Civil Grand Jury Tackles Lax Contracting for Homeless Services

Anybody Watching?

by Dr. Derek Kerr

• • • • • • • July 17, 2023 • • • • • • •

This June, the Civil Grand Jury (Jury) issued a report on the status of City contracts with nonprofits that provide homeless services. This report comes on the heels of the Department of Homelessness and Supportive Housing’s (HSH) 5-year strategic plan to “prevent and end homelessness." It also tails the formation of a Homelessness Oversight Commission to watch over said plan.

The blight and suffering persist despite the billions of dollars and countless labors expended to address homelessness. Aware of the complexity of homelessness, the Jury focused on the most visible and vulnerable minority of homeless persons. These are the "chronically homeless," the 35% - per the City’s Point in Time count - who struggle on City streets. Unlike the majority who can regain their footing with limited help, chronically homeless folks need sustained, intensive support, including treatment for addiction and psychiatric disorders. A 2023 study by McKinsey & Company tracked 2,650 of these chronically homeless persons. After one year, 96% were still unsheltered. The Jury concluded, "The City’s efforts…are failing this particular subgroup at an alarming rate."

 The Jury then spotlighted the HSH’s contracting since community-based organizations (CBO) provide most of our homeless services. As reported, “HSH had a total of over 300 active agreements, some extending until 2030, representing a total original contract value of more than $2 billion."
 However, “Our investigation revealed deficiencies in the contracting process that may make it difficult for HSH to determine which CBOs have been effective in delivering services and which have not."

Lack of Results-Focused Outcome Objectives

The Jury reviewed 10 HSH contracts with various community-based nonprofits. It found that; “outcome objectives in four of the contracts in this sample actually specified activities to be performed, rather than outcomes to be achieved." For instance, in a 2022 contract with Urban Alchemy, “the contract’s outcome objective identified a singular activity to be performed—submitting data into a City database—instead of a result to be achieved."

Deficient Program Monitoring

The Jury determined that a good contract monitoring system improves outcomes and staff productivity. Contract monitoring is a type of collaboration that would “allow HSH to identify and provide additional support to nonprofit providers who are not meeting their goals." Further, it "would generate incremental information that would improve the overall contracting process.”

Currently, HSH partners with the Controller’s Office to conduct desk audits and on-site monitoring of contractors that receive more than $500,000 in funding. Site visits provide uniquely useful information as well as direct engagement with contractors. However, “During FY22, of the 49 contractors meeting the requirements for program monitoring, the Jury was only able to confirm that HSH performed 17 on-site program audits."

Ignoring Outcomes Dodges Accountability

Accountability means delivering agreed-upon results. But the HSH, founded in 2016, has yet to incorporate that accountability into its many contracts. It’s a long-standing glitch. Prior to the formation of the HSH, a 2016 Civil Grand Jury report on homelessness noted that; “Contracts are awarded through HSA and DPH with few requirements to include Client Outcomes in performance reports used to evaluate the success of a contract or program. Number of Clients Served is more often used." Moreover, “The nonprofit agencies that perform services for the homeless monitor their own Outcome Performance."

In response, the fledgling HSH agreed to include outcome measures in its contracts. But then, in 2020, the Board of Supervisors’ Budget & Legislative Analyst issued a performance audit of the HSH. It concluded that; “The Department does not sufficiently monitor provider contracts to ensure that service goals are met." One explanation was chronic HSH under-staffing, with a vacancy rate of 26% in 2020.

Citing a Harvard Government Performance Lab study, the Jury showed that flawed contracting is widespread; “Unfortunately, governments often treat procurement as a back office administrative function, rather than as a core part of their strategy for delivering better performance. . . . Contractor performance is rarely tracked in a meaningful manner. Contract management tends to focus on compliance instead of performance improvement, with contractors held accountable for inputs and activities rather than outcomes and impacts (if performance is measured at all)." So it’s not a unique San Francisco problem.

 And a 2022 Controller’s audit of 30 contracts implemented by six City departments (excluding the HSH) showed that 38% of the sampled nonprofits failed to meet their contracted performance measures (page 21). So it’s not a unique HSH problem. At times, the required performance measures were overly ambitious - or beyond the capacity and resources of the contractors. In some cases (see page 16 of the Controller's audit), mismanagement and perhaps corruption were involved. Such “red flag” incidents raise questions about who benefits from contracts with taxpayer-funded nonprofit services.

Here’s the rub: after repeatedly vowing to insert performance metrics into its contracts, the HSH has repeatedly delayed doing so, per the Jury report. What’s going on?

Why Contract Outcomes Go Missing

The Jury touched upon some reasons why contract outcomes are lacking, and why contract monitoring is deficient:

1. The HSH has been pressed to do something; get contracts signed and services going.
2. Reporting outcomes can be demanding for already-pressured nonprofit partners.
3. Expected performance measures may be unrealistic given program and population needs.
4. Improving contracts and monitoring outcomes are de-prioritized during staff shortages, COVID constraints, and heavy workloads.
5. Contracting terms have been generally viewed as ancillary, bureaucratic functions, deserving less attention.

Unmentioned in the Jury Report

1. City Family coziness with contractors sustains what former D-7 Supervisor Tony Hall has called a “Homeless-Industrial-Complex." Politically-connected entrepreneurs are awarded City contracts and return the favor by supporting City officials with perks, donations and/or votes. Ethical boundaries are crossed. Having received tax-payer funds, contractors advocate for more tax-payer funding – a potential conflict of interest. Journalist Susan Dyer Reynolds has unearthed a trove of “incestuous” and conflicted relationships around City homelessness programs.
2. The City has been more benevolent than demanding with its community-based partners. Although most nonprofits do a good job, poor performers are granted technical help, remedial services, and even bailouts — an additional, unacknowledged cost. Lax monitoring can become welfare for nonprofits and gives corruption safe passage.

We await the City’s response to this Jury’s polite, well-researched recommendations. Perhaps a future Civil Grand Jury will explore whether self-dealing contributes to the enormous expenditures and underwhelming results that typify our homelessness crisis.

Dr. Derek Kerr is a San Francisco investigative reporter for the Westside Observer and a member of SPJ-NorCal. Contact: watchdogs@westsideobserver.com

July 17, 2023