SANTA BARBARA COUNTY GRAND JURY
Submitted to Affected Agencies June 2, 1998
The 1993-1994 Grand Jury considered studies and recommendations from previous grand juries suggesting the need for improvements in county procedures for contracts in excess of $25,000.00. These contracts require Board of Supervisors signature, and are known as "board" contracts. Earlier grand jury concerns were that "a lack of uniform policies and procedures, unclear responsibilities, and vague accountability continue to plague departments in handling contracts effectively." This report focuses on the "content" of these service contracts. The 1997-98 Grand Jury evaluated the purchasing procedures of the Purchasing Division of the General Services Department, as well as board contracts with service providers. The Grand Jury selected for study the following areas:
Stimulated by that 1993-94 Grand Jury, an informal county ad hoc "Contracts" Task Force was established to implement several Auditor-Controller and Grand Jury recommendations. That task force consisted of a representative each from Auditor Controller, County Counsel, County Administrator, General Services (Purchasing), and Risk Management. The task force attempted to prepare a standard service contract or an "Agreement for Services of Independent Contractor," plus a written Policies and Procedures Manual, and a Contracts Checklist. Finally, in 1995 the county developed a standard agreement "template" containing model terms and conditions.
To ascertain the number of service contracts in the county the Grand Jury asked the County Administrator, "How many contractors are working for the County under Account 7460, Professional and Special Services?" The County Administrator responded that, "According to staff in the Auditor-Controller’s Office, there were a total of 320 County contracts as of November 13, 1997. This number includes both contractors on payroll and independent contractors under Account 7460 (and some contractors have more than one contract). Staff in the General Services Department indicated that there were 253 contracts in departmental 7460 Accounts. Accordingly, the total number of Account 7460 (independent) contractors appears to be in the 250-275 range but the exact number is not readily ascertainable."1
The Grand Jury examined three board level service contracts over $25,000.00, as follows:
To compare the three reviewed contracts additional service contract information on higher dollar agreements was requested by memorandum from the Directors of Health Care Services, Planning and Development, Public Works Department, and the County Sheriff (See Exhibit A).2
Using the above input, this report will first focus on the executive officer services and economic development service contracts. However, the general comments regarding all of the above service contracts will equally apply to the audit contract, and the examples contained in the responses from the above four county departments.
The Grand Jury conducted interviews with department heads and staff from the Auditor-Controller and County Administration Departments, the Division of General Services, selected contracting parties. It also reviewed information available in other Grand Jury studies and on the Internet.
1. Contracts with Service Providers
To understand the content and style or format of the service contracts reviewed, the Grand Jury used the expertise of its members experienced in contracting and legal matters, as well as the Uniform Commercial Code (U.C.C.), and its California equivalents. The U.C.C. is uniform law, which simplifies, clarifies and governs commercial transactions, and which also allows and controls the continued expansion of commercial practices through custom, usage, and agreement of the parties through a uniform framework of law and practice throughout various jurisdictions in the United States.
Initially, when analyzing contract content, the Grand Jury looked to the essentials of a contract, which are:
Contract Essential Elements
Parties with at least limited capacity
Not voidable by law
Parties will have complete legal capacity
Reality of consent (Meeting of the Minds)
In a form required by law
The object of the contract must be lawful
Offer and Acceptance
In reviewing the above three contracts, the Grand Jury felt that one of the more important elements was "definite terms," which includes a specific statement of work to be performed. Obviously the duties, conditions, obligations and responsibilities of the parties must be clearly and explicitly stated. The time of performance, the work to be done, the price to be paid, and other specific terms must be spelled out in the contract so that the parties will know to what they are agreeing.
Since these contracts deal primarily with independent contractors, the Grand Jury looked at the character of independent contractors. In general, an independent contractor is one in a business separate from the principal contracting party, and is paid to perform a specific role, with the manner and means of accomplishing the work left to the contractor, and with the principal’s control limited to specifying the product, or result of the work. In this kind of an arrangement there are certain advantages to the person or body engaging the services of the independent contractor, as opposed to that individual, or group being in an employment status. Some advantages of this outsourcing situation is that the principal is not required to pay unemployment insurance taxes or workers’ compensation insurance premiums, withhold federal and state income taxes, or provide any other benefits as elements of compensation. Further, the contractor normally provides its own tools, staff, and work place, while the principal contracting party is generally not liable for torts of the independent contractor, and more important, the services can be terminated for reasons specified in the agreement. These advantages should be weighed against the disadvantages of lack of direct supervisory control over the details of work performance.
The essential element of this type of agreement, or contract would contain a provision that vests control of the method and means of accomplishing the services specified in the hands of the contractor. Because the lack of direct control over the independent’s performance is a major factor in the creation of independent contractor status, the contract should contain a provision that clearly defines this relationship in the event of litigation. Additional contract provisions that carry equal weight are a complete description of the service(s) to be performed, the term limits of the contract, and the type and timing of compensation.
It is most important to understand that these agreements should detail the nature of the consultant’s services, the person or organization to whom the consultant reports, and who will accept the services and provide direction, and also when and where the services are to be performed, the payment method and what is reimbursed, and what facilities, if any will be provided to the contractor. Note that if the contractor is provided such things as office space, equipment or any type of assistance during the course of the agreement that these things should be taken into consideration as cost reductions items when determining compensation.
It is imperative that the contract make it clear that the consultant is not the principal’s employee, or agent. Additionally, the contract should also contain provisions for confidentiality, and if necessary trade secret or proprietary information restrictions, and
that information gained during the term of the contract not be used against the principal in violation of certain state or federal laws. Further, it may be necessary in certain instances to require notification by the independent contractor or consultant during the pre-contract negotiations, or post contract signature phase that they have retained former employees of the principal.
When studying the above contracts, it became immediately apparent that these particular contracts bore little resemblance to one another in style, format, and language that is not peculiar to the service being acquired. These two contracts are summarized in exhibits B and C3,4
In November 1997, the County Administrator responded to a series of questions regarding contracting that were contained in a Grand Jury memorandum, "Contractors with the County of Santa Barbara."5 In a detailed question by question response,6 the Administrator stated in item "5" that "Although there are standard terms and conditions which are used in developing service contracts, due to the multitude and types of services provided, there is not a standard services contract for independent contractors." This fact, plus departmental practices could be the basis for the differences from department to department in the style, or format of service contracts, regardless of legal review as to form. It was also noted that contracts are let without competition as determined by the department requiring the service.
To summarize, the Grand Jury reviewed the provided service contracts with the following aims:
Explanatory Note (Standardized Contracts):
On the subject of standardized or uniform contracts, the Grand Jury is not referring to a rigid "boiler plate" format that restricts tailoring, and which is without flexibility under a "one size fits all" concept. The Grand Jury is aware that contracting actions are for a variety of purposes, i.e. public works, supplies and commodities, services, and utilities, etc., and for a range of prices, and complexity. The county is partially there with
standardized terms and conditions, but what is missing is a format that specifically
restricts the modification of selected general provisions (terms and conditions), and reserves the modification of those clauses to the Board, after the benefit of counsel. This familiarity of form makes it much easier during contract review, and when trouble arises,
it is easier to communicate the effected parts of the contract; and if litigation occurs, the resulting case law should strengthen the county’s future position regarding the part of the contract in question. These corrections and improvements, whether through litigation or practice, can then flow into a managed system of policies, procedures and directives in an organized manner.
FINDING 1: The 1993-94 Grand Jury made recommendations regarding developing a standard contract format for use throughout the departments within the county. In response to this earlier finding, the County Administrator referred to a previously established Contracts Committee staffed by single members from General Services, Auditor-Controller, County Counsel, with the County Administrator serving as Chair.
This earlier committee worked on standard service contracts. Currently only standard terms and conditions are in use for service contracts. In reviewing the above board contracts in the light of departmental responses, an absence of overall clause uniformity was noted.
RECOMMENDATION 1: The County Administrator should reconvene the Contracts Committee for further development of uniform policies, procedures and structure for service contracts.
FINDING 2: The scope of work and other provisions within the reviewed contracts lacked both specificity, definition and in some cases performance parameters. This allows for loose interpretation of the contract terms, provides no mechanism for specific correction, and opens the contracts to constructive change.
RECOMMENDATION 2: Develop a comprehensive policy for county contracting procedures to require more definition to specifications, or scope of work statements, and to couple these expanded definitions to some means of measurement, where appropriate. This recommendation can be added to the new Contracts Committee as it develops uniform procedures.
2. Purchasing Procedures
The focus of this analysis is on service contracting. In December 1997, at the request of the Grand Jury, the Manager of the Purchasing Division of the General Services Department provided the Grand Jury with an updated copy (printout) of their automated product, the "Purchasing On-Line Manual."7 He stated that "The purpose of this manual is to present all county employees an easy to understand ‘how to’ manual which explains not only the details of the preparation of purchasing documents, but also the policy and
legal requirements which lay behind the rules. All employees should then be able to make the correct decisions when deciding how to go about acquiring goods and services." This manual has some 32 sections, one of which, Section 20, is entitled ‘CONTRACTS." A subsection contains instructions for SPECIALIZED CONTRACTS, with one part covering Service Contracts, which includes independent contractors. Note that this manual reserves purchasing decisions above $25,000.00 to the Board of Supervisors, and amounts of $100,000.00 or more are essentially managed outside of Purchasing by other county departments.
The manual, which is being updated and placed on the on-line INFONET service system, does provide for the generation of an automated contracts format that is prompt driven, but this is primarily for requisitions, and blanket purchase orders (BPO). Service contract language also can be extracted from the automated system by selecting coded clauses from a "BPO/Contract Boilerplate Text" listing; and further, reliance is placed upon a short generalized procedures list within the division’s manual of what the service contract should contain. It is also important to reinforce that there is a cautionary note in the manual to go to the Board of Supervisors if the contract price will exceed $25,000.00 a year for a business clearance to proceed with the acquisition. Finally, there is no contract check list in use, but the division does use a sheet of code that correlates to a specific type of contract, such as "Service Contract," and which lists the codes peculiar to that type of agreement.8 These codes can then be selected and added to the general terms and conditions required for the contract being formulated.
FINDING 3: The purpose of the on-line manual is to facilitate the enforcement of sound, centralized purchasing policies and regulations. The coded BPO/contract boilerplate text menu is not part of the on-line manual in INFONET service system.
RECOMMENDATION 3: The Purchasing Manager should integrate all automated products necessary to centralized purchasing policies, procedures, and regulations into a single automated system.
AFFECTED AGENCIES (Party or entity required to respond):
County Board of Supervisors (Finding and Recommendation 1 and 2)
County Administrator (Finding and Recommendation 1 and 2)
County General Services (Finding and Recommendation 3)
County Counsel (Finding and Recommendation 1 and 2)
We want to advise you that California Penal Code Section 933.05 requires that responses to Grand Jury Findings and Recommendations must be made in writing to the Presiding Judge of the Superior Court and the Grand Jury Foreperson within 90 days (Governing bodies) or 60 days (Department heads) of the issuance of the report
Therefore the Grand Jury requires that you respond to each of the Findings and Recommendations that applies to your agency.
Please send your response to:
Honorable Judge Frank J. Oachoa
Presiding Judge, Santa Barbara County Superior Court
1100 Anacapa Street
Santa Barbara, CA. 93121
Grand Jury Foreperson at the same address.
Responses to the Grand Jury should be submitted on a 3 ˝ inch computer disk.
1County Administrator Memorandum, November 18, 1997
2See Exhibit A - Grand Jury Memorandum, March 16, 1998
3See Exhibit B - Agreement for Providing Executive Officer Services Summary
4See Exhibit C - Economic Development Contract Summary
5Grand Jury Memorandum, November 3, 1997
6County Administrator Memorandum, November 18, 1997
7Purchasing Manager Memorandum, December 17, 1997
8See Exhibit D - BPO/Contract Boilerplate Text Code List
EXHIBITS ARE IN THE 1997-98 PUBLISHED FINAL REPORT