Tuttle Forces DWP to Undergo Sweeping Audit of Outside Contracts

Suspecting widespread and blatant abuses in contracting at the Department of Water and Power, City Controller Rick Tuttle has forced the giant public utility to launch a sweeping audit of the nearly $500 million in outside contracts it grants annually, according to terms of a legal settlement made public Wednesday.

The agreement, which also settles two lawsuits filed by contractors against the DWP, requires the public utility to have an independent auditor thoroughly examine its contracts to determine if department and city rules regulating amount, duration and bidding requirements are being followed.

Tuttle said he has found evidence that procedures designed to provide checks and balances are routinely ignored or avoided. “There is a serious question of whether DWP complies with its own and the city’s rules and procedures,” Tuttle said.

In one case, which was at the center of a legal dispute put to rest Wednesday, unidentified department officials split up a contract for more than $1 million into 14 smaller parts in an apparent effort to avoid taking the contract to the DWP Board of Commissioners. Twelve of the 14 contracts to Shad Automated Systems Corp. were for $99,500. City rules require all contracts in excess of $100,000 to be approved by the board.

Constance Rice, president of the DWP Board of Commissioners, said she does not believe such practices are widespread, but agreed to conduct the audit to be sure. “I have no information, nothing to indicate that (employees) regularly circumvent the regulations,” Rice said. “But to make sure our supposition is right, we need to have an audit.”

And, she said, the audit will help send a message to employees “that this is not OK.”

Tuttle--who has tangled with the DWP before, refusing on several occasions to reimburse high expenses for travel and entertainment by department officials--was able to force the department to pay for an audit of its own operations through a creative legal maneuver.

When a series of questionable contracts were being reviewed by DWP auditors in 1990, the department stopped making payments to two computer services firms, Reddi-Data and Shad. Although the department did not apparently object to its own rules being ignored by a department head, it raised questions about the amount billed by the contractors and stopped making payments.

The firms were hired by the DWP’s now-defunct Office of Information Technology to help increase the use of personal computers. According to Assistant City Atty. Phil Shiner, there was no question about the quality of the work performed by the companies, but there was some confusion over how much was owed on the contracts, which all expired in 1991.

The two firms sued the DWP, saying that the payments had been improperly withheld. After several years of litigation, the DWP decided to settle the lawsuits and presented the controller’s office with a request to pay the two firms for some of the money they said was owed to them.

Tuttle was drawn into the dispute because his office pays out money for city departments. But Tuttle, after reviewing what had transpired in the case, refused to write the checks.

Tuttle said he would not release the money to Shad and Reddi-Data until the DWP agreed to examine the root cause of the problems that led to the lawsuits.

“There certainly were concerns raised in our minds as a result of the looking at the settlements,” Tuttle said. “I felt a need to review their internal controls . . . and provide a higher level of review.”

Under the settlement agreement approved by the DWP board and Tuttle, Shad will receive $500,000 and a new contract for $378,300. Four individual plaintiffs, who had been subcontractors of Shad, will receive $50,000 each. Reddi-Data will receive $105,000 and five of its subcontractors will split $65,000.

Neither the city attorney nor DWP officials would comment on what discipline, if any, was imposed on the employees responsible for the disputed contracts.

Tuttle said he insisted on the DWP’s funding an audit because of the size of the organization.

Despite the disclosures, the DWP board initially resisted the demand for an outside audit, said Tim Lynch, deputy controller. Rice said the department intended to perform an audit, but had wanted it structured differently than Tuttle had proposed. The DWP wanted some of its employees on the steering committee, which was unacceptable to Tuttle.

Under terms of the agreement, the audit will be overseen by a team co-chaired by the city administrative officer and the controller. Other members of the team include one representative each from the DWP Board of Commissioners and the chief legislative analyst’s office, and an outside consultant to be selected later.

Lynch and Rice agreed that the the audit is to be sweeping in scope. “We only want to do this once,” Lynch said.