December 2, 2003 

SUBJECT: Award of Request for Proposals No. F0308-09 for Third Party Administration Services for Workers' Compensation Claims

REPORT IN BRIEF

Approval is requested for the award of an eighteen-month contract (January 2004 through June 2005), with an option to renew for three additional one-year periods (July 2005 through June 2008) to Gregory B. Bragg & Associates, Inc., of Roseville to provide third party workers' compensation administration services for the Department of Human Resources Risk and Insurance Division.

BACKGROUND

The City utilizes an outside service provider, known as a third party administrator (TPA), to manage workers' compensation claims by injured workers.  The charge of this provider is to interpret the labor code with respect to workers’ compensation and advance benefits to injured workers as prescribed by the laws of the State of California.  The Department of Human Resources’ Risk and Insurance Division is responsible for managing the contract for the third party administrator.

The current TPA contract with Claims Management, Inc., will expire on December 31, 2003.  In March 2002, the City Manager initiated a Task Force to study the rising costs of workers’ compensation and provide a recommendation to him. The State of California is in crisis with respect to workers’ compensation, and the Task Force wanted to be realistic about the goals of their effort.  The goal of the Task Force was to look for ways to stabilize the sharply rising costs, as opposed to reducing costs. 

The recommendation from the Task Force to the City Manager was for the City of Sunnyvale to adopt best practices for managing workers’ compensation.  One part of the best practices plan for workers’ compensation is for the City to partner with the outside claims administrator to effectively manage claims from injured workers.   The City embarked on a process to seek a TPA that will be responsive to our needs to manage claims well, while delivering benefits to employees as prescribed by California State Labor Code.

DISCUSSION

Request for Proposals No. F0308-09 was issued in September 2003 and distributed to seventeen firms known to provide third party claims administration services.  Eleven responses were received, as follows:

Proposers

Acclamation Insurance Management Services (AIMS) of Sacramento

Alternative Service Concepts, LLC, of Nashville, Tennessee

ART Insurance Services of Concord

Claims Management, Inc., of Sacramento

Claims Management Service, a program of the State Compensation Insurance Fund of California, located in Santa Ana

Gregory B. Bragg & Associates, Inc., of Roseville

Innovative Claims Solutions, Inc., of Rancho Cordova

JT2 Integrated Resources of Oakland

Octagon Risk Services, Inc., of  Oakland

Pegasus Risk Management of Modesto

Tristar Risk management of Walnut Creek

Written proposals were evaluated by a committee comprised of three managers (Risk and Insurance, Purchasing, and Department of Public Safety Captain for Professional Standards), one Human Resources Analyst, an employee representative for the Sunnyvale Employees Association, and an employee from the Public Safety Officers Association.   Evaluation criteria included: (1) adherence to Request for Proposals requirements, (2) depth of relevant experience of proposer's personnel assigned to the City, (3) proposer's understanding of and ability to meet City requirements, (4) capabilities of proposer's automated claims system and the relevancy of its capabilities to City needs, (5) proposer's level of financial stability, and (6) total cost to the City.  A point system was developed to select the finalists.  Four providers with the highest total points were invited to present their proposals.

The finalists (Bragg & Associates, JT2 Integrated Resources, Claims Management, Inc., and Innovative Claims Solutions) presented their services to the evaluation committee.   Below is a table which describes each of the finalist's pricing per year for services:

Following the oral presentations, references were checked for three of the four services.  Gregory B. Bragg & Associates was highly recommended for their customer service, as well as their cost structure, risk management information system, and reputation in the industry.  At the conclusion of this extensive evaluation process, the Director of Human Resources recommends award of contract to Gregory B. Bragg & Associates.

FISCAL IMPACT

Under the existing contract with Claims Management, Inc., annual costs for claims management services are $204,000.  Although an increase in fees to $237,500 per year was requested by the current provider for the calendar year 2003, it was not granted due to performance problems.

Under the recommended contract with Bragg & Associates, total annual costs  will not exceed $245,000.  However, the City intends to work with Bragg & Associates towards conversion from a flat fee to an incentive pricing strategy for less costly and more precise claims handling.   Should this occur, the total annual costs will most likely be as low as  $225,000.

Funds for third party claims administration services have been budgeted in Human Resources Department Program 785 - Workers' Compensation.

RECOMMENDATION

It is recommended that Council award an eighteen-month contract, in substantially the same form as the attached draft and in an amount not to exceed $367,500, to Gregory B. Bragg & Associates to provide third party workers' compensation claims administration services with an option to extend the contract for three additional one-year periods at a cost not to exceed $245,000 per year.

Prepared by:

Elaine Wesely,
Purchasing  Officer

Prepared by:

Barbara J. Coats
Risk and Insurance Manager

Reviewed by:

Mark Gregersen
Director, Human Resources

Reviewed by:

Mary Bradley
Director, Finance

Approved by:

Robert S. LaSala
City Manager

ATTACHMENTS

1. Draft Service Agreement

2. Exhibit "A" - Scope of Services

3. Exhibit "B" - Compensation

4. Exhibit "C" - Insurance