OLA#: 034-03

LEGISLATIVE ANALYST REPORT

To: Honorable Members of the Board of Supervisors

From: Shira Gans, Alice Kessler, and Adam Van de Water, Office of the Legislative Analyst

Date: September 10, 2004

Subject:Processing of Invoices and Payments on City Contracts (File No. 031749)

SUMMARY OF REQUESTED ACTION

On October 21, 2003 Supervisors Ma and Maxwell requested that the Office of the Legislative Analyst (OLA) compare and contrast San Francisco's current practices and policies for processing invoices and payments on City contracts to model municipalities, the State of California and the San Francisco International Airport. In addition, the OLA was asked to consider the feasibility of implementing a successful system in San Francisco.

EXECUTIVE SUMMARY

This report finds that late payments to vendors are a symptom of systemic problems in San Francisco's procurement policies and procedures. Research suggests that both centralized and decentralized systems can be effective. However, for a procurement system to run efficiently, procedures should be standardized whenever possible. Creating uniform policies can help reduce confusion both in city departments and among vendors. In order to reduce confusion and complications further, information regarding policies and procedures should be easy to obtain and to understand both for vendors and department staff. To minimize incidents of late payments, contracts should be processed and certified at the earliest possible date and work should not begin until the certification process is complete. In this report, the OLA recommends various methods for improving San Francisco's contracting process.

BACKGROUND

The City's Contracting Process

The City's current system of awarding contracts is decentralized, with different types of contracts handled by different departments. Individual departments award contracts for professional services, such as consulting, accounting, legal or medical services. The departments create the Request-for-Proposals (RFP), select the vendors, but require a final approval from Purchasing before executing the official contract. Once Purchasing reviews the signed contract materials, they ensure that money is encumbered for payment and sign off on the contract.¹

The Purchasing Department awards contracts for products and general services based on competitive bidding (unless the contract is for goods up to $10,000, in which case other departments can place their own orders using a Departmental Purchase Order). Several City departments can award contracts for construction and for architects and engineers. These include the Airport, the Port, the citywide Public Utilities Commission, Public Works and Recreation and Park. Construction contracts are awarded based on competitive bidding, while contracts with architects and engineers are usually formed using a RFP process.

Following the award of a contract, the City imposes strict rules regarding delivery and acceptance of goods and services. If a vendor does not follow the City's protocol carefully, the City may be released from its obligation to pay on time. Some examples of delivery and acceptance problems that can result in delayed payment include partial shipment of goods, delivery to the wrong location or substandard performance of a service.²

Assuming there are no problems with delivery and acceptance, invoices are processed by various departments. Purchasing processes Purchase Orders, Contract Purchase Orders and Blanket Purchase Orders for equipment and supplies, general services, and professional services contracts. Departments issue purchase orders for construction, grants and other specialty contracts. Departments, not Purchasing, process invoices. After processing the invoice, all departments submit a request for payment to the Controller's Office. The Controller writes checks after all approvals are met. Some departments have online capabilities to submit payment requests to the Controller. Other departments continue to use a paper system.³

The Problem as Perceived by Non-Profits Doing Business with the City

A number of non-profit organizations that contract with San Francisco have complained that the City does not pay invoices promptly. Evidence of this problem is documented in a number of reports gathered by the OLA. These include a survey by the Human Services Network, the San Francisco Civil Grand Jury, the San Francisco Non-Profit Task Force and the Controller's Office. Each of these reports reaches a similar conclusion that the City's decentralized contracting process places administrative strain on non-profits and often results in late or interrupted payment of invoices. Non-profits feel that this places an unfair burden on them as organizations with limited budgets and hampers the extent to which they can provide adequate services to San Francisco residents.⁴

Other Perspectives

City departments that administer contracts and the Controller's Office have expressed perspectives on the issue of prompt payment that diverge from the view of non-profits. Departments claim that their invoice processing systems are effective. According to the departments surveyed, the problem of delayed payment is more likely the result of contractor noncompliance with contract terms, City requirements and other formalities. For more details on how departments process invoices please see Appendix A.

CONTROLLER'S OFFICE

From the Controller's point of view, the City is relatively efficient at processing payments. It is the Controller's duty to pay vendors once departments submit payment requests. The Controller presented to the OLA a post-audit report that indicates over 90% or more of the transactions that sit in the office's financial system get processed within 8 calendar days.⁵ In addition, the Mayor's Budget Book for Fiscal Year 2003-2004 shows a projected performance measure of 81% for documents needing approval by the Controller within 5 calendar days.⁶ The Controller speculates that perceived delays in payment are related to departmental holdups in submitting payment requests or flaws in the contract certification process that release the City from its obligation to pay vendors on time.⁷

DEPARTMENT OF PUBLIC HEALTH

The Department of Public Health (DPH) processes over 500 contracts per year for over $200 million worth of services. A majority of these contracts are with nonprofit organizations that provide mental health, substance abuse, HIV health, TB, STD, and primary care services.

While DPH gave no measure of performance, it claimed that its system of handling invoices is efficient on the whole. DPH cited contract certification as the culprit and enumerated various aspects of certification that may lead to payment delay. The three most common reasons for delays in certification are the expiration of a vendor's insurance, a delay in award letters from funding sources, and lengthy contract negotiations.⁸ Also, delays may result where departments fail to ensure compliance with equal benefits or sole source requirements or fail to obtain Human Right Commission (HRC) or civil service approvals prior to the date the contractor starts work.⁹

According to DPH, ensuring that a contract is certified before beginning work is not always viable. Since the Board does not appropriate the budget until the middle of July, DPH does not know how much money it has for its contracts until after the fiscal year has begun. Vendors often continue providing services during the certification renewal process in order to maintain continuity of service and care. DPH has to extend prior year's contract for six month periods while the new contract is being certified. These types of contract extensions are especially important in the instance of residential treatment centers.

Once the funds have been appropriated, the new contract can be processed and certified. However, DPH then is responsible for back paying vendors the difference between the old contract rate and their new fiscal year rate.¹⁰ DPH also receives funding from the state and federal level. As a result, they have seven different contract funding cycles.¹¹

DEPARTMENT OF PUBLIC WORKS

DPW identified the following underlying problems that result in delayed payment to vendors: 1) contract requirements are not followed (e.g., HRC payment forms are not attached, rates are not in accordance with the contract, insurance coverages have expired, proper documentation is not attached per the contract, etc.); 2) the contract has expired and no modification was put in to extend the contract; 3) the account has insufficient funding (although contracts are encumbered ahead of time, if overall funding from the Controller is unavailable, Accounting cannot post a payment to the system); or 4) no contract was encumbered in the system but because of an emergency, work had to be performed.¹²

HUMAN RIGHTS COMMISSION

Cynthia Goldstein in the Human Rights Commission's Equal Benefits Ordinance Department, identified a lack of education about HRC certification requirements among city departments as a factor in late payments to vendors. She suggested that compliance standards are complicated and the city has a responsibility to help vendors understand the requirements and how to meet them. HRC has the resources to provide businesses with information about their requirements and guidance in how to comply. However, often times HRC may not be aware that a contract is pending as neither the department issuing the contract nor the vendor has informed HRC of the new contract.

In small departments, the person responsible for handling a contract may not even be aware of HRC requirements for contract certification and therefore would not know to put the vendor in contact with the HRC Office. According to Goldstein, this lack of education on both sides of the contract is an obstacle to timely payments ¹³ In some instances, a department may certify a contract before confirming that a vendor has met HRC requirements. Only after services have been rendered is it discovered that the vendor should not have been certified. In the instance of the Equal Benefits Ordinance, HRC only has authority over a vendor while work is being done for the city. To discover that a vendor was not in compliance after services have been rendered creates a Catch 22. HRC has no legal authority since the work is complete, but the department can also not pay the vendor for the work they completed since the vendor did not comply with HRC requirements.¹⁴

CURRENT LAW and/or PRACTICE

There is no general rule in the City's Administrative Code regarding prompt payment to all vendors that do business with the City. However, under the Minority/Women/Local Business Utilization Ordinance (hereafter M/W/LBE Ordinance), the City follows a prompt payment policy for contracts with minority business enterprises (MBEs), women business enterprises (WBEs) and local business enterprises (LBEs). The ordinance states that "it is the City's policy that MBEs, WBEs and LBEs should be paid by the City within 30 days of the date on which the City receives an invoice for work performed for the City." However, the ordinance did not require prompt payment to non-profits or organizations receiving grant money. The ordinance also requires the Controller to work with the Director of the HRC, which administers this program, and representatives of City departments to ensure prompt payment.¹⁵

Superior Court Judge Warren recently ruled that the M/W/LBE Ordinance violates Proposition 209, the voter-approved state initiative banning preferential treatment based on race or sex. Shortly after this finding, City Attorney Herrera ordered city officials to stop enforcing compliance with the ordinance. Though the M/W/LBE Ordinance is defunct for the time being, it offers a model for amending the Administrative Code to include a prompt payment policy.

The Mayor's Office issued an executive order on March 16, 2004 to implement a new business model for contracting and procurement. The stated purpose of the directive is to "cut unnecessary red tape to ensure that city contracting processes are fair, simple, transparent, and effective."

One of the Mayor's recommendations is to "require departments to change invoice approval processes to comply with the prompt payment provisions of the City's Administrative Code." However, the only prompt payment provision that existed pertained exclusively to M/W/LBE owned businesses. With the M/W/LBE Ordinance's legality under question this provision has no authority.The Mayor's other proposals to streamline the City's contracting system by creating greater oversight by the Office of Contract Administration, employing "post-audit" processes to test for departmental compliance, developing consistent guidelines and utilizing technology to simplify contract certification may be beneficial to all City contractors.¹⁶

Certain agencies are separate legal entities that are bound by state and not city law. These include: the school district, the Transportation Authority, the San Francisco Redevelopment Agency, City College, Treasure Island, the Parking Authority and the Housing Authority.

OTHER JURISDICTIONS

By way of comparison, the OLA researched the contracting procedures of Seattle, Los Angeles, New York City, the State of California and the San Francisco International Airport. Each of the cities listed has experienced problems with their contracting and invoicing policies. In reaction to these problems, all three are engaged in efforts to streamline their procurement procedures and policies. Each is at a different phase of restructuring.

Though each municipality has taken a different approach to reforming procurement practices, the OLA has discerned commonalties in these reforms that appear to be effective. While some municipalities have opted to centralize and others have opted to create decentralized systems, all have seen the value in standardizing and simplifying procedures. In addition, each municipality has taken steps to assign responsibility for supporting the contracting process to specific individuals or departments. Please see Appendix B for an analysis of procedures and policies in model municipalities.

Interviews and research suggest that responsibility in the San Francisco procurement process currently is diffuse, leading many in the contracting process to believe that others in the chain of procedure are responsible for late payments. Measures should be taken to clearly delineate who is responsible for ensuring compliance with contracting procedures. This will reduce confusion and the type of situations that result in late payments to vendors.

CONCLUSIONS

This report shows that late payments to non-profit vendors are a symptom of an inefficient and overly complex procurement system. Best practice research shows that other cities have undertaken time intensive and costly projects to revamp their procurement policies focusing on the principles of standardization, centralization and streamlining. Their investment of time and resources reflects their belief that an efficient procurement system is key to the health of a city. Studies conducted by San Francisco task forces and agencies indicate that the city's current system may be in need of similar restructuring in order to maintain integrity in its business relationships and in order to maximize its buying power.¹⁷

Research suggests that non-profits often are not in compliance with contract requirements and this lack of compliance results in retroactive late payments. Though it is incumbent upon vendors to comply with city contract requirements, these requirements are complicated and often difficult to navigate for a non-profit with limited resources. The lack of standardization among City departments' compounds the difficulty vendors have in understanding and meeting requirements as the requirements may vary between departments.

Procurement systems in model municipalities include tools to assist vendors in meeting city certification requirements. Having specific departments or contacts supporting the contracting process ensures that there is a knowledgeable person available to vendors and relieves departments of the responsibility of training numerous staff members on contracting policies and procedures. Additionally, active monitoring of contracting accounts helps prevent a situation where certification problems are discovered after services or goods have been delivered.

Research and analysis indicate that San Francisco should update its procurement policies and procedures. The simpler and easier the system is to navigate, the easier it will be for both vendors and City agencies to do their jobs in a timely and professional fashion.

OPTIONS and/or RECOMMENDATIONS

Below is a list of recommendations that the Board should evaluate in addressing current problems with contracting in San Francisco.

·Prompt Payment Policy: The Board should consider amending the Administrative Code to include a prompt payment policy applicable to all City contractors. New York City, Los Angeles, Seattle, and the State of California all have official policies stating that vendors should be paid promptly.

·Interest on Late Payments: The Board should consider using the New York City and Washington State model of charging interest on late payments or the State of California model of instituting a fine for late payments. For example, if the City paid a vendor late because of funding source problems, then the City would be required to pay interest on money owed. In a situation where a vendor was paid late because they were not in compliance with contract requirements, the City would not pay interest on the late payment.

·Technical Assistance for Vendors: The Board should consider implementing a program whereby vendors receive technical assistance to encourage contract compliance. There are examples of this type of assistance that already exist within the City - HRC offers guidance to vendors on how to comply with HRC certification requirements; the Controller's Office is currently drafting a finance guide to help nonprofits comply with City requirements; and the Office of Contract Administration has a page on its Web site entitled "How to do Business with the City and County of San Francisco." Such materials and services are valuable tools for City vendors. The Board should consider centralizing these and other resources helpful in the procurement process and making them easily available in one location on the City's Web site.

·Technical Assistance for City Departments: San Francisco's current RFP infrastructure can be expanded to develop a contract liaison program. When departments post RFPs on the OCA web site they include a contact person and generally a contact number and email. The OLA recommends requiring training for departmental RFP contacts to ensure that they are capable of advising potential vendors in all areas of the contracting process. The Controller's Office and the OCA already offer classes for department representatives on the Professional Services Contracting Process and have prepared a binder that outlines the process and includes all the necessary forms.

The Board could also look to New York City and Los Angeles for models. New York City has created the Mayor's Office of Contract Services (MOCS) to monitor the procurement process. MOCS provides technical assistance to vendors to reduce the occurrence of retroactive contracts (see Appendix B).

Los Angeles designates the task of ensuring compliance with city requirements to departmental project managers. These managers in turn assign a department liaison to each contract. This system establishes, both for the vendors and the departments, a point person for each contract and reduces the possibility that either vendors or departments are ignorant of city contracting requirements.

·Require Vendors to Meet with HRC: The OLA recommends that vendors be required to meet with HRC as part of the certification process. Most departments include in their RFP a description of certification requirements and either links to the necessary forms or the actual forms themselves. However, feedback from various departments suggests that vendors are not completely comfortable or familiar with these requirements. Requiring vendors to meet with HRC and create a plan for coming into compliance could eliminate one of the main obstacles to timely payments. Adding this requirement may necessitate augmenting HRC's staffing levels.

·Provide Complete Sets of Forms with RFP: Some departments include HRC, MWLB, and Living Wage documents with their RFP while some departments post them as separate documents. Other departments do not attach these forms. The OLA recommends that all departments provide a complete set of forms and documents necessary for certification to RFP bidders in a uniform manner. Providing these documents with the RFP ensures that vendors are aware of certification requirements at the earliest point in the contracting process.

·Centralize Procedures: The Board may want to consider streamlining procurement through greater centralization. All the models studied suggest that decentralization of procurement procedures is problematic and costly. In September 2002 the San Francisco Civil Grand Jury issued a report on San Francisco's contracting processes. They found that the "City's current system of management is too decentralized, placing costly and unnecessary administrative burdens on nonprofit organizations."¹⁸

On June 26, 2003 the Non-Profit Contracting Task Force issued a report to the Board of Supervisors on plans for improving the City's contracting procedures for non-profit human and health services. Consolidation, streamlining and standardization were themes in almost all of their thirteen recommendations. The OLA recommends that the Board review and adopt, where appropriate, the recommendations of the Non-Profit Contracting Task Force.

Though many argue that centralizing is important, decentralized procedures do have benefits. When a system is decentralized, departments have more flexibility and power to tailor contracts and procedures to their specific needs. A department may be more familiar with the services they require and may be better suited to tailor a contract than a centralized office. Decentralized systems can also eliminate extra layers of review, which can expedite an otherwise cumbersome process.

Additionally, it may not be prudent to centralize in the case of departments like HRC. The goal of this office is to ensure that the City does not discriminate in its own contracting or contract with companies that have discriminatory practices. Placing an office with this type of function under the jurisdiction of an office such as the OCA, whose responsibility is primarily to procure goods, might create a conflict of interest.

If the Board is not interested in taking measures to centralize, the Board can also model procurement on Los Angeles or New York City. Though Los Angeles has a decentralized procurement system, each department follows the same steps in obtaining and certifying contracts. New York, under the initiative of Mayor Bloomberg, is revamping their entire procurement system to reduce complexities and redundancies.

·Consolidate Contracts: The OLA recommends that the City consolidate contracts across departments where possible. A single non-profit may have contracts with several departments and each department may have different protocol and requirements for contracts. This disparity between departments can be confusing and frustrating to vendors.¹⁹ The process is also inefficient in that vendors may have to provide the same information repeatedly to different departments. Consolidating contracts will also reduce administrative work associated with each contract. The Non-Profit Contracting Task Force offers suggestions on different models for consolidation.

However, vendors should be consulted before attempting to consolidate contracts across departments. In some instances, consolidation may not benefit the City or the vendor as funding comes from a variety of sources with different funding cycles and timelines.²⁰

·Standardize Forms: Forms are not standardized and may vary from department to department. Some forms may also require that vendors submit the same information repeatedly. The OLA recommends creating a standardized set of forms. Most forms are submitted in hard copy. The OLA also recommends that the Board create an electronic system for submitting forms.²¹ Some departments, like HRC, have their forms available online. However, it is not possible to complete and submit these forms from their web site.

Though standardizing forms will be helpful to vendors and department staff, it should be noted that it will be very complicated and difficult to accomplish. DPH is currently undertaking the task of standardizing all the forms in their own department. They receive funding from multiple sources, all of which have different requirements making it difficult to standardize their forms.²²

·Process Contract Documents Early: One of the major obstacles to timely payments is contract certification. The earlier a department detects that a vendor is not in compliance with certification requirements, the faster the vendor can work to come into compliance. Therefore the OLA recommends establishing time frames for vendor document reviews. City Non-Profit Contracting Task Force offers recommendations on how to begin restructuring departments to ensure timely review of documents.²³ Departments should be watchful in ensuring that a contract is not certified before all requirements are met.

·Improve On-Line Resources: Currently, the OCA web site is not user friendly and information is not always easy to find. Los Angeles has "vendor payment checklists" for both vendors and department staff. These checklists clearly outline the steps that need to be completed before a vendor can be paid. Such tools reduce confusion by presenting information in a clear and easy to understand fashion.

· Utilize ADPICS more fully: ADPICS is the database the OCA and other departments use to store information about vendors. Since many departments cited problems with vendors' insurance as an obstacle to timely payments, the OLA recommends that departments input information about the insurance expiration dates in ADPICS. The department contact person should be responsible for finding out from vendors when their insurance expires and then inputting this information into the database. This system also could be used to store information on fulfilled HRC requirements eliminating the need for contractors to provide the same information and possibly the same forms to different departments.

APPENDIX A

Department of Public Health Procedures

DPH delegates invoicing responsibilities to various program staff and the department's fiscal unit. Program staff reviews and approves the invoice. Fiscal then files a payment request with the Controller's Office within 3 days. DPH has no overall prompt payment policy. However, each unit (e.g., the AIDS Office, Community Behavioral Health Services, Fiscal, etc.) has its own policy regarding the specific procedures that must be followed when approving invoices.

Department of Public Works

The Department of Public Works (DPW) divides invoicing into two phases. First, project and construction managers must approve invoices. Management considers invoice review to be a top priority. Managers check for the following: 1) correct information (e.g., project title, contract number, DPW order number, etc.); 2) correct billing, in terms of hours and rates; 3) satisfactory completion of work; 4) arithmetic errors; 5) attachment of necessary forms and documentation; and 6) active insurance. Management reports that it usually takes less than 5 business days to verify the above information. If there is a problem with the verification process, contractors are notified right away.²⁴

After managers submit approval, invoices are forwarded to Accounting. Accounting processes invoices in the order that they are received (unless there is a problem, in which case invoices are set aside). Invoices are clocked in, entered into a contract invoice log by contractor name, checked for completeness as far as HRC forms are concerned and reviewed for conformance with the contract by designated staff. An accounts payable supervisor gives internal authorization within DPW, and the Controller's Office gives final approval.

It is the informal policy of Accounting to prioritize invoicing, so long as invoices comply with all City regulations. Typically, Accounting processes invoices within 10 working days from the time they are received. In addition, Accounting will sometimes accommodate wire transfers to expedite receipt of payments by contractors.

APPENDIX B

Seattle, WA

The Purchasing Services Division of the Department of Executive Administration is generally responsible for all of Seattle's contracting needs. However, other departments have limited purchasing authority under a Direct Voucher for rents, supplies, materials, equipment and basic services not exceeding $5,000.²⁵

Seattle began streamlining its procurement system in 1998 by launching the Copernicus Project, which aims to leverage the City's buying power to achieve best value in contracts. Best value is defined as the optimal balance between lowest direct costs, lowest indirect costs (such as process efficiencies or increased use of technology), quality, environmental friendliness and social equity benefits.²⁶

The Copernicus Project is based on a "commodity driven approach to procurement."²⁷ Prior to the implementation of the Copernicus Project, Seattle uniformly applied procurement rules to all contracts. Under the new model, Seattle has assembled eighteen "commodity teams" to develop market driven procurement strategies particular to their teams commodity. In 2002, the City reported that the Copernicus approach resulted in savings of $3,145,000.²⁸

Seattle does not appear to have a prompt payment policy per se. However, a standard term and condition of any City contract is that invoices will be paid 30 days after the receipt and acceptance of goods or completion and acceptance of services. The City also accepts early payment discount terms when offered by vendors. Such discounts act as incentives for the City to pay invoices on time.²⁹

In addition, all Washington cities are required by state law to pay interest at a rate of 1% per month on amounts due on written contracts for goods, services, personal services, public works, equipment and travel, whenever a municipality fails to make timely payment. Timely payment is defined as payment that meets the terms of a written public contract but that may not exceed 30 days of receipt of a proper invoice.³⁰

New York, NY

The Mayor's Office has general jurisdiction over procurement in New York City. City procurements are partly centralized and partly decentralized, depending on the type of good or service. New York awards contracts for goods, construction and architecture/engineering, human services, information technology, auditing services and other services.³¹

The Procurement Policy Board (PPB), under direction from the Mayor's Office, is the City agency responsible for establishing comprehensive and consistent procurement policies and rules across agencies. The PPB is not involved with actual payment to vendors, but it does monitor and make recommendations to agencies on their process. Agency heads are responsible for following PPB guidelines in order to make timely and appropriate payments.

Under the PPB Rules, New York has a prompt payment policy applicable to all contracts. The policy requires the City to pay its bills within 30 days after the receipt of a proper invoice. The City must pay interest on any payments made after the 30-day period, with some exceptions. In addition, the PPB annually publishes a report on prompt payment results.³²

Mayor Bloomberg made procurement reform a priority when he took office in 2002. The process was fraught with inefficiencies. Several civic groups drafted reports criticizing New York's procurement process noting that the city's "complex process and lengthy cycle time add costs to everything [the City] buy[s], as vendors build a premium into their prices to account for [City's] inevitable delays."³³ The Mayor's reform plan focuses on the following seven areas: charter revision, management reforms, innovative purchasing opportunities, targeted technology investment, accountability for performance, ensuring vendor responsibility, and legislative reform.

One Step Bloomberg's Office took was to restructure the Mayor's Office of Contracts (MOC). In January 2003, Bloomberg consolidated staff from MOC, PPB and the Office of Construction under the direction of the City Chief Procurement Officer (CCPO) into the newly titled Mayor's Office of Contracts Services (MOCS). Merging these offices yielded administrative savings and allowed the city to better monitor the procurement process. MOCS' policy staff works "collaboratively with all of the relevant stakeholders - agencies, vendors, advocates, as well as the Comptroller, the City Council and other partners in government - to identify opportunities for innovation and savings and to identify the regulatory reforms required to achieve such goals."³⁴

Los Angeles, CA

The City of Los Angeles awards contracts in three major areas: construction, goods and services and personal services (e.g., consulting). With respect to personal services, departments award their own contracts, typically based on an RFP or a Request for Qualifications (RFQ) process. The Department of General Services handles all other contracts based on competitive bidding or an RFQ process.³⁵

There are distinct steps that must be completed before vendors are paid for personal services, grants and construction contracts. These steps are outlined clearly in checklists and flowcharts available on the Los Angeles Controller's web site. ³⁶

For each department there is a Project Manager (PM) who typically negotiates, executes and monitors contract terms and conditions. Before awarding the contract, the PM must ensure that the vendor is in compliance with various requirements, such as Living Wage Ordinance or Job Training Policy. Once the PM has determine that all criteria are satisfied he awards the contract, sending a copy to both the vendor and the department's Accounting section. A department liaison is established and contact information is passed onto the vendor. Once an invoice is sent the PM reviews and compares it against the original contract verifing that the conditions of the contract have been met. He then submits the approved invoice to the department's Accounting section.

The Departmental Accounting Section (DAS), once it receives the approved invoice, prepares a Payment Voucher referencing the original encumbrance documents, that it completed upon first receiving the contract. The Payment Voucher and supporting documentation are then sent to the Controller's Office, Demand Audit Division, for approval. The DAS is responsible for tracking the voucher on the FMIS Suspense File and following up with the Demand Audit Division in three days time.

In November of 2001, the Mayor of Los Angeles launched the Timely Payment to City Vendors Initiative to reduce the number of outstanding invoices processed by the City and help train City staff on the proper use of the City's contract management system. Prior to the Initiative, the City owed millions of dollars to local businesses and was forgoing significant sums of money from prompt payment discounts offered by vendors. In 2001, Los Angeles had close to 16,000 outstanding invoices and had received only 50% of discounts. The Initiative required all City departments to pay vendors within thirty days of receipt of an invoice. Unless stated in the specific contract, there is no provision in the initiative to charge interest on late payments. In 2002, the City had reduced its backlog of invoices to fewer than 700 while increasing discounts for prompt payment to 92%. Total savings for that year amounted to over $3 million dollars.³⁷

State of California

California's procurement system is decentralized, and various State agencies can award contracts. However, the Procurement Division of the Department of General Services plays a strong oversight role. Procurement is responsible for ensuring that departments abide by statutory and regulatory requirements related to public contracts.³⁸

In 1999, Governor Wilson signed the California Prompt Payment Act (CPPA). This law requires payment of valid, undisputed invoices within 45 days of receipt by departmental personnel.³⁹ The CPPA was the State's response to complaints by small business vendors that invoices were not being paid on time. According to the Department of General Services, which conducted an investigation, the greatest cause for payment delay was that departments were not approving and forwarding payment requests to the Controller in a timely fashion.⁴⁰

The CPPA includes penalty provisions for the State's failure to pay invoices within 45 days. The amount of penalties varies depending on whether the vendor is a small business (in which case the rate is higher to ease financial burden). Penalty rates change annually to account for inflation and other economic factors. The Department of General Services maintains records of penalty assessments in order to monitor their effectiveness.⁴¹

In addition to passing the CPPA, the State has also implemented a support program to assist both departmental staff and contractors in navigating the prompt payment system. The persons responsible for providing such guidance are state employees known as "Prompt Payment Advocates." Their job is to ensure compliance with the CPPA, on both sides of a transaction, by providing technical assistance.⁴²

San Francisco International Airport

The San Francisco International Airport (SFO) processes invoices similarly to City departments. The Airport's accounting unit is responsible for processing payments of invoices. Accounting follows a manual of procedures that is based on general guidelines set and periodically updated by the Controller's Office. All Airport contracts must be properly certified, and funds must be pre-encumbered so that payment is available upon delivery of goods or completion of services. Invoices must adhere to contract terms and meet the approval of project or departmental managers.

The Airport does not have any official prompt payment policy in place. However, SFO is subject to the prompt payment policies included in the City's MBE/WBE/LBE Ordinance and federal Department of Transportation Regulations. In addition, the Airport accounting unit follows an informal policy of processing payments to contractors within 5-7 working days of receiving complete documentation. Also worth noting is that the Airport maintains a $10,000 revolving fund for the purpose of making emergency payments to vendors for amounts under $80 and that Airport contracts generally include prompt payment as a term and condition.⁴³

 

 General Business Information (How to do Business with the City and County of San Francisco), Chapters 1 and 3, http://www.sfgov.org/oca/purchasing/dobiz/dobiz2.htm. Interview with Bill Jones, Assistant Director of Purchasing, July 26, 2004.

² Ibid, Chapter 8.

³ Ibid, Chapter 9.

⁴ See email correspondence with Glynn Washington, Administrator of the San Francisco Human Services Network (April 5, 2001 and April 10, 2001); Non-Profit Contracting, a Report of the 2000-2001 San Francisco Civil Grand Jury; Report to the Board of Supervisors on Resolution No. 835-02, Non-Profit Contracting Task Force, City and County of San Francisco (June 26, 2003); Survey of Non-Profit, Community Based Contractors, Controller's Office, City and County of San Francisco (April 2000).

⁵ Email correspondence with Peg Stevenson, City Projects Division Manager, Office of the Controller (February 9, 2004).

⁶ Mayor's Proposed Budget 2003-2004, Willie L. Brown, Jr., Mayor, p. 131.

⁷ Ibid, email correspondence with Peg Stevenson.

⁸ Email correspondence with Galen Leung, Director, Office of Contract Management & Compliance, DPH, July 8, 2004.

⁹ Email correspondence with Anne Okubo, Deputy Financial Officer, Department of Public Health, April 5, 2004, and telephone conversation with Naomi Little, Purchaser, August 31, 2004.

¹⁰ Telephone interview with Anne Okubo, DPH, August 11, 2004.

¹¹ Email correspondence with Galen Leungm Director, Office of Contract Management and Compliance, DPH, July 8, 2004.

¹² Email correspondence with Nini Leigh, Accounting Manager, Department of Public Works, April 5, 2004.

¹³ Telephone interview with Cynthia Goldstein, Human Rights Commission, July 13, 2004.

¹⁴ Telephone interview with Cynthia Goldstein, HRC, August 9, 2004.

¹⁵ City of San Francisco Administrative Code, Section 12D.A.1 et seq. (November 1998).

¹⁶ Executive Directive to the Office of Contract Administration and the Director of Administrative Services, Gavin Newsom, Mayor, City and County of San Francisco (March 16, 2004); "Newsom Cuts Red Tape for City Contracts," Press Release, Office of the Mayor, City and County of San Francisco (March 16, 2004).

  See "Report to the Board of Supervisor's on Res No. 806-01", City Non-Profit Contracting Task Force, June 23, 2003, http://www.sfgov.org/site/npcontractingtf_page.asp?id=15331; "Report to Board of Supervisors on Res No. 806-01" City and County of San Francisco Non-Profit Task Force, September 26, 2002, http://www.sfgov.org/site/npcontractingtf_page.asp?id=15331 ; "Nonprofit Contracting", Report of the 2000-2001 San Francisco Civil Grand Jury;

 "Report to the Board of Supervisor's on Res No. 806-01", City Non-Profit Contracting Task Force, http://www.sfgov.org/site/npcontractingtf_page.asp?id=15331, p.2.

¹⁹ Interview with John Haskell, Controller's Office, July 14, 2004.

²⁰ Interview with Anne Okubo, August 11, 2004

²¹ "Report to the Board of Supervisor's on Res No. 806-01", pp. 8-9.

²² Interview with Anne Okubo, August 11, 2004.

²³ Ibid., pp.5-6.

²⁴ Email correspondence with James Chia, Project Manager, Department of Public Works, City and County of San Francisco (April 5, 2004).

 Direct Voucher Policies & Procedures, Chapter 1.2, http://www.cityofseattle.net/purchasing/purchasingservices/dvpan.htm#PURPOSE.

 Copernicus Mission & Objectives, http://www.cityofseattle.net/purchasing/purchasingservices/docs/CopernicusMission&Obj.DOC.

²⁷ Copernicus Benefits, Year 2000 Update, p.2

 2002 Copernicus Benefits, http://www.cityofseattle.net/purchasing/purchasingservices/docs/02CopBenes.DOC.

²⁹ The City of Seattle, Purchase Order/Vendor Contract, Terms and Conditions, http://www.cityofseattle.net/purchasing/purchasingservices/docs/TermsCon....

³⁰ Revised Code of Washington, Section 39.76.011 (September 1992).

Doing Business with NYC, General Information for Vendors, http://www.nyc.gov/html/selltonyc/html/new_vendors.html.

 2001 Prompt Payment Guidelines, Procurement Policy Board, City of New York, Chapter 1, http://www.nyc.gov/html/selltonyc/pdf/2001promptpayguide.pdf.

³³ "New York City Procurement: A Blue Print for Change", by Marc V. Shaw, Deputy Mayor for Operations and Marla G. Simpson, Director, Mayor's Office of Contracts, October 21, 2003. p.1.

³⁴ Ibid., p.5.

³⁵ Ibid, report by Gabriel Cabrera, Attachment II, p. 2.

 http://www.lacity.org/ctr/vendor%20info.htm

³⁷ "Mayor Hahn Celebrates One-Year Anniversary of Timely Payment Program to City Vendors," Press Release, Office of the Mayor, City and County of Los Angeles (December 5, 2002).

 Selling to the State of California, http://www.pd.dgs.ca.gov/sell2state/default.htm.

³⁹ California Government Code Section 927, et seq. (1999).

 Prompt Payment Tool Kit, Department of General Services, Procurement Division, State of California, http://www.documents.dgs.ca.gov/pd/delegations/prompt%20payment%20tool%20kit.pdf.

⁴¹ Ibid.

⁴² Ibid.

⁴³ Email correspondence with Sandra Crumpler, Manager, Airport Small Business Affairs Office, San Francisco Airport Commission (April 8, 2004).