REPORT TO COUNCIL
SUBJECT
Title
Action on Amendment No. 1 to the Agreement with Sedgwick Claims Management Services, Inc., for Third Party Administrator (TPA) Services in Support of the City's Self-Insured Workers' Compensation Program
Report
COUNCIL PILLAR
Manage Strategically Our Workforce Capacity and Resources
BACKGROUND
Sedgwick Claims Management Services, Inc. (Sedgwick) has served as the City’s third-party administrator (TPA) for Workers’ Compensation claims since 1977. Sedgwick is the successor organization to Gates McDonald and Cambridge, and has provided claims administration services including assisting in managing employee workers’ compensation claims, claims costs, and claims outcomes in accordance with the State Labor Code. Sedgwick also provides ancillary services including bill review, utilization review and nurse case management.
The current agreement with Sedgwick was approved by the City Council on June 23, 2020, for an initial two-year term beginning July 1, 2020, with an option to renew for three additional one-year extension options through June 30, 2025.
Staff was planning to conduct a thorough analysis of the third-party claims management services prior to the expiration date. However, due to staff changes/vacancies, including the Risk Manager vacancy, staff was unable to complete this assessment. The Human Resources Department is now recruiting for the new Risk Manager, which will report to the City Attorney’s Office, and anticipates that the recruitment will be completed by Summer 2025.
DISCUSSION
To ensure uninterrupted workers’ compensation administration services, staff is seeking City Council approval to negotiate and execute Amendment No. 1 to the agreement with Sedgwick to extend the term through June 30, 2028. The proposed amendment would increase the compensation by $1,289,078 for a revised total maximum compensation of $3,143,657. The 3.5% annual increase proposed in the amendment is consistent with the Consumer Price Index.
This recommendation is made in accordance with the Santa Clara City Code Section 2.105.290(b), which permits non-competitive procurement when it is impractical to obtain the required services while also complying with competitive requirements.
The City is currently recruiting for a new Risk Manager, who will have the central role in evaluating the City’s workers’ compensation administration strategy, including leading a competitive procurement Request for Proposals (RFP) process and/or assessing cooperative purchasing options to ensure the City secures the best value and services. Extending the current agreement at this time provides continuity of services and ensures the City remains in compliance with workers’ compensation regulations and obligations
Sedgwick’s long-term service to the City, combined with its acquisition of York Risk Services - one of the most established providers in the public sector - further enhances their capacity to support the City’s needs. The City also benefits from Sedgwick’s alignment with the California State Association of Governments Excess Insurance Authority (CSAC- EIA), the risk pool the City participates in to buy its excess lines and specialty insurance coverage, including Workers’ Compensation. York had been an integral partner with the EIA on their first-dollar primary workers’ compensation program and serves a large number of public member entities in the EIA’s excess workers’ compensation program and was recognized for providing best-practice TPA claims management services to CSAC-EIA members. Sedgwick’s acquisition of York makes them a preferred provider with the EIA, which is one of the largest public risk pooling organizations in the United States.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a) as it has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. Furthermore, the action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
The proposed Amendment No. 1 increases the total not-to-exceed amount by $1,289,078 (from $1,854,579 to $3,143,657). The budget for these services is included in the Workers’ Compensation Fund contractual services account as part of the FY 2025/26 and FY 2026/27 Proposed Operating Budget. Appropriations in future years will be incorporated as part of the budget development process.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov.
RECOMMENDATION
Recommendation
Authorize the City Manager or designee to negotiate and execute Amendment No. 1 to the agreement with Sedgwick Claims Management Services, Inc. for third-party administration services supporting the City’s Self-Insured Workers' Compensation Program to extend the term by three years through June 30, 2028 and increase the maximum compensation by $1,289,078 for a revised total not-to-exceed compensation amount of $3,143,657, subject to the appropriation of funds and review and approval as to form by the City Attorney.
Staff
Reviewed by: Aracely Azevedo, Director of Human Resources
Approved by: Jovan Grogan, City Manager
ATTACHMENTS
1. Agreement with Sedgwick Claims Management Services, Inc.
2. Amendment No 1 with Sedgwick Claims Management Services, Inc.