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July 19, 2011

 

DiNapoli: Port Authority Lacks Justification for $1.18 Billion in Service Contracts and Agreements

Top to Bottom Review Needed for Transparency and Accountability

The Port Authority of New York and New Jersey (PA) does not have documentation to support $1.18 billion of $1.3 billion worth of service contracts and agreements and may be missing out on millions of dollars in cost savings according to an audit released today by New York State Comptroller Thomas P. DiNapoli. DiNapoli said the PA needs to complete a thorough review of how they manage their consultant contracts.

"When it comes to being transparent with taxpayers, the Port Authority is falling down on the job," DiNapoli said. "Our audit found that the Port Authority's business model is zero growth in personnel, but they achieve that by contracting with outside consultants on a permanent basis. The PA needs to do a top to bottom review of how they manage headcount so they can show taxpayers they are getting the best services at the lowest cost. This agency needs much more transparency and accountability."

DiNapoli's audit found that the PA generally did not have documentation to justify the need for many new or renewed service contracts. The audit sampled 75 Service Contracts and Agreements with a total value of $1.3 billion, of which 57 contracts worth $1.18 billion lacked written support.

According to its own records, in 2010 the Authority had 6,977 employees, its lowest staffing level in 40 years. This is due to the PA establishing strict caps on staff levels, with a goal of zero-growth in personnel. However, auditors found that departments are expected to use services contracts to limit staff growth, regardless of cost differential.

In 25 of 26 Call-In Agreements (in which specific types of expertise not available in-house are required) worth a total of $98.9 million, department officials could not provide justification for contracting for these services.

For example, a Call-In Agreement by the Real Estate & Development Department for advisory services related to the World Trade Center at a cost of $36 million for a three-year period beginning in 2008 was issued even though the PA has an in-house real estate department. There was no evidence that the PA had done an analysis of whether these services could be done in-house.

Department officials could not justify the need for 25 of 30 Service Contracts worth a total of $785.1 million that were sampled in the audit. PA Bus Terminal authorities informed auditors that PA management did not require them to substantiate a six-year, $27.5 million cleaning contract even though it was based on an assessment completed in 1980. In another case, the PA entered into a three-year $1.2 million contract for an electrical contract to change light bulbs and ballasts. No support was provided to show that this was more cost-effective than using Port Authority staff to perform these tasks.

Some Port Authority officials told auditors that even when cost analyses indicate the addition of in-house staff would be more cost-effective, requests to do so would most likely be turned down. As a result, the Port Authority relies extensively on a permanent workforce of contractors for essential services over the course of multiple years.

For example, the Engineering Department's staffing costs in 2009 were $91 million while the cost of consultants was $106 million. The Engineering Construction Management staff of 153 was supplemented by 133 contract staff. Although Engineering's Call-In program has been in place for 25 years, a cost analysis has still not been prepared comparing the cost of these outside contractors to hiring additional staff.

The Port Authority does not periodically review all of the Service Contracts it is using to identify work that could be deferred, eliminated, or reduced to save funds. If the PA attained a 10 percent reduction in the cost of just the contracts for personal and miscellaneous services that were sampled, it could achieve $22 million in savings each year.

According to DiNapoli's audit, the PA should:

  • Document with analysis why outsourcing is more beneficial and that its contracts are justified;
  • Justify why fixed level staffing is in the Authority's best interest;
  • Publicly disclose the number of firms and workers employed under contract;
  • Develop written guidelines supporting decisions to contract;
  • Direct managers to periodically reassess consultant contracts.

This audit is one of 20 completed by DiNapoli in 2010 of State agencies, City agencies and public authorities on justification and assessment of consultant contracts. The 20 agencies selected accounted for over 11,126 contracts during the audit period with a value of about $19 billion, including 1,858 Port Authority consultant contracts valued at $4.38 billion. The audits were undertaken to determine if agencies are properly justifying and reassessing this enormous expenditure as they seek to control costs.

To view this audit visit: http://www.osc.state.ny.us/audits/allaudits/093011/09s54.pdf

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