Contracts and Purchasing

AASBO Certificate ProgramApril 18 & 20, 2011

David Smith

Disclaimer: The opinions expressed in this presentation are those of David Smith and are not meant to be a legal interpretation of the law. The material included in this presentation is dated as of April 2011 and is subject to change.

Official interpretation of particular questions or situations should be obtained through the board’s legal council, the Alabama Attorney General’s office or the Examiners of Public Accounts.

Contracts and Purchasing

Contracts and Purchasing

•Competitive Bid Law•Public Works Law•Request For Proposals ( RFP)•Public Contracts

Competitive Bid Law – Legal Authority for Boards

•Code of Alabama 1975, Section 16-13B-1 through 16-13B-11

•Applies to both County and City Boards of Education

To What It Applies…

•Applies to the expenditure of funds for labor, services and work involving $15,000 or more

•Applies to the purchase or lease of materials, equipment, supplies or other personal property involving $15,000 or more

Legal RequirementRequires a contractual agreement

entered into by free and open competitive bidding, on sealed bids, to

the lowest responsible bidder.

Joint Purchasing16-13-B-1

•Governing bodies of two or more boards (or county commission/municipality) may purchase jointly.

•Each governing body must approve joint purchasing agreement and details by resolution.

•A Joint Purchasing Agent may be designated.

Length of Contract Terms

•Purchase or Service Contracts - limited to 3 years

•Lease-Purchase Contracts for capital improvements, repairs to real property and other lease-purchase contracts - limited to 10 years

Advertising Requirements•Post notice on bulletin board outside

purchasing department•Can do more…but not required!

Bid Lists•Sealed bids shall also be solicited by

sending notice by mail to all vendors who have filed a request in writing that they be listed on the bid list for the particular items being bid.

•If a vendor fails to respond to any solicitation after the receipt of three solicitations, the vendor may be removed from the bid listing.

Sealed Bids and Documentation

•Must be sealed when received (except under reverse auction procedures)

•Opened in public at the hour stated in the notice

•All original bids and documents pertaining to the award of the contract shall be retained for a period of seven years from the date the bids are opened and shall be open to public inspection

Bid Bonds/Cashier’s Check

•Bid bonds are no longer required – optional16-13B-1(d)

Items Exempt from Requirements

•Utility Service (rates fixed by law, regulation, or ordinance)

•Insurance

Items Exempt from Requirements (cont.)

Professional Services: Attorneys Physicians Architects Teachers Superintendents of

Construction Artists Appraisers Engineers

Consultants

Certified Public Accountants

Public Accountants

Others possessing a high degree of professional skill where the personality of the individual plays a decisive part.

Items Exempt from Requirements (cont.)

• Regular Civil Service employment contracts

• Fiscal or Financial Advice or Services

• Products made by Alabama Inst. For Deaf and Blind

• Maps/Photographs from any federal agency

• Manuscripts, Books, Maps, Pamphlets, or Periodicals

• Paying Agents/ Trustees

• Existing contracts for renewal of sanitation or solid waste collection, recycling, or disposal and those providing the service

Items Exempt from Requirements (cont.)

Security Related Services/Products - contractual services and purchases of products related to, or having an impact upon, security plans, procedures, measures, or systems, or the security or safety of persons, structures, facilities, or infrastructures.

Purchases of goods made as a part of any purchasing cooperative sponsored by the National Association of Counties. Act 2006-279

U.S. Communities is the purchasing cooperative

NACO – Purchasing Cooperative (cont.)

•Purchases may only be made if all of the following occur:

▫The goods being purchased are available as a result of a competitive bid process approved by the Alabama Department of Examiners of Public Accounts of each bid. On May 31, 2006, Examiners communicated their approval of

this competitive bidding process used by U. S. Communities.

▫The goods are either not at the time available to local boards of education on the state purchasing program or are available at a price equal to or less than that on the state purchasing program.

▫The purchase is made through a participating Alabama vendor holding an Alabama business license if such a vendor exists.

Items Exempt from Requirements (cont.)

• Individual school purchases from monies other than those raised by taxation or received from state or county appropriations (i.e., fundraisers, donations)▫May have board policy that requires bids

•Legislative Monies– Bid law does apply

Bid Lists

•Sealed bids or bids to be submitted by a reverse auction procedure shall also be solicited by sending notice by mail or other electronic means to all persons, firms, or corporations who have filed a request in writing that they be listed for solicitation on bids for the particular items that are set forth in the request.

• If a vendor whose name is listed fails to respond to any solicitation for bids after the receipt of three solicitations, the listing may be cancelled.

Items to be considered when determining the lowest bidder…

•Qualities of the goods proposed to be supplied

•Conformity with specifications•Purposes for which required•Terms of delivery•Transportation charges•Dates of delivery

Rejection of a Bid

▫Awarding authority may reject a bid when the price is deemed excessive or the quality of product is inferior.

▫Must document. If applicable, should announce budget.

Documentation of Results

• To whom bid was awarded• Reasons for not awarding to the lowest bidder

▫Request legal council assistance• Bid file shall be open for public inspection

Document-Document-Document

Emergencies•Section 16-13B-3•Must affect public health, safety or convenience, be

declared in writing by the awarding authority, and such action and reasons should be immediately made public by the awarding authority.

•Contracts may be let to the extent necessary to meet the emergency without public advertisement.

Only One Bid Received

•May accept bid or•May reject the bid and negotiate the purchase or

contract, provided the negotiated price is lower than the bid price.

Splitting of Contracts

•No purchase or contract in excess of $15,000 shall be divided into parts involving amounts of $15,000 or less for the purpose of avoiding the requirements of the competitive bid law

Resident Bidder Preferences

•Resident Bidder – has a place of business within the local preference zone.

•Deemed to be a Responsible bidder.•Bid is no more than 3 percent greater

than the bid of the lowest responsible bidder.

•In this instance, contract may be awarded to the resident bidder.

Procedures for Reverse Auction and Life-Cycle Costs

Legal Authority16-13-B-4

•Act Number 2008-379, Acts of Alabama•Effective July 1, 2008 (January 1, 2009 for

Reverse Auction Procedures and Life Cycle Costing)

Reverse Auctions

Beginning January 1, 2009, the awarding authority may make purchases or

contracts through a reverse auction procedure.

Examiners Shall Establish Procedures

•No later than November 30, 2008, the Department of Examiners of Public Accounts shall establish procedures for the use of reverse auction and life cycle costs, which shall be distributed to all contracting agencies and shall be used in conducting any audits of the purchasing agency.

•Procedures posted on Examiners website at www.examiners.state.al.us

Definition of Reverse Auction

A reverse auction is a purchasing process in which offerors (suppliers)

submit bids in competition to sell services or supplies in an open

environment via the internet; the auction is an invitation-only, timed

event.

Methods of Handling Reverse Auctions•Acquire necessary software to conduct

the auction on an “in-house” basis•Contract with a commercial auction host

to conduct the auction as an agent•Participate through a regional, state, or

national purchasing cooperative

Bidding Process• A real-time bidding process, usually lasting

less than one hour and taking place at a previously scheduled time and Internet location, in which multiple anonymous suppliers submit bids to provide the designated goods or services.

• A bidding process usually lasting less than two weeks and taking place during a previously scheduled period and at a previously scheduled Internet location in which multiple anonymous suppliers submit bids to provide the designated goods or services.

Use of Reverse Auction Allowed if..

•The item to be purchased at a reverse auction is either not at the time available on the state purchasing program under the same terms and conditions, OR,

• If available, the lowest price offered in the reverse auction is equal to or less than the price for which the item is available on the state purchasing program under the same terms and conditions

Solicitation of Bids•Advertised in any manner and for any

length of time as may be determined •Notice must be sent by mail or other

electronic means to all persons, firms, or corporations who have filed a request in writing that they be listed for solicitation on bids for the particular items that are set forth in the request; may be removed from listing after three non-responses

•Notification shall include the scheduled time and internet location

Bid Specifications

•Clear and concise bid specifications must be developed

•Brand name or equal specification used for the purpose of describing the base standard of quality, performance and characteristics – not to limit or restrict competition

Pre-Screening of Bidders•Bidders may be pre-screened at the option of

the awarding authority – ensures only responsible parties submit bids

•Pre-screening must be documented in bid file•Prospective bidders should submit a

notification of intent to bid in a sealed envelope noting the bid number on the outer envelope to the awarding authority/agent within an appropriate time frame as specified by the awarding authority

Reverse Auction Process• Contact person should be designated to answer

questions from suppliers regarding the reverse auction process

• Online instructions should be provided to bidders

• Bidders will be notified of the start of the reverse auction through an electronic notification

• Auction will conclude at the previously scheduled stop time

• Awarding authority is responsible for providing a secure location and/or website to the reverse auction

Record of Auction•An event record of the auction should be

maintained by the awarding authority that will include the prices offered by the bidders; should be part of the contract documents/public record at the conclusion of the event

•Event record must disclose the beginning and ending times of the auctions

•Bid documents must be retained 7 years in accordance with the Alabama Competitive Bid Law

Price Submittals

•Bidders may submit multiple prices during the event

•The lowest price offered will become the price portion of the bid response

Award of Contract

•Contracts will be awarded to the lowest responsible bidder as provided by the Alabama Competitive Bid Law

Tie Bids

•In the event that multiple bidders submit identical prices for the same goods or services, the bid received first will be considered to be the lowest.

•Any other identical bids received later will be considered in the order received.

Public Viewing of Auction Event

•The public may attend the internet auction event which will be conducted such that the names of the bidders will not be disclosed until after the completion of the auction, at which time the event record will be available to the public

Life Cycle Cost Analysis

“A method for evaluating all relevant costs over the time of a project, product, or

measure.”

What are Life Cycle Costs?

•The total cost of ownership over the expected life of an item▫First Costs (Acquisition Costs) – capital

investment costs, purchase and installation costs

▫Future Costs (Sustaining Costs) – energy costs, operating costs, maintenance costs, capital replacement costs, and financing costs; any resale, salvage or disposal cost

Legal Authority

•The awarding authority may use life cycle cost analysis for personal property purchases as provided by Code of Alabama 1975, Section 16-13B-7 (c) (1).

•Not allowed for the purchase of real property

Purchases Below $15,000 Threshold•Develop written procedures

▫$ amount for written quotes Define number of quotes Example-

Purchases between $5,000-$15,000 require two written quotes from vendors

Below $5,000 require two phone quotes

•Transparency/Good Business Practices•When in doubt “Bid It”

Competitive Bid Law

Questions ???

• When faced with questions- Seek advice▫Legal Council▫Examiners of Public Accounts▫AG Opinions

Public Works LawTitle 39 Code of Alabama

•Applies to any governmental board, commission, agency, body, authority, instrumentality, department, or subdivision of the state, its counties and municipalities.

Public Works Law (cont.)

•Applies to any construction, repair, renovation, or maintenance of public buildings, structures, sewers, waterworks, roads, bridges, docks, underpasses, and viaducts as well as any other improvement to be constructed, repaired, renovated, or maintained on public property and to be paid, in whole or part, with public funds or with financing to be retired with public funds in the form of lease payments or otherwise.

Expenditure Threshold

•$50,000•Section 39-2-2 (a) – “No public work…

involving a sum in excess of $50,000 shall be split into parts involving sums of $50,000 or less for the purposes of evading the requirements of this section.”

Advertising Requirements•Advertise in a newspaper of general circulation in the

county - once each week for three consecutive weeks•Additional requirement for contracts over $500,000 -

once in 3 (additional) newspapers of general circulation throughout the state

Public Works Law

•Receive one bid-May negotiate downward

•No provision for in county or in state contractors ( Section 39-3-5) ▫Reciprocal law- Nonresident bidders

subject to same preference granted to Alabama bidders bidding in their state (Question- contact building commission)

Provisions for Mistakes by Vendors•Clerical or calculation errors - low bidder

must provide written notice of withdrawals within 3 days

•Withdrawing bidder cannot work on project in any way

Project Completion

•Contractor must give notice of project completion by advertising 4 successive weeks in a newspaper of general circulation published in the county

Provisions for Retainage•No more than 5% of estimated work

done and value of materials shall be retained up to 50% of work completed

•No additional retainage withheld after 50% of work completed

•Retainage held until project completion and acceptance

Professional Services

•Architects, Engineering, Project Management Services - exempted from the bid process

•Should do RFP for professional services

Emergencies

•No advertising required•Must still follow other requirements -

per Code 39-2-2(e)

Contract Documentswww.bc.alabama.gov

Contract Documents

Contract Documents

Project Under $50,000

•Request for quotes/estimates▫In writing▫District letterhead▫Define scope of work▫Require license /insurance▫Signed estimates▫Signed contract

•Treat like a bid without advertising requirements

Purchasing Procedures

•Centralized Purchasing▫One person should be responsible for the

purchasing function Knowledge of laws and procedures governing

procurement Knowledge of quantity and quality of goods or

services needed by the district Knowledge of department budgets and account

codes Independent of departmental preferences for

particular product or vendor

•Centralized purchasing▫ Maintains files for all bids and contracts▫Tracks purchases of fixed assets▫Inventory control▫Risk Management

Building Insurance General Liability Vehicles

•Develop a Purchasing Policy and Procedure Manual▫Written procedures on the procurement

process for the school district Employees Vendors

•Purchasing Policy and Procedure Manual▫Procedures for processing of requisitions

$ thresholds Approval process CIS Funds Emergency purchases

•Purchasing Policy and Procedure Manual▫Bidding Procedures

$ Thresholds Competitive bid law Public Works Law

▫Bidding Process Time line

Development of specs Advertisement

Pre-Bid Conferences Recommended on all bids

Insurance/license requirements for vendors

Developing Specifications

•Objectives▫Provide best value for tax payer’s

dollars▫Compliance with legal statutes▫Purchase of appropriate products and

services at best pricing▫Provide fair competition for all

vendors▫Provide service to all internal users

Specifications

•Types of Specifications▫Qualified Products List (QPC)

List of products that meet specs▫Design Specs

Professional Architect/Engineer Drawings and Specifications

▫Performance Specs What product must do or what end

result will be produced

Specifications

▫Item Specifications Specific information that clearly states the level

of quality and performance

▫Statement of Work (SOW) and/or Services Performance based – you tell the contractor what

to do, but not how to do it

•Recommended purchasing practices▫Have pre-bid on all contracts▫Utilize purchasing co-ops

US Communities Regional co-ops State Bids

▫Joint purchasing contracts▫RFP for professional services

Banking, Engineers, Architects

Specifications

•Who should be involved?▫Knowledgeable Users▫Vendors▫Professionals▫Finance▫Other Agencies▫Purchasing▫Legal?

•Recommended purchasing practices

▫Use technology to improve procurement

▫Use procurement/purchasing cards Maintenance/Operations Departmental Supervisors Principals Teachers Booster Clubs

Specifications

•Specification Q & A▫Clear

What to do, how to perform, timing, etc. Fair to allow appropriate competition Provide sufficient detail to communicate

what is expected All aspects included? (insurance,

warranty, delivery, installation, cleanup) Allow for significant level of evaluation

Specifications

•Insurance▫Workman’s Comp▫Vehicle/Equipment▫General Liability▫Bonds Required?▫Amounts Sufficient for Level Needed?

Specifications

•Freight▫Freight on Board (FOB) Destination

Seller arranges, pays and insures▫FOB Destination Freight Collect

Buyer pays freight but seller owns▫FOB Origin

Buyer accepts ownership at origin(Not recommended unless employee picking up)

Specifications

•Warranty▫Duration

Months, Years, Extended

▫Start Date At installation or delivery

▫What’s Covered Full body or limited, installation

▫Extended Options Available What is covered and at what cost?

Contracts

•Purpose ▫Sets up requirements and obligations

of all parties▫Properly executed, binds all parties▫Legal Compliance and Authority▫Set out any special terms and

conditions

Contracts

•Contract Types▫General Operations (fundraisers,

vendor)▫Bid Contract/Agreement▫Construction ▫Professional Services▫Statement of Work▫Others

Purchasing Cards

Benefits•stream line the purchasing process• teachers will benefit from the

optimal purchasing power for incidental expenses

• reduce (not do away with) the purchase order paperwork

Benefits • increase budget control and internal

control• provide better reporting in terms of

who/what/when/how much•reduce the costs of procurement• reduce the costs of payments

Purchasing Cards

•Setting Up The Program▫AASBO Program▫Purchasing Card Agreement

Appendix A▫Procedures

Appendix B

Conflict of Interest

Alabama Ethics LawCode of Alabama

(Section 36-25-1- 36-25-30)

Conflict of Interest (Defined)- A conflict on the part of a public official/public employee between his/her private interest and the official responsibilities inherent in an office of public trust

Conflict of Interest

•Does it meet the smell test

•Always check with your Board Attorney

•Contact the Ethics Commission

•When In Doubt Bid It

Conflict of Interest

A conflict of interest shall exist when a public official has a substantial financial interest by reason of ownership, control or the exercise of power over any interest greater than 5%. (§ 36-25-5 (f))

•Usually done for professional services exempt under bid law▫Architects, engineers, auditors,

banking services etc.▫Written request with services defined

Request For Proposal

Questions?

Contracts and Purchasing AASBO Certificate Program

April 18 & 20, 2011

David Smith