RPVCCA_CC_SR_2015_01_20_H_Update_HotlineCITY OF
MEMORANDUM
PALOS VERDES
TO:
HONORABLE MAYOR & CITY COUNCIL MEVBERS
FROM:
DENNIS McLEAN, DIRECTOR OF FINANC
DATE:
JANUARY 20, 2015
SUBJECT:
UPDATE - AGREEMENT FOR ANONYMOUS FRAUD,
WASTE, AND ABUSE HOTLINE SERVICES
REVIEWED:
CAROLYNN PETRO, ACTING CITY MANAGE
RECOMMENDATION
1) Direct Staff to continue to negotiate with NAVEX Global, Inc.("NAVEX") regarding the
proposed Master Service Agreement ("MSA") and Order Form between the City and
NAVEX for the City's Anonymous Fraud, Waste, and Abuse Hotline ("Hotline"), and
2) Direct Staff to renew discussions and negotiate with The Network for the City's Hotline;
3) Direct Staff to return to the City Council with a recommendation for approval of an
agreement with either NAVEX or The Network for the City's Hotline.
BACKGROUND AND DISCUSSION
On November 4, 2014, the City Council approved Staff's recommendation to develop an
agreement with NAVEX Global to serve as the City's Hotline Administrator. Amy Greyson in
the City Attorney's Office served as lead negotiator on behalf of the City, as she did with Bank
of the West agreement. The negotiating process that has led to this update was similar to the
Bank of the West agreements as to its complexity and difficulty.
The legal counsel for NAVEX has communicated that she is no longer authorized to discuss
or revise the proposed agreement and that their most current iteration is their final agreement.
The current iteration raises considerable concerns for Staff and the City Attorney's Office for
multiple reasons, including the following reasons:
➢ The standard NAVEX Master Services Agreement includes an indemnity provision
stating that an indemnifying party will not enter into any settlement or compromise of a
claim without the indemnified party's prior consent if the settlement would require
admission or fault by payment by the indemnified party. The City Attorney's Office was
concerned that this language would allow NAVEX to enter into certain settlement
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agreements on the City's behalf, which is not the City's practice or acceptable to the
City. The City proposed to modify that provision to state that the indemnifying party
will not enter into any settlement or compromise of any claim on behalf of any
indemnified party without that indemnified party's prior written consent. NAVEX
refused to agree to that revision.
➢ The original NAVEX MSA included a limitation of liability provision that limits NAVEX's
liability for any acts to one year's annual fees ($3,500) for all claims and would also not
allow recovery of a wide variety of damages including indirect, punitive, consequential,
or special damages, except for certain specified claims. The MSA's standard
language provides that each party could be liable for broad categories of damages for
the following types of claims: (i) breaches of confidentiality obligations, (ii) violations
of either party's intellectual property rights, (iii) each party's indemnification obligations,
(iv) payment of fees and (v) either party's gross negligence or intentional misconduct.
The City Attorney's Office was concerned that the proposed NAVEX language could
subject the City to liability for types of damages that the City does not normally agree
to pay. The City's proposed language reiterated that neither party would be liable
under any circumstances for punitive or exemplary damages; and that neither party
is disclaiming liability for damages resulting from its own gross negligence or intentional
misconduct. In light of the purpose of the Hotline, the fact that confidential information
would be stored on the provider's system, these unresolved issues were unacceptable
to the City Attorney and Staff.
➢ The original version of the MSA stated that each party must comply with "Applicable
Law", but did not define the term or the substantive laws that would establish each
party's obligations under the Agreement. The MSA generally defines Applicable Laws
as "any law, rule or regulation applicable to such party" but provides no other
clarification about its meaning, and as a result, the MSA does not define the laws that
would apply to each party under the MSA or the Order Form. The City provided NAVEX
with proposed revised language to define "Applicable Law" in the MSA, to include a
comprehensive citation of examples of the various laws that pertain to the Agreement,
including specific California statutes, in light of the types of services to be provided by
NAVEX and the breadth of hotline. However, after review and discussion, NAVEX
refused to add the language or any language clarifying the substantive laws applicable
to each party's performance of the terms, conditions and requirements of the
Agreement.
➢ NAVEX was unwilling to establish rates, or even a range of fee rates for some of the
reasons for additional services.
➢ NAVEX agreed to add language to the MSA providing that nothing in the MSA
precludes the City from complying with the Brown Act or Public Records Act. However,
NAVEX was unwilling to include any language stating that NAVEX has any obligation
to comply with those laws.
Because legal counsel for NAVEX has communicated that she is no longer authorized to
discuss or revise the proposed agreement and that their most current iteration is their final
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agreement, Staff contacted The Network to obtain a copy of its standard agreement for
comparison purposes. The Network immediately provided its standard agreement along with
an unsolicited, new cost proposal, which was lower than its prior proposal. Staff would like
Council authorization to continue its discussions with NAVEX and to reopen its discussion
with The Network and return to the City Council with the agreement that best addresses the
City's needs and satisfies the City's concerns.
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