Staff is proposing that Council make the following modifications in the Sunnyvale Municipal Code relative to procurement and contracting:

1. Add a new Chapter 2.07 entitled "Purchase, Sale or Lease of City Property".
2. Repeal the existing Chapter 2.08 ("Purchasing System") and replace it with a new Chapter 2.08 entitled "Purchases of Goods and Services".
3. Add a new Chapter 2.09 entitled "Public Works Contracting".

Section 1317 of the City of Sunnyvale Charter establishes a centralized purchasing system for City departments, offices and agencies. Section 1309 of the Charter describes the process for public works contracts.

Shortly after the Charter was adopted in 1949, the City Council adopted the first Purchasing Ordinance. That ordinance established the City’s procurement policies and procedures which are fundamentally the same in the current Purchasing Ordinance.

The most significant differences between the existing Purchasing Ordinance and the original ordinance relate to the dollar threshold at which contracts must be awarded by Council. This threshold has been increased only four times. Originally, this threshold was $1,000. This was increased in 1968 to $2,500; in 1978, to $5,000; in 1982, to $20,000; and in 1989, to $35,000 where it remains at this time.

Until 1989, the threshold at which bids were advertised and opened publicly (formal bids) was identical to the threshold requiring Council award of contract. This changed in 1989, however, when the formal bid threshold remained at $20,000 while the Council award threshold increased to $35,000. This $20,000 threshold continues in the existing Purchasing Ordinance.

In 1968 and again in 1978, additional sections were added to the original ordinance. However, these sections did not significantly change the fundamental process established by the original ordinance.

In 1986, Section 2.08.110 was added, establishing the process for entering into long-term leases of City property; and in 1990, Section 2.08.025 was added, granting a 1 percent purchasing preference to Sunnyvale businesses, based upon the City’s 1 percent share of taxable sales within the City of Sunnyvale.

It is obvious that the business environment and procurement practices have changed dramatically since the adoption of the original Purchasing Ordinance in 1949. Because the existing Purchasing Ordinance is based upon the original, it is becoming increasingly difficult for staff to make efficient and cost effective purchases using the outdated processes mandated by the existing ordinance.

• The primary focus of the original, and subsequently the existing ordinance is the purchase of materials, supplies and equipment. The growth of the service industry and the importance of outsourcing services is not adequately recognized and addressed. This is true to such an extent that bids for services are not currently required to be advertised or opened publicly. In addition, there are only minor references to contracting for public works projects.
• Modern public procurement trends show that source selection based solely on price is not always in the best interest of the agency, and the lowest bid does not necessarily represent best value. The existing ordinance does not recognize any bidding vehicle other than simple notices inviting bids and contracts awarded to the lowest responsible bidders.
• The existing ordinance mandates outdated business practices, such as newspaper advertisement of bids, distribution of bid invitations by mail, etc. Staff is unable to take advantage of technological advances to improve efficiency, decrease procurement cycle time and reduce processing costs.
• The formal bid and Council award dollar thresholds in the existing ordinance have remained unchanged for ten years and have, therefore, not kept up with inflation.

Staff has examined the ordinances and best practices of many other cities as well as the American Bar Association’s Model Procurement Ordinance for Local Governments. Based upon extensive research, staff recommends repeal of the existing outdated Purchasing Ordinance (Chapter 2.08 of the Sunnyvale Municipal Code) and its replacement with three new chapters: Chapter 2.07 relating to the purchase, sale or lease of City property; Chapter 2.08 relating to the procurement of goods and services; and Chapter 2.09 relating to public works contracting.

Chapter 2.07. Purchase, Sale or Lease of City Property – The long-term lease of City real property is addressed in the existing Purchasing Ordinance under Section 2.08.110. However, the purchase and sale of real property have always been outside the authority of the Purchasing Officer.

Staff recommends the establishment of a separate chapter relating to all types of real property transactions.

Chapter 2.08. Purchases of Goods and Services – The proposed ordinance provides a number of advantages over the existing ordinance.

• Procurement responsibilities are clearly defined, thereby eliminating the potential for confusion and duplication of effort.

• Procurement methods are authorized in addition to the standard invitation for bids. This will give purchasing staff the flexibility to select the most advantageous method, based upon the type of purchase. In addition, the City Manager is authorized to approve additional methods on an experimental basis, provided that they do not inhibit fair and open competition. This will allow staff to investigate new procurement opportunities, such as electronic commerce and web-based transactions.

• The use of the Internet is authorized for both the advertising of bids and the distribution of bid invitations, thereby saving both time and money.

• The dollar threshold for both formal bids and Council award is increased to $50,000 to reflect current purchasing power. Staff recommends that this amount be reviewed and modified, if appropriate, at least once every five years. Staff considered, but does not recommend, an automatic escalation clause based upon the Consumer Price Index. This would most likely result in a situation where the dollar threshold in actual practice differs from the threshold cited in the Municipal Code and could result in confusion for both bidders and end users.

• A code of ethics is established for City employees who participate in City procurements.

Chapter 2.09. Public Works Contracting - Up to now, contracts for public works projects were addressed only briefly in the Sunnyvale Municipal Code. Bidding and contracting practices have evolved, based upon Section 1309 of the Sunnyvale Charter and applicable state law. Responsibility for bidding public works projects has rested with the Department of Public Works.

While this informal structure has served the City well in the past, efficiencies can be realized by the adoption of the proposed ordinance. Responsibility for bidding public works projects is placed with the Purchasing Officer. This will increase the capacity of Public Works staff for complex engineering tasks. It will also provide an opportunity to standardize bidding processes and contract language, whenever possible; eliminate the duplication caused by having essentially two City procurement offices; and provide a single point of contact for bidders.

In addition to clearly delineating responsibilities for public works bids, the proposed ordinance establishes and communicates the City’s public works bidding processes to all interested persons.

Direct cost savings will be realized through the substitution of Internet advertising of bids for newspaper advertising. Increasing formal bid and Council award thresholds will also generate savings since more bids will be handled in a competitive, but simpler manner. Purchasing staff time formerly spent on complex procedures can now be used for more value-added tasks, such as identifying and participating in cooperative purchasing activities, which will generate even more savings.

Notice has been provided through the publication and posting of the City Council Agenda. In addition, all Reports to Council are available in the Library and on the City’s Internet home page.

ALTERNATIVES

1a. Add a new Chapter 2.07 entitled "Purchase, Sale or Lease of City Property".

1b. Repeal the existing Chapter 2.08 ("Purchasing System") and replace it with a new Chapter 2.08 entitled "Purchases of Goods and Services".

1c. Add a new Chapter 2.09 entitled "Public Works Contracting".

2. Make no changes to the Municipal Code.

Staff recommends Alternative 1, including a, b and c.

Prepared by:

Elaine Wesely
Purchasing Officer

Reviewed by:

Mary Bradley
Director of Finance

Reviewed by:

Marvin A. Rose
Director of Public Works

Approved by:

Robert S. LaSala
City Manager