By: Victoria Holliday

Each year San Francisco city departments purchase hundreds of millions of dollars worth of goods and services. While many of these contracts are the results of competitive bidding, at least $1.7 billion in spending has come through sole source contracts in the past three years.

Given data showing that competitively bidding contracts usually lowers costs and always increases transparency, the high total of sole source contracts bears a deeper look.

What are Sole Source Contracts?

A sole source contract is formed when a department claims that there is only one vendor capable of providing a service, and therefore any attempt to solicit bids would be unnecessary. These are sometimes called “no-bid” contracts in the vernacular.

Sole source contracts are entered into without competition and by law are appropriate if, and only if, the contracting department has determined that only one qualified provider is available.

In the past three years, San Francisco has awarded over 1,500 sole source and no-bid contracts totaling over $1.7 billion. However, in actuality these totals are much higher because San Francisco’s Administrative Code does not require departments to competitively bid contracts under $10,000, and 9 departments did not meet the deadline to submit their list for this fiscal year so they are not counted in the total. (We’ll keep you updated as these arrive.)

The Debate on Sole Source Contracts

The debate on sole source contracts has flared over the years – but has reemerged as an issue in the past few months as some city supervisors have challenged the no-bid contract recently awarded to pick up San Francisco’s garbage. Some opponents to challenge this no-bid award are now discussing a ballot measure.

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While there is certainly no hard and fast guarantee that competitively bid contracts are less expensive than sole source contracts, and there have been serious challenges raised about how competitively bid contracts are not always as “competitive” as claimed, there remains a general consensus that the more transparency in bidding the more likely we are to receive the best price.

The San Francisco Bay Guardian recently weighed in on the topic, citing how competitively bidding the Board of Supervisor’s Budget Analyst’s contract had saved taxpayers a significant sum and arguing the garbage contract should go out to bid. In an interesting twist for those who pay attention to the political orientations of newspaper editorial boards, The San Francisco Examiner agreed that the garbage contract should have been bid.

San Francisco Sole Source Contracts Must Be Reported

The San Francisco Sunshine Initiative, passed by voters in 1999, requires that every city department submit a list of its sole-source contracts to the Clerk of the Board of Supervisors at the end of each fiscal year. However, many departments do not comply. As of this year’s deadline of July 15, only 41 of 48 city departments had submitted their sole source lists. There is no known repercussion for this failure to comply.

Arguments for a Different Contract System

In 2003, the San Francisco Controller published a report arguing that the city needed better information and management of its sole source contracts. This was the first major look into sole source contracts in San Francisco. The Controller found that without better oversight and management the city could not be sure it obtained contracts providing the best possible value. The Controller recommended that the city establish a centralized database to track information on sole source contracting.

Also in 2003, then-Supervisor Gavin Newsom introduced legislation to limit sole-source contracts and provide more openness and competition in the bidding process for city contracts. Newsom said greater competition and transparency in the bidding process would help save taxpayers money and improve city services. City Purchaser Judith Blackwell also expressed a need for city contracts to be opened up to the competitive process.

Like the Controller, Newsom called for modifying existing city databases to centralize and track information on sole source contracting, as well as allowing for reporting on these contracts. Newsom argued that using the city’s existing technology to track contracts would be an inexpensive way to eliminate government waste.

Despite calls for reform eight years ago, the only citywide reporting requirement on sole source contracts remains the Sunshine Ordinance. There is still no centralized database to track information on sole source contracting. Despite the Controller’s warnings, the city’s approach to sole source contracts remains largely unchanged.

Reform Could Save the City Millions

This year in Pennsylvania, Auditor General projected that by reforming the state’s contracting and sole source process the state could save at least $200 million a year.
The Auditor General said that from June 2008 to December 2010 the state awarded 511 sole source contracts and 272 emergency contracts worth more than $250 million.

Could San Francisco benefit from new sole source contract reforms?

The exact amount of savings is speculative, and it is very important to point out the many of the contacts awarded go to other public agencies and private companies and non-profits that clearly have a unique service, product or talent.

But as indicated above, San Francisco’s sole source and no-bid contracts totaled more than $1.7 billion over the past three years. With a city budget deficit projected to exceed $306 million for 2011, the city should look for more ways to increase savings.

Follow this story as we keep you updated when more city departments report their sole source contracts for this fiscal year.