STAFF REPORT
Meeting Date: September 12, 2023
To: Honorable Mayor & City Council
From: Jeff S. Muir, Director of Finance
Tatiana Szerwinski, Assistant Director of Finance
Anthony Rodstein, Purchasing Manager
Sivan Levin, Financial Planning & Research Analyst
Subject: Discussion Regarding Consideration of Entering into an Agreement with JP Morgan Chase Bank
Attachments: None
INTRODUCTION
As a complex municipal entity that takes in and spends hundreds of millions of dollars per year, the City requires a variety of financial services that include full service general banking, commercial (purchasing) cards and merchant card processing for credit card acceptance. Wells Fargo has provided full service general banking services to the City since 2012, JP Morgan Chase currently provides a commercial card solution for the City, and Elevon, Inc. currently provides merchant card processing for the City. As the agreement with Wells Fargo has been in place more than ten years, staff felt it was an appropriate time to go out to the market and seek proposals for these services to ensure the City has the best combination of service levels, technology and pricing.
With the assistance of PFM Group Consulting, LLP (PFM), the current needs of the City were analyzed, and a comprehensive RFP process was undertaken. After evaluating RFP responses and interviews, staff recommends the City Council consider selection of JP Morgan Chase Bank (JPMC) to meet the City’s future banking needs.
DISCUSSION
The list below summarizes the timeline of key events, which are further detailed in this section:
➢ Selection of a Banking Consultant (March 17, 2022 to July 1, 2022) ➢ Consultant’s Citywide Discovery Process (October 2022 – February 2023) ➢ RFP for Comprehensive Banking Services (February 16, 2023 – March 22, 2023) ➢ RFP Evaluation and Shortlist (March 28, 2023 – May 11, 2023) ➢ Interviews and Bank Selection (May 11, 2023 – May 31, 2023) Meeting Date: September 12, 2023
Selection of a Banking Consultant (March 17, 2022 to July 1, 2022) The City issued RFP #22-120-03 on March 17, 2022 for banking consulting services to provide subject matter expertise related to current banking trends, effectiveness of commercial card programs, and to help analyze proposed banking and merchant fees.
Public agencies regularly recruit banking consultants as part of their procurement processes, in search of banking options.
The City posted its banking consulting services RFP on the electronic bidding platform PlanetBids. Fifty-seven (57) prospective respondents viewed the solicitation, which contained:
➢ an outline of the scope of services, such as the technical assistance the City needed in its procurement of comprehensive banking services, and ➢ the consultant’s required professional expertise to help the City make an informed decision in evaluating proposals from prospective banks.
The City had received one proposal from PFM by the RFP deadline on April 20, 2022. An evaluation panel consisted of Finance Department staff who reviewed the proposal for effectiveness and checked references PFM provided. The reference of other public agencies that have contracted with PFM for the same type of consulting services include the following:
➢ City of San Francisco;
➢ County of San Francisco;
➢ City of West Sacramento;
➢ City of Santa Clara; and
➢ City of Riverside.
The evaluation panel also compared PFM’s proposed engagement fee of $65,000 to fees paid by other agencies for PFM’s services. Finance staff found the rate to be comparable to engagements of a similar scope, and reasonable given the in-depth work the PFM team would perform for the City.
An agreement for banking consulting services was awarded to PFM, commencing on July 1, 2022 and expiring on June 30, 2024. The agreement carries a not-to-exceed consideration of $100,000, which reflects the base consulting engagement of $65,000 and a contingency for extra PFM resources in the event the City needed additional consulting services for implementation of banking services upon award.
Consultant’s Discovery Process (October 2022 – February 2023) PFM performed a thorough review of the City’s banking functions, including the following specific areas starting in October 2022:
➢ Treasury
➢ Accounts Receivable/Incoming Payments & Receipts
➢ Lockbox Payments
➢ Merchant Card Processing
➢ Online Payments
➢ Accounts Payable, Commercial Purchasing Card, & Payroll ➢ Accounting Services
➢ Technical Interface
The consultant’s objective of the discovery was to better understand the City’s current systems, policies, and procedures, as well as to identify any new potential to explore in Meeting Date: September 12, 2023
the forthcoming RFP for comprehensive banking services. PFM requested information and sample work product from the Finance Department as part of the discovery process, and met with Finance staff to review the information received from the City. The consultant developed a scope of services and framework for the comprehensive banking services RFP, based on data from the discovery process.
RFP for Comprehensive Banking Services (February 16, 2023 – March 28, 2023) On February 16, 2023, the City issued RFP #23-120-05 for comprehensive banking services in the following three (3) unique Service Groups:
➢ Service Group 1: General Banking Services
➢ Service Group 2: Commercial Card
➢ Service Group 3: Merchant Card Processing
The RFP encouraged bidders to provide proposals for any or all of the Service Groups identified above. The solicitation was reviewed by eight (8) prospective respondents on PlanetBids. The bidders submitted twenty-nine (29) questions during the question-andanswer phase of the RFP process, which the City answered and posted on the PlanetBids website for all bidders to access. The questions primarily related to the scope of services and the City’s service expectations.
The City received proposals from six (6) firms by the RFP deadline on March 28, 2023.
The bidders, and their corresponding Service Groups, are indicated in the table below:
Bidder Service Group
1: General
Banking
Services
Service Group 2:
Commercial Card
Service Group 3:
Merchant Card
Processing
Bank of America X X X
Bank of the West X
*Elavon, Inc. & US Bank X
*Elavon, Inc. & City National
Bank
X
JP Morgan Chase Bank X X X
Wells Fargo X X X
* With regard to Service Group 3, different subsidiaries of Elavon (Elavon, and Elavon, Inc.) submitted proposals for Merchant Card Processing, each partnered with a unique bank.
As shown in the table above, JP Morgan Chase Bank, Bank of America, and Wells Fargo submitted proposals for all Service Groups, while Bank of the West and Elavon only proposed individual Service Groups.
RFP Evaluation and Shortlist (March 28, 2023 – May 11, 2023) The banking consultant assisted the RFP evaluation panel and helped assess the fee schedules the bidders had submitted. The evaluation panel consisted of the Director of Finance, Assistant Director of Finance, Accounting Manager, Purchasing Manager, Revenue Manager, and Financial Planning and Research Analyst. The team assessed the bids according to the following selection criteria:
➢ Operational Requirements
Meeting Date: September 12, 2023
➢ Experience
➢ Financial Strength, Security, and Regulatory Compliance ➢ Transition
➢ Compliance with RFP Requirements
➢ Cost/Fee Proposal
The evaluation criteria included but were not limited to the evaluation of original bids, analysis and scoring of short list interviews, reviews of their software solutions, available services that will improve the efficiency and effectiveness of the City’s banking operations, feedback from the City’s end users of banking software, proposed cost of services and proposed interest rate on deposited funds.
For overall banking services, the panel evaluated which institutions could provide services, at minimum, across Service Groups 1 and 2. Based on this, it was determined that the proposal from Bank of the West was insufficient and that their commercial card program did not surpass the programs offered by any of the banks that proposed all Service Groups. Similarly, the panel determined that Elavon was only able to compete for Service Group 3: Merchant Card Processing and not for Service Groups 1 and 2 and did not offer significant program improvements compared to the banks that offered all the requested services. Therefore, the panel removed Bank of the West and Elavon from further consideration of Service Groups 1 to 2. Merchant Card Processing (Service Group 3) remains under review by staff and there is no recommendation for award at this time.
The banking consultant’s analysis of proposed banking fees revealed that Bank of America proposed to charge the City higher fees than both JP Morgan Chase Bank and Wells Fargo. Therefore, the panel also eliminated Bank of America from further consideration in the evaluation process.
Out of six proposals, the two “short-listed” banks selected to proceed in the next phase of the evaluation were JP Morgan Chase Bank and Wells Fargo.
Interviews and Vendor Selection (May 11, 2023 – May 31, 2023) The City’s evaluation panel and banking consultant held in-person interviews with JPMC and Wells Fargo on May 11, 2023, where the short-listed banks provided in-depth presentations to highlight services to potentially help the City operate more efficiently and effectively. The interviews allowed the panel to better understand each bank and proposed service programs, beyond what was included in the written proposal. The panel posed questions to each bank, specific to their proposal or program to further assess whether the bank met the requirements for specific City requirements to be assigned during implementation and during the contractual engagement.
The evaluation panel found JPMC Bank scored as the highest-qualified provider to the City for comprehensive banking services in Service Groups 1 and 2, after all the evaluations, interviews, and consultant analysis were completed. The City expects to implement changes to existing practices as a result of the new relationship with JPMC, with the ability to streamline processes, reduce banking services costs, and improve the levels of service the City can offer to residents, vendors and employees. JPMC was also the lowest cost bidder for Service Group 1: General Banking Services, and also proposed the highest potential rebate for Service Group 2: Commercial Card Services.
On May 31, 2023, the City informed JP Morgan Chase Bank of the City’s award recommendation for Service Group 1 and Service Group 2, subject to Council approval.
Meeting Date: September 12, 2023
From June through August, the City and JPMC worked on negotiating and drafting a base banking agreement, account and service terms, pricing schedule, and commercial card agreement.
The implementation process will begin with a comprehensive evaluation of the City’s already existing accounts, policies and practices, to determine functional areas that can improve and where possible, new and modern banking practices can be implemented.
This work will be conducted by JPMC’s Banking team, which will leverage their experience working with other leading-edge public and private agencies. Once the initial evaluation is completed, an implementation plan will be developed. The implantation plan will include specific deliverables, persons responsible for specific actions and specific deadlines. The City will continue to use Wells Fargo’s existing banking services until the transition to JPMC is complete.
FISCAL IMPACT
The City exercised its right as part of the RFP process to negotiate lower fees and concessions (identified by PFM) in certain areas of the fee proposal. The City was able to negotiate a reduction in fees associated with various transactional fees and an increased rebate in the Commercial Card program.
For Service Group 1: General Banking Services, the City currently pays Wells Fargo approximately $96,000 in annualized bank service fees. As a result of the RFP, JPMC estimated a monthly fee of $7,027.31, which annualized is $84,327.72. This fee is estimated based on assumptions the bank made regarding potential volume shifts as well as new services the City might add and does not include any card program fees. This fee also does not include the balanced-based charge or FDIC fee, which is dependent on the balances held at the bank. A conservative estimate for this fee would be $4,000 annually (this assumes the City maintains the balance required to offset banking fees at the bank.
Based on this information, an annual cost estimate for banking services is approximately $88,327.72; however, the actual annual fee for banking services may be less. The City also earns interest on funds deposited with the bank, which will offset some or all the costs of these banking services.
For Service Group 2: Commercial Card services, JPMC is the current provider. JPM improved the rebate percentage at the City’s current spend level from 0.65% to 1.55%.
RECOMMENDATION
Staff requests consideration of an agreement with JP Morgan Chase Bank for comprehensive banking services. The agreement will be on the evening Parking Authority and City Council Consent Calendar agendas for approval.
JEFF S. MUIR,
Director of Finance
Approved By