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Procurement and Contracting Manual document sample
Procurement and Contracting Manual document sample
Procurement & Contracting Overview The procurement of goods and services and executing related contracts is a major function of transit management. In addition to seeking to obtain the highest quality products and services at the lowest possible price, this function must be performed in compliance with governing federal and state laws and rules and transit system policies. This section discusses a variety of topics related to procurement and contracting. These discussions are general in nature since each individual’s specific needs vary depending on the nature of each procurement, funding source requirements, local and state laws and rules, staff size, personal experiences, etc. The following topics that will be discussed in the pages that follow: • Steps in the Procurement Process • Governing Laws & Rules • Overriding Principles • Specifications • Procurement Methods • Solicitations – IFBs and RFPs • Receive Bids/Proposals, Evaluation, & Selection • Service Contracts & Equipment Leases • Contract Execution • Dispute Resolution • Monitoring Contract Performance • Sample Documents • Links & Resources Any presentation on procurement and contract management cannot be all-encompassing because of the vastness of governing laws, rules, and policies on procurement and contracting. This document will, however, attempt to create an awareness of major related topics and principles and provide information on resources that may be accessed for more detailed information and instructions. Steps in the Procurement Process It may be helpful to use the most elaborate processes as a model for how most procurements using public dollars are to be performed. At their most complex, procurements will include the following nine steps. 1. Define the need for the item or service, 2. Develop performance-based specifications, 3. Determine procurement method to be used and review any lists of prequalified or pre-existing vendors, 4. Issue solicitation (e.g. Request for Proposal, Invitation for Bid), 5. Receive bids or proposals and open bids or evaluate proposals on a date designated in your solicitation, 6. Announce the winning proposal/bid, and be prepared to respond to bid protests, 7. Negotiate and execute contract or similar agreement, 8. Vendor performs according to specification and agreement, with the agency performing its responsibilities to monitor and honor the terms of the contract, and 9. Performance is completed, contract is closed out. Each of these steps and related topics will be discussed in the remaining pages of this section. Governing Laws & Rules Like any business, transit systems need to make purchases to operate. Typical purchases include things such as vehicles, fuel, maintenance equipment, office supplies, architectural services for new buildings, etc. Unlike many private business managers, however, most transit managers must comply with a wide array of governing laws and rules related to procurement. The applicability of various laws and rules is generally dictated by the sources of the funds involved. Purchases involving federal funds need to comply with federal laws and rules on procurement. Similarly, purchases involving state funds may have their own set of governing laws and rules. Transit systems may also have internal policies which must be complied with. State and local governances vary from state to state and from system to system. This manual will not attempt to provide a state-by-state review of all non-federal laws and rules that govern transit system purchases. It is, however, a transit manager’s responsibility to be familiar with and to abide by all laws and rules which govern their operation’s purchases. When multiple laws, rules, and policies govern a purchase, the most stringent mandates of each must be adhered to. Most transit systems operate with capital and operating assistance from the Federal Transit Administration. For entities that are purchasing goods or services with Federal Transit funds, it is important to note that FTA Circular 4220.1E differentiates between states and other grantees. For states, the FTA allows them to follow the same procurement policies and procedures that they use for acquisitions that are not paid for with Federal funds. Conversely, non-state grantees are required to administer procurements and related contracts in accordance with the provisions of the Circular. The Circular also states, however, that the FTA assumes that most grantees have experience with third party contracting requirements of the “common grant rules” and that the FTA will, therefore, rely primarily on grantees’ “self-certifications” that their procurement system meets FTA requirements. The FTA provides related technical assistance via its Best Practices Procurement Manual, regional and national instructional courses and conferences, and “as needed” individualized assistance. Resource citations related to FTA-related procurements are provided in the “Links & Resources” subsection at the end of this chapter. Overriding Principles There are five reoccurring themes that are typically set forth in federal, state, and local governances concerning procurement. These themes include: • Enunciate What is Needed • Seek Value • Encourage and Utilize Competition • Promote Fairness to All Bidders • Avoid Real or Perceived Conflicts of Interest Ultimately, procurements should be made in a manner that insures maximum value to the transit system, its customers, and the entity that is funding the purchase. The creation of maximum value is, however, tempered by the costs associated with obtaining this value. As will be discussed later in this section, federal rules recognize that it is contradictory to spend an inordinate amount of time and money to go through an elaborate bidding process to purchase low-cost items. Nonetheless, steps must be taken on all purchases to seek quality at the lowest possible cost. Value and low cost are achieved by having a clear understanding of what is needed and then utilizing competition in the marketplace to purchase the desired goods or services at the lowest possible price. As this sequence indicates, the buyer must first have clear specifications concerning the desired goods or services. Major purchases require elaborate specifications while minor purchases may not. In either case, however, knowing exactly what is needed is the first step in the procurement process. Specification-related requirements are discussed in more detail in a later subsection. Once the buyer knows what is needed, the next step to insuring value and low cost is comparison shopping. An underlying assumption is that the competitive marketplace will present the buyer with various options and/or prices from which to choose. Buyers must utilize this competition within the marketplace to purchase the best possible good or service at the lowest possible price. Buyers may not unfairly prohibit potential suppliers from bidding by placing real or artificial barriers in the bidding process which would preclude participation in the bidding process. As will be discussed later in this section, the extent to which a buyer needs to “shop around” is often dictated by the amount of money involved in a purchase. Minor purchases require little comparison shopping since the costs involved in doing related comparisons out-weigh savings that might result. Conversely, major purchases may require significant pre-purchase work (preparing specifications, calling for bids, awarding purchase contracts, etc.). While this process creates value and savings, it also represents fairness to potential suppliers since it gives them the opportunity to compete for the buyer’s business. This fairness, in turn, promotes competition, better products, and lower prices since it, in effect, provides that all suppliers will be given a chance to provide the desired goods or services. It also rewards those suppliers who offer desired goods and services at the best price. Adherence to the principles of competition and fairness will also allow buyers to avoid real or perceived conflicts of interest in the procurement process. Conflicts of interest must be avoided, both in fairness to other suppliers and to promote the integrity of the buyer and the procurement process. Specifications In general, specifications should include the following, as appropriate: • Specific details concerning the good or service being procured, • Intended procurement schedule, • Basis of payment, • Anticipated terms and conditions, • Special requirements (such as FTA requirements that pertain to vehicle procurements), • Basis of vendor qualifications and selection, • Possible bonuses or penalties for (non-)performance, • Provisions for acceptance of delivered property/goods/services or ongoing monitoring of a service contract, and • Opportunities for appeal/review/resolution of contract-related disagreements or disputes. Specifications should include a clear and accurate description of the product or service that is to be procured. Generally speaking, specifications tend to be either design- or performance-based. Design specifications tend to include more detail and require that bidders provide a good or service that satisfies the exact nature of what is called for. Design specifications tend to put more performance-related pressure on the buyer since non-performance may be more related to poorly drafted specifications than to the abilities of the product or service that is provided. Performance specifications, on the other hand, focus more on the way that the supplied good or service is supposed to function than on details concerning the construction of the item. To the extent that the purchaser has adequately described the desired performance, the supplier has a greater implied warranty to provide a product that satisfies the prescribed standard. Funding source offices and other transit operators may serve as a good source for examples of specifications that have been used elsewhere to procure the desired types of goods or services. Exclusive brand names or specific products should typically not be specified when describing a desired product since doing so may preclude qualified bidders with acceptable products from participating in the bidding process. If brand names are used, multiple names and the allowable substitution of an “equal” should be provided for in the bid package. Solicitations must also identify all requirements that bidders must fulfill and factors to be used to evaluate bids or proposals. The provision of supply timelines, product warranties, references, and performance bonds are common bid requirements. Providing potential bidders with prior evaluation information is a form of due process which allows everyone in the bidding process to be aware, at the outset, of the factors that will be used to determine who is the successful bidder. Providing this information as a part of the call for bids is a matter of fairness to potential bidders plus it enhances the quality of bids by ensuring that all bidders are able to comply with related requirements. Procurement Methods Once a buyer has clearly articulated the type of good or service required, the buyer must select the procurement process that is best suited or required for that size/type acquisition. Procurement methods are typically dictated by the amount of money involved with the purchase. The following paragraphs discuss the most common procurement methods used by Federal Transit grantees; other buyers will be governed by other grantee requirements or state or local laws, rules, and policies. Micro-Purchases. A “micro-purchase” is a purchase which involves less than $2,500. Purchases below this threshold may be made without obtaining competitive quotations but documentation is required to verify that the price was fair and reasonable. The documentation must also identify how this determination was made. More stringent requirements may be utilized if required by state law or rule or purchaser policy. Small Purchases. The FTA describes a “small purchase” as one which involves between $2,500 and $100,000. The requirements related to small purchases are the same as the ones set forth for micro-purchases, except for the added requirement that price or rate quotations must be obtained from an “adequate number” of qualified sources. Again, documentation is critical to verify that sound business practices have been adhered to. As is the case with all procurement activities, the FTA will perform system reviews as a part of its on-going oversight responsibility. Sealed Bids/Invitation for Bid. This process is typically used where more than $100,000 is involved, where two or more responsible bidders are willing and able to complete, and where the selection of a successful bidder can be made principally on the basis of price. Invitations for bids must be publicly advertised, definitive specifications are available concerning the items or services being purchased bids are publicly opened, and a written fixed-price contract will be entered into with the lowest responsive and responsible bidder. Competitive Proposal/Request for Proposals. This method of procurement lends itself to situations where the use of sealed bids is not appropriate, presumably because detailed specifications are not available and/or because price is not the primary determinant in selecting the best bid. As was the case with the sealed bid procurement method, proposals must be solicited publicly from an adequate number of qualified sources. There must be a pre-established methodology in place to conduct technical evaluations and for selecting a successful bidder. Awards are made to the firm whose proposal is most advantageous in terms of price and other factors. Architectural and Engineering Services. A&E services are typically purchased using “qualifications-based competitive proposal” procedures. Under this method, a description of the services required is prepared and proposals are solicited. Following an evaluation of qualifications, negotiations are conducted with the most qualified bidder. Failing agreement on price, negotiations may take place with the next most qualified bidder. Sole Source Purchases. Sole source procurements are permissible primarily when an item or service is available from only one supplier or when an emergency requires expediency. As with all procurements, related documentation is required. In this case, however, the documentation must include a cost analysis. Solicitations – IFBs and RFPs As is the case with procurement methods, solicitation requirements vary depending on the size of the purchase, funding sources, and laws, rules, and policies which govern the buyer. Key considerations include where solicitations must be published, how often they must by published, and time requirements between the time of publication and the submission deadline. Solicitations typically take one of two forms – they are either an “Invitation for Bids” or a “Request for Proposals.” An Invitation for Bids (IFB) is normally a call for bids which results in an award being made to the low price bidder which meets the minimum quality standards which are set forth in the invitation. A Request for Proposals (RFP) differs from an Invitation to Bid (ITB) to the extent that proposals will not necessarily be rated primarily on price. Rather, the solicitor’s request sets forth criteria which will be used to rate proposals. Common rating factors include technical expertise, experience, ability to perform, price, etc. Performance is typically the primary objective. Proposals are ultimately reviewed and rated based on pre-established evaluation criteria. Even though these criteria are pre-established, RFPs tend to be more subjective than IFBs. In both processes, the desired end result is the best value and the most advantageous end result for the procuring entity. However, with performance being more of an end result rather than a specific product that may be called for in an IFB, price may be less of a determining factor in an RFP than in an IFB. Documentation of the review and award process is critical. As indicated in the preceding subsection, solicitations may not be necessary for small, “micro” purchases. With FTA-related purchases, for example, a purchaser is not required to obtain multiple price quotes. The only requirement is that the buyer document that the purchase price was determined to be reasonable. Bid solicitation requirements typically increase with the amount of money involved with the purchase. Specific requirements are dictated by the funding agency and state and local laws, rules, and policies which govern procurement. Quite often, purchases involving more than “micro” amounts require the publication of a corresponding notice in one or more official newspapers. Requests for proposals/bids typically identify the good or service that is desired and set a specific date, time, and place for opening. Related notices may be relatively short and may direct interested parties to request more detailed bid packages from the buyer or provide them with directions on how to find them on the Internet. Satisfying legal notice requirements does not guarantee truly adequate notice to potentially interested bidders. To facilitate true notice and effective bidding, purchasers typically send requests for bids or proposals directly to potential bidders and publish notices in trade publications, construction journals, etc. Complex procurements may require pre-bid meetings with prospective bidders to respond to technical questions. Such meetings are typically provided for in the call for bids and provide an open forum where all potential bidders are provided an opportunity to have questions answered and to hear questions posed by other interested parties. These forums also provide a means for buyers to respond to deficiencies that may have been noticed in the original call for bids. Significant changes, where noted via pre-bid meetings or otherwise, may necessitate the issuance of solicitation amendments to all potential bidders. These amendments may also necessitate an extension of time to submit bids. The FTA’s Best Practices Procurement Manual provides considerable information concerning procurement-related requirements (advertising, etc.). Additional information concerning solicitation requirements is contained in Sections 8 and 9 of FTA Circular 4220.1E. Receive Bids/Proposals, Evaluate, & Select As indicated earlier, buyers should have written selection procedures to govern procurement transactions. Having pre-established procedures will eliminate both uncertainty and the appearance of impropriety in the procurement process. Sound selection procedures require detailed specifications and related bidding instructions. Clear descriptions and technical requirements related to the good or service to be procured and similarly clear and specific bidding requirements that bidders must fulfill greatly facilitate the bid evaluation process. Bids are typically kept sealed and in a secure location until the time specified for opening. Shortly before the specified time, a procurement officer will normally check the mailroom fax machine, etc. one last time. Bids may also be delivered in person up until the prescribed opening time. At the appointed time, bids are publicly opened and read. Bidders and bid amounts are often recorded on a summary sheet or abstract; final awards are dependent on the outcome of a further review which insures that bids are responsive and in compliance with all bid requirements (performance bonds, compliance assurances, etc.). Only bids which are responsive to the request for bids/proposals and which were received in a timely manner warrant further consideration. Unresponsive and late-filed bids are typically disregarded. Compliance checklists may be used to review each bid’s completeness and to record its bid price. Responsive bids are generally ranked based on price and awards are made to the lowest responsive bidder. Purchase contracts are subsequently negotiated and awarded to successful bidders. Contract execution and administration are the subject of a later subsection. Unfortunately, errors occasionally occur in the bid process. These errors are often in the bids that are submitted by potential suppliers and are not noticed at the time of opening. Some of these errors will be minor and will not have a material impact on the eventual award. In other cases, substantial errors (a misplaced decimal point or arithmetic error) may precipitate a voluntary retraction by a bidder. Legal counsel should be sought before taking action on observed bid errors. Service Contracts & Equipment Leases There may be instances where procuring needed goods and services via service contracts or equipment leases is more cost-effective than making related equipment or material purchases and/or providing the services with grantee personnel. Examples include contracting with a school district to serve a specific clientele group, leasing office equipment or vehicles, and contracting for vehicle maintenance or janitorial services in grantee facilities. Procurement officers must depend on their professional insights to determine when service contracts or leasing may be in order. Knowing when, where, and how such approaches may be beneficial is a “judgment call” that should be considered if additional value might result. Developing a lease vs. purchase analysis prior to receiving bids or proposals may be warranted and may help determine which approach is more appropriate. Asking the question and making a related independent assessment will dictate whether or not leasing or contracting for services warrants further consideration. Whatever decision is made, buyers should document the fact that the assessment was made and what findings precipitated the decision to proceed in the chosen manner. If the decision is made to lease vs. purchase or to produce the needed product or service via a service contract, related procurement processes must still be adhered to and resulting contracts must be executed and administered as outlined in the following subsection. Contract Execution Following the bid opening/evaluation phase of larger procurements, the buyer and seller typically enter into a formal written contract which governs the corresponding purchase. This agreement governs not only the item’s specifications and related price, but it also establishes expectations for things such as delivery deadlines, terms of payment, and penalties for non-performance. In addition to language that is specific to the purchase at hand, procurement contracts typically contain a variety of “boiler plate” language that is prescribed by local or state law, funding agencies, etc. This language governs things such as “Buy America” or Davis-Bacon Act wage scales. The FTA publishes an annual “Master Agreement” which lists many FTA and other Federal requirements which are applicable to FTA grantees. In addition, the FTA Best Practices Procurement Manual contains a list of another 31 potentially applicable provisions that may be required in a contract, depending on the size of the purchase and what is being procured. Grantees are responsible for evaluating these requirements for relevance and applicability to each procurement. Procurement contracts are subject to audit and should provide full documentation to insure that the process was administered properly. Dispute Resolution Procurement-related disputes may arise relative to the award of bids or during the project administration phase once contracts have been awarded and work is ongoing. Written procedures should be in place to outline how pre-award disputes will be handled while post-award disputes should be handled according to the terms of procurement contracts executed between the buyer and the vendor. Issues that must typically be addressed in procurement contracts include performance evaluation, protests, disputes, and claims. These dispute resolution mechanisms should adhere to good administrative practice and sound business judgment to settle contractual and administrative issues arising out of procurements. Disputes should be resolved with as much informality as possible but all disputes and their ultimate resolution should be well documented. Unfortunately, some disputes cannot be resolved informally so governing contracts should provide for resolution mechanisms such as mediation or arbitration. Appeal processes should also be provided for. Monitoring Contract Performance Contract administration involves follow-through activities which ensure that the goods or services described in the contract are, in fact, provided as prescribed. Purchasers must establish and operate a contract administration system that ensures that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchases orders. While many individuals may be involved in contract administration, one official file should be maintained as a depository of all pertinent records, correspondence, and related documentation. File contents should include things such as: • Contract • Notice of Award • Performance bond, insurance, etc. • Ongoing correspondence • Daily logs • Photographs • Change orders • Disputes and related resolution documentation • Delivery inspection report • Close out documentation As the preceding list suggests, change orders are likely to occur in major projects. Procedures regarding change orders should be outlined in the contract and all change orders should be in writing and signed by both the buyer and the vendor. Common elements of change orders include the scope of work, related time frames, and cost adjustments. Buyers should strongly consider the use of an inspection checklist to insure that delivered goods and services satisfy original specifications. Care should be taken to guarantee that no unauthorized substitutions have been made. A satisfactory inspection report is a necessary element that permits subsequent payments to vendors and an eventual project close out. Sample Documents Sample documents and procurement management forms may be available from funding source agencies and governing procurement officials. Additional information on sample documents may be found on the Small Urban & Rural Transit Center website identified in the following subsection. The presentation of documents and forms on the SURTC website is not an endorsement or official approval of these items. Rather, these items are presented to provide readers with examples of documents and forms that might be used to effectively manage procurement, contracting, and grant management processes. Actual forms should be developed by transit managers with input from granting agencies and local legal counsel. Links & Resources The following Internet website/resource links were used in preparing this section and serve as resources to expand on the information and concepts presented: FTA Circular 4420.1E. This U.S. Department of Transportation/Federal Transit Administration publication contains rules which transit grantees must adhere to in the solicitation, award and administration of its third party contracts. www.ftahelpline.com/fta_c4220_1E.doc FTA Best Practices Procurement Manual. This manual provides FTA grantees with suggested methods and procedures concerning third party procurements and related “best practice” examples. www.fta.dot.gov/9386_ENG_HTML.htm CTAA Website. The Community Transportation Association provides professional development and training programs for individuals and organizations that desire to enhance their expertise in transit management. Passing the “Certified Community Transit Manager” examination demonstrates proficiency in the field. Information on the certification process and related training programs is available on the CTAA website. www.ctaa.org/training/cctm/ Additional Resources Title 49 Code of Federal Regulations Parts 18 & 19 – Common Grant Rules. www.access.gpo.gov/nara/cfr/waisidx_00/49cfr18_00.html Sample procurement and contract management documents and forms. www.surtc.org/cctm/sect5/pg07.html#sampleDocs Local and state procurement officers and regional and national FTA offices are also excellent sources of information related to procurement processes and related documents.
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