Section 5

Section 5: Obtaining Services From Seconded Subcontractors and Seconded Personnel

· The Airfield Development Bureau uses a professional services procurement method known as "Seconding" under which the Airfield Development Bureau authorizes a prime contractor either to (1) physically locate an employee of the prime contractor or an employee of a prime contractor's subcontractor at the Airport work site for the purpose of working under the direction of Airport personnel, or (2) enter into an agreement with a subcontractor to perform the work of an entire task. The subcontractor performing work under the seconding arrangement is responsible to the Airport, and not to the prime contractor, for performance of the work under a seconded sub-contractor agreement. The prime contractor acts only as a conduit for the Airfield Development Bureau to obtain the services provided by the seconded personnel or subcontractor.

· Based on inquiries of the Budget Analyst, the City Attorney has issued an opinion pertaining to the Airfield Development Bureau's seconding agreements for obtaining professional services contracts. Although the City Attorney has reported that seconding agreements are not prohibited, the City Attorney reported that "a seconding arrangement may make the City vulnerable to claims by third parties that the City is liable for the negligent actions of seconded personnel and to claims by such personnel that they are entitled to employee benefits from the City. The City may also be unable to hold the prime contractor accountable for cost overruns or other problems that arise because of the work done by the seconded personnel."

· The City Attorney also reported that when the City, and not the prime contractor, selects the seconded personnel or subcontractors, seconding is lawful only if "(i) the services rendered by seconded personnel are within the scope of work authorized under the prime contract and (ii) any work done complies with restrictions that derive from the source of funding for the contract," and only if the employees or subcontractors are procured under any applicable City procurement requirements. Regarding the selection of seconded employees or subcontractors by the City, the City Attorney has reported that "the City department must generally either conduct a competitive process for services in excess of certain threshold amounts or make the selection under an authorized alternative, such as qualification as a sole source. These requirements help ensure that the selection is not for the purpose of circumventing otherwise applicable City laws for selecting City employees and contractors. The selection would also have to meet the applicable Minority/Women/Local Business Enterprise ("M/W/LBE") or, for federal funded contracts, Disadvantaged Business Enterprise participation requirements, as set forth in the prime contract."

· The Budget Analyst found that the Airfield Development Bureau has authorized a total of 50 seconding agreements under seven prime contractors, some of which were not related to the scope of work for which the prime contractor was contracted. The 50 seconding agreements have cost a cumulative $6,481,946 since the inception of the Runway Reconfiguration Program. Six of these agreements have costs as follows:

Name of Prime Amount of Seconding

Contractor Agreement

DSG Consultant $530,0001
DSG Consultant $246,052
LAI Consultants $349,715
Parsons Transportation $390,000
Dellums Brauer Halterman $190,000
Universal Field Services $153,770

· Luster/GKO seconded DSG Consultant in the current not-to-exceed amount of $530,000. Amendment No. 1 to Work Authorization No. 1 (Karen Skelton) of that seconding agreement had a typed billing rate of $144.23 per hour that was crossed out and initialed by three parties to the contract to reflect a billing rate of $275 per hour, or 90.7 percent over the crossed-out typed billing rate. The Budget Analyst did not find in the contract file any explanation for the increased compensation or who had approved the increase. DSG Consultant had originally been seconded to another prime contractor, Airfield Development Engineering Consultant (ADEC), in the amount of $246,052, for a seven month period.

·Seconding agreements with Bay Relations, Keri Smith, and Roger Chinn Associates to perform Public Information Program work were awarded under prime contracts with ADEC for "Engineering Studies" and URS for "Runway Reconfiguration Study," work having nothing to do with Public Information. In these seconding agreements, the relationship between the prime contractors and the seconded subcontractors is unclear because the prime contract did not provide for the public information work being performed by the seconded subcontractors. In addition, the Budget Analyst's review of these Public Information secondments found that none of these agreements contained any tasks or deliverables for Public Information in the agreements with the prime contractors.

· The Budget Analyst found that all of the 50 seconding agreements were awarded at the request of the Airport without undergoing any competitive processes and that the agreements were not required to comply with applicable City and County regulations, including the City's MBE/WBE/LBE and Civil Service requirements.

·Implementation of proper procedures for competitive selection would protect the Airport and the City against potential abuses and the appearance of favoritism in selecting seconded subcontractors and seconded personnel.

Seconding as a Procurement Practice

The Airport's Airfield Development Bureau uses a procurement method known as "seconding." Under the first type of seconding arrangement, called "Seconded Personnel," the Airfield Development Bureau authorizes a prime contractor to physically locate an employee of the prime contractor or an employee of a prime contractor's subcontractor at the Airport work site for the purpose of working directly under an Airfield Development Bureau staffperson. Under this arrangement, the prime contractor or subcontractor is not responsible for the work performed by the seconded employee or employees. Also, with the Seconded Personnel type of seconding arrangement, the prime contractor or subcontractor is limited to a fixed fee, normally not-to-exceed 5 five percent of the direct labor and overhead associated with the seconded employee(s). As stated in Requests for Qualifications issued by the Airfield Development Bureau, seconded personnel are defined as follows:

    Seconded Personnel: For the purposes of this Agreement, the term "seconded personnel" shall mean any Consultant or Subconsultants' employee physically located at an Airport work site working under the direction of Airport personnel and whose work products shall be the responsibility of the airport. Consultant's fixed fee shall not exceed 5% of direct labor and overhead associated with services provided on a seconded basis. Consultant shall also be required to propose a lower overhead rate, which takes into account the fact that the seconded personnel are working at an Airport site.

Under the second type of seconding arrangement, called "Seconded Subconsultants," the Airfield Development Bureau authorizes a prime contractor to enter into an agreement with a subcontractor to perform work on an entire task. Under this arrangement, the seconded subcontractor and not the prime contractor is responsible to the Airfield Development Bureau for the work performed by the seconded subcontractor. Also, under the Seconded Subcontractor type of seconding arrangement, the prime contractor is limited to a fixed fee, normally not-to-exceed 3 percent of the direct labor and overhead associated with the seconded subcontractor. As stated in Requests for Qualifications issued by the Airfield Development Bureau, seconded subcontractors are defined as follows:

    Seconded subconsultants (Individual subconsultant or seconded/ assigned subconsulting firms): For the purpose of this Agreement, the term "seconded subconsultant" means that the Consultant will enter into a subconsultant agreement with a subconsultant specifically requested by City to perform the work of an entire task. The subconsultant performing work under a Seconding Arrangement, and not the Consultant, shall be responsible for the cost of correction or revision of any errors or deficiencies in their work. Consultants' fixed fee shall not exceed 3% of direct labor and overhead associated with services provided on a seconded basis.

In order to obtain the services of seconded subcontractors, the Airfield Development Bureau normally uses a contract task order addressed to the prime contractor providing, among other information, a description of the work to be performed, the name of the seconded subcontractor, the terms of payment, and the cost. Based on the task order, the prime contractor develops a subcontract agreement between the prime contractor and the seconded subcontractor, and then the document is executed.

City Attorney Opinion on Seconding

Based on inquiries of the Budget Analyst, the City Attorney has issued an opinion pertaining to the Airfield Development Bureau's seconding agreements for obtaining professional services contracts. Although the City Attorney has reported that seconding agreements are not prohibited, the City Attorney reported that:

    "a seconding arrangement may make the City vulnerable to claims by third parties that the City is liable for the negligent actions of seconded personnel and to claims by such personnel that they are entitled to employee benefits from the City. The City may also be unable to hold the prime contractor accountable for cost overruns or other problems that arise because of the work done by the seconded personnel."

The City Attorney also reported that when the City, and not the prime contractor, selects the seconded personnel or subcontractors, seconding is lawful only if "(i) the services rendered by seconded personnel are within the scope of work authorized under the prime contract and (ii) any work done complies with restrictions that derive from the source of funding for the contract," and only if the employees or subcontractors are procured under any applicable City procurement requirements. Regarding the selection of seconded employees or subcontractors by the City, the City Attorney has reported that:

    "the City department must generally either conduct a competitive process for services in excess of certain threshold amounts or make the selection under an authorized alternative, such as qualification as a sole source. These requirements help ensure that the selection is not for the purpose of circumventing otherwise applicable City laws for selecting City employees and contractors. The selection would also have to meet the applicable Minority/Women/Local Business Enterprise ("M/W/LBE") or, for federal funded contracts, Disadvantaged Business Enterprise ("DBE") participation requirements, as set forth in the prime contract."

Extent of Seconding

The Budget Analyst found that the Airfield Development Bureau has authorized a total of 50 seconding agreements under seven prime contractors. Some of these secondments are not related to the scope of work for which the prime contractor was contracted. The 50 seconding agreements have cost a cumulative $6,481,946 since the inception of the Runway Reconfiguration Program. Six of these agreements have costs as follows:

          Name of Prime Amount of Seconding

            Contractor Agreement

            DSG Consultant $530,000
            DSG Consultant $246,052
            LAI Consultants $349,715
            Parsons Transportation $390,000
            Dellums Brauer Halterman $190,000
            Universal Field Services $153,770

Luster/GKO seconded DSG Consultant in the current not-to-exceed amount of $530,000. Amendment No. 1 to Work Authorization No. 1 (Karen Skelton) of that seconding agreement had a typed billing rate of $144.23 per hour that was crossed out and initialed by three parties to the contract to reflect a billing rate of $275 per hour, or 90.7 percent over the crossed-out typed billing rate. DSG Consultant had originally been seconded to another prime contractor, Airfield Development Engineering Consultant (ADEC), in the amount of $246,052, for a seven month period.

Scope of Work Requirement

The City Attorney opinion includes the provision that the services rendered by seconded personnel must be within the scope of work authorized under the prime contract.

DMC Airfield Engineers has been contracted for cost/schedule control services, beginning in April 2001 and extended to June 30, 2003. Although there is a disparate selection of seconding agreements under the DMC Airfield Engineers contract for cost/schedule control services, on the basis of meeting the scope of work requirement only, the variety of services authorized in the prime contract seems to cover the services provided by the seconded subcontractors. However, due to the reduced scope of the entire Runway Reconfiguration Program, DMC Airfield Engineers have never been engaged in providing any service to the Airfield Development Bureau other than providing seconded subcontractors to the Bureau. The following three firms were seconded under the DMC Airfield Engineers contract for the Public Information Program: GCI Kramer, NCG Porter Novelli, and Dan Schnur. While the contractual agreement with DMC Airfield Engineers includes "communication/community outreach services" under the description of services to be provided, no tasks or deliverables for such services are outlined in the agreement.

The Budget Analyst found that certain seconded subcontractors have provided services or are providing services far outside the prime contractors contracted scope of work. Examples of seconding arrangements that have nothing to do with the prime contractor's original contract are as follows:


Prime Contractor - (Services)

Seconded Subcontractor

  

ADEC (Engineering Studies)

Bay Relations (Public Information)

 

Keri Smith (Public Information)

 

Roger Chinn Associates (Public Information)

  

The Allen Group/Cornerstone/EPC Consultants, a joint venture
(Professional Services for the Master Plan)

Gregg Wilcox (Contract Management Services for ADB)

  

URS (Runway Reconfiguration Study)

Bay Relations (Public Information)

ADEC, under which Bay Relations, Keri Smith and Roger Chinn Associates were seconded, was originally contracted for Geotechnical Engineering. The ADEC contract was modified to add a task for "Public Information Support." However, there are no tasks or deliverables for Public Information outlined in the contractual agreement. Instead the agreement states that all work would be "as directed by the ADB Deputy Director." It is unclear what relation "Public Information Support" has to a Geotechnical Engineering contract. It is also unclear why the Airfield Development Bureau would second Public Information Support under an engineering contract rather than under the prime contracts for Public Information, which were already in place. For example, the Airfield Development Bureau entered into prime contracts for the Public Information Program with Solem and Associates from November of 1999 until September of 2001 and with Bay Relations from October of 2000 until July of 2002.

In summary, the Budget Analyst found that certain seconded subcontractors, particularly in the area of public information, have provided services or are providing services far outside the prime contractors contracted scope of work.

Conclusions

Based on inquiries of the Budget Analyst, the City Attorney has issued an opinion pertaining to the Airfield Development Bureau's seconding agreements for obtaining professional services contracts. Although the City Attorney has reported that seconding agreements are not prohibited, the City Attorney reported that:

    "a seconding arrangement may make the City vulnerable to claims by third parties that the City is liable for the negligent actions of seconded personnel and to claims by such personnel that they are entitled to employee benefits from the City. The City may also be unable to hold the prime contractor accountable for cost overruns or other problems that arise because of the work done by the seconded personnel."

The City Attorney also reported that when the City, and not the prime contractor, selects the seconded personnel or subcontractors, seconding is lawful only if "(i) the services rendered by seconded personnel are within the scope of work authorized under the prime contract and (ii) any work done complies with restrictions that derive from the source of funding for the contract," and only if the employees or subcontractors are procured under any applicable City procurement requirements. Regarding the selection of seconded employees or subcontractors by the City, the City Attorney has reported that:

    "the City department must generally either conduct a competitive process for services in excess of certain threshold amounts or make the selection under an authorized alternative, such as qualification as a sole source. These requirements help ensure that the selection is not for the purpose of circumventing otherwise applicable City laws for selecting City employees and contractors. The selection would also have to meet the applicable Minority/Women/Local Business Enterprise ("M/W/LBE") or, for federal funded contracts, Disadvantaged Business Enterprise ("DBE") participation requirements, as set forth in the prime contract."

The Budget Analyst found that the Airfield Development has authorized a total of 50 seconding agreements under seven prime contractors, some of which were not related to the scope of work that the prime contractor contracted for. The 50 seconding agreements have cost a cumulative $6,481,946 since the inception of the Runway Reconfiguration Program.

Luster/GKO seconded DSG Consultant in the current not-to-exceed amount of $530,000. Amendment No. 1 to Work Authorization No. 1 (Karen Skelton) of that seconding agreement had a typed billing rate of $144.23 per hour that was crossed out and initialed by three parties to the contract to reflect a billing rate of $275 per hour, or 90.7 percent over the crossed-out typed billing rate. DSG Consultant had originally been seconded to another prime contractor, ADEC, in the amount of $246,052, for a seven month period.

The Airfield Development Bureau seconded several firms for the Public Information Program under prime contracts for "Cost/Schedule Control Services" and "Geotechinical Engineering," rather than under prime contracts for Public Information. In these cases, the relation between the prime contracts and these secondments is unclear. In addition, none of the Public Information secondments reviewed by the Budget Analyst outlined any tasks or deliverables for Public Information in the contractual agreements.

The Budget Analyst found that all of the 50 seconding agreements were awarded at the request of the Airport without undergoing any competitive processes and that the agreements were not required to comply with applicable City and County regulations, including the City's MBE/WBE/LBE and Civil Service requirements. As a result, the City has no way of knowing whether (a) the costs for seconded contractor services were competitive and reasonable, and (b) the seconded subcontractors and seconded personnel complied with the City's laws regarding seconding within the scope of work, Civil Service regulations, and MBE/WBE/LBE rules and regulations.

Recommendations

The Board of Supervisors should:

5.1 Request the City Attorney to propose legislation to address issues raised by the practice of seconding

5.2 Require that the Airport Director adopt specific rules and procedures in order to gain compliance with seconding requirements, in accordance with the opinion issued by the City Attorney.

The Airport Director should:

5.3 Develop, adopt, and enforce procedures to comply with required seconding rules, as presented by the City Attorney.

5.4 Cease entering into seconding agreements pending legislation addressing issues raised by the practice of seconding.

Costs and Benefits

The benefits of competitive procurement processes, due to a more equitable selection process, would offset any administrative costs incurred to implement greater management control over seconded subcontractors and seconded personnel. The proposed recommendations would ensure that the contractor selection process operated in a legally defensible manner, and in a more open and equitable way. The City would also benefit from reduced liability due to implementation of greater risk management controls over the practice of seconding.

1 Amended downward from $640,000.