Review of Water and Wastewater Services General Professional Consultant Services Agreements

Transcription

1 Review of Water and Wastewater Services General Professional Consultant Services Agreements July 14, 2009 Report No Office of the County Auditor Evan A. Lukic, CPA County Auditor

2 Table of Contents Topic Page Executive Summary /////////////////////////.2 Purpose and Scope /////////////////////////..3 Methodology /////////////////////////////.3 Background /////////////////////////////..3 Findings and Recommendations /////////////////...6 Office of the County Auditor 1

3 EXECUTIVE SUMMARY This report presents the results of our review of the General Professional Consultant Services Agreements between the County s Water and Wastewater Services (WWS) and Hazen and Sawyer, P.C. (Hazen) dated April 2, 2002 and June 24, 2008 and Malcolm Pirnie, Inc. dated June 24, Our objectives were to evaluate administration of the agreements by WWS and compliance with County procurement policies and contract terms. Our review covered the period from February 2003 to April Our review disclosed: 49 subconsultants (subs) were added during the term of the contracts without the benefit of open and competitive solicitation or negotiation. The Scopes of Services of the agreements provide the means to circumvent County procurement policies and procedures. We found evidence of inappropriate staff influence in the selection of three subconsultants. The inappropriate use of the lump sum method of compensation resulted in the County paying $9,900 more than necessary. WWS did not comply with Board policy regarding negotiations and staff due diligence. 34 consultant invoices tested did not contain sufficient information to substantiate the work performed as required by the agreements. Board approved changes to the County s procurement policy have not been promulgated in the Purchasing Division Internal Control Handbook. We concluded that the manner with which the general professional consulting services agreements have been used conflicts with sound public procurement policy in that a significant amount of procurement takes place without the benefit of open competitive solicitation. In addition, the agreements create opportunities for inappropriate influence in the procurement of services. Our report includes recommendations designed to address our specific findings and improve contract administration at WWS. It should be noted that management has taken several steps to address our findings during the course of our review. These steps include modifications to the information provided with consultant invoices to describe the work performed and sunshine advertising of all work authorization negotiation meetings. Office of the County Auditor 2

4 PURPOSE AND SCOPE The objectives of this review were to evaluate whether Water and Wastewater Services (WWS) complied with the County procurement policies and whether the consultants complied with the requirements of the Agreements between Broward County and Hazen Sawyer, P.C. and Broward County and Malcolm Pirnie, Inc. The review covered the period from February 2003 through April METHODOLOGY To accomplish our objectives, we: Reviewed: The General Professional Consultant Services Agreement with Hazen and Sawyer, P.C. approved by the Board of County Commissioners (the Board) on April 2, 2002, The General Professional Consultant Services Agreement with Hazen and Sawyer, P.C. approved by the Board on June 24, 2008, The General Professional Consultant Services Agreement with Malcolm Pirnie, Inc. approved by the Board on June 24, 2008, Broward County Administrative Code and Code of Ordinances, and Selected invoices, work authorizations, and other contract related documentation. Interviewed staff at: Water and Wastewater Services, Purchasing Division, and Hazen and Sawyer, P.C. BACKGROUND WWS operates a water utility providing both drinking (potable) water and wastewater 1 services to residential and retail customers. WWS operates three principal lines of business: retail water and wastewater services, wholesale wastewater treatment and transmission services, and wholesale water. WWS serves as a liaison with local, State and Federal agencies as well as with public and private groups regarding the regulation, safety and conservation of water and wastewater resources for the County and the entire South Florida region. 1 Wastewater is water that has been adversely affected in quality by human processes; it may be discharged by residential or commercial properties and may include a wide range of contaminants. Source: Wikipedia Office of the County Auditor 3

5 WWS is composed of the following divisions: Engineering, Fiscal Operations, Information Technology, Water Management, and Operations. The fiscal year 2010 operating budget is approximately $87.8 million, and the capital budget is approximately $39.7 million. WWS has a workforce of 418 employees. Consulting Services Contracts WWS has historically contracted with engineering firms to provide consulting services, perform technical assistance, and various engineering, design and maintenance services. The consultants are utilized for a variety of services in areas of WWS operations including: the water and wastewater treatment plants, storm drainage systems, and the distribution/collection systems. The consultants utilized during the period of this review were Hazen Sawyer, P.C. and Malcolm Pirnie, Inc. On April 2, 2002 the Board entered into a two-year General Professional Consulting Services agreement with Hazen Sawyer, P.C. (Hazen). The agreement included a 15 percent minority goal and provided for three consecutive one-year extensions to be exercised at the sole discretion of the Contract Administrator. In 2004, 2005, and 2006 the Contract Administrator signed one-year extensions to continue services. The contract and all extensions expired on April 2, 2007; however, projects approved prior to this date remained in effect until completed. Subsequent to the expiration of the agreement with Hazen, on June 24, 2008 the Board entered into two separate two-year General Professional Consulting agreements with Hazen Sawyer, P.C. and Malcolm Pirnie, Inc. These agreements provided for 20% Community Disadvantaged Business Enterprise participation goal and three consecutive one-year extensions to be executed by the Director of Purchasing. The Scope of Service for each contract requires professional engineering services similar to those in the expired Hazen agreement, except that Design Build services were excluded and Information Technology services were added. During the period of our review payments totaling $15.5 million were made to Hazen and Malcolm Pirnie, Inc under the agreements. Administration of the Agreements was primarily handled by Water and Wastewater Engineering Division. Scope of Agreements The Agreements state that the specific nature of the work shall include but not be limited to providing: Professional engineering, Planning, Surveying, Testing, Process study, Compliance reporting, Office of the County Auditor 4

6 Pre-design, Design, Design criteria professional, Permitting, Bid/award, and Construction management services. The Work Authorization Process The Agreements provide WWS with the means to engage consultant services on an as needed basis for various projects. Work under the contracts is initiated using a work authorization 2, which acts as an individual agreement, bound by the terms of the overall contract. The work authorization includes the description of the project scope, amount, method of payment, time for performance, deliverables, and other provisions relating to the work to be performed. When WWS needs to procure services under the contracts the following steps are typically performed: WWS personnel identify the need for the services and contact the Consultant to discuss the potential project, The Consultant drafts the Scope of Services for the project/work authorization, Sunshine meetings are held to finalize scope and negotiate costs, time, payment method and deliverables, If applicable, the Consultant selects the subconsultant needed to perform the specific scopes, and includes their name, scope and fees in the proposal, Method of payment is determined - under the contract the consultant could be compensated using lump sum or maximum-not-to-exceed or a combination of both. Often reimbursable expenses are included in maximum-not-to-exceed work authorizations for associated direct costs, such as permitting, printing, copying, testing or travel expenses, and The Director of WWS approves work authorizations for up to $100, Board approval is required for work authorizations in excess of $100,000 in accordance with the Broward County Procurement Code. Typically, after the work authorization is approved the: Purchasing Division issues a purchase order (PO) to encumber the project cost, The Contract Administrator issues notice-to-proceed (NTP) to the Consultant, and The Consultant commences work on the project. 2 Article 1.11, of the agreement defined the term work authorization as a formal document by which County accepts Consultant s proposal and Consultant indicates a willingness to perform same for terms and under the conditions specified in the Agreement and the applicable Work Authorization. 3 The Procurement Code authorizes the Purchasing Director to approve agreements for professional services for $100,000 and less. However delegation of approval authority to the Director of WWS was included in the expired contract and was therefore approved by the Board. The current contracts, approved June 24, 2008 require the Purchasing Director to approve work authorizations consistent with the requirements of the Procurement Code. Office of the County Auditor 5

7 Invoicing Process: The contract requires the Consultant to submit invoices monthly and the type of documents required is dependent on the method of payment: Invoices for lump sum work authorizations are required to identify the nature of work performed, the phase of work, and the estimated percent of work accomplished, and Invoices for maximum-not-to-exceed work authorizations are required to identify the nature of work performed, the total hours of work performed, and the category of employees completing the work. Reimbursable expenses, if applicable, must be supported with proper documentation. The invoices and supporting documentation are submitted to WWS. After review and approval by the Project Manager and the Contract Administrator the invoices are forwarded to the Fiscal Operations Division for processing into the Advantage Financial System. Checks are issued by the Accounting Division and mailed to the Consultant. Broward County Procurement Policy The General Consulting Agreements are governed by the Broward County Procurement Policy. The County s procurement policy 4 is based on the fundamentals of public procurement - free and open competition for all. This concept enables the County to maximize to the fullest extent practicable, the purchasing value of public funds by fostering effective broad based competition within the free enterprise system, while ensuring fair and equitable treatment of all persons who deal with County Procurement. The policy is accomplished through public and competitive solicitation and award practices designed to provide fair and equitable opportunities for vendors to respond to County procurement needs. FINDINGS AND RECOMMENDATIONS Finding 1: Forty-nine subconsultants were added to the contracts without the benefit of open and competitive solicitation. Our review found that 49 subs were added to the contracts without the benefit of competitive solicitation. Further the rates and amounts paid to these subs were not publicly negotiated. Without an open competitive process all vendors do not have a fair opportunity to compete for public contracts. Further, the County lacks assurances that awards are based on appropriate qualifications and fair prices. 4 Broward County Administrative Code, Volume II Operational Policy, Chapter 21 Procurement Code Finance and Administrative Services Office of the County Auditor 6

8 Six of the 49 added subconsultants were added after the adoption of the Board s policies mandating the use of the Record of Negotiation Form and requiring the reasons for and financial impacts of additions or deletions of subs in County contracts to be reported to the Purchasing Director. We found no evidence the consultants competitively solicited the six additional subconsultants or negotiated the rates/costs. Recommendation 1. To strengthen procurement controls, we recommend the Board of County Commissioners direct the County Administrator to take effective steps to ensure Contract Administrators and Project Managers comply with the Board s policy regarding changes in subconsultants. Finding 2: The Scopes of Services of the agreements provide the means to circumvent County procurement policies and procedures. The Scope of Services for each of the general professional services agreements state that the specific nature of the work shall include but not be limited to providing: professional engineering, planning, surveying, testing, process study, compliance reporting, pre-design, design, design criteria professional, permitting, bid/award, and construction management services in all of the following areas: Water/Wastewater, treatment plants, Drainage systems, Distribution/collection systems, Lift stations, [Bi] product disposal, Finance/administrative consulting services for rate & fee studies, Bond feasibility studies, and Annual engineering reports required by bond covenants. Management has taken the shall include but not be limited to phrase in the agreements to mean that virtually any service can be purchased through the consultants by work authorization. As a result, the consultant is effectively a procurement agent for WWS. This arrangement provides a means to procure services outside of the County procurement policies and procedures. For example, the three projects in Table 1 on the next page were procured under the consultant agreements (via work authorization) even though the services are not within the expertise of the contract consultants (requiring addition of the listed specialty subconsultants) and expand the scope of the agreement. This enabled WWS to obtain the services without following the County s procurement policies and procedures. Office of the County Auditor 7

9 Table 1 Work Authorizations which expended the scope of the agreements Subconsultant Work Authorization (WA) Amount Scope of Service Life Cycle Engineering, Inc. Distribution Consulting, Inc. WA Maintenance Excellence Services WA Inventory Warehouse Study $95,530 Optimize in-house maintenance practices by providing standard operating procedures and training courses for maintenance staff. $80,256 Review and evaluate the administration, management, and operating policies of the Warehouse Operations. EMA, Inc. WA Maximo Upgrade Assistance Source: Schedule prepared by County Auditor $58,700 Review impact of upgrade to the existing Computerized Maintenance Management System 5. Use of the consultants to procure these services resulted in: Non-competitive pricing Subconsultant costs are paid via pass-through to the County without the benefit of competitive solicitation or negotiation under existing contracts. This results in lost opportunities for financial savings from competitive procurement. Circumvention of the County Sheltered Market Program The inclusion of these small stand-alone projects in the consultant agreements undermines the Board s disadvantaged sheltered market program by reducing opportunities for the sheltered market program. Circumvention of the Procurement Code - Transfer of procurement functions to third parties Combining stand-alone projects which are unrelated to the qualification selection criteria and scope of the general consultant s agreement serves to outsource the procurement to the consultant and thereby circumvent County policies and procedures. Loss of transparency in vendor selection The process by which subconsultants are added to the consultant contracts is not open and transparent and provides opportunities for inappropriate staff and other influences in the vendor selection process (further discussed in Finding 3). 5 Information technology assistance was later included in the contracts executed on June 24, Office of the County Auditor 8

10 Recommendations We recommend the Board of County Commissioners direct the County Administrator to: 2. Clearly define the scope of services in future contracts by discontinuing the use of ambiguous or expansive language such as shall include, but not be limited to, and, 3. Take steps to ensure consultants and vendors are not utilized to procure services outside the intended scope of services in their agreements, to include requiring that work authorizations necessitating the hiring of additional subconsultant(s)/subcontractors be reviewed by the Director of Purchasing for appropriateness and consistency with the qualification selection criteria and scope of services in the related agreement. Finding 3: We found evidence of inappropriate staff influence in the selection of three subcontracts. WWS staff appeared to have inappropriately influenced the selection of the three subconsultants shown in Table 1 on page 8. The occurrences were prior to the Board adopting the policy specifically prohibiting this action. Specifically we found: WWS files documented WWS staff was negotiating directly with Life Cycle Engineering, Inc., to provide a follow-up to the Maintenance Excellence Review performed in Subsequently, WWS staff approved a work authorization under the Hazen contract engaging Life Cycle Engineering, Inc. to provide the training. Our interview with Hazen staff disclosed that the selection of Distribution Consulting Inc. to perform an inventory warehouse study was recommended by County staff after Hazen sought the assistance of WWS in the selection of the subconsultant, because they were not familiar with subs offering such services. Our interview with WWS staff confirmed county staff also performed background reference verification prior to approval of the work authorization. WWS personnel revealed that their first contact with EMA, Inc. was at a seminar. A work authorization was later approved through the Hazen contract to utilize the services of EMA, Inc. to review the impact of upgrades to the existing maintenance software and applications. EMA, Inc. is one of the partners of the inventor of the Maximo maintenance software currently in use at WWS. The scope of service of the work authorization required an Implementation Assessment and Scope of Work document that WWS staff later used as the basis for writing a RLI to procure information technology services. These services were advertised under RLI No WWS-1A. On October 6, 2008 the Selection Committee ranked EMA Inc., number one after short-listing 3 Office of the County Auditor 9

11 of the 6 respondents, and on March 3, 2009 the Board awarded EMA, Inc. a maximum-not-to-exceed contract for $1,332,756. Recommendation 4. We recommend the Board of County Commissioners direct the County Administrator to implement training for Contract Administrators and Project Managers to ensure compliance with the County Code of Ordinance relative to inappropriate staff influence in the procurement process. Finding 4: Use of the lump sum method of compensation resulted in the County paying $9,900 more than necessary. Generally the use of lump sum payments is appropriate if the scope of work and deliverables are clearly defined and the cost of the work can be reasonably estimated. The County and Hazen negotiated a work authorization for a lump sum payment of $114,060 for a Vulnerability Assessment Study. Support for the work authorization named a minority subcontractor to perform information gathering and local coordination for $12,240, without a clear definition of a scope and deliverables. We noted that Hazen later executed a maximum-not-to-exceed agreement with the subconsultant. The subconsultant billed Hazen $2,356; however, Hazen billed the County $12,240, the full lump sum amount. As a result of the lump sum arrangement, the County paid $9,900 more than it would have under a maximum-not-to-exceed agreement. Given the lack of specificity in the scope of work for this subconsultant, use of a lump sum payment methodology was not appropriate. Recommendation 5. We recommend the Board of County Commissioners direct the County Administrator to take steps to ensure appropriate methods of compensation are used for work authorizations including the promulgation of guidance on the appropriate use of lump sum arrangements. Finding 5: WWS did not comply with Board policy regarding negotiations and staff due diligence. On August 24, 2004, the Board of County Commissioners approved several amendments to the Administrative Code. Among these amendments was the addition of clarifying language to Chapter 21.34, requiring that negotiation of contracts and work authorizations Office of the County Auditor 10

12 be in accordance with the practice of Government in the Sunshine 6. The revised procurement policy also required County staff to: Perform and document detailed negotiations with vendors/subs including hourly rates, number of hours by task, wage multipliers, and other significant contractual terms, Present the results of their due diligence to the Board, the Selection Committee or other approving authority for review prior to approval of an agreement, and Retain a record of all vendor negotiations. We reviewed a sample of twenty-two work authorizations and eight related amendments and found WWS did not comply with the Board policy for ten work authorizations and three amendments. We also found no evidence that project scopes and prices were advertised, negotiated, or meeting minutes documented. WWS management personnel stated that they were unaware of the Board approved policy until March 15, 2006 and therefore did not comply with the sunshine or documentation requirements prior to March We also reviewed the six subconsultants added since June 2008 and found negotiations for the wage rates for the six subconsultants were not documented. Failure to comply with the Board policy prevented an evaluation of the negotiation process and resulted in insufficient data to audit the work authorizations because the record of negotiations helps to clarify the intent of the negotiated price, scope, and deliverables. Management stated they routinely compare subconsultant wage rates to the prime s and have on occasion denied rates in excess of the Prime s. For new contracts they request audited backup for multipliers, if available. Recommendation 6. We recommend the Board of County Commissioners direct the County Administrator to take steps to ensure compliance with Board policies, to include training and monitoring for compliance. Finding 6: Consultant invoices reviewed did not contain information to substantiate work performed as required by the agreement. Article and Article of the agreements require that the Consultants shall provide the following information in invoices for: 6 Florida Statutes (1) and (2) - requires that meetings must be open to the public, reasonable notice of such meetings must be given, and that minutes of the meetings must be taken. Office of the County Auditor 11

13 Maximum Amount Not-to-Exceed (NTE) work authorizations: The Consultant shall identify the nature of the work performed, the total hours of work performed and the employee category of the individuals performing the tasks, and Lump Sum work authorizations: The Consultant shall identify the nature of the work performed, the phase of the work, as set forth in the work authorization, and the estimated percent of work accomplished. We reviewed 47 invoices for 17 work authorizations totaling $719,580 paid between 2003 and 2009, and found that 34 invoices did not comply with the contract requirements as follows: 26 invoices totaling $155,792, for NTE work authorizations, did not contain sufficient details to substantiate the nature of the work performed. 8 Invoices totaling $158,522 did not document the phase of the work performed or sufficient details to validate the percentage of work completed. Acceptance and processing of invoices without the required details; 1) limits the ability to properly review invoices prior to payment, 2) could potentially result in payment for work not performed, 3) is not in compliance with the agreement and, 4) limits the ability to ensure that payments are consistent with the progress of the project. Recommendation 7. The Board of County Commissioners should direct the County Administrator to ensure that Contract Administrators: Enforce compliance with the invoice requirements of the contracts, and Perform proper reviews of invoices prior to approval for payment. Finding 7: Board approved changes to the County s procurement policy have not been promulgated in the Purchasing Division Internal Control Handbook. As noted previously, on August 24, 2004, the Board approved Public Hearing Agenda Item #6, which included a requirement that negotiation of contracts, and work authorizations shall be in accordance with the practice of Government in the Sunshine. The revised procurement policy also required County staff to: Perform and document detailed negotiations with vendors/subs including hourly rates, number of hours by task, wage multipliers, and other significant contractual terms, Present the results of their due diligence to the Board, the Selection Committee or other approving authority for review prior to approval of an agreement, and Retain a record of all vendor negotiations. Office of the County Auditor 12

14 In Agenda Item #24, February 5, 2008, the Board approved audit recommendations contained in our report on Aviation Department Procurement Practices dated January 10, 2008 requiring changes (addition and deletions) to subconsultants in County contracts (except for competitively bid contracts) to be reported to the Purchasing Director. The notification to the Purchasing Division should include the reasons for the changes, the financial impact of the change and the record of negotiations with the contractor relative to the change in subs. As of April 13, 2010 the Board approved changes to the procurement policy have not been promulgated as revisions to the Purchasing Division Internal Control Handbook. Failure to codify Board policies and management s procedures undermines staff s understanding, compliance, and accountability. Recommendation 8. We recommend the Board of County Commissioners direct the County Administrator to update the Internal Control Handbook by September 30, 2010 to reflect all policies approved by the Board. Office of the County Auditor 13