Poor contract planning by City Operations resulted in waste and inefficiency

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Summary 

The Auditor's Office found that poor contract planning by City Operations when they hired contractors as temporary staff constituted inefficiency and waste. Poor contract management resulted in the City paying $650,000 from the general fund to contractors that the City acknowledged did not have the expertise needed to complete the intended work. Waste of general fund dollars is especially concerning given the City's recent budget shortfalls. 

Investigators also found that the urgent work that the contractors were hired to help complete was delayed by a year. During that time the backlog of work with a direct impact on City operations continued to grow. 

The City should be especially cautious to prevent waste of general fund dollars due to its challenging budget environment involving large general fund shortfalls. The City can improve its contract management practices for hiring contractors as temporary staff to prevent future inefficiency and waste.

We recommend that City Operations establish a requirement for documenting approval from Technology Services when the City plans to have external staff work directly in City technology systems to effectively plan for these types of contracts and protect City systems. We also recommend that City Operations ensure that contracts that add temporary staff contain performance requirements with sufficient detail to ensure the City can track whether the contractors are able to accomplish tasks they were hired to do.

Tip to the Fraud Hotline

The Auditor's Office operates a Fraud Hotline to receive tips about suspected fraud, waste, inefficiency, or abuse involving the City government. 

In August 2025, a tip raised concerns about a Human Resources and Technology Services project to address a backlog in the time and payroll technology system that was supported by outside contractors. According to the tip, the original project did not meet the expected results, so the City had to hire a different vendor to help complete the work. The tip alleged that the original project was wasteful. 

Our Hotline team referred the tip to the City Operations service area, which contains both Human Resources and Technology Services, to investigate whether the outside contractors met expectations and whether waste occurred. According to the Fraud Hotline's administrative rules, when a case is referred to the City for investigation, we may monitor the investigation, request updates, and review investigative findings. City Operations reported their findings back to the Hotline. We reviewed their findings to determine whether waste, inefficiency or abuse may have occurred. This report explains the results of City Operations' investigation, our determination of whether waste occurred based on the results and our recommendations for addressing the issues that were identified.

Background

City Operations provided additional background information about the case in their investigation findings.

In May 2024, Human Resources and Technology Services started collaborating on a time and payroll project. The purpose of the project was to address a large backlog of required updates in the City's time and payroll system caused by a need to implement changes from labor agreements. The work was considered urgent because it had a direct impact on City operations, including union contracts and state paid leave programs. The initial project completion target was December 2024.

Human Resources and Technology Services determined that they did not have enough capacity across their teams to complete the time and payroll project. Therefore, the Human Resources Director requested and received additional budgeted funds during the Fiscal Year 2024-25 Fall Budget Monitoring Process to hire contractors as temporary staff to work directly in the City's time and payroll system.

In August 2024, City Operations hired contractors to support the time and payroll project. The new project completion target was January 2025.

Investigation Findings

City Operations provided the results of their investigation to the Hotline team and claimed that there was no waste. However, based on our review of the evidence we found that inadequate contract planning by City Operations led to delays and unmet needs. We determined that the failure to effectively plan for the contract qualified as inefficiency and waste due to the City paying $650,000 over the course of a year to contractors who did not have the expertise to complete the intended work. This error resulted in less availability of general fund dollars to other City services and programs and a year delay of urgent work.

City Operations acknowledged that the contract ended without achieving the intended results but claimed there was no waste

In response to the Hotline team's referral, City Operations said that the City learned after hiring the contractors that they did not have the expertise to complete the intended work. According to City Operations, after the external staff were already contracted, Technology Services informed Human Resources that the contracted staff would not be allowed to work directly in the City's time and payroll system due to system security concerns. City Operations said that Human Resources attempted to adjust the project considering this new circumstance, but the contractors did not have the experience to complete the work as adjusted.

City Operations said that the time and payroll project did not achieve its intended results by January 2025, so the City extended its contracted work with external staff through July 2025. When the contract expired, the City ended the time and payroll project. City Operations said that the project took longer than was expected and the work was not fully completed. The initial urgent work in the backlog the project was meant to address continued to expand.

To address the expanding backlog, City Operations started a new project. They said that Human Resources needed a new solution to stabilize the time and payroll system because the contractors from the initial project didn't have the level of expertise needed to complete the work successfully. In August 2025, the City signed a new contract for up to $600,000 with new contractors from a different vendor to work with City staff to address the backlog. City Operations reported that this project was completed by its target date of January 2026, a delay of one year from the original target.

Figure 1: The original contract ended without work being fully completed and urgent work in the backlog was delayed by a year

View full size image of A timeline showing the original contractors were hired in August 2024. The original contract ended in July 2025 without work being completed and new contractors were hired in August 2025. The project was completed by the new contractors in January 2026, a year after the target for project completion from the original contract of January 2025. The urgent work in the backlog was delayed during that year.

Despite this information, City Operations stated that there was no waste. They did not elaborate on their reasoning.

We found that inadequate contract planning led to delays and unmet needs

Waste involves the intentional or unintentional mismanagement of City resources, including expenditures that could have been avoided through reasonable care. In this case, we disagree with City Operations' determination that no waste occurred because the second contract likely would not have been needed if the City had planned the original contract amendment with more care.

City Operations could have avoided wasting time and money through effective contract planning. This should have occurred by defining performance requirements for contractors in a statement of work in the contract amendment—a critical step that City Operations omitted. According to guidance from the State of Oregon, a statement of work is the area in a contract that describes the details of performance and is the gauge against which contractor performance is measured. A statement of work also clearly communicates an agency's expectations from the contractor. The contract amendment did not include a statement of work. City Operations also acknowledged that clear expectations were not set for the external staff's work. Because City Operations did not clearly define the work to be performed or define contractor expectations, it was impossible to determine in advance whether the contractors would be able to perform the intended work. It was also impossible to monitor contractor performance because there were no benchmarks to measure performance against.

Human Resources and Technology Services also should have coordinated and confirmed that the contractors could work directly in the technology system while planning the contract. Technology Services is the leader in securing the City's technology systems. System access for external staff is a risk that should have been discussed and managed before the City signed a contract because there is a risk that external staff unfamiliar with the custom environment could make changes that have broader impacts. Instead, Human Resources learned that the contractors would not have system access after the contractors were already hired.

Effective contract planning would require the City to define the intended work and ensure that the contractors were qualified to complete it. City Operations did not define the work to be performed in the contract amendment so it was impossible to determine in advance whether the contractors would be able to perform that work. After learning the contractors would not have system access, the Bureau of Human Resources attempted to pivot to different work for the contractors that had already been hired. However, the Bureau learned that the contractors did not have the expertise to complete the new work. But despite these expertise issues, the City paid the external staff $650,000 in general fund dollars over the course of a year while further delaying the intended work and adding to the backlog. Ultimately, City Operations needed to execute a new contract to address the urgent issues that the original project was meant to resolve.

Failure to effectively plan for the contract qualifies as inefficiency and waste

Inefficiency involves an inability to do something in a well-organized or competent way, and waste involves mismanagement of City resources. According to the Hotline's administrative rules, both inefficiency and waste must have an "identifiable and material effect," meaning an important, measurable adverse outcome. 

We found that City Operations' inadequate contract planning qualifies as both inefficiency and waste. City Operations' error led directly to important and negative results, including:

• $650,000 in general fund dollars wasted; and
• urgent work delayed by one year.

The City paid $650,000 in general fund dollars to contractors that the City acknowledged did not have the expertise needed to complete the intended work. This had an identifiable and material effect on availability of general fund dollars to other City services and programs. This is especially important given the City's recent budget challenges because of large general fund shortfalls. 

The urgent work for which the external staff were hired to help complete was delayed by a year while the backlog of work continued to grow. As a result, important time and payroll system updates including those required from labor contracts and state paid leave programs remained unfinished. These delays have an impact on employees because they may not receive updated pay, benefits or access to new leave programs when expected and routine processes slow down. Operational inefficiencies pull time and attention away from supporting the programs and services that Portlanders rely on.

Recommendations

To effectively plan for and monitor performance of external staff, we recommend that:

1. The Deputy City Administrator for City Operations or designee should ensure that the contracts and amendments for hiring temporary staff contain a statement of work that includes sufficient detail such as benchmarks to ensure the City can monitor performance.

To effectively plan for contracts that add external staff, we recommend that:

2. The Deputy City Administrator for City Operations or designee should establish a requirement for documenting approval from Technology Services for contracts and applicable amendments that involve vendors working directly in City technology systems.

Response from City Operations 

The Deputy City Administrator for City Operations responded to the investigation with a statement agreeing with our recommendations. According to the response, City Operations began strengthening contract planning, performance expectations, and coordination in its work with the new contractors to address the backlog. Management says that the effectiveness of these practices was demonstrated through successful and timely completion of the new project. The response also states that City Operations will formalize these practices through sufficiently detailed statements of work and measurable performance expectations and by establishing a documented process for Technology Services review and approval when contractors will work directly in City technology systems.

About Portland's Fraud Hotline

The Auditor’s Office administers the Fraud Hotline to enable the public and City employees to confidentially report suspected fraud, waste, inefficiency and abuse of position by or against the City. The Hotline also serves to identify and prevent losses of City funds and act as a deterrent to fraud, waste and abuse of position. Hotline tips can be submitted online at www.PortlandFraudHotline.com or by phone by calling 503-823-4006.

When the Auditor’s Office finds waste, inefficiency or abuse of position via the Hotline, it is required by law to notify the Portland City Council of the findings. This report, which is delivered to the City’s mayor and commissioners, serves as that notice. It is also released publicly to inform about substantiated Hotline tips.

Investigated by: Jessica Lange, Senior Performance Auditor