We found a significant systemic lack of controls over all key areas of the process, creating an environment that is highly vulnerable to fraud.    The lack of formality over processes and procedures, the extensive use of outside consultants for project management, and relatively no internal program reporting, all contribute to creating the high risk environment.  

Contractor’s percentage has declined 31% since program inception, significantly decreasing the likelihood contractors are able to make a profit.  The current JOC contractor percentages range from .50 to .71, meaning the contractor is contractually obligated to perform work at 50-71% of catalog pricing. ‘

The City’s lack of structure and oversight in the JOC program creates multiple opportunities for program manipulation to occur. 

Vague Project Requirements – Beginning with the project proposals, we found scopes of work (SOW) that were vague and lacked sufficient detail to determine if contractor pricing was appropriate. When the detailed work to be performed is not clear, it is difficult for the City to identify when costsh have been inflated or are unrealistic.

In other JOC programs, proposals are reviewed and priced by an independent source aside from the project manager and contractor, creating a mechanism to gauge whether the contractors’ proposals are reasonable. The City has not established such a control.

The poorly designed SOWs have resulted in numerous change orders and cost overruns, occurring in 91% of the projects we reviewed during our 17-month audit period.  Approximately $1.9 million ins avings possible if limits had been placed on use of non-catalog items.  

Excessive use of non-catalog items – Most JOC programs cap the amount of non-catalog items that can be used in a project. This is because non-catalog items are priced at 110% versus catalog items priced using the JOC contractors’ lower bid percentages (50% – 71%). Long Beach does not have ac ap on how much non-catalog items can be used as a percentage of project cost. As a result, 42% of total project costs identified during our audit period were non-catalog items priced at 110%.    

Limited City involvement – Project managers are responsible for all aspects of a project, including approval of work performed and payments to all parties. Due to staffing shortages caused by budget cuts, the Department relies heavily on consultants to fill the role of project manager. Of the projects reviewed during the audit, 64% of the project managers were consultants, which is higher than other JOC programs we surveyed.

In addition, some of the contracts for which the consultants are working under allow for the firm to provide a variety of services, creating potential conflicts of interest.  Overall, oversight by City employees is limited.

There are no formal policies, procedures or guidelines over the program, creating inconsistencies in project management and documentation.

During our audit, we found no required or comprehensive reporting of key project information to the JOC program supervisor or other Department management.

As a result, the City has very little oversight or control over JOC project costs or the quality of work.  One major benefit of using a JOC program is that it decreases the time to initiate a project. This is because the traditional procurement method is replaced with bids based on a pre-priced catalog. However, we found the time required to move City JOC projects through the design and proposal phase is significantly longer than the industry standard.

The vendor overseeing the pre-priced catalog for JOC programs reports the average industry time to complete project initiation and start a JOC project is 25 days without design and 55 days with design. While it is unclear how many projects during our audit period included design, to be conservative we measured all projects against the 55 day benchmark. Projects costing $4.4 million (34% of total project costs) did not fall within the 55 day timeframe. ….seven projects consisting of $3.3 million in costs took more than 90 days to initiate. Due to inadequate project file documentation, it was impossible to determine why the City’s projects took longer. However, project manager workload and negotiating pricing outside the catalog are two potential reasons for some of the delays.