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Friday, June 27, 2008 | Lorena Gonzalez, the secretary/treasurer of the San Diego-Imperial Counties Labor Council, stood before San Diego City Council this week and said the city’s contract with privatization consulting firm Grant Thornton is “shaping up to be the next back-door boondoggle at the city of San Diego.”

That a union chief would say such things about a firm making money advising governments on how to outsource jobs is hardly surprising.

But then an hour or so later, Republican Councilman — and strong privatization supporter — Brian Maienschein called city staff’s presentation to council regarding the Grant Thornton contract “disastrous.”

“It is really poor to come to council with his kind of information,” he said.

This is not where Mayor Jerry Sanders thought he would be a year and a half after voters gave him the go ahead on managed competition, a far-reaching effort to privatize city services ranging from trash pick-up to tree trimming.

Opponents of managed competition have railed against the city’s use of the consultants since the beginning. But only recently have they gotten the attention of the majority of City Council and a grip on the city’s purse strings by focusing on details in the Grant Thornton contract.

And Sanders, who in November 2006 confidently predicted that outside firms would begin competing for city services by the summer of 2007, is now left to explain why progress on his signature fiscal reform measure has slowed to a crawl. The mayor is still waiting for the first city service out to be put out for competitive bidding.

The administration has relied heavily on Chicago-based Grant Thornton, LLP — one of the nation’s top outsourcing consulting firms — to help city staff build the framework for managed competition. And it had budgeted $900,000 over the next year for the firm to put the program into practice.

That money, particularly $400,000 requested from the city’s fiscal 2008 reserves fund, was so important to the administration that Sanders spokesman Fred Sainz said “managed competition would grind to a halt in San Diego” without it.

The city has contracted with Grant Thornton since early 2007 and has paid the firm nearly $250,000. The City Attorney’s Office has declared the contract illegal, saying the administration needed to get City Council approval because the contract was for more than the $250,000 that the Mayor’s Office is authorized to hand out unilaterally.

Council this week trimmed the $900,000 budgeted by Sanders for Grant Thornton in fiscal 2009 to $250,000. And council is requiring that the city put out to bid any further consulting contracts for managed competition.

Council imposed these new restrictions after hearing a litany of complaints about the vague, open-ended contract with Grant Thornton, and being reminded that Sanders told voters in 2006 that there would be no “new costs as a result of managed competition.”

Also there have been conflict of interest concerns surrounding Anna Danegger, the manager who is leading the managed competition program. Danegger was a Grant Thornton employee when it won the city contract, and joined the city a month later.

Council members, however, are most angered by city staff’s inability to tell them exactly what has been accomplished with the money already paid to Grant Thornton, or what would be done with future allocations.

“There was nothing that made me believe they had any clue of how to manage that contract,” said Councilwoman Donna Frye.

Sainz said the administration does know what it is doing. He said Grant Thornton’s accomplishments include a managed competition guide book and assessments of whether specific programs like street repair and garbage collection would be eligible for managed competition.

He said “obstructionist” tactics by city unions who don’t want outsourcing have kept the administration from accomplishing more. Union leaders, he said, filed a complaint regarding managed competition with the Public Employee Relations Board and have forced far more meetings on the subject than the administration had anticipated.

“They are exceptionally good procedural fighters,” Sainz said of the unions. “Chipping away on a daily basis.”

Sainz said the additional $250,000 approved this week by council will go primarily toward a software program that allows users to compare the details of various bids for services, as well as statements of work for a few services. And while backing off in recent days from his “grind to a halt” assertion, Sainz said council’s action will “slow down the process.”

“This is definitely a course correction for us,” Sainz said.

Among the loudest critics of Grant Thornton has been Murtaza Baxamusa, research and policy director of the left-leaning Center for Policy Initiatives.

Baxamusa on Monday showed council the fiscal impact statement for managed competition that voters received along with their ballots in 2006. It read in part: “No significant new costs are anticipated as a result of the managed competition process. The Mayor would be responsible for oversight and contract utilizing City staff.”

He also pointed out that the Grant Thornton contract was an “indefinite delivery/indefinite quantity” contract, a common vehicle in federal contracting but never before used in San Diego.

The umbrella contracts do not list specific goods or services to be delivered on a specific date. Instead, task orders are written when specific goods or services are needed. Critics of this kind of contracting say it has led to significant waste at the federal level.

Baxamusa told council it was being asked to approve a contracting method “that has never happened in your municipal history.”

Mary Lewis, the city’s chief financial officer, said the contracts actually provide more safeguards for taxpayers than typical contracting.

“You are only tasking out exactly what you need at the time you need it,” Lewis said.

Leading the managed competition program is Danegger, who until December of 2006 was a Grant Thornton employee. That month, she accepted a job with the city, working on managed competition. At the time, she owed the firm more than $10,000 for tuition it had paid while she was earning a master’s degree.

Danegger paid off the debt by the end of her first month of employment. But questions were nonetheless raised within City Hall regarding about her ties to Grant Thornton. In April 2007, she requested advice from the San Diego Ethics Commission.

The commission told her the following: “you may not, during the twelve months subsequent to the last day that you owed money to Grant Thornton, participate in any municipal decisions that are substantially likely to have a material financial effect on your former employer.”

City records show that throughout 2007, Danegger was involved in managed competition, and met with at least one Grant Thornton employee.

“It certainly puts into question the relationships with this particular contractor and the person in charge of managed competition,” Frye said recently. “The appearance is a bit of a problem.”

Danegger did not return calls for comment and would not talk to a reporter at Monday’s meeting. But in an April 2007 e-mail to then-city Purchasing Director Lance Wade, Danegger said she was bothered by questions regarding her ethical standards.

“I might not always be nice, or patient or kind — especially when it comes to holding myself and people who work with and for me to high standards for performance and delivery … but I do always try to be unquestionably ethical,” Danegger wrote.

Sainz said this week that Danegger followed the Ethics Commission’s ruling and had no dealings with Grant Thornton regarding its contract with the city throughout 2007.

“There is absolutely no conflict,” Sainz said.

Please contact David Washburn directly at david.washburn@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.

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