HomeMy WebLinkAboutItem 8.4 Purchase Pref for Vendors
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AGENDA STATEMENT
CITY COUNCIL MEETING DATE: May 4, 1999
CITY CLERK
File # D[3][8][Q]-[l][QJ
SUBJECT:
Purchase Preference For Local Vendors In the City Purchasing Ordinance
~(Report Prepared by: Paul S. Rankin, Assistant City Manager)
ATTACHMENTS:
1.
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RECOMMENDATION: Receive and file the report and make no changes to the current ordinance.
City Attorney Memorandum dated November 20, 1998
Chapter 2.36 Dublin Municipal Code - Purchasing
FINANCIAL STATEMENT: Under a purchase preference program the City may incur higher
costs as the purchase of goods would no longer be based solely on the lowest cost. Further, in the event of
a legal challenge as to the constitutionality ofthe policy the City could incur legal defense costs.
DESCRIPTION: The City Council requested that Staff review the City of Dublin
purchasing procedures and provide information related to the possibility of providing a bid preference to
Dublin businesses. The current City Ordinance establishes a system whereby purchases are typically made
based solely upon the lowest price for comparable items.
City Attorney Analysis
The City Attorney reviewed potential legal obstacles to implementing a purchase preference policy.
. (Attachment 1) The research found that although there are not any California statutes which would
automatically preclude adoption of such an ordinance, the enactment could be subject to challenge under
the United States Constitution. As is explained below, Staff also found that other public agencies do not
offer preferences.
Current Ordinance
The current ordinance establishes procedures based upon the amount of the purchase. (Attachment 2) For
example, purchases of less than $200 are not subject to a required bid process. It should be noted that this
does not preclude obtaining informal prices to assure that public monies are expended in a prudent
manner. Purchases made betw~en $200 and $5,000 are subject to an informal bid process. Staffmay
obtain prices through the mail, telephone inquiries or other pricing information such as catalog pricing
made available by vendors. Every attempt is made to obtain at least 3 price quotations. Once again, if it
is deemed appropriate a formal bid process can be used. However, the formal bid process requires
additional Staff time to prepare written specifications and administer the process.
The formal process is used on all purchases over $5,000 unless the City Council grants an exception to the
policy as allowed in Section 2.36.050 (Dublin Municipal Code). Surveys of surrounding cities found that
most agencies have increased the limits requiring City Council approval to amounts well above $5,000, on
purchases not defined as "Public Works Projects" under State Law. This helps to expedite the purchasing
process and make it more efficient.
. The current City of Dublin policy does provide a local preference in the event that two or more bids are
received from responsible bidders for the exact same amount or unit price. (Section 2.36.030) In this case
G/agendaJagpurch.doc
COPIES TO: Chamber of Commerce 4 d
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the award may be made to the local vendor. This exception does not effectively grant a "price preferene,.e"
since there is no additional cost to the City, as both bidders stated identical costs.
It should be noted that the local ordinance can only regulate certain purchases. For example, State law has
a requirement that all "Public Works Projects" must be bid based upon a sealed bid process and awarded .
to the lowest responsible bidder. The City Attorney has advised that the California Attorney General has
previously determined, that in cases where the statute requires competitive bidding, a preference in favor
of local vendors is plainly inconsistent and invalid. In addition, there is a State Law in the Public
Contracts Code, which requires contracts for architectural, engineering, land surveying and construction
management services, must be awarded based upon qualifications and other factors, provided that fair and
reasonable prices are submitted. These are unique procurement transactions and Staffhas relied on the
requirements under State Law when recommending the award of contracts.
Purpose of Current Bid Policy
The purpose ofthe current policy is to have procedures in place which protect the local taxpayers from
paying inflated prices for supplies and equipment used by the City. If a preference program is in place
local vendors would potentially quote a higher price than the market conditions would dictate. The
current policy also provides the widest possible exposure to making purchases. If a preference policy
existed, it is possible that firms located outside the City will be discouraged from submitting bids, which
would reduce competition for the City's business.
Comparison to Other Agencies
In reviewing the policies of other cities, Staff was advised that legal concerns have also been raised by
other local agencies, which decided against the implementation of this type of policy. Staff contacted
several cities in the area and responses were received from: Alameda, Albany, Danville, Hayward,
Livermore, Newark, Piedmont, Pleasanton, San Ramon, and Walnut Creek. None of the ten agencies .
responding provide a purchase price preference except in the case of duplicate bids submitted for the same
amount. The City of Hayward discontinued a prior policy of granting a local preference.
City Administrative Policy - Inclusion of Sales Tax Revenue In Determining Lowest Cost
On large equipment purchases the City has typically qualified the methodology used to determine the
lowest cost, including a calculation any local sales tax received by the City as a result of the transaction.
The bid requests include language similar to the following: "...in making a determination ofthe lowest
bidder, consideration will be given to the 1 % share ofthe local sales tax, which is returned to the City."
This language has most frequently been used with the purchase of vehicles. For example, the amount of
the credit which might be considered on a $25,000 police vehicle is $250, which is the 1 % local share of
the sales tax. This administrative process would not be characterized as a "preference". The price
comparison would be similar to accounting for a manufacturer's rebate, or other discount when
calculating the lowest cost to the City. The net cost to the City would be 1 % less ifthe purchase was
made from a Dublin business. This process only applies to purchases subject to sales tax, and where the
business reports the point of sale to the State Board of Equalization as occurring in the City of Dublin.
All Staff have been informed by Finance to utilize this policy in the purchase of applicable items under the
City ordinance. A change in the ordinance is not required as this policy is consistent with the intent of
acquiring the item at the lowest cost to the public.
Staff recommends that the City Council receive and file this report without taking any further action. The .
current policy is legally defensible and it protects the agency from expending more than is justified based
upon the market.
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MICHAEL R. NAVE
STEVEN R. MEYERS
ELIZABETH H. SilVER
MICHAEL S. RIBACK
KENNETH A. WilSON
DAVID W. SKINNER
STEVEN T. MATTAS
MICHAEL F. RODRIQUEZ
CLIFFORD F. CAMPBELL
KATHLEEN FAUBION, AICP
RICK W. JARVIS
ARNE B. SANDBERG
BENJAMIN P. FAY
DANIEL A. MULLER
LIANE M. RANDOLPH
PATRICK WHITNELL
KATHARINE G. WELLMAN
JOHN W. TRUXAW
GARY A. WATT
JULIE L HARRYMAN
ADAM U. LINDGREN
DIANE B. ROLEN
CLAIRE S. BARDOS
MEYERS, NAVE, RIBACK, SILVER & WILSON
A PROFESSIONAL LAW CORPORATION
NORTH BAY OFFICE
GA TEW A Y PLAZA
777 DAVIS STREET, SUITE 300
SAN LEANDRO, CALIFORNIA 94577
TELEPHONE: (510) 351-4300
FACSIMilE: (510) 351-4481
555 FIFTH STREET. SUITE 230
SANTA ROSA, CA 95401
TELEPHONE: (707) 545-8009
FACSIMilE: 1707} 545-6617
C"NTRAl VAll EY OFFICE
5250 CLAREMONT AVENUE
STOCKTON. CA 95207
~:I~!t 951-4060
lfJ.\ilrlln..I'i'1lI951-3009
MEMORANDUM
err(' OF
NOV 2 ~ 199B
FINA.NC~ O~Fr.
RECElve~
OF COUNSEL
ANDREA J. SALTZMAN
CERTIFIED APPELLATE SPECIALIST
STEFAN IE Y. GANDOLFI
TO:
Paul Rankin
Administrative Services Director
City of Dublin
DATE: November 20, 1998
FROM:
Elizabeth H. Silver
City Attorney Jlj.,J/)
Local Bidding Preference
RE:
Abbreviated Opinion
The City Manager has asked for an abbreviated opinion regarding the possible
amendment of its purchasing ordinance (Chapter 2.36, Dublin Municipal Code) to
include a bidding' preference for local businesses providing supplies or services. Based on
my analysis of statutory and case law, such a preference would be vulnerable to legal
challenge under the United States Constitution.
Apparently, the preference would not conflict directly 'with state law. The
Government Code provides cities with broad authority to tailor their purchasing
ordinances to meet local needs, I and local business preferences are not explicitly
prohibited.
However, the preference would face a colorable legal challenge under the Equal
Protection Clause of the United States Constitution. Under the Equal Protection Clause,
the proposed classification between local and non-local vendors must bear some rational
1 Gov. C. ss 54201 ct scq.
ATTACHMENT 1
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RE:
DATE:
PAGE:
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Paul Rankin, Assistant City Manager / Administrative Services Director
Elizabeth H. Silver, City Attorney
Local Bidding Preference
November 20, 1998
2
relationship to a legitimate governmental purpose. On this issue, legal authority is split.
The California Attorney General has opined, with minimal analysis, that a local business
preference is rationally related to the legitimate governmental purpose of economic
development.2 On the other hand, the United States Court of Appeals, Ninth Circuit (a
court \\rith far greater authoritative weight on federal constitutional issues than the state
Attorney General) has warned that local preferences do not easily satisfy constitutional
analysis.3 The Court expressed particular concern over preferences \vhich have "no other
function than to give domestic businesses an advantage over their foreign competitors."4
In sum, if the City adopts a local business bidding preference, it should expect to
defend a colorable legal challenge based on the United States Constitution.
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- 72 Ops.CaI.Atty.Gen. 86, 93 (1989).
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3 Associated General Contractors of Califomia, Inc. 1'. Ciry and COlJlzry of San FrllJzcisco, 813 F .2d
922, 943 (9th Cir. 1987).
4
[d. at p. 942.
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Sections:
2.36.010
2.36.020
2.36.030
2.36.040
2.36.050
2.36.060
. 2.36.070
2.36.080
2.36.090
2.36.100
2.36.110
2.36.120
2.36.130
Chapter 2.36
PURCHASING
Adoption of a
purchasing system.
Purchasing Agent
designated.
Purchases by City
,Council-Competitive
bidding.
Purchasing award-
Factors to be
considered.
Exceptions to
competitive bidding
requ(rements.
Purchases of less than
five thousand dollars
($5,OOO)-Procedure.
Purchase orders.
A vailability of sufficient
funds.
Inspection and review.
Surplus supplies and
equipment.
Splitting orders
prohibited.
Excepti 0 ns-Public
projects.
Exceptions-
Contracting for
emergency -cleanup of
hazardous materials.
2.36.010 Adoption of a purchasing
system.
A purchasing system is adopted in order
to establish efficient procedures for the
purchase of supplies, services and equip-
ment to secure for the city supplies, services
and equipment at the lowest possible cost
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2.36.010
commensurate with the level of quality
required, to exercise financial control over
purchases, and to clearly define authority
for the purchasing function. (Ord. 16-83 9
1)
2.36.020 Purchasing Agent
designated.
The City Manager is designated as Pur-
chasing AgenL The City Manager may
delegate all or a portion of the purchasing
duties to any city staff member. The Pur-
chasing Agent shall have the authority to:
A. Purchase or contract for supplies.
services and equipment required by the city,
in accordance with purchasing procedures
outlined in this chapter;
B. Negotiate and recommend execution
of contracts for the purchase of supplies.
services and equipment;
C. Act to procure for the city the neces-
sary quality in supplies, services, and equip-
ment at the lowest cost to the city;
D. Prepare and recommend to the City
Council revisions and amendments to the
purchasing rules;
E. Establish and maintain such forms as
reasonably necessary to the operation of
purchasing guidelines;
F. Supervise the inspection of all sup-
plies, services, and equipment purchased to
insure conformance with specifications;
G. Recommend the sale or disposal of all
supplies and equipment which cannot be
used by the city, or which have become
unsuitable for city use;
H. Maintain a bidder's list and other
records necessary for the efficient acquisi-.
tion of goods and services. COrd. 16-83 ~ 2)
ATTACHMENT 2
Dublin Municipal Code - Purchasing
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2.36.030
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2.36.030 Purchases by City
Council-Competitive
bidding.
When the amount or value involved is at
least five thousand dollars ($5,000), the
purchase or disposal shall be made by the
City Council through competitive bid as
outlined below:
A. Notice inviting bids shall include a
general description of the services and/or
articles to be purchased or sold, where bid
blanks and specifications may be obtained,
the time and place for bid openings, and
whether bid deposit or bond and faithful
perfonnance bond will be required.
B. Notice inviting bids shall be posted in
at least three (3) public places in the city
that have been designated by ordinance as
the place for posting public notices, at least
ten (10) days before the date of opening the
bids.
C. The Purchasing Agent shall also solic-
it sealed bids from all responsible prospec-
ti ve suppliers whose names are on the
bidder's list and may advertise the notice
inviting bids in applicable publications.
D. When deemed necessary by the Pur-
chasing Agent or City Council, any bidder
may be required to submit a bid deposit or
bond in an amount determined by the Pur-
chasing Agent or City Council. A successful
bidder (and his surety, if a bond is fur-
nished) shall be liable for any damages
upon the bidder's failure to enter into a
contract with the city or upon the bidder's
failure to perform in accordance with the
tenor of his bid.
E. When deemed necessary by the Pur-
chasing Agent or City Council, any person
or entity entering into a contract with the
city may be required to furnish a faithful
perfonnance deposit or bond in an amount
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{Dublin 8-92)
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determined by the Purchasing Agent or
Council.
F. Bids shall be opened in public at the
time and place stated in the public notices.
A tabulation of all bids received shall be
open for public inspection during regular
business hours for a period of not less than
thirty (30) calendar days after the bid open-
ing.
G. At its discretion, the City Council
may reject all bids presented and readvertise
for bids.
H. Contracts shall be awarded by the
City Council to the lowest responsible bid-
der, except as otherwise provided herein.
1. If two' or more bids received from
responsible bidders are for the same total
amount or unit price, quality and service
being equal, preference shall be given to the
local vendor, or the City Council may ac-
cept the lowest bid made by negotiation
with the tie bidders and the Purchasing
Agent at the time of the bid opening. (Ord.
16-83 S 3)
2.36.040 Purchasing award-
Factors to be considered.
Purchases shall be awarded after consid-
eration of the following factors:
A. The amount of bid price;
B. The ability, capacity and skill of the
bidder to perfonn the contract or provide
the service required;
C. The ability of the bidder to perform
the contract or provide the service promptly,
or within the time specified, without delay
or interference;
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D. The reputation and experience of the
bidder;
E. The previous experience of the city
with the bidder;
F. The previous and existing compliance
by the bidder with the laws and ordinances;
G. The sufficiency of the financial re-
sources and ability of the bidder to perform
the contract or provide the service;
H. The quality, availability, and adapt-
ability of the supplies or contractual servic-
es to the particular use required;
1. The ability of the bidder to provide
future maintenance and service for the use
of the subject of the contract;
J. The number and scope of conditions
attached to the bid. (Ord. 16-83 S 4)
.
2.36.050 Exceptions to competitive
bidding requirements.
A. The provisions of this chapter requir-
ing competitive bidding shall not apply to
the following:
1. Contracts involving the acquisition of
professional or specialized services, such as,
but not limited to, services rendered by
architects, attorneys, engineers, and other
specialized consultants;
2. Where the city's requirements can be
met solely by a single patented article or
process;
3. To situations where no bids have
been received following bid announcements
under other provisions of this chapter;
4. When the amount involved is less
than two hundred dollars ($200);
5. When an emergency requires that an
order be placed with the nearest source of
supply;
6. When a purchase involves goods of
a technical nature, where it would be diffi-
cult for a vendor to bid on a standard set of
.
5tVb
2.36.040
specifications, the Purchasing Agent shall
undertake a thorough review of known
products and a comparison of features
. which would most closely meet the city's
needs at the least cost;
7. For janitorial services for city build-
ings and facilities;
8. For maintenance and repair of build-
ings and facilities;
9. For maintenance and repair of public
streets, including street sweeping.
10. When another public agency has
administered a competitive bidding process
within the past two years for the same or
substantially similar supplies, services or
equipment;
11. When the City Council specifically
waives the competitive bid process and
authorizes staff to negotiate the purchase of
vehicles by a four-fifths vote.
B. When the procurement falls into any
of the categories listed above, the Purchas-
ing Agent may authorize contracts made by
negotiation; provided, that the amount does
not exceed five thousand dollars ($5,000).
When the amount exceeds five thousand
dollars ($5,000), the action must be autho-
rized by the City Council.
C. AJJ.y request for an exception under
this section shall include the nature of the
contract, amount of the contract, and the
reasons why competitive bidding is not
feasible. (Ord. 21-97 S 1; Ord. 5-91 S 1:
Ord. 16-83 S 5)
2.36.060 Purchases of less than five
thousand dollars
($5,000)-Procedure.
Where the amount or value involved is
more than two hundred dollars ($200), but
less than five thousand dollars ($5,000), the
purchase or disposal may be made by the
(Dublin 12-97)
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Purchasing Agent, without written bid, and
by informal price checking through tele-
phone or mail inquiry, comparison of prices
on file or otherwise. Every attempt shall be
made to receive at least three (3) price quo-
tations. At the discretion of the Purchasing
Agent, the acquisition of goods and services
where the value is at least two hundred
dollars ($200) but less than five thousand
dollars ($5,000), the formal competitive bid
process may be used. (Ord. 16-83 ~ 6)
2.36.070 Purchase orders.
All purchases shall be documented by a
purchase order prepared by the Purchasing
Agent. The original copy shall be directed
to the vendor and one (1) copy shall be
retained for the purchase order file. The
final copy shall be directed to the depart-
ment for whose benefit the purchase is be-
ing made to be used as a receiving report.
(Ord. 16-83 ~ 7)
2.36.080 A yailability of sufficient
funds.
No purchase order shall be issued until
it has been ascertained that there is to the
credit of the department of the city for
whose benefit such purchase is to be made,
a sufficient unappropriated balance in ex-
cess of all unpaid obligations to defray the
amount of such order. (Ord. 16-83 ~ 8)
2.36.090 Inspection and review.
The Purchasing Agent shall require the
inspection of supplies and equipment deliv-
ered, and contractual services performed, to
determine their conformance with the speci-
fications and requirements set forth in the
order or contract. (Ord. 16-83 ~ 9)
(Dublin 12-97)
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2.36.100 Surplus supplies and
equipment.
At such times as determined by the Pur-
chasing Agent, reports shall be prepared
showing all supplies and equipment which
are no longer used or which have become
obsolete or worn out. The Purchasing Agent
shall have the authority to sell, trade or
exchange all said supplies and equipment.
Such sales will be made pursuant to Section
2.36.030 or Section 2.36.060 of this chapter,
whichever is applicable. (Ord. 16-83 ~ 10)
2.36.110 Splitting orders
prohibited.
It is unlawful to split or separate into
smaller orders the. purchase of supplies,
materials, equipment or services for the
purpose of evading the competitive bidding
provisions of this chapter. (Ord. 16-83 ~ 11)
2.36.120 Exceptions-Public
projects.
This chapter is expressly made inapplica-
ble to bids for public projects as defined by
Public Contracts Code Section 20161 and
where the expenditure required for the pub-
lic project exceeds the limit set by Public
Contracts Code Section 20162. The provi-
sions contained in Public Contracts Code
Section 20161 et seq., establish contract
procedures the city shall follow regarding
public projects. (Ord. 5-91 ~ 2: Ord. 16-83
~ 12)
Exceptions-Contracting
for emergency cleanup of
hazardous materials.
When, in the discretion of the Public
Works Director/City Engineer or his or her
designee, it is determined that a hazardous
spill has occurred and that immediate clean-
up is required to prevent the spill from
entering the city storm drain system or any
2.36.130
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watercourse, the City Manager, or his or her
designee, may contract for the clean up of
the spill. Any such contract in the amount
of five thousand dollars ($5,000) or under
may be entered into on behalf of the city by
the City Manager, or his or her designee,
without prior City Council approval; how-
ever, no such contract exceeding five thou-
sand dollars ($5,000) in amount shall be
executed without prior approval of the City