San Francisco's much-heralded "social justice" requirements for city contracts are costing local taxpayers millions of dollars a year in overcharges, according to workers in departments ranging from the Municipal Transportation Agency to the Department of Emergency Management.

In one case, a Muni worker said the city paid $3,000 for a vehicle battery tray. Such parts can be found online for $12 to $300, depending on the type of vehicle. City officials said they couldn't verify that purchase, saying the trays are usually bought in bulk with the battery.

Other city purchasing policies, if followed, would mean paying about $240 for getting a copy of a key that actually cost a worker $1.35 to get done at a hardware store on his break, the employee said. Another city worker called the use of catalog pricing for supplies "Pentagon-style purchasing."

Markups from approved vendors range from 10 to 150 percent, employees said, with one calling the city's requirement that contractors provide health care benefits for domestic partners "the expensive white elephant standing in the middle of the room (that) no one wants to mention."

Some vendors are suspected of being little more than middlemen who comply with San Francisco's very specific requirements for contractors - like disclosing historic ties to slavery and providing domestic partner benefits, a provision known as 12B because of its chapter in the Administrative Code - then turn around and buy the products from companies that don't meet the restrictions, city officials acknowledge.

'Third-party brokers'

An analysis by the General Services Agency found that in the last complete fiscal year, 2009-10, the city paid $9.8 million to "possible third-party brokers" - vendors that may be pass-through companies.

Officials argue that the value of those suspect purchases is only 0.4 percent of the $2.3 billion the city spends on goods and services annually, and that they've been working hard for more than a year to address the problem. The domestic partner benefit requirement in particular, they say, is often unfairly singled out from the complex quilt of regulations governing city contracts and vendors.

"You can't always blame everything on 12B compliance," said Deputy City Administrator Naomi Kelly, who is also the city purchaser. "It's the totality of all of our social policies. You just can't put it on the back of the equal benefits ordinance."

San Francisco has 21 ordinances that govern city contracting. They range from the banal - registering with the city tax collector - to the progressive - providing health care for employees and complying with a ban on tropical hardwood and virgin redwood.

The rationale for them varies, including a belief that retirement and health care benefits for domestic partners are a basic right, or the intent that tax dollars should be spent furthering policy priorities that a majority of the city or its elected representatives support.

Some, like requiring city contractors to provide employees health care, have a direct financial benefit to the city, said Theresa Sparks, executive director of the city's Human Rights Commission, which certifies compliance with many of the contracting provisions.

"If these people weren't on their company's health insurance, many of them would be on Healthy San Francisco," the city's universal health care program, Sparks said.

Sparks acknowledged that city officials have recently uncovered one contractor who operated as a broker, outsourcing the entire contract he had won while taking a cut off the top, but said such instances are rare.

"It's not an epidemic," Sparks said. "To say that this goes on as a matter of course, I just don't think that's correct."

Employees await trial

Still, employees from two other city vendors, Cole Hardware and the now-defunct Centennial Distributors, are awaiting trial after being charged in 2009 with at least 12 felonies each for allegedly falsifying invoices while procuring $235,000 in such personal purchases as cell phones and custom auto parts for rogue San Francisco Public Utilities Commission employees.

At least some city workers are now using an online forum that the mayor's office set up to elicit staff suggestions for balancing the budget to rail against the contracting requirements.

"What is particularly maddening is knowing that 12b is supposedly about 'Social Justice' when in reality it is yet another way for contractors to game the system," one anonymous employee wrote in the forum. "How is social justice achieved when the only result is that third-party contractors bilk the city at a rate of 10 to 35% per purchased item?"

The Chronicle obtained more than 540 of the city employee online postings after some of them first appeared on Assessor-Recorder Phil Ting's Reset San Francisco website, a policy discussion site Ting, a candidate for mayor, set up with campaign funds.

The ideas for balancing the budget, part of the ImproveSF program begun under former Mayor Gavin Newsom, included having city staff work four 10-hour days a week, getting rid of fax machines and printed paychecks and selling off items in city storage.

But some of the most impassioned calls were for eliminating or restructuring the contracting requirements, with one employee writing that relaxing the rules "would make bidding for city vendor contracts much more competitive. It seems that a number of suppliers are nothing more than brokers who tack on an exorbitant mark-up & then drop-ship goods to the purchasing dept."

Mayor Ed Lee said that he's in favor of streamlining the contracting process by minimizing paperwork - there's no need for a small software vendor to have to certify they're complying with the tropical hardwood ban, he said. But the mayor does not back changing policy goals already approved by the Board of Supervisors.

Ting "supports using the city's buying power to create positive social action. The question is: 'Is that actually happening? And is that happening as effectively as it could?' " said Eric Jaye, Ting's campaign manager. "Are we paying more and still not getting what we're looking for?"

Kelly, the city purchaser, said officials are tackling the broker problem. They are increasing the use of citywide contracts, which have low-bid requirements that minimize markups, rather than having departments make direct purchases from approved vendors.

Prop. Q bid policy

Under Proposition Q, which voters approved in 1993, departments are not required to use competitive bidding for goods and services under $10,000.

A February report from the city controller and Office of Contract Administration found that 28 percent of all Prop. Q payments in fiscal 2009-10- worth $2.7 million - went to so-called "possible third-party brokers," even though vendors who do less than $5,000 worth of business with the city a year are exempt from the contracting rules.

"We've narrowed down those vendors that looked suspicious," Kelly said. "There's always room for improvement."