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Home My WebLink AboutStaff Report 2512-5773CITY OF PALO ALTO CITY COUNCIL Special Meeting Tuesday, January 20, 2026 Council Chambers & Hybrid 5:30 PM Agenda Item 5.Approval of the Advisory Report: Contract Solicitation & Authority Levels and Subsequent Management Response as recommended by the Policy & Services Committee. CEQA Status – Not a Project. 9 0 7 5 City Council Staff Report From: City Auditor Report Type: CONSENT CALENDAR Lead Department: City Auditor Meeting Date: January 20, 2026 Report #:2512-5773 TITLE Approval of the Advisory Report: Contract Solicitation & Authority Levels and Subsequent Management Response as recommended by the Policy & Services Committee. CEQA Status – Not a Project. RECOMMENDATION The Policy & Services (P&S) Committee and the Office of the City Auditor recommend City Council approve the results of the Contract Solicitation & Authority Levels Advisory Report and subsequent management response to bring forth recommendations for revising the City’s procurement policies and ordinances and related procedures. BACKGROUND Baker Tilly Advisory, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that evaluated a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputational risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan. During the FY2025 risk assessment, the OCA identified contract solicitation and associated signature authority levels as potential areas of risk and this topic was included as an advisory project in the FY2026 Annual Audit Plan approved by Council. In accordance with our agreement with the City, Baker Tilly Advisory is required to execute the Annual Audit Plan each year which consists of specific, approved task orders. Task Orders approved by the Council are executed by the P&S Committee Chair as the Project Manager for the Baker Tilly Contract as stipulated in the contract terms. ANALYSIS Policy & Services Committee Discussion The P&S Committee unanimously approved the results of the Contract Solicitation & Authority Levels Advisory Report on December 10, 2025. Committee members discussed the possible impacts of increasing solicitation and signature authority level thresholds including improved and more efficient processes while also noting the potential to lose some transparency over the procurement process as fewer contracts would move through a formal bidding process and 9 0 7 5 fewer contracts would require Council approval depending on what changes are codified. Management noted that Council does receive regular reporting on City contracts but will look for ways to improve this reporting. City management will return to Council with an outline of proposed changes in the Spring 2026. An overview of the advisory report findings is below. 1. Since then, market conditions and costs have changed significantly. According to industry cost indices and economic benchmarks, construction costs have increased by approximately 67%2, goods and general services by 41%3, and professional services by 35%4. Despite these changes, solicitation thresholds and authority levels have remained static, creating inefficiencies and administrative burdens. 1 See Ordinance 5387 of the Council of the City of Palo Alto Amending Chapter 2.30 of the Palo Alto Municipal Code 2 Department of General Services (DGS) California Construction Cost Index CCCI, DGS California Construction Cost Index CCCI 3 Municipal Cost Index (MCI), developed by American City & County, The Municipal Cost Index | Smart Cities Dive 4 U.S. Bureau of Labor Statistics, Employment Cost Index, ECI, ECI Home : U.S. Bureau of Labor Statistics 9 0 7 5 Finally, the City’s P-Card transaction limit of $10,000, unchanged since 2016, has lost more than 25% of its purchasing power due to inflation. While some peers have similar limits, others have either increased levels, such as San Jose to $15,000, or are in the process of reviewing their limits, such as Sunnyvale. In addition, the Federal Acquisition Regulation recently increased the micro purchase threshold to $15,000 in October 2025. This erosion results in staff having to initiate formal procurement processes for routine purchases that could fall under the P-Card threshold should it be raised to $15,000, adding unnecessary steps and delays for routine items. Management Response FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: City of Palo Alto Office of the City Auditor Contract Solicitation and Authority Levels Advisory Report November 25, 2025 Contents network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. EXECUTIVE SUMMARY .................................................................................................. 1 PURPOSE OF THE ASSESSMENT ........................................................................................................ 1 REPORT HIGHLIGHTS ............................................................................................................................... 1 INTRODUCTION ............................................................................................................... 5 OBJECTIVE ................................................................................................................................................... 5 BACKGROUND ............................................................................................................................................. 5 SCOPE AND PROCEDURES ................................................................................................................... 6 DETAILED ANALYSIS ..................................................................................................... 7 APPENDICES ..................................................................................................................... APPENDIX A: CITY OF PALO ALTO CURRENT STATE ................................................................ 16 APPENDIX B: BENCHMARKING SUMMARY ..................................................................................... 17 Executive Summary Purpose of the Assessment Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City or Palo Alto), conducted a Contract Solicitation and Authority Levels Advisory Project based on approved Task Order 4.40 as part of the City’s Fiscal Year (FY) 2026 Audit Plan. The objective of this project was to assess and benchmark the City’s current solicitation and signature authority thresholds. Report Highlights (Page 5) processes, eliminate administrative inefficiencies and better align the City with peer and industry best practices. The City’s procurement procedures, primarily codified under Chapter 2.30 of the Municipal Code, Contracts and Purchasing Procedures ordinance 1, were last updated in 2016 and no longer fully reflect current market realities. Since the last revision, costs have risen significantly, by an estimated 35–67%, while purchasing thresholds have remained unchanged. This gap has led to increased administrative steps and delays, making routine purchases more cumbersome and reducing vendor engagement. Compared to 15 benchmarked jurisdictions, Palo Alto’s competitive bidding thresholds are among some of the lowest in the region. The City is one of only two jurisdictions that have not updated their procedures since 2021. In addition, exemptions and purchasing card (P-Card) limits have not kept pace with operational needs or inflation, further constraining flexibility and efficiency. Many peer cities have updated their procedures within the past five years, adopting higher thresholds and flexible frameworks, such as the California Uniform Public Construction Cost Accounting Act (CUPCCAA), to improve efficiency and responsiveness. Current limits require formal solicitation for General Services and Goods contracts exceeding $50,000 and Professional Services and Public Works contracts exceeding $85,000. Informal bidding for purchases as low as $10,000 is required for Public Works, Goods and General Services, which forces staff to engage in time-consuming processes for relatively small transactions. These requirements divert resources from higher-value priorities and increase staff workload According to staff, rising costs for goods and services, combined with unchanged thresholds, have further amplified these challenges, reducing flexibility and slowing project delivery. Benchmarking against peer jurisdictions shows that most comparable cities set informal bid thresholds between $15,000 and $75,000 and formal bid 1 Chapter 2.30 CONTRACTS AND PURCHASING PROCEDURES* EXECUTIVE SUMMARY thresholds between $100,000 and $250,000, often incorporating annual inflation adjustments and streamlined processes for amendments and change orders. In contrast, Palo Alto’s limits result in more frequent formal solicitations, longer procurement cycles, and increased administrative burden. These practices not only strain internal resources but may also risk discouraging vendor participation if the process is seen as too complex and/or not worth the effort for the size of the opportunity. This could potentially lead to reduced competition and vendor attrition. Additionally, the City’s P-Card transaction limit of $10,000, unchanged since 2016, has lost more than 25% of its purchasing power due to inflation. This erosion results in staff having to initiate formal procurement processes for routine purchases that previously fell under the P-Card threshold, adding unnecessary steps and delays. Finally, the City’s signature authority levels are also among the lowest in the region, creating administrative inefficiencies and operational delays. Contract signature authority is divided between the Procurement Officer, City Manager, and City Council. In general, the Procurement Officer may award most public works, goods, general services, and professional services contracts up to $85,000 per contract year for terms up to three years. The City Manager has signing authority up to $85,000 for general and professional services contracts and up to up to $250,000 per year for Public Works and goods contracts. Contracts exceeding $250,000 per year require Council approval. For many peer cities, the City Manager has signing authority up to $100,000 or more for all contracts. EXECUTIVE SUMMARY Recommendation: We recommend the City conduct a comprehensive review of its Contracts and Purchasing Procedures ordinance and related policies, update solicitation requirements and authority levels to reflect current market conditions and consider adopting best practices from peer cities. In updating the procurement policy and related City ordinance, the City should consider the following elements: Increase Bid and Signature Authority Level Thresholds The City should raise informal and formal solicitation thresholds and related authority levels to align with regional practices and reduce administrative burdens, shorten processing times, and reduce the number of contracts requiring Council review . In conjunction with raising bid thresholds, the City should consider increasing the City’s signature authority levels to align with procurement processes, increase efficiency and reduce operational delays. Annual CPI Adjustment The City should consider incorporating an inflation-based adjustment mechanism into the City’s Municipal Code which would ensure thresholds remain current without requiring frequent ordinance amendments. This approach is consistent with practices observed in cities such as Redwood City and San Jose, which adjust thresholds annually based on cost indices. Consider CUPCCAA Adoption Seven of the 15 benchmarked jurisdictions have adopted the CUPCCAA. This framework allows informal bidding for public works projects up to $220,000 and formal bidding only above that amount, significantly reducing administrative steps for smaller projects. Expand Exemptions Adding exemptions for IT-related purchases (such as software renewals and subscriptions), and specialized services would reduce delays for routine or unique needs. Benchmarking shows that several peer cities include these exemptions to improve efficiency and vendor engagement. Increase P-Card Thresholds The City should consider updating the City’s P-Card transaction limit from $10,000 to at least $15,000, or to the inflation-adjusted equivalent, to restore purchasing power lost since 2016. The City should also establish a process for periodic review and adjustment of P-Card limits based on inflation and benchmarking data to ensure thresholds remain relevant and effective over time. Standard Review Process The City should consider the feasibility of establishing a formal review EXECUTIVE SUMMARY benchmarking thresholds against current market conditions, integrating regulatory changes, assessing staff workload, and documenting revisions for transparency. Introduction 2 See Ordinance 5387 of the Council of the City of Palo Alto Amending Chapter 2.30 of the Palo Alto Municipal Code 3 Department of General Services (DGS) California Construction Cost Index CCCI, DGS California Construction Cost Index CCCI 4 Municipal Cost Index (MCI), developed by American City & County, The Municipal Cost Index | Smart Cities Dive 5 U.S. Bureau of Labor Statistics, Employment Cost Index, ECI, ECI Home : U.S. Bureau of Labor Statistics 6 Procurement Thresholds Reimagined: Implementing the Ideal Approach for Your Government Objective contract solicitation and approval authority level thresholds. Background Municipal Code and applicable State laws to ensure fair competition, transparency, and cost-effective use of taxpayer dollars. These requirements govern how goods, services, and public works projects are solicited and awarded, including thresholds for informal and formal bidding and authority levels for contract approval. The City’s procurement procedures were last amended in 2016 2. Since then, market conditions and costs have changed significantly. According to industry cost indices and economic benchmarks, construction costs have increased by approximately 67%3, goods and general services by 41%4, and professional services by 35%5. Despite these changes, solicitation thresholds and authority levels have remained static, creating inefficiencies and administrative burdens. According to research from the Partners for Public Good’s Procurement Excellence Network 6, benefits of regularly reviewing and updating procurement thresholds include increasing administrative efficiency by reducing time spent on lower-risk purchases, adapting to inflation to ensure thresholds don’t become obsolete, and improving responsiveness by allowing agencies to meet operational needs more quickly for routine purchases. While determining how much to increase thresholds, cities should consider the need for oversight and transparency, maintaining visibility over competitive purchases, and continuing to ensure accountability. The OCA assessed the City’s contract solicitation requirements and authority levels to evaluate their effectiveness and alignment with best practices. The review included analysis of policies, municipal code, contract inventory, and benchmarking against peer jurisdictions. The assessment found that Palo Alto’s procurement thresholds, summarized in Table 1 (on page 5), are significantly lower than those of comparable cities. These low thresholds may have resulted in high administrative burden, longer procurement cycles, and reduced operational efficiency. INTRODUCTION Purchase Category Estimated Dollar Amount Solicitation Method Goods $0 to $10,000 None, price comparisons encouraged $10,001 to $50,000 Informal request for quotations (RFQ) Greater than $50,000 Formal RFQ General Services $0 to $10,000 None, price comparisons encouraged $10,001 to $50,000 Informal RFQ or RFP Greater than $50,000 Formal RFQ or RFP Professional Services $0 to $50,000 None, best value comparisons encouraged $50,001 to $85,000 Informal RFP Greater than $85,000 Formal RFP Public Works Construction $0 to $10,000 None, price comparisons encouraged $10,001 to $85,000 Informal invitation for bids (IFB) Greater than $85,000 Formal IFB or formal RFP design-build Departments report spending increasing time on solicitation processes, diverting resources from core responsibilities and voiced concerns that vendors may be Scope and Procedures The OCA performed the following procedures: • Reviewed the City’s procurement policies, procedures, and Municipal Code to understand current solicitation requirements and approval authority levels. • Interviewed key stakeholders, including department managers, purchasing staff, and the City Attorney’s office, to gain insight into workflow challenges and operational impacts of existing thresholds. • Benchmarked Palo Alto’s thresholds against peer cities and counties, including bid and approval limits, P-Card limits, and practices such as inflation adjustments and exemptions for specialized contracts (See Appendix A for Palo Alto current state and Appendix B for benchmarking results). • Reviewed current procurement processes and analyzed contract inventory data to evaluate timeliness of contract execution and administrative burden. • Performed analysis of solicitation and contract data to determine the frequency of formal versus informal bids, identify bottlenecks, and assess the potential impact of raising authority levels on efficiency and compliance. • Completed this assessment report based on supporting evidence gathered from policies, interviews, benchmarking, and data analysis. The OCA greatly appreciates the support of the many departments who helped in conducting this assessment. Thank you! DETAILED ANALYSIS Detailed Analysis Updating the City’s procurement procedures will improve purchasing processes, eliminate administrative inefficiencies and better align the City with peer and industry best practices. Background Palo Alto’s procurement procedures were last comprehensively reviewed and updated in 2016, as reflected in Ordinance No. 5387. The Municipal Code establishes requirements for competitive solicitation, approval authority levels, and contract management for goods, services, and public works. Current thresholds require informal bidding for purchases above $10,000 and formal bidding for contracts exceeding $85,000. Professional services and goods contracts above $50,000 also trigger additional formal bidding requirements. The Municipal Code allows for a one-time, six-month extension of contracts without increasing the budget, but any increase in contract value requires full City Council approval. Exemptions exist for emergency procurements, sole-source contracts, and certain legal and utility agreements, but routine purchases and amendments often require multiple layers of review and Council involvement. The policy does not include automatic inflation adjustments or separate thresholds for IT purchases, which has led to increased administrative workload and delays as costs have risen since the last update. Compared to peer cities, Palo Alto’s thresholds are among the lowest in the region, and the policy has not kept pace with changes in market conditions or best practices. Outdated Policy and Static Thresholds The City’s procurement procedures have not been updated to reflect significant changes in the cost of goods, services, and construction since 2016. According to industry cost indices and economic benchmarks, cost indices have increased significantly since the City’s last policy update in 2016: the California Construction Cost Index (CCCI) for Public Works rose by 67%, the Municipal Cost Index (MCI) for goods and general services increased by 41%, and the Employment Cost Index (ECI) for professional services rose by 35%. Despite these substantial increases, Palo Alto’s solicitation thresholds have remained static. Benchmarking against 15 peer jurisdictions (See Appendix B for detailed benchmarking results) shows that Palo Alto’s thresholds are among the lowest in the region, and the City is one of only two jurisdictions that have not updated its procurement procedures since 2021. Additionally, as seen in Table 2 below, most peers revised their policies between 2021 and 2025, and nearly half have adopted the CUPCCAA, which allows for higher thresholds which may reduce the time it takes for these procurements as it reduces the number of steps staff need to complete. DETAILED ANALYSIS Table 2: CUPCCAA Adoption and Policy Revision by Agency Benchmarked City CUPCCAA City of Palo Alto No 2016 City of Campbell No 2024 City of Cupertino Yes 2024 City of Fremont Yes 2021 City of Gilroy Yes 2023 City of Hayward No 2024 City of Los Altos No 2016 City of Milpitas Yes 2021 City of Mountain View Yes 2025 City of Redwood City No 2021 City of San Jose No 2021 City of San Mateo No Not publicly available City of Santa Clara No 2021 City of Sunnyvale No 2021 County of San Mateo Yes Not publicly available County of Santa Clara Yes 2021 Operational Inefficiencies The current procurement procedures creates inefficiencies that affect day-to-day operations and the City’s overall ability to deliver services. As noted in walkthroughs with key personnel, some routine purchases and professional service contracts can take up to five months to complete, capital improvement project contracts often take up to six months, and even emergency purchases are delayed, sometimes resulting in additional costs, due to the current contracting processes and thresholds. It should be noted that many purchases are made within reasonable timeframes. In general, there are many steps in the procurement process that are necessary to support the City’s overall public procurement objectives of transparency and government fiscal oversight. Departments are also seeing more instances where no bids are submitted, leading them to bundle contracts to attract vendor interest. Because solicitation thresholds remain low, staff must conduct formal solicitations or full RFP processes for relatively small purchases, diverting time and resources from core program work and discouraging vendor participation, particularly among smaller providers who find the process burdensome. Procurement Timeliness and Contract Inventory According to the Key Performance Measures as published on the City’s budget document, the average time from receipt of a Purchase Requisition to a Purchase Order is 21 days, however, some procurements can take longer depending on their complexity. In FY 2024, the City processed 1,578 Purchase Orders and Purchase Requisitions and an estimated 1,600 in FY25. Staff interviews and process reviews indicate that routine purchases are delayed, and resources are diverted from higher- value activities to manage solicitation paperwork and approvals. The volume of purchase orders and requisitions, combined with processing times, highlights inefficiencies created in the current procurement process due to unchanged limits. Staff report that the time spent on procurement activities detracts from their ability to focus on core job duties and strategic DETAILED ANALYSIS initiatives. The City’s thresholds and approval processes are not scaled for current market realities, resulting in unnecessary delays and increased workload for both operational departments and central purchasing. Low Authority Levels Compared to Peer Agencies Creating Administrative Inefficiencies According to the City’s Municipal Code, Palo Alto’s procurement authority levels are defined by both contract type and dollar threshold. The code differentiates between Public Works (construction), Professional Services, Purchase of Goods, and General Services, each with its own solicitation and approval requirements. Purchases up to $10,000 do not require competitive bidding; those between $10,001 and $85,000 require informal bidding; and contracts exceeding $85,000 must undergo formal solicitation. While the code provides exemptions for situations such as emergencies, sole-source procurements, and certain legal or utility agreements, staff noted that obtaining approval for these exemptions can be challenging and time-consuming, often causing delays in routine purchases and adding administrative burden. To support low-dollar, routine purchases, the City sets a P-Card transaction limit of $10,000, aligning it with the no-bid threshold in the municipal code. The following table provides an overview of Palo Alto’s contract solicitation and award limits as outlined in the Palo Alto Municipal Code (PAMC). It summarizes the competitive solicitation requirements for informal and formal processes, as well as signature authority thresholds for designated employees, the Purchasing Manager, City Manager, and City Council. These limits vary by contract type: Public Works, Purchase of Goods, General Services, and Professional Services, and establish the monetary and term parameters for approvals and oversight. Table 3: Competitive Solicitation Process and Signature Authority by Contract Type Contract Type 7 PAMC § 2.30. 200; § 2.30. 210, § 2.30. 220 Informal Formal City Manager City Council PAMC § 2.30.300 $10,001 – $85,000 $85,000 (up to 3 years) or over 3 years Purchase of Goods PAMC § $10,001 – $50,000 $50,000 (up to 1 year) (up to 3 years) over 3 years General Services PAMC § 2.30.320 Prof. Services PAMC § 2.30.330 7 *Informal Procedure: • § 2.30.400 - Requires solicitation of 3 bids • § 2.30.360 - subdivisions (i) and (l), create exceptions for all contracts below $10,000 in total expenditure and for professional services contracts below $50,000 in total expenditure **Formal Procedure: § 2.30.410 and 2.30.420 – Posting on the City’s website at least five days before bid date. Special procedures apply for design-build projects (§ 2.30.490) *** 7-year limit for: Software/hardware purchase and maintenance contracts (§ 2.30.210(l)) and contracts to lease personal property (i.e. equipment) (§ 2.30.210(l)(c)) DETAILED ANALYSIS The City’s current authority levels are significantly lower than those of peer jurisdictions, resulting in administrative inefficiencies and operational challenges. Staff must devote substantial time to solicitation activities for relatively small purchases, diverting effort from core responsibilities. The City Attorney’s Office also reviews a high volume of agenda reports for routine contracts, drawing attention away from higher-value legal work. Meanwhile, staff report that rising costs for goods and services, along with outdated procurement thresholds, have lengthened project timelines and reduced staff efficiency. These factors can discourage vendor participation, limit competition, and contribute to delays that affect service delivery. Overall, the City’s outdated authority levels drive administrative burden, reduce operational effectiveness, and increase the risk of vendor attrition. Benchmarking against peer cities indicates that Palo Alto’s thresholds are among the lowest in the region, and the City has not adopted practices such as annual inflation adjustments or exemptions for specialized contracts that are common elsewhere. Based on interviews with staff, these factors may have contributed to delays in project execution, increased workload for staff, and potential vendor attrition. Benchmarking analysis shows that cities of similar size (See Appendix B for detailed benchmarking results) have adopted higher thresholds for informal and formal procurement, often $15,000–$75,000 for informal and $100,000–$250,000 for formal bids, as compared to Palo Alto’s $85,000 threshold. Many cities also allow for annual inflation adjustments and have streamlined approval processes for contract amendments and change orders. Palo Alto’s thresholds are among the lowest in the region, resulting in more frequent formal solicitations and slower procurement cycles. The table below compares Palo Alto’s current procurement authority levels with those established under the CUPCCAA. It illustrates the differences in thresholds for when bids are not required, when informal bidding applies, and when formal bidding is mandated. CUPCCAA provides significantly higher limits, offering greater flexibility and efficiency for smaller projects compared to Palo Alto’s current thresholds. Table 4: Bid Thresholds for Palo Alto vs. CUPCCAA Standards Bid Not Required Informal Bid Formal Bid Palo Alto CUPCCAA To evaluate the potential impact of raising solicitation thresholds, the OCA analyzed FY 2024 and FY 2025 contract data by dollar ranges. The table below summarizes the total value and count of contracts within each band. DETAILED ANALYSIS Table 5: FY2024 – FY2025 Palo Alto Contract Inventory Analysis Contract Levels Count of Total Contracts $ 3,940,161 1,219 $ 6,192,058 409 $ 5,445,840 174 $ 8,630,636 184 $ 3,400,334 54 $ 6,599,229 84 $ 3,864,291 43 $ 3,065,924 29 $ 2,792,671 23 $ 1,628,213 12 $ 3,199,049 21 $ 3,679,467 22 $ 2,755,697 15 $ 389,920 2 $ 11,546,854 48 $ 5,758,887 17 $ 12,209,163 27 $ 22,778,435 34 $ 24,362,352 17 $ 17,474,801 7 $ 6,225,140 2 $ 8,814,023 2 $ 146,268,277 12 If Palo Alto were to increase its formal bid requirement to $100,000, based on FY 2024 contract data, 43 contracts (1.75%) currently requiring formal bidding would shift to informal solicitation. This change would eliminate the need for Council agenda reports and possibly reduce processing time by several DETAILED ANALYSIS months per contract, freeing staff resources for higher-value work. Alternatively, if Palo Alto were to adopt CUPCCAA thresholds for Public Works contracts, the impact could be far greater. Purchasing Card Limit – Reduced Purchasing Power The City’s P-Card transaction limit of $10,000, set in 2016, has not been adjusted for inflation or rising costs. Based on the U.S. Bureau of Labor Statistics CPI Inflation Calculator 8, $10,000 in 2016 is equivalent to approximately $13,500 in 2025, reflecting a loss of more than 25% in real purchasing power. This erosion means the current cap now limits rather than facilitates efficient purchasing, requiring staff to initiate formal procurement processes for transactions that previously fell under the P-Card threshold. These additional steps increase administrative burden, delay service delivery, and create inefficiencies for routine purchases. By contrast, peer cities (see Appendix B for detailed benchmarking results) have recognized this need and adjusted their limits. For example, the City of San José sets its P-Card limit at $15,000. Similarly, the City of Sunnyvale is conducting a benchmarking review to inform their upcoming update. In August 2025, the City Auditor’s Office reported to the Policy and Services Committee on the City’s Purchasing Card Program and found that raising the City’s P-Card limit could save significant staff time and recommended the City consider updating the P-Card limit to $15,000 in line with the Federal Acquisition Regulation 9 which was updated in October 2025. Exemptions Misaligned with Operational Needs The Municipal Code allows exemptions for emergency purchases, sole-source procurements, and certain legal and utility agreements, however, the code does not currently provide broad exemptions for IT-related purchases (e.g., software renewals, subscriptions) or specialized services like recreation instructors. These categories often require going through the full solicitation process, even when competitive bidding offers little value. Benchmarking shows that peer jurisdictions provide broader exemptions for these types of purchases, including IT services, specialized professional services, and unique personal services. For example, cities such as Fremont, Redwood City, Sunnyvale, and Gilroy allow exemptions for software renewals, subscriptions, specialized instructors, and other categories where competition is limited or impractical. These targeted exemptions reduce administrative burden and speed up routine procurements, enabling staff to focus on higher-value activities rather than lengthy solicitations for non-competitive items. Updating the City’s procurement procedures will help to eliminate operational risks by incorporating best practices, regulatory changes, and/or technological advancements. This should help reduce potential operational inefficiencies and inconsistency across departments and updating cost and threshold limits can reduce unnecessary approvals for routine purchases. Recommendations We recommend the City conduct a comprehensive review of its procurement procedures, update solicitation requirements and authority levels to reflect current market conditions and consider adopting best practices from peer cities. The City should consider the following elements when reviewing and updating the policy: 8 U.S. Bureau of Labor Statistics CPI Inflation Calculator 9 Effective October 1, 2025, FAR Amendment: Micro-purchase threshold limit increased to $15,000 DETAILED ANALYSIS Increase Bid and Signature Authority Level Thresholds The City should raise informal and formal solicitation thresholds to align with regional practices. For example, adopting a $15,000 threshold for informal procurement and $100,000 or more for formal procurements. This change would reduce administrative burden, shorten processing times, and eliminate the need for Council review on these contracts. In conjunction with raising bid thresholds, the City should consider increasing the City’s signature authority levels to align with procurement processes, increase efficiency and reduce operational delays. While higher thresholds may require enhanced oversight, risk remains controlled due to departmental spending is constrained by approved budgets. Additionally, training and clear compliance protocols, particularly for federally funded projects 10, would ensure accountability as the City transitions to a more efficient procurement framework. Annual CPI Adjustment The City should consider incorporating an inflation-based adjustment mechanism into the Municipal Code which would ensure thresholds remain current without requiring frequent ordinance amendments. This approach is consistent with practices observed in cities such as Redwood City and San Jose, which adjust thresholds annually based on cost indices. Consider CUPCCAA Adoption Adopting the CUPCCAA like seven of the 15 benchmarked jurisdictions would allow for informal bidding on public works projects up to $220,000 and formal bidding only above that amount, significantly reducing administrative steps for smaller projects. Expand Exemptions Adding exemptions IT-related purchases (such as software renewals and subscriptions), and specialized services would reduce delays for routine or unique needs. Benchmarking shows that several peer cities include these exemptions to improve efficiency and vendor engagement. Increase P-Card Thresholds Palo Alto should consider updating the City’s P-Card transaction limit from $10,000 to at least $15,000, or to the inflation-adjusted equivalent, to restore purchasing power lost since 2016. Increasing the limit would reduce administrative burden by minimizing unnecessary formal solicitations for routine purchases, improve operational efficiency, and align Palo Alto with the Federal Acquisition Regulation limit updated in October 2025. , which currently sets its P-Card limit at $15,000. The City should also establish a process for periodic review and adjustment of P-Card limits based on inflation and benchmarking data to ensure thresholds remain relevant and effective over time. Standard Review Process The City should consider the feasibility of establishing a formal review cycle requiring the procurement ordinance to be evaluated and updated at least every five years. This process 10 Projects receiving federal funds can be subject to federal procurement requirements, which may override the City’s procurement ordinance. DETAILED ANALYSIS should include benchmarking thresholds against current market conditions, integrating regulatory changes, assessing staff workload, and documenting revisions for transparency. Implementing a periodic review system will ensure policies remain relevant, reduce operational strain, and mitigate financial and compliance risks. Appendices Appendix A: City of Palo Alto Current State Table 6: Authorities and Responsibilities for Competitive Solicitations and Sourced Procurements by Category Procurement Category Services between Services greater Services between Services greater Construction greater Responsibility for preparing bid ready specifications Departments Departments Departments Departments Departments Responsibility for conducting solicitation Departments* Purchasing Departments* Purchasing Purchasing Competitive solicitation method Informal Formal Informal Formal Informal, up to $85,000; Formal, greater than $85,000 Cooperative purchasing methods Informal Informal Informal*** Not Applicable Not applicable Competitive bidding exemptions Informal** Informal** Informal** Informal** Not applicable Reference Key: *Departments may request that Purchasing conduct a solicitation or Purchasing may be required to conduct the solicitation. **Requests for competitive bidding exemptions must be approved by Procurement Officer and City Manager. ***Cooperative purchasing methods for Professional Services between $50,001 and $85,000 are Informal. Appendix B: Benchmarking Summary I. Bid and Approval Limits Table 7: Approval Limits by Agency and Contract Type Agency Public Works Material Equipment Supplies (MES) / Goods General Services Professional Services Formal Informal Formal Informal Formal Informal Formal Informal City of Palo Alto > $85,000 > $50,000 > $50,000 > $85,000 City of Mountain View Per CUPCAA 11 Per CUPCAA Per CUPCAA Per CUPCAA Per CUPCAA City of Cupertino City of Gilroy Per CUPCAA Per CUPCAA > $100,000 > $100,000 None None City of Santa Clara > $250,000 > $250,000 > $250,000 N/A N/A City of Sunnyvale > $250,000 > $100,000 > $100,000 None None City of Milpitas City of Fremont Per CUPCAA Per CUPCAA > $25,000 > $100,00 < $100,000 >$100,000 < $100,000 City of San Jose None None > $250,000 > $250,000 None None City of San Mateo County of Santa Clara County of San Mateo > $200,000 < $200,000 > $200,000 > $200,000 > $200,000 City of Campbell City of Redwood City > $100,000 > $100,000 > $100,000 N/A > $10,000 City of Los Altos > $75,000 > $75,000 > $75,000 > $75,000 < $75,000 City of Hayward 13 > $150,000 < $150,000 > $100,000 < $100,000 > $100,000 < $100,000 11 CUPCCAA is a voluntary program that promotes uniformity in cost accounting standards and bidding procedures for public construction work performed or contracted by public agencies in California. Under CUPCCA, projects up to $75,000 may be performed by a public agency’s own workforce or through negotiated contracts or purchase orders; projects up to $220,000 may use informal bidding procedures; and projects exceeding $220,000 must follow formal bidding procedures. CUPCCAA is updated annually to increase thresholds. 12 New construction 13 Maintenance, replacement, or repair Table 8: General Exemptions from Competitive Solicitation Requirements by Agency City of Palo Alto • Emergency contracts (FEMA compliance required). • Impracticable or impossible solicitations (e.g., unique specifications, time constraints, grant conditions). • Documentation required for all exemptions. • No bids received after solicitation. • Sole source procurements (e.g., proprietary products, unique parts, compatibility requirements). • Standardization approved by City Manager. • Insurance and bonds. • Legal services (outside counsel, consultants, experts). • •Professional services ≤ $50,000. • Cooperative purchases with other agencies. • Piggybacking on other agency contracts. • Utility and energy contracts (NCPA, TANC, WAPA, PG&E, CAISO). • Public agency construction using similar methods. • Public utility or franchise work. • Developer-constructed public improvements. • City-performed public works. • Small purchases ≤ $10,000. • Feed-in tariff energy program purchases. • Personnel-related professional services City of Mountain View • architects, engineers). • Situations where bidding is undesirable or • • Emergency situations. • Real property transactions serving public interest. City of Cupertino • safety. • Recurring or essential services with unpredictable costs (e.g., utilities, insurance, payroll). • Legal services per Chapter 2.18. • • • Sole source purchases for unique capabilities or compatibility. • Cooperative purchasing using other agencies’ competitive processes. • City of Gilroy • solicitations. • Professional or specialized services; public library materials. • Insurance, bonds, financial services; sole source goods/services. • Highly specialized equipment for unique activities or • property; memberships/travel; works of art; goods for resale. • No bids received; software renewals; HR investigations; legal/medical services; regulatory permits; subscriptions; reimbursements/refunds. • Council-authorized exemptions over $100,000. City of Santa Clara • • • • City of Sunnyvale • Professional or specialized services. • Emergency procurements. • Impracticable solicitations. • Sole source goods/services. • Insurance and bonds. • Library materials. • • Intergovernmental agreements. • Works of art, entertainment, or performance. • Surplus property. • Memberships/travel; advertisements; goods for resale. • City of Milpitas • Emergency authority. • Public agency purchases. • • Council-authorized exemptions. • City of Fremont • Utility services. • Equipment maintenance by manufacturer/dealer. • Software upgrades/license renewals. • Insurance and bonds. • Legal services. • • Unique personal services (e.g., instructors, performers). • Purchases under price contracts. • Personal property/services ≤ $5,000. • City of San Jose • • Public utility contracts. • • • Urgent necessity. • City of San Mateo • • Impracticable solicitations. • Insurance. • • • Community service funding. • Intergovernmental contracts. • County of Santa Clara • No exemptions beyond standard provisions. County of San Mateo • • Impracticable solicitations. • Insurance. • • • Community service funding. • Intergovernmental contracts. • City of Campbell • No exemptions beyond standard provisions. General law city City of Redwood City • recommendation and approval by five Council members). • Purchases ≤ $10,000 for goods, services, or public works. • City Council may waive bidding if in City’s best • required • Other exemptions per City Charter • Purchases not suited to competitive bidding City of Los Altos • Emergency purchases from nearest available source. • • Sole source purchases when only one vendor exists. • City of Hayward • No exemptions beyond standard provisions. Table 9: Sole Source and Proprietor Procurements Ordinances by Agency City of Palo Alto • from only one source, where the Procurement Officer has determined in writing that there are no adequate City of Mountain View • rendered by attorneys, architects, engineers, accountants and specialized consultants, except contracts for City of Cupertino • Section 37103, for financial, economic, accounting, or administrative matters are exempt from a competitive process. • Sole Source Purchase: Purchases from a single entity that possess the unique ability, capability, equipment, technology, patent or copyright to O31meet the City’s need based on standardization, compatibility or City of Gilroy • • Highly specialized equipment developed or designed for a special activity or function or whose purpose is in City of Santa Clara • Division Manager has determined that a particular product or general service may be specifically designated by reason of one or more of the following purposes: • To acquire a specific product or performance for the purpose of conducting a field test or experiment to determine the product’s suitability for use • When required to ensure operation or function to match other products with respect to the repair, expansion or completion of a system, existing structure or program currently in use by the City, including, but not limited to, utility and technology purchases required to achieve interoperability with existing systems or programs • When the purchase of an item is only available from one source (sole source) • When a service is considered unique or unusual such that requirements for competitive procurement are contrary to public interest; and • City of Sunnyvale • • City of Milpitas • conducting a good faith review of available sources, that only one viable source exists for the required supplies, material, equipment, or general service, or that there is a compelling reason for using only one City of Fremont • procurement requirements of this chapter in accordance with the following: • The requesting department shall evaluate available sources to determine whether there is only one source capable of competently and efficiently providing the required personal property or service. • If it is determined that there is only a single source for the purchasing of a particular item or service, the requesting department shall prepare a request for exemption from competitive solicitation and submit it to the purchasing manager. • If it is determined that there is only a single source for the purchasing of a particular item or service, upon review and approval of the request by the purchasing manager and the city manager, the city may award the contract to the sole source vendor or service provider without competitive procurement. • Examples of acceptable sole source purchases are: equipment for which there is no comparable competitive product, proprietary products sold directly from the manufacturer, a component or replacement part for which there is no commercially available substitute and which can be obtained only from the manufacturer, items where there is only one authorized distributor in the area, and items where compatibility with items in use by the city is an overriding consideration. (Ord. 2494 § 1, 12-3-02; Ord. 8-2011 § 14(D), 7-12-11. 1990 Code § City of San Jose • City of San Mateo • None County of Santa Clara • None County of San Mateo • Contractor is a sole source City of Campbell • None City of Redwood City • (1) reasonable and practicable source for the required goods, materials, equipment, supplies or support service because of its uniqueness, quality, durability, availability, compatibility with existing City programs, equipment or systems or fitness for a particular use. Such a sole source purchase must be determined to meet these requirements and be recommended for approval by the City Manager and shall be approved only City of Los Altos • None City of Hayward • None Table 10: Exemptions Continued – Community Services Department and Information Technology Note: The benchmarked cities excluded from this summary were found to have no CSD or IT exemptions, including: City of Palo Alto, City of Mountain View, City of Cupertino, City of Gilroy, City of Santa Clara, City of Sunnyvale, City of Milpitas, City of San Jose, City of San Mateo, County of San Matro, County of Santa Clara, City of Campbell, City of Los Altos, City of Hayward Agency Community Services Department Information Technology City of Fremont unique personal accomplishment or characteristic such as guest speakers, performers, artists, Software upgrades and maintenance, software license renewals, and operating system maintenance services where the city has previously procured software and operating systems. City of Redwood City Except where otherwise required by federal law or by reason of the source of funding for the project, goods and services may be obtained without a competitive bidding process where such purchases are not readily adaptable to the open market and bidding processes. Such purchases include, but shall not be limited to: 1. Utility services (telephone, gas, water, sewer and electricity) provided to City buildings and facilities; 2. Franchises awarded by the City Council; 3. Insurance or bond premiums; and 4. Subscriptions, memberships, software licenses, II. Purchasing Card Survey Table 11: Purchasing Card Survey Results The table below summarizes P-Card limits and related practices for Palo Alto and selected peer cities. It includes daily or transaction limits, monthly limits, effectiveness of current limits, the date of the last increase, and how limits are established. This information provides insight into how other jurisdictions manage purchasing flexibility and administrative efficiency. OCA contacted 15 peer jurisdictions and received responses from the following agencies. Agency Daily / Transaction Purchase Limits Monthly Purchase Limits Effectiveness of Limits in the City Purchasing Limit How Are Card Limits Established City of Palo Alto municipal code OCA for adequacy Purchasing Manual and delegated by the City Manager and City of Cupertino transaction limit $1,000 higher amounts approved based on transaction needs needs of most P-card holders. Flexibility to increase single- transaction or monthly limits, with approved justification, reduces the need to modify the administrative decision informed with knowledge from other city’s standard limits City of Gilroy transaction limit $1,000 generally, $2,500–functioning for City needs and City Administrator City of Sunnyvale transaction limit $1,000 benchmarking study of surrounding cities years ago and benchmarking; not tied to federal or City of San Jose transaction limit $10,000 program level transaction limit to $15,000 to align with and City policies