2015 IRS Mileage Reimbursement Rate

The IRS has announced an increase in the standard mileage reimbursement rate from 56.0 cents a mile to 57.5.0 cents a mile, effective January 1, 2015.  Click here to read the announcement from the IRS.

Check Invoices and Contracts:  If you're a public agency, make sure you check invoices carefully so that you pay the contractual mileage reimbursement rate you've agreed to, which may be pegged to the IRS rate or may be specified in your contract.  If you're a contractor doing business with the government, review your contract before submitting an invoice so that you submit the correct rate on your invoices.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

The Role of Elected Officials in Procurement

Practices vary across the country on the role that elected officials (i.e., city council, mayor) play in the procurement, award, and contract execution process.  

Roles of elected officials:  For some agencies, the governing body or chief administrator makes all or most award decisions for procurement of goods, services, and construction.  Sometimes, they also are responsible for signing contracts.  The following are some of the negative impacts of these practices:

• Delays:  Delays on award and execution of contracts while waiting for the council or board to meet.  

• Politics:  Making procurement a process tainted with political overtones instead of one based on fair and transparent competition.  Sometimes, elected officials end up making decisions that are at variance with best procurement practices in order to please certain constituencies.

From my perspective, the best practice is for governing bodies to establish the budget, but delegate award and contract execution decisions to the executive branch of government, consistent with a delegation of authority matrix and established procedures. 

Ordinances, rules or bid documents?  Should procurement policies and practices be adopted by the governing body or by the executive branch of government?  The governing body's role is to establish high-level policy which is controlled through the budget process.  Actual procurement policies and practices should be handled administratively, with many of the requirements being included in bidding documents.  There are some states and local public agencies where there are detailed laws outlining the procurement process, and many of these are not consistent with best practices.  Embedding such practices in laws and rules limits flexibility for public agencies to make the best decisions on a case-by-case basis. 

What's your philosophy?  How does your agency operate?  It takes a lot of education to help elected officials understand their appropriate role in the procurement process.  Have you begun the conversation within your agency on appropriate roles and responsibilities between the legislative and executive branches of government?

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Can Expired Contracts Be Resurrected?

What happens when a contract between a public agency and a business expires?  Is a new solicitation required?  Can the contract be extended through an amendment? 

Conservative position:  The conservative position is that an expired contract is expired and may not be amended to extend it.  Once the contract expires, nothing exists, and a new solicitation for continuation of services is required.

Risks of extending an expired contract:  Some public agencies, because of the need to continue to provide services, have been known to extend expired contracts.  The following are some of the risks associated with extending an expired contract:

• Audit risks:  If a contract has expired, there is no contract to amend or extend, and thus an auditor may argue that the public agency has not gone through the appropriate selection process for the additional or extended work.  If an agency makes the assumption that any expired contract may be amended, this would suggest, in the extreme, that an agency would never have to conduct a competitive solicitation in the future, but simply amend previously expired contracts.  Mitigating against an audit risk for extending an expired contract may be partially dependent on when the contract expired.  In other words, if the contract expired three months ago and a public agency is just now resurrecting it, that is a more difficult position to support than if the contract expired yesterday or last week.  If a public agency chooses to extend a previously expired contract, they should document the reasons why this action was necessary, instead of conducting a new solicitation.  This documentation should discuss the negative consequences to the operation of the public agency if a new solicitation was conducted and the agency was left without a service provider for a period of time.

• Contractual risks:  If an agency choose to amend a previously expired contract, the language in the amendment is important.  Without all encompassing language, the firm an agency contracted with could at some point argue that they are not bound by the original terms of the contract since it expired.  Thus, any amendment language would need to acknowledge that the contract had expired through an administrative oversight, but that both parties have explicitly agreed that all of the terms and conditions of the original contract continue to be applicable under the amendment.

• Protest risks:  There is a risk from other firms who may argue that they have not been provided the opportunity to publicly compete for the work that has simply been continued through an amendment to the expired contract.  Part of their argument may be that the original solicitation laid out the term of the contract and that they now have a right to compete for the continuation of the work.  A protesting firm may simply protest or they may challenge an action to extend an expired contract in court, which could end up delaying the provision of the services.

• Publicity risks:  Audit, contractual, and protest risks all come with potential negative publicity for a public agency if the information is reported in the local media.  Public agencies should weigh carefully whether the risks of extending the contract are worth the potential negative publicity.

Practical tips:  The following practical tips can help your agency in addressing the issue of whether expired contracts can be extended.

• Develop a policy:  Discuss and develop a policy on your agency's position on whether an expired contract can be amended.

• Track contract expiration dates:  Develop a clear tracking system to identify early on contracts that are expiring.  This type of system will provide sufficient time to develop and solicit services under a new contract.

• Talk with your attorney:  If your agency is faced with the situation of potentially amending an expired contract, be sure to discuss it with your attorney and seek their advice on the best course of action.

Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

When Must a City Council Award Contracts?

The Municipal Research and Services Center (MRSC) in Washington state recently responded on their website to the following question:

Must the city council approve the award of a contract for a public works project that costs about $300,000 and for supplies and equipment that will cost over $7500?

MRSC's answer:  Here is the answer that MRSC provided to this question:

As general background, the council is the body within a city that has general authority over the award of all contracts, whether for a public works contract or for a purchase of supplies or equipment. So, the authority to award a bid - which precedes the actual contract - rests with the city council. I would expect the council to follow this approach when awarding large contracts. So the award of a bid on a public works contract that is worth $300,000 or on an expensive purchase should be first approved by the city council.

However, the council may delegate to an administrative officer the authority to enter into contracts below a certain amount without prior council approval (this assumes the contract is within the appropriate budget appropriation). Some cities have, for example, applied such a delegation to purchases costing under $10,000 or to an even higher amount. This should be done expressly in a council resolution, in the city's purchasing policy, or the like, that specifically indicates the monetary limits of that delegation. 

MRSC's website:  MRSC offers a wealth of information for local governments.  Click here to visit their website.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Are You Releasing Payment and Performance Bonds Too Early?

Bonding companies regularly send "status inquiry" forms to public agencies about the status of public works construction projects for which they have issued payment and performance bonds.  Sureties are trying to monitor and keep track of their potential liabilities.

Uncompleted projects:  Status inquiry forms typically ask questions such as the following for projects that have not yet been completed:

• Approximate percentage of the project that has been completed
• Approximate dollar amount of the contract that has been paid
• Anticipated completion date
• Listing of any unpaid labor or material bills the public agency knows about
• Whether the agency is satisfied with the work performed to date

Completed projects:  If the project has been completed, the status inquiry form will typically ask for the completion date and the final contract amount paid to the contractor.

Read the fine print:  For a project that has been completed, some status inquiry forms will also have a statement (that goes along with the public agency's signature on the form) that may read something like the following:

The bonding company is hereby released from all past, present and future liability under this bond.  Please confirm this by signing below and returning this form with the original bond.

Problems with the fine print:  There are two problems with the fine print language noted above:

• Warranty work:  Even though the work on the project may be complete, most public works construction contracts include language in which the contractor warrants or guaranties for the work for a year after completion.  If a public agency signs the status inquiry form releasing the payment and performance bond before the warranty period is over, and if the contractor fails to return to correct work during the warranty period, the public agency will not have any protection that would otherwise be afforded by the bond to ensure that the warranty work is completed.  When a surety issues a bond, they agree to all of the provisions of the contract, which includes the warranty period, so public agencies should not sign an inquiry status form releasing the bond before the end of the warranty period.

• Keep the original bond:  The original payment and performance bond is a matter of public record and should be retained by the public agency, even after the work has been completed and the warranty period has expired.  Auditors frequently examine project files to ensure the public agency has obtained the required payment and performance bond.  If an agency has returned the original bond to the surety, they may be at risk of an audit finding.  Furthermore, there is no reason why the surety must have the original bond back.  Under the language of the bond, the bond becomes unenforceable when all of the obligations of the contractor have been met (i.e., the project has been successfully completed through the warranty period and all subcontractors, suppliers, and workers have been paid).

Practical tips:  The following steps can help ensure you are not releasing the bond early and giving up your rights under the bond:

• Read the fine print:  Read the language of the status inquiry form carefully before filling it out and signing it.

• Cross out the fine print:  When completing a status inquiry form from a surety, cross out and initial language that would release the bond prior to the expiration of the warranty period or that requires the original bond to be returned to the surety.  

• Train your staff:  Make sure that agency staff who complete these forms are properly trained and aware of the issues.

• Signature authority:  Be deliberate about who in your agency is authorized to sign status inquiry forms.  This person should read the language of the form before signing to ensure they are not giving up the agency's rights under the bond.

• Consult with your attorney:  If you have any questions about the impact of signing a status inquiry form, or the language on a form, be sure to consult with your agency's attorney for advice.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

The Key to Successful Public Procurement - in One Word

Eileen Youens

Texas based attorney and public procurement expert Eileen Youens, has written an entertaining and insightful blog on The Key to Successful Public Procurement - in One Word.

4 key steps in procurement:  She suggests that the one word is "consistency," and she outlines four key steps in any procurement:

1. Determine needs
2. Draft solicitation
3. Evaluate and award
4. Monitor contract performance

Read the blog:  Click here to read Eileen's blog posting from February 8, 2013.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Contract Administration

Eileen Youens

Eileen Youens is a Texas-based attorney and public procurement consultant.  I've communicated with Eileen over the years and had the chance to meet her when I was in Texas last year providing consulting advice for a client.  

Eileen has written a blog posting entitled "Contract Management in a Nutshell." 

It's a good piece that makes the case for why it's important to actually follow through and implement the terms of the contract - to make sure you get what you've contracted for.

Click here to read Eileen's blog from October 12, 2012.

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Tune-up Your Procurement Policies

Procurement Policies, sometimes referred to as Purchasing Policies, help guide public agencies in how they solicit and contract for goods, services, and construction.

Checklist:  Here's a quick checklist of issues to pay attention to with your Procurement Policies:

• Do you have Procurement Policies?  If you don't have Procurement Policies, it's a good idea to develop a document to guide how you intend to manage your procurement and contracting functions.

• Where are your Procurement Policies?  Are they only gathering dust on a shelf or is the only copy locked in someone's desk?  A good practice is to make your Procurement Policies available online and easy to find.

• When were your Procurement Policies last updated?  Are your Procurement policies up to date?  Do you have a regular process to review and update them on an annual basis?  Procurement Policies that were adopted years ago may not reflect what your actual practices are and may not comply with applicable laws and regulations.

• Are you following your Procurement Policies?  Are your agency's actual practices and your Procurement Policies consistent with one another?  Which one reflects best practices and compliance with the law?  Auditors will generally audit your agency based on your compliance with applicable laws and regulations, and your compliance with your Procurement Policies.

• Do your Procurement Policies comply with laws?  Are your Procurement Policies in compliance with federal, state, and local laws and regulations?

• Have your staff been trained?  Do the appropriate staff in your agency know what's in the Procurement Policies?  Have they been trained?  When was the last time they were trained?

• Are Your Procurement Policies clear?  Are your Procurement Policies clear, without ambiguity, easy to read and follow so your staff understands what is expected?

Action step:  Schedule a regular, annual tune-up of your Procurement Policies. The end of the year and start of a new year is a good time to conduct this tune-up.

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

Documenting Procurement and Contracts

Contracts are important for not only establishing expectations and obligations of the parties, but serve as the main tool in the event one of the parties does not fulfill its commitments.

Audit Findings:  Here's a quick list of some details to pay attention to that come to us based on the results of a recent audit finding by the Washington State Auditor's Office when they recently audited the Port of Ilwaco:

• Document Selection Process:  The port hired two contractors for a public works project off of its Small Works Roster.  While the port told the auditor that they had contacted all the contractors on the roster about the project, they had no documentation to demonstrate their process or that firms had been contacted.

• No Work Before Contract Execution:  There is no agreement or contract until both parties have signed a contract - and consultants and contractors should not be permitted to perform services prior to execution of the contract by both parties.  The auditor noted that an engineering firm hired by the port "provided services prior to the effective date of the contract."  In addition to the risk of an audit finding, it is not a good practice to permit work to begin without a signed contract.  Public employees who direct a company to begin work without a contract may pick up personal financial liability or be subject to disciplinary measures for their action.  Contractors and consultants who begin work without a contract do so at their own risk, understanding that they might not be paid for such work.

• Document Contract Execution:  The auditor noted that the port did not have a copy of the contract signed by both parties in their files.  They were thus unable to demonstrate that there was, in fact, an executed contract, or that payments made were appropriate.  On another contract, the port awarded a public works construction project for more than $200,000, but did not require the contractor to sign a contract.

• Extend Contract Time Before Expiration:  The auditor noted that the contract with an engineering firm was for a term of three months, but the contract was not amended to extend the term of the contract when the project was delayed.

Details are important:  It is important for public agencies to pay attention to a variety of details related to procurement and contracting.  These are not mere formalities, but serve as the basis for documenting how consultants are selected and what are the terms of the contract.

Copy of Audit:  Click here to read the audit report.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Strategies for Managing Decentralized Procurement

Many public agencies, especially smaller ones, do not have any centralized procurement staff, but rely on others who have the actual need for goods and services to be responsible for the procurement and contracting function.

Strategies:  The following strategies can help ensure compliance with regulations and a consistent approach by the agency procuring goods and services.:

• Policies and Procedures:  Develop and adopt clear written policies and procedures that appropriately balance the culture of the agency, the experience and knowledge of the staff, and compliance with regulations and best practices.

• Accountability:  Agency leadership should make expectations clear to directors and managers that they will be held accountable for proper procurement practices.

• Training:  Provide in-depth training to staff who have been delegated with responsibility for procurement and contracting.  Directors and managers should also be trained. 

• Checklists:  Develop simplified checklists that can help those doing procurement and contracting with knowing what steps to follow.  The checklists should follow and be consistent with the written policies and procedures.

• Standard Templates:  Develop template documents for advertisements, RFPs, RFQs, purchase orders, consultant contracts, architectural/engineering contracts, construction contracts, service contracts, etc.  These template documents should be in compliance with the requirements, and should be protected so they are not changed without deliberate action.

• Check and Balances:  Ensure there are sufficient checks and balances in place to reduce risks of one person taking inappropriate procurement and contracting actions.  Appropriate levels of approval, based on dollar amount, should be part of the policies and procedures.

• Grants:  Designate staff who are responsible for reading and ensuring compliance with the terms of state or federal grants.

• Pre-Audits:   Establish a process for pre-audits of your policies and procedures, checklists, standard templates, and specific procurements and contracts by either agency staff or outside experts.  The purpose of pre-audits is to identify and correct problem areas before an actual state or federal audit of your agency.  Because staff and regulations change regularly, pre-audits should be conducted at least on an annual basis.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Training: Contract Management

Contract Management

When: April 17, 2012 (8:00 a.m. to 4:30 p.m.)

Darin Matthews

Where: Spokane, Washington (Gonzaga McCarthey Athletic Center's Herak Club Room) 

Sponsored by:  NAPM-Spokane

Instructor:  Darin Matthews, Chief Procurement Office for Metro, Portland, Oregon

Agenda:

• The importance of active contract management
• The involvement of procurement throughout the contracting cycle
• The importance of investing in your contracts early on
• Contracting case studies
• Contract management tools

Cost:  $150

Information and Registration:  Contact Pam Tatosky at (509) 354-7127 or by e-mail at pamt@spokaneschools.org.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

What's a Supplemental Public Works Contract?

Let's say that almost all of a public works project has been completed, but that there will be a delay before all of the remaining work of the project is completed.  That delay will cause an unreasonable delay in the release of the contractor's retainage.  

Example:  This sometimes occurs when the contract requires a period of time for the contractor to maintain landscaping that has been installed, even though everything else on the project has been completed.  

Releasing Retainage Early:  Rather than wait for all of the work to be completed before beginning the retainage release process, Washington State law has a provision that allows a public agency to establish a separate contract and release most of the retainage before all of the work is completed.

Steps for a New Contract:  Here are the steps from RCW 60.28.011(7):

1. Substantial portion of work has been completed.
2. Public agency finds there will be an unreasonable delay in completing the remaining work (not the contractor's fault).
3. With concurrence of contractor, public agency deletes from the contract the remaining work.
4. Agency accepts as complete the contract minus the deleted work.
5. Agency follows the process for release of retainage on the contract.
6. Agency and contractor enter into a new contract without advertisement or bidding.
7. The amount of the new contract for the remaining work should be for an amount equal to or less than the cost of the remaining work as was provided in the original contract.
8. When the remaining work is completed on the new or supplemental contract, the public agency establishes the final acceptance date and proceeds to release retainage consistent with how retainage is released on all public works projects.

State Law:  Here's the language from RCW 60.28.011 (7):

If the public body administering a contract, after a substantial portion of the work has been completed, finds that an unreasonable delay will occur in the completion of the remaining portion of the contract for any reason not the result of a breach thereof, it may, if the contractor agrees, delete from the contract the remaining work and accept as final the improvement at the stage of completion then attained and make payment in proportion to the amount of the work accomplished and in this case any amounts retained and accumulated under this section shall be held for a period of sixty days following the completion. In the event that the work is terminated before final completion as provided in this section, the public body may thereafter enter into a new contract with the same contractor to perform the remaining work or improvement for an amount equal to or less than the cost of the remaining work as was provided for in the original contract without advertisement or bid. The provisions of this chapter are exclusive and shall supersede all provisions and regulations in conflict herewith.

Mike Purdy's Public Contracting Blog
© 2012 by Michael E. Purdy Associates, LLC
http://PublicContracting.blogspot.com

Checking and Documenting Federal Debarment Status of Vendors

Sometimes public agencies are subject to audit findings, not because they don't know the requirements, but because they don't document compliance with the requirements.

No Documentation of Compliance:  The Washington State Auditor's Office recently issued an audit finding against the Housing Authority of Kittitas County for failure to ensure that a vendor on a federally-funded project was not on the federal suspension and debarment list.

Response from Housing Authority:  The Housing Authority stated that they did check the suspension and debarment status of the vendor in question.  However, they couldn't provide the auditor evidence that they had done so.  They commented that they were unaware they had to retain documentation demonstrating compliance with this requirement.

Check and Document:  Federal suspension and debarment status may be checked by going to www.epls.gov and printing out the results to keep in the contract file.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

New Jersey to Revamp Contracting Process

Gov. Chris Christie

New Jersey Governor Chris Christie has ordered state officials to fix and simplify the state's public procurement and contracting processes.  

Critical Audit:  The governor's order stemmed from a critical review and report from the state Comptroller's Office that showed errors, violations of state law, and illegal practices on major state and local contracts. "You have to react to it," Christie stated after learning about the problems.

Negligence, Corruption, and Lack of Training:  Christie placed the blame for the problems on a combination of negligence and corruption.  "Some of it is corruption, but I think even more of it is negligence," the governor noted.  He also expressed concern that "we don't have enough people who are expert in this [public procurement] to do it the right way."  

Review and Report Due This Spring:  The focus of the review by the state treasurer's office will be to simplify the procurement process, and provide sufficient training for both state and local agencies in public procurement.   A report is expected to reach the governor's desk sometime in the spring with recommendations.

More Information:  For more information, click here to read an article from www.nj.com.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

The Importance of Managing a Project According to the Contract

One of the keys to a successful project is to manage it according to the terms of the contract.  While that may sound like an obvious statement, it doesn't always happen.  

Purpose of Contracts:  Instead, once the contract is signed, it is often put on the shelf never to be referred to again - unless there are claims and disputes.  But the contract and referenced provisions represent the agreement between the parties for performance and payment.  It serves as the basis for bidding or negotiation of costs.  It allocates the risk between the parties.  And it serves as the guide for both parties in making decisions and managing disagreements.

Why Contracts Aren't Enforced:  Over the years, I've observed that some public agency project managers are hesitant to enforce contract terms.  I think this happens for a couple of reasons:

Knowing the Contract:  Project managers sometimes don't manage according to the terms of the contract because they don't have a good understanding of the contract.  An agency's legal and procurement/contracting personnel may have developed a strong contract, but if the project manager doesn't know the contract's provisions and the protections it affords the agency, the agency looses a major tool for ensuring a successful project.  Public agencies should:

• Update:  Regularly review and update their standard contracts.  This process should involve attorneys, procurement/contracting personnel, and project managers - those who will be responsible for actually managing projects based on the contract provisions.

• Train:  Establish a regular and systematic training program for those who interact with contractors, consultants, and vendors to ensure they fully understand the terms of the standard contract.  

Managing according to the contract is an important part of managing the project.  They go hand in hand.

Keeping the Relationship Professional:  Project managers are sometimes hesitant to enforce contractual terms because of their desire to maintain an effective working relationship with the contractor.  There is a misguided concern that an adversarial relationship will be created with the contractor if the agency enforces the terms of the contract.  So a project manager may not review pay requests before approval, may approve payments that are inconsistent with the rates or terms of the contract, may not require documentation of proposed change order costs, may accept change order costs without review and negotiation, or may approve work that doesn't meet the standards described in the contract.  

The following are some of the consequences of not managing according to the contract:

• Cost:  The agency may pay more than what was bid, or more than what is authorized by the contract.

• Performance:  The contractor's performance may not be consistent with the agency's needs as described in the contract.

• Risk:  The allocation of risk between the contractor and the agency may be shifted by decisions made outside of the contract - something that undermines the integrity of the competitive bidding process and ultimately affects costs to an agency.

• Audits:  The agency may receive audit findings for not managing the project according to the contract, and not controlling costs.

Risks of Shifting Allegiances:  Establishing a cooperative working relationship with the contractor is important.  But the nature of the relationship is that it should be based on business and contractual terms, not personal or professional friendship.  When public employees begin to shift their allegiance from their agency and the mandates of the contract to the contractor because of a desire to be friends with the contractor, or a hesitancy to confront business disagreements - a dangerous line is crossed.  

Working for a public agency is different than working for a private business.  As steward's of the public's money, public employees have a higher standard for ensuring that the terms of the contract are met. 

Cooperation and Compliance:  It is possible to both cooperate with the contractor and ensure that the terms of the contract are met.  But it takes an understanding of the contract, an understanding of the proper role of the project manager, and a willingness to agreeably disagree with the contractor in order to protect the public's interests.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Does Decentralization of Procurement Work in Tight Budget Times?

According to one recent estimate, public agencies cutting 35,000 jobs a month as the Great Recession takes its continuing toll.  

Job Cuts in Procurement and Contracting:  As agencies eliminate jobs, the area of procurement and contracting is not exempt.  And yet the work of developing bids and solicitations, negotiating contracts, complying with grant requirements, and administering contracts continues - just with fewer centralized staff.

Impacts of Decentralization:  The economy has forced some agencies to decentralize parts of their procurement and contracting functions by delegating authority to departments who have the direct need for the services.  There are a number of risks associated with decentralization including the following:

• Increased Bid Protests:  Increased bid protests as inexperienced staff manage the process.

• Project Delays:  Delays in projects due to lack of familiarity with how to procure goods and services.

• Audit Findings:  Audit findings by state and federal auditors for failure of agencies to follow applicable procurement regulations.

• Loss of Accountability:  Unclear scopes of work written by department staff without the benefit of centralized review.  This may result in contractual problems of holding businesses accountable for the work contracted for.

• Higher Costs:  Higher costs for agencies who no longer have the strategic procurement and contracting experts to help get the best deal for the public agency.

• Ethical Issues:  Questionable ethical behavior by public sector employees not sensitized to, or aware of, the importance of maintaining a fair and transparent bidding and selection process.

What Work is Decentralized?  Some agencies have decentralized lower dollar value procurements back to departments.  Others have increased use of government issued credit cards as a means to deal with reduced staffing.

Managing the Decentralization:  As the economically driven decentralization continues, here are a couple of actions that agencies can take to help reduce negative consequences:

• Training:  Provide in-depth training to staff who have been delegated with responsibility for procurement and contracting.  The training should also include training on ethics in public contracting.

• Procedures:  Establish clear policies and procedures to deal with the new environment.

• Checklists:  Develop simplified checklists that can help those doing procurement and contracting with knowing how to follow the right steps.

• Check and Balances:  Ensure there are sufficient checks and balances in place to reduce risks of one person taking inappropriate procurement and contracting actions.

• Ongoing Pre-Audits:   Establish a process for regular pre-audits by either agency staff or outside experts to ensure the process is working properly, and to help make changes where necessary.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

The Risks of Decentralized Procurement

Many public agencies, especially smaller ones, do not have a centralized procurement and contracting function.  There are risks involved in such an organizational structure.

Educating Managers:  In a decentralized procurement model, it is up to each department and the directors and managers of those departments to understand what is permissible under applicable federal (if federal funding is involved), state, or local laws and regulations.

Complexities of Public Procurement:  Because public procurement is often complex, and operational departments have their own responsibilities and areas of expertise, without a centralized procurement function, often procurement activities occur that are in violation of applicable regulations.

Audit Finding:  The City of Arlington, Washington recently received an audit finding from the State Auditor's Office after the Fire Department contacted three vendors to provide quotes to provide a new ambulance for the city.  The city's 1994 vehicle had broken down and could not be repaired.  But the $128,142 purchase far exceeded the city's $7,500 threshold, above which formal advertised competitive bids should have been received.  Instead, the city only received one quote, informally solicited.  The Fire Department took the purchase to the City Council who approved the purchase, not realizing that the procurement needed to be either through advertised bids or approved by a specific emergency resolution.

Practical Tips:

1. Point Person:  Public agencies without a centralized procurement function should designate at least one person to become the resident expert on procurement and contracting.  
2. Approval Process:  There should be a deliberate internal approval process for purchases and contracts with checks and balances.
3. Policies and Procedures:  Agencies should develop clear procurement and contracting policies and procedures, making use of easy to follow checklist to help ensure compliance with regulations.   
4. Training:  Agencies should regularly provide training to personnel on procurement and contracting issues to raise the level of awareness.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Keeping Track of Insurance Coverage: How One Agency Solved the Problem

Many public agencies find it challenging to ensure they maintain current evidence of insurance coverage for all of the contracts they have with contractors, consultants, service providers, and vendors.

Oregon's Solution:  Multnomah County, Oregon has developed a technology solution to the problem that Brian R. Smith, the County's Purchasing Manager, states "can be easily replicated by other governmental agencies."  

Brian R. Smith

GoPro Article:  In the June/July 2011 edition of GoPro, the official publication of NIGP (National Institute of Governmental Purchasing), Brian wrote an article entitled, "Keeping Coverage Current: A Simple Approach to Tracking Insurance Certificates."

Click here to read Brian's article.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Who Can Authorize Change Orders?

Change orders on public construction projects are a fact of life.  There are always unforeseen conditions that require an adjustment in the contract amount and scope of work.

Authority Levels and Roles:  In managing the administration of change orders, it is important for public agencies to have clear internal procedures about who is authorized to execute change orders, and when approval from higher level management or a governing body such as a city council is required.

Tacoma City Council Not Informed of Change Orders:  Project management staff for the City of Tacoma, Washington have recently been criticized by members of the Tacoma City Council for not keeping the Council informed of change orders totaling $821,000 on a $26.5 million Design-Build contract for renovation of the city's Cheney Stadium.  Click here to read a news article from the Tacoma News Tribune about the change orders on the project.

Practical Tips:  In managing change orders, public agencies should have clear policies, procedures, and practices related to the following issues:

1. What individual(s) have authority to approve change orders for the owner?
2. What are the dollar thresholds of change orders that public agency employees may approve?
3. When do contingency amounts spent on change orders need approval from higher level management or a governing body?
4. At what dollar amounts does the governing body need to be notified of change orders or approve change orders?
5. Is the governing body being kept informed on a regular basis on the progress of the project, and potential or actual change orders for the project?
6. Is the public agency ensuring that the contractor is paid only after execution of a change order?
7. Is the scope of work of the change order generally consistent with the scope of work for the project, or could it be bid as a separate project?
8. Is the public agency conducting an independent cost estimate of the change order?
9. Are the dollar amounts of the change order being appropriately negotiated by the public agency?
10. Are there appropriate internal controls in place to ensure that the public agency's change order approval process is being implemented consistent with the approved policies and procedures?

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Performance-Based Contracting Audit Planned

The Washington State Auditor's Office is seeking the services of a firm to help them audit the use of performance based contracting among state agencies.

The Auditor's Office defines performance based contracts as having the following characteristics:

• Identifying expected deliverables
• Identifying performance measures or outcomes
• Making payment contingent on successful delivery of these performance measures or outcomes.

In November 2010, Washington Governor Chris Gregoire requested assistance from the Auditor's Office in evaluating performance contract practices by state agencies.

The audit will seek to answer the following questions:

1. Contract Management:  How are agencies actively managing performance-based contracts?  For example, if a vendor is not performing, what corrective actions are being taken?  Are contractors/vendors being held accountable?  Given limited resources, what options are available to improve management if needed?
2. Performance Measures:  Do current performance-based contracts include appropriate and effective performance measures for assessing contractor performance?  If not, why not?
3. Incentives:  Do current performance-based contracts provide incentives for excellent performance and/or consequences for inadequate performance?  If not, why not?
4. Leading Practices:  What are leading practices around performance-based contracting?  How could we apply these practices to Washington State?

Using the results of the audit, the Auditor's Office plans to write a summary report to the Governor by June 1, 2011.

Mike Purdy's Public Contracting Blog 

© 2011 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com