1. Small Purchases Training June 26, 2014 Kent D. Beers Chief Procurement Officer

2. Notice Some sections of the Utah Procurement Code quoted in this presentation are paraphrased due to space restrictions. It is strongly recommended that participants read the entire Procurement Code and review its contents with their attorney.

3. Small Purchase Guidelines 1.In general, Small Purchases should be used for one-time procurements – not ongoing, continuous and regularly scheduled procurement items. Yes, there are exceptions. 2.In general, ongoing, continuous and regularly scheduled procurement items should be obtained via a competitive procurement process. By their nature, ongoing, continuous regularly scheduled procurement items contain contractual obligations (verbal or written), performance expectations, and elements of risk that are best procured through a competitive procurement process that includes the AG approved contract terms and conditions designed to protect the interests of the State.

4. Small Purchase Guidelines 3.Small purchases should not be used to purchase procurement items or services that present a risk to a public entity. Procurement items/services with any type of risk component should be purchased using a qualifications based selection process: a. Qualifications of the Firm, b. Years of Experience, c. References/Performance Ratings, d. Licensing and Certifications, e. Bonding, f. Insurance, g. etc.

5. Small Purchase Guidelines 4.Small purchases should not be used to avoid the statutorily required competitive procurement process. a. Small purchases should not be used as a mechanism to avoid competition. b. Small purchases is not an excuse for not exercising good judgment. c. Small purchases should not be used as a mechanism to steer a contract to a preferred vendor or engage in other anticompetitive practices. d. Small purchases should not be used artificially divide a procurement (phasing) in order to avoid the legal requirement to conduct a competitive procurement.

6. 63G-6a-103 Definitions (24) "Independent procurement authority" means authority granted to a procurement unit, under Subsection 63G-6a- 106(4)(a). 63G-6a-106(4)(a) A procurement unit listed in Subsection (4)(b) may, without the supervision, interference, oversight, control, or involvement of the division [of State Purchasing] or the chief procurement officer, but in accordance with the requirement of this chapter: (i)Engage in a standard procurement process; (i)Procure an item under an exception, as provided in this chapter, to the requirement to use a standard procurement process; or (ii)Otherwise engage in an act authorized or required by this chapter.

7. 63G-6a-106(4)(b) The procurement to which Subsection (4)(a) applies are: Legislative Procurement UnitLocal Building Authority Judicial Procurement UnitLocal District Educational Procurement UnitPublic Corporation Local Govt. Procurement Unit (city/county) Special Service District Conservation DistrictPublic Transit District

8. 63G-6a-104 Definitions (1) "Applicable rulemaking authority" means: (a) Legislative Management Committee (b) Judicial Council (c) Executive Branch Agencies = The Procurement Policy Board (d) State Building Board (Limited to State Owned Facilities/Property) (e) Director of DFCM (Limited to State Owned Facilities/Property) (f) Office of the Attorney General (Limited to Legal Services) (g)Executive director of the UDOT (Limited to Title 72 Hwy Const.) (h)Legislative body of the local government procurement unit

9. Continued "Applicable rulemaking authority" means: (i)School district or a public school = The Utah State Procurement Policy Board, except to the extent that a school district makes its own nonadministrative rules, with respect to a particular subject, that do not conflict with the provisions of this chapter (j ) Institutions of Higher Ed = State Board of Regents (k) Chief executive of the public transit district

10. Continued “Applicable rulemaking authority" means: (l) Local District or Special Service District: (i) before January 1, 2015, the board of trustees of the local district or the governing body of the special service district; or (ii) after January 1, 2015, the [procurement policy] board, except to the extent that the board of trustees of the local district or the governing body of the special service district makes its own rules: (A) with respect to a subject addressed by board rules; or (B) that are in addition to board rules; or

11. 63G-6a-408 Small purchases The applicable rulemaking authority may make rules governing small purchases, including [but not limited to]: (a) establishing expenditure thresholds, including : (i) an annual cumulative threshold; (ii) an individual procurement threshold; and (iii) a single procurement aggregate threshold;

12. 63G-6a-408 Small purchases "Individual Procurement Threshold" means the maximum amount, established by the applicable rulemaking authority, for which a procurement unit may purchase a procurement item under this section. "Single procurement aggregate threshold" means the maximum total amount, established by the applicable rulemaking authority, that a procurement unit may expend to obtain multiple procurement items from one source at one time under this section. "Annual Cumulative Threshold" means the maximum total annual amount, established by the applicable rulemaking authority, that a procurement unit may expend to obtain procurement items from the same source under this section.

13. Administrative Rule R33-4-104(2) Small Purchase Thresholds: “Individual Procurement” $1,000 for a procurement item “Single Procurement Aggregate” $5,000 for multiple procurement item(s) purchased from one source at one time “Annual Cumulative” $50,000 from the same source

14. $1,000 Individual Procurement Item Threshold A Single Procurement Item (Not Available On State Contract) Costing Less Than $1,000 Examples: One technology organizer costing $200 One package of 10 CDs costing $30 One ream of special bond paper costing $20 One Q-36 explosive space modulator costing $999

15. $5,000 Single Individual Procurement Item Aggregate Threshold Any Combination of Individual Procurement Items (Not Available On State Contract) Costing Less Than $1,000 Purchased From One Source at One Time Up To $5,000. Examples: Ten technology organizers each costing $200, totaling $2,000 One Hundred packages of 10 CDs each costing $30, totaling $3,000 Seventy reams of special bond paper costing $20, totaling $1,400 Five Q-36 explosive space modulator each costing $999 totaling $4,995

16. $50,000 Annual Cumulative Individual Procurement Item Threshold Total Individual Procurement Items (Not Available On State Contract) Costing Less Than $1,000 Purchased From One Source During A Year Not To Exceed $50,000. Examples: Tech organizers ( $200), totaling $65,000 = Contract Packages of 10 CDs ($30), totaling $80,000 = Contract Special bond paper ($20), totaling $55,000 = Contract Q-36 space modulators ( $999), totaling $75,000 = Contract

17. 63G-6a-408(3) Small purchases Expenditures made under this section by a procurement unit may not exceed a threshold established by the applicable rulemaking authority, unless the chief procurement officer or the head of a procurement unit with independent procurement authority gives written authorization to exceed the threshold that includes the reasons for exceeding the threshold.

18. 63G-6a-408(4) Small purchases An executive branch procurement unit May Not obtain a procurement item through a small purchase standard procurement process if the procurement item may be obtained through a state cooperative contract. Section (4) Does Not Apply To Cities, Counties, Higher Ed, Public Ed, Service Districts, etc.

19. 63G-6a-408(5) Small purchases Subsection (4) [state agencies required use of state contracts] does not apply if: the procurement item is obtained for an unanticipated, urgent or unanticipated, emergency condition, including [but not limited to] : (i) an item needed to avoid stopping a public construction project; (ii) an immediate repair to a facility or equipment; or (iii) another emergency condition; or

20. 63G-6a-408(5)(b) Small purchases [State agency’s requirement to use state contracts] does not apply if: the chief procurement officer or the head of a procurement unit that is an executive branch procurement unit with independent procurement authority: (i) determines in writing that it is in the best interest of the procurement unit to obtain an individual procurement item outside of the state contract, comparing: 1. Contract Terms and Conditions 2. Maintenance and Service Agreements 3. Product Warranties 4. Quality 5. Cost

21. 63G-6a-408(6) Small purchases Except as otherwise expressly provided in this section, a procurement unit: (a) may not use the small purchase standard procurement process described in this section for ongoing, continuous, and regularly scheduled procurements that exceed the annual cumulative threshold; and (b) shall make its ongoing, continuous, and regularly scheduled procurements that exceed the annual cumulative threshold through a contract...

22. 63G-6a-408 (3) Exception The Chief Procurement Officer or Head of a procurement unit with independent procurement authority signs a written exemption to exceed annual cumulative threshold. Example: Smiths, Walmart, Costco - Annual Spend by Procurement Unit = $100,000 - Hundreds of Small Purchases for Different Items - Contract Not a Viable Option (no additional discounts)

23. 63G-6a-408(7) Small purchases This section does not prohibit regularly scheduled payments for a procurement item obtained under another provision of this chapter.

24. Administrative Rule R33-4 Other Small Purchases Thresholds $100,000 = Architectural and Engineering R33-4-105 $100,000 = Professional Services/Consultants R33-4-108 $2,500,000= Construction R33-4-106

25. R33-4-105 Small Purchase Threshold for A&E Services Architectural or engineering services may be procured up to a maximum of $100,000, by direct negotiation after reviewing the qualifications of a minimum of three architectural or engineering firms. Procurement units subject to these rules shall follow the process described in Section 63G-6a-403 to prequalify potential vendors and Section 63G-6a-404 to develop an approved vendor list or Part 15 of the Utah Procurement Code for the selection of A & E services. Executive Branch Procurement units, to the extent they do not have independent procurement authority, shall involve the Division of Purchasing in the procurement of A & E services.

26. R33-4-106 Small Purchase Threshold for Construction The small construction project threshold is a maximum of $2,500,000 for direct construction costs, including design and allowable furniture or equipment costs; Procurement units subject to these rules shall follow the process described in Section 63G-6a-403 to prequalify potential vendors and Section 63G-6a-404 to develop an approved vendor list or other applicable selection methods described in the Utah Procurement Code for construction services. Executive Branch Procurement units, to the extent they do not have independent procurement authority, shall involve the Division of Purchasing in the procurement of small construction projects.

27. Continued R33-4-106 Small Purchase Threshold for Construction The chief procurement officer or head of a procurement unit with independent procurement authority may procure small construction projects up to a maximum of $25,000 by direct award without seeking competitive bids or quotes... The chief procurement officer or head of a procurement unit with independent procurement authority may procure small construction projects costing more than $25,000 up to a maximum of $100,000 by obtaining a minimum of two competitive quotes... If an approved vendor list is not established under Sections 63G-6a-403 and 404, procurement units shall procure construction projects over $100,000 using an invitation to bid...

28. R33-4-108 Small Purchase Threshold for Professional Services and Consultants After reviewing the qualifications of a minimum of two professional service providers or consultants, the chief procurement officer or head of a procurement unit with independent procurement authority may obtain professional services or consulting services: (a) Up to a maximum of $50,000 by direct negotiations; or (b) Over $50,000 up to a maximum of $100,000 by obtaining a minimum of two quotes. Executive Branch Procurement units, to the extent they do not have independent procurement authority, shall involve the Division of Purchasing in the procurement of professional services or consultants.

29. 63G-6a-103(36) Definitions "Professional service" means a service that requires a high degree of specialized knowledge and discretion in the performance of the service, including [But not limited to]: legal services bond counsel consultation services financial advice architectural services construction management engineering medical services design psychiatric services underwriting counseling services

30. 63G-6a-408(8)(a) Small purchases It is unlawful for a person to intentionally or knowingly divide a procurement into one or more smaller procurements with the intent to make a procurement: (i) qualify as a small purchase, if, before dividing the procurement, it would not have qualified as a small purchase; or (ii) meet a threshold established by rule made by the applicable rulemaking authority, if, before dividing the procurement, it would not have met the threshold.

31. 63G-6a-408(9) Small purchases A division of a procurement includes doing any of the following: (a) making two or more separate purchases; (b) dividing an invoice or purchase order into two or more invoices or purchase orders; or (c) making smaller purchases over a period of time.

32. 63G-6a-408 (10)(b) Small purchases A person who engages in the conduct made unlawful under Subsection (8)(a) is guilty of: (1) a second degree felony, if the total value of the divided procurements is $1,000,000 or more; (2) a third degree felony if the total value of the divided procurements is $250,000 or more, but less than $1,000,000; (3) a class A misdemeanor if the total value of the divided procurements is $100,000 or more, but less than $250,000; or (4) a class B misdemeanor if the total value of the divided procurements is less than $100,000.

33. 63G-6a-408(11) Small purchases The Division of Finance within the Department of Administrative Services may conduct an audit of an executive branch procurement unit to verify compliance with the requirements of this section.

34. 63G-6a-408(12) Small purchases An executive branch procurement unit may not make a small purchase, unless the chief procurement officer certifies that the person responsible for procurements in the procurement unit has satisfactorily completed training on this section and the rules made under this section. Yes, this includes small purchases made with a P-Card

35. R33-4-107 Quotes for Small Purchases from $1,001 to $50,000 Procurement units subject to these rules: For procurement item(s) where the cost is greater than $1,000 but up to a maximum of $5,000, procurement units shall obtain a minimum of two competitive quotes... For procurement item(s) where the cost is greater than $5,000 but up to a maximum of $50,000, a procurement unit with independent procurement authority or the Division of Purchasing, for executive branch agencies, shall obtain a minimum of two competitive quotes... For procurement item(s) costing over $50,000, a procurement unit with independent procurement authority or the Division of Purchasing for executive branch agencies, shall conduct an invitation for bid...

36. Question: Is freight/delivery included when calculating the $1,000 cost of an “Individual Procurement Threshold”? Example: $999 procurement item $50 delivery charge Answer: No – freight and delivery are considered separate charges from the cost of an individual procurement item. This is because freight/deliver are optional. An agency always has the option to pick up the item. Freight and delivery costs are in and of themselves “Individual Procurement Items” and subject the to their own $1,000 “Individual Procurement Threshold”.

37. Question: Can our agency use the Small Purchase provision for ongoing, monthly chemical pest extermination services – the monthly cost is less than $1,000 and the annual cost is less than $50,000? Answer: No, ongoing, continuous and regularly scheduled pest extermination services should be under contract. In this case, it appears that a contract exists – hopefully, not the vendor’s contract that affords no protection to the State. How does the exterminator know they are authorized to enter and spray on State property if a contract does not exist (written or verbal)?

38. Continued Agencies should always have the legal protections contained in the State’s contract Ts & Cs when hiring a firm to apply pesticides, chemicals, etc. on state owned property – i.e. liability insurance. For any service that presents “Risk” to the State or State owned assets, State Purchasing recommends that agencies use a qualifications based selection process: Qualifications, Experience, References, Licensing, Bonding, Insurance, etc.

39. Question: When using the $1,000 individual procurement item threshold, is each hour considered at less than $1,000 or is it the cost of the service as a whole? For instance, if the vendor’s rate is $100 per hour, can we hire someone for 25 hours for a total of $2,500 using the small purchase rule? Answer: The cost of the service is considered as a whole – not the per hour charge. Per hour charge may be obtained on a “not to exceed $1,000” basis. However, depending upon the type of service being purchased, the Small Purchases Professional Services rule may apply.

40. 3 Questions #1. Are accounting services and management services considered “professional services”? Answer: Yes, accounting services and management services are professional services.

41. #2. Can an agency subject to the State’s Rules use the small purchase law to enter into a long-term ongoing contract with an accounting or management firm? Answer: Yes, after reviewing the qualifications of a minimum of two firms and obtaining two quotes, an agency can enter into a long-term contract provided the total amount spent for the service does not exceed $100,000 over the life of the contract. Note: Ex Branch Agencies must go through State Purchasing.

42. #3 Is a contract required? Answer: Yes, a contract is required because the accounting management firm is providing ongoing, continuous and regularly scheduled services. In most cases, professional services are ongoing, continuous and regularly scheduled and require the protections afforded by the State’s Ts & Cs. Occasionally, work performed by a professional service provider may be on a one-time basis and not require the State’s contract terms and conditions - this would be rare.

43. Question: Can I use the small purchase law to buy items under $1,000 needed by our agency from my brother’s company? Answer: No – Public funds cannot be steered to a family member’s company. Governor Herbert’s Executive Order (EO002 2014) “An employee covered by this order may not take part in any contracting decision: (i) relating to a family member; or (ii) relating to any entity in which a family member is an officer, director or partner, or in which a family member owns or controls 10% or more of the stock of such entity. If a contracting matter arises relating to a family member, then the employee must advise his or her supervisor of the relationship, and must be recused from any and all discussions or decisions relating to the matter.” (http://www.rules.utah.gov/executivedocuments.htm)

44. Continued Utah Code 67-16-8 Utah Public Officers' and Employees' Ethics Act No public employee shall participate in his official capacity or receive compensation in respect to any transaction between the state or any of its agencies and any business entity as to which such public employee is also an officer, director, or employee or owns a substantial interest, unless disclosure has been made as provided under Section 67-16-7. [Disclosure Form filed with AG and Dept.] "Substantial interest" means the ownership, either legally or equitably, by an individual, the individual's spouse, or the individual's minor children, of at least 10% of the outstanding capital stock of a corporation or a 10% interest in any other business entity.

45. Question: State contract doesn’t have the exact item we need (similar but not exactly what is needed). Can we buy the item needed using the small purchase law? Answer: Yes, if the item(s) needed is not available on State Contract and the cost of the items is within the Small Purchases Individual Procurement Item Threshold.

46. Question: Under the small purchase rule for professional services. Can we award two separate contracts - one for $90,000 to Firm “A” and one for $80,000 to Firm “B”? Answer: No, this procurement is a single project and cannot be artificially divided. Both firms are providing the exact same service. This procurement should go through a competitive procurement process. Utah Code 63G-6a-408(9) “A division of a procurement includes doing any of the following: (a) making two or more separate purchases”

47. State of Utah “Best Value” Cooperative Contracts Utah Code 63G-6a-2105(2) A public entity, nonprofit organization, or, as permitted under federal law, an agency of the federal government, may obtain a procurement item from a state cooperative contract or a contract awarded by the chief procurement officer, without signing a participating addendum if the solicitation issued by the chief procurement officer to obtain the contract includes a statement indicating that the resulting contract will be issued for the benefit of public entities and, as applicable, nonprofit organizations and agencies of the federal government.

48. Hyperlinks Utah Procurement Code Executive Order: Establishing an Ethics policy for Executive Branch Agencies & Employees Utah Public Officers' & Employees' Ethics Act Right click on the desired document. Choose “Open Hyperlink”