Internal Audit Report 

Limited Operational Audit 
Compliance Cost of CPO Policies and Procedures 

2008  2012 




Issue Date: December 4, 2012 
Report No. 2012-22

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 


Table of Contents 

Transmittal Letter .......................................................................................................... 3 
Executive Summary ...................................................................................................... 4 
Background ................................................................................................................... 5 
Conclusion ..................................................................................................................... 7 
Schedule of Findings and Recommendations ............................................................ 8 
1.     The Central Procurement Office's Controls Could Be Improved To Provide An
Objective Measure Of The Efficiency Of The Service Agreement Procurement Process. ..... 8 











Page 2 of 10

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 

Transmittal Letter 

Audit Committee 
Port of Seattle 
Seattle, Washington 

We have completed an audit of the Compliance Cost of CPO Policies and Procedures. We
reviewed information relating to CPO policies and procedures from 2008 through 2012. 
We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives. 
We extend our appreciation to the management and staff of the Central Procurement Office
(CPO) for their assistance and cooperation during the audit. 



Joyce Kirangi, CPA 
Internal Audit, Director 







Page 3 of 10

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 

Executive Summary 

Audit Scope and Objective  The purpose of the audit was to determine whether the Central
Procurement Office (CPO) has sufficient controls to reasonably ensure: 
1.  CPO processes related to service agreement procurement are efficient, specifically: 
Whether CPO-1 policy has significantly more requirements than state law. 
Whether the CPO's controls provide an objective measure of the efficiency of the
service agreement procurement process. 
2.  The Port is in compliance with requirements that prohibit splitting contracts and
purchases to avoid requirements related to: 
Service Agreements 
Purchases of Goods and Services 
We reviewed information for the period 2008 through 2012. 

Background  The Central Procurement Office was created in 2008 in response to the State
Auditor's 2007 performance audit. The CPO provides oversight and guidance on the Port's
procurement activities. The CPO is organized into the three major categories of procurements:
Service Agreements, Purchasing, and Construction. 
The CPO oversees procurement policies and procedures, but procurement activities require a
partnership between CPO and the department requesting the procurement. Generally, the
CPO's role is to facilitate the process and ensure compliance with state law and Port policy,
while the department is responsible for the business decisions associated with the procurement. 

Audit  Result  Summary Based on our audit, CPO-1 policy,  which addresses service
agreements, does not impose significantly more burdensome requirements than state law, but
the Central Procurement Office's controls could be improved to provide an objective measure of
the efficiency of the service agreement procurement process. Additionally, the CPO's controls
are sufficient to ensure compliance with requirements that prohibit the splitting of contracts and
purchases. 




Page 4 of 10

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 

Background 
The Central Procurement Office was created in 2008 in response to the State Auditor's 2007
performance audit. The CPO provides oversight and guidance on the Port's procurement
activities. The CPO is organized into the three major categories of procurements: Service
Agreements, Purchasing, and Construction. 
The CPO oversees the following types of procurements: 
Service Agreements  contracts for personal and professional consulting services 
Major Public Works  contracts that are initially estimated to be in excess of $300,000 
Small Works  contracts that are initially estimated to be less than or equal to $300,000 
Fixed Price Goods and Service Contracts  contracts for recurring purchases of goods
and services with pre-established terms and conditions 
Blanket Vendor Contracts  contracts for recurring purchases from a vendor in varying
frequency and quantity 
One-Time Purchases  non-recurring purchases of goods and services 
The table below summarizes the procurements executed since 2008: 
2008               2009               2010               2011               2012 
Procurement Type      Amount     Count     Amount     Count     Amount     Count     Amount     Count     Amount     Count 
Blanket Vendor
Contract              $2,668,415     190      $2,570,800     123      $8,993,452      90     $15,802,624      68      $2,440,399      60 
Fixed Price Contract       $2,893,452       5     $38,307,107      11     $17,681,863      50      $4,348,359      35     $21,551,021      30 
Interlocal Agreement        $47,272      1     $5,163,134      6     $7,746,977      20     $1,285,972      12       $258,671      5 
Major Construction
Contract            $283,086,057      19     $98,042,594      11    $112,718,190      20     $41,959,605      23     $15,113,760       9 
Service Agreement      $53,693,853     521     $61,369,165     201     $77,857,889     237     $48,472,491     165     $71,208,494     92 
Small Works
Contract              $5,938,322      59      $7,728,673      50      $4,201,428      24      $4,939,547      24      $4,845,718      17 
A-Type Purchase        $31,992,122    3821     $21,611,093    4673     $35,384,038    4389     $32,775,960    2737     $28,057,411    1349 
Source: PeopleSoft as of October 25, 2012, amount is current maximum contract amount 
The CPO oversees procurement policies and procedures, but procurement activities require a
partnership between CPO and the department requesting the procurement. Generally, the
CPO's role is to facilitate the process and ensure compliance with state law and Port policy,
while the department is responsible for the business decisions associated with the procurement. 

Highlights and Accomplishments 
During the course of the audit, we observed the following improvements in management
processes related to procurement. 
Developed the Procurement and Roster Management System (PRMS) to maintain
consultant rosters and advertise Port contracting opportunities. 

Page 5 of 10

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 

Engaged with the Continuous Process Improvement (CPI) initiative to develop a
consensus evaluation process to shorten the evaluation timeline for service agreements. 
Formed advisory committees of stakeholders to share information regarding
procurement policies and procedures 
Established an acquisition planning process to develop procurement strategy early in the
process. 

Audit Scope and Methodology 
We reviewed information for the period 2010 through 2012. We utilized a risk-based audit
approach from planning through testing. We gathered information through interviews,
observations, and analytical reviews, in order to obtain a complete understanding of the CPO's
policies and procedures. We conducted an assessment of significant risks and identified
controls established to mitigate those risks. We evaluated whether the established controls were
functioning effectively, as intended. 
We applied additional detailed audit procedures to areas with the highest likelihood of significant
negative impact as follows: 
1.  To determine whether the current CPO processes related to service agreement procurement 
are efficient: 
There are currently eight policies in the CPO series of policies and procedures, only
some of which are related to service agreements. CPO-1 is the policy containing the
requirements for service agreement procurement. 
We cross-walked the CPO-1 policy to state law governing personal and professional 
service agreements to determine whether the current CPO policies and procedures
impose requirements that are significantly more than the state law. If so, determine the
extent of the impact to the overall procurement efficiency. 
We examined the existing controls that CPO has in place to track and assess the
service agreement procurement process and determined whether they provide a
consistent, objective measure of process efficiency. 
o  We analyzed the service agreement transparent  pipeline, the customer
satisfaction survey conducted by the CPO, and reviewed information related to the
service agreement advisory committee. 
o  We analyzed the procurement files for the five service agreements executed in
2011 and 2012 that were completed in more than double the expected amount of
time. 

Page 6 of 10

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 

2.  To determine compliance with Port requirements that prohibit splitting contracts and
purchases to avoid requirements in services and goods agreements 
We analyzed contract data for the period January 1, 2010, through July 9, 2012 and
purchase order data for the period January 1, 2010, through September 9, 2012, to
identify procurements that may have been split. We reviewed 6 contracts and 17 onetime
purchases that may have been split. This sample included all of the contracts that
were potentially split and all of the purchases that were potentially split to avoid the
formal competitive process. 

Conclusion 
Based on our audit, CPO-1 policy, which addresses service agreements, does not impose
significantly more burdensome requirements than state law, but the Central Procurement
Office's controls could be improved to provide an objective measure of the efficiency of the
service agreement procurement process. Additionally, the CPO's controls are sufficient to
ensure compliance with requirements that prohibit the splitting of contracts and purchases. 












Page 7 of 10

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 

Schedule of Findings and Recommendations 

1.  The Central Procurement Office's Controls Could Be Improved To Provide An
Objective Measure Of The Efficiency Of The Service Agreement Procurement
Process. 
The CPO implemented a transparent pipeline in 2010 to track the progress of service
agreements procured through a formal competitive process. This pipeline records the dates
of key events during the procurement process, along with the expected dates for each
event, which are agreed upon between the requesting department and the CPO at the
beginning of the procurement process. 
We analyzed the transparent pipeline data from its beginning in 2010, through September
12, 2012. We determined that 91 of the 113 completed procurements during the period were
executed later than the planned execution date as follows: 
Longer Than Initially Planned   2010    2011    2012 
1 to 30 Days                   5      6       8 
31 to 60 Days                  3      7      3 
61 to 90 Days                  4      6      2 
91 to 120 Days                15      5      6 
More Than 120 Days           12     6      3 
We observed that the metrics calculated by CPO identify this variance between actual and
expected timeline, but do not detail the cause of the variance. For example, we did not find a
consistent reconciliation of the actual to the expected timeline, or any tracking of the
contributing factors to the variance that could identify opportunities for policy and procedure 
refinement. 
Additionally, we reviewed the procurement files for the five agreements executed in 2011
and 2012 that were completed in more than double the expected amount of time. The
review was to determine whether the file contained any analysis of process efficiency. The
files did not contain an objective analysis of the causes for the timeline of the procurement
being more than double the expected schedule. 
An objective measure is prerequisite to the identification and effective mitigation of potential
inefficiency. The analysis of such measures would facilitate efficiency discussions and
promote "a strong working relationship between the CPO and the requesting departments," 
as highlighted in CPO-1 policy, to continuously improve its processes. 


Page 8 of 10

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 

Recommendations: 
We recommend management: 
Develop and implement metrics that objectively measure and evaluate the efficiency
of the service agreement procurement process. 
Continue to improve teamwork (i.e., "strong working relationship") with training and
engagement with department management. 

Management Response 
CPO appreciates the time and effort taken by the Internal Auditor in auditing the Port of Seattle
(Port) procurement policies and procedures. CPO is committed to providing strong customer
service and process improvements, including being a leader in implementing Continuous
Process Improvement (CPI), commonly referred to as LEAN. CPO has established a number of
tools to meet our commitments. 
CPO created a website that contains numerous documents (guidelines, checklists, and forms)
to assist non-procurement personnel in understanding the procurement process and identifying
their roles and responsibility for obtaining a contract. We developed numerous training seminars
and provide those seminars on an on-going basis. We established a Service Agreement
Advisory Committee (consisting of representatives from Corporate, Real Estate, Seaport,
Aviation, and Capital Development) that provides us with input and feedback and serves as an
outreach and communication tool. 
CPO developed a tracking system, commonly referred to as the "transparent pipeline" at the
request of our customers so that management would have visibility to procurement status and
the procurement team would have a better understanding and commitment to the schedule. The
pipeline has undergone a few revisions to meet additional needs and data requests and is a
metrics tool. Establishing a realistic procurement schedule is a challenge at the Port as the
schedule is impacted by workload and availability of team-members outside of the control of
CPO. 
The procurement team is comprised of the Port's internal customer (represented by the
Requesting Departments Representative, RDR), an evaluation committee (generally three to
five individuals), the CPO Contract Administrator, and the selected consultant. CPO facilitates
the process and provides oversight and guidance to ensure compliance with legal and policy
requirements. The customer and evaluation committee is responsible for drafting a clear scope
of work, identifying appropriate and effective evaluation criteria, evaluating proposal, making the
selection decision, and negotiating the final scope and contract cost elements. Team-members
are very busy with their "regular" workload and often procurement activities are not a priority.
Accordingly, the procurement schedule is often impacted by ability of team-members to perform
their tasks in a timely manner due to "regular" work being prioritized over procurement activities.
CPO appreciates Management support in recognizing this body of work and making resources
available to perform the various activities. 

Page 9 of 10

Internal Audit Report 
Compliance Cost of CPO Policies and Procedures 
2008 - 2012 

CPO is working diligently to simply processes and create useful tools so that less time is 
required to perform the various procurement tasks. For example, in October 2011, CPO
sponsored and facilitated a CPI event focused on the evaluation and selection phase of
procurement. A small group of customers from Aviation, Seaport, and Capital Development,
participated in a three day accelerated improvement workshop. Based on the recommendations
developed in the workshop, CPO implemented a new method to evaluate proposals and
document the selection decision. This method is called "consensus evaluation", where
evaluators review the proposals independently and come together as a group to evaluate,
score, and select the winning proposal. The average time for evaluation of proposals prior to
consensus evaluation was 76 days. The workshop goal was to reduce the number of days by
25% (to 57 days). The workshop recommendations resulted in a standardized process,
eliminating the waste of waiting and rework. To date, consensus evaluation is very successful.
We have completed consensus evaluation on nine procurements with an average evaluation
time of 37 days. 
Our work is not done. CPO will continue to evaluate our processes and requirements to
eliminate waste and improve efficiency of our procurements. We are currently working on a
process to assist project managers in negotiating costs. 
In addition to focusing on process improvements, we request input on the quality and
effectiveness of our team-members contributions. A customer satisfaction survey is sent to
every customer following execution of a contract. We have received 139 responses and our
response rate is over 80%. On a scale of 1 to 5, 5 representing strong agreement, we have an
average score of 4.5 and higher with respect to CPO providing thoughtful advice, understanding
customer needs, providing timely input, and satisfaction with overall contributions of CPO teammember.
CPO will take the audit recommendation under consideration and continue to work
collaboratively with Port management, via the Service Agreement Advisory Committee. We
appreciate the opportunity to provide this response. 







Page 10 of 10