University of California Ethics, Compliance and Audit Services

UNIVERSITY OF CALIFORNIA

ETHICS, COMPLIANCE AND AUDIT SERVICES

INTERNAL AUDIT SERVICES

SYSTEMWIDE CONTRACTING OUT AUDIT

Project No. P23A002

April 2023

University of California

Ethics, Compliance and Audit Services

Systemwide Contracting Out Audit

Table of Contents

I. Executive Summary .......................................................................................................... 4

Introduction ............................................................................................................... 4

Objective and Scope .................................................................................................. 4

Background ............................................................................................................... 5

II. Opportunities for Improvement and Recommendations ............................................. 8

Appendix A: Systemwide Recommendations and Management Corrective Actions... 20

Appendix B: Glossary of Terms ........................................................................................ 24

I. Executive Summary

Introduction

In accordance with the fiscal year 2022-23 University of California (UC) audit plan, the

systemwide Office of Ethics, Compliance and Audit Services (ECAS) oversaw a systemwide audit

of compliance with contracting out requirements, including Regents Policy 5402: Policy Generally

Prohibiting Contracting for Services and Article 5 of the Collective Bargaining Agreements (CBAs)

with the American Federation of State, County and Municipal Employees (AFSCME). ECAS

performed this audit in coordination with the internal audit departments at all UC locations using a

standard systemwide audit program.

ECAS developed this summary report based on information gathered by each location’s internal

audit department. It provides a consolidation of the systemwide findings and a set of corresponding

recommendations to address these findings. Each location’s internal audit department will issue a

separate report presenting findings noted at that location, corresponding management corrective

actions to address those findings, as well as management corrective actions to address each of this

report’s recommendations to the locations.

Objective and Scope

Objective: The objective of this assessment is to evaluate processes and controls that facilitate

compliance with contracting out requirements.

Scope: The scope of this audit included evaluation of the design and implementation of the

processes and controls that facilitate compliance with contracting out requirements under Regents

Policy 5402 and Article 5. While the audit focused on current processes, the evaluation of internal

controls included review of documentation supporting implementation of contracting out

requirements for the period of February 15, 2020

through December 31, 2022. The areas of focus

included the following:

• Adequacy and consistency of guidance, training, and communication to ensure contracting

out requirements are understood and implemented at all organizational levels.

• Processes and controls to comply with policy and contractual requirements, including:

o Procedures to identify Covered Services and amend/terminate existing contracts

with Covered Services providers

o Processes to review and evaluate decisions to contract out to ensure the University

is contracting for services only when permitted by policy and contractual

requirements

o Processes to update supplier contracts with required wage and benefit parity

language and amendments

o Procedures to track contractor hours and identify contract workers that meet the

insourcing criteria

o Procedures to comply with employee displacement requirements

o Processes by which QIs are provided options for UC career employment

o Provision of notice for contracting out decisions

Effective date of the Implementation Guidelines for Regents Policy Generally Prohibiting Contracting for

Services. Audit periods for tests of internal controls varied. For example, testing of Covered Services

identification involved sample selections from active contracts as of December 31, 2021, while testing of QIs

involved selection of supplier employees for all Covered Services contracts dating back to February 15, 2020.

o Tracking and reporting contract information to affected employee organizations

and the Regents

o Mechanisms to facilitate reporting violations and respond to reported violations

o Processes for handling grievances

o Supplier audits

Audit fieldwork was conducted at all UC campuses and health systems, Lawrence Berkeley

National Laboratory, UCOP, and Agricultural and Natural Resources (ANR). Each of these entities

is referred to as a separate location in this report. Specifically, campuses and health systems are

generally referred to as separate locations.

The audit scope did not include an assessment of controls and processes related to compliance with

California Senate Bill 820, which imposed additional restrictions for contracting out for services

performed in buildings that have received state capital funding.

Background

On November 14, 2019, the Regents approved Regents Policy 5402: Regents Policy Generally

Prohibiting Contracting for Services. This policy prioritizes the use of UC employees over contract

workers to provide Covered Services

whenever possible. According to the policy, contracting for

Covered Services should be used sparingly and treated as an option of last resort to address

specified operational needs rather than as a means to replace UC employees with lower-wage

contract workers.

Article 5 of the two CBAs with AFSCME

addresses contractual requirements associated with the

University contracting out for Covered Services. The Regents have clarified that Article 5 takes

precedence over their policy.

Per Regents Policy 5402, the actual job titles of supplier employees performing Covered Services

do not need to match ASFCME titles. Rather, if a supplier employee provides a Covered Service

that is the same as the work done by Bargaining Unit employees, then that position is covered under

the Regents Policy and Article 5 of the CBA. In addition, the service must be currently performed

(or have been performed in the immediate past) by union employees somewhere in the UC system.

Regents Policy 5402 and Article 5 apply to Covered Services performed at a UC location.

However, neither the Regents Policy nor Article 5 applies to construction or work typically

performed by a member of a skilled crafts or trades bargaining unit such as a plumber, electrician,

or facilities mechanic.

Covered Services: This is work customarily performed by bargaining unit employees at the University,

whether in whole or in part, including but not necessarily limited to the following services: cleaning,

custodial, janitorial, or housekeeping services; food services; laundry services; groundskeeping; building

maintenance (excluding skilled crafts); transportation and parking services; security services, billing and

coding services, sterile processing, hospital or nursing assistant services, and medical imaging or other

medical technician services.

AFSCME: American Federation of State, County and Municipal Employees is a labor union that represents

two University bargaining units, the Service (SX) unit and the Patient Care Technical (EX) unit. AFSCME-

represented employees perform the majority of Covered Services.

Current guidance is that UC location means all locations within the UC system (campuses, medical centers,

Office of the President, the Lawrence Berkeley Lab, etc.) as well as properties that the University has leased

from or to a third party.

If UC determines that it needs to contract for Covered Services, then the suppliers providing such

services must pay their employees rates equivalent to the sum of the wages and benefits received by

Bargaining Unit employees performing the same work.

Collectively, the requirements in Regents Policy 5402 and Article 5 include, but are not limited to

the following:

• To the fullest extent possible, insource Covered Services work. As part of insourcing, use

best efforts to identify supplier employees who meet the criteria for becoming a Qualified

Individual (QI).

The University location must offer QIs career employment when

insourcing Covered Services work.

• Contracting for Covered Services is permitted where contracting out is required by law,

Federal requirement, contract or grant requirement, or court decisions or orders, or limited

circumstances (carve outs) established in the policy.

• University locations must provide advance notice to affected employee organizations prior

to entering into, extending, or renewing a contract for Covered Services over $100,000.

University locations must also notify affected employee organizations when issuing an RFP

with Covered Services estimated to be over $100,000.

• Provide an opportunity to those affected employee organizations, upon receiving a notice,

to request review of a proposed contract for Covered Services to determine whether the

contract complies with policy requirements.

• Contracts for Covered Services must include provisions requiring the contractor to provide

its employees the equivalent of wages and benefits provided to University employees

performing the same work. This requirement, referred to as Wage and Benefit Parity

(WBP), only applies to the contractor’s employees providing services to the University

under the Covered Service contract.

• Contracts for Covered Services must not displace University employees.

• Individuals providing services to the University under a Covered Service contract may

request career employment when they meet the QI criteria.

• Produce an annual report of all contracts for Covered Services, regardless of amount or

duration, and provide the report to affected employee organizations and the Regents.

On February 15, 2020, the Office of the Chief Procurement Officer issued Implementation

Guidelines for Regents Policy Generally Prohibiting Contracting for Services (Implementation

Guidelines), which provide guidance to UC personnel on implementing Regents Policy 5402 and

Article 5. Since then, UCOP has provided new guidance on contracting out requirements to UC

locations in other forms.

Overall Conclusion

Internal Audit observed that processes and controls that facilitate compliance with Regents Policy

5402 and Article 5 require improvement at all UC locations.

As a result of inadequate processes and controls, instances of non-compliance with contracting out

requirements were observed at UC locations in the following areas:

• Identification of covered services in procurement activity

• Documentation supporting decisions to contract out for covered services

• Updating contracts for covered services with required terms and conditions and the annual

WBP amendment

• QI identification

QIs are individuals who have provided Covered Services to the University for 1,000 hours in a rolling 12-

month period or 35% (~2,200 hours) in a rolling 36-month period.

• QI conversion to UC career employment

• Posting of notices on requirements for converting to UC career employment

• Provision of employee notices to suppliers

• Accuracy and completeness of annual report to AFSCME

Further, Internal Audit noted that additional guidance from UCOP is required to establish

measurable standards and clarify UC locations’ compliance obligations for certain areas related to

contracting out requirements.

Internal Audit observed that the University has initiated a supplier audit program to monitor its

suppliers’ compliance with WBP requirements and recommends that this program be continued and

expanded.

Finally, Internal Audit recommends that UCOP’s guidance on contracting out requirements be

maintained in a central location that is easily accessible to all interested stakeholders.

These opportunities for improvement and associated recommendations are described in detail in

this report. A summary of the systemwide recommendations and associated management corrective

actions is included in Appendix A.

II. Opportunities for Improvement and Recommendations

1. Location processes supporting compliance with contracting out requirements require

improvement and, in several areas, the Office of the President has not provided clear

guidance.

Internal Audit noted deficient processes and instances of noncompliance with contracting

out requirements at all UC locations. Additionally, location stakeholders were unclear on

the specific requirements for contracting out policy compliance in several areas, indicating

a need for additional guidance from the Office of the President.

a) Procurement and Contracting Processes

Internal Audit identified instances of noncompliance related to procurement and

contracting processes for Covered Services.

Processes to identify Covered Services purchasing activity require improvement.

Internal Audit identified opportunities to improve most locations’ existing processes for

identifying Covered Services purchasing activity. Further, Internal Audit identified

contracts that were not appropriately identified as Covered Services contracts in sample

testing at some locations. Failure to have effective and reliable processes in place to

identify Covered Services contracts at all locations increases the risk that the University

is not in compliance with policy requirements for Covered Services contracts.

Examples of process deficiencies that Internal Audit identified included the following:

• Some locations either lacked a formal process to identify Covered Services

contracts as part of the procurement process or had deficiencies in their process

• Several locations either did not have processes or had inadequate processes to

identify potential Covered Services in those purchasing channels typically

reserved for lower-value activity, such as low-value purchase orders,

purchasing cards, and travel and entertainment reimbursements.

Instances of missing or incomplete documentation supporting decisions to contract out

for Covered Services were identified.

Internal Audit noted instances of missing or incomplete documentation supporting

decisions to contract out for Covered Services in sample testing at several locations.

Maintaining clear and complete documentation of the justification for decisions to

contract out for Covered Services helps ensure and demonstrate that the university is in

compliance with Regents Policy and Article 5, which only permit contracting out for

Covered Services in certain specific circumstances. Typically, locations require that a

designated form be completed to document appropriate justification of the decision to

contract out for Covered Services, but it was not available for some sampled contracts.

Opportunities for improvement in documenting contracting out terms and conditions

were identified.

Internal Audit noted inconsistent practices and opportunities for improvement in

documenting terms and conditions for Covered Services contracts and purchase orders

at several locations. Failure to sufficiently or consistently document Covered Services

terms and conditions could limit the enforceability of these provisions. Examples of

noted deficient practices in sample testing at UC locations include:

• Contracts for covered services that did not include the current covered services

terms and conditions (as a link or as an attachment)

• Purchase orders that included a link to outdated versions of UC’s standard

terms and conditions

While Systemwide Procurement has previously emailed guidance to UC locations on

appropriate practices for documenting terms and conditions, to ensure that all locations

are appropriately documenting contracting out terms and conditions in supplier

contracts, Systemwide Procurement should post this guidance in an easily accessible,

centralized location. Further, it was noted that outdated versions of UC’s standard

terms and conditions are still accessible on the Internet. According to Systemwide

Procurement, they have taken down these outdated versions from UCOP websites, but

due to a technical issue they still appear in Internet searches. Systemwide Procurement

should work with IT Services to make technical adjustments that ensure that these

outdated versions of UC’s terms and conditions do not appear in Internet search results.

Instances of noncompliance with an Implementation Guideline specific to the Wage

and Benefit Parity amendment were identified.

The Implementation Guidelines require that contracts for Covered Services be updated

each year with a WBP amendment that includes the current WBP rates. Internal Audit

observed instances of noncompliance with this requirement at several locations. Failure

to accurately update Covered Services contracts with the required WBP amendment in

a timely manner increases the risk that suppliers providing covered service are not

appropriately notified of current WBP requirements and could limit their

enforceability.

Examples of noncompliance with WBP amendment requirements noted in sample

testing at multiple UC locations included failure to execute the annual WBP

amendment or to do so in a timely manner, and failure to update WBP rates accurately

in the amendment.

Recommendations

Instances of local noncompliance and internal control deficiencies will be addressed

through management corrective actions at the identified locations.

1.a.1 Systemwide Procurement should issue guidance to provide clear direction to UC

locations on the following contracting out compliance requirements related to

procurement and contracting:

• Requirements for monitoring lower-value purchasing activity (such as

purchase orders, automatic purchase orders, purchasing cards, and travel and

entertainment reimbursements) to identify procurement of Covered Services

• Acceptable practices for documenting Covered Services-related terms and

conditions in supplier contracts and purchase orders.

1.a.2 Locations should implement the updated guidance provided by Systemwide

Procurement on contracting out compliance requirements for procurement and

contracting.

1.a.3 Systemwide Procurement should ensure that outdated versions of UC’s terms and

conditions are fully removed from public-facing UCOP websites such that they

do not appear in Internet search results.

b) Tracking Supplier Employee Hours, Identifying QIs, and Providing QIs

Options for UC Career Employment

Internal Audit identified instances of noncompliance related to tracking of supplier

employee hours, identification of QIs, and providing QIs with UC career

employment options. Additionally, clearer guidance from UCOP is needed.

Processes to track and identify QIs require improvement.

Article 5 of the CBAs with AFSCME outline a process by which a supplier

employee may submit a request for UC employment if they have met the QI

eligibility requirements. However, it also states that the University will exercise its

best efforts to determine individuals who meet these criteria. Internal Audit

observed that most locations either had significant process deficiencies or did not

have a process for identifying QIs through tracking of supplier employee hours.

Examples of process deficiencies included:

• Lack of a process to monitor QIs for certain suppliers or most suppliers

• Lack of a process to monitor QI eligibility based on the rolling three-year

period requirement (noted in the “Background” section)

• Failure to identify QIs that met the eligibility criteria

• Insufficient documentation supporting attainment of QI eligibility

• Errors in data and/or calculations for determining QI eligibility

Additionally, some locations reported challenges in obtaining information

necessary to track contractor hours from suppliers or internal sources.

Based on the process deficiencies that Internal Audit observed, it is possible that a

number of QIs meeting the eligibility criteria have not been identified by the

University, unless suppliers themselves or the union have identified these

individuals as QIs or supplier employees have self-reported attaining the eligibility

criteria. The latter two mechanism are contemplated by the CBAs as viable ways

that QIs would be identified.

Processes to convert QIs to UC career employment require improvement.

Similarly, Internal Audit noted significant deficiencies in location processes for

providing QIs with UC career employment options. Most locations either lacked a

process to convert identified QIs to career employment or their processes were

deficient. Examples of process deficiencies included:

• Failure to designate an individual responsible for tracking the progress of

QIs requesting career employment

• Instances of failure to meet the 120-day requirement for hiring QIs

• Inadequate recordkeeping to support compliance with the University’s

obligations for converting QIs

Internal Audit further observed that some of the instances in which QIs were not

hired within 120 days involved certain employee categories that require extensive

background checks (e.g., security positions). For these positions, some locations

reported difficulty completing the hiring process within the required timeframe.

Locations are not posting notices visible to contract workers as required by the

Implementation Guidelines.

The Implementation Guidelines state that “

departments contracting for covered

services must post a notice to contract workers with the requirements for

converting to a UC career employee, and the notice must be in a place where

the contract workers are likely to see it.”

Internal Audit observed that several

locations have not implemented adequate processes for posting these notices as

required by the guidelines. Several locations reported that they were either unaware

of this requirement or that clearer guidance from UCOP on specific expectations

for posting these notices, including required templates, is needed.

Clearer guidance to the locations on “best efforts” to determine individuals who

meet QI eligibility criteria is needed.

Article 5 states that “The University will exercise its best efforts to determine

employees who meet the criteria to become qualified individuals.” However, it

does not provide any further detail on what these “best efforts” should entail. It is

therefore incumbent on the University to establish specific expectations and criteria

for meeting the “best efforts” standard. However, UCOP has not yet provided such

guidance to UC locations. Additionally, locations desire clearer guidance for

instances in which a supplier employee previously attained QI eligibility but has

since stopped providing services to the University for an extended period of time.

Internal Audit therefore recommends that UCOP issue clear guidance to the

locations on specific expectations and requirements for:

• Tracking and identifying QIs

• Converting QIs to UC employment, including required timelines and any

exceptions for those timelines

• Posting of notices to contract workers on requirements for converting to

UC employment

Systemwide HR has identified a supplier to provide a systemwide QI tracking tool

with service support.

In October 2022, Systemwide HR partnered with Systemwide Procurement to

initiate a request for proposal (RFP) to identify a supplier to provide a managed

compliance tool with service support to facilitate tracking and reporting of QIs for

suppliers of Covered Services at UC locations. The RFP also outlined that the

identified supplier would be responsible for assisting with onboarding and

management of Covered Services suppliers, communicating policy and reporting

requirements to suppliers and supplier employees, managing the QI vetting and

onboarding process, and managing communications regarding UC requests for

supplier WBP audits. A supplier was selected in January 2023 and a plan has been

developed to implement this tool systemwide by the end of calendar year 2023.

Recommendations:

Instances of local noncompliance and internal control deficiencies will be

addressed through management corrective actions at the identified locations.

1.b.1 Systemwide HR should complete the implementation of the systemwide QI

tracking tool with the selected supplier identified in the RFP.

1.b.2 Systemwide HR should issue guidance to provide clear direction to UC

locations on the following compliance requirements for QIs:

• QI monitoring and identification, including appropriate protocols for

instances in which a location determines that a supplier employee

reached QI eligibility in the past but has since stopped providing services

to the University for an extended period of time

• QI conversion to UC career employment, including the timeframe in

which QIs must be notified of an option for employment and procedures

for non-responsive QIs

• Any allowable exceptions to required timeframes for QI conversion, such

as certain categories of employees that require additional background

checks

• Posting notices to contract workers with the requirements for converting

to a UC career employee, including the appropriate template(s) to be

used

1.b.3 Locations should implement the updated guidance provided by Systemwide

HR on contracting out compliance requirements related to Qualified

Individuals and implement the QI tracking tool procured by UCOP.

c) Compliance with Employee Displacement Requirements

Several locations lack defined processes to ensure employees are not displaced due

to contracting out for Covered Services. Additionally, clearer guidance from

UCOP is needed.

Regents Policy 5402 and Article 5 both explicitly prohibit displacement of

University employees, defined as demotion, layoff, or involuntary reduction in

time, due to the University entering into a contract for Covered Services. Internal

Audit did not identify any instances of displacement due to contracting out for

Covered Services in its sample testing. However, several locations did not have

defined processes to confirm that such displacement does not occur. Internal Audit

further noted that the Implementation Guidelines do not provide guidance on

expectations of the locations to confirm that employees are not displaced due to

contracting out for Covered Services.

Recommendations:

Instances of local noncompliance and internal control deficiencies will be

addressed through management corrective actions at the identified locations.

1.c.1 Systemwide HR should issue guidance to provide clear direction to UC

locations on required procedures to comply with employee displacement

requirements when contracting out for covered services.

1.c.2 Locations should implement the updated guidance provided by Systemwide

HR on contracting out compliance requirements related to employee

displacement.

d) Provision of Notice for Contracting Out Decisions

Internal Audit found noncompliance with the requirement to notify AFSCME of

decisions to contract out for Covered Services. Additionally, some locations did not

share drafts of those notices with UCOP prior to issuance.

Several locations observed noncompliance with the requirement to notify AFSCME

of decisions to contract out for Covered Services.

In its sample testing, Internal Audit identified multiple instances of noncompliance

with the requirement to notify AFSCME of decisions to contract out for Covered

Services at several locations. Regents Policy 5402 and Article 5 both require

notification to AFSCME prior to entering into, extending, or renewing a contract

for covered services over $100,000 or when a request for proposal for Covered

Services is issued. Examples of instances of noted noncompliance included the

following:

• Failure to notify AFSCME prior to entering into contracts for Covered

Services valued at over $100,000

• Lack of documentation of the required notice

• Issuance of the required notice after the effective date of the contract

Some locations did not comply with the Guidelines Requirement to Share Draft

Notices with UCOP.

The Implementation Guidelines require that drafts of notices to AFSCME

regarding contracts for Covered Services valued at $100,000 or more be shared

with Systemwide Labor Relations and UC Legal prior to issuing them to AFSCME.

Internal Audit noted in its sample testing that some locations did not share these

draft notices with Systemwide Labor Relations and UC Legal prior to issuance to

AFSCME as required for some contracts.

Recommendations:

No systemwide recommendations. Instances of local noncompliance and internal

control deficiencies will be addressed through management corrective actions at the

identified locations.

e) Article 5 Grievances

Internal Audit identified instances of missed deadlines and opportunities for

improvement in recordkeeping for Article 5-related grievances. Additionally,

clearer guidance from UCOP is needed.

Instances of missed deadlines for Article 5-related grievances were observed at

several locations.

In its sample testing, Internal Audit noted instances of missed process step

deadlines for Article 5-related grievances at several locations, including UCOP.

Failure to meet grievance step deadlines could lead to negative outcomes for the

University in the grievance process. Examples of missed deadlines included failure

to:

• Provide a written response to a grievance within the required timeframe

• Acknowledge receipt of an appeal to arbitration within the required

timeframe

• Respond to a notification of arbitrator selection within the required

timeframe for scheduling of an arbitration hearing in response to an appeal

notice

Recordkeeping for Article 5-related grievances requires improvement.

Internal Audit’s sample testing of Article 5-related grievances found that

recordkeeping of grievance administration requires improvement at several

locations, including UCOP. In multiple instances, management was unable to

provide complete documentation supporting the administration of grievances or

recordkeeping was otherwise inadequate or inefficient. Specific examples of

deficiencies in recordkeeping include failure to:

• Locate and provide supporting documents for grievances (due to transition

in personnel)

• Substantiate the University’s fulfillment of required grievance steps within

the established timeframes

• Properly identify grievances as “systemwide” when they affect multiple

locations

• Create and maintain a local log to manage and track grievances

• Log or track certain grievances that were part of a mass grievance managed

by UCOP

• Capture all grievance process events in local logs

Implementation of a systemwide case management system for Article 5-related

grievances would help ensure appropriate recordkeeping at all locations, provide

greater transparency on grievance status to all stakeholders, and facilitate

compliance with grievance-related requirements, including guidance from UCOP.

Clearer guidance to the locations on expectations and requirements for

administration of Article 5-related grievances is needed.

In its sample testing of Article 5-related grievances, Internal Audit observed that in

certain aspects, UCOP has not provided clear guidance to UC locations on specific

expectations and requirements for grievance administration. Additionally, location

stakeholders reported to Internal Audit that they were unclear on certain

expectations and requirements regarding Article 5-related grievances. Specific

areas requiring additional guidance from UCOP include:

• Requirements for recordkeeping

• Roles and responsibilities of the locations and Systemwide Labor Relations

for grievance administration

• Criteria for notifying Systemwide Labor Relations regarding locally filed

grievances

• Procedures and documentation requirements for instances in which

AFSCME is non-responsive during the grievance or appeals process

Recommendations

Instances of local noncompliance and internal control deficiencies will be

addressed through management corrective actions at the identified locations.

1.e.1 Systemwide Labor Relations should issue guidance to provide clear direction

to UC locations on the following compliance requirements related to

administration of Article 5-related grievances:

• Requirements for recordkeeping

• Roles and responsibilities of the locations and Systemwide Labor

Relations for grievance administration

• Criteria for notifying Systemwide Labor Relations regarding locally filed

grievances

• Procedures and documentation requirements for instances in which

AFSCME is non-responsive during the grievance or appeals process

1.e.2 Locations should implement the updated guidance provided by Systemwide

Labor Relations on contracting out requirements for Article 5-related

grievances.

1.e.3 Labor Relations should implement a systemwide case management system

for handling Article 5-related grievances. This system should be a central

system of record for all grievances systemwide and should have the

following capabilities:

• Tracking and reporting on the current status of all grievances systemwide

• Update (write) access and visibility of grievance status (step progress)

for all UC labor relations departments

• Built-in logic to identify and track grievance steps and associated

timeline requirements depending on the category of grievance filed

• Ability to attach documents to grievance records supporting each

location’s completion of required steps

• Ability to flag grievances as “systemwide” (when grievances impact

multiple locations)

f) Reporting Violations of Contracting Out Requirements

Internal Audit observed that locations have not established processes to help

Covered Services suppliers inform their employees of violation reporting options,

and thus the University could improve mechanisms to capture and track reported

violations. Additionally, clearer guidance from UCOP is needed.

Due to lack of clear guidance from UCOP, locations have not established

processes to help Covered Services suppliers notify their employees of contracting

out violation reporting methods.

The Implementation Guidelines state that the University will provide Covered

Services suppliers with a template for an employee notice that includes information

on WBP and how to report violations of contracting out requirements. According to

the guidelines, suppliers are required to post these notices in prominent and

accessible places where they may be easily seen by their Covered Services

employees. However, several locations have not established processes to provide

these notices to Covered Services suppliers, who consequently were not provided

with them. Many of these locations reported that either they were not aware of any

templates to be used for these notices or the guidance from UCOP was not clear.

There are opportunities to improve mechanisms to capture and track reported

violations of contracting out requirements.

Some locations noted opportunities for improvement in processes to collect and

manage locally reported violations of contracting out requirements. For example, at

one location there was no established process for managing locally reported

violations of contracting out requirements. At another location, Internal Audit

observed that there was no local intake system in place to collect reported

violations of contracting out requirements.

Additionally, Internal Audit observed that the category “Covered Services,” which

is intended to be used to classify reported contracting out-related violations in the

systemwide whistleblower system, may not clearly convey that it is to be used to

report violations of Regents Policy 5402 or Article 5. Internal Audit identified a

significant number of complaints that were reported under this “Covered Services”

category that did not relate to contracting out requirements. Systemwide HR should

consider including terms like “AFSCME Article 5” or “Regents Policy 5402” in

the category description to make the purpose of the category clearer.

Recommendations:

Instances of local noncompliance and internal control deficiencies will be

addressed through management corrective actions at the identified locations.

1.f.1 Systemwide HR should issue guidance to provide clear direction to UC

locations on

requirements for provision of required employee notices to

suppliers, including the appropriate template(s) to be used.

1.f.2 Locations should implement the updated guidance provided by Systemwide

HR on provision of employee notices to suppliers.

1.f.3 Systemwide HR should revise the category used to classify reported

contracting out-related violations in the systemwide whistleblower system to

make it more specific. Consider including terms like “AFSCME Article 5” or

“Regents Policy 5402” in the category description.

g) Preparation of Annual Report to AFSCME

Multiple errors and omissions were identified in the 2021 annual report to

AFSCME, and it was not provided to the Regents as required.

Multiple errors and omissions were observed in the 2021 annual report to

AFSCME, indicating a need for stronger quality assurance controls over report

preparation.

In its sample testing to assess the accuracy of the 2021

annual report on Covered

Services contracts, Internal Audit noted instances of inaccurate or incomplete

information in the report at most locations, including:

• Contracts missing from the report

• Inaccurate contract start and/or end dates

• Inaccurate service types

• Carve outs in the report not matching the justification form

• Inaccurate, outdated, or missing WBP rates

• Inaccurate contract values

These errors and omissions indicate the need for stronger quality assurance controls

over the preparation of report content at these locations. Additionally, Internal

Audit identified weaknesses in controls or errors in tracking and reporting contract

information at several locations.

According to Systemwide HR, the University issued clearer guidance and stronger

protocols for the preparation of the 2022 report. Due to the timing of fieldwork,

Internal Audit did not review the accuracy of the 2022 report.

The 2021 annual report on Covered Services contracts was not provided to the

Regents as required by Regental policy.

Regents Policy 5402 states that “The University shall produce an annual report of

all contracts for covered services, regardless of amount or duration, and shall

provide the report to affected employee organizations and the Regents.” Internal

Audit observed that UCOP produced this report for calendar year 2021 and

provided it to AFSCME but did not provide it to the Regents as required. The 2022

report was provided to the Regents.

Recommendations:

Instances of local noncompliance and internal control deficiencies will be

addressed through management corrective actions at the identified locations.

1.g.1 Systemwide HR should continue to provide the annual report on Covered

Services contracts to the Regents each year as required by policy.

2. The University has initiated a supplier audit program.

Internal Audit observed that Systemwide Procurement has initiated a supplier audit

program to assess suppliers’ compliance with WBP requirements. As part of this program’s

initial implementation, suppliers selected for this audit were those with an active contract as

of September 30, 2022 for covered services valued at more than $100,000 in the 2021

Annual Report. Additionally, if a location did not have at least two contracts that met these

criteria, additional contracts were selected from that location to reach a minimum of two

contracts selected for audit. Under this program, the supplier is required to engage an

independent auditor to perform the audit at the supplier’s expense, in accordance with UC’s

Standard Terms and Conditions of Purchase. As part of the supplier audit program,

Systemwide Procurement has developed procedures to create and implement remediation

plans in response to audit findings. The University plans to report on the initial results of

the supplier audit program in April 2023.

The supplier audit program appears to be an effective tool to hold suppliers accountable for

implementing WBP requirements. Systemwide Procurement should continue this program

and consider expanding it to include additional supplier agreements.

Recommendations:

2.1 Systemwide Procurement should continue the supplier audit program and expand it to

include additional criteria for supplier audit selection, such as a lower dollar threshold

or risk-based criteria.

3. General Observations on UCOP’s Guidance on Contracting Out Requirements

Internal Audit observed that UCOP has not established a central repository of guidance on

contracting out requirements that is easily accessible, and the Implementation Guidelines

have not been updated to reflect current requirements.

UCOP’s guidance on contracting out is not maintained in a central location that is easy to

access.

As has been noted elsewhere in this report, UCOP has failed to provide guidance to

locations on key issues. Related to that issue, even if guidance exists, Internal Audit

observed that UCOP has not established a central, comprehensive repository of guidance on

contracting out requirements that is easily accessible and transparent to all interested

stakeholders. During audit fieldwork, it was observed that location stakeholders were not

always clear on contracting out requirements and associated guidance from UCOP. For

example, location stakeholders reported that guidance on whether specific subcategories of

services not articulated in Article 5 should be considered Covered Services could be

enhanced and clarified.

Where possible, UCOP should endeavor to provide clear guidance, and then organize all

contracting out guidance in a central location with broad access would help ensure that

location stakeholders are aware of all existing contracting out requirements and guidance,

thereby facilitating improved compliance and reducing confusion.

The Implementation Guidelines contain outdated requirements.

Internal Audit observed the following requirements in the Implementation Guidelines that

appear to be outdated:

• The guidelines detail the specific language that should be included in the WBP

Appendix, but since the guidelines have been issued, some of that language has

been incorporated into the Standard Terms and Conditions of Purchase, thereby

apparently negating the need to include these terms in the appendix.

• The guidelines require that draft notices on decisions to contract out for

Covered Services be shared with Systemwide Labor Relations and UC Legal

prior to issuing these notices to AFSCME. UCOP stakeholders have indicated

that this requirement may no longer be necessary and they may consider

removing it from the Implementation Guidelines.

Recommendations:

3.1 Systemwide Procurement, in coordination with Systemwide HR and Systemwide Labor

Relations, should consolidate all of the University’s guidance on contracting out

requirements into a central repository that is easily accessible to all of the individuals at

the locations that have compliance responsibilities. This guidance should include clear

direction on specific categories of services that are to be treated as Covered Services

and those that are not to be treated as Covered Services. This guidance should be

updated periodically and serve to address specific questions that come from the

locations on subcategories of services that are not addressed in Article 5.

3.2 Systemwide Procurement, in coordination with Systemwide HR and Systemwide Labor

Relations, should review the Implementation Guidelines and update them to include

new requirements and remove outdated requirements. At a minimum, the following

requirements should be reviewed for potential updates:

• The required language in the WBP appendix

• The requirement to share draft notices on decisions to contract out Covered

Services with Systemwide Labor Relations and UC Legal prior to issuing them to

AFSCME

Appendix A: Systemwide Recommendations and Management Corrective

Actions

Recommendation

UCOP Management Corrective Action and Target Date

Procurement and Contracting Processes

1.a.1 Systemwide Procurement should issue guidance to

provide clear direction to UC locations on the

following contracting out compliance requirements

related to procurement and contracting:

• Requirements for monitoring lower-value

purchasing activity (such as purchase orders,

automatic purchase orders, purchasing cards,

and travel and entertainment reimbursements)

to identify procurement of Covered Services

• Acceptable practices for documenting Covered

Services-related terms and conditions in

supplier contracts and purchase orders.

Systemwide Procurement is reviewing existing policy

regarding Lower Value Purchases to determine what gaps

exist and how to best identify Covered Services purchases.

Updated guidance will be provided to UC locations based on

this analysis.

Systemwide Procurement is in the process of revising the

existing Terms & Conditions and will address acceptable

practices for documenting Contracting for Covered Services

Terms & Conditions as part of that overhaul.

Target Date: July 31, 2023

1.a.2 Locations should implement the updated guidance

provided by Systemwide Procurement on

contracting out compliance requirements for

procurement and contracting.

N/A – Recommendation to locations

1.a.3 Systemwide Procurement should ensure that

outdated versions of UC’s terms and conditions are

fully removed from public-facing UCOP websites

such that they do not appear in Internet search

results.

Systemwide Procurement will work with IT Services to either

remove outdated versions of UC’s terms and conditions from

public facing UCOP websites or clearly label them as not

current.

Target Date: June 30, 2023

Tracking Supplier Employee Hours, Identifying QIs, and Providing QIs Options for UC Career Employment

1.b.1 Systemwide HR should complete the

implementation of the systemwide QI tracking tool

with the selected supplier identified in the RFP.

The implementation of UC-Wide Qualified Individual (QI)

Tracking & Wage Benefit Parity Audit Project kick off is

scheduled for April 10 and 11, 2023. Implementation

preparations are underway, and the effort is projected to take

16 weeks. UCOP and the locations have key procurement and

labor roles related to implementation, with locations defining

roles related to implementation.

Target Date: December 31, 2023

1.b.2 Systemwide HR should issue guidance to provide

clear direction to UC locations on the following

compliance requirements for QIs:

• QI monitoring and identification, including

appropriate protocols for instances in which a

location determines that a supplier employee

reached QI eligibility in the past but has since

stopped providing services to the University

for an extended period of time

The implementation of the QI Tracking and WBP Audit

project will address these issues. In the interim, UCOP will

issue guidance to improve QI operations between current

practices and implementation. This includes requiring

locations to provide updated QI data, guidance to locations

regarding appropriate notices, and information regarding QI

tracking requirements.

Target Date: May 15, 2023

Recommendation

UCOP Management Corrective Action and Target Date

• QI conversion to UC career employment,

including the timeframe in which QIs must be

notified of an option for employment and

procedures for non-responsive QIs

• Any allowable exceptions to required

timeframes for QI conversion, such as certain

categories of employees that require additional

background checks

• Posting notices to contract workers with the

requirements for converting to a UC career

employee, including the appropriate

template(s) to be used

Systemwide HR has also secured funding for a workforce

commitment office that will be dedicated to optimizing and

supporting the university’s commitment to insourcing

covered services work and compliance with outsourcing

obligations. The workforce commitment office will also

create needed capacity to support this work.

Target Date: December 31, 2023

1.b.3 Locations should implement the updated guidance

provided by Systemwide HR on contracting out

compliance requirements related to Qualified

Individuals and implement the QI tracking tool

procured by UCOP.

N/A – Recommendation to locations

Compliance with Employee Displacement Requirements

1.c.1 Systemwide HR should issue guidance to provide

clear direction to UC locations on required

procedures to comply with employee displacement

requirements when contracting out for covered

services.

Given that the audit found no instances where employees

were displaced as a result of contracting out activities, UCOP

will consult with Chief Human Resources Officers and issue

recommended practices to support and document this

requirement.

Target Date: July 1, 2024

1.c.2 Locations should implement the updated guidance

provided by Systemwide HR on contracting out

compliance requirements related to employee

displacement.

N/A – Recommendation to locations

Article 5 Grievances

1.e.1 Systemwide Labor Relations should issue guidance

to provide clear direction to UC locations on the

following compliance requirements related to

administration of Article 5-related grievances:

• Requirements for recordkeeping

• Roles and responsibilities of the locations and

Systemwide Labor Relations for grievance

administration

• Criteria for notifying Systemwide Labor

Relations regarding locally filed grievances

• Procedures and documentation requirements

for instances in which AFSCME is non-

responsive during the grievance or appeals

process

UCOP Labor Relations will work with locations to

implement roles and responsibilities related to record

keeping, notification requirements, abandoned grievances,

and retain and remand decisions. The workforce commitment

office will also create needed capacity to support this work.

Target Date: December 31, 2023

Recommendation

UCOP Management Corrective Action and Target Date

1.e.2 Locations should implement the updated guidance

provided by Systemwide Labor Relations on

contracting out requirements for Article 5-related

grievances.

N/A – Recommendation to locations

1.e.3 Labor Relations should implement a systemwide

case management system for handling Article 5-

related grievances. This system should be a central

system of record for all grievances systemwide and

should have the following capabilities:

• Tracking and reporting on the current status of

all grievances systemwide

• Update (write) access and visibility of

grievance status (step progress) for all UC

labor relations departments

• Built-in logic to identify and track grievance

steps and associated timeline requirements

depending on the category of grievance filed

• Ability to attach documents to grievance

records supporting each location’s completion

of required steps

• Ability to flag grievances as “systemwide”

(when grievances impact multiple locations)

UCOP Labor Relations is implementing a systemwide

grievance tracker system in SmartSheet to track and report on

the status of all grievances received by UCOP Labor

Relations, including Article 5 grievances.

UCOP will review case management systems with the

functionality to support this recommendation.

Target Date: December 2023.

Reporting Violations of Contracting Out Requirements

1.f.1 Systemwide HR should issue guidance to provide

clear direction to UC locations on requirements for

provision of required employee notices to

suppliers, including the appropriate template(s) to

be used.

Systemwide HR will re-issue the employee notices in

conjunction with updated guidance. WBP guidance is being

issued with instructions to the locations on when and how

often to require suppliers to update their employees with this

information. That notice will be included with the Qualified

Individual guidance.

This guidance will be iterative and updated based on campus

feedback and effectiveness.

Target Date: May 15, 2023

1.f.2 Locations should implement the updated guidance

provided by Systemwide HR on provision of

employee notices to suppliers.

N/A – Recommendation to locations

1.f.3 Systemwide HR should revise the category used to

classify reported contracting out-related violations

in the systemwide whistleblower system to make it

more specific. Consider including terms like

“AFSCME Article 5” or “Regents Policy 5402” in

the category description.

Systemwide HR will review this information as part of the

update of QI guidance and when issuing the employee notice.

We will work with the office that manages the whistleblower

system to make updates to coincide with the release of that

guidance.

Target Date: May 15, 2023

Recommendation

UCOP Management Corrective Action and Target Date

Preparation of Annual Report to AFSCME

1.g.1 Systemwide HR should continue to provide the

annual report on Covered Services contracts to the

Regents each year as required by policy.

Systemwide HR will ensure that the annual report on

Covered Services contracts to the Regents each year as

required by policy.

Target Date: Completed. Annual Report was provided to the

Regents in February 2023.

Supplier Audit Program

2.1 Systemwide Procurement should continue the

supplier audit program and expand it to include

additional criteria for supplier audit selection, such as

a lower dollar threshold or risk-based criteria.

Systemwide Procurement is developing processes and tools

to address the ongoing need to verify supplier compliance

with Wage & Benefit Parity requirements.

Target Date: December 31, 2023

UCOP Guidance

3.1 Systemwide Procurement, in coordination with

Systemwide HR and Systemwide Labor Relations,

should consolidate all of the University’s guidance

on contracting out requirements into a central

repository that is easily accessible to all of the

individuals at the locations that have compliance

responsibilities. This guidance should include clear

direction on specific categories of services that are to

be treated as Covered Services and those that are not

to be treated as Covered Services. This guidance

should be updated periodically and serve to address

specific questions that come from the locations on

subcategories of services that are not addressed in

Article 5.

UCOP partners agree and commit to accomplish this

recommendation. Now that the systemwide function of

Article 5 compliance is formalizing, and we will receive

staffing resources, we will document and publicize guidance.

The work of this recommendation will begin very soon but

will not be completed quickly and will necessarily be

iterative. To that end, it is difficult to provide a target date for

completion.

Target Date: July 1, 2024 (for progress report)

3.2 Systemwide Procurement, in coordination with

Systemwide HR and Systemwide Labor Relations,

should review the Implementation Guidelines and

update them to include new requirements and remove

outdated requirements. At a minimum, the following

requirements should be reviewed for potential

updates:

• The required language in the WBP appendix

• The requirement to share draft notices on

decisions to contract out Covered Services with

Systemwide Labor Relations and UC Legal prior

to issuing them to AFSCME

UCOP partners will collaborate to update the Implementation

Guidelines to address current requirements for contracting

out for Covered Services. This update will address the topics

specified in the recommendation.

Target Date: December 15, 2023.

Appendix B: Glossary of Terms

American Federation of State, County and Municipal Employees (AFSCME): A labor union

that represents two University bargaining units, the Service (SX) unit and the Patient Care

Technical (EX) unit. AFSCME represented employees perform the majority Covered Services

(defined below).

Bargaining Unit: A defined group of employees who are represented by a single labor union (their

exclusive representative) for purposes of collective bargaining and representation in the grievance

process. For the Implementation Guidelines, this refers to the AFSCME SX and EX bargaining

units.

Carve Outs: Circumstances listed in Section B of the Regents Policy and Article 5 Section C of the

AFSCME Collective Bargaining Agreement where contracting for Covered Services is allowed.

Contract: A legally binding agreement between a supplier and UC to provide goods or services. It

is only enforceable if signed by authorized representatives of both the supplier and UC.

Contractor: The organization contracting with UC to provide services. Contractor is the same as

supplier with respect to the Regents Policy and Collective Bargaining Agreement Article 5.

Collective Bargaining Agreement (CBA): The contract executed between UC and AFSCME and

ratified for SX bargaining unit employees on January 31, 2020, and for EX bargaining unit

employees on February 7, 2020. For purposes of these Guidelines, Article 5 of the CBA takes

precedence over the Regents Policy.

Covered Services: Work customarily performed by bargaining unit employees at the University,

whether in whole or in part, including but not necessarily limited to the following services:

cleaning, custodial, janitorial, or housekeeping services; food services; laundry services; grounds

keeping; building maintenance (excluding skilled crafts); transportation and parking services;

security services, billing and coding services, sterile processing, hospital or nursing assistant

services, and medical imaging or other medical technician services.

Insourcing: Insourcing occurs when service contracts are terminated or not renewed, and the work

is transferred to UC employees either by converting the supplier’s employees or hiring additional

employees to fill newly created positions.

Qualified Individuals (QIs): Individuals who have provided Covered Services to the University

for 1,000 hours in a rolling 12-month period or 35% (~2,200 hours) in a rolling 36-month period.

Supplier Employees: These individuals are sometimes referred to as contractors or contract

workers. They are employed by the organization contracting with UC, and they provide services to

UC.

UC Location: Campuses, medical centers, the Lawrence Berkeley Lab, and properties that the

University has leased from or to a third party.

Wage and Benefit Parity: Contracts for covered services must include UC employee wage and

benefit parity for the contract workers providing services to UC. Parity is defined as the cost

equivalent of the following:

• Annual and hourly salary at Step 1 of the salary range for the entry level of the comparable

UC classification (or if not entry, the most junior classification)

• UC benefits for health, dental, vision, life insurance, disability insurance, and retirement

that a UC employee performing the same duties would receive (applied as a percentage of

salary)