Audit Finds that San Jose’s Dept. of Environmental Services Has Poor Oversight of Contracts

Weak controls over consulting contracts in San Jose’s Environmental Services Department put the city at risk of cost overruns, among other problems, according to an audit released this month.

In a review of 11 agreements worth a combined $46.1 million, City Auditor Sharon Erickson found a lack of consistency and “areas of risk and ambiguity” that may have allowed some consultants to overcharge taxpayers. The City Council will discuss the findings when it meets Tuesday.

An examination of the city’s five-year $39 million agreement with MWH America unearthed numerous concerns that the city should address before renewing the contract, Erickson noted. The city plans to double the life and dollar amount of the agreement, which comes up for review at a council subcommittee meeting within the month.

San Jose hired MWH in 2013 to oversee some $2 billion in upgrades to the San Jose-Santa Clara Regional Wastewater Facility, the largest sewage plant in the Western United States. But the contract with MWH includes a number of “non-standard” terms compared to other city agreements, according to Erickson.

For one thing, the MWH deal fails to specify maximum hourly billing rates, which puts the contract at risk of runaway cost escalation and undermines transparency, the audit stated. It also requires the public to pay the firm actual hourly rates, with no limit on whether the city should foot the bill for raises or promotions.

“Without limiting increases in compensation, the city could be responsible for paying raises that are not only significantly above an average city employees’ salary increase but also significantly higher than the rate of inflation,” Erickson cautioned.

Though the MWH agreement prevents inclusion of bonuses, profit sharing and benefits in the hourly rate, the consulting firm reportedly charged taxpayers for relocation costs that were never approved or referenced in the contract. Erickson found at least two MWH employees got a “geographical pay differential” on top of their hourly rate, which may require the company to reimburse the city for the unauthorized charge.

Erickson’s office also found that per diem compensation was inappropriately billed for at least one service order. In that invoice, 90 percent of the meal and incidentals charged to the city were for onsite positions, which are ineligible for per diem reimbursements. City staff called it an oversight. Erickson urged the city to demand repayment.

“The agreement clearly states that onsite staff members are ineligible to receive per diem reimbursements,” Erickson wrote. “The city should request reimbursement for the overpayments described above and disallow similar payments on a go-forward basis.”

The audit also recommended clarifying the rules for mileage reimbursement, which may have led to additional overpayments. Meanwhile, the terms for sub-consultants hired by MWH have been inconsistently applied, leading to special treatment in at least one case.

Carollo Engineering, Inc. received markups above and beyond those outlined in the city’s master agreement with MWH, Erickson said. Carollo employees benefited from multipliers reserved only for MWH.

“Carollo was one of the original sub-consultants assigned to the project, which could be the reason that the way the rates are calculated differ from those of other sub-consultants” the audit stated. “In our opinion, [Environmental Services Department] should revisit Carollo’s compensation in the upcoming amendment, or future service orders, to clarify the appropriate compensation rates for its employees.”

Further, Erickson found, the city had been paying subcontractors for travel expenses that were never authorized under contract.

“Although the master agreement specifies that the consultant shall be reimbursed for select travel expenses, the agreement does not explicitly state that the sub-consultants travel expenses shall be reimbursed,” Erickson wrote. “In fact, sub-consultants are being reimbursed for travel expenses including: mileage and air travel from their homes to the facility; lodging while in San Jose; meals and per diem expenses; and rental cars in San Jose.”

In reviewing several other contracts, the city auditor found similar problems, including a failure to pay sales tax, hiring subcontractors without prior approval and allowing a mobile app to remain active even after the pilot had ended. In that last case, the city paid $22,500 to Joulebug for a custom phone app designed to encourage recycling and other sustainable practices. But when the agreement ended in February of 2016, the city kept the app live even though it wasn’t being monitored.

“This is potentially problematic because the application was launched as a competition among 192 students (possibly minors) in local high schools,” the audit stated. “After we brought these issues to their attention, [Environmental Services] decommissioned the app in August 2017. It appears monitoring [and] closeout had not been done due to the contract manager retiring. When there is turnover, duties that go beyond the standard job description may get lost in transition to the next person in that position.”

A lot of the problems raised in her latest report have come up in the following three audits, Erickson noted:

More from the San Jose City Council agenda for September 26, 2017:

  • San Jose’s incoming Independent Police Auditor, Aaron Zisser, will make $188,000 a year, according to the terms of his four-year contract. Zisser will also get a $350-a-month car allowance.

WHAT: City Council meets
WHEN: 1:30pm Tuesday
WHERE: City Hall, 200 E. Santa Clara St., San Jose
INFO: City Clerk, 408.535.1260

Jennifer Wadsworth is a staff writer for San Jose Inside and Metro Newspaper. Email tips to [email protected] or follow her on Twitter at @jennwadsworth.

7 Comments

  1. Two reasons why SJ cannot balance a budget. No over sight of departments and then you pay IPA 188,000 a year for doing nothing. And why not throw in a 350.00 a month car allowance, if I were getting that kind of money to do nothing I think I could afford a nice car. What a joke.

  2. > In that last case, the city paid $22,500 to Joulebug for a custom phone app designed to encourage recycling and other sustainable practices.

    What were those lunkheads thinking? What milleninnal is going to waste a nanosecond on an app that “encourages recycling and other sustainable practices.”

    You couldn’t pay people to look at the stupid app.

    $22,500 just tossed down the outhouse hole.

  3. recycling? you mean all that “material” that we separate into different cans/piles and pay a lot of extra $ for? Except for the stuff the urban miners pull out of the cans – do you want to know where the rest of that stuff goes? To the dump. Otherwise if it had a recycle value it would be pulled from the waste stream and put on the market. Yet we have offices, teams of workers, layers of bureaucrats all draped in benefits to keep the recycling ideal going. We’ve been recycled enough.
    Cut the malarkey, get rid of the “experts”, let the waste material find it’s own level in the market place and save us all a lot of money.

  4. Here’s an idea for a better use of $22,500 down at CIty Hall:

    Replace the junk strainer in the bottom of every urinal in a city owned building with a fifty dollar bill.

    If there are any fifty dollar bills left over, put two in every urinal.

  5. LOL! OK who are these people married to in the city government then follow the money. Aren’t one party systems great?

  6. Boondogle, plain and simple. This is irresponsible and incompetent oversight to the detriment of the rate payors.
    Where is the District Attorney?

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