HomeMy WebLinkAboutMINUTES - 11291988 - IO.6 TO
BOARD OF SUPERVISORS I. 0. 6
FROM: INTERNAL OPERATIONS COMMITTEE Contra
DATE: November 14, 1988 Costa
MONITORING OF CONTRACTS WITH NONPROFIT C;o^
SUBJECT: AGENCIES PROVIDING HUMAN SERVICE PROGRAMS
SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION
RECOMMENDATIONS:
1 . Request the County Administrator to design a system to keep
track centrally of all contracts the County has with
nonprofit agencies and for-profit agencies which provide
human services on behalf of the County, and advise the 1989
Internal Operations Committee when such a system is in place
and operational. Such a system must have the following
features:
A. It must be comprehensive in that it includes all such
contracts which the County has in force at any point in
time.
B. It must be capable of being updated on a regular basis
as the Board of Supervisors approves new contracts or
extensions to existing contracts.
C. It must contain the name of the agency with which the
County is contracting, the payment limit of the
contract, the department which is responsible for
monitoring the contract, and a brief description of the
nature of the service which is being purchased.
D. The system must be cross-indexed in such a way that it
is possible to quickly and accurately identify all of
the contracts the County has with a particular agency,
all of the contracts a particular department is
responsible for, and all of the contracts the County
has in force at any one time.
2 . Request the County Administrator and County Counsel to meet
with a representative group of contract agencies in an
effort to design contract language which will maximize the
requirement that the Board of Directors of a contract agency
operate publicly, provide adequate advance public notice of
its meetings, and otherwise insure that the public is 'aware
of and has an opportunity to participate in the meetings of
the Board of Directors of any agency with which the County
contracts where judgment and discretion are required on the
CONTINUED ON ATTACHMENTt X YES SIGNATURE:
RECOMMENDATION OF COUNTY ADMINISTRATOR X RECOMMENDATION OF BOARD COMMITTEE
X APPRO OTHER
SIGNATURE Sunne W. McPeak Tom Torlakson
ACTION OF BOARD ON November 29, 1988 APPROVED AS RECOMMENDED X OTHER
VOTE OF SUPERVISORS
I HEREBY CERTIFY THAT THIS IS A TRUE
X UNANIMOUS (ABSENT AND CORRECT COPY OF AN ACTION TAKEN
AYIES* NOES*. AND ENTERED ON THE MIFIUTES OF THE BOARD
ABSENT: ABSTAIN* OF SUPERVISORS ON THE DATE SHOWN.
cc-. County Administrator ATTESTED . � _IAej g'
Auditor-Controller
PHIL BATCHELOR, CLERK OF THE BOARD OF
County Counsel SUPERVISORS AND COUNTY ADMINISTRATOR
M382/7-83 BY 'DEPUTY
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2 . (continued)
part of the Board of Directors of the agency, as opposed to
cases where the County is simply purchasing equipment or
supplies and no Judgment or discretion need be exercised by
the agency' s Board of Directors. Until such language is
agreed on and presented to the* Board of Supervisors for
approval, suspend the requirement adopted by the Board of
Supervisors on July 12, 1988 that all contract agencies '
Boards of Directors comply with the provisions of the "Brown
Act" .
3 . Request the County Administrator to schedule a series of
meetings between County departments and the agencies whose
contracts that department is responsible to monitor to
identify problems which exist between the department and its
contract agencies and resolve those problems whenever
possible, or bring the problem and proposed solution to the
Board of Supervisors where Board action is required in order
to effect a solution.
4 . Request all County departments, in considering contracting
for services, to utilize performance-based contracts
whenever possible, recognizing that the requirements of
state and federal funding sources, the particular nature of
the services to be provided, or the stability of the
contract agency may preclude the use of a performance-based
contract.
5 . Request all County departments, in consultation with the
Auditor-Controller and County Counsel, to review instances
in which the department requires "pre-auditing" of a
contract to determine whether the pre-audit requirement is
still appropriate and necessary. Contracts should be
pre-audited when there is a valid reason to do so, but
should not be imposed routinely or for longer than is
necessary.
6 . Request the County Administrator to report back to the 1989
Internal Operations Committee in May 1989 on actions which
have been taken in response to the above recommendations, at
which time all contract agencies, the departments which
monitor the contracts, and the Grand Jury should be advised
of the meeting so they can attend and participate in the
discussion if they wish.
7 . Remove as a referral to our Committee the July 12 referral
on this subject as well as the November 1 referral relating
to the application of the "Brown Act" to for-profit
agencies.
BACKGROUND:
On July 12, 1988, at the request of Supervisor Torlakson, the
Board of Supervisors referred to our Committee the issue of more
closely monitoring private nonprofit agencies with which the
County contracts to insure that they are stable financially, that
the Board of Directors is closely managing the affairs of the
agency, and that the County is sure it is receiving the services
for which it is paying. In addition, the 1987-88 Grand Jury
issued a report on June 23 , 1988 making several recQmmendations
regarding contracts with such agencies.
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On August 16, 1988, the Board of Supervisors approved a status
report from our Committee on this subject. At that time, the
County Administrator was asked to convene a meeting of County
departments and contract agencies to discuss the need for the
County to better monitor its contracts.
In addition, the Board of Supervisors on July 12, 1988 imposed a
requirement on all private nonprofit contract agencies that their
Boards of Directors comply with the open meeting provisions of
the "Brown Act" . Finally, on November 1, 1988 , the Board of
Supervisors referred to our Committee and the County
Administrator a proposal from Supervisor Torlakson that the Board
look into the possibility of imposing the "Brown Act"
requirements on for-profit agencies with which the County
contracts.
On November 14, 1988, our Committee met with staff from the
County Administrator' s office, representatives from the Grand
Jury, several departments and several contract agencies in an
effort to respond to the referrals which had been made to our
Committee on this subject. We reviewed the attached report from
the County Administrator' s Office, discussed the subject of
contract monitoring with the departments and contract agencies
that were present and agreed on the above recommendations as a
means of responding to the referrals that have been made.
We believe that some additional steps must be taken to insure
that all of our contract agencies are being responsive and
responsible, that their Boards of Directors are not meeting in
secret to make decisions, and that County departments are
properly monitoring the contract agencies to insure that the
County is receiving the services for which it is paying, and that
the agency which is providing the services is viable, fiscally
sound, and well managed.
Because of the variety of state and federal requirements with
which various County departments have to deal, it is not possible
to impose a single set of monitoring requirements on contract
agencies which can be applied to all contracts. Therefore, we
are asking the County Administrator' s Office to meet with
individual departments and their contract agencies to work out
any problems of which the contract agencies are aware. We are
also suggesting that the County Administrator' s Office take
another look at the "Brown Act" requirement which was imposed in
July. What we are trying to achieve is the same level of
openness, advanced notice of meetings and agendas with which the
Board of Supervisors has to comply without necessarily requiring
that all contract agencies comply literally with each and every
provision of the "Brown Act" .
OFFICE OF COUNTY ADMINISTRATOR
CONTRA COSTA COUNTY
Administration Building
Martinez, California
To: Supervisor Sunne, McPeak Date:
Supervisor Tom Torlakson
INTERNAL OPERATIONS November 9, 1988
From: Claude L. Van Marter Subject: Monitoring of Nonprofit
Assistant Administrat Contract Agencies
On August 16, 1988, the Board of Supervisors approved the
attached report , from your Committee. The principal
recommendation in that report asked this Office to convene an ad
hoc group to study the need for additional actions relating to
the monitoring of nonprofit contract agencies.
In response to the Board' s Order this Office convened a group
which met on October 31, 1988 and included staff from the
following departments :
County Administrator' s Office
Health Services Department
Social Services Department
Community Development Department
Private Industry Council
Community Services Department
Office of the Auditor-Controller
Probation Department
In addition, the following private nonprofit agencies attended
the meeting and participated fully in the discussion:
Contra Costa Child Care Council
Phoenix Programs
Bi-Bett Corporation
Family Stress Center
Contractor' s Alliance/Rubicon Programs
Each department in turn reviewed for the group the extent of
their contract monitoring, the types of contracts they negotiate,
how contracts are audited, and what federal and state
requirements they must observe in contracting programs out to
private nonprofit agencies. We then reviewed what positive
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features there were in our current monitoring procedures and what
areas needed further attention, either from the perspective of
the department, or the contract agencies. We also reviewed the
recommendations of the 1987-88 Grand Jury on this subject.
Based on the discussion which took place, the following issues
appear to be significant in deciding how the County can improve
its contract monitoring practices.
CURRENT ISSUES:
1 . There was a general feeling that the problems which we
believe led the Board of Supervisors and the Grand Jury to
their respective recommendations represent a very small part
of the entire contracting operation in which the County
engages and an even smaller portion of the entire County
budget. This is not to say that we should ignore any
problems which are uncovered in present practices--only that
we should not overreact and try to solve a problem which
does not exist.
.2. The single-audit requirements imposed on the County and
nonprofit contract agencies by the Federal Government have a
considerable impact on all parties. Hopefully, these
requirements will produce a comprehensive audit of all
sources of funds which an agency receives whenever the
agency• receives any of the federal funds which trigger the
single audit procedures.
3 . It is important to distinguish between situations where the
County has limited funds and many applicants so that the
County is truly awarding the funds to the fortunate few and
the alternative situation where the County has a program it
needs to have operated and few, if any, agencies interested
in or capable of running the program for the County. In
these latter cases, the agency is really doing the County a
favor by taking on the contract, and the County is in a much
less favorable position in terms of being able to impose its
demands on the contract agency.
4 . The distinction between program monitoring and fiscal
auditing is an important and very real one which has to be
kept in mind in deciding how to organize the County' s
contract monitoring and audit functions. There seems to be
general agreement that program monitoring must remain with
the department which has the program expertise to judge the
quality and quantity of the services which are being
delivered. Fiscal auditing can be separated from program
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4 . (continued)
monitoring, although the impact of the federal single audit
should be reviewed, more carefully before deciding to make
any major- changes 'in present organization.
5 . There is a very real and significant distinction between a
cost reimbursement contract under which the County
essentially buys a program and pays either the actual cost
of the program or a negotiated cost based on projections of
costs usually including a line-item budget, and a
performance contract under which the County pays a fixed fee
for each unit of service which is delivered and pays only
for those service units which are delivered. The two types
of contracts have very real and clear differences in terms
of when they are appropriate in terms of type of service,
strength of the contract agency and source of funding.
6 . How the County pays its contractors is a very real issue
with the contractors. Some contracts are still pre-audited,
meaning that the. agency must bring its bills and checks to
the Auditor-Controller' s office. Once verified as
appropriate expenses under the contract, the
Auditor-Controller will issue a check for those expenses and
the agency then pays its bills. In other cases, the County
pays upon verification that a given number of units of
service have been provided. In these cases, the County is
less concerned with whether the agency, in turn, pays its
bills or even whether it makes a profit or loss on providing
the units of service to the County. The County simply'
purchases a fixed number of units of service from the agency
and what the agency does with the money is of little direct
concern to the County.
7. The process which is used by the County in deciding to
purchase a particular service is of great concern to the
contract agencies. This includes such issues as whether or
not an RFP is used, who makes the decision to award a
contract to a particular agency and whether and under what
circumstances the terms of the eventual contract match the
terms of the original RFP. The fact that different
departments use very different methods of bidding and
negotiating contracts is of concern to contract agencies, as
is the fact that the same department may use very different
procedures on two different contracts and the contract
agencies are not always aware of these differences or why
they exist.
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8 . The departments noted that monitoring compliance with
contracts costs money--there is no way it can be done for
free. on-site visits in particular take staff time and,
therefore, cost money, whereas desk audits take less time,
cost less money, but require a certain amount of trust that
the data which is being audited is accurate.
9. The recent decision to require all nonprofit contract
agencies, as a matter of contract, to comply with the
provisions of the "Brown Act" are seen by agencies as
unnecessary, duplicative, causing problems with their
articles of incorporation, and may not be able to be
effectively enforced on contracts with large nonprofit
agencies which the County needs more than the agency needs
the County. There is a general agreement that everyone
knows and agrees with the general thrust of what was being
attempted, but that tying private nonprofit agencies
specifically to the provisions of the "Brown Act" may not be
necessary or practical. The nonprofit agencies also see
this as an effort to discriminate against them in relation
-to private, for-profit agencies.
From the discussion which identified these issues, it. seems
reasonable to reach the following conclusions:
CONCLUSIONS:
1 . The Grand Jury is entirely correct in complaining that no
one maintains a readily accessible roster of all contracts
the County has in effect. Part of the problem is in
defining what a contract is. In addition, many contracts
cover more (or less) than a fiscal year and so the answer to
the question: "What is the value of contracts you have in
effect this fiscal year?" , which may appear to be a simple,
straightforward question, does not have a simple answer, nor
does our current data gathering lend itself to easily
answering this question. However, the County must be in the
position to answer the question.
2 . Centralizing the program monitoring of contracts with
nonprofit agencies will not work because the people doing
the monitoring have to have some program knowledge and must
also be in a position to tie the services provided by the
contract agency to the direct services provided by the
County department. This can only be accomplished
meaningfully by having the operating department retain
control over the monitoring of services provided both
directly and through contract.
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3 . The federal single-audit requirements which !are being
imposed on nonprofit agencies this year for the first time,
should go a long way in providing comprehensive financial
data on the entire budget of the agency. There may still be
a need to provide a similar auditing tool for nonprofit
agencies which do not receive federal funds. However, since
it is going to take some time to see how worthwhile the
federal single audit will be, we would like to review the
results of these audits before deciding what type of audit
requirements to impose on the remaining agencies.
4 . Whenever possible and otherwise appropriate, the use of a
performance-based contract simplifies the accounting which
must be done and helps both parties to the contract focus on
output or results rather than form and process.
Performance-based contracts should, however, be awarded only
on the basis of a competitive bid. The County is not
concerned about whether the contractor makes a profit or
takes a loss on the contract nor with how the contractor
spends the money from the contract as long as the units of
service are provided in compliance with -the terms of the
contract. As a result, a competitive bid is about the only
way the County can have any assurance that they are
.receiving an appropriate_ price for the units of service
being purchased.
Performance-based contracts are most appropriate with
private for-profit contractors and private nonprofit
contractors who are financially sound and well-managed.
Awarding a performance-based contract to. an agency which is
in marginal shape financially can lead to a default on the
contract and the destruction of the agency. In addition,
there are kinds of services or types of programs which best
lend themselves to a performance-based contract and other
types of services or programs which do not generally lend
themselves to a performance-based contract.
Performance-based contracts are also most appropriate when
the unit of services can be clearly defined and easily
measured. There must also be competition for the contract
with the County. The contractor must have some reason to
hone his bid down to the minimum price at which he believes
he can make a profit or break-even. If there is no
competition, the contractor may have little reason to submit
a bid which is truly competitive. Also, if it is difficult
to measure the outcome which is desired, or the unit of
service which is supposed to be measured, then a
performance-based contract may not work.
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5 . There is a legitimate place for a cost-reimbursement
contract, particularly when the County has asked an agency
to establish an entirely new program solely for the benefit
of the County and neither the County nor the contractor
necessarily know for sure what the service is going to cost,
where there is little or no competition for the contract,
and where the agency is not financially strong and cannot
afford a financial loss on a contract. In addition, it
appears that cost-reimbursement contracts may .be required by
some funding sources and, therefore, a line-item budget may
be required even though the County and the contractor could„
convert the contract into a performance-based contract. The
advantage of a cost-reimbursement contract for audit
purposes is that the County holds the contractor to a
specified line-item budget and the contractor cannot deviate
from that budget, at least without approval from the County.
The disadvantage of such a contract is that it tends to
encourage the County to get involved in the internal affairs
of the agency, to the point of. the "pre-audit" where the
County does not even trust the agency to pay its bills, but
requires the agency to present its bills and checks to pay
those bills to the Auditor. If the Auditor' s staff are
satisfied that all of the bills are appropriate, the Auditor
prepares a check in the amount of the bills which have been
approved. There have been instances where the County has
gone an additional step and has actually mailed the checks
for the agency and deposited the County' s check to the
agency' s account to insure that the bills were paid.
In addition, since the precise quality and quantity of the
services being purchased by the County often cannot be
specified, it is more 'difficult to determinewhether the
County "got what it paid for" . The problem here is that
either the cost of the services or the number of units of
service may not be controllable. If it is possible to
specify or control only one, then the contractor may stay
within its budget, but not deliver the quantity or quality
of service the County had hoped for. , On .the other hand, in
order to provide the level of service that it desired, the
contractor may not be able to stay within the agreed-upon
budget.
The County is then faced with either increasing the budget
in order to meet the units of service, or reducing
expectations in terms of the number of units of service
which have to be produced. Thus, the biggest drawback with
the line-item or cost-reimbursement contract is that neither
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5 . (continued)
the County nor the contractor can absolutely guarantee that
the County will receive the units of service that were
agreed to at the price that was agreed to, primarily because
one or the other of these variables (quantity or price)
cannot meaningfully be controlled or measured. Despite
these drawbacks, there isa legitimate place for this type
of contract. Its use should , however, be held to only those
instances where it is clearly the only appropriate
alternative.
6 . . The imposition of the requirements of the "Brown Act" on all
private, nonprofit contract agencies may be more than is
required in order to achieve the Board' s objective of having
such agencies conduct their affairs as openly and publicly
as possible. The County can : probably require compliance
with the Brown Act when the County is awarding a contract
which has a number of bidders and the successful bidder is
willing to subject itself to the requirements of the Brown
Act in order to get the County' s contract. However, where
the contract being awarded represents only a very small part
of the agency' s total budget, the agency may not be willing
to comply with the Brown Act just to get a small contract
from the County. In addition, when the County is dealing
with a large multi-county agency and the agency is doing the
County a favor by agreeing to contract for a particular
program, the County is unlikely to be in a position to
compel the. agency to comply literally with the provisions of
the Brown Act. This could lead to a situation where in
order to force an agency to comply with the provisions of
the Brown Act the County may lose highly competent contract
agencies who simply refuse to subject themselves to the
literal provisions of the Brown Act.
7 . No single process for awarding contracts, monitoring
contracts, or paying contractors, is feasible given the
variety of federal, state and local funds which are being
administered and the various requirements which are imposed
by the funding source. This does not, however, mean that
the process of soliciting bids, evaluating bids, awarding
contracts, monitoring contracts and paying contractors
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7. (continued)
cannot be improved. . A number of areas need to be explored
for such improvements. What we are saying, however, is
that no single..process :is feasible given the requirements of
the funding sources.
CLVM:clg
cc: Health Services Director
Social Services Director
Auditor-Controller
District Attorney
Director, Community Development
Executive Director, Private Industry Council
Probation Officer
Contractors ' Alliance/Rubicon Programs
Executive Directors:
Contra Costa Child Care Council
Phoenix Programs, .
Bi-Bett Programs
Family Stress Center
Skip Epperly, Community Development
Ron deVincenzi, Community Development
Lorna Bastian, Health Services Department
Lois Desmond, Auditor' s Office
Tim Ward, Probation Department
Stu McCullough, Mental Health Director
Jim Takahashi, Social Services Department
John Gregory, Management Analyst