City Fails to Deliver on Purchasing Reforms

Four years after passage of a referendum that promised to reform the cumbersome Los Angeles purchasing system and save city taxpayers $35 million a year, savings have fallen far short.

The city spends $800 million annually buying goods and services, and will cut costs by only $1.8 million this year as a result of the ballot measure. The purchasing reforms are part of a larger program to overhaul the way the city does business.

A review shows the much-touted city effort is far from meeting goals in any of its cost-cutting initiatives:

* A plan to consolidate the 103 warehouses operated by 19 city departments into 66 facilities has fallen far short, with only six warehouses closed.

* Another key reform--creation of a new computerized accounts payable system--won’t be operational until September 2000.

* The Department of Water and Power, a key city agency, was allowed to opt out of the purchasing and warehousing programs. Others excluded from the warehousing are the airport and harbor departments.

* The charter amendment gave the City Council power to adopt, by ordinance, a series of cost-cutting measures. To date, the council has not acted.

“That’s mystifying to me,” said Deputy Controller Tim Lynch. Lynch doubts the city will ever save $35 million a year on purchasing, noting that projections attributed half the savings to the DWP.

City officials blame the delays in part on the need to negotiate almost every cost-saving element with powerful city employee unions, inter-department rivalry and an entrenched bureaucracy’s resistance to change.

“There is a lot of resistance,” said Councilman Joel Wachs, chairman of the council’s Government Efficiency Committee. ‘Nobody wants to give up power. Everybody wants to protect their turf and territory. Change isn’t easy.”

Still, Wachs and city managers in charge of the reform effort promise the city is on the cusp of major change that will begin to reap big dividends in the next few years.

“It’s taking a lot longer than it should have to get it up and running but it’s beginning to see results,” Wachs said. “It is going to save enormous amounts of money.”

Mayor Richard Riordan also is impatient for reform.

“He would have hoped all of this could have been done quicker and sooner and we could have redirected the savings,” said Steve Rubin, the mayor’s budget director.

Rubin said Riordan has been assured the project is now on track. Additional savings of several million dollars will begin to accrue in the next year, promised Jon Mukri, an assistant general manager of the city General Services Department and the man overseeing Prima 2000, the name for the overall reform program.

The current reform effort can be traced to 1994.

The city hired the accounting firm of Deloitte and Touche, which estimated the city could save $250 million over five years by reducing the city’s more than 100 warehouses, cutting the number of vendors and streamlining its purchasing system.

Auditors discovered that various city departments had 77 different contracts for janitorial supplies, while an LAPD warehouse was holding a 22-year supply of small screw-cap jars and a Parks Department warehouse had 10,000 tapestry needles purchased in 1982.

“The city’s supply chain was fragmented among the numerous city departments, each of which was buying, warehousing and using supplies independently without regard to what other agencies were doing,” Mukri said.

Mukri said the audit’s savings projections were based on some unrealistic ideas, including a proposal to contract out all warehouse operations, Mukri said. The General Services Department later reduced from $250 million to $100 million the amount estimated it could save in the first five years by overhauling its business practices.

The auditors recommended “a single, citywide automated procurement, materials management and accounts payable function,” but, the city concluded in a report, the proposal was impractical.

Charter Amendment 1, which voters approved four years ago, sought to revamp the way the city buys goods and services. The current city codes generally require competitive bidding and awarding to the low bidder.

The charter change allows city purchasing agents wide latitude to negotiate contracts, without competitive bidding.

While Mukri said price is still the major factor in awarding contracts, negotiated procurement allows the city to consider other factors, including quality and better delivery, which could save money for city in the long run.

However, enabling ordinances to carry out key parts of the charter amendment have not been approved by the council yet.

Chief Legislative Analyst Ron Deaton said the council and its staff have needed time to work out bugs in the enabling ordinances, charging the measure was written too broadly when it was put before voters.

The charter amendment not only allows city buyers more autonomy to sidestep the current competitive bidding rules and negotiate better deals, it also cut the council out of other important matters, such as approving concession agreements and airline landing fees, Deaton said.

The ordinances needed to fully implement the program may be ready to go to a City Council committee next month, Deaton said.

In the interim, Mukri has been limited to using new contracts negotiated by other agencies, including the county.

That has provided for some savings.

A contract with Office Depot for office supplies is expected to save the city about $320,000 this year, for instance. But the city still has 1,600 contracts when it should have fewer than 500, Mukri said.

The first six large warehouses are scheduled to close next year Mukri said.

A lot of preparation was needed for what is no less than a complete re-engineering of the way the city does business.

“It’s the single largest thing, affecting all city departments, that the city has ever done,” Mukri said.

All told, Mukri hopes to achieve procurement savings of about $1.8 million this year. Even combined with about $4 million in savings last year, the cuts are far from the $35 million promised voters, but Mukri said efforts were hurt when the DWP decided not to participate.

DWP spokesman Frank Salas said there are conflicts with purchasing software and concerns about guaranteeing important supplies that have kept the agency out of the city reform program.

Mukri said DWP can join the contracting program later, and Salas said that may happen.

“We’re going to watch and see how it pans out,” Salas said.

Mukri believes he can easily achieve savings of $10 million annually in the purchasing program and he is hopeful that eventually the city will be able to reach the $35 million target.

“In any large bureaucracy, change doesn’t come as quickly as in a small organization,” said Councilwoman Rita Walters.