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Home My WebLink About4E - Revise Purchasing Policy CITY COUNCIL AGENDA REPORT May 7, 2001 ~ 4E ~ Frank Boyles, City Manag~ AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION APPROVING A REVISED PURCHASING POLICY DISCUSSION: History: City purchasing procedures are largely mandated by Minnesota Statutes 471.345. TO clarify and expand upon state purchasing requirements, the City staff has prepared Purchasing Policy guidelines. The guidelines are used to articulate to City employees and vendors the procedures used by the City to acquire goods and services. The guidelines reflect the City Council's policies on purchasing matters. Current Circumstances: Last year, the state legislature amended Minnesota Statutes 471.345 to revise the bidding threshold from $25,000 to $50,000. Up until now, the City has continued to prepare specifications and solicit formal bids for items between $25,000 and $50,000. At the joint City Council/City Staff meeting on April 16th, the staff proposed that the purchasing guidelines be modified to correspond with current state statute. The rationale for the recommendation was (1) the formal specification preparation and bidding process is time-consuming and costly; (2) the staff seeks written quotes for goods and services within this price range. This is often the most effective means of getting the best price; (3) regardless of the process used, the City Council still approves any purchase above $15,000 by City Code so the Council has the ability to deliberate on each acquisition. Conclusion: Attached is a revised purchasing policy which would require written quotes approved by the Council for purchases between $25,000 and $50,000, and formal publicly advertised, sealed bids for those purchases exceeding $50,000. ISSUES: From the discussion at the joint meeting, it appeared that the City Council supported this change for the reasons set forth above. This modification does not require revisions to the City Code. ALTERNATIVES: (1) Adopt the attached resolution as part of the consent agenda (2) Adopt a modified resolution after removing this item from the consent agenda. (3) Remove this item from the consent agenda and defer action on it. 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 1:\COUNCIL\AGNRPTS\2001 \PURCHASING ~gAL~OONITY EMPLOYER .1 ~ I RECOMMENDED MOTION: Alternative (1). The City Council and staff appear to have reached a consensus that this is an appropriate modification to the policy which does not undermme the City Council's purchasing policies 1:\COUNCIL\AGNRPTS\2001\PURCHASING POLICY AMD.DOC 5L RESOLUTION 01 ~ A RESOLUTION APPROVING A PURCHASING POLICY GUIDELINE DATED MAY 7, 2001 Motion By: MG Second By: Jc WHEREAS, Minnesota Statutes 471.345 establishes purchasing procedures and policies for City's; and WHEREAS, the City of Prior Lake addresses purchasing procedures and requirements both in the City Code and by administrative policy; and WHEREAS, the City staff has adopted Purchasing Policy Guidelines for the staff to follow to implement state purchasing requirements and City Council purchasing policies; and WHEREAS, the City Council desires to update the City Purchasing Policy Guidelines to better correspond with state statutes regulating the threshold for the purchase procurementand acquisition of goods and services that exceed $50,000, preparation of specifications and soliciation of formal bids; and NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA that: 1. Purchase Policy Guidelines dated May 7, 2001 are hereby adopted which revises the bidding threshold for procurements from $25,000 to $50,000. 2. The staff is hereby directed to distribute the revised policy to all employees. All employees shall undertake purchasing procurements in accordance with the guidelines. PASSED AND ADOPTED THIS 7TH DAY OF MAY, 2001. YES NO Mader \ Mader Ericson \ Ericson Gundlach \ Gundlach Petersen \ Petersen Zieska \ Zieska City Manager, City of Prior Lake 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER .11 r . f II PURCHASE POLICY GUIDELINES ~INNESO"'l'- Minnesota Statutes 471.345 and Prior Lake City Code 106.500 set forth the laws regulating purchasing in Minnesota Municipalities. Attached is an information document from the League of Minnesota Cities regarding competitive bidding and statutory references. These guidelines are intended to clarify and expand upon these legal requirements. Shown below is a quick guide to City purchasing showing dollar amount, process and the level of authority. See the remainder of this policy for detailed information. $0 - $50.00 ~ Blanket Purchase Order ~ Department Supervisor ~:::~~t~~~:::~l=:::~~~c~~~~~t~~~i~:~~:::]:]~~g;~t~;~~~E $2500 - $14,999 ~ P.O. / Quotes* : City Manager ::::::::::::::::::$.:T$.:;:QQ9.:::~:::$.:4$.;':~:~$.:::::::::::::::::T::::::::::::::::::':'::::::::::::::::::::~:::q':'::U~:~'~t.~~~::"::::::::':':..::::::::::::::"":":I:::........................:...:gi.t.y3~.~~~~iI'............. $50,000 and Above . Bids / Cooperative Agreements' City Council. ................................................................................................................................................................................................................................ ................................................. '" * Written quotes or a completed quote form is to be attached where there is more than one feasible source. There are eight basic thresholds of dollar amounts that have been established either by policy, city code or statutory authority for the purpose of purchasing city goods and services. They are identified as follows: Blanket Purchases Purchases of $50.00 or less may be made at the following vendors who have been issued a year- long blanket purchase order whereby the purchase may be simply approved without a purchase order. The receipt should be signed by the individual so that the when the invoice is received it may be directed to the appropriate department for account code assignment. The vendors with 2001 Blanket Purchase Orders are: AI's Tru Value Digger's Prior Lake Polaris Astleford Equipment Filterfresh Bryan Rock Grossman Chevrolet C.H. Carpenter Lumber Hawkins Water Treatment Carlson Hardware Co. Kraemer & Sons Carquest Lano Equipment Catco Parts & Service Mail Stop Corporate Express Monnens Supply County Market NAPA Parts Dept. Delegard Tool Patton Industrial Products Prior Lake Aggregates Prior Lake Rental Prior Prints R&R Carpet Service Snyder Drug Steve Tupy's Tire Terminal Supply Co. Toll Company William Mueller & Sons Wolf Motors Purchases Less Than $1000 Expenditures within this category should generally be preceded by a minimum of two quotes if the expenditures are anticipated to be on a re-occurring basis as opposed to a one-time occasional purchase. These may be obtained verbally from vendors. The purpose is to obtain the best price 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER available initially subject to established quality standards. The purchase order need not include written quotations. The Department Head may approve such purchases. Purchases $1000 - $2500 Purchases approved within the current year's operating budget shall be authorized by the Department Head via a purchase order with two quotes on the quote form where there is more than one feasible source. The required procedure is to complete a purchase order prior to acquisition to insure accountability, provide amount verification and avoid any misunderstanding with respect to cost between the vendor and the City. Normally all purchase orders are to be completed before a requisition number is provided. The process involves the following steps: 1. Complete the Purchase Order as to vendor, date, material description, unit price, total department and account code. 2. Attach completed quote form. 3. Department Head authorizes by signature and sends to Accounting. 4. Purchase Order number assigned by Accounting Department. 5. Purchase order sent by originating department. Field employees will be expected to plan and coordinate their acquisitions with their respective supervisors and department heads to eliminate verbal P.O. numbers unless situations occur where it would not be practical because of time constraints. There are four general exceptions to the rule: 1. Routine items costing $50 or less that occur on a daily basis may continue to be purchased under a blanket purchase order. 2. Service repairs on equipment and vehicles do not generally require a purchase order unless price quotations are necessary. 3. Sand, rock, bituminous etc., because of quantity uncertainties, may be purchased under a blanket purchase order number. 4. If an emergency situation should occur, acquisition may be followed up by a purchase order. When a verbal purchase order number is used, the following information is absolutely necessary: 1. Receipt/invoice of purchase. 2. Receipt/invoice must indicate description of purchase (parts # is not acceptable). 3. Receipt/invoice must indicate dollar amount. 4. Receipt/invoice must be signed. 5. Receipt/invoice must display Purchase Order number. 6. Salesman shall not be given verbal P.O. number. 7. Written purchase orders will be submitted within one week of verbal authorization. Purchases $2500 to $5000 City purchases approved within the current year's operating budget shall be authorized by the Department Head via a purchase order. In addition, all such expenditures of $2500 or greater must also be approved by the City Manager in the form of his signature upon the purchase order. The required procedure is to complete a purchase order prior to acquisition to insure accountability, provide amount verification and avoid any misunderstanding with respect to cost between the vendor and the City. Written quotes or a completed quote form must be attached where there is more than one feasible source. H: IPURCHASEIPuTchase50.doc 2 5/1/01 . 1 [ I II: Normally, all purchase orders are to be completed before a requisition number IS provided. The process involves the following steps: 1. Complete the Purchase Order as to vendor, date, material description, unit price, total department and account code. 2. Written quotes or completed quote form are attached. 3. Department Head authorizes by signature and sends to City Manager. 4. City Manager approval by signature on purchase order. 5. Purchase Order number assigned by Accounting Department. 6. Purchase Order sent by originating department. Purchases Between $5,000 and $15,000 When there is more than one feasible source of supply for an item having a cost of five thousand dollars ($5.000) or more, the City shall request written price quotations from at least two (2) sources and shall place the order at the lowest price quoted, provided the items are of comparable quality. The quotes shall be submitted in written format. The City Manager shall have the authority to make or let purchase contracts for routine service equipment or supplies for which the cost does not exceed fifteen thousand dollars ($15,000). Prior Lake Code 106.500(5). Purchases Between $15,000 - $50,000 Purchase contracts in excess of $15,000 must be approved by the City Council and include at least two written quotations unless the product or service is available from one source only. The authorizing resolution shall be attached to the signed purchase order. If the amount of the contract does not exceed $50,000 then the contract may be made by obtaining two or more written quotations or by direct negotiations subject to Council approval. Purchases Exceeding $50,000 There are three processes available that would satisfy statutory requirements for purchases that are above $50,000.00. I. Purchases Through Cooperative Purchasing Organizations The City is a member of various cooperative purchasing organizations; State of Minnesota Cooperative Purchasing Venture, Hennepin County Cooperative Purchasing Group and a Street Maintenance Joint Powers Agreement. From time to time the City, together with other public agencies (cities and counties) will jointly purchase goods and services. Each of these organizations is created to facilitate cost effective purchasing using the bid system. Each organization prepares specifications based upon the needs of the members, solicits bids, evaluates bid proposals and awards a contract to the lowest responsible bidder. Member agencies then purchase from the authorized vendor without the need to prepare individual specifications for each and every purchase and complete otherwise required statutory purchasing procedures. A product or service in the approved operating budget or capital improvement program may be acquired using cooperative purchasing agreements as follows: 1. A copy of the cooperative agency specifications and bid award contract document for the product or service is acquired. 2. The department making the purchase determines that the specifications and bids received conform to their needs and represent cost effective acquisitions by reviewing the proposed acquisition with cooperative purchasing acquisition professionals, department personnel, city fleet maintenance mechanic and others as appropriate. H: IPURCHASEIPurchase50.doc 3 511/01 3. An agenda report is prepared for City Council consideration authorizing acquisition of the product or service. If the equipment is replacement, the item being replaced is made available for viewing at the Fire Station before and during the City Council meeing. II. Purchases Made Outside of the Cooperative Bidding Process If the amount of the contract is estimated to exceed $50,000, and funds are appropriated within the current operating budget or capital improvement program, sealed bids shall be solicited by public notice at least 10 days before scheduled bid opening following preparation of bid specifications as authorized by the City Council. The successful bid is to be awarded by the City Council to the lowest responsible bidder. (Minnesota Statutes 471.345) The basic process for competitive bidding is outlined below. This process does not apply to public improvement projects financed through special assessments pursuant to Minnesota Statutes Chapter 429 which prescribes the process to be followed. 1. Solicit Council authorization to prepare procurement documents. 2. Prepare specifications. 3. Share draft specifications with Competitive Bid Committee consisting of Police Chief, Finance Director and Assistant City Manager. Committee sends draft specifications to potential bidders to determine if they can bid and if not, what modifications could be made. 4. Purchasing department modifies the specifications as requested by the Competitive Bid Committee. 5. Solicit Council approval of plans and specifications, request for proposals and authorization for advertisement for bid. 6. Prepare a public notice for Prior Lake American. 7. Publish 10 days in advance of bid opening. 8. Purchasing department analyzes bids for conformance with specifications and prepares bid tabulation. 9. Recommendation is provided to Competitive Bid Committee together with the draft agenda report and recommendation. 10. Committee provides comments for inclusion in agenda report. 11. City Council considers the recommendation and acts upon the purchase. If the purchase is for replacement equipment, the item being replaced is made available for viewing at the Fire Station before and during the Council meeting and maintenance and other pertinent information is supplied by Fleet Maintenance personnel. 12. Standard City Contract is prepared. 13. Execute contract with Mayor and City Manager signatures. III. Non-Competitive Supplies or Equipment. If the City is purchasing a product or service which is available from only one source (such as street lights in an electrical franchise area), the acquisition will be made in the same fashion as a purchase between $15,000 and $50,000. Purchases Exceeding $100,000 The process is the same as above except the publication must be at least 21 days before bids are publicly opened for improvement projects that are assessed under Minnesota Statute Chapter 429. Also the advertisement must be published at least once in the official newspaper and at least once in the Construction Bulletin. H: IPURCHASEIPurchase50.doc 4 5/1/01 . 11 . Ii I, Contract Changes A contract approved by the City Council for construction/professional services may be increased or decreased by written change order up to $50,000 provided such modification does not exceed 25% of the original contract amount in the aggregate and the item which is increased or decreased was part of the original bid award. Any change order exceeding $50,000 must be approved in advance by the City Council. The City Manager may approve a change order not exceeding $50,000 if one of the following circumstances exists provided the contractor/vendor apprises the staff of the necessary changes, an estimate of the costs and reasons for the changes prior to actually conducting the work 1. A delay in obtaining prior City Council approval will impede the progress of the project and a delay in obtaining prior City Council approval may, subject to the contract documents, result in a claim by the contractor for additional costs caused by the delay. 2. Where the public health and safety are in jeopardy, the City Manager may authorize a change order in excess of $50,000. In such a case, the City Manager shall endeavor to contact as many members of the City Council as practical under the circumstances. The Open Meeting Law prohibits the City Manager from disclosing to any Councilmember his or her discussion with another Councilmember. 3. In cases where approving the change order will result in a savings to the City. Any request for change order must be certified as true, correct and accurate by the maker to avoid fraudulent requests. The staff will schedule each change order for City Council consideration as soon as practicable. The Change Order request shall include a staff report identifying the pertinent facts surrounding the change order, the original contract amount, amount of the change order and cumulative change order amount in dollars and percentage terms. Contract Documents Construction Projects A standard contract (see attached contract form) shall be used for all city public improvement projects. The City Attorney will insert the appropriate information and will review the necessary supporting contract documents as to form and compliance. The following documents are typically required as part of the contract process: 1. Request for Proposals 2. Specifications 3. Plans and drawings 4. Bid bond 5. Performance bond 6. Payment bond 7. Insurance provisions; a) Workers' compensation b) Liability c) Owners' protective Professional Services. A standard contract (see attached contract form) shall be used for professional services Le., architectural, engineering, construction management etc. The City Attorney will insert the appropriate information and will review the necessary supporting contract documents as to form and compliance. Exceptions to Competitive Bidding H.IPURCHASEIPurchase50.doc 5 5/1/01 The following are some of the more common exceptions to the competitive bidding requirements: 1. Contracts less than $50,000.00 2. Intergovernmental contracts 3. Noncompetitive supplies and equipment 4. Real estate purchases 5. Professional services including; a) Architectural b) Auditing c) Engineering d) Legal e) Group insurance Procedures for Verifying Receipt of Goods or Services for Payment Each Department Head will review and approve all invoices pertaining to their department purchases. Upon completion of a purchase order, a purchase order number will be assigned from the Finance Department. The white copy of the purchase order should be forwarded to the Vendor and the yellow copy of the purchase order retained by the department for validation with the invoice. The Vendor should be instructed to send the invoice to the appropriate Department personnel (either Department Head or Supervisor). Make sure the Vendor is instructed to reference the Purchase Order Number on the invoice. The Department Head or Supervisor acknowledges the product or service received by initialing the invoice received from the Vendor. Attach the yellow copy of the purchase order to the back of the invoice and submit it to the Finance Department for payment processing. Statements from Carquest, NAPA, Amoco Oil, Subway, County Market, i.e. on blanket purchase orders will be reviewed by the Finance Department. Please turn in all invoices IMMEDIA TEL Y upon receipt. Purchase Order Completion Procedures: 1) Enter the Vendor's name, address, contact person, and phone number. 2) Enter the date the order was placed with the Vendor. 3) Enter the ship to address if different than 16200 Eagle Creek Avenue SE. 4) Enter the quantity of the item ordered. 5) Enter the description of the item ordered. 6) Enter the unit price of the item ordered. 7) Enter the total cost of the line item ordered (quantity times unit price). 8) Enter the words Sales Tax and the dollar amount for sales tax in the Total column. Tax IS calculated: total dollars times 6.5% (exclude freight and labor charges). 9) Enter shipping and handling charges if applicable. 10) Enter the grand total of all the charges in the Total column. 11) Enter the person's name ordering the product or service. 12) Enter the department accounting number and the accounting object code. 13) The Department Head's signature is required. 14) The City Manager's signature is required if the order is $2,500.00 or above. 15) If the check is to be returned to the person ordering the product or service, enter "Return check to " and circle the return instructions. H: IPURCHASEIPurchase50. doc 6 5/1/01 III r 11" . f II 16) If the item ordered is $500.00 or over and is an equipment asset, write the word "ASSET" here. After the invoice is received, an asset number will be assigned to the item and an asset sticker with the number will be returned to be affixed to the asset. 17) Any equipment that is being traded in is to be identified on the purchase order by year and model description along with the appropriated fixed asset number which may be obtained from Finance. 18) Request a purchase order number from the Finance Department before placing the order with the Vendor. If a line item is backordered, enter B/O next to the line item on the white and yellow copy of the purchase order. Submit the yellow copy of the purchase order with the invoice to the Finance Department for payment. Copy the white purchase order on yellow paper and hold the paperwork for the backordered item to be shipped. When the backordered item is shipped, attached the invoice with the backordered item to the yellow copied purchase order and submit the paperwork to the Finance Department for processing the payment. H: IPURCHASEIPurchase50 .doc 7 511/01