REQUEST FOR CITY COUNCIL ACTION
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Al Zelinka, City Manager
VIA: Brittany Mello, Administrative Services Director
PREPARED BY: DeAnna Soria, Risk Manager
Subject:
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Approve and authorize execution of Amendment No. 1 to the Professional Services Agreement with Carl Warren and Company for Subrogation/Property Recovery Services
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Statement of Issue:
The City of Huntington Beach maintains a program of self-insurance for general liability pursuant to the California Tort Claims Act. The City has existing professional service contract with Carl Warren and Company for general liability claims investigation, processing, and administration services and other ancillary services. Staff is seeking Council approval on an amendment to that contract in the amount of $222,000 to allow for continued subrogation/property recovery services. These fee-based services are paid for only if Carl Warren is successful in recovering monies for the City. As of September 2022, Carl Warren has collected a net total of $438,739.22 for the City.
Financial Impact:
Should the Amendment be approved, the City’s contract with Carl Warren and Company will increase by $222,000 and the total not-to-exceed amount for this agreement will increase from $309,000 to $531,000.
Sufficient appropriation is available in business unit 55230502.69365. It is important to note that the overall financial impact of conducting these services is net positive, as the City receives the majority of the funds resulting from Carl Warren’s subrogation/property recovery services, which may otherwise go uncollected. Specifically, 82% of the amount recovered in each claim is returned to the City, less the 18% service fee to Carl Warren. Since beginning these services in March 2021 through September 2022, Carl Warren has successfully collected a total of $535,047.83 for the City, less $96,308.61 in service fees, for a net revenue gain of $438,739.22.
Recommended Action:
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Approve and authorize the Mayor and City Clerk to execute, “Amendment No. 1 to Agreement between the City of Huntington Beach and Carl Warren and Company for Liability Claim Investigation and Processing,” as prepared by the City Attorney.
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Alternative Action(s):
A. Direct staff to discontinue subrogation/property recovery services as of October 2022, and approve an alternate amendment with Carl Warren and Company to authorize an increase of $96,308.61 to the contract amount to account for subrogation services provided between March 2021 through September 2022, allowing for the continuation of general claims administration at current levels through the end of the contract term in February 2024.
B. Do not approve any amendment(s) and direct staff accordingly. Note that this would require additional staffing to conduct subrogation/property recovery services internally, or these additional monies may be forfeited. It would also require staff to work with Carl Warren and Company to reduce general claims administration services for the remainder of the contract term through February 2024 to stay within the existing contract limit of $309,000.
Analysis:
Property recovery services were previously rendered by City staff in the Risk Management function of Human Resources. As part of the City’s Separation Incentive Program and the Fiscal Year 2020/21 Reorganization Plan in response to COVID-19 budget shortfalls, staffing levels were reduced, and the position responsible for providing these services, among other job duties, was eliminated.
Previously, the staff position, whose job duties included property recovery, had collected approximately $51,000 in 2019, and $80,000 in 2020 through August, when the position was eliminated. Property recovery services are labor intensive, requiring data gathering and extensive coordination.
In February 2021, the City entered into a three-year Professional Services Agreement with Carl Warren and Company for a not-to-exceed amount of $309,000 (Attachment #1) for general liability claims investigation, processing, and administration services. The contract limit of $309,000 represents a fixed annual fee of $103,000 over the three-year term. At the time, property recovery services were part of the available services to the City, but were not yet contemplated as part of our operational model.
After additional discussions with Carl Warren, the City’s Risk Management team began piloting the subrogation/ property recovery services available to the City, as outlined in Exhibit B of the agreement in March 2021. Subrogation is an ancillary service that charges an 18% fee of the monies recovered, and is not included in the fixed annual fee above. If no funds are recovered, the City does not pay for the service.
As of September 2022, Carl Warren has recovered a total of $535,047.83 for the City, less $96,308.61 in service fees, for a net revenue gain of $438,739.22 for the past 18 months. These efforts included addressing the backlog of claims that were outstanding after the August 2020 staffing reduction. During this period, Carl Warren’s has been successful and cost-effective with the cost recovery services provided. Their expertise in this area has resulted in capturing additional funds for the City that would have otherwise been forfeited.
Therefore, staff recommends the contract amendment with Carl Warren at this time, which will allow the City to continue these additional services through the remainder of the contract term in February 2024.
Previously, it was staff’s understanding that a contract amendment would not be required, since this would not be an outright cost, per se, but an additional revenue stream, less the 18% fee on funds recovered. In other words, if Carl Warren collected $100, they would reduce the monies paid to the City by their $18 fee, and provide the City a payment of $82. Upon further discussions with the Finance Department and City Attorney’s Office, it was determined that the total amount should be collected by the City, and then the City will need to pay the 18% fees out to Carl Warren for the services rendered through the existing contract.
As a result, staff is seeking Council approval on the contract amendment with Carl Warren by increasing the contract amount by $222,000 (a total not-to-exceed contract amount of $531,000) by the end of the term in February 2024. This amendment is estimated based on financial projection of the amount of funds that may be recovered. To reiterate, if Carl Warren does not successfully recover funds, the City does not pay the service fee and incur expenditures on this contract.
As another alternative, the City Council could deny any amendments to the existing agreement and direct staff to discontinue subrogation/property recovery services and reduce general claims administration services with Carl Warren and Company to stay within the existing contract amount of $309,000 through February 2024. Both alternatives would require additional staffing to conduct subrogation/property recovery services internally, or these additional monies may be forfeited.
Staff recommends approving Amendment No. 1 to the professional services agreement with Carl Warren and Company (Attachment #2) to allow for the continuation of both claims administration and subrogation/property recovery services.
Environmental Status:
Not applicable.
Strategic Plan Goal:
Financial Sustainability, Public Safety or Other
Attachment(s):
1. Professional Service Contract with Carl Warren and Company
2. Amendment No. 1
3. PowerPoint presentation