DATE: September 18, 2024
TO: Council Budget and Finance Committee
FROM: Director of Finance
SUBJECT: City Procurement Policy Updates
RECOMMENDATION
That the Committee reviews and provides input on proposed changes to the City’s procurement policies.
SUMMARY
To align City policies and procedures with current best practices, staff has conducted a thorough review of the Procurement Guidelines manual (manual), which reflects current City purchasing and procurement policies. The manual is an internal document that provides guidance on internal City operations and includes procurement policies established through City Council approval.
Staff proposes that the Committee consider changes to the threshold and expenditure authority levels. The proposed changes impact the competitive bidding process requirements, as well as authority thresholds of the City Manager. Additionally, proposed changes include establishing signatory authority for the City Attorney for expert witness, settlement claim payments, and outside legal counsel. The proposed changes attempt to correct for inflation while improving effectiveness, efficiency, and consistency within the City’s procurement processes while maintaining appropriate oversight and controls. These changes are in keeping with the related provisions of the City Charter, Article XIII, Sections 1302, 1303, and 1304.
BACKGROUND
The City’s purchasing and procurement policies were last updated in November 2015. In response for the need to enhance the City’s procurement and accounts payable processes, the City solicited proposals to perform a thorough assessment of the City’s current processes. Resulting from the RFP process, the City contracted with the 65th North Group, who conducted a Purchasing and Accounts Payable Process Assessment. As part of the assessment, it was recommended that the City consider updating its current purchasing threshold approval authorities. Benchmarking with other Bay Area cities, it was identified that the majority of purchasing thresholds for formal bids (non-construction projects) are set at $100,000 or higher, and City Manager approval in the majority of comparable cities was $100,000 or higher.
DISCUSSION
During the assessment of the City’s procurement and accounts payable process, the consultant recommended that the City consider updating its current purchasing threshold approval authorities. The last update to this policy was conducted in November 2015. A number of factors have contributed to the recommendation to update the thresholds, including benchmarking with other Bay Area cities. The following recommendations are presented for the Committee’s review and consideration:
Bid requirements
Thresholds City Manager and City Attorney
Proposed Changes to Bid Requirements
It is appropriate for the City’s procurement policy to establish levels to determine the type of competitive process necessary to make a purchase. The proposed changes increase the threshold for formal bidding, thereby increasing operational efficiency and reducing staff time by eliminating the volume of time-intensive procurement procedures for lower dollar expenditures. These changes are in keeping with procurement best practices and are similar to levels established by other local cities.
Chart 1: Dollar Value of FY 2024 Purchase Orders
As shown in the Chart 1, in FY 2024 the City issued 2,528 purchase orders. Purchase orders for goods and services less than $100,000 make up 97% of the total purchase orders issued in FY 2024. The proposed policy change will increase operational efficiency without jeopardizing fiscal oversight. While most purchases will not be required to follow the stringent guidelines set forth with the formal bidding process, all purchases under the proposed threshold changes will still require that an informal process be conducted to ensure competitive pricing by obtaining quotes for goods and services. Table 1 provides a comparative summary of the current threshold amounts with the proposed threshold amounts.
Table 1: Increase Threshold for Formal Bidding
Type
Current Threshold
Proposed Threshold
Supplies & Equipment
$75,000
$150,000
External Services
$50,000
$100,000
Purchases greater than $150,001 for supplies and equipment, repair/maintenance, and $100,001 for consultant services will require a more stringent and formal process for which one of the following two methods of solicitation will be required:
Competitive Bid: Focuses on obtaining the lowest possible price Competitive Process: Focuses on obtaining the best possible value Competitive Bids are for purchases where value dictates formal competition. An Invitation to Bid (ITB) is the solicitation package in the bid process. For example, construction projects often require a competitive bid, which would result in an ITB. A Competitive Process would result in a solicitation of a Request for Proposal (RPF). For example, consultant services often require a competitive process, resulting in the issuance of a RFP. Both require a minimum response period of ten (10) calendar days for vendor responses; however, common practice allows for longer response time to increase the volume and quality of bids received.
Proposed Changes to Thresholds City Manager and City Attorney The City’s procurement policy – as authorized each year in the annual budget resolution – establishes that the City Manager may approve professional services contracts up to $75,000 without Council approval. Hayward has one of the lowest City Manager approval thresholds relative to neighboring East Bay municipalities. This comparative discrepancy is understandable considering the current thresholds were enacted over nine years ago. The City Manager approval thresholds no longer provide the desired monetary threshold intent. Table 1 provides a summary of benchmark cities on current thresholds.
Table 1: Benchmark Cities - City Manager Thresholds
Municipality
Council Approval Threshold
Alameda
Up to $75,000
San Mateo
Up to $100,000
Fremont
Up to $100,000
San Leandro
Up to $100,000
Redwood City
Up to $106,000
Hayward
Up to $75,000
Staff is recommending that the City Manager approval threshold for professional services/consultant contracts be increased to $150,000. Additionally, staff is recommending that the City Attorney approval threshold be set at $150,000 for expert witness, settlement claim payments, and outside legal counsel. The proposed change will allow for increases in operational efficiency without jeopardizing fiscal oversight, while improving provision of services to the Hayward community.
FISCAL IMPACT
There is no fiscal impact associated with the proposed changes in policy.
NEXT STEPS
Council Budget and Finance Committee reviews and provides feedback to staff on the proposed changes to purchasing and procurement policy. Staff will incorporate any feedback from the Committee and present the proposed policy to the full Council for consideration.
Prepared by: Rita Perez, Purchasing Manager
Recommended by: Nicole Gonzales, Director of Finance
Approved by:
Dustin Claussen, Interim City Manager