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HomeMy WebLinkAboutPurchasing Policy ☒City Council Approved: 11/1991 ☐City-Wide Revised: 4/4/94; 4/2/97; 12/19/00; 4/6/10; 2/3/14 ☐Department City of Edina Policy PURCHASING POLICIES AND REQUIREMENTS PART I: Policies and Requirements Applicable to All Purchases and Contracts (Refer to the League of Minnesota Handbook, Chapter 23 Expenditures, Purchasing and Contracts; http//lmnc.org/page/1/handbook-for-mn-cities.jsp). 1.1. Budget — Before any commitment for purchase of an item or service is made, money needs to be budgeted, either directly for the item or service or by means of a budgeted fund into which the purchase can be categorized. Purchases not within a budget require Finance Director and City Council approval for availability and transfer of funds. It is up to each Department to insure that it has not made commitments for more money than has been budgeted. 1.2. Expenditure Requirements — All expenditures of funds require approval of the City Manager and Finance Director before actual disbursement. (Minn. Stat. § 412.271, subdivision 8). Before funds can be disbursed for any purchase, the purchase must meet three criteria: a. First, statutory authority must exist for the City to make the particular purchase. While not a problem in most cases, certain purchases may require research; b. Second, it must be purchased for a public purpose; and c. Third, the City Manager and Finance Director must have properly approved the expenditure. Generally, an expenditure will be for a public purpose if it benefits the inhabitants of the community as a whole and if it is directly connected with the government of the City. All of these tests must be met prior to any commitment. If in doubt, check with the Finance Director. 1.3. Required Authorization for Purchase — In addition to the requirement that the City Manager and Finance Director approve of each expenditure of funds, the following authorizations are required prior to ordering or obtaining any item or service: a. $20,000 and over — All purchases $20,000 and over need City Manager, Finance Director and Council approval prior to ordering or purchasing. (Minn. Stat. §412.681). All such purchases will use the Request For Purchase form. (APPENDIX A) b. Over $10,000 to $ 20,000 — All purchases over $10,000 up to but not including $20,000 require City Manager and Finance Director approval prior to ordering and purchasing. All such purchases will use the Purchase Requisition form. (APPENDIX B) 1.4. Statutorily Mandated Processes for Selected Purchases and Rentals — The purchase of supplies, materials, equipment or rental of same, or the construction, alteration, repair or maintenance of real or personal property, in addition to the procedures at 1.1, 1.2 and 1.3 above, require the following procedures (Minn. Stat. § 471.345 and Minn. Stat. § 412.311): a. $100,000 and over — If the expenditure is estimated to exceed $ 100,000, then the following is required: Page | 2 (i) Sealed bids with appropriate public notice (See PART B below); (ii) Purchase Order (APPENDIX C) properly filled out or contract (subject to Council Approval); (iii) A performance and payment bond in the amount of the contract if the contract is for the doing of any public work (Minn. Stat. §574.26); (iv) Finance Director approval; (v) City Manager approval; (vi) Council approval; (vii) Award of contract to the lowest responsible bidder; and (viii) City Manager and Finance Director approval prior to actual disbursement of funds. b. $20,000 up to $ 100,000 — If the expenditure is estimated to be $20,000 and over but not over $ 100,000, then the following is required: (i) Sealed bids with appropriate public notice the same as for expenditures $100,000 and over may be used. Direct negotiation can also be used, by obtaining two or more written quotations, when possible. The purchaser must also consider using the State of Minnesota Cooperative Purchasing Venture when not using sealed bids. Any item may be purchased using the State of Minnesota Cooperative Purchasing Venture without obtaining additional quotes; (ii) A Purchase Order or contract; (iii) A performance and payment bond in the amount of the contract if the contract is for the doing of any public work (Minn. Stat. §574.26); (iv) Finance Director approval; (v) City Manager approval; (vi) Council approval; (vii) Award of contract to lowest responsible bidder; and (viii) City Manager and Finance Director approval prior to actual disbursement of funds. c. Over $10,000 to $ 20,000 — If the expenditure is estimated to be over $10,000 up to but not including $20,000 , then the following is required: (i) At least two written quotations shall be obtained unless there is only one supplier or vendor. The purchaser must also consider using the State of Page | 3 Minnesota Cooperative Purchasing Venture. Any item may be purchased using the State of Minnesota Cooperative Purchasing Venture without obtaining additional quotes; (ii) Purchase Requisition form; (iii) Finance Director approval; (iv) City Manager approval; and (v) City Manager and Finance Director approval prior to actual disbursement of funds. d. $ 10,000 or less –– If the expenditure is estimated to be $ 10,000 or less, the following is required: (i) Purchases at this level may make written quotations impracticable, therefore, such purchases shall be made on the open market and written quotations shall not be required, although employees are encouraged to get verbal or written quotes. If either verbal or written quotes are obtained, there must be at least two and they must be retained for one year; (ii) City Manager approval, or approval by the head of the Department for which the purchase is being made, or approval by one of the persons named on the then current list of persons approved by the City Manager and kept on file with the Finance Director; and (iii) City Manager and Finance Director approval prior to actual disbursement of funds. All quotations shall be attached to the Purchase Order and kept on file with the Purchase Order. Among purchases not requiring the above procedures are purchases of such as insurance, real estate, and services (see paragraph 2.13 “When Bidding Is Unnecessary” below). For purchases in a competitive area it is desired, even though not required, that multiple quotations be obtained for comparison purposes. If the public bidding process is used, even if not required, all aspects of that process must be complied with. 1.5. Purchase Order Processing a. The responsible Department must prepare a requisition form (APPENDIX B) with all pertinent information included and submit to Finance Department. The pertinent information must include a description of the product, quantity, price, account codes, applicable specifications, and any similar information. NOTE: Purchase Order numbers must be obtained prior to any purchase commitment. b. The responsible Department or the Finance Department will prepare the Purchase Order and obtain the City Manager and the Finance Director’s signature. Page | 4 c. Approval as provided in paragraph 1.4 and applicable to the total amount of the purchase order, must be obtained prior to submission to the vendor. d. Copies of the Purchase Order will be distributed by the Finance Department as follows: (i) One copy to vendor; (ii) One copy to Finance Department retained file; and (iii) One copy to ordering department to await receipt of items ordered and then to be returned to Finance Department along with approved invoice. e. Upon City Manager and Finance Director approval, payment may be sent to vendor. 1.6. Central Purchasing — Similar items that are purchased by many Departments, in particular general office supplies, should be purchased centrally by either Finance and/or Administration and if not charged to central services, will be allocated or charged back to each recipient department. 1.7. Cooperative Purchasing — The City may contract for the purchase of supplies, materials, or equipment without regard to the competitive bidding requirements if the purchase is through a national association’s purchasing alliance or a state, county or other cooperative created by a joint powers agreement that purchases items from more than one source on the basis of competitive bids. While this eliminates the need for separate bidding on an item, it is yet necessary to get Finance Director, City Manager and Council authorization when purchases $20,000 and over are to be made, or City Manager and Finance Director approval for purchases up to but not including $20,000. 1.8. Emergency Purchases — Occasions may arise where purchases $20,000 and over must be made before the Council can approve them and where the required public bidding cannot be done. Where such a purchase is made, Council approval must yet be obtained before payment is made. An emergency must be a situation arising suddenly and unexpectedly which requires speedy action essential to health, safety and welfare of the community, and not just an inconvenience (Layne Minnesota Co. v. Town of Stuntz, 257 N.W.2d. 295 [Minn., 1977]). 1.9. Delegation of Authority for Paying Claims – The City Council has delegated authority for paying claims to the City Manager and the Finance Director or their assistants in the absence of the City Manager or Finance Director pursuant to Section 412.271, subdivision 8. A requirement for the delegation by the City Council of its authority to review claims before payment is that it shall have internal accounting and administrative control procedures to ensure proper disbursement of public funds, which procedure shall include regular and frequent review of the actions of the City Manager and Finance Director by the City Council. A list of all claims paid by the City under this paragraph shall be presented to the Council for informational purposes only at the next regularly scheduled Council meeting after payment of the claim. 1.10. Splitting Purchases — Do not split purchases in an attempt to circumvent any purchasing requirements. 1.11. Imprest Fund/Petty Cash — Certain purchases can be more economically handled through use of petty cash funds to reimburse for purchases. The maximum allowable purchase through any such fund is $50. The cashier/custodian of each such fund is solely responsible for accounting for expenditures from the fund under his or her control. No salaries or personal employee expenses shall be paid from such Page | 5 fund. Any payment from any such fund not approved by the City Manager and Finance Director is the personal obligation of the cashier/custodian of that fund. (Minn. Stat. §412.271, Subd. 5). 1.12. Prompt Payment — The City must pay bills within 35 days of receipt unless a good faith dispute exists. The date of receipt is the date of completed delivery of the goods or services, of satisfactory installation or assembly, or of the receipt of the invoice for the delivery of goods, whichever is latest. If bills are not paid within the standard payment period, interest at one and one–half percent (1.5%) per month must be calculated and paid. The minimum monthly interest penalty on the unpaid balance of any overdue bill of $100 or more is $10. For unpaid balances less than $100 the actual interest should be calculated and paid. Vendors must be notified of invoice errors within 10 days of receiving the invoice. In cases of delayed payments due to good faith disputes with vendors, no interest penalties accrue. If payments are delayed but not in good faith, the vendor may recover costs and attorneys’ fees. (Minn. Stat. §471.425). 1.13. Sales Tax and Other Applicable Taxes — The City of Edina is exempt from paying sales or excise taxes on certain purchases. Most vendors have forms that can be filled out to certify tax exemption, or a letter can be sent to the vendor if the purchase is exempt. 1.14. Non Discrimination — All contracts for materials, supplies or construction must contain a contractor’s agreement not to discriminate against prospective employees because of race, creed or color (Minn. Stat. § 181.59). 1.15. Worker’s Compensation Insurance –– A contract for the doing of “public work” may not be entered into before receiving, from all contracting parties, acceptable evidence of compliance with the worker’s compensation insurance coverage requirements of state law (Minn. Stat. § 176.182). 1.16. Progress Payments; Retainage — A progress payment is not an acceptance or approval of any work or waiver of any defects. An amount may be reserved as retainage from any progress payment on a public contract for a public improvement. The amount of retainage may not exceed five percent (5%) of the payment. (Minn. Stat. § 15.71 and § 429.041, Subd. 6). At the contractor’s option, the retainage shall be paid to the contractor, and the contractor may deposit bonds or securities in lieu of the retainage. If the City incurs additional costs as a result of this option, the City may recover the costs by reducing the final contract payment. (See Minn. Stat. § 15.73) 1.17. Withholding –– Before final payment is made, the Contractor, as required by Minn. Stat. § 290.97, must make a satisfactory showing of compliance with the provisions of Minn. Stat. § 290.92 regarding withholding of state income taxes for wages paid employees on the project. A certificate from the Minnesota Commissioner of Revenue will satisfy this requirement. 1.18. Prevailing Wage Rates –– If the project or work is funded in whole or in part with State Aid funds, the contract must require the Contractor to pay the prevailing wages. Also, the Contractor’s bid proposal must contain a letter or certificate so agreeing to pay prevailing wages. Prevailing wage information can be obtained from the Minnesota Department of Labor and Industry, 443 Lafayette Road, St. Paul, Minnesota 55155-4306 (phone: 651/296-2282). 1.19. Change Orders –– Change orders to contracts and purchase orders approved by the Council or City Manager shall be made pursuant to the following policies and procedures and the use of any one of the methods set out at c. through g. following: Page | 6 a. Authorized Persons –– The only persons authorized to sign and approve change orders on behalf of the City are the City Manager, the Assistant City Manager, the City Engineer and the Finance Director (the “Authorized Persons”). b. Council Approval –– All change orders shall be approved by the Council prior to signing by any Authorized Person except as otherwise provided in this paragraph 1.20. No payment of any change order shall be made without prior Council approval, except as allowed by paragraph 1.9. c. Decreasing Cost –– Change orders decreasing the cost of any contract made by the City may be signed and approved on behalf of the City by any Authorized Person without prior Council approval. d. Increases Up To But Not Including $20,000 –– Any change order which increases the contract price by less than $20,000 may be signed and approved on behalf of the City by any Authorized Person with prior approval of the City Manager. e. Emergencies –– Any change order which, due to an emergency, cannot be deferred until the Council can approve it, may be signed and approved by any Authorized Person without prior Council approval. (See paragraph 1.8 for additional comments.) f. Avoidance of Loss –– Any change order which cannot be deferred until the Council can approve it without loss to the City may be signed and approved by any Authorized Person if the change order is endorsed for payment by at least three members of the Council. g. Up to 10% –– Any change order which does not exceed 10% of the original contract price, by itself or in the aggregate with all then prior change orders relating to that same contract, may be signed and approved by any Authorized Person without prior Council approval, provided the contract provides for change orders. Note: change orders that materially change the terms of a contract may be deemed a new contract and may have to be rebid and receive prior Council approval. If in doubt, check with the City Manager and City Attorney. 1.20. Unit Price Contracts –– Some contracts for the purchase of goods or for construction are based on the unit price times the estimated number of units without a maximum dollar cost stated. At times the estimate is too low and additional units are added and must be paid for. The following policies apply to such contracts: a. The estimate of units should be carefully made, and should be on the high end of any estimated range of units needed; b. The contract shall be presented to the Council as a “unit price basis” contract with an estimated maximum dollar cost; c. The procedure in paragraph 1.4 applicable to the estimated maximum cost shall be complied with; and Page | 7 d. Any increase in units purchased necessary to fulfill and perform the purpose of the contract, and, therefore, in contract cost, beyond the estimated maximum shall be deemed a part of the approved contract, and shall not be deemed a change order, but no payment for any units in excess of the estimated maximum shall be made without prior Council approval. PART II: Policies and Requirements Applicable to Competitive Bidding Process. 2.1. When Useable — While mandated for certain purchases, the use of competitive bidding is not limited to the mandated areas and can be used more extensively, but should not be used for amounts under $ 20,000 as the cost of the process is significant. If the City fails to advertise for bids when the law requires competitive bidding, the contract is void, but the City must pay for any benefits it received. 2.2. When Bidding is Required — All contracts for the purchase or rental of supplies, materials or equipment, or for the construction, alteration, repair or maintenance of real or personal property, when the estimated amount of the contract is $100,000 and over require competitive bids. (Minn. Stat. § 471.345). Also, the contract must be let to the lowest responsible bidder. (Minn. Stat. § 412.311). 2.3. Specifications — For the purposes of informing potential bidders, specifications should outline precisely and in detail what is to be purchased or constructed. These need to be reasonably specific, but not to the point of eliminating competing types and qualities. (Minn. Stat. § 471.35). Violation of this restriction is a gross misdemeanor. (Minn. Stat. § 471.37). A brand name may be specified, but potential bidders must be able to bid an equal product. In addition to the specifications for the purchase, instructions to bidders and general conditions should be updated, modified as needed and included in the bid package so that all contractual obligations of both parties are known. Competitive bids must be re–let when there is a material change in the terms or specifications, even if you believe that the change would have no effect on the rank order of the bids received. Caution should be taken before determining whether the term or specification change is material or not. The proposals and specifications must allow free and full competition. They may not give a prospective bidder an unfair advantage over any other. Specifications must be sufficiently definite and precise to afford a basis for comparable bids. If the number of units needed cannot be determined, bids should be requested on a unit basis. (See paragraph 1.21 for additional comments on unit price contracts). 2.4. Bid Bonds —Even when not required by statute, the City of Edina may require a bid bond, certified check or cashier’s check in lieu to insure that the bid will be honored and not withdrawn for up to a specified number of days. The bond or check is usually set at 10% of the purchase price. 2.5. Performance Bonds and Payment Bonds — Unless the amount of the contract is $100,000 or less, any contract for the doing of any “public work” is not valid unless both a performance bond and payment bond are given as required by Minn. Stat. § 574.26. The City forms should be used. The City forms are available from the City Clerk. 2.6. Notice — For all contracts requiring advertising for bids, legal notice must be published in the City’s official newspaper at least once 10 days before the last day for submission of bids. (Minn. Stat. § 412.311). If a project to be specially assessed under Minn. Stat. Chapter 429 is estimated to be $100,000 and over, then publication must be made at least once in the official newspaper, and at least once in a newspaper published in the City of Minneapolis or a trade paper (as defined in Minn. Stat. § 429.041, Subd. 1), not less than three weeks before the last date for submission of bids. For construction contracts and heavy equipment purchases, notices should also be published in the Page | 8 Construction Bulletin. Non–legal notices may be included in such publications as the League of Minnesota Cities magazine for wider coverage. 2.7. Notice Information — The published notice should contain the following information (Minn. Stat. § 429.041, Subd. 1): a. A description of the project or purchase; b. The availability of specifications in the office of the City Clerk or the office of the department that is managing the bidding process; c. The last day for submission of bids and the place where they are due; d. The time and the place for the opening of bids; e. That no bid will be considered unless sealed and filed with the Clerk, and accompanied by the check or bid bond as required by the City; and f. That the City reserves the right to reject any or all bids, and any or all alternative bids. 2.8. Bid Opening and Award — On the date and at the time for opening of bids, all bids should be opened and read for interested parties. The opening should be scheduled at least three (3) working days before the Council meeting (typically the Thursday before) for inclusion in Council packets. Bids should be tabulated on the Request for Purchase form (APPENDIX A). It is important that all bid proposals be studied carefully prior to making recommendations to the Council for the award of bid. Recommendation on award of bid should be made not only on price, but on quality and quantity as specified and also on responsibility (See “Lowest Responsible Bidder” below). The award should go to the lowest responsible bidder meeting specifications. Once the bid is awarded by the Council, all bid results should be available to anyone requesting them. Construction Bulletin should be informed on items advertised in that publication. Once the Council accepts the lowest responsible bidder and awards the contract, a contract exists even if the written contract is not formally signed. 2.9. Splitting Contracts — You must not attempt to avoid the bidding requirements by splitting a contract into several contracts, each of which is below the minimum amount requiring bids. If materials or work logically fall into two separate contracts because they involve separate transactions, as for the service of contractors specializing in different kinds of work, there is no reason why the contracts cannot be separated and dealt with separately. If splitting the purchase into separate contracts serves no specific purpose except to reduce the amount of the contract to less than the applicable minimum, the contract could be considered invalid. 2.10. Rejecting Bids — The City may and should reserve the right to reject any or all bids, or to waive immaterial informalities or irregularities. Unless the bid responds to the specifications in all material respects, it is not a bid, but a new proposition that should be rejected. 2.11. Lowest Responsible Bidder — “Responsible” in bid statutes, means not only financial responsibility but also integrity, skill, and the likelihood of the bidder’s doing faithful and satisfactory work. Value does not always depend on price alone. Where plans and specifications demand consideration of several factors and no single bid is lowest in all these factors, weight should be given to the various factors, and, considering all of them, accept what is deemed to be the lowest responsible bid. Page | 9 2.12. Opening and Tabulating Bids — The bidding process should be kept open until the time and date deadline has expired. The process of opening and tabulating bids must be open to the public. 2.13. When Bidding is Unnecessary — It is not necessary for the City to advertise for bids for: a. Professional services such as engineers, lawyers, architects, accountants, and other services requiring technical, scientific, or professional training; b. The purchase or lease of real estate; c. Non–competitive products which are patented or obtainable from only one source. (Minn. Stat. § 471.36); d. For insurance generally (except that group insurance requires published notice seeking competitive proposals). (Minn. Stat. § 471.6161); e. The purchase, lease, sale, or other acquisition or disposition of equipment, supplies, materials, or other property, including real property from or to the United States of America, or any agency thereof, or any agency of the State of Minnesota, or any political subdivision of Minnesota. (Minn. Stat. § 471.64); f. Contracts for “guaranteed energy savings” where the contractor guarantees the energy cost savings of insulation, or efficient heating or cooling systems, will be greater than the cost of the product. (Minn. Stat. § 471.345, Subd. 13); and g. If Edina establishes a set aside program for buying goods and services from economically disadvantaged persons or from rehabilitation facilities, contracts can be made to such supplier without bidding, subject to some limitations. (Minn. Stat. § 471.345, Subd. 8 and 12). 2.14. Other Provisions –– The provisions of paragraphs 1.13, 1.14, 1.15, 1.16, 1.17, 1.18, 1.19, 1.20 and 1.21 also apply to this Part II. Requirements — The sale or disposal of property that has lawfully come into the possession of the City, and all City property in need of disposal, shall be disposed of via the following means. The sale of real estate is not included in these requirements. Also, property valued over $100,000 must be bid. Other property for disposal is divided into categories by method of receipt as follows: 1) If purchased by the City, the material can be disposed of by any means the City determines, including the auctions below set out; and 2) Property obtained incident to law enforcement actions, abandoned or turned over to the City as lost and remaining unclaimed for over 60 days may be disposed of after that time period at public auction or by private sale to certain nonprofit organizations. (Section 155 of City Code). 3) In the case of abandoned vehicles, the City shall comply with the provisions of Minn. Stat. Chapter 168B in selling such vehicles. Page | 10 4) In the case of property forfeited to the City pursuant to Minn. Stat. § 609.531 through § 609.5317, the City shall comply with the provisions of said statutes in disposing of such property. Auction — The City may hold an auction, as needed, to dispose of all material not disposed of in any other manner. Sale of Unclaimed Property by Private Sale — The City may enter into contracts with nonprofit organizations that have a significant mission of community involvement for the purpose of disposing of unclaimed property through the sale of such property by such nonprofit organization. Any contract with a nonprofit organization for the disposition of unclaimed property must be approved by the City Council. Cooperative County Auction — A vehicle no longer needed by the City should be disposed of at the Cooperative County Auction(s) during the May–October time frame. Participation may hinge on participation in city vehicle purchases.