“Contractor profit comprised approximately 43 percent of the cost difference we found between in-house and contracted services. The department’s contract monitoring costs, higher contractor salaries, and higher contractor overhead costs accounted for the remaining 57 percent.”

Department of Transportation: Engineering Services Costs Analysis, April 5, 2006, SOS Audit

Problems Overview

A Lack of Transparency Hides Information about Costs and Quality of Contracting

Oregon ranks 42nd in our transparency of government contracting.(1) The lack of transparency makes it difficult to know which contractors provide which services and the extent of different agency’s contracting. The lack of available information prevents evaluation of the cost-savings and quality of service provided by the contractor. A recent audit found that Multnomah County spends 40% of their budget on contracts, which means millions of dollars are being spent without transparency, oversight, or evaluation.(2) Information about the extent of contracting in state government and most local districts is not available, yet it is extensive. To evaluate the effectiveness of contracting, individual contractors, and money being spent, more information is necessary.

A Lack of Oversight and Controls Cause Cost Overruns and Poor Service:

A State and Local Problem

Cascadia Behavioral Services provides mental health services for thousands of clients for Multnomah and Washington Counties. In the Spring of 2008, the state and county provided a $2.5 million payment to Cascadia so that they could continue to provide basic services and pay their employees.(3) The bailout came because of a lack of oversight from the county and financial systems at Cascadia. The Multnomah County Audit of Large Contracts found that there is a lack of oversight and central resources for large contracts, that the county does not follow national standards on contracting such as doing cost/benefit analysis and that many contracts are paid before they are even signed which led to some of the problems with Cascadia.(4)

Ross Bros. a Willamette Valley construction company were recently banned from getting state contracts as a part of a settlement package for racketeering charges that were brought against them by the state. The Ross Bros. filed $3.1 million in largely bogus claims for a construction contract for the Ontario Bridget in 2001. The partners in the firm actually bet each other $1 to see who could get the claims funded through the department, the claims were almost all for deficient work from the contractor or work that should have been covered through the contract.(5) While the case has been in court, the Ross Brothers have continued to receive contracts with ODOT. When giving the Ross Brothers contracts, the agency was not able to consider their past history of cost overruns and change orders. Since the Ross Brothers has a history of filing change orders after coming in as the lowest bidder, the agency may have chosen to go with a more responsible bidder if they had additional guidelines.

Many Contracts are Not Saving Money

There are many examples of contracting costing more than having state employees doing the work. While sometimes this is unavoidable, it is necessary to have a process to make a decision on how public dollars should be used most effectively. Currently there is nothing that requires a cost/benefit analysis to ensure that contracting is the best use of taxpayers dollars.

An audit of consulting contracts by the Department of Transportation found that it cost 20 percent more to contract than have the work done by ODOT. The audit found that 43% of the cost increase was due to contractor profit.(6)

References:

  1. “The State of State Disclosure: An Evaluation of Online Public Information About Economic Development Subsidies, Procurement Contracts, and Lobbying Activities”, Phillip Matteria, Karla Walter, Julie Farb Blain, and Michelle Lee, November 2007, Corporate Research Project of Good Jobs First.
  2. Multnomah County Audit, Management of Large Contracts Audit Report, June 2008, LaVonne Grissin-Valade, Multnomah County Auditor.
  3. “Audit Finds Flaw in Contract System”, The Oregonian, July 8, 2008, Arthur Gregg Sulzberger.
  4. Ibid.
  5. “Oregon Bans Ross Brothers from Public Contracts”, January 13, 2009, Jeff Manning
  6. Department of Transportation: Engineering Services Costs Analysis, April 5, 2006, Secretary of State Audit.