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Home My WebLink About0316.095TO: FROM: ATTENTION: City of Palo Alto City Manager's Report HONORABLE CITY COUNCIL CITY MANAGER FINANCE COMMIITEE AGENDA DATE: JULy l1,lm CMR:316,95 SUBJECT: APPROVAL TO· SOLE SOURCE GE"'"ERAL BAA10NG SERVICES AGREEMENT WITH BANK OF AMERICA BWUEST This report requesI3 Cooncil approval 10 negotiate a sole source general banking servlccs CODIrBcI.with Bank <>f America be I period 0( up 10 three years. The decision 10 eliminate • management position in !be Treasury Divisioo during the Organizational Review mokes this request necessary. Ibis request is ill OC<XJrdance with the Palo Abo Municipal Code, sectioo. 2.30.140, which J'W'ides be exempIloos to oompetitive bidding in """""' "Wl;Iere c:alIlng tOr bids OIl • competitive basis in !be opinion o(!be City Manager is impra<;ficable. unavailing or impossible." [fthls request is approved, staff will return to Council later this ealendar )'eaJ" for final conlr.ct approval RECOMMENDATIONS Staff n:commends that Cooncil authorize staff 10 negotiate a sole source general banking servkes agn:emeol with Bank 0( America 1hat will be effective 1anuary I. 1996. for. period up 10 three yean. POucy IMPI.ICATIONS Staff =ommends • change 10 !be City', p1!ctlce <>f co>mpetitively bidding general bonking servkes !IIId proposes sole soon:ing these servlccs tOr • period <>f up 10 three years. When sole sourcing, there is the potential that the City may Jose its leverage in negotiating prices an:! service levels. However. since !be banking industry is ""'Y competitive, staffbelieves ,...'015 -.. -·7.---- ,-; 3 . -~----' --~----'------, -",--.. '-'". o Ibis risk is small. Iflhls request is approved, staff will mroitor the general banking servicell coo!nlctclcsely to ensure Ibat prkes and services remain competitive. EDCUJJYE SUMMARY B.tkc:mg nd ~ last request fOr proposal t1~FP) 1'0< banking services "'as issued in 1989. The City selecled Security Pociiic Bank and entered into alh=-year conlr1lct, expiring December 31, 1992. Early in 1992, Bank of Amerlco and SecuriIy Pacific Bank merged, and Ba'lk of America took (!Vet Ibe City Q( Palo Alto account. Staff returned to Council and received approval 10 extend the coolract "'ith 8anl of America 1'0< an additiooal three years through December 31,1995 (CMR:SH:92, CMR:616:93, CMR:5Y.l:94). The contract extensions requested in i 992 and 1993 wen: necessary to ensure I Slt'.ooth conven;ion from Security Pacific 10 Bank of America. in 1994. staff requested the lhird one-year extension due to slaffing limitations =!ting from a decision made during the Organizatiooal Review to eliminate the T~..dSUr)' Y.anager position. The City Manager's response to the Organizatiooal R""iew recommendations stated thar, "The ability of the Assistant Directo< and Treasury staff to undeml<e anaIy.es and 0Ihcr projects which may have significant ;:<l& savings associaled with them will be limited as weU. In the past, the Assistant Finance Director and Treasury Manager w .... responsible fOr projects whicb bad significant cost benefit fOr the City, includ'mg the pricing and m:ommendatioo on alternative health care proposals, c:ompetitive procuremenll'o< banking services, analysis of investment ins1rumeots, security III&Iysis of illsIitutions with which the City piaces certificates of deposit, and analysis of revenue options SlICb. IS the lrosinells license tax and 1andscapeIIighting assessment districts.' fJjmjp,OOg of", IrwIn Manllcr Positioa Following the departure of the Treasury Manager, staffbegan the process of reallocating the wori: load of the Division. Staff reviewed the duties of the Treasury Manager and reassigned Iho<se duties !hat wore essential to Ibe remaining two manage<s in the Division. This left the investment and Banling area with • sta!l' of one, • Senior Financial Analyst, whose responsibilities include Ibe management of the City's SI83 million por<.fo60 and the City's banking relationships. With the beavy wori: load inherenIlO these respoosibilitie5, staff has determined Ibat Ibis employee is 001 able 10 undertaI<e the major project of issuing an RFP and converting 10 • new banking system. Stalfhas considered having anod!er AdmiItistrative Services Department (ASD) employee assume respoosibilily 1'0< Ibis project However, since • strong Irnowledge of Treasury functioos and banking is necessary, extensive !raining and ; i --", " -,,; -- .-,~ .,-'. involvement oC!he Treasury Seni<lr Finan<:iol Analyst would be requir~ 10 = that any ctb<:z cmpJvyec .... ould be capable of effectively managlng this cf'f<lrt. Beeki"1 Scrylca ScIcetioA Procql hi O<da" \0 provide an understanding of!he effort involved in competitively biMmg the City', gencraI banking services, staff has provided inf<Jmlation Oil the Ihree major steps: prql8!BIioo and issuance of an RFP, analysis and selection of a bank, and coovmion of the C'IIy'. processes to the new bank services provider. I) The preparation and issuance <>f an RFP requires compiling. significanl omount of de!a!1 about !he Citis banking activities. Thl. informatioo is ne<:eSSIIl)" lOr banks \0 understand the City's needs and quote fees. For example, the Cit)· must include the number <>f enco&d and ~ che<:ks processed, the number <>f deposits, including the breakdown of currency and coins .. ithin I deposit, the number of stop payments, !he number of checks issued, and the various typeS of unique services requesIed by !he City. Ooce this infurmatioo is compiled, it must be coosolidated in • manner Ihat allows lOr comparisoos 10 be made of all banks responding \0 the RFP. 2) Following the issw..,,,e <>fan RFP, a selection commiaee would be assembled lOr review of the RFP responses. The commiaee would then select the banks \0 be interviewed and, if necessary. visit their facilities \0 become familiar with their pro<:eSS"". An in-depth analysis of the services offered and fees chArged, along with • review of the bonk's financial condition, would bemadc before the final bank was selected. 3) If a new bank were selected, staff would need 10 dcdicote a considerable amount of time managing the conversion 10 • new banking system. The conv .... ioo entails changing ICCOUIIts and recoocilemenl process. ordering new checks, revising internal procedures, modiCyi.llg computer programs lOr check verification and clearing. elec!ronically transmitting positive pay (anti-fraud system), selecting new services, 1rIIining City staff on new banking procedures, ordering new banking bms supplies, establisbing wiring instructions and signature authorities, and updating printing systems and investmenl .greemruts. CWsing of old accounts held by the previous bank e4II also be a lengthy process. Wrth approximately 11 City facilities making deposits to the City's general banlOng OCCOUDI, a <bange in banks would create • need Ibr these facilities 10 participl!!e in the conversion process. "-" , " " """ . -"-, . ~ -0 ~.' ... -...... . .. '" .. '" o Ilal' ofAmerka SeW! leW Bank of ~ bas been responsive!O ilie City's banking needs since the acquisition of Security Pacific Bank in 1992. Bank of A'nerica's corruni!ment is reflected in their high level of service and competitive rat.., whicb have not increased since they acquired the City's accoum in 1992. Staffmeels ,,1th Bank of America 00 a quarterly basis 10 ",view the cum:nt level. of servi<:e and future needs. The bank continues 10 be receptive 10 .. .Afl'. requests fOr changes or c:ustornized senices and continues!O provide ilie City with new and improved services. CoDd,"" Staff estimates IhlI! it would take approximately one-balf ofilie Treasury Senior Financial Analyst's time fOr a three-month period 10 issue an RFP, analyze the responses, inlefView the fil1&lists, negotiate services and select • bank. 1ft new bank (0 bank other than Bank of America) wen: sekcted, the Treasury Secior Financial Analyst would cootinue 10 wock half time fOr at least three more months 10 coordinate the extensive coovmion through 10 rompletion. in adIDtion, approximately one-third of an Accounting employee and other City departments would be required !O s"ppor\ 1hi. eflOrt The estimate would increase if staff faces problems, su<:b as compatibility of hardware and software, during the convefSion process. The loss of a management position in Treasury does DOl. allow ASD staff the flexibility 10 alIocat<: as mucllas ooe-balf of the Treasury Senic< Financial AnalySlIo 1his etlOli CoosequentIy, since Bank of America provides 0 high level 0( service at competitive rates. staff does no! recommc:nd competitively bidding general banldng scr.ices and proposes negotiating. sole source banking services agreemenl with Bank of AmericajOr. period 0( up 10 three years. Slafl'will retum 10 CounciIIaler this calendar year with specific detail. of the proposed banking services IgreemenI fOr final approval. FISCAL IMPACI The City's general banking services fees averaged $5,900 • month during 1994. The fees include banking maintenance &ctivity fOr several checking accounts, suWIies, federal insuraDce, Sj>CCiaI cIeposit processing, wiring 0( funds, reports and other misceUaneous fees. Most of Ibe banking fees are paid through compensating baIane.., wbich means the City must maintain checking IICCOIIIII balances at a sul'ficienllevello avoid paying fees dlrectly. In 1995-96, staff bas • budget 0( $2,000 that wiU cover any fees no! paid through compensating balances. • ·' fcNYIRONMf..NTAL ASSFJ)SMflff This does not coostitut.., a project under ~ Ca!ilOrnia Envirorunen!J!l Quality Act. Therefore, DO envlroamenl2J assessment [s needed. PREPARED BY, Melissa C&\-~ Assistant Director of Admlnistrative Servkes LaIo Perez, Senior Financial Analyst CITY MANAGER APPROY AL: CC:uTa """,.01' > •• .. . "".-