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www.citylimits.org 1

Vol. 35, No. 5Novembe/Decembe 2011

IN THIS ISSUE

8 | Cost EstimateWhen the city brings in private copanies to do publicwork, it can get oreand lessthan it bargained or.

13 | 10 Percent WrongIn the school syste, not all private contracts get an F.But that doesnt ean they get it right.

20 | The Road AheadWhen the city hospital syste brought in a consultant,was it or adviceor credibility?

28 | The Deep DiveA plan baked in Atlanta ais to save public housingin New York.

35 | The Business o GovernmentPrivate-arket otives and public agency issionsdont always ix

CHAPTERS

MORE

UPFRONT

When private frs take on public work,

theres ore than oney at risk.

By Ruth Ford and Adrienne Day

2 | The Note: The Price o Advice4 |Your Voice: Comments on

Why Firefghters Die

THE FEATUREBEYOND CITYTIME6

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38 | HomeWorkSources on Outsourcing

38 | ExtraExtraJob Opportunities

40 | LookBackGridlock 2.0

ON THE COVIllustration bAlex Lukas


2/21

City Limits / Vol. 35 / No. 5 www.citylimits.org2 Beyond CityTime

CITY LIMITs sTDirectorMark Anthony To

Editor in ChieJarrett Murphy

Contributing EdPatrick Arden, NeiJeanmarie Evelly, MJake Mooney, MaliHelen Zelon

Advertising DireAllison ellis-Hind

Community EngManagerNekoro Gomes

Creative DirectAnthony Smyrski

ProoreaderDanial Adkison

InternsMilleska Contreras

Feldman, Gena MaLeah Robinson

BOarD

Mark Edmiston, chAdam BlumenthalAndy BreslauMichael ConnorDavid R. Jones

Andy ReicherMichele Webb

Up NExT

The UrbanAgendaFom Detoit, ONew Oleans andYok, a big city co Campaign 20

COmING IN JANUARY

I it were its own city, Brooklyn would

be Americas ourth-largestand

maybe its most interesting. Withunding rom the Knight Foundationand Brooklyn Community Foundation,City Limits is launching a bureaudevoted to covering New York Citysmost populous borough.

Starting this month, visit the newBrooklyn Bureau or Brooklyn-ocused investigative reporting,hyperlocal coverage rom ourpartners in the neighborhoods, andcommentary rom those who loveand liveBrooklyn.

Visit www.bkbureau.org

As City Limits wraps up its35th anniversary year, lookor these stories online:

Test ReviewIn 2010, the state recalibrated its tests,and scores sank. Normally, that wouldhave triggered remedial help or thou-sands o students, but the city cut a dealto avoid that. What happened in 2011 tothe students that unked in 2010?

Getting GroundedBrownfelds have been held out as apotential resource to a city thirsting ornew, developable space. But programsto clean up contaminated sites acechallengesas do neighboring resi-dents and businesses.

AIDS at 30In the summer o 1981, ederal monitorsmade their frst reports o a strange

illness that wed eventually call AIDS.A look at the state o the disease inNew York.

A Boom Grew in BrooklynNo borough saw more heat duringNew Yorks hot real estate market. From

Atlantic Yards to the waterront, wheredo all the projects o tomorrow stand intodays economy?

Illegal Apartments: A Citys Hope?Amid a crackdown on illegalconversions, some wonder i fndinga way to legalize some units mightbe better or residentsand the citystight housing market.

Te Price of Advice

In 2008, City Limits an a stoy abot Cityime, te pojectto steamline te citys payoll opeations.

At the time, the original $63 million budget had balloonedto $400 million, but Ali Winstons story was about t he peoplebeneting rom that largesse. Te main Cityi me contractor,SAIC, had experienced big problems on earlier technologymanagement projects. And the rm that was supposed tobe monitoring SAICs quality compliance, Spherion, hadan interesting link to the city ocial overseeing Cityime:Beore joining the Bloomberg administration, Joel Bondy,the executive director o the Oce o Payroll Administra-tion (OPA) had worked or as a consultant on Cityime or Spherion.

Last December, ederal prosecutors indicted six people oncharges that they had embezzled up to $76 million rom theCityime program. One o them, a consultant or Spherion,had, according to prosecutors, enjoyed direct access to theexecutive director o OPA and the ability to, among otherthings, help shape and approve contract amendments andwork orders. In the wake o the arrests, Bondy (who hasnever been accused o wrongdoing) resigned, more indict-ments came and Cityimes budget ballooned to more than$700 million.

But money isnt everything. Nor is Cityime the ull

measure o the Bloomberg administr ations use o p rivateconsultants and contractors. As Ruth Ford and AdrienneDay report in this issues eature, our nearly 10 years undera businessman mayor have seen a dramatic shi in thenumber and degree o city government responsibilities

that have been outsourced to private entities. One strikingtrend is the involvement o private consultants not just indelivering services or doing complex I work but also ingiving strategic advice to public agencies.

Teres no question that private businesses do some thingsbetter than government and that public-sector workers arenot uniormly the picture o eciency. But bringing in ahigh-priced, high-prole consultant is not always a panacea.In reality, as we report, the recommendations arent alwaysnew, the research isnt always good, the ideas sometimes dontwork and the projected cost savings might never appear.

A ew months beore leaving to pursue private-sectoropportunities, as City Hall so i namously put it, deputy mayorand privatization guru Stephen Goldsmith wrote that he hadconcluded that much o the solution [to budget problems]lies not in more outsourcing to the private sector but ratherin employing city workers to perorm more o our I work.

I that statement represents a change o direction or theBloomberg administration, its an admirable admission oerror. But its unclear how broad a reversal Goldsmith wasendorsing. And even i the administration wanted to, itsuncertain how quicklyand how ullyit could disentanglethe city rom the many private consultants it has hired tothink or it.

Sinceely,Jaett MpyEdito in cie

WHATS NEW ANd WHATS

NExT AT CITylIMITS.ORg

Make the NewsPublicize your

organizations events.

Send news tipsSubmit opinion pieces

Do it all at

www.citylimits.org

A Bureau or Brooklyn


3/21

Beyond CityTime City Limits / Vol. 34 / No. 54 The Death and Lie o the Neighborhood Store www.citylimits.org4 City Limits / Vol. 35 / No. 5Your Voice www.citylimits.org

DefenDing the fDnYDear City Liits,

I read your recent investigative series on the FDNY with great interest.

I would appreciate the opportunity to make the ollowing comments.

1. Te article states, But a crude look at statistics suggests that New

York does not stand out or reghter saety. Since 1990, Los Angeles has

lost 17 reghters in operations, Chicago 11, Houston seven. Not count-

ing Sept. 11 or deaths rom acute medical causes like heart attacks, NewYork City lost 32 reghters in that period. However this comparison

ails to take into account the size o the various re departments: New

York11,000 reghters, Los Angeles3,600 reghters, Chicago4,300

reghters and Houston4,190 reghters. One reghter atality is too

many, but at least when this is accounted or, the FDNY numbers are

placed in their proper perspective.

2. Te article compares the opinions o re saety experts with little

experience in large urban environments, e.g. NIOSH, with the opinion

o experienced FDNY chies. Given the complexities o reghting in

New York when discussing possible errors in command or risk benet,

this may not be appropriate. Even when the IC (incident commander)

concludes correctly that the risk is small and the gain is large, there will

be a certain percentage o times that the reghters may get seriously

injured. It seems in many cases that NIOSH is dening errors by the

consequences and concluding that an incorrect risk-versus-gain decision

was made. In my opinion, NIOSH is committing the error o hindsight

biasthe inclination to see events that have already occurred as being

more predictable than they were beore they took place. I a decision is

based on experience, how can someone without that type o experience

determine i it was correct?

3. When discussing adequate stang the article states, Dunns test,

Scoppetta said, was too limited. You really have to do a more controlled set

o tests to see what the dierence is, he said. Tere are many re depart-

ments that operate with three reghters. While some re departments do

operate three-person enginesHoustons doesnational standards call

or at least our, which is what Chicago generally uses, and the National

Fire Protection Administration has written that progressive re chies

believe ve is the minimum. Perhaps Chie Dunns test was too limited,

but what Commissioner Scoppetta ailed to point out is that extensivetesting conducted recently by the National Institute or Standards and

echnology (NIS echnical Note 1661) has concluded the ollowing:

For the low-hazard residential structure re, adding a h person to

the crews did not decrease overall reground task times. However, it should

be noted that the benet o ve-person crews has been doc umented in

other evaluations to be signicant or medium- and high-hazard struc-

tures, particularly in urban settings, and should be addressed according

to industry standards.

Given that all o New York is urban and ew areas consist o low-hazard

residential structures, ve-person crews would appear to be a reasonable

minimum. It should also be noted that aer the Houston Fire Department

(with a manning o three reghters) experienced 2 reghting atali-

ties NIOSH noted, It is recommended that a minimum acceptable re

company stang level should be 4 members responding on or arriving

with each engine and each ladder company responding to any type o

re. Te minimum acceptable stang level or companies responding

in high-risk areas should be 5 members responding or arriving witheach engine company and 6 members responding or arriving with each

ladder company.

I have always been impressed with the proessionalism o the FDNY,

perhaps most o all by its willingness to analyze its procedures and inves-

tigate ways to improve the saety o its members. Given the unique nature

o buildings in New York, as well as the constantly changing materials

inside those buildings, the job o New York reghter will never be sae

as we would like it. However, I am condent that it will be as sae as the

members o the FDNY can make it. Regarding the men and women o

the FDNY, I have always agreed with Charles Mackay:

Whatever the Americans are proud owhatever they consider to be

particularly good, useul, brilliant, or characteristic o themselves or their

climate, they designate, hal in jest, though scarcely hal in earnest, as an

institution. Tus the memory o George Washington ... is an institution;

the Falls o Niagara are an institution; the Plymouth Rock, on which the

Pilgrim Fathers rst set oot, is an institution ...; Sweet potatoes are an

institution, and Pumpkin (or Punkin) pie is an institution; ... squash is an

institution; Bunker Hill is an institution; and the remen o New York are

a great institution. Charles Mackay, Lie and Liberty in Aerica, 1850

Joseph Fleming

Deputy chie

Boston Fire Department

Most in-DepthDear City Liits,

During my nearly 25 years as a reghter, Ive studied all sorts o aer-incident reports, studies and more to look or ways to make our job saer.

Your column was one o the most in-depth, thorough and well versed

pieces Ive ever read. You went rom case study to case study and tied

them in well, quickly giving us plenty o inormation we need.

Brendan obin

Fireghter and saety proessional

inton Falls, N.J.

YOUrVOICE

COMMENTS, COMPlIMENTS

ANd CRITICISM OF OUR

RECENT WORk


4/21

BEYOND

CITYTIME

th e fEaTUrE

When private frms take on public work, theres more than money at risk.

Research support was provided Investigative Fund at The Nation


5/21

City Limits / Vol. 35 / No. 58 Beyond CityTime

t was a scandal so big, it pushed an I deal into theheadlines o New York Citys sexed-up tabloids:Cityime, a soware system that was supposed tomodernize the citys payroll administration, turnedout to be riddled with raud.

A $63 million contract with Science ApplicationsInternational Corp. (SAIC) that began in 1998 and

was to be completed by 2003 had ballooned to at least $700million and remained unnished. But that was, in a way,the good news. Te bad news was that at least some o themillions had allegedly been embezzled by the very peoplethe Bloomberg administration trusted to oversee the work.Eleven people and one subcontractor, echnoDyne, have soar been charged in the case, and two have fed the countrywith millions in allegedly stolen cash. Preet Bharara, theU.S. Attorney or the Southern District o New York, calledCityime one o the largest and most brazen rauds evercommitted against the city o New York.

Cityime might be in the spotlight, but its ar rom theonly contracting deal to go sour during the Bloombergadministration. NYCAPS, another personnel inormation-tracking system, developed by the management companyAccenture, has so ar cost taxpayers $363 million (and is alsoincomplete), despite being initially budgeted or $66 million

in 2002. Te Emergency Communications ransormationProgram (ECP), a contract that started out as a $380 milliondeal with Hewlett-Packard to upgrade the citys 911 system,had by early 2011 mushroomed to $666 million without anydiscernible change in the scope o the project, according toComptroller John Liu. A deal to give Snapple access to allcity schools and many municipal buildings ell apart aerit was learned that bidding or the deal was overseen by aconsultant who avored the beverage-maker, with whom ithad a long-standing relationship.

In the complex world o New York City politics, somemight call this the cost o doing businessor rather, ohaving private companies involved in the publics business.Indeed, scandals involving the interplay o public money andprivate businesses arent new. As ar back as 1969, there wasoutrage when Mayor John Lindsay commissioned a tracstudy by the management-consulting rm McKinsey & Co.and appointed two o its consultants to city positions as anapparent thank-you or polling the company did duringhis re-election campaign. In the mid-80s, the exposure oa scam to sell nonexistent computers to the Parking Viola-tions Bureau plunged the Koch administration into crisis.

odays scandals are dierent, however, because the roleprivate companies play in New Yorks government has changed.

Cost

EstimateWhen the city brings in private companies to do public work,it can get moreand lessthan it bargained or.

ChApteR ON EFrom 1996, when the city began publishing a contracts

budget, infation-adjusted spending on outside workeverything rom I consultants to oster care agencieshasswelled rom $5.7 billion to $10.5 billion, its share o the citybudget growing by 33 percent. Te contract budget this yearis $3 billion more than it was when Mayor Bloomberg wasrst elected.

More important, under the current administration, therehas been a steady shi in the way private companies arebeing used by the city. Its no longer just about putting thedelivery o individual government servicessay, xing roadsor providing school oodin the hands o private companies.

Tese days, tech rms are being hired to p erorm huge andhugely complex I projects that not only cost an enormoussum but raise issues around how dependent the city mightbe come on these high-tech wizards: A January report com-missioned by the city comptroller ound that the Cityimecontractor had done such a poor job training city employeeson how to run the system that, despite outrage over theprojects cost to date, the city might have to keep paying the

contractor to run the thing once its nally done.Meanwhile, other private rms are being hired not to

provide services or I know-how, but to tell the city how torun its existing programscraing its policy, strategy andmanagement. Accenture, Alvarez & Marsal, Boston Consult-ing Group and McKinsey have been summoned to guide thecity through everything rom rebranding city departments torestructuring the budget or ci ty schools. Its not the rst time

private rms have been brought in to help cra policyre department used Rand studies to site rehouses in1970sbut itsthe rst time somany agencieshave spent somany millionsasking outsid-ers how theyshould do their

jobs. Spendin gon proessionalservices contracts has nearly tripled under Bloomberg

Getting advice rom consultants or help rom privatexperts is sometimes a good idea. But an investigatioCity Limits into recent contracts let by just three city agenuncovered a host o issuesbeyond cost concerns thatup when private entities take on public work:

Free-market rhetoric aside, there is oen little real c

petition under privatization. A national survey o lgovernments ound that in most locations and or mpublic services, the average number o private rms could possibly take on government work was less ttwonot exactly perect competition. When it comgetting strategic advice, governments tend to seek rom only a handul o companies with big enough nato oer credibility.

See documents rom our

investigation at

../nuan

PRIVATE gOES PUBlIC

When he took ofce in2002, media-magnate-

turned-mayor MichaelBloomberg personifed

the long-standing

belie that governmentneeded to be run more

like a business. Private

sector work or theadministration has a

decidedly mixed record.

Photo courtesy Reuters.

BY ADrIENNE DAY


6/21


wk Htimeline o trouble or contractors

Teres little accountability for failurewhen a consul-tants report is done, the consultant moves on and the fawsin its ideas are the citys to deal with. Consultants canindemniy themselves rom any problems that crop upwhen an idea is implemented.

Transparency is also a concern. City Limits sought to ndout exactly what Boston Consulting Group was doing orthe two multimillion-dollar contracts it won this year romthe New York City Housing Authority, but our Freedomo Inormation Law request was rebued because BCGsadvice is considered private. Even a request to see theBCG contract itsel was not ullled. NYCHA chairmanJohn Rhea, who once worked or BCG, insists the consul-tants project is open to public disclosureultimately.

Consultants often use data theyve derived fromother situations and cities that might not suitablymatch the problems o a city the size o New York.Rather than getting innovative ideas, New Yorkgets concepts repurposed rom Atlanta or Chicago.

e contracts, notably the ones in the IT sector, can costa huge amount o money or a technological x to what isnot a wholly technological problem. We nd that a project

to improve special education case management proda better (i imperect) tracking system, but did not addother, underlying problems that might be more impor

Despite the high-prole problems o contracts units watch, the Bloomberg administration at press timethreatening to veto a City Council measure, the Outsoing Accountability Act, which would require a cost-benanalysis o each outsourcing move. City Halls appaobjection? Te bill would create too much red tape.

Even as the details about the scope o the Cityime disunolded earlier this year, Mayor Bloomberg deendedproject, saying on his weekly radio show in May that actually did a pretty good job here, in retrospect Te Fhasnt been able to get their new trac control system the IRSat the ederal level some o these programs goor decades, cost billions and billions o dollars and ncome up with anything. Te mayor added: Te one there theres no excuse or is we didnt catch raud, whicshould have. But having said that, the project is done, working. It will stop raud and it will be ecient.

Indeed, Cityime might end up working well. But wheCityime succeeds or ails, it is ar rom the only teswhether private contractors are worth their costsnaand otherwiseto the city o New York.

1969FDNY implementsa RAND-designed

assignment matrix that

leads it to concentrateewer frefghting

resources in areas seeing

more fre incidents.

1970Scandal erupts over theconsultancy McKinsey &

Co.s securing contracts

with New York City whileone o the companys

ofcers serves as assistant

city budget director.

1984The citys Department o

Transportation awards a $22million contract to Citisource, a

politically connected company

selling a computer system to trackparking violations and collections.

The computer didnt exist. Scandals

erupt around this deal and others,leading several ofcials to do

ederal time and to the suicide o

the Queens borough president.

1994Over a veto by Mayor Giuliani, theCity Council passes Local Law 35,

which requires the city to study the

perormance o private contractorsto determine i, in act, they are more

efcient than public employees.

1999HRA awards Maximus

$104 million in contractsto administer welare

reorm. It later emerges

that Maximus hired thethen-HRA commissioners

ather-in-law and close

riend beore the contractswere awarded.

002n the wake o the Sept. 11 disaster,

he FDNY hires McKinsey & Co.study aws in the emergency

esponse. McKinsey is given access

documents and radio tapes thathe 9/11 Commission, NIST and Theew York Timeshave to fght or.

03nicipal union DC37 issuesudy decrying the cost o

tractors. The Department

normation Technology andcommunications (DOITT)

kes 500 independent

tractors permanent civilice employees.

2004Food shortages hit

several schools as an

Accenture-authored planto streamline school ood

purchasing and delivery

hits snags.

2006DOITT resumes the

practice o payingmillions or private

contractors.

2007A plan hatched by

consultants Alvarez &Marsal to restructure the

citys school bus routes

leads to delays andconusion.

2009DC37 sues the Health and

Hospitals Corporation to

orce it to conduct a studycomparing the costs o

in-house and outsourced

laundry services. Instead,HHC hires Deloitte to

devise its reorganization.

2010Federal prosecutors

indict six peoplein an $80 million

embezzlement

scheme involvingCityTime.

2011Comptroller John Liu blocks a

$286 million contract associated

with the citys 911 modernizationeort. Schools Chancellor Dennis

Walcott cancels contract with

FTA, a frm with a post ofce boxas a headquarters that somehow

managed to win $100 million in city

contracts. Concerns emerge aboutNYCAPS, a privately led project that

has already cost $363 million.

We Serve

New York

Everyday Heroes

District Council 37, AFSCME, AFL-CIO 125 Barclay Street, New York, NY 10007 212-815-1000 www.dc37.net

New York Citys largest public employee union with125,000 members and 50,000 retirees

DC 37 Executive Board

Maf Misbah UddinTreasurer

Lillian RobertsExecutive Director

Veronica Montgomery-CostaPresident

Clifford KoppelmanSecretary

Oliver Gray, Associate Director

DC 37 Executive BoardLillian Roberts Eddie Rodriguez

ExecutiveDirector President

Cliff Koppelman Maf Misbah Uddin Secretary Treasurer

Oliver Gray, AssociateDirector

Henry Garrido, AssociateDirector


7/21

iterally reezing out public school kids might not havebeen what Alvarez & Marsal, the maverick turn-around rm hired by the New York City Depar tmento Education (DOE), sought as its legacy in New YorkCity, but one rigid January morning and thousandso stranded kids settled that score.

Aer A&M won a no-bid $15.8 million city contract tohelp the DOE streamline its budget, the global consultingcompany saw opportunities or the department to save money,especially on some school-bus routes that the Bloombergadministration said were carrying too ew students and wast-ing millions o dollars in the process. A&M predicted savingsby rearranging and eliminating such unnecessary routes.

According to a 2004 article in Business Week, back in the80s, partners Bryan Marsal and Antonio Alvarez solidiedtheir vision or their company over a game o gol. Teirphilosophy, orged over the tee: Its better to make a deci-sion, be 10 percent wrong and 90 percent right, than not toaddress the problem. Teyve since applied that theory to

such companies as Hostess, which was suering nancaer redoing its cupcakes and Ding Dongs recipes, rendethem doughy and unappetizing.

In 2003 came its rst oray into the public sector: Awas hired to help St. Louis schools consolidate their routes, as part o an eort to overhaul the citys nancstrapped public school system. In April 2005, A&M was hto oversee the reconstruction o the ailing New Orleschool system. Ten, in August o 2006, the DOEs Divio Contracts and Purchasing approved a request romoce o then-chancellor Joel Klein to retroactively hire Aor the period spanning June 06 to November 07.

At the time, the Bloomberg Administration was in ahurry to implement Empowerment Schools, an initiativtranser authority over curric ulum and budget rom the Dto individual schools, i said schools agreed to meet cerperormance goals. Te plan required that services provcentrally, like transportation, be streamlined. For this reathere would be no time or a competitive bidding proc

10 Percent

Wrong

In the school system, not all privatecontracts get an F. But that doesntmean they get it right.

www.citylimits.org

ChApteR TW O

In 2006 the city school system paid

an outside contractor $15 million torethink the citys bus routes. The result,

one critic says, was a fasco. Photo by

Marc Fader.

BY ADrIENNE DAY


8/21


Te DOEs Committee on Contracts green-lighted theno-bid A&M deal, giving the rmwhich was already work-ing in the public schools under the auspices o the Klein-lednonprot Fund or Public Schoolsa guaranteed paydaythat the DOE justied on the grounds that A&M was theonly rm to have done this type o restructuring work withpublic schools beore and that it has done so with dramaticsuccess in St. Louis and New Orleans.

But in November 2006, beore A&M released its rejiggeredbusing plan, the City Councils education committee releaseda report that raised issues with the A&M contract itsel,namely the salaries paid to its top consultants ($450 per hour)

and outrageousexpense reports(an estimated$1.5 million orthe duration othe contract).Te report alsoexpressed alarm

over a largerissue: the act that the DOEs contract budget had morethan doubled, rom $1.28 billion in 2002 to $2.68 billion in2006, with the cost o no-bid contracts growing rom $12million in 2002 to $56 million in 2006.

While DOE ocials credited A&M with improving St.Louis schools, Public Advocate Betsy Gotbaum said in astatement that Alvarez & Marsal ... le [St. Louis] schooldistrict in a shambles and that even a cursory check oA&Ms track record there would have been enough to raisesuspicions. Aer A&M departed St. Louis, the sc hool systemwas taken over by the state on the brink o bankruptcy. Manyin Missouri aulted the consultancy or its cost-cutting andschool-closing; some said A&M did its job o trying to bal-ance the systems books.

Yet there was no escaping the act that there are twice asmany children in pre-K and kindergarten in New York asin the entire St. Louis school system. Would A&M be up tothe demands o so huge an educational empire?

wo months later, in January, came the answer. For weeksollowing the implementation o the new busing plan, theDOE received thousands o calls rom urious parents: Manybuses never showed, leaving kids waiting in the cold; andsome kids as young as 5 were given MetroCards and le toend or themselves. It was a disaster, says Council MemberRobert Jackson, the chair o the education committee, o theA&M plan, in retrospect, just a complete disaster.

In the midst o it, school ocials set up a hot line thatelded more than 2,000 calls on the rst two days. Asked tocomment on the snaus, the mayor said: I think there werethe teething pains which you could expect. Could they havedone it better? Could they have handled the press better?Sure. But lets get on with it and get things done.

Te DOEs contacts bdget now stands at $4.5 billionwit

$149 million o it going o poessional sevices coveingwok ote tan diect edcational sevices.

Te use o contractors in general, consultants in particular,and no-bid deals in several high-prole cases, is typical othe Bloomberg approach across agencies citywide.

But the DOE is not like other agencies;its a sui generiscreature. Its not considered a mayoral agenc y, but the mayorexercises complete control over it with regard to the hiringand ring o its executive players. In addition, the mayorappoints eight o the 13 members o the purportedly indepen-dent Panel on Education Policy, which ostensibly monitorscontracting. Te PEP is a rubber stamp or the mayor, andeverybody knows it [thup]! Jackson says, pounding hisst on the table or emphasis. Look at Cathie Blackinessence the mayor gave her a no-bid contract! [thup].)

DOE consultants do everything rom ordering textbooksto coaching teachers to wiring classrooms. Some o thoseprojects have been considered successul. Some, like theA&M bus project and a deal with the global consulting rm

Accenture to streamline school ood operations ran intoserious trouble. And just this summer, the DOE belatedlynixed a contract with Future echnology Associates (FA)aer spending $74 million on mostly no-bid contracts withthe rm, so FA could set up an electronic ordering systemor principals. Te FA hadno track record, its headquarterswere a mail box in Jacksonville and an FA owner, with helprom a ormer DOE executive, allegedly skimmed rom themultimillion-dollar project, in part by secretly subcontract-ing work to cheap labor in India and urkey.

But some contracts are harder to categorize as a successor ailure.

SESIS (Special Education Student Inormation System) isone o these. Its implementation has been neither an unbridledsuccess nor a total ailure. But whats more interestingandtroublingis that even a perect SESI S might not have helpedthe students it was designed to assist.

Its a bigt day in te st week o class o New Yok Citys1.1 million pblic scool stdents. In a Clinton Hill coeeshop, a special-education teacher who works with seventh-and eighth-grade kids in a school and a neighborhood hedrather not name, is rowning at his laptop. Hes showing methe new soware program thats supposed to make his lie,not to mention the lives o the kids he teaches, easier. Butor now the system is rejecting his username and password.

A ew keystrokes later, were in. Te teacher pulls up theIndividualized Education Program, or IEP, or one o hisstudents, a 12-year-old well call Joe. (Under a ederal lawknown as the Individuals With Disabilities Education Act,every speci al-ed student in New York State must have an IEPdesigned in accordance with his or her specic educationalneeds.) Te teacher scans the page and points out a data eld

Investigative schools coverage at

../eduan

lESSON PlANS


9/21


to benet Maximus perhaps somewhat in the tail end o scal2009 but materially so in scal 2010 and beyond.

Montonis monologue revealed a company in mid-pivot,shiing rom a revmax business modelidentiying andclaiming reimbursable ederal dollars or state and localgovernmentsto a provider o I services like SESIS. AndSESIS, as the conerence call revealed, is simply a repurposingo an existing soware package called IENEa system thatMaximus had already implemented in the Chicago schoolsystem. Montoni reassured an anxious analyst: Naturally,well have to interace it with the systems o New York City,and well have to train the users in New York City on howto use it. But it should not be viewed as a custom-build situ-ation. Just as when A&M came into town riding high onprojects in St. Louis and New Orleans, SESIS was a case oa consultant getting big bucks to map a product created ora dierent (smaller) school system onto New Yorks uniqueeducation superstructure.

One o the early champions o SESIS was Linda Werniko,who in June 2009 retired rom her job as the citys top special-

ed ocial, only to be rehired by the Fund or Public Schoolsas a DOE consult ant on SESIS less than a year later. New YorkCitys Confict o Interest Board signed o on a wavier orher rehire at $1,000 per dayon top o her D OE pension.(Werniko declined to comment or this story.)

At abot $79 million, SESIS is a bagain compaed witCityime. But chances are that SESIS, along with many otherI contracts the city is currently engaged in, will end upcosting taxpayers more than its originally stated base rate.

City Liits obtained a copy o the SESIS contractwhich,at about the thickness oTe Collected Dialogues of Plato andsimilarly dense, is a pamphlet compared with many othersuch contractsand there are several places in which it isclear that Maximus can bill the city many million dollarsmore under a so-called renewal o contract and also undersomething called a change orderwhich eectively rendersthe originally agreed-upon price o the contract obsolete.(An example o this potential is the contracts awarded toAccenture in the past decade, whose value has swelled rom$455 million to $723 million.)

In these types o contracts, no one looks at the details,and change orders happen all the time, says Donald Cohen,chair o In the Public Interest, a good-government group thatocuses on responsible contracting. He compares a governmentconsultant wielding a change order to a contractor youvehired to build your house: Ive done hal o it, and Ill leaveit as is unless you pay me double.

But more important than the amount spent might be wherethat spending shows up in the citys budget. Hiring a consul-tant can lower a politically sensitive expensesay, the cost opaying all those politically unpopular public servantswhileraising another, lower-prole spending area. Its a dierent

line item in the budget, consultants versus civil workeno longer a personnel expense. In one case I know o, sultant hires] went into the same budget line item as clips, says Cohen.It makes it harder to see them, and itto greater and greater [contractor] involvement.

Meanwhile, major oversight and accountability loom. According to the DOEs Procurement PolicProcedures Manual, approved by the Panel or EducPolicy, the board that oversees the DOE, in January the DOE is required to establish a process or evaluatindocumenting the perormance o its vendors. But nosystem exists yet. Barbara Morgan, a spokeswoman DOE, says, A prototype system has been developed anbe rolled out in the near uture to capture this data. Fadministration intent on measuring and grading everyrom teacher perormance to school graduation rates, mon high-priced private contractors are, surprisingly, ab

Beyond te qestions abot cost and ovesigt, owis te SESIS podct tat Maxims as deliveed?

Maldonado says SESIS makes the process o trackinIEP much easier, and when implemented correctly, evewho needs to sign o on it is held accountable. SESIS msure that everyone does what they need to do. Tey hprovide the service beore they check the box, he says

But implementing SESIS has been anything but easyTe biggest issue has been schools literally not havin

bandwidth to run the program: Many principals donenough money in their recession-strapped budgets totextbooks, let alone laptops. Connelly was at a special etion district oce when they tried to demo SESIS, bu

There are about 170,000

kids with special ed

needs, and not all are

getting what they need

They dont have perect

IEPs now, with SESIS, but

part o the problem is tha

they didnt have good IEP

to begin with.

thats been le blank. Tis document is useless to me, hesays, shaking his head. Joe now has a beautiul IEP, but itdoesnt change anything. His mom didnt show up or theIEP meeting. Without her input, the teacher explains, theprocess o implementing a ederally mandated educationalprogram tailor-made or Joewho is in seventh grade butreads at a second-grade levelgrinds to a halt.

Last year, New York Citys Department o Education startingrolling out SESIS. Te program is designed to track sp ecial-edstudents regarding their specic educational needswhatsbeen done on each students case, whos done it (teacher?paraproessional? administrator?), and what needs to bedone next. I anyone involved with the child shirks his orher duties, its noted in the system.

When the DOE moved to upgrade its IEP process in 2005,there wasnt really much o a process to speak o. Roger Mal-donado, an attorney, represents special-ed plaintis in theJose P. litigation, a landmark lawsuit led in the 1970s toorce the state to provide school services to disabled children.Beore the move to SESIS, Maldonado says, the DOE reliedon an old soware system that made it next to impossible tond special-ed students who were alling through the cracks.

And the quality o the IEPs varied widely. Tey were largelyhand-written or kept in local computer databases, whichoen caused major problems whenever a student trans erred

schools or graduated to a new one. A child would changeschools and their IEP would show up six months later,says Patricia Connelly, a parent advocate and activist witha ocus on special education, and who was serving on theCitywide Council on Special Education Needs when the DOEannounced the SESIS contract. So the general consensuswas that something had to be done.

So the DOE put out a request or proposals or a newsystem and got several bids. Te Virginia-based consultingcompany Maximus won the contract.

Maximus motto is Helping government serve the p eople,but, as with all corporations, its bottom line is to help itsshareholders. A February 2009 earnings conerence call madeclear that where others see policy or politics, Maximus (andprobably other consultants) sees prot.

Our business today stands well-positioned to benet inthe long run rom greater demand or our services due tothe economic slowdown and new legislation that calls orexpansion o existing programs. Tis includes increasedunding through the proposed $800 billion-plus stimulusplan, Richard Montoni, Maximus CEO, said on the call.He added that the stimulus bill encompasses many o thebenet programs in which we operate, in act, in oeringswhere Maximus is the market leader. He went on to say:Once the legislation is passed, we expect that it will begin

Ater the consulting group Accenture

suggested structural changes to how

New York schools got their ood, therewere shortages at some schools and

months o wrangling between DOE and

private delivery companies over tens othousands o dollars in fnes. Photo by

Marc Fader.


10/21


11/21


xing hospital workers and closing pediatric clinicsare never popular decisions to make. And whenthe New York City Health and Hospitals Corpora-tion hired Deloitte Consulting LLP in September2009 to help the agency with restructuring andcost containment, the consulting rm knew ono comparably challenged health care delivery

system in the U.S. against which to size up the needs andproblems o New York Citys public-hospital system. But thatdid not dissuade Deloitte rom taking the job.

Quite the opposite, in act. Indeed, Deloitte had everyreason to power orward. Having bested its closest competi-tors in a series o presentations to senior HHC managementin the spring o 2009, the rm was not just adding anotherclient to its portolio. It was also keeping a rm grasp onthe latest holy grail o management consultingthe public

sector and its money.Moreover, because Deloitte was hired through an expedited

negotiation acquisition process, with HHC arguing that therewere only a limited number o rms capable o doing thework, it meant that it would be dicult or anyone, like thecity comptroller or the unions representing HHC workers,to kick up a uss. And while the amount o the contract,$3.85 million, was hardly a kings ransom, it was nothing tosneeze ataveraging out to a healthy $160,000 a week orsix months o work.

Finally, one o the best reasons to work or HHC: Teagency was taking the unusual step o revising its execu-tive hierarchy to create a restructuring steering committeeto oversee Deloittes analysts as they gathered and collateddata on the 38,000 employees and 1.3 million patients whomake up one o the oldest and the largest public health care

The Road

Ahead

ChApteR THrEE

When the city hospital system brought in a consultant,was it or adviceor credibility?

delivery systems in the U.S.making the contract or HHCseem not only possible but eminently doable.

With HHC senior staers working side by side with Deloitteconsultants to monitor the data gathering, HHC was helpingin two ways, guiding the intelligence gathering and cuttingdown on the possibility o any miscommunication betweenconsulting rm and client.

In act, once Deloitte was hired, the only truly politicallysensitive issue was HHCs problem, not Deloittes: letting theunions know about the reorg and weathering the inevitablestorm o questions and criticism that would arise.

Tat would not be a pleasant task or HHC. S o the corpora-tion waited. And then waited some more. Finally, six weeksaer Deloittes ocial start date o Sept. 30, 2009 (and ourdays beore the consulting rm submitted its rst billor$787,500), HHC president Alan Aviles met with the hospi-tal systems municipal labor committee on November 9 toannounce the sweeping review o the s ystemits 11 hospitals,our nursing homes, six diagnostic and treatment centers,and 81 community clinicsthat was already under way.

It was no secret to anyone in that meeting that HHCunder the gun. With the corporation acing a projecbudget decit or FY 2011 o $1.2 billion, acc ording to its calculationsa decit due to the combined result o cuMedicaid unding, a rise in uninsured patients and climpension and health care costs or HHC workerstimeo the essence in not just identiying the changes the hospsystem needed to make but also making them.

But DC 37, the citys largest municipal union, was imdiately on its guard with the news that it was Deloitte leathe reorganization. No one rom the union was invitesit on HHCs restructuring steering committee, accorto Henry Garrido, assistant associate director o DCTe union was simply there, in eect, to be told what to

Not that DC 37 didnt have ideas or how to reducescal pressure on HHC, and the city or that matter. in the past decade, the union released white papers ouing ways the city could save money. In a 2002 white pheadlined We Can Do the Work, DC 37 estimatedcity could save $121 million i it contracted in more o

Under a 2010 reorganiplan penned largely b

private consultant, the

and Hospitals Corporaclosing part o Coler-G

and has already shutt

several community cliPhoto by Marc Fader.

BY ruh FOrD


12/21


Commission on the Publics Health System, a 20-year-old coalition o community groups, health care activistsand health care proessionals that advocates or equalaccess to health care.

In an email, HHC spokeswoman Evelyn Hernandezemphatically denies the suggestion that Bloomberg

and Aviles cut a deal: Mayor Bloomberg was in noway involved in HHCs decision to hire an outsideconsultant.

But i HHC chie Aviles was testiying beore theCity Council in May 2009 that the corporation wasembarking on cost containment actions, why then didthe corporation have to hire Deloitte? According toHernandez, while the need or cost containment actionshad been identied as early as 2008, by the spring o2009, HHC senior leadership had determined thata broad, long-term plan was needed to address thelooming decit.

Te directive to Deloitte was clear, according toHernandez: Deloitte was asked to provide options orcost containment, restructuring o existing operations,consolidation o administrative services and opportuni-ties or growth. Te rm was told that the top priorityor HHC leadership was to preserve the public hospi-tal systems core mission to care or all New Yorkersregardless o their ability to pay or immigration status.

Whether its recommendationsand HHCs reac-tion to themactually preserve that core mission isa matter or debate.

O te 100 ecommendations tat Deloitte ltimatelymade, hhC tned 61 down. Some o the recommen-dations HHC rejected included closing one-third oHHCs 81 community-based clinics, eliminating mostoutpatient specialty ser vices and consolidating theminto one acility (a move that would have netted HHC$179 million but would have had high mission impacton HHC patients, wrote Deloitte) and eliminatingnearly all long-term-care beds.

Te rest o Deloittes suggestions made it into theupbeat, were all in this together HHC report, TeRoad Ahead. Among the announced changes was theconsolidation o the Coler-Goldwater campuses onRoosevelt Island, with the closing o Goldwater (and thesale o its land) and sta reductions at Coler. Tere wasalso the planned elimination o 3,700 jobs, or 10 p ercento HHCs workorce, through attrition and layos; theclosure o six community-based clinics, including vepediatric clinics; and theoutsourcing o HHCs16.5 million-pound-a-year laundry system.

Tey were sweepingcuts. By comparison, theexpertise behind themsometimes seemed lessthan all-encompassing.Deloitte acknowledged potential weaknesses in itsanalyses, among them that it wasnt clear what all the

HHC job descriptions were and that collecting inor-mation on patients, surgeries and results was dicultbecause o incomplete data. But perhaps the biggeststumbling block was the act that there was no patientpool truly analogous to HHCs, at least none that Deloittecould nd. HHCs patient population is more diversethan national norms, Deloitte noted in its condentialreport to HHC, which was released aer a Freedom oInormation Law request rom City Liits.

Casting about or what both the consulting c ompanyand its client reerred to as national benchmarks,Deloitte nally settled on several national reports andsets o statistics. But there were caveats. One impor-tant resource lacks benchmarks or public hospitals,Deloitte noted. Whats more, compared to other systems,HHC physicians may spend more time in ambulatorysettings, patients may require additional time, andstandard service-measuring tools do not capture teach-ing activity. In short, HHCs doctors handled sickerand more diverse patients, who required more timethan average patients, and who were oen dealt within a teaching-hospital setting. In sum, there was no realcomparable benchmark to HHC across the U.S. Perhapsthe closest would be the veterans health care system.

With the lack o a real benchmark came a lack o realunderstanding about the population that HHC serves,say critics o the restructuring.

Not that the consultant didnt point to inecienciesthat needed to be addressed: Te intake data collectedon patients across HHC was uniormly acknowledgedto be uneven, and a fawed billing system cost HHCuntold amounts in Medicaid reimbursements. Te lacko soware compatibility across the sprawling system

servicesending the widespread use o temporaryclerical, secretarial and handyman workers acrosscity agencies as well as cutting down on consultantsin the Board o Education.

And in February o 2009, seven months beoreDeloitte came on board, the union released MassiveWaste in a ime o Need, calculating that New YorkCity could save $130 million by ending the practiceo hiring outside contractors and using city workersto do city work.

Te union pointed proudly to the act that aerthe release o the 2002 white paper, the BloombergAdministration had actually cut back on outsidecontracts and saved the city $175 million in 2004 and2005. But by 2009, the report noted, city spendingon private contractors had climbed to $9.2 billion ayear out o a total budget o $60 billiona $3 billionincrease over 2003.

Te net result? Tat there was a shadow govern-ment with a parallel workorce now embedded intoNew York City, DC37 Executive Director LillianRoberts wrote.

But or DC 37, the biggest issue it had going intothe November 9 meeting with Aviles was not thatDeloitte had been hired to assist with the hospitalsreorganization: it was that plans or a major hospital-system-wide reorganization had already started,months beore.

In a press release posted on HHCs website datedMarch 19, 2009, HHC listed the nancial obstaclesit was up against and the series o steps it was taking

as a nancial course correction: service reductions,layos, sta attrition and other eciencies totaling$105 million. By July 1, HHCs workorce would bereduced by approximately 400 positions, the pressrelease stated.

wo months later, Aviles appeared beore the CityCouncils nance and health committees to take upwhere the press release le o: t hat even aer the cutspreviewed in March, HHC had to nd an additional$211 million in savingsand that was only to addressthe immediate budget gap. Going orward, HHCwas looking at a combined structural decit o $514million over the next three years, owing to decreasedMedicaid reimbursements rom the state and eds.

HHC needed help, Aviles told the City Councilmembers; it needed members o the City Council tohelp the corporation lobby state legislators to stopthe Medicaid cuts.

But the state had actually already oered to providea separate stream o money: $300 million in Dispro-

portionate Share Hospital, or DSH, undingmoneythe ederal government gives to the states each yearto help cover the cost o serving the uninsuredpro-

vided the city came up with a matching $300 million.Te question or HHC was, could it count on the

citys support? In previous years, the city had steppedup to the plate, authorizing $500 million annually toassist HHC in closing its decit. But Aviles told theCouncil that HHC wasnt taking any chances. It wasgoing to identiy targets or other cuts and bring insome outside advice. My sta and I are in the processo identiying consulting rms with relevant expertiseand a deep understanding o the New York City healthcare environment to assist us with the complex analysisthat is required to develop a easible restructuringimplementation plan, Aviles said.

Deloitte was hired that all. Te ollowing May,Aviles had good news: Te mayor had pledged toprovide HHC with the $300 million in matchingunds it needed to qualiy or the DSH dollars romthe ederal government. And on May 11, 2010, Avilesunveiled on HHCs website RestructuringHHC: TeRoad Ahead, the Deloitte-inspired, multimillion-dollar reorganization plan that was going to saveNew York Citys hospital system $300 million overthe next our years.

Some observers believe the mayoral money wasa reward to HHC or undertaking a consultant-ledreorganization plan. It looked like the mayor agreedto do the DSH matching and give HHC dollarsithey agreed to come up with a our-year plan to cuttheir budget by $300 million, and that led to layosand the like, observes Judy Wessler, director o the

More healthcare reporting a

../heah

dIAgNOSINg NyC

In 1998, Mayor

Giuliani orceda third o the

erations at the

HHCs centralundry acility to

e privatized, on

he promise thatadministration

d study the cost

ct o the move.Photo by Marc

Fader.

They were sweeping

cuts. By comparison, the

expertise behind them

sometimes seemed less

than all-encompassing.


13/21


SI* or end-to-endprocurement

overow

and oered a trade: Te contract with Angelica wouldbe phased out over time and the 6 million poundso laundry would come back to Brooklyn CentralLaundry i, in return, the union would allow HHCto outsource meal preparation: the ood giant Sodexowould prepare the ood to be served in al l 11 hospitalsand our nursing homes and union employees wouldsimply thaw the ood, cook it all the way and serve it.

Te union agreed. Te ood deal was done. But thelaundry never came back. (When the Angelica contractended in 2010, a company called Superior Linen tookover.) And when HHC released Te Road Aheadin2010, with the news that the laundry was going to beshut or good, the decision le many reeling.

From the bottom o my heart, this is one o the mostdeceptive things that HHC has done, says CarmenCharles, president o Local 420, which represents 9,500o HHCs 38,000 employees. Te deal was, they weregoing to bring the laundry back. Te deal was, they

were going to renovate [Brooklyn Central Laundry].HHC deliberately did not put any money into thelaundry so they could make the argument that theycouldnt keep it open because its old, its decaying.

I that was the decision, why did they pay $4 mil-lion to Deloitte to tell them this? she asks. Deloittenever once set oot in Brooklyn Central Laundry.

In July, HHC awarded the new laundry contractto a amiliar ace, Sodexo, this time leading a con-sortium o companies including Unitex, a linen anduniorm rental company, and Nexera, a managementcompany associated with the Greater New YorkHospital Association.

In Deloittes condential report to HHC, the savingsanticipated by closing the laundry and outsourcing allits services were estimated at $6.1 million a year. Inaddition, Deloitte wrote, Decommissioning opera-tions at Brooklyn Central Laundry will eliminate theneed or signicant capital improvements to the

also made data-crunching enormously dicult andhampered HHCs ability to nd better ways to provideservice at lower cost to the hospitals.

Ten too there was the imbalance in HHCs contractswith outside physician groups, known as aliationagreements, which Deloitte suggested be renegoti-ated to save the hospital money. Tese deals costHHC dearly not once but twiceonce in ees to theoutside doctors, and again when those doctors sentthe patients to non-HHC acilities or ollow-up treat-ment. With Deloittes recommendation in hand, HHCsays it saved $18.5 million last year by renegotiatingthose aliation deals.

But or Wessler, other recommendations that HHCwas looking to implement were terrible, such as theshuttering o pediatric clinics, ollowing on the heelso HHCs decision to close our school-based mentalhealth clinics a decisi on she determined appalling.

And while Aviles told the City Council that HHCneeded to nd savings in its central sta and admin-

istration, DC 37 says the cuts and layos listed in theDeloitte plan ell disproportionately on the lower levelso HHCs workorcesecretaries, janitors, laundryworkers, nurses aides and people like Patsy Carter,who or 24 years has worked at Brooklyn CentralLaundry, or BCL.

Fom 1962 ntil tis smme, wokes at BCL onKingston Avene in Cown heigts andled mosto all o te 16.5 million ponds o landy done

yealy o te ospital system. Carter worked thereor two decades, making lasting riendships, buyinga house and raising three children on her salary, cur-rently about $34,000 a year.

Among the pounding rollers, soaking bed sheets andclanging dryers, a sense o kinship and chivalry wasalmost literally built into BCLs brickwork, ormer work-ers say. Aer the laundry was delivered, the heaviestand most dangerous work, sorting stained sheets andthen loading them into washers, was handled by themen on the third foor. Ten the laundry was movedto the dryers on the second foor and down to emaleworkers on the rst foor who ed the seemingly never-ending stream o sheets, pads, towels, blankets, scrubsand washcloths through industrial olding machineslined row upon row like hulking metal sentries alongthe acilitys cavernous rst fooreight hours a day,six days a week.

Te work was hot, repetitive and hard on the eet andback. Te rollers were loud, the sheets were heavy, andin the summer, the temperature could quickly surpass100 degrees. But or the Brooklyn Central Laundryworkers, once 300 strong, toiling and sweating at the

laundry acility was akin to living in one big, noisyamily or years and years.

Te amily had been under strain or some timeatleast since 1998, when HHC rst proposed to privatizeits laundry services as a way to save money. Ultimately, adeal was reached with the workers at BCL: In exchangeor new machines and the completion o a cost-savingsanalysis to determine whether it reallywas cheaperto outsource the linen services, the workers agreedto the redeployment o 63 o their 300 jobs and anoutsourcing o a third o the laundry.

HHC in turn signed a contract with the Angelicaextile Services in Edison, N.J., starting in 2000, send-ing almost 6 million pounds o laundry out o stateto be washed, ironed and shipped back.

For the next nine years, HHCs linen service wasdivvied up between Brooklyn Central Laundry workersand Angelica, with Angelica racking up lawsuits roma subcontractor who sued the New Jersey companyor ailing to pay or suppliesand won. Accordingto DC37, the cost-comparison study, done in 2001,proved that it was cheaper to do it at Brooklyn CentralLaundry not by much, but it was cheaper, accord-ing to Garrido. HHC maintained it could not nd acopy o the survey.

In 2004, wanting to privatize again, this time in thearea o ood service, HHC went back to the unions

Be EaeNot all private contracts bust their budgets. Some exceed their initial price bya little. And some by a lot. Heres a look at just one city contractor, Accenture,and the award amount versus the nal amount or all contracts ending witha value o $10 million or more over the past decade. (Amounts in thousands;contract names taken rom comptrollers database))

$37,754 $41,287

$50,000

$89,000$94,212

$108,413 $109,704

$1

$35,000

$20,000

$50,000

$89,000

$60,000

$79,620

$40,000

$4,227

*System

Source

Original contract

Revised contract

n 2010, the frm

HHC has since

hired to run itsundry services

orced to pay a

million fne, thegest settlement

tiated by then-

torney GeneralAndrew Cuomo

under the New

rk False Claimst. The frm says

he dispute was

caused by anrror thats been

ected. Photo by

Marc Fader.

Citywidedevelopment

and SI

Citywide SI ortechnology

project

Appdevelopment

services or 311

Symantec netbackup

SI or AccessNYC

SI or thecitizen servicemanagement

system

NYCA


14/21


acilitys roo and equipment, a savings o $1.2 mil-lion a projection that was increased to $2 million inTe Road Ahead. But there were risks to this plan,Deloitte warned: Te quality o customer servicemay be impacted.

Looking at the ne-print o Sodexos oer raisessome doubts about the projected cost savings. In its100-page response to HHCs laundry service requestor proposals, Sodexo said it would be able to reduceHHC laundry costs by $65 million over the span othe nine-year contract. Sodexo said it could pick up,transport, wash, dry, old, pack, transport and deliver(along with its consortium mates Unitex and Nexera)the 16.5 million pounds o laundry the HHC systemproduces annually or 61 cents a pound, comparedto the unions calculated costs o 70 to 79 cents apound, and HHC managements calculations o $1.30per pound.

But it turns out the relatively cheap cost o thecontract covered only the price o cleaning the sheets,towels and blankets. Separate costs, such as cleaningscrubs and lab coats and cubical curtains, are extra

costs under the deal (so is hanging the lab coats onhangers). In case o emergencies, Sodexo could guar-antee only that needed sheets and scrubs would beavailable within a our-hour window, and in such asituation the price o getting the needed linens wouldrise past the $0.61 per pound initial cost.

Also in the Sodexo RFP was an endorsement romormer HHC Chie Operating Ocer Frank Cirillosigner o the checks totaling $3.85 million to Deloitteover the six-month period it worked or HHC.

Regarding the complete outsourcing o HHCslaundry services, Cirillo wrote, Every so-call[ed]expert we talked to said it would take three yearsto implement this model at HHC. I didnt have thatkind o time. I told the Consortium we had eighteenmonths and they beat that target!

Reached by email, Cirillo, who retired rom HHCin January 2011 to start Cirillo Consulting GroupLLCalong with ormer HHC executive Stanley J.Pruszynski, HHCs ormer corporate complianceocerreused to comment.

For its part HHC vigorously deends the awarding o

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the laundry service contract to Sodexo. I can tell youthat the HHC contract with the consortium, a joint

venture, to meet HHCs laundry needs or a term onine years will generate a total savings to HHC o $72million, Hernandez writes. Not only is this a moneysaving deal or HHC, most other hospitals in the

city outsource their laundry operations, she notes.

Itll be yeas beoe te claims o cost savings can betested. But already, the outcomes o the privatizationhave come under re, at least rom ormer BrooklynCentral Laundry workers, now assigned to new jobsthroughout the HHC system.

According to Carmen Charles, this all the man-agement at Lincoln Hospital in the Bronx sent outa notice to its cleaning crew in the hospital that thenew private laundry service was having dicultygetting the laundry distributed around the hospitalin a timely manner and ormer BCLers were beingasked to pitch in to assist. Charles was i ncensed: Teytake this work away rom us, they give it to someoneelse who is supposed to know how to do it, and doit or less, and then they want my workers to do thework? No way.

Asked about reports o problems in getting thelaundry distributed at Lincoln Hospital, a spokesmanor Sodexo says that HHC had not complained o anyproblems to Sodexo. HHC is pleased with the waythings are going, says the spokesman.

Failing to get bed linens and towels to patients inone hospital during a major transer o operationalreins is hardly sucient reason to condemn the wholeprivatization process. But critics say Sodexo is a com-pany that needs to be watchedand careully. In 2010the company was orced to pay a $20 million ne, thelargest settlement negotiated by then-Attorney GeneralAndrew Cuomo under the New York False ClaimsAct, or ailing to pass on rebate savings to 21 New

York school districts and the SUNY college system.Te ailure to pass on the rebate was a clerical

error, which was ound and xed, says the Sodexospokesman.

Te closure o the Brooklyn Central Laundry is onlyone part o the Deloitte-endorsed HHC-restructuringplan. But in a sprawling system that deals with thecomplexities o modern health care, it oers a singleand simple example o what a $3.85 million restruc-turing strategy can lead torecommendations basedon educated guesses about how a system works, sav-ings projections with loopholes big enough to drivea laundry truck through, a contractor with a spottyrecord. Like the rest oTe Road Ahead, the laundryplan could, indeed, end up saving HHC money. Butthere is reason to reserve judgment.

So, too, on the human impact o the plan. Whatwill the closure o Goldwater and the consolidationo Coler really mean? What has been the eect o theclosure o the clinics? City Limits asked HHC or usagestatistics on the clinics that have remained open, butHHC has not provided the data.

president Alaniles (beige suit)

with Dr. Michael

ocker, the chairthe HHC board.

Facing a fscal

, Aviles broughtin a consulting

up to sell tough

ices like layinga and closing

linics. Photo by

Marc Fader.

Itll be years beore the

claims o cost savings

can be tested. But

already, the outcomes

o the privatization

have come under fre.


15/21


s the oldest and largest public housing authorityin the nationwith 414,000 residents living in178,000 housing units spread across 344 devel-opments whose physical plants and mechanicalsystems are aging out almost simultaneously amida hostile ederal unding environmentthe NewYork City Housing Authority has a host o thorny

issues it needs to tackle.Earlier this year, seeking help to tackle them, NYCHA

looked south. Not south like Staten Island. Real Housewiveso Atlanta-type South.

Citing the ongoing work that the private consulting rmBoston Consulting Group (BCG) is doing or the AtlantaHousing Authority, the board o the New York City HousingAuthority voted unanimously in March to give BCG $6.05million to provide comprehensive business transormationconsulting services pursuant to the terms and conditionso the current contract between the Housing Authority othe City o Atlanta and BCG.

Tat brie description was all the inormation that was

publicly given at the March 2, 2011, board meeting. And theresolution made barely a splash. Te vote to give BCG $6 mil-lion was one o ve resolutions the NYCHA board voted onthat morning, ollowing votes to approve a hal-million-dollaremergency contract or tree removal, a $600,000 commerciallease contract and the transer o 32,000 square eet o landand 160,000 square eet o air rights in East Harlem to a realestate consortium building a charter school, communityacility and 87 units o aordable housing.

Six months later on Sept. 14, with a nearly similar lacko anare, NYCHAs board voted to extend BCGs contractby another $4.26 million, a 70 percent increase in undingthat le some in the authority doing a double take at theboards largesse.

In the past, with our capital projects, i a contract wentbeore the board and the amount o the extra or percentagewas this large, it would raise eyebrows, and people wouldget reamed, said one NYCHA employee, a 15-year-plus

veteran o the authority.Tere was no i ncivility that morning, however, at NYCHAs

public board meeting, held in a conerence room in theauthoritys oces at 250 Broadway. Instead, the proposalor the contract extension was presented as a necessary butotherwise unexceptional request olded into a list o resolu-tions the board voted to approve, including commercial leaseauthorizations, capital improvements to an undergroundsteam distribution system, and $10 million or a contractto purchase special waste-disposal bags.

Teres no question that NYCHA has a lot to think about.Since 2002 ederal support or public housing operatingexpenses has plummeted, and capital unding has also laggedwell behind the needs o an agency with buildings that areapproaching 80 years old. Former Gov. George Pataki withdrew

Albany support or the handul o NYCHA developmthat were built by the state, and Mayor Bloomberg bsimilar retreat rom several city-owned complexes. Tbillion agency has been running an operating decit Chairman John Rhea has p egged between $150 million$200 million a year and has had to lay o workers despstaggering backlog o maintenance ordersa backlog moved rom onerous to atal three years ago when a 5-yold boy plummeted 10 stories down an elevator sha inaylor-Wythe houses in Williamsburg, trying to escastalled elevator.

Ostensibly, BCG has been brought on to help NYCnavigate these troubled waters. But exactlywhatthe comis doing or its $10 million is a little hazy. NYCHA deCity Liitsrequest or a list o the policy recommendatBCG has made to date because these recommendatare not yet policy, Jacqueline C. Hernandez, the lawycharge o NYCHAs Freedom o Inormation Law unit,City Limits over the phone. (NYCHA agreed to ulll a Frequest to release a copy o BCGs original contract, but

not released it at press time.)NYCHA chairman Rhea describes BCGs work in

but general outlines. Te work that the housing autity was doing with BCG is part o a broader set o transormational activities that were really embarkinghere at the housing authority as well as trying to addsome undamental long-standing problems, says Rwho took over as NYCHA chairman in May 2009, comrom Barclays Capital (ormerly Lehman Brothers), whe served as managing director in investment bankingco-chair o the global consumer and retail group. Prio

joining Lehman in 2005, Rhea was an executive at J.P. Mowhere he completed more than $100 billion worth o tractions overseeing corporate nance as well as mergersacquisitions, and debt and equity underwritings or glconsumer products companies, according to his ocial

Rheas bio also mentions that he serves on the board oNew York Business Development Corpor ation, is a ounmember and director o the Council or Urban Proessals and has served as board chair o the Childrens Muso Manhattan and as a member o the Obama or Amenational nance committee. It does not mention thaused to work at BCG.

Te NYChA boss insists BCGs cent wok o te ing atoity is nelated to is ome association te m. Rhea similarly downplays BCGs rst appearat NYCHA two years ago, when he brought the compon board shortly aer he was appointed chairman: Bhelped to design an employee survey o about the climo NYCHA and helped to crunch the data. Tat wasbono. Tat was completely ree, he stresses.

As or the work Rhea did as a BCG employee, back in

The DeepDive

ChApteR fOUr

A plan baked in Atlanta aims tosave public housing in New York.

Public housing in America

began at the First Houses

on the Lower East Side, one

piece o NYCHAs massive

portolio o properties. A

long-running fscal crisis

threatens that network o

aordable housing. Photo

by Marc Fader.

BY ruh FOrD


16/21

City Limits / Vol. 35 / No. 530 Beyond CityTime www.citylimits.org

1990s, that was very similar, he allows, to work that BCG isdoing or NYCHA now. From 1992 to 1995, he worked as amanagement consultant or BCG, with his projects ocusingon helping large corporations enhance revenue and achieveoperational eectiveness.

Te work that BCG has done or us is open to publicdisclosureultimately, insists Rhea, who tells City Liitshis management team made the recommendation to himto hire BCG, not the other way around. Our managementteam talked about speaking to a McKinsey or a Bain, Rheaadds, naming two other prominent consultancies, but theydecided that because the work needed to be done so quicklyand the same kind o work was already done in Atlanta thatit made sense to just go orward and hire BCG.

But what exactly is that work, again?Rhea describes the project as spanning two phases. In

the rst, BCG did a very deep dive into the nitty-gritty oNYCHAs workings, taking a hard look at our central-ocecosts and unctionsHR, legal, procurement, Iandguring out how we can make them more ecient and

reinvest those savings in the ront linethe caretakers,supers, housing assistants, plumbers and carpenters, therontline sta that ensures that at the end o the day, theresidents are served directly.

Ten the rm asked itsel, OK, now that we understand allthat, what does it mean or the design o the organization goingorward? and What will it take to move the organizationrom where it is today to where we want to go? Rhea says.

Now the agency is in the second phase o its work withBCG. Te $4 million contract extension is about real imple-mentation, Rhea says.

Under Rheas predecessor as chairman, ino Hernandez,NYCHA developed a strategy or meeting the combined scaland physical challenges acing the agency. It was called thePlan to Preserve Public Housing, and it called or steps likehaving the city pick up the cost o running NYCHAs com-munity centers, working with the citys housing departmentto redevelop unused NYCHA properties into mixed-incomeaordable-housing projects and shrinking the workorcethrough attrition.

Tat earlier plan was good as ar as it went, Rhea says, butdidnt really address the capital decit at all. Rhea contendshis own planalso called the Plan to Preserve Public Hous-ingcalls more comprehensively or real transormationwithin NYCHA, charting long-lasting change to surmountwhat he called the pillar decits the authority is acing: anoperating decit, in terms o wages, energy, maintenanceand upkeep on a day-to-day basis, and this huge unmetmulti-billion-dollar capital [project] backlog.

Anti-public-housing sentiment emanating rom Washingtonsince the second Bush administration has imperiled housingauthorities, resulting in a $30 billion backlog o capital needsin housing across the country. New Yorks component alone

is $6 billion, according to the NYCHA chairman, and thatsjust to-date capital unmet investment requirements: roos,elevators, brickwork, boilersall the things that actuallypreserve the physical inrastructure.

unde te les sonding contact pocement as laiddown by te state Ofce o Geneal Sevices, as a pblic-benet atoity, NYChA cold piggyback, says rea, onanote osing atoitys pblic pocement pocess, i

tat pocess was witin te past yea, done nde a pblicpocement vetting, and te scope o wok was te same.

Ultimately, Rhea says, managers recommended that BCGbe hired because the work NYCHA needed done was similarin scope to what BCG had done in Atlanta, BCG is highlyregarded and the work needed to start right away. Terewere many, many discussions about this, he says.

But details o the work that BCG is doing or the AtlantaHousing Authority (AHA) are as hard to come by as specicson what BCG is now doing in New York. Repeated phone callsand emails to press representatives o AHA went unanswered.BCG itsel declined to talk about its work or either AHA orNYCHA. (Spokesman Dave Fondiller emailed, As a mattero policy, BCG does not comment on its client work.)

All we know about BCGs work in Atlanta is a briedescription in Atlantas Move to Work agreementa strategyproduced under a ederal Department o Housing and UrbanDevelopment-led eort to renew and revitalize public hous-ing. Te Atlanta MW calls or the AHA to merge undingstreams to purchase new land and develop new housing,nd job training and educational opportunities or residentsand mandate that all working-age, able-bodied residents geta job or go to school. Under the MWs Goal 3: EconomicViability/Corporate Support, the report writers note, oensure long-term organization viability, began a businesstransormation initiative by hiring Boston Consulting Group,a world-renowned proessional business consultancy, to makerecommendations and to develop an implementation planbeginning in FY 2011 as a key component o AHAs uturebusiness plan.

According to Rhea, the consulting rm is doing similarthings or NYCHA, Which is how to rationalize their centraloce costs, the central oce unctions and to make it more

ecient. And so a lot o the work they are doing there isspecically relevant to the work we are doing here.

Tere are similarities between Atlanta and New YorkCity. Both housing agencies are run by people concernedabout the health and welare o their inhabitants, ocus oncreating public-private partnerships to improve the cityshousing stock and look or creative nancing to keep thatstock in good repair.

But in terms o size, organization, costs and scope oservices, there is no comparison between NYCHA and itscounterpart down south. Rhea himsel made this point inremarks beore the Citizens Housing and Planning Coun-cil in April 2010, when he said a plan to ederalize 21 oNYCHAs housing developmentsonly a raction o theagencys total holdingswas the equivalent o having savedall the public housing in the city o Chicago or in the city oBoston or in all o San Francisco, Atlanta and Washington,D.C., combined. Put another way, NYCHA has roughly414,000 authorized residents across its 344 developments;the population o Atlanta (not just its housing authority, theentire city) is 420,000.

Tis past yea, NYChA tanseed $76 million omcapital budget to its operating budget, an unortomove it as made o te past seveal yeas to addesepai backlog. At the same time, the agency has requeunds or several years running rom the City Councimprove residents saety; so ar, the City Council has gNYCHA $39 million or security measures, says spowoman Sheila Stainback.

Amid these pressing unding needs, why is NYCspending so much money on one contract with a consulcompany, asks City Councilwoman Rosie Mendez, whoat the March 2 board meeting when the orig inal $6.05 micontract was voted on. During the Councils annual budeliberations, Mendez says she and her sta wonderethe size o the amount but were distracted by the ongobudget ght with the mayor and didnt ask any questio

Te recent $4.26 million contract extension has her asquestions. I dont get where they are spending allmoney, she says, noting that in the recent round o butalks, NYCHA was asking us or $10 million to catchwith repairs. So why is this $10.4 million necessary toto an outside contractor? I just dont get it, says Mendend this alarming.

The work that BCG has done

or us is open to public

disclosure ultimately,

insisted NYCHAs chair.

The Boston Consulting Group is a major player in the government strategy market. In recent years, its advised

the Securities and Exchange Commission, the U.S. Post Ofce and the Atlanta Housing Authority. NYCHA brought it

on to replicate its Atlanta project in New York. Photo by Marc Fader.


17/21


So does Robert Hall, president o the Gun Hill HousesResident Association in the Bronx. Practically born intothe jobhis mother was the resident association presidentrom 1978 to 1981, and Hall, who has lived in the Gun HillHouses all his lie, has been president o the association orthe past 12 yearsHall says Rhea has done some good things,in particular ederalizing the 21 housing developments, butthat the leadership at NYCHA needs to look harder at whatis happening in the developments on the ground.

At an Aug. 24 public hearing on NYCHAs dra agency planor scal year 2012, held in the Pace University auditorium,Hall took to the microphone to quer y the board members ontheir current priorities, saying that at the development wherehe lives, I see a lot o people in shirts and ties. I dont see alot o people doing the work. Tere were three caretakersor his six-building, 14-story development, the managersoce was located eight blocks away, and a rep showed uponly once a week, to collect rent, he said.

We need more stoves and rerigerators[they are]

alling apart, and we dont have enough to go around. Wevehad leaves on the ground or two years that havent beencleaned up, as well as garbage piling up, problems he hastold NYCHA about but to which theres been no responserom the site manager. I eel like Im living in a ghost town.Tere are no people on the ground to work the acility ona day-to-day basis. Tere is a severe lack o personnel. Its

very harmul, and its dangerous. Meanwhile, NYCHA istop-heavy with executives.

And many residents who deal with NYCHA have reasonto distrust people in suits, particularly those working oran outside consultant. Last year, in an eort to save money,computer consultants revamped NYCHAs handling o itsSection 8 residents, removing the caseworkers that handledresidents issues with their landlords and setting up a computerprogram to automatically contact residents about issues suchas overdue rent and apartment inspections.

Te result has been havoc, says Judith Goldiner, a super-visory attorney at Te Legal Aid Society. Residents didnt

realize their rent had been changed and were learning o itonly when they were ordered to show up in Housing Courtor nonpayment. Landlords were getting letters addressedto residents with no address and had no way o knowing iresidents were receiving their rent change notices or i theyhad been trying to schedule apartment inspections.

At the August public hearing at Pace, Goldiner outlined theproblem or the silently listening NYCHA board. Tere werehundreds o Section 8 residents who had been aected bythe massive screw-up in the computerization o the records.We have amilies who have paid their rent who are gettingletters telling them their rental agreements are terminated,people who are going to the main oce with canceled checksas proo and are still being kicked o the rent rolls. Tis ishappening time and time again, and its not getting better,said Goldiner. We are asking you to stop terminating Sect ion8 people until you get a handle on the problem.

So ar, says Goldiner, NYCHA ocials response is thatthey have a backlog o corrections to make and that they aregetting to them. She believes NYCHA should stop terminating

residents rental agreements until they have their problemsorted out, but they are not doing that.

rea ages tat BCGs inpt to NYChA will moe tanoset te contact cost tat so concens ConcilwomanMendez and otes.

So ar, weve identied in this work theyve done anywhererom $50 million to $100 million in annual savings, he says.I know that people want to look at the headlines and say6 plus 4 is $10 millionhow is that a good use o $10 mil-lion? But i in one year, we get to save just ve times whatwe are spending on BCG, its well worth it, Rhea contended.

Rhea says NYCHAs been completely transparent in hi ringBCG. But he declined to oer specics on where the savingsactually were, except to say that some were in procurementand others needed investment to realize the savings. Nor wasit clear i the savings identied by BCG would involve morecuts to the NYCHA workorce. Layos, whether we wouldneed to do them, would not need to do them, is really notrelated to the BCG work, Rhea says. Tats related to budgetrealities versus costs. Doing business dierentlytheres awhole host o things, some that impact people, some thatdont impact people.

When asked how long BCG workers would be at NCYHAand when the contract would end, Rhea replies, Im notgoing to say.

And while on one hand, Rhea explains the recent, $4 mil-lion BCG contract renewal as covering i mplementation, onthe other hand, NYCHA reuses to release any o the reportsor recommendations that BCG has prepared or the agencyon the grounds that theyre just ideas, not policy.

Julia Vitullo-Martin, a senior ellow at the Regional PlanAssociation and Director o the C enter or Urban Innovation,

is reluctant to criticize NYCHA or hiring BCG. I thinkagencies do need very good analysis, she says. It may be that NYCHA is getting important inormation romgroupIm all or that. But $10 million or the inormatiowow, thats real money, says Vitullo-Martin. For that masix million is a lot o money to spend on a cons

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