Loading...
Playing by the Rules Ch. 3 Chapter 3 Procurement and Contracting Contents Page 3.1 General Procurement Requirements ......................................................................................................3-3 3.2 Permitted Approaches to Procurement .................................................................................................3-5 3.3 Bonding Requirements ................................................................................................................................3-7 3.4 Use of Local Businesses, Contracting with Small, Minority, and/or Women-Owned Businesses .................................................................................................................................3-8 Exercise for Chapter 3—Procurement and Contracting Questions ................................................... 3-10 Exercise for Chapter 3—Procurement and Contracting Answers....................................................... 3-11 Playing by the Rules: CDBG Administrative Systems | Chapter 3-1 Playing by the Rules: CDBG Administrative Systems | Chapter 3-2 Notes — - - Chapter 3: Procurement and Contracting In this chapter, you will fnd the requirements for purchasing materials, products, or services with CDBG funds. Regardless of whether you are a small agency purchasing ofce supplies or a large organization contracting for millions of dollars of construction services, the requirements for the purchasing process ensure that you: • Follow a free and open competitive process in acquiring products or services. • Properly document your purchasing activities and decisions. • Observe the special rules for specific types of purchases (micro and small purchases, competitive sealed bids, competitive proposals, and sole source procurements). • Properly bond and insure large construction contracts and/or subcontracts. • Use local businesses and contract with small, minority, and/or women-owned busi- nesses whenever feasible. When spending taxpayers’ money, no matter the amount, you must confrm that you are paying competitive prices and getting the best value for your community. The rules require that you pay a fair price; they do not require that you get the latest technology at the low- est possible cost, but they do require that you shop based on price and that you get what you paid for. You should use CDBG funds to buy only what is necessary under the terms of your Subrecipient Agreement. You need to: 1) ensure the integrity of your purchasing de- cisions; 2) document the history, results, and decisions of all your purchases; 3) follow the rules for certain kinds of transactions; and 4) ofer opportunities to local and disadvantaged Observing basic rules makes purchasing decisions more efficient. Example Set up a standardized purchasing system for getting price quotes and preparing purchase orders. Results • Avoids reinventing the wheel every time you buy materials and supplies. • Stretches limited budgets. • Documents fair price paid for every pur chase. frms to respond to your purchasing needs. By following these requirements, you ensure that CDBG funds are not being wasted. Whenever you use CDBG funds to purchase materials or services, you need to document that you followed the rules to get the lowest price. To avoid disallowed costs and/or repayment for ineligible expenditures, document the circumstances, need, and details of every purchasing decision, whether it involves renting an ofce or buying two-by-fours. Initially, this may be burdensome, but full documentation will help you avoid serious problems in the long run. AS YOU READ THIS CHAPTER, THINK ABOUT… 1. Setting up a purchasing system designed to confrm that you are getting the best value for your money. 2. Creating or updating the list of vendors and contractors from whom you plan to purchase materials, supplies, equipment, and services over the next 12 months. 3. Developing or updating a written procurement manual describing your procedures and a code of conduct for all employees involved in purchasing. 4. Identifying ways to confrm that all purchasing documents cost and price solicitations, purchase orders, contracts, delivery receipts, invoices, payables records, and check vouch ers—are integrated into one system. 5. Ensuring the honesty and fairness of all your vendor relationships and purchasing decisions. faster than progress is attained). Playing by the Rules: CDBG Administrative Systems | Chapter 3-3 Notes - - - Chapter 3: Procurement and Contracting 3.1 General Procurement Requirements The procurement standards and procedures are to certify that supplies, equipment, construc- tion, and other services acquired in whole or in part with Federal funds are: • Obtained as efciently and economically as possible. • Acquired in a manner that provides open and free competition (2 CFR 200.319(a)). Your solicitations must clearly explain all requirements that the bidder/oferor must achieve for you to further consider his or her bid/ofer. Requests for goods and services must contain a clear and accurate description of the material, product, or service to be purchased, eliminating any features which unduly restrict competition. Examples of restrictive competition include: • Placing unreasonable qualifying require- ments on frms. STATES: 24 CFR 570.489(g) and (h) require that States develop policies and procedures • Requiring unnecessary experience and ex-for themselves and for their units of general cessive bonding. local government (UGLGs) relating to pro • Inappropriately specifying “brand name” curement and confict of interest,  respective products and not allowing “an equal or ly. These State CDBG regulations give special similar” product. attention to conficts in procurement, includ ing the acquisition and disposition of real • Noncompetitive pricing practices between property and the provision of assistance with frms or afliated companies. CDBG funds by the UGLG or its subrecipients, • Noncompetitive awards to consultants on to individuals, businesses and other private retainer contracts. entities. Make your contract award to the bidder/ofer- or whose bid/ofer is most responsive to your solicitation when taking into account price and other factors. You may reject any or all bids with documented reasons. You must confrm that awards are made only to responsible contractors possessing the ability to perform successfully based on the terms and conditions of the proposed procurement. You must also review the contractor’s integrity, compliance with public policy, record of past performance, and fnancial and technical resources. The Federal contracting guidelines ensure that contracts are structured and managed consis- tently with good administrative practices, using sound business judgment. The Federal procurement requirements are at Uniform Guidance 2 CFR Part 200, Subpart D, Procurement Standards and include the following: • All procurement transactions for the acquisition of property or services must be conducted consistent with the standards in 2 CFR 200.318 and 2 CFR 200.319, and one of the procure- ment methods at 2 CFR 200.320. • All organizations must maintain records detailing the history of your procurement (2 CFR 200.318(2)(i)). These records should include your rationale for the method of procure- ment used, selection of contract type, contractor selection/rejection process, and the basis for the contract cost or price. • Pre-qualified lists of vendors/contractors, if used, must be current, must be developed through open solicitation, must include several qualifed sources, and must allow entry of other frms to qualify at any time during the solicitation period (2 CFR 200.319(e)). • To eliminate an unfair competitive advantage, you must exclude contractors that develop or draft specifications, requirements, statements of work, invitations for bids (IFB), and/or requests for proposals from competing for such procurement (2 CFR 200.319(b)). • You must certify that awards are not made to any party which is debarred or suspend-ed or is otherwise excluded from or ineligible for participation in Federal assistance programs under Executive Order 12549, “Debarment and Suspension” (24 CFR 570.609 and 2 CFR 200.214). • You must check the Federal Government’s System for Award Management (SAM) and conduct a public search before making an award. Playing by the Rules: CDBG Administrative Systems | Chapter 3-4 Notes Chapter 3: Procurement and Contracting • You must have clear written selection procedures for procurement transactions (2 CFR 200.319(d)) and confrm that: • You are avoiding the purchase of unnecessary or duplicate items. Where appro- priate, you should analyze whether a lease or a purchase is more cost-efective (2 CFR 200.318(d)). • To foster greater economy and efciency, you should consider entering into state or lo- cal intergovernmental agreements for procurement for common or shared goods and services (2 CFR 200.318(e)) or using Federal excess and surplus property when feasible and reduces project costs (2 CFR 200.318(f)). • As appropriate, you should provide a preference for the purchase or use of goods produced in the United States, including but not limited to such items as iron, alu- minum, steel, cement, glass, lumber, plastics, and other manufactured products. Lan- guage to this efect must be included in all subawards, such as contracts and purchase orders for work or products (2 CFR 200.322). • Authorized official(s) of your organization have signed all purchase orders and contracts as required by your procurement procedures. • Items delivered and paid for are consistent with the purchase order and/or con- tract for the goods or services. • Timely payment to vendors occurs once the order is delivered, inspected, and accept- ed, and the payment is authorized. • A cost or price analysis is performed for every procurement action—including contract modifcations—and documented in your fles. The method and degree of analysis are dependent on the facts surrounding the particular procurement situation. You must make independent estimates before receiving bids or proposals (2 CFR 200.324(a)). • Profit or fee is negotiated separately from price where competition is lacking. To es- tablish a fair and reasonable proft, consideration will be given to the following factors: • The complexity of the work to be performed. • The risk borne by the contractor. • The contractor’s investment. • The amount of subcontracting. • The quality of past performance. • Industry rates for the area (2 CFR 200.324(b)). • Contract provisions described in Appendix II to Part 200 must be included in any con- tracts, as applicable. • Your organization must not use “cost plus a percentage of cost” pricing for contracts (2 CFR 200.324(d)). You may use “time and material” type contracts only after you have docu- mented that no other contract is suitable, and the contract includes a ceiling price that the contractor exceeds at its own risk. The cost is the sum of the actual materials, direct labor hours, general administration, and proft (2 CFR 200.318(j)(1-2)). • You must have procedures in place to handle and resolve protests and disputes relating to your procurement and in all instances report such disputes to the grantee (2 CFR 200.318(a)). • You must have a documented system of contract administration for determining the adequacy of contractor performance (2 CFR 200.318(h)). • Your organization must have a written code of conduct for all persons engaged in the award or administration of contracts. Such standards must ensure that no employee, ofcer, or agent may participate in the selection, award, or administration of a contract supported by a Federal award if he or she has a real or apparent confict of interest (2 CFR 200.318 (c)(1)). Playing by the Rules: CDBG Administrative Systems | Chapter 3-5 Notes Chapter 3: Procurement and Contracting 3.2 Permitted Approaches to Procurement Depending on the scarcity of an item or service desired, and the size of the purchase, you may use diferent methods of procurement under the Federal regulations.1 Permitted Procurement Approaches Method Preferred for: Type of Purchases Other Requirements/Notes Micro-pur-When your For supplies or You must distribute purchases equitably chases total purchase services. among qualifed suppliers (2 CFR 200.320(a) (2 CFR is less than (1)). 200.320(a) $10,000. See 2 (1)) CFR 200.1 for the defnition of micro-purchase threshold. Small purchases (2 CFR 200.320(a) (2)) Simple and informal purchasing decisions. Buying services, supplies, or other property that does not exceed the simplifed acquisition threshold2 amount (currently $250,000) You must receive price quotes from several qualifed sources Your procurement of more than $250,000 over the simplifed acquisition threshold may not be broken up into smaller parts solely to qualify for this less complicated process under the “small purchases” approach. Competitive Firm, fxed-price Preferred for but not Two or more responsible bidders are willing sealed bids contract (lump limited to construc-and able to compete (2 CFR 200.320(b)(1)(i) (formal sum or unit tion services. (B)). advertise- ment, 2 CFR 200.320(b) (1)) price) where the selection is based on price (2 CFR 200.320(b)(1)) You must solicit bids from an adequate number of sources and provide sufcient response time. Local and tribal governments must publicly advertise invitations for bids. (2 CFR 200.320(b)(1)(ii)(A)). Your IFB must include complete, accurate, and realistic specifcations and clear defni- tions of items or services needed that are sufciently detailed for bidders to properly respond, plus any pertinent attachments (2 CFR 200.320(b)(1)(ii)(B)). Bids must be opened publicly at the time and place stated in your IFB (2 CFR 200.320(b)(1) (ii)(C)). If awarded, the contract must be given to the lowest responsive and responsible bidder (you can decide to reject all bids, document- ing the reason, along with the reason for rejecting any bids [2 CFR 200.320(b)(1)(ii)(D) and (E)], and retain this documentation in the fle.) 1 Subrecipients need to be aware, however, that local or state laws or policies may require additional procedures or set lower dollar-value thresholds for some forms of procurement. Therefore, it is important to check with your grantee to learn whether any such additional procurement provisions apply. 2 Simplifed Threshold is set by the Federal Acquisition Regulation at 48 CFR Subpart 2.1 (defnitions) and in accor- dance with 41 U.S. C. 1908 and is periodically adjusted for infation. See OMB Memorandum 18-18. Playing by the Rules: CDBG Administrative Systems | Chapter 3-6 Notes Chapter 3: Procurement and Contracting Permitted Procurement Approaches Method Preferred for: Type of Purchases Other Requirements/Notes Competitive A fxed price Most professional Used only when conditions are not appropri- proposals or cost-reim-services, technology ate for sealed bids. Mo re than one source (2 CFR bursement systems, software, must be solicited from an adequate number 200.320(b) contract where etc. of qualifed sources. (2)) the award is based upon an evaluation process and not solely on price. Your Request for Proposal (RFP) must clearly and accurately state the technical require- ments for the goods and services required and be publicized, identifying all evaluation factors with their relative importance (2 CFR Architectural/Engi- neering Services (A/E) 200.320(b)(2)(ii)). You may negotiate with the bidders who are deemed responsive, responsible, and within a competitive price range, based on your evaluation of the bidders’ pricing and technical proposals. After negotiations, you may allow these bidders to submit a “best and fnal” ofer. You must award the contract to the respon- sible oferor whose proposal is most advan- tageous to your organization, with price and other factors considered (2 CFR 200.320(b)(2) (iii)). You may use competitive proposal proce- dures for qualifcations-based procurement of A/E professional services; in such cases, you evaluate the frm’s qualifcations and select the most qualifed oferor, subject to negotiation of fair and reasonable compen- sation. You may use this method, where you do not use price as a selection factor, only in the procurement of A/E professional services. You may not use this method to purchase other types of services through A/E frms that are a potential source to perform the proposed project (see 2 CFR 200.320(b)(2) (iv)).3 Generally, the Federal procurement regulations discourage the use of local geographical preferences in the evaluation of bids or proposals (except where mandated by Federal statutes), due to the restrictions on open competition that result. However, in procuring A/E services, you may consider geographic location as long as this criterion leaves an appropriate number of qualifed frms (2 CFR 200.319(c)). It is important to note that many states have laws which require the use of qualifcations-based selection (QBS) procedures when purchasing professional A/E services. Absent a state QBS law, a recipient could opt to use QBS or competitive proposals. In the latter instance, prices are solicited from all contractors and considered in the selection process. 3 Playing by the Rules: CDBG Administrative Systems | Chapter 3-7 Notes Chapter 3: Procurement and Contracting Permitted Procurement Approaches Method Preferred for: Type of Purchases Other Requirements/Notes Noncom-Single source. Noncompetitive negotiations may be used petitive Public only under very limited circumstances when proposals/ sole source (2 CFR emergency or condition. another procurement method is not feasible because: • The item or service is only available from a 200.320(c)) single source. (2 CFR 200.320(c)(2)). • There is a public emergency or condition requiring urgency that cannot be delayed (2 CFR 200.320(c)(3)). • The Federal awarding agency or pass- through entity has authorized noncompeti- tive proposals upon your written request (2 CFR 200.320(c)(4)). • After solicitation from several sources, competition is determined inadequate. (2 CFR 200.320(c)(5)). For the acquisition of property or services, the aggregate dollar amount cannot exceed the micro-purchase threshold. Among the procurement approaches previously described, the competitive sealed bid resulting in a frm, fxed-price contract is the preferred procurement approach for construction when: • There are two or more responsible and qualifed providers (2 CFR 200.320(b)(1)(i)(B)). • The requirements and specifcations are thoroughly detailed (2 CFR 200.320(b)(1)(i)(A)). • The selection of the successful bidder can be made principally based on price (2 CFR 200.320(b)(1)(i)(c). For complicated rehabilitation projects or unique human service activities, other forms of com- petitive and non-competitive procurement may be necessary or desirable. When the price is not the single most important objective, it is still important to assure the highest quality of purchase at the lowest reasonable price through “open and free competition.” 3.3 Bonding Requirements The requirements for bonding in procurement are as follows: • For construction or facility improvement contracts or subcontracts exceeding the simplified acquisition threshold, you must ensure that the Federal interest is adequately protected. You may accomplish this by meeting the following minimum Federal requirements (see 2 CFR 200.326),4 for bid guarantees, performance bonds, and payment bonds. • A bid guarantee from each bidder equal to 5 percent of the bid price must be a frm commitment in the form of a bid bond, certifed check, or other negotiable instrument provided at the time of the bid as assurance that the bidder is prepared to execute a contract within the time specifed for the bid amount (2 CFR 200.326(a)). • A performance bond from the (sub)contractor must be for 100 percent of the con-tract price to secure the contractor’s fulfllment of all obligations under the contract (2 CFR 200.326(b)). • A payment bond from the (sub)contractor must be 100 percent of the contract price to assure payment of all persons supplying labor and material under the contract (2 CFR 200.326(c)). For the current Simplifed Acquisition Threshold, see OMB Memorandum 18-18. 4 Playing by the Rules: CDBG Administrative Systems | Chapter 3-8 Notes Chapter 3: Procurement and Contracting 3.4 Use of Local Businesses, Contracting with Small, Minority, and/or Women-Owned Businesses Federal regulations, both CDBG and non-CDBG, require that you make every efort to use local business frms and contract with small, minority-owned, and/or women-owned businesses in the procurement process. Specifcally, • You must take afrmative steps to use small frms, minority-owned frms, women-owned frms, or labor surplus area frms in your CDBG-fnanced activities (2 CFR 200.321). Afrma- tive eforts you should make include: • Placing these businesses on solicitation lists as potential sources (2 CFR 200.321(b) (1)). • Ensuring that such businesses are solicited as potential sources (2 CFR 200.321(b)(2)). • Dividing total requirements and/or delivery schedules into smaller tasks, when economically feasible, to permit maximum participation of such businesses (2 CFR 200.321(b)(3) and (4)). • Requiring prime contractors, when subcontracts are let, to take afrmative steps to contract with these frms (2 CFR 200.321(b)(6)). • Section 3 of the Housing and Community Development Act of 1968, requires that sub- recipients make reasonable eforts to award contracts for construction-related work to be performed by eligible business concerns located in or owned by residents of the target area. The purpose of Section 3 is to ensure that low- and very low-income persons, especially recipients of housing assistance, receive maximum beneft from the employment and other economic opportunities generated by CDBG-assisted activities (see 24 CFR 570.607(b)). You should note, however, that the desire to award contracts to local frms is not a legitimate excuse for avoiding an open and competitive procurement process. Playing by the Rules: CDBG Administrative Systems | Chapter 3-9 Notes Use the following chart to determine if your project is subject to the requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended. Are you a Recipient of an Award of $200,000+ or a contractor/subcontractor for covered work with a contract of $100,000+? Must demonstrate good faith effort to meet the numerical goals established in the Recipi- ent’s Section 3 plan. If your contractors have subcontracts of $100.000+, the subcontractor must demonstrate a good faith effort to meet numerical goals and must have the Section 3 clause in their contracts. Will there be training or hiring from this award or contracting activities? YESNO NO Recipient Contractor/Subcontractor YES Is the funded assistance for housing construc-tion, rehabilitation, or other public construc-tion work? Section 3 does not apply. However, you are encouraged to provide training, employ-ment, and contracting oppor- tunities to low- and very low-income residents and businesses. Must ensure that contrac-tors/subcontractors awarded $100,000+ demonstrate a good faith effort in providing training, employment, and contracting opportunities to low- and very low-income residents and businesses as established in your section 3 plan. Must demonstrate a good faith effort in meeting numeri-cal goals established in the Recipient’s Section 3 plan. Chapter 3: Procurement and Contracting Exhibit 3–1: Section 3 Flow Chart Section 3 requirements apply to the entire project or activity funded with Section 3 covered assistance, regardless of whether the Section 3 activity is fully or partially funded with Section 3 covered assistance. Playing by the Rules: CDBG Administrative Systems | Chapter 3-10 Notes Chapter 3: Procurement and Contracting Exercise for Chapter 3—Procurement and Contracting Questions Circle the correct answer. 1. The reason for Federal competitive procurement requirements is: a. To ensure that supplies, equipment, and services are acquired efciently. b. To help guarantee a “fair” price for items or services bought with Federal funds. c. To give the public confdence in the procurement practices of Federal assistance programs. d. To allow more frms, particularly local frms, small businesses, and minority- or women-owned businesses, to have an opportunity to compete for work under Federal programs. e. All of the above. 2. A cost or price analysis and documentation of the procurement process is only required for major purchases. TRUE FALSE 3. A governmental subrecipient is justifed in breaking up a procurement into components of $150,000 or less to utilize the “small purchase” procedures if the procurement process for each purchase is still competitive. TRUE FALSE 4. The “Section 3” requirements for awarding work to local business concerns take prece- dence over the competitive procurement requirements. TRUE FALSE The answers are on the next page. Playing by the Rules: CDBG Administrative Systems | Chapter 3-11 Notes Chapter 3: Procurement and Contracting Exercise for Chapter 3—Procurement and Contracting Answers 1. (e) All of the above. 2. FALSE. A subrecipient must do a cost or price analysis and maintain documentation of the procurement process for every procurement. However, the level of complexity of the analysis and detail of the documentation should vary by the size of the procurement and the extent of competitiveness in the process. Therefore, the purchase of desktop statio- nery supplies will require that the subrecipient maintain a very modest level of documen- tation of how comparative prices were analyzed (such as through catalogs and/or price quotes). A sole-source procurement, on the other hand, will require much more extensive documentation to justify the noncompetitive process and to demonstrate that the price incurred was fair. 3. FALSE. The standard for “small purchases” is that the procurement for services, supplies, or property does not exceed $250,000 in the aggregate. For example, it is not allowable to break up arbitrarily a $300,000 procurement of weatherization materials into $100,000 purchases just to be able to use the less complicated “small purchase” procedures, since the larger purchase volume entailed in a larger purchase may be likely to result in lower per-unit prices. The purchase of such materials should be handled through a sealed bid method of procurement. 4. FALSE. Both sets of requirements must be satisfed. Therefore, the competitive procure- ment procedures adopted by the subrecipient must also be designed to facilitate and encourage local businesses to compete for the proposed work.