AGENDA MEMORANDUM

 

 

Meeting Date:           July 27, 2009

 

From:                          Mike Thornton, Purchasing Manager

 

Subject:                      Resolution adopting a new Local Business Enterprise policy

 

 

Staff Recommendation:

Staff recommends adoption of the proposed changes to the local vendor preference policy recognizing local vendor presence in the procurement process.  This new policy expands the definition of ‘local’ and includes purchases for goods and services exceeding $25,000.00.

 

Analysis:

 

INTRODUCTION

 

The City currently has policy providing a two-tiered Local Business Enterprise (LBE) preference for purchases in two categories.  The key components of the current local vendor preference policy are summarized here.

 

 

To demonstrate their support for local business and the local economy, the commission has expressed a desire to amend the current local preference policy to expand the geographical definition of ‘local’ business and include provisions for the purchase of goods and services costing $25,000.00 or more.

 

The proposed policy amendments will provide local businesses an additional opportunity to win City business.  Policy changes for construction projects will attempt to infuse significantly more dollars into the local economy by focusing on the use of sub-contractors.

 

 

PROPOSED POLICY CHANGES

 

A summary of the proposed policy changes are listed here.  Each item is described in detail following the summary.

 

 

Definition of a Local Business Enterprise

The Commission recognizes that businesses outside the city limits can have a significant local presence and benefit the city indirectly through their spending, employment of Leesburg residents, and support of Leesburg based civic organizations.  The proposed policy updates the definition of a Local Business Enterprise to acknowledge and incorporate the value of a business having a ‘local presence.’

 

The proposed policy expands the definition of ‘local’ to include all businesses having a permanent office or storefront within a 20-mile radius of Leesburg City Hall.  Attached is  a map showing the 20-mile radius.  Primary towns have been identified for your reference.

 

Purchases of goods and services costing less than $10,000

The proposed policy increases the current 2% preference in this category to 5%.  A 2% preference for this dollar amount is very little.  So little in fact, that it almost never comes into play.  My research has shown that a 2% preference on a purchase of this amount is low.  A 2% preference on $10,000 would be $200.  A 5% preference on $10,000 would be $500.

 

Purchases of goods and services costing $10,000 to $24,999

The proposed policy increases the current 1% preference in this category to 2%.  A 1% preference for this dollar amount is very little.  So little in fact, that it almost never comes into play.  My research has shown that a 1% preference on a purchase of this amount is low.  A 1% preference on $24,999 would be just under $250.  A 2% preference on $24,999 would be just under $500.

 

Purchase of goods and services costing $25,000 or more

For the purchase of goods and services costing $25,000 or more, LBE’s will be afforded an opportunity to submit a best and final offer.  More specifically, if the low bidder is not a local business and the bid of a local business is within 10% (inclusive) of the lowest bidder, the low bidder and each LBE within 10% of the low bid will have an opportunity to submit a best and final bid.  The bid will be awarded to the lowest best and final bid, provided all other terms and conditions are met.  Should there be tie bids in the ‘best and final’ stage, the bid will be awarded to the LBE.  If an LBE is the low bidder the ‘best and final’ process is not used.  The low LBE will be awarded the bid.

 

The best and final method provides a LBE an opportunity to win the business by allowing them to submit a best and final if they are within 10% of the low bid.  The best and final will actually provide more opportunities to LBE’s.  When using a straight percentage preference the LBE must be within that small preference percentage.  In this case it would probably be 1%.  The best and final gives the LBE a second opportunity if they are within 10%.  Many more LBE’s should have a second opportunity to win the business.  It should also increase the interest and participation of LBE’s on City bids.

 

A popular trend in public procurement is reverse auctions.  In a reverse auction businesses compete for the City’s business by bidding on the sale.  Their bids will be lower with each bid, hence the term Reverse Auction.  The best and final is an example of a limited reverse auction.  The word limited is used because a best and final applies only to local businesses within 10% of the low bidder when the low bidder is non-local.  Additionally it only allows for one more bid submittal.

 

Construction Services Greater than $25,000

The second significant component of the revised policy involves public works or construction projects.  This component is similar to the Disadvantaged Business Enterprise (DBE) requirements used on federal and some state projects.  Applying this type of qualification to construction projects for Local Business Enterprises will infuse the largest amount of taxpayer dollars into the local economy.

 

This policy change will allow non-local prime contractors to be qualified as a ‘Local Business Enterprise’ if they affirm to use at least 51% LBE sub-contractors and/or material suppliers.  For any General Contractor to receive the 1% LBE preference 51% of the project dollars must be going to a contractor, sub-contractor, or material suppliers that are Local Business Enterprises.

 

The average margin or profit for a general contractor (GC) on a construction project is 15 to 20%.  When only the GC’s locale is considered in the local business qualification there is nothing preventing that GC from hiring most if not all non-local sub-contractors and material suppliers.  If a Qualified Local Business Enterprise is awarded the contract, 51% or more of the project cost would be realized locally.  This is huge compared to a 15 to 20% margin that a prime contractor makes on the total project.  If a local contractor receives a contract, the local economy may only see 20% of the project dollars.

 

By allowing non-local GC’s to qualify as local through their increased use of local sub-contractors and material suppliers, the local economy will receive a far larger amount of project dollars. Having at least 51% of the project dollars spent locally is far better than the 15 to 20% we would receive basing qualification only on the locale of the GC.

 

CONCLUSION

 

The proposed policy strikes a balance between preferential treatment, opportunity, and community benefit.  This policy recognizes the value of businesses outside the City limits or those that do not receive City utilities.  The local presence of a business is important and does benefit the citizens of Leesburg.

 

The percent changes to the under $25,000 purchases should allow Local Business Enterprises to be competitive with larger vendors outside the 20 mile area.  The majority of our spending is in the $25,000 and less purchases.

 

The ‘best and final’ procedure will allow LBE’s to participate with confidence.  LBE’s will be more likely to participate knowing if they are within 10% of the lowest bidder, they will have a second opportunity to win the business.  A smaller percentage preference with no second opportunity seems to discourage participation by LBE’s, especially the smaller companies.

 

The addition of the LBE qualifying on construction projects will put more taxpayer dollars back into the local economy.  With at least 51% of the project dollars going back into the economy easily offsets the 1% preference awarded to Qualified Local Business Enterprises.

 

Purchase Order Data for Fiscal Year 2008-09

 

 

Cat. I, II, III

$0 to $9,999.99

Cat. IV

$10Kto $24,999.99

Cat. V

$25,000 and Over

Grand Totals

PO Count

938

143

122

1,203

PO Value

$2,246,298.94

$2,475,582.65

$15,465,460.37

$20,187,341.96

% of Total PO’s

78%

12%

10%

100%

 

Options:

1.  Adopt the resolution as presented; or

2.  Such alternative action as the Commission may deem appropriate

 

Fiscal Impact

There will be additional staff time required to apply the ‘best and final’ and ‘Qualified Local Business Enterprise’ portions of this policy.  There will be an increase in indirect costs to administer the programs and higher direct costs with the increased percentages.  Staff feels the benefit to the Local Business Enterprises and the citizens of Leesburg will exceed the value of the indirect and direct costs of this new policy.

 

Submission Date and Time:    7/24/2009 8:43 AM____

 

Department: _Finance Department_______

Prepared by:  _Mike Thornton_________                     

Attachments:         Yes____   No __X___

Advertised:   ____Not Required ___X___                     

Dates:   __________________________                     

Attorney Review :       Yes___  No ____

                                                

_________________________________           

Revised 6/10/04

 

Reviewed by: Dept. Head ________

 

Finance  Dept. __________JB______                                     

                              

Deputy C.M. ___________________                                                                         

Submitted by:

City Manager ___________________

 

Account No. ___NA____________

 

Project No. ____NA____________

 

WF No. _______NA____________

 

Budget  _______NA____________

 

Available ______NA____________


RESOLUTION NO._______________

 

A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA, REVISING AND AMENDING THE RULES FOR LOCAL VENDOR PREFERENCE; AND PROVIDING FOR AN EFFECTIVE DATE.

 

            WHEREAS, the City of Leesburg has heretofore adopted and amended formal policies for the purchase of items or services, and

            WHEREAS, the City of Leesburg on December 9, 2006 adopted resolution 6710 which restated provisions for “local vendor” preference, and

            WHEREAS, the City of Leesburg desires by means of this resolution to revise and amend the rules of “local vendor” preference, and

            WHEREAS, this resolution in its entirety shall supersede and replace all previous resolutions or sections of resolutions that address policy related to “local vendor preference”.

 

NOW, THEREFORE BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA:

           

            THAT the commission recognizes local business and businesses with a local presence contribute to the Leesburg economy through spending, employment, and civic involvement.  The commission further recognizes City staff and elected officials must be vigilant and be good stewards of taxpayer money.  These two functions must be balanced and not conflict with one another.

            THAT the attached policy will define and outline the application of a local business and local presence favor and is hereby adopted in replacement of the policy formerly promulgated under Resolution 6710.

THAT this resolution shall become effective immediately.


PASSED AND ADOPTED by the City Commission of the City of Leesburg, Florida, at a regular meeting held the _27th____ day of _July____ 2009.

 

 

 

                                                                            __________________________

                                                                             Mayor

 

 

ATTEST:

 

 

___________________________________

City Clerk