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Supervisors question PUC contracting practice as WISIP amendments seek $15.3M more
Summary
The PUC asked the Board to approve contract amendments that would raise four engineering agreements by $15.3 million, prompting debate over splitting contracts to enhance LBE prime opportunities and whether the practice circumvents Board oversight; the committee forwarded the items to the full Board without recommendation.
The Public Utilities Commission asked the Board of Supervisors' Budget & Finance Committee to approve amendments that would increase four engineering services agreements for the Water System Improvement Program (WISIP) by a combined $15.3 million, raising the aggregate ceiling on those agreements from $36 million to $51.3 million and extending contract terms to support design-to-construction work.
PUC director-level staff told the committee the increases reflect material scope changes on several projects, including additional site investigations and design work at projects such as Harry Tracy and Calaveras, and the need to retain the original engineers of record to support construction questions and minimize redesign risk. Julie Levante, director of the WISIP, said the commission recently approved a rebaselined program budget of $4.59 billion and that many projects are now moving into construction, which increases demand for consultant support.
Budget analyst testimony and several supervisors focused on contracting strategy. The analyst's report documented that the PUC had originally obtained four $9 million engineering agreements through a single RFQ process and noted those agreements "effectively function as one larger $36 million agreement." The analyst flagged that the break-up into sub-$10 million contracts can avoid board-level review and recommended the supervisors consider policy changes to remove incentives to split agreements for the purpose of attaining local-business-enterprise (LBE) scoring preferences.
PUC assistant general manager Harlan Kelly and other staff said the program broke larger work into smaller contracts to create prime-level opportunities for LBEs and to enable joint-venture primes, which some local businesses prefer so they can lead projects rather than serve solely as subcontractors. PUC staff also said the winning bids recently have come in substantially below engineer estimates and that they built a 10% change-order contingency into contracts and robust construction management systems to control costs.
Supervisors said they were sympathetic to maximizing local participation but warned that the process must not undermine board oversight or create a pattern of large after-the-fact increases. One supervisor noted that the one awarded joint venture produced a higher share of prime-level LBE participation, but overall PUC's reported LBE allocation across the four contracts was about 17.9% ($3.6 million), which some supervisors characterized as lower than intended for the program's scale.
Given the number of open questions about RFQ design, the availability of LBEs in specialized scopes, the reasons for the scope increases, and the policy implications of the $10 million threshold in the administrative code, the committee voted to forward the item to the full Board without recommendation so the Board can consider the program-level implications and any legislative changes needed to administrative code 14B and related procurement rules.
The committee also asked PUC staff to return with a contracting strategy and additional detail on outreach and RFQ design, and the budget analyst reiterated a policy recommendation to review the LBE-scoring threshold that can incentivize contract splitting. The full Board will receive the PUC request and the budget analyst's report at its next meeting.
