

38 documenting performance data and outcomes, reporting performance results across the enterprise for all contractors. This is a comprehensive process that requires the addition of a minimum of one FTE. However, to mitigate risks associated with contractor performance, all problems related to contract performance are presently addressed through frequent interactions between department contract managers and OPS. Additionally, OPS will develop a new work shop, Contract Administration-201 that will be offered to department contract managers The Director of OPS should consider creating contractor performance ratings, similar to how employees are rated, and providing guidance to departments regarding the performance that should result in each rating level. See 1.11 (Agree) (Additional resources are required for ) date (TBD) See 1.11 Although we agree with the recommendation, given multiple staff reductions over the past eight years, OPS does not have sufficient personnel resources to facilitate and manage a contractor performance evaluation program, which requires issuing performance evaluation reports to departments, follow-up with departments on due dates for submitting reports, collecting reports, ensuring that each contractor has a completed performance evaluation report at the close of each contract term, documenting performance data and outcomes, reporting performance results across the enterprise for all contractors. This is a comprehensive process that requires the addition of a minimum of one FTE. However, to mitigate risks associated with contractor performance, all problems related to contract 37

39 performance are presently addressed through frequent interactions between department contract managers and OPS. Additionally, OPS will develop a new work shop, Contract Administration-201 that will be offered to department contract managers The Director of OPS should consider implementing a centralized contract structure in which the scope of work, payment information, performance requirements, and other relevant terms and conditions are centralized in one master document. date Agree OPS Q3/FY 2016 OPS will implement this as a new practice going forward. Contract files in place before the date of will not be affected The Director of OPS should develop and codify internal policies and procedures guidance for OPS staff that supplement the broader guidance that exists in central contract management guidance, such as the Fairfax County Purchasing Resolution and FCPS policies and regulations. date Agree OPS Q2/FY 2016 OPS is developing an internal procedures manual that will address this issue. As conveyed in the response to 1.6, the manual was in development prior to the audit 38

40 review and will provide guidance for OPS staff to supplement the broader guidance as provided in the Fairfax County Purchasing Resolution and FCPS policies and regulations The Director of OPS should ensure that for contracts procured through OPS the Small, Women-owned, and Minority-owned status of contractors and subcontractors is formally tracked and reported. Agree Additional resources are required for date TBD We can consider this recommendation following the rollout of the Data Warehouse; however, to implement this beforehand will be impractical and extremely difficult The Director of OPS should use the information to develop trends for additional consideration regarding future Small, Women-owned, and Minority-owned business usage in FCPS. Agree Additional resources are required for date TBD Given the magnitude of purchase spend at FCPS, administering and managing a procurement program for historically underrepresented business enterprises is 39

41 comprehensive and would require additional resources including a minimum of one FTE The Director of OPS should assess how adopting a formal strategy of performance-based contracting would impact contracting practices in FCPS. Agree Implementation is contingent upon funding for external consultancy date FY 2017 Given the magnitude of spend at FCPS, external consulting resources will be required based on the comprehensive nature of this research and strategy. 40

42 FINDING 2 Three Departments Need to Develop and Implement Key Best Practices for Contract Monitoring Within three departments, the Department of Instructional Services (ISD), the Department of Special Services (DSS), and the Department of Human Resources (HR), some key best practices for an effective contract monitoring system should be implemented. Each department has identified individuals who conduct some contract monitoring activities. For example, each of the departments discussed in this finding has designated invoice management personnel to track and process contracting invoice payments through the FOCUS financial system. However, additional development is needed in the departments contract monitoring structure by formally designating a central person responsible for tracking the department s contract monitoring practices. Additionally, the departments should enhance the abilities of its contract monitoring staff by codifying internal policies and procedures assessing the training needs of internal contract monitoring staff. Finally, the departments should improve their monitoring and reporting by assisting with the development of additional contractor performance measures, creating internal contractor performance reports, and implementing internal performance measures. It is important to note that references to HR in this finding do not apply to the Office of Benefit Services (OBS), which is located within the Department of Human Resources. The audit reviewed OBS and found more developed contract management practices similar to the recommendations presented in this finding. OBS is discussed further in Finding 3. Departments Management of Contract Monitoring Should be Centralized to Improve Effectiveness Each department has identified individuals responsible for contracts and has designated invoice management personnel to track and process contracting invoice payments through the FOCUS financial system. However, additional development is needed in the departments contract monitoring structure by 41

43 formally designating a central person responsible for managing the department s contract monitoring practices. Central responsibility for contract monitoring activities In ISD, DSS, and HR management responsibility for contract monitoring is decentralized among division directors or program managers. However, the federal government guidance to contract administration best practices recommends formally designating one specific person to be responsible for contract activities in the department. 25 In most cases a contracting manager would not be monitoring specific contracts themselves, but would rely on existing contract monitoring staff to perform their roles and report on the outcomes. By identifying a contracting manager (or contracting officer), departments can help to ensure that the key elements of their contracting systems, including contractor performance, staff performance, staff training needs, and invoice management processes, are seen by one person who has the ability to synthesize this information for senior management. Furthermore, critical to the success of a contracting manager is the knowledge of which contracts are monitored by the department. In ISD, DSS, and HR, the audit found that there was no central list of contracts to be monitored by the departments, although in several cases individual program managers had their own lists. This decentralization has multiple impacts. First, it leads to confusion about roles and responsibilities. Several staff members in the three departments indicated they viewed contract monitoring as OPS s responsibility, while others viewed contract monitoring as their own department s responsibility. In addition, decentralization impedes regular reports to senior management regarding contractor performance. Without regular management reports on contractor performance, management is unable to see clearly whether contract spending is effective. None of the three departments discussed in the finding had a process of creating and elevating regular contractor performance reports. Finally, decentralization impairs department management s ability to identify strategic needs in the contracting function, such as training for the contract 25 This best practice guidance is issued by the Office of Federal Procurement Policy (OFPP). The guidance uses contract administration as a synonym for contract monitoring. For the complete set of OFPP guidance see 42

44 administrators, additional resources, including staff augmentation, and internal performance measure development. To help address these needs, the Assistant Superintendents of ISD, DSS, and HR should formally designate a single person to serve as the contracting manager within their departments. That individual should be at a sufficiently senior level to ensure effective cooperation and collaboration. To clarify, in HR these recommendations only relate to contract management conducted outside of the Office of Benefit Services. The Assistant Superintendents should also ensure that their departments develop and maintain a complete list of contracts monitored by department staff. Recommendations that follow in this finding would also likely be the responsibility of the contracting manager. Improvements Needed to Assist Contract Monitoring Staff In addition to designating a contracting manager, the three departments should also provide additional support to its contract monitoring staff by developing and implementing policies and procedures, and by assessing the training needs of the contract monitors. Central policies and procedures needed As noted in Finding 1, FCPS has not developed any significant central guidance for contract monitoring. That finding also applies to ISD, DSS, and HR. Central policies and procedures are important in any function to give clarity regarding staff roles and responsibilities, develop consistent performance across staff with similar job functions, and create continuity when new staff came into the department. Policies and procedures also help oversight functions to demonstrate their actions are fair and equitable. While FCPS should develop central policies and procedures for contract monitoring, these will necessarily be at a higher level since they have to apply to schools and disparate business functions. Departments can develop policies and procedures with more specifics to meet their own strategic contracting monitoring needs. Therefore, the Assistant Superintendents of ISD, DSS, and HR should ensure their contracting managers review the internal contracting needs of the department and develop policies and procedures to guide the practice of contracting monitoring and meet those needs. 43

45 Contract monitors may have training needs Among the most important of a department s strategic contracting needs is the preparation of its staff for contract monitoring. The federal best practices for contract administration state that contract monitors (also called contracting officer technical representatives) should be trained adequately for their roles. A similar conclusion was made by a 2003 report on contract monitoring best practices by the Georgia State Auditor s Office. 26 However, staff from multiple departments expressed concern about the preparation of their current contract monitoring staff for enhanced expectations about the contract monitoring role. For example, contract monitors, some of whom were hired for expertise gained in an educational setting, may not be adequately prepared to develop performance measures or evaluate contractor performance in a way consistent with contract management best practices. Policies and procedures help to close gaps in training by identifying processes to follow in key risk areas. However, policies and procedures alone will not be sufficient to ensure adequate training. Consequently, the Assistant Superintendents of ISD, DSS, and HR should assign contracting managers to review the training needs of their departments contract monitoring staff and to develop a plan for addressing these needs. Department Monitoring and Reporting Functions Should be Developed and Implemented ISD, DSS, and HR should improve their monitoring and reporting on contractor performance by creating internal contractor performance reports, implementing internal performance measures, and assisting with the development of additional contractor performance measures. Internal contractor performance reports should be implemented Reporting the results of contract monitoring to responsible parties is an important part of contract management. In addition to communicating contractor performance information to OPS to assist in future procurement decisions, contract monitoring reports should also be provided internally to a department s contracting manager. This helps the contracting manager to understand issues 26 The report is entitled Components of an Effective Contract Monitoring System, and can be found at Contract%20Monitoring.pdf. 44

46 with individual contracts, and also creates a system of accountability that encourages the contract monitor to think carefully about whether contractor performance is adequate. Contractor performance reports cannot be implemented in a vacuum, however; implementing performance reports requires agencies to provide contract monitors with the necessary tools to observe and assess contractor performance adequately and the appropriate guidance to help ensure that performance reports are implemented consistently among all contract monitors. To enhance the ability of the contracting manager to assess the contract monitoring function, as well as to provide documentation of contractor performance, the Assistant Superintendents of ISD, DSS, and HR should implement a standard performance monitoring report. This report may be merged with a standard performance monitoring report such as OPS may require (see Finding 1). Performance measures needed for contractors and staff Part of a best practice approach to contract monitoring is increasing the accountability of contractors for providing high quality goods and services and increasing the accountability of the contract team for creating a strong contract and monitoring contractor performance effectively. If no performance measures are provided in a contract, contractors can provide inadequate levels of service without sanction. Further, the lack of useful performance measures sets up even trained contract monitors for failure. In ISD, DSS, and HR internal staff performance measures are needed, as well as a focus on including performance measures in every contract. Performance measures for contractors and for staff derive from similar best practices. There are different types of performance measures, including inputs, which resources placed into a process, such as dollars spent; outputs, which measure the volume, amount, and quantity of goods and services provided; and efficiency measures, which show the cost or resources per unit of service. Of particular importance for performance measure development are outcome measures. Outcome measures get to the heart of the strategic need being supplied, focusing on the effect or impact of the program or function. Output measures should not be mistaken for outcome measures, but logically outputs should lead to outcomes. For example, number of children receiving vaccinations is an output measure, while reducing the mortality rates from preventable childhood illness is an outcome measure. Ideally a group of performance 45

47 measures should include a variety of each type. This helps to show progress in the interim while working toward the overall outcomes. In addition to performance measure types, there are other best practice characteristics of performance measures. One of the most helpful approaches is exemplified by the SMART mnemonic Specific, Measureable, Achievable, Relevant, and Time-bound. Such performance measures are clear and concrete (specific); amenable to assessment and monitoring (measurable); challenging but not impossible (achievable); logically related to the overall strategic objective (relevant); and achievable in a specific timeframe to facilitate short-term or medium-term decision making (time-bound). To enhance their ability to assess the effectiveness of internal contract monitoring activities, the Assistant Superintendents of ISD, DSS, and HR should develop and implement a varied set of performance measures for their internal contracting staff. In addition, to improve the quality of goods and services provided by contractors and to enhance the effectiveness of contract monitoring staff, the Assistant Superintendents of ISD, DSS, and HR should ensure that all contracts have one or more contractor performance measures. While having a varied set of contractor performance measures in each contract would represent better practice, different contracts carry different levels of risk and a lower number of performance measures may be warranted in some kinds of contracts departments determine to be lower risk. 46

48 RECOMMENDATIONS & RESPONSE To address the conclusions of Finding 2, the same seven recommendations are offered to each of the three departments discussed in the finding. For ease of review the recommendations are grouped by department. The recommendations to the Department of Human Resources (Recommendations ) should be treated as excluding the Office of Benefit Services, for which separate recommendations are made in Finding 3. Following the recommendation is management s responses, including additional narrative used to clarify the response. Instructional Services Department 2.1 The Assistant Superintendent of Instructional Services should formally designate a single person to serve as the contracting manager. That individual should be sufficiently senior to ensure effective cooperation and collaboration. date Agree Departments FY 2016 All large departments in Fairfax County Public Schools have a financial section that is lead by a coordinator level or higher graded position. In each case, these coordinators report to a director who participates in the department s senior leadership team. While these people are responsible for the financial activities in their departments including overseeing procurement activities, the School Finance Handbook will clarify designating these positions as the contracting managers for each department. 47

49 2.2 The Assistant Superintendent of Instructional Services should ensure that the department develops and maintains a complete list of contracts monitored by department staff. date Agree Departments FY 2016/FY 2017 Departments currently have the ability to run reports from FOCUS that show all open purchase orders, and a purchase order is issued for any purchases made against a contract. Financial staff in each department regularly monitor open purchase orders and Program Managers review and approve monthly financial management monitoring reports. For department oversight, the ability to access open purchase orders is sufficient to monitor spending and provide contract management. At the division level, aggregate contract expenditure information can be made available for monitoring and planning purposes through specialized data extract routines from FOCUS. This does require significant programming and system support from the County. In the interim a joint effort is underway with OPS and the County s Department of Purchasing and Supply Management to implement a spend management and spend analysis reporting tool. This tool will provide opportunities to leverage purchases across the enterprise and enable FCPS to continue to achieve more attractive pricing and contract terms. It is anticipated that the of this reporting tool will be completed in fiscal year A long term solution to build a procurement data warehouse reporting tool is being planned and is dependent on scheduled upgrades to the FOCUS system. It is anticipated that the data warehouse will be implemented in fiscal year This solution is anticipated to allow departments to maintain a complete list of their contracts. 48

50 2.3 The Assistant Superintendent of Instructional Services should ensure the contracting manager reviews the internal contracting needs of the department and develop policies and procedures to guide the practice of contracting monitoring and meet those needs. date Agree OPS/Departments FY 2016 Central guidance on contract monitoring will be provided by Procurement Services in the School Financial Handbook. This handbook is available online and the updates will be shared with department financial staff and program managers. In the event that additional procedures are necessary at the department level, department staff will develop the procedures. 2.4 The Assistant Superintendent of Instructional Services should assign the contracting manager to review the training needs of the department s contract monitoring staff and to develop a plan for addressing these needs. date Agree OPS FY 2016 The Office of Procurement Services conducts quarterly P-101 workshops for departments. A second work shop, CA-201, will be developed by OPS and contract management will be included as a topic. Departments will identify staff to attend the training as needed. 49

51 2.5 To enhance the ability of the contracting manager to assess the contract monitoring function, as well as to provide documentation of contractor performance, the Assistant Superintendent of Instructional Services should implement a standard performance monitoring report. This report may be merged with a standard performance monitoring such as the Office of Procurement Services may require. date Agree Departments FY 2016 OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement. 2.6 To enhance the ability to assess the effectiveness of internal contract monitoring activities, the Assistant Superintendent of Instructional Services should develop and implement a varied set of performance measures for the department s internal contracting staff. 50

52 27 See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 2.7 To improve the quality of goods and services provided by contractors and to enhance the effectiveness of contract monitoring staff, the Assistant Superintendent of the Instructional Services Department should ensure that all contracts have a varied set of contractor performance measures. 27 For several of the recommendations in Finding 2, management s written response referred auditors to a response provided for a previous recommendation. For example, the response to recommendation 2.6 states see 2.5. To provide assistance to readers while maintaining fidelity to management s response, we have reproduced the full, applicable management response and additional narrative for all recommendations and marked these insertions by the inclusion of open and closed parentheses. 51

53 See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) Department of Special Services 2.8 The Assistant Superintendent of the Department of Special Services should formally designate a single person to serve as the contracting manager. That individual should be sufficiently senior to ensure effective cooperation and collaboration. 52

54 See 2.1 date (Agree) (Departments) (FY 2016) See 2.1 (All large departments in Fairfax County Public Schools have a financial section that is lead by a coordinator level or higher graded position. In each case, these coordinators report to a director who participates in the department s senior leadership team. While these people are responsible for the financial activities in their departments including overseeing procurement activities, the School Finance Handbook will clarify designating these positions as the contracting managers for each department.) 2.9 The Assistant Superintendent of the Department of Special Services should ensure that the department develops and maintains a complete list of contracts monitored by department staff. See 2.2 date (Agree) (Departments) (FY 2016/FY 2017) See 2.2 (Departments currently have the ability to run reports from FOCUS that show all open purchase orders, and a purchase order is issued for any purchases made 53

55 against a contract. Financial staff in each department regularly monitor open purchase orders and Program Managers review and approve monthly financial management monitoring reports. For department oversight, the ability to access open purchase orders is sufficient to monitor spending and provide contract management. At the division level, aggregate contract expenditure information can be made available for monitoring and planning purposes through specialized data extract routines from FOCUS. This does require significant programming and system support from the County. In the interim a joint effort is underway with OPS and the County s Department of Purchasing and Supply Management to implement a spend management and spend analysis reporting tool. This tool will provide opportunities to leverage purchases across the enterprise and enable FCPS to continue to achieve more attractive pricing and contract terms. It is anticipated that the of this reporting tool will be completed in fiscal year A long term solution to build a procurement data warehouse reporting tool is being planned and is dependent on scheduled upgrades to the FOCUS system. It is anticipated that the data warehouse will be implemented in fiscal year This solution is anticipated to allow departments to maintain a complete list of their contracts.) 2.10 The Assistant Superintendent of the Department of Special Services should ensure the contracting manager reviews the internal contracting needs of the department and develop policies and procedures to guide the practice of contracting monitoring and meet those needs. See 2.3 date (Agree) (OPS/Departments) (FY 2016) 54

56 See 2.3 (Central guidance on contract monitoring will be provided by Procurement Services in the School Financial Handbook. This handbook is available online and the updates will be shared with department financial staff and program managers. In the event that additional procedures are necessary at the department level, department staff will develop the procedures.) 2.11 The Assistant Superintendent of the Department of Special Services should assign the contracting manager to review the training needs of the department s contract monitoring staff and to develop a plan for addressing these needs. See 2.4 date (Agree) (OPS) (FY 2016) See 2.4 (The Office of Procurement Services conducts quarterly P-101 workshops for departments. A second work shop, CA-201, will be developed by OPS and contract management will be included as a topic. Departments will identify staff to attend the training as needed.) 2.12 To enhance the ability of the contracting manager to assess the contract monitoring function, as well as to provide documentation of contractor performance, the Assistant Superintendent of the Department of Special Services should implement a standard performance monitoring report. This report may be merged with a standard performance monitoring such as the Office of Procurement Services may require. 55

57 See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 2.13 To enhance the ability to assess the effectiveness of internal contract monitoring activities, the Assistant Superintendent of the Department of Special Services should develop and implement a varied set of performance measures for the department s internal contracting staff. See 2.5 date (Agree) (Departments) (FY 2016) 56

58 See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 2.14 To improve the quality of goods and services provided by contractors and to enhance the effectiveness of contract monitoring staff, the Assistant Superintendent of the Department of Special Services should ensure that all contracts have a varied set of contractor performance measures. See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance 57

59 measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) Human Resources Department (not including the Office of Benefit Services) 2.15 The Assistant Superintendent of the Human Resources Department should formally designate a single person to serve as the contracting manager. That individual should be sufficiently senior to ensure effective cooperation and collaboration. See 2.1 date (Agree) (Departments) (FY 2016) See 2.1 (All large departments in Fairfax County Public Schools have a financial section that is lead by a coordinator level or higher graded position. In each case, these coordinators report to a director who participates in the department s senior leadership team. While these people are responsible for the financial activities in their departments including overseeing procurement activities, the School Finance Handbook will clarify designating these positions as the contracting managers for each department.) 58

60 2.16 The Assistant Superintendent of the Human Resources Department should ensure that the department develops and maintains a complete list of contracts monitored by department staff. See 2.2 date (Agree) (Departments) (FY 2016/FY 2017) See 2.2 (Departments currently have the ability to run reports from FOCUS that show all open purchase orders, and a purchase order is issued for any purchases made against a contract. Financial staff in each department regularly monitor open purchase orders and Program Managers review and approve monthly financial management monitoring reports. For department oversight, the ability to access open purchase orders is sufficient to monitor spending and provide contract management. At the division level, aggregate contract expenditure information can be made available for monitoring and planning purposes through specialized data extract routines from FOCUS. This does require significant programming and system support from the County. In the interim a joint effort is underway with OPS and the County s Department of Purchasing and Supply Management to implement a spend management and spend analysis reporting tool. This tool will provide opportunities to leverage purchases across the enterprise and enable FCPS to continue to achieve more attractive pricing and contract terms. It is anticipated that the of this reporting tool will be completed in fiscal year A long term solution to build a procurement data warehouse reporting tool is being planned and is dependent on scheduled upgrades to the FOCUS system. It is anticipated that the data warehouse will be implemented in fiscal year

61 This solution is anticipated to allow departments to maintain a complete list of their contracts.) 2.17 The Assistant Superintendent of the Human Resources Department should ensure the contracting manager reviews the internal contracting needs of the department and develop policies and procedures to guide the practice of contracting monitoring and meet those needs. See 2.3 date (Agree) (OPS/Departments) (FY 2016) See 2.3 (Central guidance on contract monitoring will be provided by Procurement Services in the School Financial Handbook. This handbook is available online and the updates will be shared with department financial staff and program managers. In the event that additional procedures are necessary at the department level, department staff will develop the procedures.) 2.18 The Assistant Superintendent of the Human Resources Department should assign the contracting manager to review the training needs of the department s contract monitoring staff and to develop a plan for addressing these needs. See 2.4 date (Agree) (OPS) (FY 2016) 60

62 See 2.4 (The Office of Procurement Services conducts quarterly P-101 workshops for departments. A second work shop, CA-201, will be developed by OPS and contract management will be included as a topic. Departments will identify staff to attend the training as needed.) 2.19 To enhance the ability of the contracting manager to assess the contract monitoring function, as well as to provide documentation of contractor performance, the Assistant Superintendent of the Human Resources Department should implement a standard performance monitoring report. This report may be merged with a standard performance monitoring such as the Office of Procurement Services may require. See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor 61

63 does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 2.20 To enhance the ability to assess the effectiveness of internal contract monitoring activities, the Assistant Superintendent of the Human Resources Department should develop and implement a varied set of performance measures for the department s internal contracting staff. See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 2.21 To improve the quality of goods and services provided by contractors and to enhance the effectiveness of contract monitoring staff, the Assistant 62

64 Superintendent of the Human Resources Department should ensure that all contracts have a varied set of contractor performance measures. See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 63

65 FINDING 3 Three Functions Have Generally Well-Developed Monitoring Structures, and Additional Refinement is Needed In two FCPS departments and one FCPS office, contract monitoring structures were observed that generally reflect best practices, although some additional refinements to monitoring practices can be made in each. Among the contracting activities that demonstrated best practices were those within the Department of Facilities and Transportation Services (FTS), which are conducted outside of normal procurement process administered by the Office of Procurement Services (OPS). In addition, the Office of the Benefit Services (Benefits), located within the Department of Human Resources, and the Department of Information Technology (IT) demonstrated contracting structures and processes with key hallmarks of best practices. Specifically, these functions all contain a central person who is aware of and tracks contracts. All of the functions have a list of contracts, and an associated list of the persons responsible for monitoring the contracts. Each of these functions also has active ongoing monitoring activities, and monitors produce monitoring logs that are available for management review. Finally, each of the functions has designated invoice management personnel tracking and processing contracting invoice payments through the FOCUS financial system. Some best practices, however, can be implemented in each of the functions. For example, FTS, Benefits, and IT should ensure that formal contractor performance reports are developed and provided to internal management and, as necessary, to OPS. This is particularly important in FTS for contracts that are procured and monitored outside of the OPS procurement process. Further, each of the three should further enhance their monitoring functions by developing internal performance measures for contract monitoring, as well as ensuring that all contracts, particularly any sole source contracts, have clear performance measures developed in conjunction with best practice guidelines. While FTS Office of Design and Construction has developed very strong internal policies 64

66 and procedures, IT, Benefits, and FTS Office of Infrastructure and Environmental Engineering would benefit from codifying a central set of internal guidance for contract monitoring. Finally, two developments that would further strengthen contract monitoring are the of claims audits and annual eligibility attestations in Benefits, and implementing a process in FTS that would track, monitor, and assess trends in Small, Women-owned, and Minorityowned (SWaM) businesses used for construction-related activity. Each of the Three Functions has Implemented Numerous Monitoring Best Practices FTS, Benefits, and IT have implemented several of the best practices for structuring and implementing a contract monitoring activity. All have a central contracting structure and ongoing monitoring processes FTS, Benefits, and IT all have designated a central individual to see all contract activity within the department or office. In FTS, the Coordinator for the Financial Management and Contracting Team is responsible for procurement and serves in a central contracting manager role, although contract monitoring responsibilities are distributed throughout the department. In both IT and Benefits, an analyst is assigned the contracting manager function and is responsible for an overall view of the contracts and for liaising with OPS during the procurement phase. 28 In addition to designating an individual who sees all contract activity, FTS, Benefits, and IT have contracting logs that list all of the contracts within their function. This allows the contracting manager to monitor contract aging, helping to ensure, for example, that contracts are reviewed for renewal appropriately. Furthermore, each of the logs helps to identify the person or team assigned to monitor the of the contract. In FTS, many contracts relate to new construction or renovation projects. With FTS Office of Design and Construction, a team of individuals monitors contractor activities, including field representatives and field supervisors who are onsite with contractors daily to monitor their work and progress. In IT and Benefits, contracts typically are monitored by individuals, such as program managers or coordinators. In addition, the contracting managers in IT and Benefits help to address issues that 28 In FTS, Benefits, and IT the individuals in centralized contract position do not carry the title Contracting Manager, so this term links their function to the federal best practices rather than naming a current job title. 65

67 arise with contractor performance during the contract period. This helps the contracting manager to gain some insight into contractor performance that can then be used during procurement periods. As discussed later in the finding, while the contracting manager gains some anecdotal feedback regarding contractor performance there is still a communication gap that can be closed by ensuring that contractor performance reports are made available to the contracting manager. Finally, FTS, Benefits, and IT all have implemented some monitoring logs or documents that are available to management as needed. These logs may take different forms. For example, in the Office of Design and Construction a project modification (change order) log is used to track change orders on specific construction projects. Furthermore, different project management teams in Design and Construction have regular on-site meetings with the contractors to review progress and problem resolution. Similarly contract monitoring staff in Benefits and IT use various documents generally Excel spreadsheet to document ongoing meetings and discussion points with the contractors. These documents may be reviewed by management as needed, though the extent to which department or office chiefs review these raw monitoring logs may vary. Some Needed Refinements are Common to Each Function Some best practices can be implemented in each of the functions. Specifically, each of the three should further enhance their monitoring functions by ensuring that formal contractor performance reports are developed and provided to internal management and, as necessary, to OPS. Further, FTS, Benefits, IT should develop internal performance measures for contract monitoring staff. Finally, IT, Benefits, and FTS Office of Infrastructure and Environmental Engineering would benefit from codifying a central set of internal guidance for contract monitoring. Reports on contractor performance help to improve oversight Reporting the results of contract monitoring to contracting managers and to senior management is an important part of contract management. These reports help managers not only to understand issues with individual contracts, but also to identify overall trends in contractor performance. While FTS, Benefits, and IT perform ongoing monitoring of contractors, they do not require either final contractor performance reports or regular formal contractor performance reports 66

68 during the period of the contract. Particularly in the case of FTS, contractor performance reports are critical to close the communication loop between contract monitors and contract procurement staff regarding the use of contractors on future projects. To enhance the ability of management to assess the contract monitoring function, as well as to provide documentation of contractor performance, the Assistant Superintendents of FTS and IT, and the Director of Benefits should implement a standard performance monitoring report. For IT and Benefits, this report may be merged with a standard performance monitoring report such as OPS may require (see Finding 1). Performance measures for staff and contractors help ensure accountability As discussed previously in this report, part of a best practice approach to contract monitoring is increasing the accountability of contractors for providing high quality goods and services and increasing the accountability of the contract team for creating a strong contract and monitoring contractor performance effectively. Each of the three functions, FTS, Benefits, and IT, lack codified internal performance measures for their contract management staff. Consequently, the Assistant Superintendent of IT and the Director of Benefits should ensure that internal performance measures are developed for contract monitoring activities. Similarly, the Assistant Superintendent of FTS should ensure that internal performance measures are developed for both the contract procurement and monitoring activities. While each of the three functions has contracts that include well-developed performance measures, it is important that this process continues particularly with respect to any sole source contracts. For these, the departments are responsible for developing their own performance measures. Consequently, the Assistant Superintendents of FTS and IT, and the Director of Benefits should continue to monitor all contracts prior to contract execution, particularly any sole source contracts, to ensure they have clear performance measures developed in conjunction with best practice guidelines. Central policies and procedures needed The lack of central policies and procedures for contract monitoring is a common issue in FCPS, both centrally and in the departments. Reviews of IT and Benefits also found that while contract monitors had defined processes they had not been codified and 67

69 centrally-provided. In addition, the Office of Facilities Management within FTS did not have central contract monitoring guidelines. The significant exception to this general conclusion was provided by the Office of Design and Construction, which has developed strong, high-quality central policies and procedures to guide its contractor monitoring staff in the performance of their duties. Central policies and procedures are important in any function to give clarity regarding staff roles and responsibilities, develop consistent performance across staff with similar job functions, and create continuity when new staff came into the department. Policies and procedures also help oversight functions to demonstrate their actions are fair and equitable. Departments should complement any eventual central guidance by developing their own policies and procedures with more specifics to meet their own contracting monitoring needs. Therefore, the Assistant Superintendents of IT and FTS, and the Director of Benefits should review the internal contracting needs of their departments and develop policies and procedures to guide the practice of contracting monitoring and meet those needs. Additional Efforts Needed to Monitor Claims and Eligibility in Benefits and to Track SWaM Status in FTS Two developments that would further strengthen contract monitoring are the of claims audits and annual eligibility attestations in Benefits, and implementing a process in FTS that would track, monitor, and assess trends in Small, Women-owned, and Minority-owned (SWaM) businesses used for construction-related activity. Claims audits are performed reactively and eligibility updates are not solicited Benefits performs numerous monitoring activities, but its resource limitations prevent performing claims audits on a regular basis. Claims audits are reviews of claims processing that answer questions such as: whether claims are paid in accordance with plan requirements; whether adequate claims documentation is on file; whether benefits are paid only for eligible individuals; whether classification and coding are correct; and whether duplicate claims were 68

70 properly denied. 29 One recent article estimated that medical claims error rates are likely two to five percent of total claims paid. 30 According to the Department of Financial Services, FCPS had approximately $263 million in medical claims payments and related administrative expenditures in FY 2014, so even small error rate percentages could have significant financial consequences. 31 In some cases, claims audits may result in net savings for an organization. Given the possible financial consequences of claims errors that are not caught, the Director of Benefits should work with the Assistant Superintendent of HR and Financial Services to identify and implement a way of performing regular claims audits. Possible approaches may include hiring internal staff or contracting with a claims audit firm for periodic audits. In addition to the need for claims audits, there is also a need to follow up on previous reviews of employee eligibility for health benefits coverage. In 2012 FCPS performed an extensive assessment of employee and family health benefits eligibility, requiring for example that marriage certificates and birth certificates be provided to provide dependent eligibility. In addition, new FCPS employees are required to provide proof of marriage and parentage before dependents can be covered under FCPS health plans. However, there is currently no follow-up to determine if any status changes have occurred, such as a divorce that would make a former spouse and step-children ineligible for coverage. While such eligibility reviews may be difficult and frustrating for employees, they are a necessary part, along with claims audits, of a comprehensive effort to stem the rising costs of health care coverage. However, there are ways of refreshing eligibility information without creating onerous requirements on employees, such as annual eligibility attestations. Attestations provide employees an opportunity to either affirm that dependent eligibility continues, or that changes should be made. Attestations create an incentive to update dependent information, if the attestation carries some legal consequences for false 29 In March 2014, the City of Milwaukee issued the results of a medical claims processing audit ( These questions were among the objective questions within that audit. 30 Susan J. Wells. (July 2010). Overseeing Audits of Your Health Plans. HR Magazine, 55:7. Obtained from website of the Society of Human Resource Management at 31 The $263 million number is based on unaudited data provided the Department of Financial Services. The number is intended only to provide a general context for the claims audit discussion. Interested readers should consult the FCPS approved budget for more information about the Health and Flexible Benefits Fund ( 69

71 statements. However, eligibility attestations alone are only moderately helpful and should be implemented in conjunction with a system of claims audits that would test dependent eligibility further. Consequently, the Director of Benefits should work with appropriate FCPS personnel to implement a health benefits eligibility attestation process in conjunction with regular claims audits. SWaM tracking and trending in FTS would complement OPS tracking efforts As discussed in Finding 1, there is a need in FCPS to begin tracking and analyzing information regarding the use of SWaM businesses. While OPS can track SWaM usage for most contracts in FCPS, construction-related contracts that are procured outside of OPS oversight require separate monitoring and tracking by FTS. All the information needed to track SWaM information is currently available. The Assistant Superintendent of FTS should ensure that all SWaM information for its contractors and subcontractors is formally tracked in a manner consistent with OPS tracking of SWaM data. The Assistant Superintendent of FTS should also provide to OPS the information it has tracked, so that OPS can develop overall FCPS trends. 70

72 RECOMMENDATIONS & RESPONSE To address the conclusions of Finding 3, these following recommendations are offered. For ease of review the recommendations are grouped by department, and recommendations for each department are listed in the order they appear in the finding. Following the recommendation is management s responses, including additional narrative used to clarify the response. Department of Facilities and Transportation Services 3.1 To enhance the ability of management to assess the contract monitoring function, as well as to provide documentation of contractor performance for its procurement staff, the Assistant Superintendent of the Department of Facilities and Transportation Services should implement a standard performance monitoring report. date Agree FTS FY 2016 FTS will enhance its monitoring of contractor performance in accordance with guidance from OPS. In addition, performance targets will continue to be included in contracts and FTS will continue to ensure that contractors meet these performance standards. 3.2 The Assistant Superintendent of the Department of Facilities and Transportation Services should ensure that internal performance measures are developed for both the contract procurement and monitoring activities. 71

73 32 See 3.1 date (Agree) (FTS) (FY 2016) See 3.1 (FTS will enhance its monitoring of contractor performance in accordance with guidance from OPS. In addition, performance targets will continue to be included in contracts and FTS will continue to ensure that contractors meet these performance standards.) 3.3 The Assistant Superintendent of the Department of Facilities and Transportation Services should continue to monitor all contracts prior to contract execution, particularly any sole source contracts, to ensure they have clear performance measures developed in conjunction with best practice guidelines. See 3.1 date (Agree) (FTS) (FY 2016) 32 For several of the recommendations in Finding 3, management s written response referred auditors to a response provided for a previous recommendation. For example, the response to recommendation 3.2 states see 3.1. To provide assistance to readers while maintaining fidelity to management s response, we have reproduced the full, applicable management response and additional narrative for all recommendations and marked these insertions by the inclusion of open and closed parentheses. 72

74 See 3.1 (FTS will enhance its monitoring of contractor performance in accordance with guidance from OPS. In addition, performance targets will continue to be included in contracts and FTS will continue to ensure that contractors meet these performance standards.) 3.4 The Assistant Superintendent of the Department of Facilities and Transportation should review the internal contracting needs of the department and develop policies and procedures to guide the practice of contracting monitoring and meet those needs. date Agree FTS FY 2016 In conjunction with guidance from OPS, FTS will align the policies and procedures of all offices based upon the standard established by Design & Construction. 3.5 The Assistant Superintendent of the Department of Facilities and Transportation Services should ensure that all SWaM information for its contractors and subcontractors is formally tracked in a manner consistent with OPS tracking of SWaM data. Agree Additional resources are required for date TBD 73

75 Presently this information is informally tracked by FTS. If a central reporting structure is established following the rollout of the Data Warehouse, FTS will coordinate with OPS to track this data within that structure. 3.6 The Assistant Superintendent of the Department of Facilities and Transportation Services should also provide to OPS the information it has tracked so that OPS can develop overall FCPS trends. See 3.5 (Agree) (Additional resources are required for ) date (TBD) See 3.5 (Presently this information is informally tracked by FTS. If a central reporting structure is established following the rollout of the Data Warehouse, FTS will coordinate with OPS to track this data within that structure.) Department of Information Technology 3.7 To enhance the ability of management to assess the contract monitoring function, as well as to provide documentation of contractor performance, the Assistant Superintendent of the Department of Information Technology should implement a standard performance monitoring report. This report may be merged with a standard performance monitoring report such as OPS may require. 74

76 See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 3.8 The Assistant Superintendent of the Department of Information Technology should ensure that internal performance measures are developed for contract monitoring activities. See 2.5 date (Agree) (Departments) (FY 2016) 75

77 See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 3.9 The Assistant Superintendent of the Department of Information Technology should continue to monitor all contracts prior to contract execution, particularly any sole source contracts, to ensure they have clear performance measures developed in conjunction with best practice guidelines. See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, 76

78 OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 3.10 The Assistant Superintendent of the Department of Information Technology should review the internal contracting needs of the department and develop policies and procedures to guide the practice of contracting monitoring and meet those needs. See 2.3 date (Agree) (OPS/Departments) (FY 2016) See 2.3 (Central guidance on contract monitoring will be provided by Procurement Services in the School Financial Handbook. This handbook is available online and the updates will be shared with department financial staff and program managers. In the event that additional procedures are necessary at the department level, department staff will develop the procedures.) 77

79 Office of Benefit Services 3.11 To enhance the ability of management to assess the contract monitoring function, as well as to provide documentation of contractor performance, the Director of the Office of Benefit Services should implement a standard performance monitoring report. This report may be merged with a standard performance monitoring report such as OPS may require. See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 3.12 The Director of the Office of Benefit Services should ensure that internal performance measures are developed for contract monitoring activities. 78

80 See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 3.13 The Director of the Office of Benefit Services should continue to monitor all contracts prior to contract execution, particularly any sole source contracts, to ensure they have clear performance measures developed in conjunction with best practice guidelines. 79

81 See 2.5 date (Agree) (Departments) (FY 2016) See 2.5 (OPS is developing an internal procedures manual that will provide guidance on use of common methodology for formulating performance measures. However, OPS does not advise use of a standard form as we prefer that departments have flexibility in determining the type of form on which to submit performance measures. The primary concern is that performance targets, as a minimum, are specific, measurable, attainable, realistic, and time-bound. As the scope of work is developed for each contract, performance targets will continue to be included, but based on the limited resources in all central departments, a separate performance monitoring report will not be developed at this time. In the event that a vendor does not meet the targets in the scope of work, departments will notify OPS who will work with the vendor to address subpar performance and set targets for performance improvement.) 3.14 The Director of the Office of Benefit Services should review the internal contracting needs of the office and develop policies and procedures to guide the practice of contracting monitoring and meet those needs. See 2.4 date (Agree) (OPS) (FY 2016) 80

82 See 2.4 (The Office of Procurement Services conducts quarterly P-101 workshops for departments. A second work shop, CA-201, will be developed by OPS and contract management will be included as a topic. Departments will identify staff to attend the training as needed.) 3.15 Given the possible financial consequences of claims errors that are not caught, the Director of the Office of Benefit Services should work with the Assistant Superintendents of the Departments of Human Resources and Financial Services to identify and implement a way of performing regular claims audits. Possible approaches may include hiring internal staff or contracting with a claims audit firm for periodic audits. date Agree OBS TBD Claims audits have been done historically as resources were available. Resource requirement will drive the date for claims audits, internal or externally sourced The Director of the Office of Benefit Services should work with appropriate FCPS personnel to implement a health benefits eligibility attestation process in conjunction with regular claims audits. date Agree OBS TBD 81

83 OBS will work to identify opportunities to implement a divisionwide annual participant attestation, taking into account resource availability, the impact to employees, and the FCPS strategic plan. Ensuring the accuracy of the covered population (how well vendors apply eligibility data provided by FCPS to administer benefit coverage) is similar to claims audit and is undertaken as a regular review in OBS. File transfers and their application at vendors are reviewed regularly and on an ad hoc basis as challenges occur. FCPS did undertake a dependent eligibility audit in 2011 and has since required documentation from employees as they add and drop dependents to ensure plan eligibility for dependents. Additionally, current enrollment and change forms have verbiage (top of page three) that briefly states the rules that apply to changes in eligibility and the responsibility of the employee relating to informing FCPS of changes. 82

84 FINDING 4 Audit Findings and Recommendations in This Report Indicate the Value of Reviewing in other Departments and in Schools This audit did not review all FCPS departments and did not review the contract management functions within any of the FCPS schools. Therefore the audit does not conclude on or include specific recommendations beyond OPS and the departments discussed in this report. However, the contract management findings and recommendations of this audit strongly suggest that other central departments within FCPS would benefit from a management review of their contracting processes, especially in regard to contract monitoring. Similarly, the findings in the audit indicate that schools would likely also benefit from further assessment and guidance regarding their contract monitoring structure and processes. Consequently, the Superintendent should identify responsible parties to assess contract management practices, primarily related to contract monitoring, in departments and schools not covered by the audit, using the findings, recommendations, and best practices offered in this report as points of departure. 83

85 RECOMMENDATION & RESPONSE Following the recommendation is management s responses, including additional narrative used to clarify the response. 4.1 The Superintendent should identify responsible parties to assess contract management practices, primarily related to contract monitoring, in departments and schools not covered by the audit, using the findings, recommendations, and best practices offered in this report as points of departure. Agree OPS FY 2017 date We will include central guidance on contract monitoring in the School Financial Handbook that is provided to all schools and departments. Additionally, CA-201 will be available to all schools and departments. 84