Tuesday, November 16, 2010

Are You Paying Consultants Consistent with Contract Terms?

In negotiating and executing a consultant contract, both the consultant and the public agency agree upon the basis of payment, including but not limited to hourly rates, permitted reimbursable expenses, and sub-consultant mark-up percentages.

Review Invoices:  When invoices are submitted to the public agency for payment, it is critical for appropriate public agency staff to carefully review the invoice to ensure that the payment requested is consistent with the terms of the contract.

Audit Finding:  The Washington State Auditor's Office issued a Citizen Hotline Report on November 8, 2010 reporting on its investigation of charges made by a citizen against the City of Snoqualmie.  The citizen complaint complained that the City was overpaying consultants because City personnel were not carefully reviewing invoices submitted for payment.  The auditor found that the City was overcharged $13,000 based on invoices reviewed by the auditor.  The City then passed the costs onto private developers in accordance with agreements in place.

Specifically, the auditor noted the following overpayments by the City:
  • Hourly Rate Overpayment:  The City paid a forestry consultant at an hourly rate of $110 per hour, when the contract limited the hourly rate to $85 per hour.  For a six month period in 2007, this amounted to an overpayment to the consultant of more than $4,000.
  • Mileage Reimbursement Overpayment:  The City reimbursed the same forestry consultant for mileage at 48.5 cents a mile, while the contract only permitted reimbursement at 31.5 cents a mile, resulting in an overpayment of more than $1,600.
  • Payment for Reimbursables Not Permitted:  The City reimbursed an engineering firm almost $1,700 for the use of a four-wheel drive vehicle and cellular telephones that were not allowable under the contract.
  • Hourly Rate Overpayment:  The City approved invoices for and paid for the work of a senior project manager with an engineering firm at an hourly rate of $130, when the contract only permitted $120 per hour.
  • Mileage Reimbursement Overpayment:  The City approved mileage reimbursement for an engineering firm in excess of what was permitted by the contract.  In addition, the City approved mileage reimbursement for personnel who were working on the project, but did not incur actual mileage expenses because no travel occurred.
Practical Tips:  In managing your consultant contracts, do you have processes in place to ensure that invoices paid are appropriate and consistent with the terms of the contract?  Here are a couple of procedural tips that can help you in managing contract payments.
  • Contract Terms:  Know the payment terms of your contract.
  • Copy of Contract:  Ensure that staff who are managing contracts or approving payments for contracts actually have a copy of the contract.
  • Detailed Invoices:  Require that invoices be submitted in sufficient detail to determine the breakdown of costs so the public agency can determine if the costs are consistent with the terms of the contract.
  • Review Invoices:  Have appropriate staff with direct knowledge of the work performed review the invoices not just for whether the work was performed, but whether the charges are consistent with the terms of the contract. 
  • Internal Controls:  Institute appropriate internal controls within your agency so that others (supervisors, purchasing, contracting, or accounting) also review invoices for consistency with the terms of the contract.
  • Rejection of Invoices:  Reject invoices submitted that are inconsistent with the terms of the contract, and require the consultant to re-submit the invoice after it has been corrected.
More Information:  Click here to read the complete 15 page Citizen Hotline Report.  In addition to the overpayments noted above, the report also concluded that the City could have saved a significant amount of money by hiring a city employee to perform the work instead of paying consultants. 

Mike Purdy's Public Contracting Blog (© 2010 by Michael E. Purdy Associates) 

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