In fiscal year 2018 the City, excluding the Department of Education (DOE), procured $19.3 billion in goods and services.¹ This figure reflects the full value of all contracts registered in that year; spending against a contract may take place over several years. While exceptionally large or multiyear contracts can skew an annual figure, City procurement has exceeded $15.3 billion annually since fiscal year 2016.

There are five major categories of contracting: goods, construction services, human services, professional services, and standardized services. (See Figures 1 and 2.) In fiscal year 2018 about one-third of all contracts and one-tenth of all contract dollars were for the purchase of goods—the commodities and materials the City needs to operate, from pens and paper to road salt to asphalt.

Construction contracts accounted for 27 percent of contract actions and 19 percent of contract value. Given the size and complexity of many capital projects, these are often multiyear projects. Additionally, related services, such as engineering, architecture, and construction management, represented fewer than 500 actions for $641 million.

Contracts with nonprofit social service agencies to provide human services represented the largest share, 36 percent, of contract value.² These include contracts to operate homeless shelters, daycare centers, and senior centers; provide foster care and case management services; and offer health services, such as health programs for New Yorkers with HIV/AIDS.  Nearly 7,500 human service contracts were signed and many are multiyear contracts.

Professional services contracts, which include agreements with firms to provide accounting, auditing, management consulting, research services, and information technology, were 6 percent of contract actions and almost one-quarter of the contract dollars. The City also classifies contracts with quasi-governmental entities such as the New York City Economic Development Corporation (EDC), NYC & Company, and Brooklyn Navy Yard as professional services; in fiscal year 2018, these made up 61 percent of the value of professional services contracts, though much of the spending was for capital projects.³

Standardized services, which include janitorial services, security services, and waste export services, were worth $1.7 billion. 

Contracts vary substantially in size, and a small share of actions represented the majority of dollars. Contracts up to $100,000 were 86 percent of actions but just 2.0 percent of fiscal year 2018 procurement dollars. (See Figure 3.) Conversely, there were fewer than 1,000 large contracts, but they made up the lion’s share of dollars.  Contracts greater than $3 million were 84 percent of contract value.  The 120 contracts greater than $25 million represented more than half of the value of all procurements.

Agencies usually cannot simply order items from Amazon or use firms with which they have done business previously. Strict rules guide the purchase of items and services, and a complex web of government actors is tasked with establishing, monitoring, implementing, and overseeing the process. (See Figure 4.)

Policy Setters 

Policy setters establish the laws, rules, and policies intended to ensure the integrity of the process and prevent corruption, but also often advance other policy goals, such as diversity. The overarching framework for public procurement is set in New York State’s General Municipal Law. The Mayor and City Council enact the relevant local laws and the Procurement Policy Board (PPB) makes the rules, which must be in line with relevant State laws.  The PPB is comprised of five members: three appointed by the Mayor and two by the City Comptroller. Federal laws and regulations govern contracts with federal funding. 

Procurement Staff 

Procurement is managed by Agency Chief Contracting Officers (ACCOs), with oversight by the City’s Chief Procurement Officer, who heads the Mayor’s Office of Contract Services (MOCS). Additionally, employees at agencies such as the Department of Citywide Administrative Services (DCAS) and the Department of Information Technology and Telecommunications (DoITT) are responsible for contracts that procure goods or services for all City agencies (such as fuel, cell phones, copiers, and office supplies). At the end of fiscal year 2018, about 1,200 full-time employees across City agencies were involved in procurement as their primary job function.⁴

Oversight Agencies 

Multiple agencies—including MOCS, the Mayor’s Office of Management and Budget (OMB), the Law Department, the Department of Investigation (DOI), the Department of Small Business Services (SBS), and the Comptroller’s Office—review the contract to ensure it is valid, the vendor is responsible, and the process is fair.

A key tenet of public procurement is that a process with robust competition can secure the best price while ensuring a fair process. In fiscal year 2018, 41.5 percent of contract dollars were awarded through two competitive methods. (See Figure 5.) Almost 23 percent were competitive sealed bids, in which a bidder submits the best price his or her firm can offer, and the award is made to the “responsive, responsible” bidder offering the lowest price.⁵ Use of this method of procurement for construction services is required under State law in almost all cases. PPB rules permit award based on best value which can consider factors in addition to price for goods and standardized services.⁶

Almost 19 percent were requests for proposals (RFPs) that allow consideration of additional parameters identified by the agency and can be awarded based on best value.⁷ For example, prior experience, analytic approach, and staffing could be factors considered when awarding an audit or research contract, and this method is most often used for professional services, architectural and engineering services, and human services. 

Laws and procurement rules try to balance the need for competition with flexibility and reasonableness. For example, response to an emergency requires a nimble and speedy process. Similarly, an onerous process should not govern small purchases. Exceptions to fully competitive methods are permitted if criteria set in PPB rules have been satisfied.⁸ Table 1 provides a brief description of the non-competitive methods.⁹ 

The largest type of non-competitive new contracts were sole source, which totaled $2.7 billion or 14 percent.  This included contracts with EDC, the Brooklyn Navy Yard, and NYC & Company.  The criteria for sole source contracts are stringent to offset the risk of overspending and corruption.¹⁰

Another 8 percent of contract dollars, $1.5 billion, were spent through negotiated acquisitions, which can have elements of competition. Twenty-six percent of dollars were contract continuations—amendments, extensions and renewals—that may have been bid competitively originally, but are continued because the potential benefit of speed or continued service in not having to rebid the contract outweighs the benefit of going back to the market.

Figure 6 presents a simplified procurement process for a competitive sealed bid or RFP. The process can be divided into six phases: 1) determination and specification of the need, 2) solicitation and competition, 3) award, 4) review and registration, 5) delivery of goods or services, and 6) post-award contract management and performance evaluation.

An agency develops solicitation documents that are made available to potential bidders.¹¹ There are opportunities for interested bidders to ask questions and get additional information; depending on that feedback, the City may amend or alter the solicitation.¹² Each solicitation sets a date and time by which bids must be submitted to the City. For RFPs, agency committees review the submissions and complete a ranking and scoring process by which the best proposal is selected. The City also may also further negotiate to secure the best terms for the City.  When the award determination is made, results of the bids are made publicly available. 

To finalize an agency’s preliminary agreement, a typical contract undergoes review by no less than five additional agencies. MOCS ensures compliance with procurement rules and conducts any necessary public hearings.¹³ OMB ensures sufficient available funding and capital eligibility. The Law Department verifies compliance with local, State, and federal laws.  DOI reviews vendor integrity, and SBS ensures compliance with the local, State and federal equal opportunity laws and regulations.

Finally, the Comptroller has 30 days to register the contract or send it back to the agency. No other steps in the process have specific timelines or are tracked systematically, and the lack of transparency makes it difficult to hold reviewers accountable, hone in on bottlenecks, or identify systematic obstacles. The process takes so long that, in many cases, the contract is registered after the start date, or retroactively. According to an analysis by the Comptroller, 81 percent of new and renewal contracts in fiscal year 2017 were sent to the Comptroller for registration after the start date, with 43 percent more than six months late.¹⁴ This includes discretionary awards from elected officials, which are authorized during the budget adoption process for a July 1 start date.

In many instances when contract registration is delayed, vendors will take on risk and begin work before final approval. This is common in human services, especially for contract renewals or extensions, where the provider will continue to deliver services to clients while waiting for the contract to be registered.¹⁵

The City reports on cycle time—the number of days between a solicitation being released and a contract registered—for competitive sealed bids.¹⁶ In fiscal year 2018 the median cycle time was 179 days or about six months. (See Figure 7.) DCAS handled the greatest number of competitive sealed proposals in 2018, and completed the process in less than 150 days for half of the bids.  The Department of Parks and Recreation and the Department of Design and Construction (DDC), on the other hand, each handled more than 150 competitive sealed bids, with median cycle times of 192 days and 209 days, respectively.

Cycle time significantly underrepresents how long the procurement process takes the City for two reasons. First, it only reports the time from being released to registered, excluding the lengthy process of developing and approving the solicitation. This process can easily add months, or even a year, to the process. Second, cycle time is reported only for the most straightforward method, a competitive sealed bid, which is likely faster than an RFP.

This lengthy, convoluted process has implications for the City and vendors. First, cost can increase, or specifications can become outdated.¹⁷ Second, the City may incur additional contract costs during the time the vendor is waiting (for example, if construction equipment is on-site waiting approval of a change order, there can be associated costs for the City).¹⁸ Third, emergency extensions of existing contracts may be needed to ensure continuation of services. Fourth, the delays can create cash-flow problems for the City’s vendors.¹⁹

DCAS is supposed to serve as the central purchaser for goods greater than $100,000, and it handles the majority of City contracts to purchase goods. Between fiscal years 2014 and 2018, DCAS processed 941 contract actions valued at $1.1 billion per year on average.  This ranged from 62 percent of all dollars spent on goods contracts in fiscal year 2017 to 82 percent in fiscal year 2014.  Additionally, DCAS is handling an increasing share of standard services contracts.  In fiscal year 2015 DCAS processed 534 contract actions valued at $102 million (4.6 percent of the total).  Last year DCAS processed fewer, more costly standard services contracts—165 actions valued at $399 million or 22.9 percent of all standard services contracts.

Due to the volume of solicitations processed by DCAS each year, the agency has extensive expertise in the process and City systems.  As shown in Figure 7, DCAS has the highest volume of competitive sealed bids and the second fastest median cycle time.  Further centralization of procurement—both through purchasing goods and standard services across City agencies and by DCAS on behalf of an agency—has the potential to generate additional savings.²¹

An open marketplace fostering robust competition and management flexibility are essential to getting the most out of the City’s capital budget; yet restrictive State laws and poor management practices limit the pool of qualified firms that bid on City projects, fail to allocate risk properly, and result in cost overruns and delays.²²

Three mandates are particularly costly. First, construction contracts must be awarded to the lowest bidder; the City is not permitted to use best value to award construction contracts. Under best value bidding, the City would be allowed to consider bidder’s experience and expertise, the quality of the material, and other relevant factors in awarding the contract, rather than awarding merely on price as required under State Law.²³

Second, construction contracts must be procured under “design-bid-build,” which requires the design contract to be bid separately from a construction contract.  The City must go through the time-consuming solicitation process twice, rather than once. More importantly, it fractures the integration of design, architecture, engineering, and construction teams necessary for successful execution of large projects, making cost overruns more likely.²⁴ The State granted the City limited authority to use other models, such as design-build, which provide for more integrated project management.²⁵ Expanded design-build authority could generate substantial savings; for example, the City could realize savings of $2 billion over 10 years on bridge reconstruction, based on the State’s experience.²⁶

Third, Wicks Law requires the City to bid separate construction, electrical, plumbing and heating, and ventilation contracts for construction projects greater than$3 million.²⁷ Rather than issuing one large contract to a general contractor who would subcontract and manage the workload and timeline of the full project, the City is required to bid and manage these services separately. Wicks Law increases the cost of capital projects; since 2008, projects built under a Project Labor Agreement (PLA) have been exempt from Wicks Law.²⁸

In construction, the adage time is money is especially true. Construction costs escalate more rapidly than general inflation; from 2011 to 2017, the Consumer Price Index averaged 1.4 percent per year, while the Construction Cost Index and Building Cost Index averaged 3.7 percent and 5.0 percent per year, respectively.²⁹ This rapidly escalating construction market means that taking a long time to approve contracts, process change orders, and finish projects substantially increases the City’s cost. In fiscal year 2018, the median time to process a design change order was 65 days, while the median time for a construction change order was 62 days.  However, projects can have multiple change orders, which add up to considerable delays. For example, the average capital project for cultural organizations and libraries between fiscal years 2002 and 2014 took well over four years (nearly 1,600 days) to complete.³⁰

Data on modified capital contracts active as of October 2018 show that current costs are 22.6 percent higher than the original contract amount.³¹ The 677 contracts had a value of $8.3 billion when originally registered; today, the value is $10.1 billion.³² Table 2 shows the data for the top four agencies with 50 or more modified capital contracts. The two largest agencies, DDC and the Department of Environmental Protection, together saw a $1.1 billion increase on contact amount (18 percent of the original amount of modified contracts).  The Department of Transportation saw a nearly 50 percent increase in contract amount, with the 74 modified contracts increasing from $966 million to $1,435 million.

For many qualified firms, the City is not perceived as a desirable client, a problem that may have worsened in recent years. Between fiscal years 2003 and 2012, the number of bidders per bid issued declined from five to three. (See Figure 8.)  The Mayor’s Management Report from fiscal year 2012 attributed the decrease to a switch to electronic notification of solicitations; however, the decrease occurred over two years and has been sustained in the last five years.³³  While three bidders is considered the minimum level for a competitive process, this level of bidding activity could be driving up City costs. 

Antiquated systems, complex rules and regulations, inefficient and lengthy bidding processes, extensive review and oversight, and bureaucratic payment processes all make the City a less attractive business partner. For many contracts, the City may be paying a premium due to these shortcomings; this is the case in construction, where vendors reportedly build in a margin for the “cost of doing business with the City” when bidding on public construction projects.³⁴

While vendors compete against each other, the City is also competing with private businesses in the City’s robust and growing economy to attract bidders, which puts further pressure on the City to pay competitive prices, especially since private companies are likely to have less red tape and many pay more promptly. When top-tier firms opt out of government work, the City is left with less experienced firms.³⁵

Alternatively, in human services, government is the primary (and in some cases only) buyer of services.  The nonprofit sector has been lobbying actively for reimbursement rates to meet their costs, adequate salaries for their staff and sufficient funding for space, insurance, and administrative costs.³⁶

The City’s antiquated procurement systems have made the bidding process unnecessarily onerous for some potential vendors, thereby reducing competition and increasing the cost to the City.  Until very recently, the City’s vendor management system was paper-based: vendors would submit necessary disclosure forms and City employees would then manually key-in mountains of paperwork into the Vendor Exchange System (VENDEX).³⁷

The City launched a robust digital system called PASSPort in summer 2017 to transform this process.  The first phase allows vendor forms to be submitted electronically and vendor determination to be managed electronically. The second phase, expected this spring, will allow for electronic ordering, receiving, invoicing, and payment for commodities.  The third phase will move solicitation, competition, contract tracking, invoicing, and payment to the portal; release is planned for 2020.

For many contracts, the current process of invoicing and payment requires hard copy documents, manual data entry, and electronic payments.  Vendors have argued the City is slow to issue payment.³⁸ Data on prompt payment is incomplete because the City defines a late payment as after receipt of a completed invoice, which is a self-reported date entered by the City employee managing the payment process, oftentimes after an invoice went back and forth prior to payment. 

A prior digital effort shows there is promise in updating and streamlining processes and systems. HHS Accelerator, launched in March 2013, was developed to centralize and streamline procurement in the human services. First, vendors prequalify to bid, meaning they provide disclosures and other related information ahead of time to be certified to bid on City solicitations, which speeds up the bidding process.  Second, use of boilerplate forms standardizes the information being requested across agencies and RFPs.  Third, HHS Accelerator eliminates the need for nonprofits bidding on multiple RFPs to re-upload the same documents or forms as vendors can access their stored documents within HHS Accelerator. Fourth, invoicing and payment for human services contracts is done through HHS Accelerator. The Human Services Council (HSC), a membership group representing human services providers in New York City, has praised the HHS Accelerator and reported that users found the system streamlined procurement and reduced duplication.

An improved procurement system—better vendor relations, streamlined processes, technology, and flexibility—is critical to a competitive procurement environment where the City gets the best deal. The City stands to get the biggest fiscal return from greater efforts to improve the process for large procurements greater than $3 million; savings of just 1 percent on those contracts would exceed $160 million per year.³⁹

1) Continue to improve e-procurement systems, including e-invoicing and payment.

Development of PASSPort should remain a priority for MOCS. It is important to implement quickly a full online procurement system, including comprehensive contract management that allows for tracking contracts through various agency approval processes. The approval process should be streamlined and limited to essential reviewers. If projects become stalled, MOCS should be charged with addressing the delay and shepherding the procurement to registration.⁴⁰ 

To address issues of payment delays and invoice reviews, the City should implement electronic invoicing for all contracts, included in the third phase of PASSPort, which would bring transparency and accountability to the payment process.⁴¹

2) Centralize a greater share of procurement under DCAS.

In the November 2018 Financial Plan, the City proposed a savings initiative to consolidate citywide consulting services contracts under DCAS in order to reduce costs and work overlap.⁴² Such efforts should be continued in order reap the benefits of efficiency and economies of scale. Procurement responsibilities for small agencies should also be centralized under DCAS to leverage staff expertise in managing solicitations.⁴³ Each agency can continue to have a designated ACCO to work with staff on identifying the needs, but the actual work of developing the solicitation, reviewing the bids, and issuing the contract should rest with a central citywide procurement office. Increased centralization of procurement could save more than $80 million, assuming a 5 percent saving on procurements shifted to DCAS.⁴⁴

3) Streamline approval of capital projects and change orders.

Too many entities are reviewing capital projects to ensure compliance with capital expensing rules, and the process should be streamlined.  The DDC Strategic Blueprint for Construction Excellence emphasized the need to streamline procurement through better interagency coordination, especially between DDC and OMB.⁴⁵ Additionally, greater transparency through the PASSPort system will allow for identification of agency bottlenecks that can be used to rationalize the system and move contracts through the approval process more expeditiously. 

4) Continue to urge the State to change construction procurement laws.

State requirements for capital procurement, specifically, lowest bid requirements, Wicks Law, and the prohibition against design-build contracting, add substantially to the City’s cost. The State granted the City limited design-build authority for specific projects, but the City should continue to seek broader authority.  Lastly, Wicks Law should be eliminated.