HomeMy WebLinkAboutSS04 - Contracting Out of City ServicesCITY OF NEWPORT BEACH
STUDY SESSION ITEM NO. 4
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Homer L. Bludau, City Manager
DATE: November 13, 2001
SUBJECT: Contracting Out for City Services
BACKGROUND:
After receiving a letter from Philip Arst (Attachment 1) on how Newport Beach
compares to other Orange County cities with regard to contracting out for
• services, the Mayor asked that this subject be discussed at a City Council Study
Session.
Let me preface my written remarks by making a few statements that I feel
confident in. One, there is no one right or wrong answer to contracting out
issues. The `right' decision lies within each separate community and each
separate set of elected officials as to how best to provide City services of a
quality that reflects the values of their community. Like most issues, there are
pros and cons to contracting out, just as there are pros and cons to providing City
services by City employees. It is the weighing and balancing of the tradeoffs
which largely determine what is the "right' contracting out answer for each
community.
All cities do some contracting out of City services. The large percentage of cities
provide these services through a combination of contracting out and city
employees, as does Newport Beach. The percentage of city budgets devoted to
contracted services varies widely. I think it safe to say that Newport Beach
contracts for fewer services than most cities. The one service that sets our city
apart from others is residential solid waste collection. We are the only city in
Orange County which provides that service with City employees. Some cities are
heavily into the contracting out of city services, so much so that they are referred
to as 'contract cities ". These cities only employ enough city employees to
• manage the many contracts they have entered into. For the most part in
City Hall • 3300 Newport Boulevard • Post Office Box 1768 • Newport Beach, California 92659 -1768
Contracting Out for City Services
Page 2
California, these are newer cities which have incorporated after Proposition 13 •
and have less property tax revenue than other cities.
ADVANTAGES AND DISADVANTAGES OF CONTRACTING OUT:
The following is a partial listing, in no particular order, of the advantages and
disadvantages involved with the contracting out concept.
ADVANTAGES:
1. Reduces overhead and administrative costs —fewer City employees
result in fewer support services needed (Human Resources,
payroll, vehicle mechanics, etc.).
2. Oftentimes results in economy of scale cost savings— businesses
provide one type of service and may be providing it to many
contractors so they have low overhead.
3. Reduces personnel and compensation issues — contract personnel
are not City employees and aren't covered by Civil Service rules;
the City does not have to deal with employee bargaining units.
4. Contracting out provides an opportunity to compare City versus
marketplace costs —it also allows for comparisons from several
(usually) providers.
5. Contract services employees usually cost less, often due to lower •
benefit costs —this is especially true for contract employees
involved in manual labor, clerical and "blue collar" workers.
6. Contracting out allows cities to match service needs with financial
capability —if a city's revenues were to increase or decrease, it is
probably easier to adjust contract service levels to match.
7. Contractor shares liability risks with City for actions of contract
employees and may have all the liability for employee negligence.
DISADVANTAGES:
1. Difficult not to take low bid —low bidder may provide adequate
services, when for a little more, the next bidder could provide much
better services. If contracting out for cost savings, the pressure is on
to accept the low bid.
2. Some services don't lend themselves to performance standards,
making it difficult to write bid documents which quantify work quality.
3. Any work outside of contract will cost extra.
4. Frequency of turnover can be a problem if pay and benefits are low.
5. City only selects the contractor and not the contractor's employees
who are representing the City.
6. Possibility of strikes —as was recently experienced within the solid
waste hauler industry. •
Contracting Out for City Services
Page 3
is 7. Uncertain disaster /emergency response from contract employees
(coming from home for emergency response) and no way to put the
cost of a real response in a contract.
8. Contracting for technical or specific expertise can be more expensive
(computer employees, temporary help agencies, planning services,
plan checkers).
9. Once a city gets rid of its equipment and personnel and contracts for
a service, it largely loses its ability to perform the service if the
contract is not satisfactory.
ADVANTAGES AND DISADVANTAGES OF PROVIDING SERVICES
THROUGH CITY EMPLOYEES:
ADVANTAGES:
1. City employees are selected by the organization through a public
recruitment process, usually resulting in many selection options in
terms of particular skills of candidates.
2. City can impose disciplinary action, including termination, against
its employees.
3. Employee longevity is usually greater — particularly true with
Newport Beach, which has a very experienced workforce.
• 4. Proven capability for responding to emergencies and disasters.
5. Cross training is more easily facilitated; career paths clearly
established.
6. Probably easier to develop loyalty, pride and a team feeling when
working as a permanent employee for a city.
7. Can be less expensive for technical expertise than contracting.
8. Job stability is often an inducement for private sector workers to
take public sectorjobs for less money. (It does happen!)
DISADVANTAGES:
1. Generally higher wages than the private sector, especially true of
benefits (health, retirement, vacation, etc.).
2. Higher administrative support costs —time spent on personnel
related issues can be high.
3. Mandated (State law) negotiations with employee bargaining units.
4. Disciplinary process, appeals, job performance evaluations are time
consuming and process centered.
5. Difficulty in having the right number of employees in positions
affected by economic cycles.
6. Difficult to get rid of the marginal employee who has made it
through their probationary period —the other side of the job security
• issue.
7. Ongoing costs associated with retired employees.
Contracting Out for City Services
Page 4
8. Public perception that city employees are too numerous, too highly •
paid and inefficient and that the private sector could always do
things better.
WHERE WE STAND NOW:
The information in Mr. Arst's letter regarding contracting out for City services is
out of date and, staff believes, was inaccurate at the time it was prepared by the
Los Angeles Times in 1993. It shows that Newport Beach was using private
contractors for only three types of services: janitorial, landscape maintenance
and tree trimming.
To prepare for this study session, staff assembled information on all of the City's
contracts for services with private firms and joint powers authorities (JPAs). It is
somewhat difficult to decide what should be included as contracting out or
"privatizing" services that traditionally have been performed by in -house staff. In
building the table that is Attachment 2 to this report, we used the following
guidelines in an effort to provide a realistic picture of the extent of privatizing,
without including every contract service in the City's budget.
• Include things that were done by in -house staff before budgetary cuts
caused a shift to contracting, such as landscape maintenance, tree
trimming and building maintenance. •
• Include things that have been contracted out for many years, but could be
done in house if the City chose to maintain a large enough staff with a
broad enough diversity of expertise. Included in this category are capital
project design, computer software and hardware support, environmental
impact reports, and cataloguing and processing library materials.
• Exclude capital project construction.
• Exclude special projects such as the General Plan update and City Hall
needs study.
• Exclude things that in -house staff clearly could not or should not do, such
as bond refinancing and audits.
• Exclude services that are available from only one source, such as sales
and use tax administration and fingerprint processing.
Our review of current practice shows that the City uses contracts with private
firms for 27 major categories of services, for a total of $7.4 million annually. The
most significant areas in which contracts are used are street tree maintenance
(95 %), landscape maintenance (75 %), building maintenance (50 %), and
sidewalk and curb maintenance (25 %). In addition, we are members of four
JPAs, and contract with them to provide Police helicopter service, Fire dispatch
and training, and hazardous materials response.
•
Contracting Out for City Services
Page 5
• OUR EXPERIENCE WITH CONTRACTING
The first major City service contracted out due to budgetary concerns was street
tree maintenance in 1994, followed by landscape maintenance in 1995 and 1997,
concrete maintenance in 1996, and beach restroom maintenance in 2000. Multi -
jurisdiction JPAs began to be used for Fire dispatch and training in 1989, for
hazardous materials in 1993, and Police helicopter service in 1992.
According to all the Department Directors involved, the City does save money by
contracting for these services. Our satisfaction with the quality of service is
mixed, however. The City is required to use the low bidder for some private
contracts, and we have had the experience of a contractor underbidding a job
and then not being able to deliver the service required. Another concern has
been the acquisition of small local businesses by larger companies, resulting in
the bottom line becoming more important than service, or reduced competition.
With JPAs as well, Newport Beach does not always receive the level of service
quality we would like, as we are one of several members and must accept the will
of the majority.
One of our most successful contracting experiences has been for street tree
maintenance. Landscape maintenance and restroom cleaning have been
problematic, though. In both cases, the first contractors had to be replaced for
• non - performance early in the contract, and staff is not satisfied with the current
contractors. Frequent inspection by City staff is necessary to ensure that the City
is receiving the services for which we are paying. The use of outside consultants
for building plan check has decreased delays, but a loss of customer service has
been a concern, since the consultants are not available to answer questions from
applicants. With regard to JPAs, the Fire Department is very satisfied with
training and hazardous materials, but would like a higher level of service for
dispatch. The JPA for Police helicopters not only provides good service, but also
generates revenue from contract services provided to the City of Santa Ana and
the County Sheriff.
BRIEF REVIEW OF CITY OPERATIONS AND CONTRACTING OUT
POTENTIAL:
To further the discussion, I will give my thoughts on contracting out additionally
for City services currently provided by City employees. Parentheses reflect
current number of permanent/part time employees.
1. City Clerk (3/0) – Requires City and elections experience; high
quality services. Potential for additional contracting —none.
2. City Attorney (5/0) – Many cities contract for services; having on-
site attorneys is a huge benefit; airport experience; knowledge with
• history and culture of organization. Potential for additional
contracting —poor.
Contracting Out for City Services
Page 6
3. City Manager (5/1) – City Manager selected by Council; Assistant •
City Managers have expertise in various issues; support staff
doesn't lend itself to contracting. Potential for additional
contracting —poor.
4. Human Resources (8/0) – Have hired some employees from private
sector; knowledge of City rules, procedures, employee benefit
plans invaluable; requires stable workforce; contracting could be
more expensive; do contract for Workers' Comp and some risk
management functions. Potential for additional contracting —poor.
5. Administrative Services (45/9) – Contract out some functions;
doesn't readily appear to be advantages to contracting for fiscal
services, payroll, revenue, accounting functions; MIS (data
processing support) could be contracted but stable workforce a real
benefit and contract cost likely to be greater. Potential for
additional contracting —poor.
6. Police Department (228/49) – Numerous cities, especially smaller
ones, contract with the Sheriff for police services; Newport Beach
has excellent police services; officers' longevity a big plus with
knowledge of community; don't believe better service could be
attained but would realize cost savings with lower level of service
through contracting; public safety is our greatest community value
and people are willing to pay for it. Potential for additional
contracting— medium but not advised. •
7. Fire Department (132/6 +) – Includes fire, emergency medical
services and lifeguards; County Fire District the only option; could
be accomplished over time; don't believe service level can be
improved and probably not duplicated; potential for cost savings.
Potential for additional contracting— medium, but not advised.
8. Planning (16/1) – Specialized knowledge of local codes and
regulations a necessity; staff stability a big plus; contracting for
technical expertise likely to be costlier. Potential for additional
contracting —low.
9. Building (25/0) – Building codes very similar in most jurisdictions;
detailed knowledge of City and previous City projects a huge plus;
employee stability very important; contracting out for some
inspection and plan check services done now; contracting likely to
be more expensive than City employees. Potential for additional
contracting— medium, but not advised.
10. General Services (125/ +) – Currently has more services contracted
for than any other department; has potential for further contracting
out at the risk of deteriorated services; this workforce is critical for
disaster /emergency response; potential for some services to be
looked at again. Potential for additional contracting— medium.
11. Community Services (58/50 +) – Has library, senior center,
recreation and culture /arts functions; lots of part- timers in recreation •
and library; knowledge of community and community's expectations
Contracting Out for City Services
Page 7
• a real plus; lots of contractors in recreation. Potential for additional
contracting —low.
12. Public Works (33/4) – High level of contract work currently being
accomplished; potential for contracting out more project planning,
inspections and some transportation functions; currently good mix;
good in -house capability offers flexibility; knowledge of City's
topographical issues a big plus. Potential for additional
contracting— medium.
13. Utilities (48/18) – Longevity of personnel a huge benefit during
emergency repairs /disasters; excellent functioning department;
would be difficult to duplicate quality of services. Potential for
additional contracting —low.
These thoughts are offered in the context of contracting out potential in addition
to what is currently being contracted out.
CONCLUSION:
The word "unique" can be overused, but Newport Beach is a unique City. It is a
City based on quality — quality of life, quality of appearances, a look and feel of
quality in all this community represents. It is a community that expects, even
demands, excellent services regardless of the service. The challenge for
• Newport Beach City Councils and City Managers is to provide a very high quality
of services, but do so at a reasonable cost. As stated earlier in this report, the
contracting out vs. City employee issue is an issue of tradeoffs. The benefits of
contracting out revolve around cost savings and cost efficiencies, although that is
not true in all cases. The strength of providing services by City employees
revolves around stability and knowledge of workforce, pride, selection of
employees and having greater control /influence over the quality of the
employees' work products, without it being determined by a contract description.
City employees offer greater flexibility for responding to unusual or unforeseen
events and circumstances.
My knowledge of this community says it is willing to pay a little more for quality
service — whether the services be education (successful bond measure), a
restaurant, a carwash or cleaners. I believe that attitude carries over to City
services. And let me point out, the city residents and taxpayers aren't paying
higher property taxes, sales taxes or other taxes because we provide more
services through City employees than we do by contracting. Some fees
(planning, building) are partly based on employee salaries but in most cases
these same services, if provided by contract employees, could easily result in
higher fees. Certain services provided by City employees do cost more than
would be the cost if provided through contract. I believe the contracting out issue
needs to be looked at for on -going opportunities, and I honestly believe this City
• has been wise in its determination of which services to contract for, and which to
provide itself. Any direction the City Council wants to give the City Manager
Contracting Out for City Services
Page 8
regarding this issue will be well received. The City Manager recognizes his job •
as providing the best day -to -day services possible; given the direction of the City
Council and the resources (adopted budget) they provide him. The quality of
services, not who provides them, is the most important basic issue in this
discussion. The cost element is a part of defining the quality of service.
Tradeoffs are a part of that definition also. It is not an easy issue, but it is a very
important issue, for how it is decided does have an impact on how our residents
view their City government and their quality of life.
E
•
Attachment 1
Philip L. Arst
2601 Lighthouse Lane
Corona del Mar, CA 92625
•Mayor Garold Adams
Chairman General Plan Update Committee
City of Newport Beach
3300 Newport Boulevard
Newport Beach, CA 92663
Dear Mayor Adams and General Plan Update Committee Members:
Your committee is missing a major opportunity to obtain additional funding to run the city. This can
be accomplished without increasing traffic congestion and importantly without changing the nature
of the city from beach/bay environmental to congested high density metropolitan.
That opportunity is to reduce the cost of running the city government. The following facts
demonstrate that the current Newport Beach city government operations are considerably less
efficient than those of the majority of Orange County Cities:
• Newport Beach has the highest revenue per capita ($1453) of any city in OC*
• Newport Beach has the highest per capita governmental expenditures of any city in OC *and
at $1865 per capita is approximately double the County average of $937
• Newport Beach has among the highest ratios of city employees per capita of any OC city
(One employee for every 90 residents vs. a county average of one employee per 200
residents)
• Newport Beach is last among OC cities in the amount of services it subcontracts (See
• charts * *)
The negligible amount of outside services that are presently sub - contracted by the city, mainly park
maintenance & tree trimming, resulted in greater than 50% cost reductions while maintaining
acceptable service levels.
As subcontracting of services is widely and successfully practiced by all other OC cities it is a
strong indicator that Newport Beach is not being run as efficiently as other cities.
According to an outside study * ** cost reductions through sub - contracting or other efficiency
measures have been obtained by government entities without material impacts on city personnel by
phasing the changes with attrition, early retirements, transfers, etc.
The city should first gets its cost structure in order before recommending via the General Plan
Update visioning process that the only course of action for the city is to increase unwanted major
office and other commercial operations to build revenues.
A professional study by an independently monitored outside consultant is needed to recommend
specific functions and amounts of cost reductions that can be obtained via either operating more
efficiently or subcontracting some services.
The
Services as well as other cit,
services. The undersigned has no specific recommendations as to which services can be
subcontracted. The role of this letter is to point out the great disparity between the operations of the
• City of Newport Beach and the majority of other cities in the County.
It is the job of the City Manager to use his managerial skills to come up with methods of bringing
city operations closer to acceptable efficiency levels without sacrificing current levels of service.
It is unreasonable to continue on GPUC studies until the results of the outside consultants cost •
reduction study are known and initial implementation of cost reductions have taken place.
The opinions expressed in this letter are solely those of the author and do not represent the position
of any organization.
klt relouncil
* Source: League of California Cities — OC Division, excluding electric utility and redevelopment revenues /expenses
** Enclosures: 1.) Private Practice: Business Firms Provide City Services, 2.) Privatized "Major" Services of OC Cities
* ** "Privatization & Layoffs: the Real Story" Reason Public Policy Institute, 3/13/01, www.rppi.org
* * ** State of Contracting Report, City of Huntington Beach
Data has been obtained from an article in the LA Times in 1993 and the League of California Cities (2001.).
Unfortunately, the League of California Cities data asked for "major subcontracted services" so a multitude of smaller,
but nevertheless significant outside contract services were omitted. For example, the tree trimming & landscape
operations of the city of Newport Beach are not included in their report.
While the LA Times survey is 8 years old, a check of three cities (Huntington Beach, San Clemente, Placentia) found
few differences in reported results. Newport Beach was last in that survey which leads to the inescapable conclusion
that the city lags far behind most other OC cities in the efficiency of its operations. Corroboration of the continuing
general accuracy of the LA Times article for year 2001 city government operations follows:
1. Rita Mueller, Records Coordinator for the City of San Clemente reported the following sub - contracted
services: Police, Fire, Park Maint, Street sweeping, Street striping and marking, Street Maintenance, Street •
lighting, Traffic signal maintenance, Fleet services, Refuse, Janitorial and Legal. The main change to the LA
Times report is that Refuse Collection has been subcontracted thereby increasing the number of subcontracted
services.
2. The City of Placentia reported a few changes to the LA Times data that increased subcontracting for Janitorial
services and Landscape Maintenance while they brought Computer services in- house. Otherwise the LA Times
report is accurate.
3. City of Huntington_ Beach — see enclosed financial analysis
•
�Pl K®'.'.
Li —7t
q,
�1 w
' .�i (4 •• •rel
U L6.
�'I
N f N v �' figg
W tv
zz
ri c
s
ha
oa f
O V
EOy m
(," t Fq. EA � O L � � �pjCpxy � q� C C A O � •y � � C vs i S .. $ l
4
Attachment 2
CONTRACT SERVICES AND AMOUNTS
Page 1
•
•
CJ
Category
Major Contracts and Amounts
Total Amount
11
Capital project design
$1,995,064
Balboa Blvd., 12th - Medina
$231,580
Newport & Balboa Piers
214,216
Irvine Ave. water main
180,240
2
Landscape maintenance
$821,800
Tru reen
$775,000
Athletic fields
36,000
3
Recycling CR Transfer
750,000
4
Recreation instructors and officials
681,470
5
Tree trimming (West Coast Arborists)
580,000
6
Building maintenance
450,850
Ed Building Maintenance
$89,000
A -1 Spinelli (summer restrooms)
32,000
A -1 Bldg Maintenance (Police Department)
61,100
7
Overflow staffing
290,175
Plan check
$280,950
Planning
9,225
8
Computer software and hardware support
250,000
HP 9000
$44,450
Database
41,880
9
Claims administration
237,000
Hazelri (Workers comp)
$137,000
Carl Warren (General Liability)
100,000
10
Equipment Maintenance (except office
Fire station alarms & radios
$28,000
167,150
Lifeguard towers
27,000
Tire recapping
20,000
Auto body
20,000
11
Water and sewer line repairs
150,000
Doty Brothers
$100,000
Gillespie Construction
50,000
12
Sidewalk and curb maintenance
142,000
C.J. Construction
$130,000
13
Investment management
120,000
14
Traffic and environmental studies for capital
and private development projects
110,173
Linscott, Law & Greenspan (Hoag Hospital)
$44,440
PCR Conexant)
$29,350
RBF Consulting (Newport Center Block 600
25,740
Keeton Kreitzer Koll Center)
25,512
The Planning Center (Ba iew Landing Park)
24,900
151
Medical billing
97,000
16
Mooring administration (County of Orange)
80,000
Page 1
•
•
CJ
•
u
Page 2
TOTALI $7,436,932
Category
Major Contracts and Amounts
Total Amount
17
Oil well maintenance & operations
79,000
(Sampson Oil Company)
$63,000
18
Tax audits Sales, TOT
76,300
19
Labor negotiations (Avery & Associates
57,000
20
CDBG administration
54,000
21
Cataloguing and processing library materials
53,750
22
Traffic signal maintenance
52,000
23
Weed abatement (Southland Landscape
Maint
40,000
24
Refuse collection from City facilities CR &R
39,450
25
BID administration
30,000
26
Debt collection
22,400
27
Film liaison
10,350
•
u
Page 2
TOTALI $7,436,932