San Francisco will soon have an Office of the Inspector General, with a mandate to investigate and expose corruption in city agencies. Proposition C, which authorized the new office, passed with about 60 percent of the vote in November, and soon Controller Greg Wagner will appoint someone to run it. The mayor and the supes have to approve the appointment.
In the meantime, Sup. Dean Preston has asked the Budget and Legislative Analyst to conduct audits of all the city departments that have the authority to sign public works contracts.
Six department heads—at the SFPUC, the Airport, the Port, the Recreation and Parks Department, the SF Municipal Transportation Authority, and the Department of Public Works—have that authority.
That practice has caused some serious problems in the past, and the former director of the SF Public Utilities Commission is now in prison for abusing it. So is the former head of DPW.
After the arrest of former SFPUC director Harlan Kelly, the city issued a report saying that the problem was not structural; the systems in place to prevent abuse were just fine, but Kelly cheated them:
The Controller’s Office and City Attorney’s Office concluded that while there are some improvements to be made, the abuse of City processes was caused by willful corrupt conduct and defiance of rules rather than inadequate controls or complicit SFPUC staff. …. We can have the most comprehensive and foolproof policies in place, but they’re only as infallible as the people entrusted to enforce them,” said Controller Greg Wagner. “Nobody is above the rules, regardless of seniority, degree of influence, or any other factor — and the courts have determined as much. This case shows just how consequential tone at the top is, and how integral it is to foster workplace cultures where staff are empowered to speak up when they see red flags at any level.”
The Budget and Legislative Analyst begs to disagree.
In a report issued Dec. 20, the office says:
SFPUC’s Contract Administration Bureau (CAB) policies, procedures, and training program for procurement personnel are not consistent with industry best practices. CAB does not adequately maintain its internal policies and procedures for contract procurement activities and there are opportunities to improve and formalize CAB’s training program for new contract analysts and existing staff. Inadequate policies and procedures and a lack of proper training could expose SFPUC to compliance risks and could also contribute to inefficiencies and ineffectiveness in procurement activities, potentially leading to missed opportunities for cost savings. Inadequate policies and procedures also impact transparency and may make it difficult to track procurement decisions and ensure accountability in the procurement process.
Preston:
As we saw during the Mohammed Nuru scandal, delegated authority contracts are vulnerable to corruption. The SFPUC needs to continue improving its processes and policies to minimize the risk of corruption before it happens.
Delegating some contact authority to department heads makes a certain amount of sense; the city’s procurement process is already slow, and a lot of small local businesses just give up. If critical infrastructure needs to be fixed or upgraded, time matters.
And yet, in a city where casual corruption has been business as usual since the days of Mayor Willie Brown, it comes with risks.
The SFPUC audit covered the period from 2019 to 2021. For the record, the current general manager, Dennis Herrera, took office toward the end of that period—and in a formal letter to the BLA, he said he agreed with all of the audits finding and recommendations and would work to implement them.
One of the findings address the very tricky area of “change orders,” the source of sometimes massive cost overruns in public works contracts. In a typical process, the government solicits sealed bids from private companies, and awards the contract to the lowest qualified bidder.
But in many cases, the stated bid changes, dramatically, as the work gets performed. Contractors say they found unexpected challenges, or the cost of materials went up, or the bid didn’t include work that really needed to be done.
Sometimes, the change orders can double the price of a contract. At one point, the SF City Attorney’s Office sued an airport contractor over, among other things, inflated change orders. From a story by Zusha Ellinson in the now-defunct Bay Citizen:
Tutor “knew that if it submitted an unrealistically low bid,” it would win the airport contracts, the city’s lawsuit claimed. Tutor planned to “artificially inflate” its bills with “fraudulent change orders and other deceptive means” and strong-armed airport staff into approving them with “threats of delay and walking off the job,” the city claimed.
Herrera filed that suit while he was city attorney.
At the SFPUC, the audit shows,
project managers do not receive formal training on how to evaluate or process proposed change orders that originate from contractors and do not receive training on how to conduct a negotiation on a change order. This lack of training and centralized recordkeeping increases the risk that contractors might take advantage of project managers through excessive and/or unnecessary change orders, because there is no centralized method for tracking them and project managers are not regularly trained on addressing change order abuse. Additionally, we reviewed 122 change orders from a sample of 11 construction contracts and found that some of the change orders were missing required signatures.
Then there are bid protests, where the company that loses out says that something went wrong. If it turns out that company was right, there was probably something wrong with the process. From the audit:
Of the 124 SFPUC Chapter 6 contracts in our scope period, 14, or 11 percent, had bid protests submitted. Of these protests, four were sustained, meaning that SFPUC agreed with the protest. SFPUC and CMD staff are responsible for evaluating bid submissions to ensure they meet minimum qualifications and are responsive to the bid requirements as part of an initial review. In the case of one professional services contract, SFPUC and/or CMD staff failed to identify the protested proposer as nonresponsive during this initial bid review. Overall, while it appears that SFPUC’s bid protest procedure is properly administered, SFPUC should take steps to minimize bid protests that are sustained for failure to meet minimum qualifications.
Again: Most of this happened when the previous, now imprisoned, SFPUC director was in charge, and Herrera doesn’t dispute any of the findings.
What’s remarkable is that nobody noticed when Kelly was letting the oversight processes fall far short of what they should have been. Until Preston—who the billionaire plutocrats who want to run the city helped push out of office—asked for these audits, nobody was paying attention.
That’s what the Inspector General’s Office is supposed to do. It appears that office is going to have plenty of work.
