Oakland council puts off paying contractor after auditor objects

Oakland’s city auditor on Tuesday raised strong objections to a nonprofit contractor’s request for $150,000 in extra city funding, saying it could set a dangerous precedent.

In a letter to the City Council and Oakland Mayor Libby Schaaf, City Auditor Brenda Roberts called the demand from the nonprofit Oakland Private Industry Council “extraordinary” and urged city officials to consider its potential impact. The City Council was scheduled to vote Tuesday night on the payment to the Private Industry Council, but Councilwoman Rebecca Kaplan postponed the vote indefinitely after Roberts distributed the letter.

The Private Industry Council holds a $1 million annual contract with the city to provide job-training programs and had already asked for tens of thousands of dollars in extra funding.

Under the direction of the City Council, Assistant City Administrator Claudia Cappio recommended that the city pay the Private Industry Council the $150,000 to fend off a lawsuit threat from the group’s executive, Gay Plair Cobb, who claims that money is a penalty the city must pay for late grant payments it made to the group between July 2010 and March 2013.

Cobb justified the demand by citing the city’s prompt- payment ordinance, which was enacted in 2008 to require the city to pay vendors on time for goods and services. The ordinance was amended in 2014 to include grant recipients.

Although city staff denied Cobb’s request for about $161,000 in penalties last year, officials reversed course after Cobb threatened to pursue legal remedies. In a Nov. 15 staff report, Cappio recommended settling the matter on condition that the group release the city from all future claims.

The proposed settlement drew concern from Roberts, who said in her letter that she feared the law had been misinterpreted. She said the Private Industry Council should not be eligible for “prompt payment” fees because the law didn’t apply to grantees until 2014 — a year after the period under consideration. Roberts noted, further, that the group had drastically inflated the amount the city owed.

The law defines the penalty as 10 percent of the original payment if it is delinquent for an entire year. The Private Industry Council indicated in its request that the payments under consideration were between one and 35 days late, but it asked for a 10 percent penalty on all of them. In reality, the total reimbursement due would have amounted to between $8,400 and $9,800, Roberts said.

“I urge the City Council to consider the impact of this settlement and the precedent it may establish for potential similar prompt payment complaints,” Roberts wrote. She said that if the settlement were approved, “the city may need to set aside funds as a liability reserve in anticipation of other such requests for payouts of interest penalty reimbursements.”

Cobb argued in her own letter to the city administrator that the original 2008 ordinance “contains no language which would exclude grant-funded programs from its coverage.” She was not immediately available for comment on how her group had calculated the proposed penalties.

Rachel Swan is a San Francisco Chronicle staff writer. Email: rswan@sfchronicle.com

Twitter: @rachelswan