Finance Committee Considers Changes to Bid Process

The Beverly Hills Audit and Finance Committee met with its City Council Liaisons on Nov. 2 to review a broad set of recommendations to the City’s process of soliciting and securing contracts for goods and services. The recommendations, made in a report by a government consultant, seek to make the procurement process more efficient. The Committee’s liaisons supported the recommendations with some minor suggestions of their own, sending the report on to the City Council.

“When I came to Beverly Hills, one of the things that I was a little surprised at was how decentralized purchasing was in the city,” said Director of Finance Jeff Muir.

In part because of this observation, the City contracted with a local government consulting company, Management Partners, to review Citywide procurement, the process by which the City requests and secures contracts. The firm held meetings with representatives from each department and compared the City’s procedures to six comparable cities.

Management Partners delivered a report with five major observations and 34 recommendations. They found that the City uses a decentralized purchasing model for seeking contracts. The Finance Department, the report said, has insufficient levels of staffing to “offer core purchasing services.” Compounding this issue, the Finance Department relies largely on word-of-mouth for learning procedures, rather than written guidelines. Finally, the report observed that the threshold for approval by the City Council on contracts was lower than in other cities.

The staff report presented to the Committee grouped the 34 recommendations into nine major and three minor categories. The Committee mainly focused on the recommendations that would make changes to the municipal code.

The first major category comprises recommended updates to the City’s tiered system of delegating purchases. Currently, the City has four “approval levels” for granting contracts and making purchases. At existing levels, the City Council approves bids over $50,000, a significantly lower threshold than in cities like Burbank, Mountain View, or Santa Monica. The City Manager approves bids up to $50,000, the Director of Finance oversees bids up to $25,000, and department heads approve bids up to $7,500. This tiered system is meant to delegate tasks, freeing up the City Council to consider the largest contracts.

“Approval levels in Beverly Hills were last increased 14 years ago in 2006,” the staff report notes. “The relatively low current City Council threshold results in additional agenda items for many routine contracts or purchases, requiring significant staff and City Council time.”

On top of the onus it places on the City Council, it also slows down the procurement process for many smaller contracts. On average, the report found, the City Council approval process adds more than a month and a half to the gestation time of a contract.

Management Partners recommended that the City increase its approval levels for the City Council to over $100,000, up to $100,000 for the City Manager, up to $50,000 for the Director of Finance, and up to $10,000 for department heads.

The staff report makes an additional recommendation of its own to fix an oversight in the municipal code. Currently, a “contracting officer” (such as the City Manager, the Director of Finance, or a department head) cannot make a multiyear contract that goes over their approval threshold, even if it falls within the threshold on a per year basis. So, for example, if a department head enters into a five-year agreement for $2,000 a year (well within the approval threshold of $7,500), the contract would instead get counted as $10,000–moving it up into the next approval level. The staff report makes the case that this reform would streamline the contract approving process.

“In a City where demands are high for new projects and services, this would assist departments in being able to enter into these contracts more quickly, but with the same level of compliance required on an annual basis for obtaining quotes/formal bids, respectively based on the annual purchasing thresholds,” it reads.

The staff report recommends giving more authority to the Director of Information Technology to purchase computer software and hardware. The IT Director would have the equivalent purchasing power of a department head, meaning up to $10,000 under the recommended changes. Again, the impetus behind the change is efficiency, explained Muir.

“It would just provide some additional authority to the IT director to more expeditiously execute some of those things on an annual basis,” he said.

To balance the efficiency of the system with oversight, the report references a quarterly report that the Finance Department would provide the City Council on purchases made on the second and third levels. While the City Council would no longer deal with lower sum contracts, it would still be aware of what is being awarded. Staff recommended that this go from a quarterly to an annual report.

The report from Management Partners also recommended hiring a Purchasing Manager to coordinate purchasing among various departments. The position, the staff report notes, has already been created and approved by the City Council. The position has yet to be filled.

Councilmember Robert Wunderlich raised the possibility that, under the recommendation, the City Manager could enter into a $100,000 a year contract for five years without City Council approval–in effect, a $500,000 commitment.

“I do think, obviously, the City manager would use his or her discretion in terms of whether they were comfortable administratively approving something like that,” said Muir, “but I would not disagree that the authority would exist to enter into a $100,000 a year contract.”

City Treasurer Howard Fisher followed up on this line of questioning, asking about the five-year limit on annual contracts.  “So, you could end up with a situation where IT has a one year contract [with] five renewals…and at the end of the five years, it goes back to IT to make the same decision. Is that formal review for another five years?”

In response, Muir introduced the possibility of an addendum to the recommendations. “Right now, we have language that would require after five years at the same vendor, we require new bidding to be done. We don’t require it, but we could also require that if the same vendor is selected, that would have to come to the City Council for approval at that point. Maybe that would eliminate a department with multi-year authority from [making] an agreement longer than five years without it coming before the City Council.”

Along with Wunderlich and Fisher, Mayor Lester Friedman also gave his approval on the recommendations, provided that staff make some tweaks to the provisions on the IT Department.

The overall purpose of the recommendations, said Muir, is to improve on the City’s ability to deliver services to the community.

“We’re a City that has high expectations from our community,” he said. “We want to be very responsive.”

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