CHAPTER 6
CONTRACTS FOR GOODS AND SERVICES

City employees do not have the authority to procure services, supplies or make any purchases on behalf of the City without the proper authorization. Failing to obtain the proper authorization can result in the individual being held personally responsible for the obligation.

TYPES OF CONTRACTS
Service Contracts – A contract between the City and a public or private entity that provides for the contracting of governmental services to that entity.

Consultant/Professional/Personal Services - A contract between the City and a private firm that provides for services that are of an advisory nature; i.e., services of attorneys, physicians, architects, engineers, accountants, consultants or other individuals possessing a high degree of technical skill.

The product may include anything from answers to specific questions of design of a system or plan and include workshops, seminars, retreats, and conferences for which paid expertise is retained by contract.

Expert Witnesses - When a contractor is retained as an expert witness in pending litigation, the rate paid shall be consistent with the complexity and difficulty of the testimony to be given, the going rate for similarly qualified contractors and the qualifications and reputation of the particular contractor. The contract shall detail exactly what the contractor is to do (submit to depositions, prepare a report, testify in court, make other appearances, etc.).

Grants - A gift or irrevocable commitment of money to the City, usually from the Federal or State government, to be expended to perform certain duties under the grant specifications. These duties become contractual obligations once the grant is accepted.

Joint Powers Contracts - A contract entered into by two or more public agencies whereby the agencies are to jointly exercise any power common to the contracting parties.

Lease and Lease Purchase Contracts - A contract for the use of real or personal property at a fixed price for an agreed period of time. It should be noted that a lease purchase agreement differs from a regular lease or rental agreement in that the City acquires ownership of the asset in the case of a lease purchase.
Equipment/Maintenance and Supply Contracts - A contract to provide ongoing maintenance, i.e., copiers, typewriters, etc..

Capital Project/Public Works Contracts - Contracts for such items as the construction, alteration or repair of public buildings, roads and bridges are considered Public Works contracts and are bound by separate regulations. Public Works contracts bidding and award procedures comply with the California Public Contract Code, the City Code, and various State and Federal codes and regulations as indicated by the individual project.

Procurement Contracts/Supply Agreements/Annual Contracts - Price agreements for various standard goods and/or services utilized by City departments, executed by the Purchasing Agent and vendor only.

Purchase Orders - Purchase orders issued by the Purchasing Agent are contracts. Typically its terms and conditions are very simple in nature and require minimal auditing.
Rental Contracts - A contract for limited use of real or personal property at an agreed price and for a limited term, i.e., month-to-month or less.

Confirming Purchase Order - An authorization provided by Purchasing to obtain goods or services. The authorization is usually verbal over the telephone. The Confirming Purchase Order is primarily used for emergency purchases. Additionally, the Confirming Purchase Order will not be issued for items on contract or for recurring requirements.

Blanket Purchase Order - Issued by Purchasing for the purchase of specific goods or services over a set period of time, with general terms and conditions.

Department Purchase Order - Initialized and approved at the departmental level with delegated Purchasing authority as a means to obtain goods and services without first processing a formal purchase order. Purchasing Card – A City-issued credit card used by City employees to make small dollar purchases of $2,500 or less.

Request for Check - Form typically used for payment of such things as books, subscriptions, insurance, memberships/dues, tuition reimbursement, UPS/Federal Express charges, conference registration, and utilities.

Emergency Contracts - Contracts where the item or items to be purchased or rented are immediately necessary. Such contracts must later be approved and confirmed by the Purchasing Agent or the City Council as provided by law. Emergency contract practices and procedures are discussed in Chapter 4, Methods of Acquisition.

Cost Plus and Cost Reimbursement Contracts - Any type of contract that will promote the best interests of the County may be used except cost-plus-a-percentage-of-cost contracts. Cost-plus-a-percentage-of-cost contracts offer no incentive to the contractor to minimize costs and thus are prohibited.

GENERAL REQUIREMENTS

Retroactive Contracts
No City contract shall be commenced prior to approval by the City Manager or the Purchasing Agent. Contractors and vendors shall be advised by the responsible department head that performance under the contract may not commence prior to such approval. No payment shall be made prior to this approval. Any variation of this policy must be justified in writing to the Purchasing Agent for approval.

The submission of a contract for approval after the date of service has begun or after the date of service has been completed is counter to the City's best interest and prescribed approval process.

Contract Periods
Contracts for services shall normally cover not more than one (1) year (i.e., twelve (12) consecutive months) although a longer period may be approved. Multiple year contracts must include provisions for early termination and must be contingent upon available funding.

Unless exempted, as provided for above, no contract shall extend, either by original contract or by renewals or amendments, for more than a total period of five (5) years (60 months) unless competitive bids have been sought or a RFP has been processed or there is a distinct and particular advantage to the City of Visalia to contract for longer periods of time.

Compensation for Contracts

• A lump sum or fixed price for the total project. This avoids detailed accounting and is a contract for a given result. The City's concern is not with the cost incurred by the contractor, but with the end product.
• Hourly rate plus cost reimbursement, with a ceiling on the total project or contract amount. The contractor agrees to charge only for the hours utilized at an agreed rate of compensation and reimbursement of costs. This method is also a contract for a given result.
• Daily compensation plus cost reimbursement to work "when requested" during the term of the contract for daily rate plus cost reimbursement, with a ceiling on the total project or contract amount. This type of contract shall be avoided if a given result can be contracted for.
• Monthly compensation for those contractors whose services are rendered generally not less than forty (40) hours per week and no longer than a one year period.
• Net rate contracts where compensation is based on an agreed rate per unit of service rendered.

To implement the first and second methods above, the contract shall provide for the following:

• The rate(s) of compensation to be paid the contractor(s). There are no set rates for paying contracts. Amounts to be paid depend upon the complexity and difficulty of the project, the going rate for similar work, both within and outside City service and the qualifications and reputation of the individual(s) or firm(s) being awarded the contract. Proposals submitted by individuals and firms will list the rate of compensation to be paid staff assigned to the contract by the bidder.
• Generally, independent contractors are responsible for bearing all costs incidental to the performance of their services to the City. However, in limited circumstances, it may be appropriate for the City to pay incidental costs as a separately stated item. Such an example is where it is the ordinary industry practice for the hiring firm to pay incidental costs such as travel to and from various points of business and such costs cannot reasonably be calculated in advance.
• The reimbursement of transportation costs and an allowance for per diem shall be paid at rates established by the City so as to reasonable reimburse a contractor for traveling expenses necessarily incurred while performing work for the City. Such rates shall generally not exceed those amounts paid to the City’s employees except as otherwise negotiated.
• Any other expenses shall be clearly and specifically set forth in the contract.
• Progress payments shall be avoided whenever possible and especially on contracts less than three (3) months in duration. If it is essential that progress payments be made, they shall not be made more frequently than monthly in arrears or at clearly identifiable stages of progress based upon written progress reports submitted with the Contractor’s invoices. In the aggregate, progress payments shall not exceed ninety percent (90%) of the total amount of the contract. Progress or other payments shall always be based on at least equivalent services rendered and not made in advance of service rendered, except as otherwise negotiated.
  In computing the amount of any progress payment, departments shall determine what the contractor has earned during the period for which payment is being made on the basis of contract terms.
  For the purposes hereof, "progress payment" is defined as including any partial payment of the contract price during the progress of work even though the work is broken down into clearly identifiable stages or separate tasks.
• Payments by the City in advance are legally permitted, but discouraged and shall be made only when necessary. So the City may realize income through investment of temporary excess monies, contracts or agreements containing provisions for advance payment by the City shall provide for small, periodic payments which are tied to deliverable goods or services, rather than total contract price or lump sum advances, whenever it is advantageous for the City to do so.

Contract Splitting
It is never permissible to split a contract or project in order to evade contract dollar limitation or bidding requirements.

Contracts for Approval That Have Not Been Competitively Bid
It is the policy of the City of Visalia that Invitations for Bid or Requests for Proposals shall be secured for contracts for goods or services which are proposed to be acquired by the City except in those certain cases provided for in Chapter 5, Bid Requirements and Procedures. Any department head who submits a contract to the City Manager or the Purchasing Agent for approval that has not undergone the competitive bid process for selection of a contractor, shall submit with that contract, in an Agenda Item or memorandum as appropriate, a complete explanation of how the recommended vendor was selected. That explanation shall include the names of those prospective contractors contacted and their proposed fee for service; why the negotiated approach for selecting a contractor was used instead of the competitive bid process; and any other comments that support the recommendation.

Contracts for Approval That have Not Been Bid By Purchasing
If the selection process has not been conducted by Purchasing, a transmittal letter shall accompany the contract which states the reason for and the method of selection of the proposed contractor, including names and addresses of other prospective contractors considered, the basis for determining the compensation, and its reasonableness and the necessity for any proposed progress payments. Full justification must be given if the proposal accepted is not the lowest price proposal received. All evaluations of RFP's for consulting services must be accompanied by a transmittal letter justifying and explaining the selection.

Contracting Out Services That Displace City Employees
Contracting for services is permissible when any of the following conditions can be met:

• The contract is for a new City function and the City Council has specifically mandated or authorized the performance of the work by independent contractors.
• The services contracted are not widely available within the City service, cannot be performed satisfactorily by City employees or are of such a highly specialized or technical nature that the expert knowledge, experience or ability are not available through the City system.
• The services are incidental to a contract for the purchase or lease of real or personal property. Contracts under this criterion known as "service agreements", shall include, but not be limited to, agreements to service or maintain office equipment or computers that are leased or rented.
• The legislative, administrative or legal goals and purposes cannot be accomplished through the utilization of persons employed by the City.
• Contracts are permissible under this criterion to protect against a conflict of interest or to insure independent and unbiased findings in cases where there is a clear need for different, outside perspective. These contracts shall include, but not be limited to, obtaining expert witnesses in litigation.
• City departments need private counsel because City Counsel has determined that a conflict of interest on the part of the City’s Legal department prevents it from representing the department.
• The contractor will provide equipment, materials, facilities or support services that could not feasibly be provide by the City in the location where the services are to be performed.
• The contractor will conduct training courses for which appropriately qualified City instructors are not available.
• The services are of such an urgent, temporary or occasional nature that the delay incumbent in their implementation under civil service would frustrate their very purpose.

Contract Award
Individuals involved in awarding contracts subject to approval by the City Council, City Manager or Purchasing Agent shall, at the time the contractor signs the contract, advise the contractor that the contract of no force until approved by the Purchasing Agent and that he/she may not commence performance until the contract has been approved by the Purchasing Agent and all required certificates of insurance and acceptable bonds have been filed with the City.

Retention of Contract
In all cases an original of the fully executed contract must remain on file in the office of the Purchasing Agent for no less than four (4) years from the date of completion of the work under the contract. In cases of litigation or other special circumstances (i.e., grant requirements), the contract is to remain on file until those special circumstances have been satisfied.

Administrative Costs and Salary Limitation Policy
It shall be the responsibility of any City official authorized by the City Council to negotiate or execute contracts, or to enter into agreements on behalf of the City, to review all applicable contracts to ensure that the contractor limits administrative costs (defines as those costs, direct or indirect, for managing and administering the delivery of the service for which the City is contracting) to a maximum of 15% of the total program budget and employee benefits to a maximum of 20% of salaries and to include the following language in each applicable contract:

"The contractor agrees to limit administrative cost to a maximum of 15% of the total program budget and to limit employee benefits to a maximum of 20% of total salaries for those employees working under this agreement for the term of this agreement. Failure to conform to this provision will be grounds for contract termination at the option of the City of Visalia."

The above salary provision shall be applied to renewal or multi-year contracts with non-profit organizations that primarily serve the City of Visalia and professional services contracts where the City of Visalia is the sole or primary client. For example:

• Community-based Organization Service Contracts related to Social Services, Health Services or Probation Services;
• Cultural Arts Program Contracts; and
• Professional Services Contracts.

This policy will not apply to contracts between the City and Federal and State governments.
The department head shall contact the Purchasing Agent where special circumstances exist on a case-by-case determination of applicability, indicating that it is in the best interest of the City that this policy not apply.

Cancellation Due to Unavailability of Funds in Succeeding Fiscal Periods (Funding-out Clause)
When funds are not appropriated or otherwise made available to support continuation of performance in a subsequent fiscal period, the contract shall be canceled and the contractor shall be reimbursed for the reasonable value of any non-recurring costs incurred but not amortized in the price of supplies or services delivered under the contract. The cost of cancellation may be paid from any appropriations available for such purposes.

A specific boilerplate contract clause is required to ensure the City’s right to cancel due to unavailability of funds (see Appendix for Model Contract boilerplate language).

CONTRACT PREPARATION AND PROCESSING

Negotiation
Once the prospective vendor has been identified, it is necessary to negotiate a contract. A working draft document is necessary. The draft contract may be provided by either the using department or the Purchasing Division. If being provided by the using department, Purchasing and the City Attorney are available to assist in contract drafting and negotiations. It is very important to involve all departments that may be affected by the particular contract in the negotiations as soon as possible.

Drafting a Contract
Model contracts with mandatory clauses have been prepared (see Appendix). With few exceptions, these contracts will be used by City departments if a contract involves services for accounting systems, data processing systems, legal services, lease, lease-purchase of equipment and/or facilities, construction and other areas as required.

All contracts must contain the vendor’s name, address, telephone number, Federal Tax I.D. Number or Social Security Number and the appropriate fund, budget and account numbers that will be used to pay the contract. Each contract or agreement shall be prepared guided by the City’s model contract.

Should the contract language differ from standard clauses, any and all such changes must be noted on the Contract Routing Form (see Appendix). Should alterations be proposed for insurance clauses, Risk Management will be required to review and sign off on the proposed changes. No contracts will be accepted for the City Attorney’s final review and approval unless the Contract Routing Form is attached. Contracts may be rejected by the City Attorney due to incomplete or otherwise unacceptable language.

City departments are not contracting entities. Contracts must be let in the name of the City and clauses such as "doing business as" should not be used. The routing and approval for a contract will be determined by the type of contract and the approving authority. Service contracts having an aggregate cost exceeding $2,500 must be approved by the Purchasing Agent.

The following information must be included with contracts being submitted for approval:

• Memo (if the contact person and phone number and justification/explanation of desired action is not on the requisition)
• Contract
• Contract Routing Form
• Requisition and copy of prior contract, if applicable.
• Agenda item, if applicable.

When outside legal counsel has been engaged to advise the City on a contract, an attached letter of approval shall be signed and included as a part of the contract in lieu of the signature of the City Attorney.

The departments submitting contracts for required approval shall make every effort to allow adequate time for reviewing departments to do so. It must be understood that a complex contract will require an extended period of time for review. If the contract must be executed by a specific date, the submitting department must route the contract for signature, allowing sufficient time to make any changes that may be required by the reviewing departments.

CITY COUNCIL OR CITY MANAGER APPROVED CONTRACTS
Preparing, processing and monitoring contracts are the responsibilities of the department entering into the contract. Adequate time shall be given to the departments to review, approve and make any necessary changes to the contract. The City Manager or City Attorney may also require changes to be made to the contract or request additional information. Contracts with specific execution or renewal dates shall be handled in a timely manner to assure approval prior to such dates.

PURCHASING AGENT CONTRACTS
This section will address the guidelines for developing contracts that are approved by the Purchasing Agent.

Procurement Contracts
Procurement contracts for various standard goods and/or services utilized by the City departments, where conditions are very simple in nature and delivery of that service can clearly be recognized and defined for purposes of knowing when completion has occurred and/or payment is to be made, are executed by Purchasing and the vendor only. Often times the purchase order will substitute as the contract.

Purchasing may require approval by the City Manager, City Attorney, Risk Management or other departments as deemed necessary. The contracts will be prepared by Purchasing and/or the department in conjunction with Purchasing. In either case a completed requisition must be submitted to Purchasing. An original and two (2) copies of the contract will be signed by Purchasing and the vendor. The original will be retained by Purchasing and the copies will be provided to the department and the vendor.

If a contract is not approved, it will be returned to the department for the necessary corrective action. Purchasing will distribute the contract to one point within a department. It is the department’s responsibility to make any other distribution within the department.

FULL SIGN-OFF CONTRACTS
Full sign-off contracts include those for public construction, consultants, and any unusual circumstances requiring multiple level of approvals to ensure compliance with any applicable Federal, State and local laws or for the protection of the City. Full sign-off contracts are reviewed by a number of personnel as follows:

• Party entering into the contract with the City
• Department Head
• City Attorney
• Director of Finance or Budget Director as applicable
• City Manager
• Purchasing Agent

Three copies of the contract must be submitted to Purchasing with the original contract. Purchasing will distribute the contract as follows:

• City Clerk/City Manager
• Party entering into contract
• Submitting department
• Purchasing