Wednesday, March 7, 2018

Cities and Municipalities Have Contracting Problems Too

We tend to focus our blog writings on Federal Government procurement but states, counties, and municipalities and their contractors face pretty much the same contracting challenges as the Feds. In some respects, they face even more challenges since many do not have contracting professionals nor adequate resources for contract oversight. While they're not buying major weapon systems (we hope), contracted services represent a significant portion of cities' budgets.  Purchasing decisions often rest with a single person with little, if any, internal controls or checks and balances to prevent or deter fraud, waste, or abuse. The vesting of responsibility with just a few individuals and the lack of adequate oversight is why cronyism tends to fester in many localities. Here's an example of what we're talking about.

The City of San Diego has a living wage ordinance that took effect back in 2006. It requires employers working within City limits to pay a "living wage" that is adjusted annually based on inflation. The current living wage is $14.95 per hour.

Prizm Janitorial Services was pretty successful in getting Government contracts. Since 2010, the firm had been paid $3.4 million by various Government agencies and municipalities for cleaning offices, rest rooms, etc. Based on hotline complaints, the Government conducted a couple of audits in 2014 and 2016. These audits disclosed a number of repeated violations of San Diego's living wage ordinance and other labor laws, including:

  1. Prizm violated the living wage law by making all of its workers independent contractors rather than employees.
  2. Prizm paid some employees in cash with handmade receipts. It didn't provide itemized pay stubs as required by state labor laws
  3. Prizm claimed it didn't know or employ many workers whose name were listed on signup sheets as those doing work for Prizm.
  4. Prizm failed to provide requested records inviolation of a city code and interfered with the investigation.
  5. Prizm's address is a mailbox at PostalAnnex.

Prizm repaid back wages and social security liabilities, refunded the City for overpayments, and paid State required sick leave.

Despite all of these issues, another city close to San Diego, the City of Carlsbad, just awarded Prizm a $2.7 million contract over six years to clean city facilities and park restrooms. When asked about the San Diego problems, Carlsbad spokesperson declined to comment. Why? San Diego reported that it does not routinely share its problems with other cities. Why? From an audit and investigative standpoint, this situation certainly raises red flags. Could there be more here than meets the eye?

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