Lfi project report final

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Procurement practices

Locally funded repairs and improvements July 26, 2016 The BAC has embarked on a project to examine spending on so-called Locally Funded Initiative repairs and improvements to help ensure that tax proceeds of Issue 14 (2001) and Issue 4 (2014) are being spent efficiently. Page 2.

The District's difficulty in compiling information requested for 2013-15 highlights a need for a more systematic and responsive way of tracking repairs and improvements. Page 2.

In 2013-14, the District-supplied data show that "summer work" Purchase Orders over $2,500 without multiple price quotes were about half the value of all non-consultant Purchase Orders issued. Pages 3-4.

State law and Board of Education policy generally require competitive bidding or multiple price quotes before contracts are awarded, but in the Cleveland District's repair/improvement program, exceptions are the rule, thanks in large part to the Board of Education's annual "urgent necessity" Resolutions. Pages 4-7.

Instances in which the District has obtained multiple price quotes for repair/improvement projects show that competition saves money and indicate the potential for substantial savings if more projects were offered for quotes. Page 8.

There clearly isn't time for bidding or for soliciting multiple price quotes in emergencies, but the "urgent necessity" Resolutions also cover repairs and improvements that have been planned for months or even years, leaving plenty of time for bids or quotes. Pages 9-10.

When the Board of Education approved this year's "summer work" Resolution on May 24, a Board member asked for the first time that the Administration report back to the Board about what work was eventually done under the Resolution, and the Administration agreed to do so. That's a good start, to which the BAC adds some recommendations: Pages 11-12.

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As part of the Bond Accountability Commission's effort to monitor expenditure of local tax revenue by the Cleveland Metropolitan School District, the BAC has embarked on a project to examine spending on so-called Locally Funded Initiative repairs and improvements that are not part of new-construction projects.

The individual expenditures for repairs and improvements are small in comparison to the millions of dollars that the District spends on construction of each new school, yet they have added up to a sizable amount over the years since voters approved Issue 14 for construction and repairs -- a rough estimate of at least $51 million (as of Dec. 31, 2015) in repairs and improvements (Fund 003) and actual reported spending of $42.7 million (as of April 30, 2016) for repairs and maintenance (Fund 034).

For perspective, the $51 million in Fund 003 repairs and improvements would represent about 15 percent of the $335 million in bond proceeds stemming from Issue 14.

The BAC's immediate goals are to gain an understanding of the work being done and to review accountability and procurement practices. The ultimate goal is to help ensure that tax proceeds of Issue 14 (2001) and Issue 4 (2014) are being spent efficiently. Essentially, after spending tens of millions of dollars on repairs and improvements, can the District tell us what work was done, where it was done, and whether the District followed state and local procurement requirements intended to prevent waste or misuse of the public's tax dollars?

In pursuit of these goals, the BAC asked the District to compile a spreadsheet report detailing work done in 2013 through 2015, according to purchase order number and date, date completed, location, scope of work, contractor, bid/price-quote amount, amount paid, procurement method, and charged fund.

Decentralized purchasing The BAC has learned that the District's purchasing environment is decentralized.

That is, various offices and departments generally have authority to solicit bids or price quotes for purchases less than $50,000 ($25,000 for permanent improvements) and to select contractors to do the work. And each keeps its own records of such work, apparently in varying ways.

Thus there was no central repository of the information that the BAC requested, nor any single way to review the records kept by each office. In many cases, personnel had to comb through old e-mail files to identify projects. Even now, after three tries at compiling the requested information, the District is not sure that the list is complete, especially for technology projects.

Given the difficulty, he BAC appreciates the work done by the District to fulfill the request for information. At the same time, this difficulty highlights a need for a more systematic and responsive way of tracking repairs and improvements.

The District is still compiling some of the requested information for 2015. This BAC report is based largely on the information supplied for 2013 and 2014. A follow-up report will deal more completely with 2015.

The BAC's interest is not a matter of simple curiosity.

In May 1991, The Plain Dealer attempted to follow up on repairs financed by $52 million from a bond issue approved by voters in 1987. In articles illustrated by a photo of

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a leaking greenhouse on the roof of Martin Luther King Jr. High School, the newspaper found that the repairs had moved slowly and generally fallen short of promises by the CMSD Administration and that the program was plagued by poor planning and management.

Facing an environment of public dissatisfaction with lack of results and accountability in that repair program, the Board of Education promised in 2001, before the public vote on the $335 million Issue 14, that a Bond Accountability Commission would be created.

And the BAC's interest in this topic is not new:  From the BAC's Jan. 23, 2013, report "Cost-assessment analysis and recommendations": "CMSD should settle for no fewer than three bids for each contract and should develop a policy requiring documentation of the steps taken to ensure a sufficient number of bidders."  From the BAC's "Annual Report", Jan 24, 2015: The BAC seeks a CMSD "commitment to supervise the repair ('refresh/update') program through a professional construction manager, to award program contracts based on OSFC competitive-bidding protocols" and to "establishment and disclosure of a systematic process for determining repair ("refresh/update") priorities, scope of projects, and allocation of funding."  The BAC's Jan. 19, 2016 "Annual Report" says: "A comprehensive, itemized budget for refresh projects remains a BAC goal, as does disclosure of a systematic process for determining refresh-program priorities and scope."

Comparison: All non-consultant "summer work" vs. such work over $2,500 without multiple quotes or bids $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000

20 15

20 14

$0 20 13

Bids and price quotes Some large LFI repair/improvement projects in the period 2009-13 were competitively bid according to OSFC requirements and managed by the District's construction manager for Ohio School Facilities Commission-funded projects, a joint venture known as OHGR. For these projects, which totaled $16.8 million, the BAC was routinely provided with Construction Manager documents detailing scope of work, contractors, and contract costs including change orders.

Total reported non-consultant 'summer work' $ 'Summer' non-consultant jobs over $2,500 without multiple quotes

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Since the program began in 2001, the rest of the LFI spending for repairs and improvements from Fund 003, about $34 million, and the $42.7 million in repairs and improvements from Fund 034 have been managed by various CMSD units -- the Capital Projects office, the Technology office, the Safety and Security division, and, chiefly, the Trades division. These units employed various procurement methods, nearly all of which did not involve formal, publicly advertised competitive bidding such as the OSFC would require.

In 2013-14, the District-supplied data show that "summer work" Purchase Orders over $2,500 without multiple price quotes were about half the value of all non-consultant Purchase Orders issued.

State law, District policy In examining whether proper procurement methods have been followed, it is useful to examine the requirements of Ohio law and CMSD policy. Such laws and policies generally are aimed at ensuring that taxpayers' money is well spent and not subject to waste, favoritism, or contract steering for nefarious purposes.

Section 3313.46 (A) of the Ohio Revised Code states in part that when a board of education "determines to build, repair, enlarge, improve, or demolish any school building, the cost of which will exceed twenty-five thousand dollars [$25,000], except in cases of urgent necessity, or for the security and protection of school property," or for purchases of goods or services through the State of Ohio's Cooperative Purchasing Program, the board must have plans, specifications, and related information prepared that are sufficient to inform any bidders of the board's requirements, the board must advertise for bids once each week for at least two consecutive weeks before the bid deadline (at least once in a general-circulation newspaper, twice if the district does not post the notice on its website), open the bids on the advertised date unless the board extends the deadline, and accept only the lowest responsible bid.

Division (B) of this ORC section states that these rules do not apply to "(1) The acquisition of educational materials used in teaching; (2) If the board determines and declares by resolution adopted by two-thirds of all its members that any item is available and can be acquired only from a single source; (3) If the board declares by resolution adopted by two-thirds of all its members that" the requirements do "not apply to any installation, modification, or remodeling involved in any energy conservation measure undertaken through an installment payment contract ...; (4) The acquisition of computer software for instructional purposes and computer hardware for instructional purposes."

The Ohio General Assembly in 1997 approved additional legislation that applies only to the Cleveland District, including Section 3311.75 (B), which states: "The board ... shall adopt and follow procedures for the award of all contracts for supplies or services involving the expenditure of fifty thousand dollars [$50,000] or more in any one fiscal year after a competitive bid or request for proposal process. This division is supplemental to Section 3313.46 of the Revised Code. This division does not apply to contracts of employment or to contracts for professional services; to contracts for the security and protection of school property; in cases of urgent necessity as determined by two-thirds 4

vote of the board; or in any of the situations described in division (B) of Section 3313.46 of the Revised Code to which the bid process of division (A) of that section does not apply."

Both of the above provisions pertain to the type of work that is the focus of this report.

CMSD Board Policy DJC, adopted in May 2002, states: "Contracts for purchases which equal $50,000 or more or consultant contracts equaling $10,000 or more are let only after formal competitive bids are solicited and received in compliance with Federal and State law. However, under certain circumstances, as set forth by law, competitive bidding is not required.

"Purchases over $2,500 but under $50,000 should be based on written price quotations submitted by at least three vendors. These quotations are treated confidentially until the deadline for filing is past; thereafter, they are public information. Purchases under $2,500 may be based on telephone quotations.

"The Purchasing Division of the Department assembles the proper specifications and makes the necessary arrangements for public bidding and price quotations. The Chief Financial Officer or his/her designee receives the bids and price quotations and records them. The CEO makes his/her recommendations to the Board. Upon approval by the Board, he/she processes purchase orders to those bidders awarded contracts and notifies the other bidders of the results of the bidding."

Exceptions are the rule The executive director of procurement in the CMSD Purchasing Department, summarizes the relevant rules as follows: "Formal competitive bidding is required for all contracts for supplies or services for $50,000 or more; permanent improvements (build, repair, enlarge, improve or demolish) that exceed $25,000; and per Board Policy DJC consulting contracts equaling $10,000 or more. Any expenditure between $2,500-$50,000 requires three written price quotes, and any expenditure below $2,500 may be based on three telephone quotes."

However, according to the procurement director, these requirements are subject to the exemptions noted in italics in the laws and policies above, such as urgent necessity, sole source, safety and security, instructional computer hardware and software, etc. She told the BAC that the exceptions permit the District to solicit or accept price quotes from only one vendor.

And every spring starting in 2012, the CMSD Board of Education has passed a Resolution declaring or authorizing the Chief Executive Officer to declare one of those exceptions -- an "urgent necessity" -- for millions of dollars worth of repairs and improvements -- $69.07 million to date (not all of this money was spent).

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BOE-authorized 'summer work' vs. reported work

$35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 2013

Authorized by Board of Education

2014

2015

Reported by CMSD (* 2015 incomplete)

Lowest price?

The language of these Resolutions can be confusing.

The May 2016 "urgent necessity" Resolution said: "RESOLVED, that the Chief Executive Officer or designee is authorized to seek the lowest term agreement quote or lowest responsible bidder quote or Construction Manager at Risk quote, for repair or renovation work for these schools and execute contracts. ..."

The two "urgent necessity" Resolutions in 2015 concluded: "RESOLVED, that the Chief Executive Officer or designee is authorized to seek the lowest responsible bidders or competitive quotes for repair work for these schools and execute contracts. ..."

The 2012, 2013, and 2014 "urgent necessity" Resolutions authorized the CEO to "seek the lowest term agreement quote or lowest responsible bidders for repair work. ..."

So, on one hand, the Board Resolutions authorize the CEO to seek the lowest responsible bids or price quotes or term agreement quote. But on the other hand, the Board Resolutions declare (2012, 2013, 2014) or authorize the CEO to declare (2015 and 2016) an urgent necessity exempting the District from complying with competitive bidding requirements for work costing more than $25,000 and also, according to the procurement director, from complying with the Board's policy requiring three written price quotes on work costing from $2,500 to $50,000.

A reader not acquainted with the ramification of "urgent necessity" might conclude that competitive bidding or solicitation of competitive quotes would precede the award of each repair and improvement contract.

However, as noted above, the BAC's analysis of information supplied by the District found that about half of the repair/improvement Purchase Orders exceeding $2,500 were awarded in 2013-14 on the basis of a single price quote. About 69 percent of these, more than $4 million, were not subject to claimed exemptions, such as for safety

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and security or instructional hardware or software, other than "urgent necessity." The situation is similar ($1.3 million) for the data reported so far for 2015.

In some cases, the District listed the names of two or three vendors for a particular Purchase Order, but a price quote from only one and notation that the others did not respond or declined to quote. For this analysis, the BAC treated those as single price quotes.

Term Agreements In nearly all cases in which only one price quote was obtained, the work was awarded to what the District calls a "Term Agreement" vendor.

The Purchasing Department, she explained, "issues an RFP [Request for Proposals] for several disciplines/services associated with repairs and improvements, and vendors selected under the RFP are awarded Term Agreements. Once the Term Agreements are executed, the District (Trades, Facilities, Transportation Depts. etc) may purchase from these contracts on as-needed basis for the length of the term."

From what the BAC has been able to determine, however, Term Agreement vendors are not necessarily those who have submitted the lowest price quotes.

Excerpts from the August 2015 Board of Education Resolution authorizing term agreements for the period Oct. 1, 2015, to Sept. 30, 2016: "WHEREAS, the Cleveland Municipal School District has a need to ensure that the District’s asphalt, boiler systems, carpentry, concrete, electrical systems, elevators, environmental issues, fencing, fire alarms, generators, glazing, HVAC systems, masonry, overhead doors, painting, playgrounds, plumbing and sewer systems, pumps, roofs, sheet metal, sound systems, sprinkler systems, grounds and properties, and vehicles are properly repaired and operational. ...

"WHEREAS, through a publicly advertised, competitive Request for Proposal process, contractors and vendors have submitted hourly rates, percentage of mark-up for materials and supplies and other related charges associated with repair services and or providing materials/supplies for in-house staff; ...

"WHEREAS, qualified and competitively priced contractors and vendors have been identified to perform repairs and/or provide material/supplies, now, therefore be it "RESOLVED, that the Board of Education of the Cleveland Municipal School District hereby authorizes the Chief Executive Officer to execute new term agreements with contractors and vendors ... and to renew the existing term agreements with contractors and vendors. ..."

Note that the Resolution implies ("competitive Request for Proposal process") but does not specify that the lowest responsible bidders must be or will be selected, a requirement that is implied ("written price quotations submitted by at least three vendors") but not specifically stated in Board Policy DJC and is specifically stated ("lowest responsible bidders or competitive quotes ") in the Board's springtime work authorizations but apparently subject to the "urgent necessity" exception.

The District's Requests for Proposals to potential Term Agreement contractors require that the companies commit to specific hourly wage rates and specific materials mark-up percentages, but they do not necessarily specify that the agreements will be granted only to those proposing the lowest costs. Indeed, the outside legal counsel for the District's Capital Projects office told the BAC that more than one contractor may be

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awarded a term agreement in a particular discipline, such as plumbing, or carpentry, or electrical work, etc. Lists of term vendors supplied by the Purchasing Department confirm this.

This raises the questions of whether the Term Agreement process is in fact competitive. In turn, this calls into question the basis for awarding a particular job to a particular term-agreement contractor when more than one contractor has a term agreement for that discipline.

Also, the Board's term-agreement authorization describes the selection process as "competitive" but does not specify that written quotes were submitted from at least three prospective term vendors, as appears to be required under Board Policy DJC. Finally, the evaluations of the contractors' Term Agreement proposals are not necessarily done by a single entity, such as the Purchasing Department, but may be evaluated by the individual divisions, such as Trades or Safety & Security, that manage repair projects.

Competition saves money It is easy to understand why the District Administration would favor exemption from competitive bid and quote requirements and the streamlined approach afforded by the term-agreement process. If a boiler fails in the winter or a major plumbing rupture or roof failure occurs, waiting at least two weeks and probably more for a formal competitive bidding process to unfold would be unacceptable. The problem needs to be fixed immediately. It is truly an urgent necessity.

But from the taxpayer's perspective, it is also easy to understand why competitive bidding or at least a competitive price quote process is beneficial. Information provided by the District for specific projects shows that bids or quotes can vary widely for the same work. Selection of the lowest bid can save thousands of dollars per project.

Multiply that by hundreds of projects per year and the savings would be substantial in a District with great repair needs and limited resources.

For example. according to information on the District-supplied spreadsheet:  The District's Trades Division solicited three quotes for repairs of leaking skylights at the East Professional Center in 2013. Javorek Architectural Metals Inc. got the job for $22,790. The next-lowest quote: $43,672.  In 2014 the District reports receiving two quotes for cleaning and waxing floors at Brooklawn. The job was done by Pegasus LLC for $9,220. The other quote was for $23,550.  In 2015, Drake Construction's quote of $114,940 won the job of boarding up Harry E. Davis school. The other solicited quote: $359,000.  Also in 2015, the District saved $87,243 on removing the gym floor and replacing the bleachers at East Tech by getting multiple quotes.

The savings on most jobs in which multiple quotes were received are smaller, a few hundred dollars to a couple thousand dollars, but the conclusion is clear: The extra effort to obtain multiple quotes or competitive bids can save significant amounts of money.

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Non-consultant "summer work" Purchase Orders over $2,500 without multiple quotes or bids $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0

No claimed exemption Claimed Technology exemption Safety & Security exemption

2013

2014

2015

Yet, according to the information supplied by the District, for very many jobs costing more than $2,500 with no claimed bid/quote exemptions, the work was awarded to a Term Agreement contractor with no mention of additional price quotes having been received. Such awards amount to a total of $5.4 million reported so far for 2013-15.

One example, according to information from the District, is the $36,978 replacement of an elevator control system at Jane Addams High by Kone Elevator, a job that was initiated in February 2014 and completed in August 2014. Was this an urgent necessity, or could the District have spared a few weeks for a formal competitive bidding process, or a few days to get multiple price quotes? Likewise for a $131,490 payment to Ullman Electric for "generator and repairs" at the East Professional Center, a project initiated Nov. 7, 2014, and completed June 4, 2015.

In summary, while state law, CMSD policy, and the annual repair/refresh Resolutions are replete with references to competitive bidding and competitive price quotes, the exceptions are the rule when it comes to CMSD's locally funded permanent improvements projects. Most of the work is designated as falling under the "urgent necessity" exemption, the safety & security exemption, or what the District has regarded as a Technology exemption, and the award of numerous projects to term-agreement vendors may circumvent the Board policy calling for at least three written quotes.

"Urgent necessity" Many of the purchase orders awarded to Term Agreement vendors without mention of competitive quotes appear to be for work done during the summer or early fall at schools, clearly falling under the scope of the annual "summer work" Board

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Resolutions granting "urgent necessity" status to the jobs. However, the concept of what actually constitutes an urgent necessity deserves examination.

When is the necessity urgent?

As mentioned, the Board of Education's "urgent necessity" Resolutions from 2012 through the present have authorized a total of $69.07 million in spending on repairs and improvements that may through "urgent necessity" be exempt from state bidding requirements for contracts over $25,000 and, according to the CMSD procurement director, from Board Policy DJC requirements for "written price quotations submitted by at least three vendors" for work costing more than $2,500.

It should be noted that while the language of the springtime Resolutions in 201214 states that the urgency stems from the need to get work done before the start of the next school year in August, the District Administration has regarded the Resolutions as providing an exemption from bidding requirements for the entire school year, up to the spending limit specified in each Resolution.

The two 2015 springtime Resolutions do not mention getting the schools ready for August openings but instead authorize the CEO to declare urgent necessity in order "to ensure the required work is completed when required," and the 2016 Resolution specifies that it is needed "to continually provide a safe, secure, and suitable environment for educational activities and for the successful opening of school facilities for the 2016 and 2017 academic years."

Last-minute rush But whatever the time period covered by these springtime Resolutions, it appears that with proper planning many of the big-ticket projects could have been competitively bid or awarded after a three-quote process.

According to information from the District on Purchase Orders costing more than $25,000 with no multiple price quotes, there were:  17 in 2013, amounting to $1.2 million.  27 in 2014, amounting to $2.4 million.  10 reported so far for 2015, amounting to $739,000.

The need for many repair or improvement projects is reported by school custodians or principals, but do they all wait until the end of the school year to report the problems? If so, then a more contemporary and systematic approach to reporting repair needs would seem to be in order. If not, then waiting until the end of the school year to ask the Board of Education for approval of the work seems scant justification for invoking "urgent necessity."

True, the summer months are the prime time for getting work done without students in the building. But if the need for work is identified months or, in the case of major repair/improvement projects identified when the Master Plan was approved, years in advance, then there would seem to be ample opportunity for competitive bidding or solicitation of multiple quotes.

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Technology The information provided by the District shows that an exemption from bid/quote requirements was claimed for almost every Purchase Order managed by the Technology Division. For Purchase Orders exceeding $2,500, these claimed exemptions totaled about $700,000 for 2013, 2014 and part of 2015. The vast majority of this work was awarded to Zenith Systems, which, according to the Procurement Department, was not a Term Agreement vendor during the reporting period.

The exemption from bidding requirements specified in the Ohio Revised Code and hence by Board Policy DJC is for "acquisition of computer software for instructional purposes and computer hardware for instructional purposes."

However, much of the repair work concerned video equipment, including projectors and DVD players; audio systems, including speakers, microphones and phones; and cabling, It is questionable whether such work falls under the computer hardware and software exemption specified in state law.

The probable scope of work attached to the May 2016 Board of Education Resolution granting 'urgent necessity" authority includes $5.3 million for Technology Department expenditures: $600,000 for phone handsets; $2.9 million for network switches; and $1.8 million for wireless access points. The District's chief technology officer told the BAC that all of these will be bid. "There should not be an emergency requirement to not bid the switches, access points or phones," he said.

Recommendations When the BAC initiated this Locally Funded Initiative project a year ago with a request to the District for information on "summer work" spending for 2013-15 , it did so with the expressly stated desire that CMSD would continue to compile this information for the following years. The reason is simply that it is a lot of tax money to be spent without anyone looking to see what is done with it.

This seemed all the more important in view of the fact that the Board of Education's annual springtime authorizing Resolutions amounted to blanket authorizations to spend the specified millions of dollars without competitive bidding or price quotes and without a firm commitment from the Administration about what work would be done with the money. (Each Resolution was accompanied by an attached "Probable Scope of Work," but the Resolution itself did not actually commit or limit the Administration to doing that work.)

When the Board approved this year's "summer work" Resolution on May 24, a Board member asked for the first time that the Administration report back to the Board about what work was eventually done under the Resolution, and the Administration agreed to do so. That's a good start, to which the BAC adds the following recommendations: 

Development of a coordinated multi-department system for prompt reporting of repair and improvement needs and prioritizing them within an established budget approved by the Board of Education.

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

Award of Purchase Orders to Term Agreement vendors based on lowest cost.



Use of the "urgent necessity" exemption from state bidding requirements and Board policy only in emergencies and unforeseen cases requiring immediate attention.



Determine with the help of the State Auditor's Office or other impartial authorities the limits of the state bidding exemption for instructional computer hardware and software.



Use of the reporting and prioritization system to identify projects which can and should be offered for bids according to state law -- in the case of work or purchases expected to cost at least $25,000 -- or at least three written quotes -- in the case of work or purchases expected to cost $2,500 to $25,000 -- well in advance of the anticipated start date of the work.



Use of the multi-department system to track work done and purchases, including costs, and develop periodic reports to the Board of Education, detailing major projects.

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