City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: August 10, 2026
Report #:2601-5863
TITLE
Adoption of an Ordinance Amending Section 2.38.240 [Settlement of Claims and Actions] and Chapter 2.30 [Contracts and Purchasing Procedures] of the Palo Alto Municipal Code, as accepted by the Policy and Services Committee, to increase the thresholds for solicitation of goods and services, increase contract approval and settlement authority, and to make other technical changes.
RECOMMENDATION
Staff recommends that Council adopt an ordinance to amend Palo Alto Municipal Code Section
2.28.240 [Settlement of Claims and Actions] and Chapter 2.30 [Contracts and Purchasing Procedures], as recommended by the Policy and Services Committee, to increase thresholds for solicitation of goods and services, increase contract approval and settlement authority, and to make technical changes.
EXECUTIVE SUMMARY
In January 2026 the City Council approved the City’s Auditor’s advisory report on contract solicitation and authority levels. The report recommended adjusting purchasing levels to keep up with inflation since they were last adjusted in 2016 and to reflect current market conditions and best practices in peer cities. A working group made up of city departments proposed changes to the municipal code to implement appropriate adjustments in accordance with the advisory report. Additional changes are proposed to increase operational efficiencies, ensure consistency in the code, and clarify existing provisions. If approved, these changes would go into effect thirty days after the second reading of the ordinance, which is expected to be in the September timeframe.
BACKGROUND
On January 20, 2026, the City Council, as recommended by the Policy and Services Committee, approved the City Auditor’s advisory report on contract solicitation and authority levels1.
Overall, the advisory report recommended that the City review the solicitation requirements and authority levels as contained in the purchasing procedures of the municipal code. The report noted that procurement procedures were last amended in 20162 and compared to 15 benchmarked jurisdictions, Palo Alto’s solicitation and contract authority thresholds are among the lowest in the region. Moreover, costs have increased significantly while the purchasing thresholds have remained the same over this period. The auditor concludes in their report 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.” Management’s response to the advisory report showed concurrence with the auditor’s observations and conclusion. Furthermore, staff believes that updating these levels is another step in the effort to improve the procurement process by implementing additional streamlining changes. Earlier steps have included updating the operational purchasing handbook, implementing a new procurement software system for greater administrative ease, standardizing contract templates for faster contract development, provision of citywide training on the purchasing process to improve effectiveness, and the automation of the intake process for solicitations.
Staff collaborated with the City Attorney's Office in reviewing and recommending adjustments to the municipal code and procurement policies. Additional review and input were solicited from departments to ensure that changes would be comprehensive and inclusive of input from across the organization.
ANALYSIS
Staff considered inflation since the last municipal code changes and applied a factor from the Consumer Price Index (CPI) for the San Francisco Bay Area along with comparing to the peer cities shown in Appendix B of the City Auditor’s report to adjust the purchasing thresholds to align with current market buying power. As a result, staff is recommending adjustments to the purchasing thresholds based on the above factors; changes are summarized in the tables 1 and 2 below.
1 2512-5773 Approval of the Advisory Report: Contract Solicitation and Authority Levels and Subsequent Management Responses as recommended by the Policy and Services Committee; https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=85260&dbid=0&repo=PaloAlto&searchid=c95c7248 -de48-4652-8992-ad4896787207
2 Finance Committee Recommends Adoption of an Ordinance Amending Chapter 2.30 [Contracts and Purchasing Procedures] of the Palo Alto Municipal Code to Establish Contracting and Purchasing Procedures and to Define the Contracting Authority of City Officers and Employees;
http://www.cityofpaloalto.org/civicax/filebank/blobdload.aspx?BlobID=53378 By increasing the purchasing thresholds and making other changes outlined, this will improve government efficiencies by reducing the time incurred for solicitation and contract processing.
Administrative time supporting staff report writing, formal RFP processes for minor activities will be repurposed to ensuring solicitations will be more effective as the thresholds will be better aligned with the rigorous and more time-consuming nature of formal solicitations. Semi- annual reports will continue to maintain transparency to the Council summarizing all contracts approved by the City Manager and Chief Procurement Officer.
Table 1: Solicitation Process Levels
Table 2: Contract Approval Authority Levels
To ensure continued efficiency and relevance of these thresholds, staff recommends the adoption of an automatic CPI-based escalator for contract approval authority, and solicitations thresholds for goods and services, so these thresholds keep pace with market trends. Bid thresholds for public works projects will be consistent with the California Uniform Public Construction Cost Accounting Act (CUPCCA) and will automatically incorporate any increases made under State law. If approved starting July 1, 2031 and every five years after, the contract authority and solicitation dollar thresholds will adjust automatically based on the Bay Area CPI, rounded to the nearest $10,000. Council will be informed of the increase following the automatic adjustment.
Other key changes include:
Increased settlement authority for City Attorney from $35,000 to $50,000.
Exemptions from competitive solicitation for recreation instructors and other service providers with unique talents (e.g., performers, speakers, trainers) and government-to- government purchases. This will streamline the hiring of independent contractors, such as class instructor and other instructor led activities wherein often only one or a limited number of appropriate providers are available.
Exemption for agreements with other agencies and government entities such as joint powers authorities and nearby cities. This will streamline the process for contracting with public agencies since such contracts are not the result of solicitations and currently require multiple steps to approve by staff in several departments. This will eliminate most of the steps for these contracts, which are infrequent. A new purchasing category for information technology (IT) contracts has been created to better reflect the broad array of technology products and services that have evolved over the past decade. This will increase efficiency for staff when formulating contracts and solicitation strategies. IT solicitation threshold reasonably aligns with professional services and contract authority threshold aligns with general and professional services.
This is also a more conservative response to the advisory report which recommended an exemption from competitive solicitations for information technology related purchases, which was cited in several peer cities.
City Manager authority to increase the amount of a contract previously approved by Council. This will allow the City Manager to make a one-time extension to a Council approved contract up to the amount of 10 percent or $100,000, whichever is lower. This will reduce some of the low dollar contract amendments that go to Council simply to add a relatively small portion to a contract by providing flexibility and address the operational inefficiencies noted in the City’s Auditor’s advisory report. After City Council approval of the vehicle replacement budget annually, the City Manager may award fleet vehicle purchase/retrofit contracts up to the Council authorized level. This will reduce the number of individual vehicle purchases that must be approved by Council and enable staff to execute more expeditiously on high demand vehicles. All purchases will continue to be reviewed by the multi-departmental Fleet Review Committee per vehicle policies. Council will still see the vehicle purchases in the semi-annual report to Council on City Manager approved contracts.
FISCAL/RESOURCE IMPACT
Impacts of increasing solicitation and signature authority level thresholds include improved and more efficient processes, better solicitation outcomes and continued transparency to the City Council. The timing of these proposed changes to the municipal code Chapter 2.30 aligns with the FY2027 budget balancing strategies and reductions which focused on harnessing more administrative efficiencies.
STAKEHOLDER ENGAGEMENT
A cross department working group was formed to develop and review the proposed changes at multiple stages throughout the process. This group included staff from the City Manager, City Attorney, Administrative Services, Public Works, Information Technology and Utilities departments. The proposed changes were also reviewed with the Executive Leadership Team.
ENVIRONMENTAL REVIEW
This activity is not a project under California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378, because it has no potential for resulting in either a direct or reasonably foreseeable indirect physical change in the environment.
ATTACHMENTS
Attachment A - Ordinance Amending PAMC Section 2.38.240 and Chapter 2.30 APPROVED BY:
Lauren Lai, Administrative Services Director