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HomeMy WebLinkAbout0376.094\ 1 TilE HONORABLE CITY COUNCIL Palo Alto, California NeMbers of the Council: . , ' ~ - --" -.. -....:,~.:...-!"";...:...;::,.:.--~, This is an informational report prepared in response to an inquiry from council concerning the. City's bidding and contracting pnJces~ and no Council action is required. The report add:rcsses the cornpetitive nature of the city's procurel11ent process, as well as information about single and sale source purchasing decisions. Dased. on staft'! s e\~aluat:Lon of the procurement process prompted by this inquiry, staff intends to pursue the development of an improved, standardized format for the reporting of bids to Council; to review the procurement and contractinq code of the Palo Alto Municipal Code (FAMe) and the Purchasing Procedures Manual (PPM) ill order to develop recommendations to simplify and improve the City's bidding and contracting practic?s; to conduct a review of tho purchasing practices of other public and private agencies; to reviaw the appropriateness of the $25 /000 bid limit; and to analyze the effectiveness of the current requirement for Council approval of bid rejections. staff was requested by the Council to review and report on the City's bidding and contracting process. Specifically, the council was concerned about ensuring that the City has ~n adequate number of bidders so that the'products,and services purchased are of high quality at the lowest possible price; the City's bid process is competitive; and that the purchasing process is honest, open, and efficient. CMR:J76:94 " '. " \\" , '':\' ", , " .... j I • The PAMe and the PPM provide direction for policy and documentation requirements in preparing bids, quotations and contracts. 1.'09 speoific purchasing-process differs, however, based on the type of procurement (Attachment A). rn all cases, the current dollar threshold requiring the formal bid process established by the PAMC is $25,000. As such, this report cOvers the bidding and contracting pl"ocess for purchases above the $25,000 level. staff employs BEl-veral methods to attract vendors and encourage competition. The PANe requires that bids be advertised only by posting a notice in the Civic Center. However, in addition to po.sting bIds, the Purchasing Division (Purchasing) encourages a 'Wide distribution of bids to promote competition. purchasing distributes bids to vendors/contractors, as well as their professional associations and the local builder's exchanges. Both City departments and Purchasing maintain vendor/contractor listings that are \lsed for bid distribution purposes. At the present time, Purchasing'5 data base contains over 12,000 vendors/contractors which have done business or have indicated an interest in doing business with the City. Vendors and contractors are also identified through technical publications, supplier correspondence, director.ieB, registers, The BU!3iness Journal, area builder's exchangeG, and BidNet. (a nationwide bid bullet in board). In additicm, Purchasing partiCipates in trade shows, exhibits, and professional tlleetings, as well as seroinars and workshops with other local government purChasing agents and buyers to share information about the city's requirements and learn about new sources of supply. It is through these avenues that the final bid lists are developed. The other actions taken to encourage vendor participation in the City'S bidding process include holding pre-bid meetings to explain the nature of the bid and respond to vendor questions about the bid tormatj war-king with vendors throughout the bid response preparation process to answer questions about bid specifications and to assist in the completion of bid documents; and i'lllowinq vendors SUfficient time (~ to 5 weeks) to respond to bid requests. ~4 Response R~~ During fiscal yeal' 1992-93 the City generated approximately 175 bids. overall, in 1992-93 the city issued more than 922 contracts, 6,500 purchase orders l and approximately 800 blanket: oiders for J:laterials, supplies, and services. The vendor/contractor response rate to the formal bids issued varies based on a number of factors: the complexity or technical nature of the project l the dollar size of the project, the local CMR: 376: 94 2 t« , " " , "< i ., ! , 1 I I i econcmic environmcnt, the seasonality of the bid (e.g .. , winteJ: is the construction off-season; su".rner is the heavy construction season) and tho City's bid requirement.s. In addition, major constt:'uction projects In the surrounding area or a catastrophe, such as the Los .Angeles eal'thquake , will also affect the number of ~Qntractora available to participato in the bidding process. The tact that Palo Alto ia: not currently in an area of active building and housinq de .... elcpment als.o itT1pacts the iibundance of c.ontractors. Tradltionll,lly, the City has had a lligher response rate on general construction projects (e.g" buildings, landscaping, fencing, st.-'Got repair), due to the: number .of gencl):al contract.ors qualified to do this typa: of ~wrk. In adctition, high response rates are found in areas that. are typically competitive in the private sector~ $'Jch ,as vshiclo purchases (trucks and automobiles), construction equipmont. landscaping, computers and comJ11unications equipr:ent. On the other hand, responses to specialized construction projects (e.g., cote drillinCJ~ high power olectrical, la.rqa gas insti'ililations) are typically low/ due to the limited nunb.or of available contrnctors in these specialized areas. Sinilarly, other spocialized prodtlCts and services (e.g., transton:::ers, che!':1icals, hazardous materials removal or transport.ation) have 10'." response rates. In addition, there are liMited Jnanufactur(-,:s for gas, eJectric and water metet's, so response rutes for these items are 10'''', FOl:" .fill categoriC'S of ~-'''''Irchases over $25,000, the city normally sands ;} f11nirmu of 10 cotnplete bid packages, providing the vendor/contractor intorma,t ion necessary for them to review the bid fOl-~ their potential to respond. Typically~ 15 to 20 bids are sent, with tho responso rate J:anging fl'om 3 to 7 responses --a r~_te of approxirn~tely 20 to 35 percent, A large nunber of th\) City'S formal c.ontracts are in the construction, area. Fl'Qr:! July of 1992 through Mny of :\.994, the city has "bid approxi"atl)ly 34 major construction projects. On average, bids 'Woro sent to 17 cont:ractdrs for e~ch project. The city received <'In ave'l'ag.e of 5 res~onscs on each bid, a returll of approxlrn:1:I:tely '32 porcent. The city'S ros-ponse rate appears to be compar'lble to that of s.1ftilar cities and communities. For example: 1) Milpitas, like Palo Alto, sends bid packages to vendoxs/contt"actors requesting bids, and also advertises in a local newspaper. For a recent major public works project, bid packages wero sent to 12 contractors and responses were received frol1l 4 contractors, a 33 percent response. The~' indicate this is an ave-cage response rate for their projects. J '\ " 2) J) '.', . ,,': , '.; f', HountaJ.n Vi-ow does not ~end bid packages to contractors. It simply ."dviscs the builder's c)(chan<;.lcs of a project and advertises bids. It also sends bids as requested. Although it was not able to provido infor.m~tion on ho .... many bids were requested by contractors, Mountain Vicw indicated it usually receives J to 7 responsos for major projects. sunnyvale advertises projects and \"oill send bids to reqliesting contractors. Like Palo Alto, ,Sunnyvalo averages 15 to 20 bids sent ,or pick~d up and recoives bid returns sit1il"r to Mountain View. It is impoctant to note that the nun~r of responses the city receives doeB not auto~atic~lly ensure that the City will obtalll the hiqhest quality or the lo\(ost pr ieo tor Pl.".Jdllct~ and so-rvices. Th~re aro many other ele~elltc of thQ city's bid procoo9 thot are important to ensure the City recQives the highest vahu'l tot' its purchases. ln addition to the pt"oactivc stance 111 id13ntifying and sending Lids to vendorsfcontractors as described -above, staff focuses on vendor/contractor past Pc)::fOr:1:.lI1CQ~ business stability, reputation, financial qualifications, subcontractcr inforlYlation, and location of equipnent and plant sites in H'!!lation to the City's pr.oject. All of these ite~s are il7.portant to ensura the: city receives high-quality purchases at the lowest possible price. Although Purchasinq l.ac~s the pet"SOflnu) resourcos to follow-up, in every caSA, with vondo"(s and ·contractors 111 ord{):r to understand the reasons for bid requests having 10 ... • responsa rate-s, Purchasing wi 11 hegin conducting random sur .... eys j Jl ordcH' to deterninc MeAnY ot the reasons for low response bidz. In addition, atDff recommends pursuing Inodification of tho city ~'fnag:em9nt Report format tor depa;rtruent reporting of bids to be a.pproved by Counc! 1 so that it includes t.he nUr.lbor ot bids sent, the m.lAber of bids received, and explanations fo~ low rospon~e bids. As nentiolled earl ler, tho bid l"IHlutternents placed on vendors/contractors is an important facto)" in d-stendni'og the city/s response rate. Tho safeguards built into the PI\lJ,C and the city's PPM, as well as federa) and state rules, and regulations, 8S well as the high cost of bonds and insuranc'e, nay dis-eOlu"age sorne vendorsJcontract.ors frOM respondinq to the City's bid requests. provided below is a summary of some of the requirenents tho city currently imposes on vendors: o The PANe requires the contractor to obtain several types of bonds. Bid bonds aSS'lre thc}t thC! vendor/contractor will enter C!ffi:376:94 , . ( i j , \ · '; . .:.,," -.... -~~,,,~"'-.... ~. , ..... o into a contract; performance bonds, obtained by tho contractor afteX-" the contract is a ..... arded, qu~.rantit!e that the work will, be completed in accordance with the plans and specifications tnd at the contraqt price; lahor and material bond or pa}'~ont bonds, obtained by the contractor after the contrbct is awarded l guarantee the contractor ",·ill pay all accounh; arising from the job. The PAMC requires contractors to complete an action certification to assure tho city vendor/contractor compi ies with the applicable state laws. affirm.tive that tho federal ~nd o City code requh'es the contractor to comply with public WorKS and Utilities construction standards. o o o o City ordinance requires the contrac.tor to co~ply with noise restr.ictions, where applic3.ble. City ordinance and state lal.,. req~1 ire truc}~ :t"outing dnd trenching restrictions. The PPM requires the contractor to fUrnish a copy of its state business license so the city can verify ""hether the business license is current and in good standing ...,ith the state licensing hoard. The PPM requires vendors/contractors to furnish documentation on the following: subcontractor infor:r:lation, experienco lind fina.ncial qualifications, and small and disadvantaged businoss status. This helps to ensure compliance with federal and state procurement re9ul~tions, as well as to evaluate vendor/contractor qualifications. o In order to c0711ply with the City's riSI{ management policy, contractors aro required to provide proof of insurance (certificates of insurance). o The City's terms and conditions include the following req~irernents: engineerls certification of drawings, contractor's compliance with the Americans .... ith Disabilities Act l California Labor Code for prevai ling .... ·agcs and/or the Department of Labor Regulations' "Equal EmploYlr.ent Opportunity!' directives. CMR:376:94 5 ! .,,'. ., i I 1 i , , j i I .,~" .. -.--. Many of the, requirements listed above are not normally found, or are more restrictive than those found in the private sector. Typically, bond requirements'J with the exception of the performance bon~J are often not found in private industry. In the case of the payment (labor and material~) bond j the City usually requires more bonding than found in the private sector. This additional bonding can cost the vendor 1. 5 to 4 percent of the full-value of the contract, based on the type of work contracted. The city requires this additional bonding in order to enSUt'e subcontractors are paid in a prompt manner. This additional subcontractor protectlcfl is important because subcontractors cannot file a lien against public property as they can against private property. In addition, much of the documentation and certification requirements (affirmative action certification, copy of state business license, documentation on small and disadvantaged business status j subcontractor information, documentation on experience and financial qualifica­ tions) are protective formalities established by public entities and are not routinely found in the private sector. Finally, the public sector often requires contractors to uarry additional insurance coverage because work is performed in public places where there is public access. Similarly, they must obtain insurance from a cat'rier that has a "Best's Key Rating Guide" rate of A7 or better, which is an indicator of the carrier's financial strength and stability. Although all of these requirements help to minimize ris}~ to the city, they arc often burdensome for vendors/contractors, adding cost to their proce~'Sj and in many cases, discouraging them from participating in public sector work. Staff intends to rev.i.ew J with the assistance of the City Attorney's Office, the requirements imposed on vendors/contractors under the existing City ordinances. Staff will also evaluate. the current threshold for formal bid requests of $25,000 to deter-mine if an increase should be recommended. During this review j staff will asses~ opportunities to alleviate or reduce requirements in order to minimize the administrative and financial burden placed on contractors without unduly increasing risk to the City. Finally, ~taff will evaluate the bid process of other public agencies and private, industries to identify Itbest practices" and potential opportunities for improvement. Sole Souroe purchases Although Purchasing strives to seek competitive bids for all procurements J there may be situations when only one supplier can be requested to bid --a sole source --and the purchase must be made without the benefit of competition. It is important to point out that sole sourcing is frequently confused ,,,,ith a lack of bids or interest in a project, Which will be discussed in the next section. The following examples describe tILe types of justified sole source purchases the City makes which are in accordance with the PA1>IC sole SOUt"ce guidelines (Attachment B): CMR:.376:94 6 I j ! t' .~., ('.t \ Profeosion.:'ll accountants, professional ,;,~ .. or specialized services such as attorneys, auditors, and engineers and other specialized or consultants (PAMC 2.30.140 (a). (1)). o A delivery requirement that i!;) critical, an emergency, and does not permit time to solicit from other sources. ~fust be ~'eportcd at the next regular Council Heeting (PAMC 2.30.140 (0) , (2» • o Items UU'lIt are patented and avai lable only from one source, such as b procoss for recycling (PAMe 2.30.140 (a) ,(3)). o o o o The purcha.se of equipment for which thp.re is no comparable co~petitive product, (e.g., a one-of-a-kind computer or traffic controller or cOn1puter) which is available only from one supplier or vendor (PAMC 2.30.140 (a) / (3)). '1'11e purchase of a component or replacement part for which there is no conm<eccially-available subatitute and which ca11 be obtained oilly fl::OM the rnanufactuxGr (e.g., radio parts for a specific brand name) {PAMC 2.30.140 (a),(3). 1m cnqineored or qual ity requirement based on the unique capabilities of a specified sQurcc{ such as an a:t.'chitecturally el1gineer~d component for the c()nstruction of a roofing beam in a uniquely designed bui lding {PANe 2.30.140 (a),' 3) ) • Real c$tatc, placement of insurance cover.lge, and utility commodities for resale (PANe 2.30.140 (a), (4)). o City-based public wor}~s and the purchase of utility c~mroodities, respectively (Pfu~C 2.30.140 (a}, (5) and (6». In order to ensure the sole source process is not abused, the project managers must provide a rnemor.andum adequately justifying any sole source purchase. The memo must have the approval and aCJr.e~ment of the Purchasing Manager and the city Nanaqer, when the a~ount involved exceeds $5,000. The najority of· the city's sole source purchases fall into the cateqory of professional or specialized services, such as attorneys~ auditors, or financial advisors. Over.1.11, the City's tota"l number of sale source purchases is small. On an annual basis, the City typically makes very few sole source purchases, CMR: )76: 94 7 . , " " ;-: :". ropresenting loss than 1 percent. of tho City's total pur-chasing dollar voluM. Attachment C includes specific examples of sole source purc.hases !!lade by various City departments in the 1993/94 fiscal year. §Jngl~ Boure, purch~~~ In addition to s()le source purchases, thQro are sit~1ations 'Where only one vendQr )contt"actor ror,p0:1ds to the city's bid or quote request. As disf.!ussod abovo, there are I'lany factors (e.g., economic eriviront:C'nt, dOCUMentation requirO-'Aents imposed on vendors t type of. purchl-iise, etc.) that cOfltr ibute to the lack of rosponses. It a single bidder responds, Purchasing coordinates 'With the project J"1.anager to ensure pri.cfls arc in line with those previ.ollsly paid t or that the cost/price analysis delnonstrntes the price is (l'Iir and re3sonablQ. The ("ity's past history with the contractor and the oxperJ.~nce' that othel" ci tios have had also provhle confh"nation th!\t tho price Is r~ast:lnablc. In tiona cases. when tI single bid is received, departments rna}r~e the: decision to do the \.·or~: with City cre'l.t'S, In nost situations, hO .... CI/Q'T, the City a'q'ards the ""ork or product to the responding vendor. since rejection of bIds reqLlircs couPlcil approval and bsc3use of project tir:,~ constraints, seasonal staffing limitations, and bUdyet issues, j n tt<.my c",ses depa:rtr..ents opt to accept a single bid t'hthor than go throuC)h the proces~ of Council appl"oval to raject and r-(lbid. St-att intends to pursue the concept of changing this requirer"ient to allow PUl"chasinq to rebid these projects .. Within the: CityJs current old lind contracting process, staff baliovos that there arc opportunities for improvement. in order to idantify those lJith the ql"eatest benefit to the City, staff intends to evaluate tho rcquireme>nts inposed on vendors/contractor-so staff wl1l also undortake a thol"ouqh review of purchasing practices (dQcu~entation rQqu1re~~nts, response rates, dollar thresholds for fOY-a"l bIds, etc.) oJ other citios i.'Ind of ptivate industry, looking tor good ~"Xaroples.to rol10 ..... Staff boliflves that by minimizing and sirnplifylnij th~ bid requironcl'ts, the City's response rate will improve, thus improving the co~petitive nature of the City's bid process. Finally, to ensura Council receives a complete picture of the rationalo behind procurement deCisions, especially in the case of a single or sole sourco bid. the City Manaqcr's Office will pursue the adoption of a sthndard forroat for reporting of bids to be approved by Council, 1.'he fornat would provide information on the c0111petlti..,e nature of each bid, inclUding the number of bids sent, the responses received an(i explanations for low response bids. CMR:376:94 8 \1" ",",." " -':,.,,, -... ~""-,,,,-~-........... Staff will return to Council with spocific recommendations for any required changes to the PAMe, as neoded, once these reviews .are completed. Because of the priority placed on iDplc:'!entatlQn of Miss'iqn Oriven' Budgeting, staif does not anticipato rot.llrnir:g '""ith a comprehensive set of recommendations until late 1')9~. Respect'fl..Z.lly submitted, "~....,. -& ~>«<, MELhsA CAVALLO ~ASSis~~~nt f'inanC~irector ../. --L..~ .. EM! Y ARRISON --. ~rector j5'Fin.nc.e . ~,--"V;~ UN' FLEMInG ".) C't Manager . CMR: 376 :94 9 I " r 'I //'" v ". ' ....... ..,. . Type of Bid Process Type of Contract Document Dollar Authorizations '.'~ ". ,... -'~ . ""-~1UJ'.:n.""""".,*"iI$."!iIIL;~"~·2!r"'\?'·l>i!.mPJ J$Aii!lli .. 7,.: J,,~ Se:vioes. Consultllnts, Pmf«.<:iooals Requ.est for Proposal Short Form Agreemeht or Contract Attachment A Combinations of Materials and Suvices. ~?ru~tiorl Notice Inviting Formal Bid Formal Contract $0 -5SI< Purchasil'l.g Ma!"l.aoger 551<-525K City Manager Over $2SK City Council "? Materials, Goods, SUJ?I')!ics EquiPment Qu.otations or Invitation for Sid P".lrchase Order ~ ;, f "-/< • ~. " ii' l'l': " " i/' Attachment B. City Bidding and Contractin-R--.£Qlicy and Procedurel? Sole Source Pm:gh~_~~AM.Q PAMe Chapter 2.30.140 Exceptions tb competitive biddjng states: II (a) The restrictions ano, provisions of Section requiring competitive bidding shall not apply f0110"'il1'1 contracts, purchases or transactions: 2.30.130 to the (1) To contracts involving the obtaining or professional or specialized services such as, but not limited to, services rendered by architects, attorneys~ accountants, auditors~ engineers, and other specialized or professional consultantsi (2) "'here calling for bids on a competitive basis, in the opinion of the city Manager, is impracticable, unavailing or impossible; (3) (4) "'here the city's. requirements call be met solely by a single patented article or process; Placement of insurance coveragei {5) Hhen the public work is performed by the city with its own cl'nployees; (6) Pllrchase of utility commodities for resale. II '.. f I. f /- 1 ; lI.tor Quality Control "'lant IRO PolIce PoliCe! C1tl'Clork M.1-<M'.hm.~i)Li; f;:KiU1JP1_~_~-...QL~.Q..l~Source Contracts _!/QmlQL stanford Univors.it}' Hel,.·lett Packard Ellen Kirschl1\an County of Santa Clara l-'BI county of Santa Clara PLQj~ct and Reasons Metals reduction program and market-based .financial incentives. stanford had already developed informa",: tion and had knowledge not available to other con­ sultants. Mainframe computer equip­ rn~nt and peripherals. Parts replacement, com­ patibili ty of equipment, employee training, manu­ facturer's warranty I and established compatible software. Psycholog ist required by MOU agreement with the City/s police union, PAPOA. Prisoner transportation and jail expenses and the FBI provides police in­ formation, fingerprinting, etc. Election tabulations.