11/21/2008 Page 1 Financial Management: Procurement

11/21/2008 Page 2 Procurement Overview  Procurement Procedures  Contract Administration and Awards  Internal Controls and Documentation

11/21/2008 Page 3 Procurement  Link to appropriate state and federal policies, statutes, and guidelines (e.g., competitive vs. non-competitive, conflict of interest)  Inventory, management, and disposition

11/21/2008 Page 4 9/12/2008 Page 4 Procurement Regulations  EDGAR, CFR 34, Parts and 97-99

11/21/2008 Page 5 9/12/2008 Page 5 Procurement: Definitions and Terms  Competitive Sealed Bid – method of procurement where sealed bids are publicly solicited and a firm fixed price contract is awarded to the responsible bidder whose bid, conforming with all material terms and conditions of the invitation for bids is the lowest in price

11/21/2008 Page 6 9/12/2008 Page 6 Procurement: Definitions and Terms  Competitive Proposals – method of procurement where proposals are requested from a number of sources, is publicized, and either a fixed price or a cost reimbursement type contract is awarded

11/21/2008 Page 7 9/12/2008 Page 7 Procurement: Definitions and Terms  Conflicts of Interest – occur when the individuals responsible for determining bid/proposal responsiveness are over- ruled by other individuals within the organization or individuals responsible for determining responsiveness (or any members of his or her family) has any personal or corporate ties or any financial interest in any of the firms offering a bid/proposal

11/21/2008 Page 8 9/12/2008 Page 8 Procurement: Definitions and Terms  Cost Analysis – evaluating the separate cost elements that make up the total price

11/21/2008 Page 9 9/12/2008 Page 9 Procurement: Definitions and Terms  Cost Plus a Percentage of Cost or Cost Plus a Percentage of Income – an agreement in which the contractor/vendor is provided a specified percentage of profit over and above the actual costs of construction. This type of contract arrangement is not permitted because the contractor/vendor has little incentive to hold down costs  Equipment – tangible, non-expendable, personal property with a useful life of more than one year and having an acquisition cost of $5,000 or more per unit

11/21/2008 Page 10 9/12/2008 Page 10 Procurement: Definitions and Terms  Non-Competitive Proposals – procurement through solicitation of a proposal from only one source, or after solicitation of a number of sources, competition is deemed inadequate  Price Analysis – evaluating the total price; comparing price quotes, market prices, and/or similar information

11/21/2008 Page 11 9/12/2008 Page 11 Procurement: Definitions and Terms  Procurement – process of obtaining goods and/or services in accordance with applicable rules and regulations  Small Purchase Procedures – simple, informal procurement procedures that are used to secure services, supplies, or other property that do not cost more than an established threshold

11/21/2008 Page 12 9/12/2008 Page 12 Procurement: Definitions and Terms  Small Purchase Threshold – threshold established to determine whether an informal or formal procedure should be used for securing services, supplies, or other property  Standards of Conduct – written code or standards of conduct governing the performance of officers, employees, or agents engaged in the awarding and administration of contracts

11/21/2008 Page 13 9/12/2008 Page 13 Procurement: Definitions and Terms  Supplies – all tangible personal property other than equipment  Suspension – either the: 1) temporary withdrawal of the authority to obligate grant funds pending correction action by the grantee or subgrantee or a decision to terminate the grant or 2) action taken by a suspending official in accordance with agency regulations to immediately exclude a person from participating in grant transactions for a period, pending completion of an investigation

11/21/2008 Page 14 9/12/2008 Page 14 Procurement: Making Sure You are in Compliance  Ensuring purchases are necessary  Open competition  Procurement procedures  Vendor selection process  Inventory management

11/21/2008 Page 15 9/12/2008 Page 15 Procurement: Ensuring Purchases are Necessary  All costs have to be necessary for the performance or administration of the federal grant

11/21/2008 Page 16 9/12/2008 Page 16 Procurement: Ensuring Purchases are Necessary  All proposed purchases must be reviewed to avoid unnecessary or duplicative items: Surplus property Structure procurement to obtain most economical purchase Intergovernmental agreement for common goods or services Lease vs. purchase

11/21/2008 Page 17 9/12/2008 Page 17 Procurement: Open and Full Competition  All procurement transactions shall be conducted in a manner to provide full and open competition to the maximum extent possible: Entity involved in drafting solicitation may not compete for procurement

11/21/2008 Page 18 9/12/2008 Page 18 Procurement: Open and Full Competition  Solicitations shall clearly establish all requirements the bidder must fulfill in order for the bid to be evaluated

11/21/2008 Page 19 9/12/2008 Page 19 Procurement: Open and Full Competition  Awards must be made to the bidder or offeror whose bid is responsive and most advantageous to the recipient, price, quality, and other factors considered

11/21/2008 Page 20 9/12/2008 Page 20 Procurement: Open and Full Competition  Internal controls require that districts operate within state and federal laws  Don’t skip the rules Unreasonable requirements on vendors to qualify to do business  Pre-qualified lists should not limit competition

11/21/2008 Page 21 9/12/2008 Page 21 Procurement: Open and Full Competition  Requiring unnecessary experience or excessive bonding  Noncompetitive pricing practices  Noncompetitive awards to consultants on retainer  Organizational conflicts of interest  Specifying a brand name  In-state or local preferences

11/21/2008 Page 22 9/12/2008 Page 22 Procurement: Conflict of Interest  Shall have written standards of conduct governing the performance of employees engaged in the award and administration of contracts – standards must include sanctions for violations

11/21/2008 Page 23 9/12/2008 Page 23 Procurement: Conflict of Interest  Conflict situations: Financial interest Acceptance of items of monetary value from contractors (can accept unsolicited gifts of nominal value)

11/21/2008 Page 24 9/12/2008 Page 24 Procurement: Written Procurement Procedures  Shall have written procedures that include (at a minimum): Measures for avoiding the purchase of unnecessary items Measures to compare lease vs. purchase (where appropriate)

11/21/2008 Page 25 9/12/2008 Page 25 Procurement: Written Procurement Procedures  When developing solicitations, the Requests for Proposals (RFPs) should include all of the information a bidder needs to respond to the solicitation

11/21/2008 Page 26 9/12/2008 Page 26 Procurement: Written Procurement Procedures  Draft solicitations should include: A clear and accurate description of technical requirements Evaluation factors  Functions to be performed Features of brand names that bidder must meet (when applicable)

11/21/2008 Page 27 9/12/2008 Page 27 Procurement: Written Procurement Procedures  Acceptance of any products/services in metric system of measurement  Preference for products that conserve natural resources (as feasible)  Positive efforts for minority-owned/ women businesses (as feasible)

11/21/2008 Page 28 9/12/2008 Page 28 Procurement: Cost/Price Analysis  Shall perform a cost or price analysis in connection with every procurement action: Price analysis generally means evaluating the total price – compare price quotes, market prices, or similar information

11/21/2008 Page 29 9/12/2008 Page 29 Procurement: Cost/Price Analysis Cost analysis generally means evaluating the separate cost elements that make up the total price (including profit)  Goal is to determine reasonableness

11/21/2008 Page 30 9/12/2008 Page 30 Procurement: Type of Procurement Instruments  The type of procurement instrument used is determined by the recipient, but must be: Appropriate for the particular procurement; and Promote the best interest of the program Remember: Cannot use “Cost Plus” Contracts!

11/21/2008 Page 31 9/12/2008 Page 31 Procurement: Noncompetitive Contracts  As a practical matter, non-competitive contract raises “red flags” Ensure that documentation of the contract justifies non-competition (sole source justification) Role of cost/price analysis even more important

11/21/2008 Page 32 9/12/2008 Page 32 Procurement: Noncompetitive Contracts  Generally, noncompetitive proposals appropriate only when: The good or service is available only from a single source (sole source) There is a public emergency The awarding agency (MDE) authorizes After soliciting a number of sources, competition is deemed inadequate

11/21/2008 Page 33 9/12/2008 Page 33 Procurement: Awards  Awards must be made to the bidder whose bid is: Responsive to the solicitation; and Is most advantageous to the recipient considering price, quality, and other factors

11/21/2008 Page 34 9/12/2008 Page 34 Procurement: Awards  Awards must be made to responsible contractors who possess the potential ability to perform successfully: Contractor integrity Past performance Financial and technical resources

11/21/2008 Page 35 9/12/2008 Page 35 Procurement: Suspension/Debarment  Cannot contract with vendor who has been suspended or debarred  Must verify if contract is $25,000 or more

11/21/2008 Page 36 9/12/2008 Page 36 Procurement: Inventory Management  Different rules for equipment and supplies  Equipment Federal definition of equipment  Tangible personal property  Useful life of more than one year  Acquisition cost of $5,000 or more

11/21/2008 Page 37 9/12/2008 Page 37 Procurement: Inventory Management State and federal programs may use an expanded definition, as long as it  includes all property described previously  Supplies Everything else

11/21/2008 Page 38 9/12/2008 Page 38 Procurement: Use of Equipment  Must use for the program for which it was acquired – even after federal funding for program ceases May use for other programs if such use is incidental and does not interfere with the original program

11/21/2008 Page 39 9/12/2008 Page 39 Procurement: Use of Equipment If no longer needed: First transfer to another federal program Disposition instructions from U.S. Department of Education  EDGAR, CFR 34, Part 80.32

11/21/2008 Page 40 9/12/2008 Page 40 Procurement: Tracking Equipment  Property records Description, serial number, or other identification, source of the equipment (specify federal grant award), title information, use and condition, and ultimate disposition

11/21/2008 Page 41 9/12/2008 Page 41 Procurement: Tracking Equipment  Physical inventory At least every two years All discrepancies must be investigated  Control system to prevent loss, damage, theft All incidents must be investigated

11/21/2008 Page 42 9/12/2008 Page 42 Procurement: Supplies  Must use for the program for which it was acquired  If no longer needed, and if residual value of unused supplies is more than $5,000 (aggregate value): First transfer to another program Compensate U.S. Department of Education for its share

11/21/2008 Page 43 9/12/2008 Page 43 Procurement: Tracking Supplies  EDGAR does not set out any specific tracking requirements  But, as a practical matter, US Department of ED expects subgrantees to track all property purchased with federal funds in order to prove there has been an allocable benefit to the program

11/21/2008 Page 44 9/12/2008 Page 44 Procurement: Allowable Costs  Costs need to have been incurred during the grant period in the grant approval letter  Costs need to be eligible under the terms of the funding source and programs listed in the approved application

11/21/2008 Page 45 9/12/2008 Page 45 Procurement: Allowable Costs  Funding sources must be identified separately in the accounting records by project and grant fiscal year

11/21/2008 Page 46 9/12/2008 Page 46 Procurement: Critical Elements  Necessary Purchases  Competition  Conflict of Interest  Written Procedures  Competitive vs. Noncompetitive Contracts  Awarding

11/21/2008 Page 47 9/12/2008 Page 47 Procurement: Critical Elements  Suspension/Debarment  Contract Administration  Documentation  Inventory Management  Tracking of Equipment & Supplies – Retention & Disposal  Internal Control(s)

11/21/2008 Page 48 9/12/2008 Page 48 Procurement: FAQs  What is the difference between competitive and noncompetitive bidding?  What is a small purchase threshold?

11/21/2008 Page 49 9/12/2008 Page 49 Procurement: FAQs  What are allowable costs?  What are potential conflicts of interest?  What are Standards of Conduct?

11/21/2008 Page 50 9/12/2008 Page 50 Procurement: Other Resources  Excluded Parties List System (suspension and debarment):  EDGAR §80 – Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments

11/21/2008 Page 51 9/12/2008 Page 51 Procurement: More Information  Contacts MDE: Specific Program Office ISD:

11/21/2008 Page 52 LEA Fiscal Review Tool

11/21/2008 Page 53 LEA Fiscal Review Tool  Developed by MDE staff responsible for federal and state fund management  Lists major elements reviewed during an audit performed by MDE state auditors

11/21/2008 Page 54 LEA Fiscal Review Tool  Lists all items contained within the FMS Self-Assessment Survey and reflected in the Professional Development modules  Purpose To assist an LEA in the development of its own plan for improvement of its FMS

11/21/2008 Page 55 Resources

11/21/2008 Page 56 Resources All resources identified in this Professional Development module are available on: Michigan LearnPort Collaboration Center Community Room LEA Financial Management Resources

11/21/2008 Page 57 Committee Membership

11/21/2008 Page 58 MDE/MAISA Monitoring and Compliance Committee  Becky Rocho, Calhoun ISD, (269)  Patty Cantú, MDE, Office of Career and Technical Education, (517)  Mary Ann Chartrand, MDE, Grants Coordination and School Support, (517)  Terri Lynn Giannola, MDE, Office of Career and Technical Education, (517)

11/21/2008 Page 59 Procurement Subcommittee  Tom Bean, ISD Chair Calhoun ISD (269) ;  Dan Hanrahan – MDE Chair MDE – State Aid and School Finance (517) ;  Gus Bishop Charlevoix-Emmet Intermediate School District (231) ;  Steve Ezikian Wayne RESA (734) ;  Cheryl Schubel MDE- Grants Coordination and School Support (517) ;