Audit Report On The Department Of Environmental Protection’s Monitoring Of Prime Contracts With Subcontracting Goals Covered By Local Law 129

Local Law 129 (“LL129”) of 2005 created the City’s Minority- and Women-owned Business Enterprise (M/WBE) Program. LL129 was enacted to address significant disparities in contracting opportunities afforded to certain M/WBE groups in City procurement. LL129 establishes M/WBE certification requirements, contract-participation goals, technical assistance, administrative, and enforcement procedures to promote the use of M/WBE firms for City contracting and subcontracting procurement opportunities under $1 million. Each City agency that oversees prime contracts covered by LL129 is required to monitor the prime contractors’ compliance with their plans to use subcontractors and M/WBEs (i.e., their utilization plans).

The Department of Environmental Protection (DEP) is responsible for protecting the City’s environmental health. According to agency records, during Fiscal Years 2007 through 2010, DEP awarded 14 prime contracts (valued at $47 million) with M/WBE subcontractor participation goals, totaling $2.6 million, subject to LL129.

This audit determined whether DEP adequately monitors prime contractors’ compliance with LL129 and whether those contractors complied with the City’s prompt payment rules with regard to paying their subcontractors. The audit scope period covered Fiscal Years 2007 through 2011.

Audit Findings and Conclusions

The audit determined that DEP complied with provisions of LL129 with respect to monitoring prime contractors’ use of M/WBEs firms. However, weaknesses were identified in DEP’s monitoring activities that limit the agency’s ability to effectively assess its prime contractors’ overall compliance in attaining their M/WBE subcontracting goals.

DEP’s primary monitoring activities included performing job site visits, requiring that its prime contractors submit certain periodic reports, and performing a closeout reconciliation near the end of the contract term. In mid-2011, DEP implemented a new procedure requiring a spot check review of prime contractors’ files early on to assess and track issues related to their compliance. Even though these procedures addressed some deficiencies, DEP still did not contact M/WBE subcontractors on a regular basis to verify their use by prime contractors nor did it require proof of prime contractors’ payment to their subcontractors until near the end of the contract and the closeout reconciliation is performed. Further, DEP does not periodically audit its contractors’ books and records to verify payments made to subcontractors.

The audit also noted that DEP’s ability to effectively monitor its prime contractors was limited by other weaknesses, including that: (1) DEP’s Bureau of Engineering Design and Construction (BEDC) and the office of the Agency Chief Contracting Officer (ACCO) did not have a clear line of communication with regard to sharing contract matters, and (2) DEP did not ensure that prime contractors submitted all quarterly reports and, as a practice, did not adequately review or evaluate the information reported by the prime contractors.

Audit Recommendations

To address the above weaknesses, the audit made nine recommendations, including that DEP should:

• Continue to improve its monitoring of prime contractors’ progress in meeting their M/WBE subcontracting goals.

• Ensure that prime contractors promptly submit all key documents, (e.g., Quarterly Reports and Subcontractor Approval Forms) required by LL129, DEP regulations, and related contract provisions.

• More closely review and evaluate the prime contractors’ subcontracting plans as reported on Subcontractor Approval Forms and actual payments to subcontractors reported on quarterly reports.

• Establish formal procedures for communicating problems and relevant contract information between departments to document and communicate to all related parties (BEDC, ACCO’s Office, etc.) contractor deficiencies observed at the job sites and other related concerns along with the actions taken to remedy such deficiencies and address matters of concern.

DEP Response

DEP officials generally agreed with eight of the audit’s recommendations and stated that it will consider implementing the recommendation that it develop a standard tool for engineers to use to document their job site observations.