THE CITY OF NEW YORK - OFFICE OF THE COMPTROLLER
TESTIMONY BEFORE THE NEW YORK CITY COUNCIL COMMITTEE ON CONTRACTS

(Testimony prepared for delivery)
January 22, 2003

Good afternoon. I am Deputy Comptroller Greg Brooks and with me is Assistant Comptroller John Graham. On behalf of Comptroller William C. Thompson, Jr., I would like to thank Contracts Committee Chair Robert Jackson and the Committee members for this opportunity to testify on the important subject of retroactive contracts.

In fiscal year 2002 City agencies entered into 4,630 new contracts, totaling $8.3 billion. Of that number, 1,950 contracts, amounting to $2.1 billion, were for the provision of human or client services, such as day care, senior centers, counseling and the like. Sixty-four percent, or 1,253 of the 1,950 human service contracts, were submitted to the Comptroller's Office after the contractor had already begun providing the City with the services required by the contract. The contracts were on average late by 152 days.

Yesterday, the Comptroller/City Council Advisory Committee on Procurement Reform released its report on this subject. The first topic that was addressed in the report was contracts where work has begun before the contract was even submitted to the Comptroller's Office for registration. These contracts, commonly referred to as retroactive contracts, have been a problem that has plagued the City's not-for-profit human service providers for years. The Comptroller's Office has estimated that the annual cost to this sector of City vendors may be as high as $3 million.

This estimate assumes that the providers secured loans to cover the missed contract payments.

There are other negative impacts resulting from these late contracts that are not easily quantified. Often, the Comptroller's Office is told of payrolls that are in jeopardy, pending layoffs and contract performance problems, to name a few examples.

Another result of retroactive contracts that cannot be quantified is the amount of time that is taken to expedite contracts through the system when the provider is at a crisis stage due to a lack of contract payments. I know that the members of the Contracts Committee have been contacted numerous times by vendor representatives seeking assistance to have a particular stalled contract moved to completion and registration. The Comptroller's Office receives calls such as these daily, from elected officials, City agencies and vendors alike, informing us that a contract will finally reach our office for registration and requesting that it be advanced to the head of the queue for review. The amount of time spent on these requests is enormous and could otherwise be put to better use.

The Comptroller/ City Council Advisory Committee made a number of recommendations to solve the problem of retroactive contracts. In the near term, it was recommended that a study be undertaken to identify where the bottlenecks occur. Until the problem or problems causing contract delays are identified they cannot be cured. Second, the Advisory Committee recommended that the agencies with a large percentage of retroactive contracts be aggressively monitored and their procurement staff re-trained. To that end, the Comptroller will shortly post on his web site agency performance statistics with respect to retroactive contracts. Third, all contract solicitation documents should contain estimated key milestone dates that will allow bidders and proposers to determine whether a procurement is on track so that they will be able to plan how best to use their limited resources.

The Advisory Committee also made a recommendation that will take longer to implement as it will require Procurement Policy Board Rules amendments, or legislative action on the part of the City Council. The recommendation is that contractors be paid interest on those payments that were missed up until the contract was registered. This proposal, however, has the potential to place an additional financial burden on the City. Based upon fy 2002 statistics, it could potentially cost the City $3 million and in these difficult economic times it is particularly difficult to recommend expending additional funds for no additional services. Nevertheless, service providers are entitled to interest on payments they have missed prior to registration. There is no reason that they should be required to bear the burden of financial hardship because of administrative delays within the control of the City. Interest, of course, would not be paid where the vendor is responsible for the delay or where funding had not yet been appropriated to pay for the cost of the contract. The real benefit to this recommendation, however, is that it will serve to re-shape behavior. If agencies know that interest will have to be paid if the contracting processes are delayed past the start-up date of the contract, they will act to resolve the bottlenecks and reduce or eliminate the problem of retroactive contracts.

The Comptroller/City Council Advisory Committee made a number of other recommendations to streamline and automate the procurement process. The recommendations contained in the report, if implemented, will be important steps in solving the continuing problem of retroactive contracts as well as reforming the way in which the City conducts its procurements.

I thank you for this opportunity to testify, and on behalf of Comptroller Thompson look forward to our continuing to work together to streamline the procurement process.