Final Letter Report on the Review of City Agencies’ Compliance with Terms and Conditions of M/WBE Contract Award Method 72

By Electronic Mail

Lisa Flores

Director and City Chief Procurement Officer

Mayor’s Office of Contract Services

255 Greenwich Street, 9^th Floor

New York, NY 10007

Dear Ms. Flores:

The Office of the New York City Comptroller’s Audit Bureau recently conducted a review of City agencies’ compliance with the terms and conditions of the Conditional Delegation and Approval to use M/WBE contract Award Method 72 (AM 72)—also known as the M/WBE Noncompetitive Small Purchase Method—in certain circumstances.

This final letter report is being issued to the Mayor’s Office of Contract Services (MOCS). A draft letter report was sent to MOCS on September 10, 2024, and an opportunity to respond was provided. Our office received a written response from MOCS dated September 26, 2024. In its response, MOCS generally agreed with the four recommendations. The full response is attached to this report as an addendum.

Background

The M/WBE Noncompetitive Small Purchase Method was established in 2017 to increase the participation of Minority and Women-owned Business Enterprise (M/WBE) vendors doing business with the City by streamlining aspects of the contracting process. According to the Comptroller’s Contract Primer Report, “The PPB rules were amended in 2017 to allow the City to purchase goods, standard services, and professional services from any City-certified M/WBE valued over $20K (or $35K for construction) up to and including $150,000 without a formal competitive process.”[1][2]

On March 8, 2018, then-City Comptroller Scott Stringer signed a delegation granting the City’s Agency Chief Contracting Officers (ACCO) the ability to “self-register” M/WBE Noncompetitive Small Purchase contracts valued at no more than $150,000 in the City’s Financial Management System (FMS). [3] On January 10, 2020, then-City Comptroller Scott Stringer signed a Conditional Delegation and Approval (Conditional Delegation) permitting City agencies to “self-register” Noncompetitive Small Purchase contracts in FMS for the procurement of goods, services, and construction from M/WBE vendors not exceeding $500,000 in value. On February 17, 2022, City Comptroller Brad Lander approved an indefinite extension to the Conditional Delegation. In January 2023, AM 72 was revised to increase the threshold from $500,000 to $1 million and again in December 2023 to $1.5 million.

The Conditional Delegation requires MOCS to conduct a full compliance review of at least 10% of AM 72 contracts awarded for designated audit periods and publish an audit report on its website for each audit period. Approval of Conditional Delegation is contingent on City agencies’ adherence to stated terms and conditions, one of which is that each agency using AM 72 must submit to the Comptroller’s Office a contract package within 30 days after self-registering each contract in FMS. These procurement packages should include all documents required by Procurement Policy Board (PPB) Rules 2-12 and 3-08, and documentation demonstrating that the selected vendor is certified by the NYC Department of Small Business Services as an M/WBE.[4] [5]

Each contract must be registered with all the following documents:

• A copy of the original executed contract and related contract budget
• A request for encumbrance or advice of award
• Determination of Award
• Certificate of Legal Authority from Corporation Counsel
• Certificate of Procedural Requisites
• Determination by the ACCO explaining good cause for contract changes

AM 72 contracts must comply with PPB Rules Section 3-08, and other applicable rules, which require the contract value to be above $20,000 for the procurement of goods and services, and above $35,000 for procurement of construction.[6] Additionally, it specifies that agencies cannot use AM 72 for the procurement of human services.[7]

From January 1, 2020 through December 31, 2023, City agencies have awarded almost $580.7 million in AM 72 contracts. In Calendar Year 2023, there were 1,063 Parent AM 72 contracts and 2,344 Registered Modification (Mod) AM 72 contracts.[8]

As Chart I below shows, the total value of AM 72 contracts awarded by City agencies increased from 2020 to 2023.

Chart I: AM 72 Contracts Registered by City Agencies from 2020–2023 (by contract registration date)

Detailed Findings

This review focused on a sample of 97 Parent AM 72 contracts and 75 Mod AM 72 contracts self-registered during Calendar Year 2023 from the following City agencies: Office of Technology and Innovation (OTI), Department of Transportation (DOT), Department of Sanitation (DSNY), Department of Health and Mental Hygiene (DOHMH), Fire Department (FDNY), Department of Citywide Administrative Services (DCAS), Board of Elections (BOE), Department of Small Business Services (SBS), Department of Correction (DOC), Department for the Aging (DFTA), and the Mayor’s Office.[9]

The auditors searched for contract documents in the Omnibus Automated Image Storage and Information System (OAISIS), the contract application used by the Comptroller’s Office for the filing of contract documents.[10]

The review found that all 97 Parent and all 75 Mod contracts were issued to City-certified M/WBE vendors within the minimum and maximum value thresholds, and that all were appropriately issued for the procurement of goods, professional services, standard services, or construction. Additionally, MOCS posted on its website its quarterly audit review of AM 72 contracts, as required.

However, the auditors found that certain agencies did not submit complete contract packages to the Comptroller’s Office and some failed to submit any of the required contract documents.

Further information is provided below.

16% of Sampled Parent and 3% of Sampled Mod 72 AM Contracts Were Submitted to the Comptroller’s Office Without Any Supporting Documentation

The auditors found that 16 of the 97 (16%) Parent contracts reviewed had no supporting documentation in OAISIS at all. Ten of these were from BOE, four were from SBS, and one each were from FDNY and DOHMH.

The auditors also found that 2 of the 75 (3%) Mod contracts reviewed—one from OTI and one from DOT—were submitted in OAISIS without any of the required supporting documentation.[11]

In total, 18 of the 172 (10%) sampled contracts were submitted without any of the required supporting documentation. See Table I below.

BOE stands out as the single agency with the highest rate of non-compliance with Parent contracts; 10 out of 10 (100%) of the sampled Parent contracts were submitted in OAISIS without any supporting documentation. SBS runs a close second—no contract documents were submitted in OAISIS for 4 of the 6 (67%) sampled contracts. See Chart II below.

OTI and DOT were the only two agencies that failed to submit any supporting documents for sampled Mod contracts. In both cases, 1 of 10 (10%) sampled Mod contracts were missing supporting documentation. See Chart III below.

Table I: Number of Sampled Parent and Mod Contracts Missing Contract Documents in OAISIS

Chart II: Number of Sampled Parent Contracts Missing Contract Documents in OAISIS

Chart III: Number of Sampled Mod Contracts Missing Contract Documents in OAISIS

100% of Sampled Contracts Had Incomplete Contract Packages

The auditors found contract documents in OAISIS for most of the Parent and Mod contracts. However, none of the contract packages contained all documents required by PPB Rules Section 2-12, as follows.

All 172 sampled contracts were missing a copy of the M/WBE certification issued by SBS.

Two Parent contracts and one Mod contract were missing the contract agreement in OAISIS, including:

• One Parent contract and one Mod contract from DSNY; and
• One Parent contract from the Mayor’s Office.

One Parent contract and eight Mod contracts were missing the Determination of Award in OAISIS, including:

• One Parent contract from DOC;
• Four Mod contracts from the Mayor’s Office;
• One Mod contract from DOHMH;
• One Mod contract from OTI;
• One Mod contract from DOT; and
• One Mod contract from BOE.

Recommendations

To address the findings, the auditors recommend that MOCS:

1. Send reminders to all City agencies regarding the terms and conditions that must be met if using AM 72 award method to self-register all contracts and contract modifications.

MOCS Response: MOCS agreed with this recommendation.

2. Provide refresher training sessions on AM 72 requirements to all agencies.

MOCS Response: MOCS agreed with this recommendation and stated that OM/WBE and SBS jointly conduct monthly M/WBE Procurement Training Institute courses for agencies, including the AM 72 award method.

Auditor Comment: We appreciate MOCS’ commitment to training; however, in the face of SBS’ high error rate, we question SBS’ role as the agency responsible for training other agencies to comply.

3. Ensure the deficiencies identified in this review are cured by collecting and submitting all required documents and contract packages to OAISIS as soon as possible. Please provide notice as these are entered to the Office of the Comptroller’s Bureau of Contract Administration at email address ocamailbox@comptroller.nyc.gov.

MOCS Response: MOCS agreed with this recommendation and stated that OM/WBE will contact the 5 mayoral agencies with identified deficiencies and will offer support to others, such as BOE, over which they have no formal authority.

4. Communicate with BOE and SBS regarding their noncompliance with the requirements of the Conditional Delegation and ensure future uses of AM 72 by these agencies are checked and compliance verified.

MOCS Response: MOCS agreed in principle with this recommendation to address SBS’ deficiencies. With respect to BOE, MOCS agreed to offer its support to BOE but asserted that “it would be inappropriate to dictate procurement policy and outcomes to BOE.”

Auditor Comment: Although BOE is a non-mayoral agency, it is permitted to self-register AM 72 contracts through a delegation granted to MOCS. Implicit in the delegation is MOCS’ responsibility to ensure compliance with the conditions under which this was granted.

Scope and Methodology

The scope period for this review was Calendar Year 2023. The methodology for this review consisted of the following steps, taken by the auditors:

Reviewed applicable laws, rules, policies, and procedures to determine their criteria in accordance with AM 72, including:

• PPB Rules Sections 2-12 & 3-08;
• NYC Comptroller Delegation and Approvals for Agencies to Self-Register M/WBE Non-Competitive Small Purchases issued January 10, 2020, February 17, 2022, and December 15, 2023;
• Mayor’s Office of Contract Services’ M/WBE Noncompetitive Small Purchase Method Frequently Asked Questions issued January 6, 2023, July 28, 2023, and December 19, 2023; and
• Mayor’s Office of Contract Services’ M/WBE Noncompetitive Small Purchase Method Agency Job Aid Memo issued June 8, 2020.

Reviewed FMS Data on AM 72 Contracts Registered in Calendar Years 2020 through 2023 received from BCA.

Reviewed the FMS Annual Summary Contracts Report Parent AM 72 Contracts for Calendar Year 2023 and Annual Summary Contracts Report Registered AM 72 Modifications for Calendar Year 2023 received from BCA. The sample selection included the top agencies that registered or modified AM 72 contracts in Calendar Year 2023 based upon the number of contracts and contract value. Additionally, the auditors’ sample included contracts from agencies that were within BCA’s suggested areas of focus.

Reviewed New York City Department of Small Business Services’ Online Directory of City-certified vendors to determine whether AM 72 contracts were awarded to City-certified M/WBE vendors.

Reviewed contract information in the City’s Financial Management System or NYC Checkbook to determine whether the AM 72 contracts were within the minimum and maximum value requirements.

Reviewed contract procurement documents in OAISIS to determine whether documents were submitted to the Comptroller’s Office within 30 days of self-registration and included the required documents. Additionally, to determine whether AM 72 contracts were for goods, standard services, professional services, or construction, auditors reviewed the industry classification provided in the Recommendation for Award and the contract agreement.

The results of the above tests, while not projectable to their respective populations, provided a reasonable basis for the auditors to evaluate and support their findings and conclusions regarding whether City agencies comply with Terms and Conditions of M/WBE Contract Award Method 72.

Sincerely,

Maura Hayes-Chaffe

c: Michael Garner, Chief Business Diversity Officer, Mayor’s Office

Jean-Claude Lebec, Director, Mayor’s Office of Risk Management and Compliance

Douglas Giuliano, Deputy Director, Mayor’s Office of Risk Management and Compliance

Charlette Hamamgian, Deputy Comptroller, Bureau of Contract Administration

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Endnotes

[1] NYC Comptroller’s Office Contract Primer Report issued October 20, 2023 https://comptroller.nyc.gov/reports/contract-primer/

[2] The Procurement Policy Board is authorized to promote and put into effect rules governing the procurement of goods, services, and construction in New York City.

[3] FMS is a web-based application that serves as the accounting system of record for New York City. AM 72 was created in FMS for purchases made under this method.

[4] The AM 72 procurement may be exempt from having to submit certain documents otherwise required for normal procurements by PPB Rules 2-12 and 3-08 (e.g., Vendex/PASSPort vendor questionnaire, pre-solicitation review document).

[5] The New York City Department of Small Business Services runs the City’s certification programs, including the M/WBE Program, and maintains the Online Directory of NYC Certified Businesses.

[6] Contracts under these amounts are classified as micropurchases.

[7] “Human services” is a class of services provided directly to third party clients, and includes social services such as day care, foster care, homeless assistance, housing and shelter assistance, counseling services, youth programs, after-school and recreation programs, senior centers, educational and employment training and assistance, health or medical services, home care, and other similar services.

[8] A Parent contract is the original contract. A modification (or Mod) is a change made to a contract without revoking the entire original agreement.

[9] The sample of Parent AM 72 contracts consisted of 6 DOC contracts judgmentally selected in consideration of our office’s Bureau of Contract Administration’s (BCA) concern and 98 contracts randomly selected from the full universe of Parent AM 72 contracts. The entire sample of Mod AM 72 contracts was randomly selected from the full universe of Mod AM 72 contracts.

[10] OAISIS is an imaging, document management, and automated workflow system that supports the City’s contracts registration, claims processing, and Labor Law enforcement. Contracts are reviewed by BCA through OAISIS.

[11]  Overall, there were 14 mod contracts that the auditors were unable to find in OAISIS. However, upon further review of those contracts, the auditors found that 12 of those mods were for encumbrance actions that did not require filing.