Audit: Managed Competition Needs Better Management - Voice of San Diego

City Council

Audit: Managed Competition Needs Better Management

An audit of the city’s first foray into managed competition reveals the need for improved oversight.

Years ago, voters gave city leaders the option to contract out city services to save money. But the first function to go through the process actually increased costs for other city departments.

An audit presented to a City Council subcommittee last week found the city’s publishing services division upped its rates by an average of 15 percent last year to ensure it could take in the annual $2 million laid out when city staffers won the bid.

That happened, auditors concluded, because city staffers drastically overestimated the city print shop’s workload at a time when public and private-sector leaders alike pushed going paperless. And yet, publishing services staffers later persuaded city leaders to allow fee hikes so they could cover all department costs in the face of a 58 percent drop in ordered copies, design work and other services.

The audit was unveiled at a critical time for the managed competition program.

Former Mayor Bob Filner called for a review of the process before leaving office in late August but the City Council has yet to hear staffers’ conclusions on whether the city should continue to implement it. The city’s next mayor will decide whether to stick with the program despite auditors’ concerns and other criticisms that have recently gone public.

Mayoral candidate Kevin Faulconer, the councilman who chairs the committee that reviewed the audit last week, is among managed competition’s chief proponents.

But the city’s first try at the program leaves serious questions about future managed competition processes, particularly in cases where city employees receive the winning bid. (They’ve won all the bids so far.)

“In several key areas, the case of publishing services illustrates issues that need to be resolved if the managed competition process is to proceed in a manner that will most effectively and efficiently further the purpose of managed competition to achieve cost savings,” auditors wrote in their report.

The publishing services division prints letterheads, creates graphic designs, handles high-volume copying jobs and oversees more than 560 copy machines throughout the city.

Four city auditors worked to evaluate the division’s performance after it went through the managed competition program.

Auditors interviewed staffers and managers and reviewed dozens of documents to assess how the print shop cut costs and shifted its workload in the process.

Here’s a rundown of what auditors found.

The city’s agreements with staffers who win managed competition bids aren’t legally binding.

Auditors raised particular concern about the city’s inability to ensure employees who win managed competition bids follow through on promises.

The city’s current process requires private companies that win managed competition bids to sign legally binding contracts that lay out expectations and prices. The process differs for groups of city staffers. City employees sign off on a request for proposal, which details services the city seeks, but they don’t face direct penalties when they don’t meet benchmarks. That’s because they aren’t considered independent legal entities.

“Right now there isn’t one thing to hold them accountable,” City Auditor Eduardo Luna told Voice of San Diego. “The fact prices increased 15 percent is evidence of that.”

City leaders should spend more time assessing department workloads before proceeding with managed competition.

Auditors decided the increased sticker price for other city departments came as a result of a failure to adequately assess the situation before proceeding with managed competition.

They said city officials should have spent more time and resources nailing down the print shop’s workload before requesting any bids.

Auditors found city workers “shared conflicting concerns regarding workload projections being set too high or too low” even as they were finalizing a document that detailed services the city sought from bidders.

That roadmap, known as the statement of work, ultimately led both city employees and outside groups to overbid, auditors wrote.

They suggested an outside consultant, or a high-level manager with years of experience supervising publishing services, should have been called to assist.

And they concluded that inaccurate projections undermined the total cost savings possible with managed competition.

That’s not to say there weren’t any cost savings. The city eliminated 15 full-time print shop jobs and shaved 42 percent from the department’s expense ledger during the managed competition process.

The mayor and City Council need more information.

As the city began implementing managed competition, its business office regularly provided updates to a City Council subcommittee on related progress but not on how the reforms were affecting services.

“As a result, the City Council, the body with the charter-mandated authority to approve changes to the budget, was not presented with all of the relevant information about the operation of the managed competition process,” auditors wrote.  “Providing this type of information on a regular basis would better enable the mayor and the City Council to make informed policy and budgetary decisions related to the managed competition process.”

This is significant because the mayor and City Council have the sole authority to ask city departments to adjust budgets and request changes to service levels.

To start, auditors recommended that the city’s business office work with the publishing services division to assess staffing needs, workload and demand for the city’s print shop services, and then present conclusions to the mayor and City Council.

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