Report 2016-125.1 Recommendation 6 Responses

Report 2016-125.1: The University of California Office of the President: It Has Not Adequately Ensured Compliance With Its Employee Displacement and Services Contract Policies (Release Date: August 2017)

Recommendation #6 To: University of California

To ensure that university locations adequately justify the necessity of contracts that will displace university employees, the Office of the President should revise the cost analysis requirements in the displacement guidelines to mitigate the risk of university locations incorrectly estimating savings by requiring a threshold level of savings as part of their business and financial necessity analyses and requiring that university locations periodically reevaluate the savings after the services contracts take effect to inform future contracting decisions.

1-Year Agency Response

The University will continue its current practice in assessing whether to contract out for services or to perform the work with UC employees, to take into account a number of considerations on an ongoing basis, including whether the work is within the scope and capabilities of current staff; whether contracting out for services would improve the methods or practices of service delivery or facilitate the development of internal expertise; and the immediacy of the need for the services as well as the expected duration of such need. Implementing a threshold level of savings would not be prudent as it would not take into account all of these important considerations.

The Guidelines were updated in August 2018 to indicate that the annual budget process will provide an avenue for periodic evaluation as actual contracting costs will be compared to budget.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Although the Office of the President did not implement a savings threshold, it has modified its Guidelines to include regularly reviewing displacement contracts to confirm that savings are still occurring. As part of its budget cycle, the university will compare actual contracting costs to budgeted costs. This change achieves the goal of periodically evaluating contracting decisions to ensure that they are achieving the anticipated results.

6-Month Agency Response

The University will continue its current practice in assessing whether to contract out for services or to perform the work with UC employees, to take into account a number of considerations on an ongoing basis, including whether the work is within the scope and capabilities of current staff; whether contracting out for services would improve the methods or practices of service delivery or facilitate the development of internal expertise; and the immediacy of the need for the services as well as the expected duration of such need. Implementing a threshold level of savings would not be prudent as it would not take into account all of these important considerations.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

We encourage the Office of the President to reevaluate implementing this recommendation. The recommendation's purpose is to ensure that contracts that displace university employees result in the cost benefits anticipated; if setting a threshold savings is not feasible, we encourage the Office of the President to explore other means to fulfill this recommendation. We believe it's a sound practice to periodically evaluate contracting decisions to ensure they are achieving the anticipated results. By being unwilling to do so, the Office of the President risks allowing poor contracting decisions to continue unabated.

60-Day Agency Response

In assessing whether to contract out for services or to perform the work with UC employees, locations take into account a number of considerations on an ongoing basis, including whether the work is within the scope and capabilities of current staff; whether contracting out for services would improve the methods or practices of service delivery or facilitate the development of internal expertise; and the immediacy of the need for the services as well as the expected duration of such need. UC manages its head count on an ongoing and periodic basis to accomplish existing or anticipated work. Systemwide HR will send a written communication to campus locations regarding the need to more carefully determine whether it is more economical and efficient to perform the work with UC employees or with service contracts, and will continue to work to strengthen and standardize procedures to facilitate these efforts.

California State Auditor's Assessment of 60-Day Status: Pending

Although the Office of the President has outlined a plan for addressing this recommendation, at this time it is not clear whether its plan will implement the recommendation as intended. The State Auditor's recommendation fills the gap in the university's policy that currently exists because the Office of the President does not require campuses to assess whether a displacement decision achieves the financial benefits intended. By requiring a threshold level of savings as justification for displacement and requiring the campuses to revisit those analysis, the Office of the President has better assurance that campuses' displacement decisions resulted in the expected economic benefits.

All Recommendations in 2016-125.1

Agency responses received are posted verbatim.