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City Council
Staff Report
From: City Auditor
Report Type: CONSENT CALENDAR
Lead Department: City Auditor
Meeting Date: January 20, 2026
Report #:2512-5773
TITLE
Approval of the Advisory Report: Contract Solicitation & Authority Levels and Subsequent Management Response as recommended by the Policy & Services Committee. CEQA Status – Not a Project.
RECOMMENDATION
The Policy & Services (P&S) Committee and the Office of the City Auditor recommend City Council approve the results of the Contract Solicitation & Authority Levels Advisory Report and subsequent management response to bring forth recommendations for revising the City’s procurement policies and ordinances and related procedures.
BACKGROUND
Baker Tilly Advisory, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that evaluated a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputational risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan. During the FY2025 risk assessment, the OCA identified contract solicitation and associated signature authority levels as potential areas of risk and this topic was included as an advisory project in the FY2026 Annual Audit Plan approved by Council.
In accordance with our agreement with the City, Baker Tilly Advisory is required to execute the Annual Audit Plan each year which consists of specific, approved task orders. Task Orders approved by the Council are executed by the P&S Committee Chair as the Project Manager for the Baker Tilly Contract as stipulated in the contract terms.
ANALYSIS
Policy & Services Committee Discussion
The P&S Committee unanimously approved the results of the Contract Solicitation & Authority Levels Advisory Report on December 10, 2025. Committee members discussed the possible impacts of increasing solicitation and signature authority level thresholds including improved and more efficient processes while also noting the potential to lose some transparency over the procurement process as fewer contracts would move through a formal bidding process and
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fewer contracts would require Council approval depending on what changes are codified.
Management noted that Council does receive regular reporting on City contracts but will look for ways to improve this reporting. City management will return to Council with an outline of proposed changes in the Spring 2026. An overview of the advisory report findings is below.
Advisory Report Summary
The objective for the Contract Solicitation and Authority Levels Advisory Project was to assess and benchmark the City’s current contract solicitation and approval authority level thresholds.
Overall, OCA recommends the City conduct a comprehensive review of its Contracts and Purchasing Procedures ordinance and related policies, update solicitation requirements and authority levels to reflect current market conditions and consider adopting best practices from peer cities. Please see the attached report for a more detailed discussion of our observations and recommendations and below for a summary.
The City’s procurement procedures were last amended in 20161. Since then, market conditions and costs have changed significantly. According to industry cost indices and economic benchmarks, construction costs have increased by approximately 67%2, goods and general services by 41%3, and professional services by 35%4. Despite these changes, solicitation thresholds and authority levels have remained static, creating inefficiencies and administrative burdens.
The OCA’s primary observation is that updating the City’s procurement procedures will improve purchasing processes, eliminate administrative inefficiencies and better align the City with peer and industry best practices.
Compared to 15 benchmarked jurisdictions, Palo Alto’s competitive bidding thresholds, $10,000 for informal bidding and $85,000 for formal solicitation, are among the lowest in the region.
The City is one of only two jurisdictions that have not updated their procurement procedures since 2021. In addition, exemptions and purchasing card (P-Card) limits have not kept pace with operational needs or inflation, further constraining flexibility and efficiency. Many peer cities have updated their procedures within the past five years, adopting higher thresholds and flexible frameworks, such as the California Uniform Public Construction Cost Accounting Act (CUPCCAA), to improve efficiency and responsiveness.
The City’s signature authority levels are also among the lowest in the region, creating administrative inefficiencies and operational delays. Contract signature authority is divided between the Procurement Officer, City Manager and City Council. 1 See Ordinance 5387 of the Council of the City of Palo Alto Amending Chapter 2.30 of the Palo Alto Municipal Code 2 Department of General Services (DGS) California Construction Cost Index CCCI, DGS California Construction Cost Index CCCI 3 Municipal Cost Index (MCI), developed by American City & County, The Municipal Cost Index | Smart Cities Dive 4 U.S. Bureau of Labor Statistics, Employment Cost Index, ECI, ECI Home : U.S. Bureau of Labor Statistics 9 0
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Finally, the City’s P-Card transaction limit of $10,000, unchanged since 2016, has lost more than 25% of its purchasing power due to inflation. While some peers have similar limits, others have either increased levels, such as San Jose to $15,000, or are in the process of reviewing their limits, such as Sunnyvale. In addition, the Federal Acquisition Regulation recently increased the micro purchase threshold to $15,000 in October 2025. This erosion results in staff having to initiate formal procurement processes for routine purchases that could fall under the P-Card threshold should it be raised to $15,000, adding unnecessary steps and delays for routine items.
Management Response
Staff agrees with the recommendation to conduct a review of the Contracts and Purchasing Procedures ordinance informed by the auditor’s advisory report. Staff has been systematically working improve procurement processes and agrees that the next step should include a review and recommendation to implement the identified opportunities for streamlining the purchasing process. Recent internal actions have included updating the operational purchasing handbook, implementing a new procurement software system for greater administrative ease, standardized contract templates for faster contract development, provision of citywide training on the purchasing process to improve the flow of information, automation of the intake process for solicitations.
By the Spring 2026 staff, in collaboration with the City Attorney’s Office, will conduct a review and recommend adjustments to the municipal code and procurement policies. Edits will seek to adjust purchasing threshold levels with current market conditions, contract signature authority levels, and local government procurement best practices.
FISCAL/RESOURCE IMPACT
This report does not have a fiscal impact. Staff will return to Council with recommendations for adjusting purchasing thresholds and will present any related fiscal impacts at that time.
STAKEHOLDER ENGAGEMENT
The OCA worked with and would like to thank the Administrative Services, Information Technology, Community Services, and Public Works Departments, as well as the City Manager’s and City Attorney’s Offices for their assistance in conducting this audit.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because contracting for auditing services 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).
ATTACHMENTS
Attachment A: Contract Solicitation and Authority Levels Advisory Report APPROVED BY:
Kate Murdock, City Auditor