San Francisco will soon have an inspector general's office tasked with investigating and uncovering corruption in city agencies. Proposition C, which authorized the new position, passed in November with about 60 percent of the vote, and Controller Greg Wagner will soon name someone to lead it. The mayor and mayors must approve the appointment.
Meanwhile, Sup. Dean Preston has asked the budget and legislative analyst to conduct audits of all city departments authorized 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 Public Works Department – have this authority.
This practice has caused some serious problems in the past, and the former director of the SF Public Utilities Commission is now in prison for abuse. This also applies to the former DPW boss.
After the arrest of former SFPUC director Harlan Kelly, the city issued a report saying the problem was not structural; The systems in place to prevent abuse were fine, but Kelly betrayed them:
The Controller's Office and the City Attorney's Office concluded that while some improvements needed to be made, the abuse of the city's processes was due to intentional corrupt behavior and disregard for rules rather than inadequate controls or complicit SFPUC employees. …. “We can have the most comprehensive and safe policies, but they are only as infallible as the people charged with enforcing them,” he said Controller Greg Wagner. “No one is above the rules, regardless of their seniority, level of influence or any other factor – and the courts have held that. This case shows the consistency of tone at the top and the importance of fostering a workplace culture where employees have the opportunity to speak up if they see warning signs at any level.”
The budget and legislative analyst disagrees.
A report published on December 20 stated:
SFPUC's Contract Administration Bureau (CAB) policies, procedures, and training programs for procurement personnel do not conform to 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 personnel. Inadequate policies and procedures as well as a lack of adequate training could expose SFPUC to compliance risks and also contribute to inefficiency and ineffectiveness in procurement activities, potentially resulting in missed opportunities for cost savings. Inadequate policies and procedures also impact transparency and can 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 must continue to improve its processes and policies to minimize the risk of corruption before it occurs.
Delegating a certain level of contact authority to department heads makes perfect sense; The city's procurement process is already slow and many small local businesses are simply giving up. When critical infrastructure needs to be repaired or modernized, time is of the essence.
And yet it carries risks in a city where opportunistic corruption has been commonplace since the days of Mayor Willie Brown.
The SFPUC audit covered the period from 2019 to 2021. As a reminder, the current General Manager, Dennis Herrera, took office towards the end of that period – and in a formal letter to the BLA he said he agreed with all of the audit's findings and recommendations and would work to implement them.
One of the findings deals with the very sensitive area of “change orders,” which are the cause of sometimes massive cost overruns on public works contracts. In a typical process, the government solicits confidential bids from private companies and awards the contract to the lowest qualified bidder.
However, in many cases the quoted quote changes dramatically as the work is carried out. Contractors reported that they encountered unexpected challenges, that material costs increased, or that the bid did not include work that really needed to be done.
Sometimes change orders can double the price of a contract. The SF city attorney's office once sued an airport contractor for, among other things, excessive change orders. From a story by Zusha Ellinson in the now-defunct Bay Citizen:
Tutor “knew it would win the airport contracts if it submitted an unrealistically low bid,” the city’s lawsuit says. Tutor planned to “artificially inflate” its invoices using “fraudulent change orders and other fraudulent means” and trick airport staff into approving them with “threats of delays and termination,” the city alleged.
Herrera filed this lawsuit while he was still city attorney.
At SFPUC, the audit shows
Project managers do not receive formal training in evaluating or processing proposed change orders that come from contractors, and they do not receive training in conducting negotiations on a change order. This lack of training and centralized record-keeping increases the risk that contractors will take advantage of project managers through excessive and/or unnecessary change orders because there is no centralized method of tracking and project managers are not regularly trained to combat change order abuse. Additionally, we reviewed 122 change orders from a sample of 11 construction contracts and found that some change orders were missing required signatures.
Then there are bid protests, where the losing company says something went wrong. If it turns out the company was right, there was probably something wrong with the process. From the exam:
Of the 124 SFPUC Chapter 6 contracts in our coverage period, 14 or 11 percent received bid protests. Four of these protests were sustained, meaning SFPUC agreed to the protest. SFPUC and CMD staff are responsible for evaluating bid submissions to ensure they meet minimum requirements and responding to bid requirements as part of an initial review. In the case of a professional services contract, SFPUC and/or CMD staff were unable to determine during this initial bid review that the protested applicant had not responded. Overall, although it appears that the SFPUC's bid protest process is being properly managed, SFPUC should take steps to minimize ongoing bid protests due to failure to meet minimum qualifications.
Again, most of this happened when the former, now-jailed SFPUC director was in charge, and Herrera doesn't dispute any of the findings.
Remarkably, no one noticed when Kelly allowed the oversight processes to fall far short of what they should have been. Until Preston—who was ousted from office by the billionaire plutocrats who want to run the city—asked for these audits, no one paid attention.
That's what the inspector general's office is supposed to do. It seems that the office will have a lot of work.