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Firms feast on city work

Consultant contracts run over projections; critics say jobs often not open to competition
by: , KAHN

Consultants hired by the city of Portland were awarded $128 million in city contracts from 2004 through 2006 and loopholes in the city's contracting system allowed a fistful of firms to increase earnings - some by millions of dollars - without competitive bids.

The contracts went to what the city terms 'professional, technical and expert' consultants - consultants for everything from designing roads and water mains to more squishy professional services like 'visioning,' 'positioning' and 'messaging.'

As city officials contemplate the next budget cycle and consultants stand poised to come calling, the Portland Tribune analyzed all 871 of the contracts doled out from July 2004 through June 2006 - the last biennium for which complete contract data is available.

That data shows consultants actually were awarded $20 million more than anticipated in a spring 2006 purchasing report to the City Council.

Though the city's Bureau of Purchases doesn't track payments on consultant contracts on an annual basis, data on contract revisions shows increases to contracts accounted for $16.7 million in unplanned spending.

Most of those added expenses - $11.1 million - were approved by the City Council. Many of the decisions increased profits for a number of consulting firms by hundreds of thousands of dollars, sometimes millions.

Some of the increases were optional renewals on existing contracts. The majority were projects that changed direction after they began.

The Portland Tribune's analysis found three ways in which the city's contracting process can play favorably to a consultant and possibly unfavorably to city taxpayers:

• Once consultants obtain city work, they easily are a preferred candidate in the next round of bids. Though construction bids are managed by the city's Bureau of Purchases, consultants' bids are evaluated, scored and ranked by the bureaus for which they work.

• Consultants win jobs, which then change. City officials and the consultants themselves suggest additional work, and the contract is then extended and revised.

• Consultants habitually obtain slight increases to contracts for extra work. Increases of less than 25 percent escape review by the City Council. Bureaus and their temporary hires appear to intentionally keep increases just below 25 percent.

Same firms get business

Of the 18 contract revisions approved by the City Council during the time period reviewed, two companies obtained renewals on more than one contract, earning as much as $5 million more than original awards on a single job.

The practice of continuing to award money to firms already at work on city projects lies at the heart of whether consultants have, through contract revisions, exclusive access to city work.

Critics describe a culture of favoritism. They say city officials are overly reliant on consultants, and familiar faces pick up work year after year. They say many consultants once were employees of the city's bureaus and that the atmosphere in which they land jobs is more comfy than competitive.

Scott Fernandez, a member of the Portland Utilities Review Board, previously has probed consultant contracts in the Portland Water Bureau and has particular concern about what he calls contract 'loops' - or when consultants hang onto city work for years, simply by being first to the job.

'Once a contract is given, we've seen the same engineering firm receive the same contract year after year after year in a renewal form, giving them essentially a lock on the projects they're involved with in the water bureau,' he said.

The Tribune's analysis found similar issues citywide.

The contract between the city's Bureau of Environmental Services and CMTS Inc., a national construction management firm, is the most glaring example of the city's contract 'loops.'

CMTS won a $3.7 million contract in December 2004 to inspect city sewer projects. That contract still is active, and three revisions to the original award have increased it by $7 million.

Though the company's original contract allowed the work to be extended for a total of three years, an amendment to the contract as recently as January extended four months past the final end date.

The January change also added $400,000 to CMTS' potential earnings - putting the company's total awards at $10.7 million over 40 months. The work is currently out to bid, and already CMTS is emerging as one of the top two bidders, according to Dean Marriott, director of the city's Bureau of Environmental Services.

City officials like Marriott have an easy answer for why. They say consultant firms that frequently perform city work, like CMTS, are simply the best.

'Look at it from the perspective of the ratepayer,' Marriott said. 'If they perform well and you get it at the lowest possible value, I'm not sure why that would be a bad thing.'

Marriott believes consultants are saving taxpayers millions of dollars every year by filling short gaps where workloads can vary. The Bureau of Environmental Services handles hundreds of construction projects and inspection work can ebb and flow.

Because CMTS can provide inspectors in a pinch, Marriott said, it is cheaper to use the company than to train and retain on-staff inspectors who might see slow days.

But in the water bureau, where consultants ate up 21 percent of the bureau's budget for capital improvements in 2005 and 2006, Commissioner Randy Leonard is demonstrating that consultant cutbacks can save money.

'Since I've had the water bureau, one of the concerns. . . I had was they were overly reliant on consultants,' Leonard said.

Leonard's hiring of 30 employees reduced the bureau's use of consultants from 21 percent to 13 percent, ultimately saving the city money.

Contracts often change

It isn't just the hiring of consultants that costs.

Once consultants land a job, those jobs can change. A January audit of the city's Facilities Services Division, which manages the city's buildings, found late-stage changes were escalating costs on construction projects in that department. The audit noted cozy relationships with the consultants who managed them was partly to blame.

In the city's transportation office, the Safe Routes to Schools program illustrates how late-stage changes to contracts can benefit some companies and allow city officials to avoid getting bids from others.

Portland-based Alta Planning and Design won the planning contract for Safe Routes in April 2005. The program's aim was to plan safer walking and bicycling routes to Portland schools. The first year of the contract was approved as a $233,000 pilot, with optional extensions for two years.

A committee appointed to oversee the program approved the extensions, charting the course for new pathways to 25 schools. But by the time the project closed at $973,991, it had outlived its projected life span by five months and added bicycle education programs and purchasing for instructional bikes.

The city never put the bike education programs or purchasing components out to bid.

Tom Miller, chief of staff for Commissioner Sam Adams, who oversees the city's Office of Transportation, said transportation officials solicited input from two local companies when the education planning and purchasing work became available. One of those companies ultimately took the work as a subcontractor for Alta and the jobs were attached to the contract.

Numerous other firms were given additional work in contracts between 2004 and 2006.

Drummond Kahn, director of Audit Services for the city, said while change orders take less time and money to process than full competition for city work, they also run the risk of costing the city more money or quality on the job.

'A change order basically functions like a sole source contract, because you're only entering into the change order with the company you're already contracting with, and the additional work is not put out for bid,' Kahn said. 'In the case of a $1 million contract with a $600,000 change order, the contractor is awarded the additional work with no competition, and the owner would never know if they could have obtained a lower price or a better-qualified contractor.'

Saltzman wants competition

Though the rules for consultant contracts do intend to prevent unnecessary spending, some city bureaus and their consultants appear to be exploiting the wiggle room between permissible increases and those that need City Council review.

The City Council serves as a safeguard against unnecessary contract revisions but that council scrutiny is triggered by increases of 25 percent or more. Of the 136 contracts that increased citywide, 65 stayed below the 25 percent threshold and more than half of those increased between 20 percent and 25 percent.

At the Office of Sustainable Development, officials have used that 25 percent margin more frequently than other city bureaus. They say they only add additional elements to contracts when related and unforeseen possibilities come up. But one consultant, Kimberly Cooper of Fortuna Group, told the Portland Tribune that she believes the bureau adds additional work without seeking bids.

Commissioner Dan Saltzman, who oversees the bureau, said late-stage changes to contracts, including those that don't need council approval, are problematic.

'I think there's certainly some truth that it's easier to add to a contract then go out for another (request for bids), but I also think it's not the competitive atmosphere that we as a city want to foster,' Saltzman said.

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