(9)AR 110309 Contract Modification/MAS

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CITY OF COLTON ITEM #9 AGENDA REPORT FOR COUNCIL MEETING OF NOVEMBER 3, 2009 TO: HONORABLE MAYOR AND CITY COUNCIL FROM: MARK NUAIMI, ASSISTANT CITY MANAGER SUBJECT: AUTHORIZATION TO AMEND AND RESTATE THE TERMS OF THE AGREEMENT BETWEEN THE CITY AND MUNICIPAL AUDITING SERVICES DATE: OCTOBER 26, 2009 BACKGROUND: The City entered into a contract with Municipal Auditing Services (MAS) on July 1, 2006 for a period of three years ending on June 30, 2009. The original contract allowed for automatic extension for two (2) additional two (2) year periods. MAS utilizes data mining services to discover unlicensed businesses through data available from the State of California Board of Equalization, phone directories, property tax, State of California Franchise Tax Board and Internal Revenue Service. MAS also conducts audits of the City's business license tax as it applies to deficiencies in reporting requirements. For the first three year period, MAS has collected additional revenue to the City in the amount of $350,135.76 through the discovery process and $84,185.52 through the audit process. This amounted to 50% of the actual receipts from the businesses — the remaining 50% was the compensation paid to MAS for their services. DISCUSSION/ANALYSIS: The first contract the City negotiated with MAS resulted in 50 percent of the recovery amount diverted back to MAS as the consultant's payment upon recovery of funds. The City has renegotiated the terms of the agreement with MAS as it pertains to their consultant payment in exchange for an extension of their contract term. The new contract would be for three years effective September 23, 2009 through September 22, 2012 with an automatic renewal for two additional two year periods unless contract is terminated. The contract does contain a provision to allow the City to cancel the contract with seven (7) days written notice. In exchange for the extension of the contract, MAS is reducing their consultant payments to forty percent (40%) of the recovery amount until the end of the fiscal year June 30, 2010, forty-five percent (45%) of the recovery amount for fiscal year 2010-2011, and fifty percent (50%) of the recovery amount beginning July 1, 2011. FINANCIAL IMPACT: The services provided by MAS will not generate any net cost for the City. MAS' services are funded entirely through their recovery efforts and the City does not incur any fees until MAS makes a recovery. The fee is applicable only to the first year's recovery and the City retains all subsequent business license revenue from the second year forward. With the renegotiated rates, staff believes the City could benefit by reducing expenses by $80,000 in the current fiscal year and $40,000 in FY10/11.