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HomeMy WebLinkAbout8.4 Purchase Pref for Vendors " . 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. ~. 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 ITEMNO.~ r; 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. ;;;<- . . . ~ /~ ({, 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 /~ /. FROM: RE: DATE: PAGE: ~tJ$'6 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. F:\\\'PD\ATfY\KRB\114\BIDPREF2.W61 . ') - 72 Ops.CaI.Atty.Gen. 86, 93 (1989). . 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. . 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 . j~6 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 . 2.36.030 . 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 . {Dublin 8-92) 'I ~ 6 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; . 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) . . . .. 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) 6t(1o 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 ,."_. +_, ._._........_.__._____..~__.-----4.-. 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