HomeMy WebLinkAboutStaff Report 2602-6015CITY OF PALO ALTO
CITY COUNCIL
Special Meeting
Monday, May 04, 2026
Council Chambers & Hybrid
5:30 PM
Agenda Item
10.Approval of Contract Amendment No. 3 to Contract Number C21179340 with Baker Tilly
US, LLP to Extend Term to June 30, 2028 with no increase to the not to exceed amount
based on CAO Committee Recommendation; CEQA Status – Not a Project.
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Human Resources
Meeting Date: May 4, 2026
Report #:2602-6015
TITLE
Approval of Contract Amendment No. 3 to Contract Number C21179340 with Baker Tilly US, LLP
to Extend Term to June 30, 2028 with no increase to the not to exceed amount based on CAO
Committee Recommendation; CEQA Status – Not a Project.
RECOMMENDATION
The Council Appointed Officers Committee recommends that the City Council approve and
authorize the City Manager or their designee to execute Amendment No. 3 to Contract No.
C21179340 (Attachment A) with Baker Tilly US, LLC to extend the contract term for internal
audit services to June 30, 2028.
BACKGROUND
The CAO Committee met in December 2025 to review and discuss the options available for the
internal audit services contract and make a recommendation to Council on next steps for the
future direction for these services.
The City Auditor is a City Council appointed position. The City Charter defines the City
Auditor’s important role and furthers the City Council’s commitment to internal auditing,
transparency, and accountability in government. Per City Council direction on February 10,
2020 to consider outsourcing the Auditor function, the Council Appointed Officers (CAO)
Committee completed a request for proposals (RFP) process for outsourced internal auditing
services, and through the extensive procurement process, the Council selected Baker Tilly US,
LLP (Baker Tilly) to lead the City’s internal audit services.
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On September 28, 20201, the Council approved a contract with Baker Tilly for internal auditor
services in an amount not to exceed $1.3 million for a term beginning October 1, 2020, through
June 30, 2022.
2 and unanimously recommended that the Council
authorize staff and the Council Appointed Officers Committee Chair to refine the terms of a
contract renewal with Baker Tilly through June 30, 2026, negotiate terms for an option to
renew for up to two additional years, and align the review of the City Auditor‘s performance
with other CAO reviews. These terms were then approved by Council action at the June 2,
20253 Council meeting.
4 to discuss the option
to extend the contract up to two years or, alternatively, to renegotiate terms, and/or to explore
alternative service providers. Some considerations reviewed were the performance of Baker
Tilly and the effectiveness of the current contract terms, the continuity of service, and progress
of the workplan. After discussion, the following motion passed (3-0):
1 City Council, September 28, 2020, Resolution #11624, Staff Report #14232:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=81861&dbid=0&repo=PaloAlto&searchid=f060c732
-f401-47bd-9a37-9b72da6e8bff
2 Council Appointed Officer Committee, November 13, 2024, Item #1, Staff Report #2410-3733:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=52941&dbid=0&repo=PaloAlto&searchid=fbe3ded7
-74ed-4bf0-bd56-acd4f0725271
3 City Council, June 2, 2025, Item #8, Staff Report #2503-4422:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=6279&dbid=0&repo=PaloAlto&searchid=047b84cc-
4920-4c98-afd4-4b27aa6ca4d5
4 Council Appointed Officers Committee, December 10, 2025, Item #2, Staff Report #2511-5567:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=84034&dbid=0&repo=PaloAlto&searchid=a0820794
-5f83-46c4-90d8-ea30ee00f2fe&cr=1
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ANALYSIS
The table below outlines the term and compensation of the third amendment (attached):
Term This amendment will extend the contract through June 30, 2028.
Compensation Target value of compensation during this extension is $1,417,500. Annual
compensation for services under the contract was held flat, as approved in
the second amendment:
Year 7 (FY 2027): $708,750
Year 8 (FY 2028): $708,750
The NTE of the overall contract over the full amended contract term of eight
years is $5,552,500.
Funding for annual internal audit services is budgeted in the Office of the City Auditor in the
operating budget. Funding for this contract extension will be included in the FY 2027 Proposed
Budget and funding for future years of the contract is subject to City Council approval though
the annual appropriation of funds.
The CAO Committee engaged in a public discussion of this item on December 10, 2025.
Council action on this item is not a project as defined by CEQA because adopting an
amendment to this contract is an organizational or administrative activity that will not result in
direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5).
Attachment A: Amendment No. 3 To Contract No. C21179340 Between the City of Palo Alto and
Baker Tilly Advisory Group, LLP
:
Sandra Blanch, Human Resources Director
Vers.: Aug. 5, 2019
Page 1 of 3
AMENDMENT NO. 3 TO CONTRACT NO. C21179340
BETWEEN THE CITY OF PALO ALTO AND
BAKER TILLY ADVISORY GROUP, LP
This Amendment No. 3 (this “Amendment”) to Contract No. C21179340 (the “Contract”
as defined below) is entered into as April 14, 2026, by and between the CITY OF PALO ALTO, a
California chartered municipal corporation (“CITY”), and BAKER TILLY ADVISORY GROUP, LP, a
Illinois Limited Liability Partnership, located at 205 Michigan Avenue, Suite 2800, Chicago, IL
60601 (“CONSULTANT”). CITY and CONSULTANT are referred to collectively as the “Parties” in
this Amendment.
R E C I T A L S
A. The Contract (as defined below) was entered into by and between the Parties
hereto for the provision of performing internal auditor services in accordance with City Charter
and Municipal Code requirements, as detailed therein.
B. The Parties now wish to amend the Contract in order to execute the option to
extend for an additional Two (2) years of the contract term from June 30, 2026 to June 30, 2028,
as detailed herein.
NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions
of this Amendment, the Parties agree:
SECTION 1. Definitions. The following definitions shall apply to this Amendment:
a. Contract. The term “Contract” shall mean Contract No. C21179340
between CONSULTANT and CITY, dated October 1, 2020, as amended by:
Amendment No.1, dated April 18, 2022
Amendment No.2, dated May 12, 2025
b. Other Terms. Capitalized terms used and not defined in this Amendment
shall have the meanings assigned to such terms in the Contract.
SECTION 2. Section 2, “TERM” of the Contract is hereby amended to read as follows:
“The term of this Agreement shall be from June 30, 2026 through June 30, 2028 unless
terminated earlier pursuant to Section 19 of this Agreement.”
Docusign Envelope ID: 37958083-12CB-4659-8CA9-4A08D5723723
Vers.: Aug. 5, 2019
Page 2 of 3
SECTION 3. Legal Effect. Except as modified by this Amendment, all other provisions of
the Contract, including any exhibits thereto, shall remain in full force and effect.
SECTION 4. Incorporation of Recitals. The recitals set forth above are terms of this
Amendment and are fully incorporated herein by this reference.
(SIGNATURE BLOCK FOLLOWS ON THE NEXT PAGE.)
Docusign Envelope ID: 37958083-12CB-4659-8CA9-4A08D5723723
Vers.: Aug. 5, 2019
Page 3 of 3
SIGNATURES OF THE PARTIES
IN WITNESS WHEREOF, the Parties have by their duly authorized representatives
executed this Amendment effective as of the date first above written.
CITY OF PALO ALTO
_____________________________________
City Manager
APPROVED AS TO FORM:
_____________________________________
City Attorney or Designee
BAKER TILLY ADVISORY GROUP, LP
Officer 1
By: ____________________________
Name: _________________________
Title: __________________________
Officer 2
By: ____________________________
Name: _________________________
Title: __________________________
Attachments:
Docusign Envelope ID: 37958083-12CB-4659-8CA9-4A08D5723723
Ashley Deihr
Principal
Chris Kalafatis
Principal