San Diego’s Use of Costly Consultants Stirs Council Controversy

The deal was unprecedented. After a painstaking search, the city of San Diego early this year began negotiating what would ultimately be a 39-month contract worth $9.4 million--the largest consulting contract in city history.

Seeking to drive the hardest bargain he could with James M. Montgomery engineers, the firm chosen to plan the city’s proposed $1.5-billion sewage treatment project, City Manager John Lockwood turned to an expert.

He hired another consultant.

For $20,000, Management Analysis Co. acted as the city’s “hired gun,” haggling with Montgomery representatives until both sides were satisfied.

Although hiring a negotiator is rare for the city, Lockwood’s decision highlights the ubiquity of consulting firms in city business, a state of affairs that is making some cost-conscious City Council members increasingly uncomfortable.

‘Drives Me Insane’

“I think we go to consultants too much,” said Councilwoman Judy McCarty. “It just drives me insane.”

“When I see these consulting contracts, I’m flabbergasted that those men and women can command the hourly rates that they do,” said Councilman Bruce Henderson. “It doesn’t seem to have any basis in reality, but I’m told these are put out to bid.”

Lockwood and other city officials defend consulting contracts as money well-spent in at least two kinds of situations: when city staff members lack the expertise to do the job (often the rationale cited for hiring private attorneys), and when the duration of an assignment makes hiring a full-time staffer inefficient.

Consultants smooth out the peaks and valleys in a city department’s work load, Lockwood explained, and to buy their help, the city must be willing to pay a reasonable price. In fact, many of the best professional consultants, such as architects and engineers, will not apply for city work if the choice is made solely on the basis of price, he said.

“If you want to go to competitive bid for professional design services, you get the cheapest (architects) and the larger firms will absolutely refuse to bid,” he said. “If you want a brain operation, you can run an ad in the paper saying ‘I need a brain operation.’ And good luck.”

Raised a Furor

Henderson, who has raised a furor at City Hall by challenging a $1.5-million segment of the Montgomery contract, disagrees. He wants the city to set limits on what it will pay consultants and allow staffers to negotiate only with firms willing to bid under those ceilings.

“We’re allowing people to charge us too much,” he said. “The council is falling down on the job because they haven’t made it clear to (the) staff that there are certain standards that they are going to set.”

In fiscal year 1988, the city hired 139 consultants, paying them a total of $14.6 million. In fiscal 1987, 129 consultants earned a total of at least $15.6 million. (The exact 1987 figure is not available, because the city’s Equal Opportunity Office did not track all the smaller contracts that year.)

The vast majority of the contracts are for architectural, construction and engineering work. A few examples:

* $176,000 for design and restoration of three sewer pump stations.

* $400,000 to clean up underground petroleum leaks on Kettner Boulevard.

* $23,871 to design lighting at two city parks.

But the list of consulting contracts contains a hodgepodge of firms contracted to do a wide variety of jobs.

In an attempt to protect the $6 million it has sunk into the bankrupt U.S. Grant Hotel, the city has hired lawyers John Hetland and Charles Hansen, national experts in secured transactions, at $300 an hour. The contract will cost the city as much as $250,000, just part of about $600,000 spent on outside attorneys in fiscal 1988, said Assistant City Atty. Curtis Fitzpatrick. Other outside attorneys represented the city in negotiations with the U.S. Environmental Protection Agency, pursued the America’s Cup litigation, and advised the council on its growth-management plan.

3,000 Legal Cases

“I just think we have to concede that we don’t have that kind of expertise in-house,” where city lawyers are working on 3,000 separate cases, Fitzpatrick said.

Councilwoman Abbe Wolfsheimer, a longtime critic of City Atty. John Witt, has frequently objected to the use of outside attorneys, except in highly specialized cases.

“We have given the city attorney’s office a big budget,” Wolfsheimer said. “I would be hard-pressed now to permit them to say ‘We don’t have the man- or womanpower to do the job efficiently.’ ”

The city’s Risk Management Department paid Kelly Communications $35,000 to develop a “wellness newsletter” that is distributed to every city employee. “It isn’t worth a damn dime, as far as I’m concerned,” Henderson fumed. “And I don’t know if anybody reads it.”

A recent readership survey, however, shows that city employees like the newsletter.

The city library paid the firm of Nuffer, Smith, Tucker $24,900 to develop a logo, brochures and other public relations material for READ/San Diego, an adult literacy campaign. According to the organization’s coordinator, Chris McFadden, the money comes from a state grant that requires that outside consultants be hired to help plan the campaign.

The city paid $73,220 to buy the furniture, computers and other accessories that employees of engineering consultant Montgomery are using in the B Street offices leased for them by the city. The payment was part of the city budget and separate from the overall consulting contract.

Overhead Charges

The consultant and city officials say that the purchases saved the city money by reducing Montgomery’s overhead charges.

It was the city, not Montgomery, that insisted that the consultant share office space with Water Utilities Department personnel in the First Interstate Bank of California building instead of working out of its La Jolla office, said John Somerville, Montgomery’s project manager. When the consultant finishes its work 34 months from now, the equipment will belong to the city, said Milon Mills Jr., director of the Water Utilities Department.

But Mayor Maureen O’Connor, who has publicly criticized the overhead rates being charged by Montgomery and two of its subcontractors, opposed that decision. “Why don’t you put John Montgomery in a leased office, with leased furniture, and then at the end of four years . . . you’re done with them?” she asked.

The contract that started the current City Hall jitters about consultants dwarfs such expenditures. On Sept. 12, the council is scheduled to reconsider its July 25 decision to give nearly $1.5 million to Montgomery and two subcontractors for a three-year public participation program on its sewer-treatment upgrading efforts. The money is part of the larger $9.4-million contract with Montgomery.

Opposition to the program is led by Henderson, who has called the series of public hearings, presentations and meetings with governmental agencies a “feeding frenzy” by consultant “sharks” on public money.

Background Document

Among other costs, Henderson noted in an audio-visual presentation to his colleagues Aug. 2, 18 scheduled public meetings would cost the city $365,100, or $20,283.33 a session.

A background document shows that $17,458 of each meeting’s price is for personnel. For example, Montgomery Project Manager John Somerville will put in an average of 6.5 hours before each meeting, four hours during it and two hours afterward--at a cost of $138 an hour.

Montgomery will also have its public services deputy, administrative deputy engineering deputy, professional staffers, technical staffers and a secretary working on each meeting, at varying hourly rates. Consultant Katz & Associates will send a one employee and a secretary, and TCS Governmental will send an employee. Much of the work will be behind the scenes as the technical staff and public affairs representatives prepare to answer the public’s questions.

The three consultants estimate that total person-hours per meeting will be 204.5, at a cost of about $85 an hour. Other materials will cost $2,822 for each meeting.

Such costs include overhead, the payments each firm must recoup from its clients to pay its fringe benefits, utility bills, office staff and other costs of doing business. O’Connor and Henderson have questioned those costs, with Henderson calling the total price tag “obscene” and “outrageous.” Media editorials and constituent calls, coupled with the EPA’s July 27 lawsuit against the city over its failure to upgrade its sewage treatment plant, prompted the council to vote Aug. 2 to reconsider the entire package.

Lockwood and the consultants defend the charges.

“Anything that firm spends money on has got to be recaptured from their clients,” Lockwood said. “That’s the only source of income they have.” The city itself builds overhead charges into fees it charges for such services as building inspections, he noted.

Three-Year Contract

Scott Harvey, of TCS Governmental, said his firm’s about $92-an-hour charge for its share of the three-year contract is a substantial discount from its usual $150 hourly fee, and contains very little, if any, profit.

Moreover, because 75% of the $9.4-million contract is being paid by the federal government, Environmental Protection Agency regulations govern the charges, as well as Montgomery’s profits, said William Pye, the firm’s public services specialist. The city and state are each paying 12.5% of the cost.