CPA TEXAS GOVERNMENT BASIC PUBLIC PURCHASING

Transcription

1 CPA TEXAS GOVERNMENT BASIC PUBLIC PURCHASING Provided By the Comptroller of Public Accounts

2 Try to complete the crossword puzzle without looking in your book! Across 3. Someone who is authorized to act on behalf of someone else 4. A supplier of goods and/or services 8. An offer to contract with the state 10. Purchase - A purchase method used to order goods in bulk Down 1. The result of final negotiations with responsive vendors during the RFP process 2. Bid - A formal written bid opened in public at a designated time and place 5. A set of moral principles or values 6. To remove oneself from participation to avoid a conflict of interest 7. An addition or supplement to a solicitation document 9. The performance of duties helpful to others excluding the delivery of a tangible product

3 Basic Public Purchasing Objectives Overall Course Objectives From this course the learner will be able to: Demonstrate a general knowledge of Texas Public Purchasing requirements. Perform purchasing responsibilities in an ethical manner. Explain the various steps in the procurement cycle. Prepare flexible, accurate, clear, competitive, and simple (FACCS) specifications. Select the state approved purchasing method that will result in a best value acquisition for the state. Define their delegated purchasing authority. Compare and contrast bids and proposals. Navigate the CPA website to find needed information. Pass each Test your Knowledge quiz with 100% accuracy Pass the BPP Mini Quiz with 83% accuracy (10/12) Enter the APP class (if required) with a minimum knowledge base. Master the objectives of each section in the workbook. Purchasing Profession Overview After this section the learner will be able to: Define purchasing Name at least three current trends in public purchasing Identify the four basic public purchasing principles Name the steps of the procurement cycle in the correct order Explain the State of Texas purchasing and continuing education requirements Ethics and the Law After this section the learner will be able to: Execute an ethical course of action in a conflict of interest Follow proper procedure when made aware of an ethical violation List the seven criteria required to form a legal contract Specifications After this section the learner will be able to: Identify the six specification types Know the advantages and disadvantages of each type Identify the risk associated of specification and which type of specification to use for various purchases

4 Differentiate between good and effective specification writing Texas Purchasing Methods After this section the learner will be able to: Identify and explain the basic usage of the 14 state approved purchasing methods Memorize the delegated purchasing table Sourcing and Solicitation After this section the learner will be able to: Name the two main sources for vendor location List the three types of basic solicitation methods and the five methods used to solicit a bid Receiving Bids and Proposals After this section the learner will be able to: Differentiate between the informal and formal bidding process Identify the steps in the IFB and RFP process in order Differentiate between Competitive Sealed Bids and Competitive Sealed Proposals and identify instances when either is appropriate Logistics After this section the learner will be able to: Distinguish FOB Destination from FOB Origin Follow an appropriate course of action when damaged or incorrect orders are received Reporting Requirements and Documentation After this section the learner will be able to: Know when major agency reports are due Categorize purchase vouchers into Doc types 2 and 9 Name the most common audit finding Determine the purpose of PCC codes Copyright 2005 by Comptroller of Public Accounts -All Rights Reserved-

5 TABLE OF CONTENTS Introduction 1 Purchasing Profession Overview 2 What is Purchasing? 3 Purchasing Trends 4 Basic Public Purchasing Principles 5 Surplus Property 6 The State of Texas Procurement Cycle 8 The Purchasing Process 9 State of Texas Training and Certification Program 11 Professional Organizations 13 Test Your Knowledge 15 Ethics and the Law 16 Ethics in State Purchasing 17 Conflict of Interest 19 Ethical Resources 20 Texas Purchasing Statutes, Rules and Policies 21 Test Your Knowledge 26 Specifications 27 Introduction to Specifications 28 Specification Types 29 Writing Specifications 30 Test Your Knowledge 32 Texas Purchasing Methods 33 State Approved Purchasing Methods 34 Delegated Purchasing 43 Test Your Knowledge 45 Sourcing and Solicitation 46 Sourcing 47 Historically Underutilized Business (HUBs) 49 Solicitation 53 Test Your Knowledge 57 i

6 Receiving and Evaluating Bids and Proposals 58 Introduction 59 Bids 60 Proposals 63 Purchasing Preferences 64 Compare and Contrast (Competitive Bids vs. Competitive Proposals) 66 Test Your Knowledge 68 Logistics 70 Shipping 71 Carrier Shipping Methods 72 Receiving 73 Inspection 74 Test Your Knowledge 76 Reporting Requirements and Documentation 77 Reporting Requirements 78 Procurement Audit 83 Test Your Knowledge 85 Glossary 86 Acronyms 93 Class Exercises 95 Additional Worksheets, Information & Templates 106 ii

7 INTRODUCTION The Comptroller of Public Accounts (CPA) is committed to the education and professional development of state purchasers. It is through this commitment that we provide training opportunities that allow you, as a state purchaser, to manage your level of success and career path. State purchasers face many challenges. As a state purchaser, you are one of many departments within your organization, and you may even work in a field or branch office. Therefore, you must manage a large part of your organization that you cannot see, and work with people you may never meet. Each department is motivated by different goals, and may have different cultures from the purchasing department. Your toughest yet most important job is to help identify and meet the needs of such a diverse group of customers by procuring goods and services at the best value for the state. Although the job of purchasing is challenging, it is through those challenges that you have an opportunity to excel in the profession. By being a proactive purchaser you can help your organization become more responsive, increase service levels, reduce expenditures, and achieve best value acquisitions for the state. This workbook is designed to provide entry-level state purchasers with a broad overview of the purchasing profession. It was written and edited by a team of Certified Texas Purchasers (CTP), Certified Texas Procurement Managers (CTPM), and subject matter experts (SMEs). You can feel confident that the information presented in this workbook will provide you with the basic information you need to begin your career as a State of Texas purchaser and help you succeed in your goals toward state purchasing certification; however, this workbook is not a step-by-step guide. Purchasers should refer to state statute, state procurement rules, the State of Texas Procurement Manual, and other resources identified throughout this workbook for assistance with daily purchasing procedures. The staff of CPA s Training and Certification Program wishes you success with your professional development endeavors. 1

8 PURCHASING PROFESSION OVERVIEW 2

9 WHAT IS PURCHASING? Congratulations, you re a public purchaser. Now what? Do you understand what that means? Do you realize your responsibilities? Let s find out. Please take a minute to write down your definition of purchasing. How did you do? Did you struggle with a definition? Did you include key words and phrases like purchase, materials, equipment, services, satisfy needs, best value, lowest price, highest quality, etc? If you are new to purchasing, some of these terms may not be familiar. The glossary at the back of this workbook provides definitions for common words you will encounter in the purchasing profession. 3

10 PURCHASING TRENDS Past vs. Present Old Days Current Trends Bidding out all requirements. Improving the process by involving multiple parties in the planning process. Multiple transactions. Reducing overall costs. Always awarding to the lowest bidder. Obtaining best value. Process driven without thought. Performance driven process. 4

11 BASIC PUBLIC PURCHASING PRINCIPLES The following four basic public purchasing principles are inherent in the foundation of public purchasing: Competition Competition is considered the anchor of most state purchasing statutes, and can be defined as the process by which two or more vendors attempt to secure state business by offering the most favorable price, quality, delivery, or other terms of service. Competition reduces the opportunity for favoritism and inspires public confidence that contracts are awarded equitably and economically. The requirement for competitive bidding is specified in Gov t Code, Since the state benefits in a competitive environment, purchase methods like proprietary and emergency purchases that limit competition are generally discouraged. Public Notice To ensure there is a competitive environment for purchases, it is essential that multiple motivated vendors participate in the procurement process. The state utilizes several tools to facilitate a competitive environment via public notice. The Centralized Master Bidder s List (CMBL) provides a list of vendors registered to receive solicitations based on specific commodity codes, and the Electronic State Business Daily (ESBD) advertises bid opportunities greater than $25,000 on the Internet. Public Opening During a public opening, the bids or proposals received from all vendors are opened and read aloud in public. Depending on the type of solicitation, there are specific procedures and rules of conduct that must be adhered to during an opening to prevent vendor protests. After the public opening, the final evaluation for award is conducted by the purchaser who will make a recommendation for award to the responsive and responsible vendor whose bid provides best value to the state. Open Records The Texas Public Information Act, defined under Gov t Code, Chapter 552, specifies which records are available for public scrutiny. After an award, procurement regulations make information pertaining to the solicitation, opening, evaluation, and award a matter of public record. Open records requests should be processed according to your organization s procedures and in compliance with the Public Information Act. 5

12 SURPLUS PROPERTY Texas Facilities Commission (TFC) operates a Surplus Property Program pursuant to Government Code, Chapter Surplus property is defined as property no longer needed by a state agency, and federal property declared as surplus by agencies of the United States government and handed over to the General Services Administration for disposal. TFC s Surplus Property Program disposes of surplus personal property from both Texas state agencies and the federal government. State Surplus Property Program State agencies are required to post all surplus property on the Comptroller s website ( for ten (10) business days. During the 10-day period, state surplus property is available to state agencies, political subdivisions, and assistance organizations as defined by Gov t Code, Chapter The owning agency determines the price, if any, for each item. State agencies have priority over all other organizations; however, if no state agency requests the property, the first organization requesting the property is entitled to it. The State of Texas has three State Surplus storefronts; one each in Austin, San Antonio, and Fort Worth. Inventories can be found at the Surplus Property section of TFC s website ( under Retail Store/Locations and Inventories. For additional information, call the Surplus Property Program at (512) For storefront questions, call (512) Federal Surplus Property Program TFC also manages the disposition of surplus and salvage property donated to the state by federal programs. TFC must certify that participants meet federal requirements to receive donated property. Once certified, state agencies, political subdivisions, some non-profits, and Small Business Administration (SBA) 8(a) program participants are eligible to receive federal surplus property through TFC. The Federal Surplus Property program operates on a cost recovery basis and receives no funding from state or federal governments. Participants pay a handling fee for property that is a portion of the original purchase cost, usually five (5) to ten (10) percent. The program distributes property through its regional warehouses in Austin, Fort Worth and San Antonio. Participating organizations can send authorized representatives to either warehouse to obtain property. TFC also publishes a list of available federal surplus property on its website. For additional information, call the Federal Surplus Property Program at (512)

13 Purchaser s Role The first step in the procurement cycle is to identify need. This is a critical step because if a need has not been recognized or made clear, you won t be able to pursue the other steps in the procurement cycle. The term Identify Need serves two functions: 1. To identify the need of the end user. 2. To identify the need to make a procurement. As a public purchaser, you are responsible for obtaining maximum value for the goods or services procured by challenging wasteful and avoidable costs. If an item is available in Surplus Property, then it may be possible to fulfill the need of the end user without the need to purchase an item from a third party. The best way to reduce the risk of financial loss to an organization and to avoid wasteful spending is to transfer surplus or unwanted property to another organization. TFC aids this effort by administering the State and Federal Surplus Property Programs. 7

14 THE STATE OF TEXAS PROCUREMENT CYCLE Disposal of Property Need Defined Payment Procurement Method Selected Contract Administration Solicitation Inspection and Acceptance Receipt of Bids Evaluation and Award 8

15 THE PURCHASING PROCESS The procurement cycle always begins with defining a need; however, it may not end with the disposal of property; especially in the case of transfer of surplus property or the purchase of recycled materials. In a regulated environment such as a state or federal agency, the purchasing process is a multidepartmental task requiring involvement from many different groups. Please look at the table on the next page to review the major activities associated with various responsibilities during the procurement cycle. It should be noted that the activities listed in the table often vary in detail and number of steps depending on the complexity of the purchase. Can you identify the people within your agency who are responsible for each step? 9

16 THE PURCHASING PROCESS Number Task Involved Procurement Cycle Group Responsible 1 Identify the Need 2 Develop the Requirement 3 Transmit the Requirement 4 Receive the Transmission Need Defined 5 Review the Need 6 Check Surplus 7 Select Purchasing Method Procurement Method Selected 8 Solicit Vendors Solicitation 9 Review Bids Receipt of Bids 10 Evaluate for Best Value 11 Select Vendor 12 Contract Formation Evaluation and Award 13 Issue Purchase Order 14 Receive Requirement Inspection and Acceptance 15 Contract Administration 16 Evaluate Vendor Contract Administration 17 Payment Payment 18 Close File Disposal of Property 10

17 STATE OF TEXAS TRAINING AND CERTIFICATION PROGRAM Overview Required by Gov t Code, as administered by CPA. CPA s Training and Certification Program was created to ensure that the State of Texas employs the most qualified purchasers and rewards professionals by providing opportunities for advancement through specified course work and certification(s). The 75 th Texas Legislature mandated by statute that all state agency purchasing personnel, as defined by Gov t Code, (b), be trained and certified to the extent required by CPA. CPA s Training and Certification Program consists of the following three (3) training levels and (2) certification levels: Training Courses 1) CPA Texas Government Basic Public Purchasing (BPP) 2) CPA Texas Government Advanced Public Purchasing (APP) 3) CPA Texas Government Cost VS Market, Contract Negotiations & Contract Administration (CNC) Levels of Certification 1) Certified Texas Purchaser (CTP) 2) Certified Texas Procurement Manager (CTPM) 1. CPA Texas Government Basic Public Purchasing: A two-day foundation class covering ethics and principles of public purchasing in Texas. State purchasers must complete the Basic Public Purchasing class within their first six months of employment. Basic Public Purchasing is targeted at state purchasers who procure goods or services for an amount up to $25, CPA Texas Government Advanced Public Purchasing: A two-day class covering specification writing, competitive purchasing methods including formal and informal bidding, and contract administration. Advanced Public Purchasing is targeted at state purchasers who procure goods or services for an amount up to $100, CPA Texas Government Cost VS Market, Contract Negotiations & Contract Administration: A two-day class covering cost and price analysis, contract administration, and advanced negotiation strategies. The CNC class is targeted at state purchasers who procure goods or services for an amount greater than $100,

18 It is a state requirement that all state purchasing employees be certified based on their delegated purchasing authority. CPA offers the following two certification levels: 1. Certified Texas Purchaser (CTP): Required for delegated purchases of $25,000 - $100,000. Certification requirements include attendance at both Basic and Advanced Public Purchasing classes, one (1) year of purchasing experience, and a passing score of 70 percent or above on the CTP exam. 2. Certified Texas Procurement Manager (CTPM): Required for delegated purchases greater than $100,000. Certification requirements include attendance at Basic and Advanced Public Purchasing and the CNC classes, three (3) years of purchasing experience, and a passing score of 70 percent or above on the CTPM exam. PURCHASING TRAINING EXPERIENCE CERTIFICATION AUTHORITY Zero to $25,000 BPP None Required None Required $25, to BPP & APP One Year CTP $100,000 Over $100,000 BPP, APP, & CNC Three Years CTPM Certified purchasing employees must obtain 120 hours of continuing education over a five-year period. For additional information about the Training and Certification Program, please see CPA s website at 12

19 PROFESSIONAL ORGANIZATIONS Now that you have a better understanding of the purchasing profession, you should know there are several professional organizations available that can serve as valuable resources. Many of these organizations offer memberships that provide networking opportunities and some offer nationally recognized purchasing certifications. Institute for Supply Management (ISM) The Institute for Supply Management (ISM) is the largest supply management association in the world. ISM s mission is to lead the supply management profession through its standards of excellence, research, promotional activities, and education. ISM is a non-profit organization that offers the Certified Professional in Supply Management (CPSM certification) and also offers a variety of online classes. National Institute of Governmental Procurement (NIGP) The National Institute of Governmental Procurement provides its membership with education, research, technical assistance and networking opportunities in public purchasing while promoting excellence, enhancing effectiveness and increasing public trust. NIGP offers the Certified Professional Public Buyer (CPPB) and Certified Public Procurement Officer (CPPO) certifications. National Association of State Procurement Officials (NASPO) The National Association of State Procurement Officials is a non-profit association dedicated to strengthening the procurement community through education, research, and communication. It is made up of the directors of the central purchasing offices in each of the 50 states, the District of Columbia and the territories of the United States. National Association of Educational Procurement (NAEP) The National Association of Educational Procurement, Inc. is the professional association serving colleges and universities nationwide. NAEP s mission is to advocate the development, exchange and practice of effective and ethical procurement principles and techniques within the higher education and associated communities, through continuing education and networking. 13

20 National Contract Management Association (NCMA) NCMA is a membership-based, professional society whose mission is to enable the workforce to grow professionally, assess individual and organizational competency against professional standards, establish values, develop best practices, and provide access to skilled individuals, enabling enterprises to improve their buyer-seller relationships. NCMA offers multiple levels of contract manager certification. 14

21 TEST YOUR KNOWLEDGE 1. Name three (3) current trends in purchasing. 2. Put the following steps of the procurement cycle in the correct order. Disposal of Property Contract Administration Solicitation Evaluation & Award Payment Procurement Method Selected Need Defined Receipt of Bids Inspection & Acceptance 3. Which of the following might be considered a challenge for the purchasing department? a.) b.) c.) d.) The organization is staffed with people other than the purchasing department. Managing departments and people you may never see. Various branches may have different cultures. All of the above. 4. The most important trend in today s purchasing environment is to always get the lowest bid. True or False 15

22 ETHICS AND THE LAW 16

23 ETHICS IN STATE PURCHASING Ethics is a set of moral principles or values governing an individual or group. As a public purchaser, most everything you do is subject to open records and public scrutiny; therefore, it is imperative to maintain the highest ethical standards. It is your responsibility to: Serve the best interests of each state organization and taxpayers in the State of Texas. Avoid acts which are improper or give the appearance of impropriety. Know and uphold the laws and statutes governing Texas procurement. Many agencies have their own code of ethical conduct for their employees and for those who conduct business with their agency. The ethics provisions of 1 Texas Administrative Code Section apply to employees, vendors and potential vendors acting under delegated authority. In consultation with the Comptroller's Office, the Ethics Commission is required, under Section 1.07 of House Bill 3560, to adopt new rules to implement the specific ethics provisions of that legislation as they relate to Texas Procurement and Support Services (TPASS). Likewise under Section 3.10 of House Bill 3560, the Ethics Commission is required to adopt new rules to implement the specific ethics provisions of that legislation as they relate to TPASS. Ethical guidelines assist purchasers and vendors in understanding what behaviors are condoned, as well as what the agency and the state find unacceptable. For example, TFC s rules (1 TAC, 111.4) specify the ethical standards of conduct required of commission employees, vendors, potential vendors, and employees of other agencies when acting under authority delegated from CPA. These rules state that an employee may not: (1) participate in work on a commission contract knowing that the employee or member of their immediate family has an actual or potential financial interest in the contract, including prospective employment; (2) solicit or accept anything of value from an actual or potential vendor; (3) be employed by, or agree to work for, a vendor or potential vendor; or (4) knowingly disclose confidential information for personal gain. A vendor or potential vendor may not offer, give, or agree to give an employee anything of value. A former employee who ceases service or employment with the commission on or after January 1, 1992, may not represent any person or receive compensation for services rendered on behalf of any person regarding a particular matter in which the former employee participated during the period of employment, either through personal involvement or because the case or proceeding was a matter within the employee's official responsibility. If you suspect a potential or discover an actual ethical violation, you should promptly file a written statement concerning the matter with an appropriate supervisor within your agency and 17

24 request written instructions on disposition of the matter. If an actual ethical violation occurs for which you are aware, and it is not disclosed and remedied, you could be reprimanded, suspended, or dismissed. A vendor or potential vendor involved in an ethical violation may have a pending bid or proposal rejected, be barred from receiving future contracts and/or have an existing contract canceled. 18

25 CONFLICT OF INTEREST Perception plays a key role when discussing ethics in the state. Situations that may involve a conflict of interest play a key role in avoiding the appearance of impropriety. So, what exactly is a conflict of interest? A conflict between the private interests and the official responsibilities of a person in a position of trust. Merriam-Webster As a public purchaser it is important to maintain the highest level of ethical integrity which includes avoiding even the appearance of impropriety. It is your responsibility to recuse yourself from any procurement where you or, a relative stand to reap financial gain or personal benefit and have another qualified person award the contract. Additionally, Gov t Code, helps prevent agencies from entering into conflict of interest situations by stating that A state agency may not enter into an employment contract, a professional services contract under Chapter 2254, or a consulting services contract under Chapter 2254 with a former or retired employee of the agency before the first anniversary of the last date on which the individual was employed by the agency, if appropriated money will be used to make payments under the contract. Conflict of Interest Statement All purchasing staff of a state agency who have been delegated the authority to purchase must sign a Conflict of Interest statement each year. One copy of the signed statement should be given to the employee, one copy should be filed in the employee's personnel file and another copy should be filed in the employee's supervisor's file. The Conflict of Interest Statement certifies that purchasers have read and understand their responsibilities as a public servant. See Procurement Manual, Section 1.2, Code of Ethics and Conflict of Interest for a template used by CPA. Nepotism Disclosure Statement Legislation (Gov t Code, ) and Sec requires a disclosure statement for purchasing personnel from all state agency personnel working on a "Major contract" meaning a contract that has a value of at least $1 million. Purchasing personnel includes an employee of a state agency who is involved in making decisions on behalf of the state agency of a major contract. The disclosure statement will require you to answer a number of questions regarding any relationship or interest with an employee, a partner, a major stockholder, or other owner of the business entity. The disclosure statement must be submitted to the administrative head of the state agency prior to the award of any major contract. See workbook chapter additional worksheets and information for copy of form and visit website to access form: 19

26 ETHICAL RESOURCES There are several resources available where you can find answers to your ethical questions or dilemmas. The Texas Ethics Commission The Texas Ethics Commission (TEC) was created in 1991 to promote public confidence in electoral and governmental processes by enforcing, administering, and training state officers and employees on applicable laws governing standards of conduct, personal financial disclosure, lobby registration and activities, political contributions and expenditures, and political advertising. Their website is a wealth of information including ethics laws, regulations, advisory opinions, and even ethics training for state employees. Professional Organizations The numerous professional organizations named in the previous chapter of this workbook each have a code of conduct or ethical standards they abide by. For example, in 1992, ISM s Board of Directors approved Principles and Standards of Ethical Supply Management Conduct. These professional organizations can provide useful information if you are trying to create ethical guidelines or standards for your program. Where else can you turn for answers to your ethical questions/dilemmas? 20

27 TEXAS PURCHASING STATUTES, RULES AND POLICIES As a public purchaser you are responsible for creating contracts; therefore, it is important to understand the legal authority directing your profession including what creates an enforceable agreement, and how to ensure compliance from the other contracting party. The legal hierarchy in public sector employment is: 1. Texas Government Code (Gov t Code) The legislature passes laws or statutes by which agencies must abide. Procurement statutes are the highest level of authority and overrule TAC and policy in the case of a conflict. As a state purchaser, you should be familiar with Gov t Codes You can find the Texas Government Code authorizing agency activities online as listed below. GOVERNMENT CODE TITLE 10.GENERAL GOVERNMENT SUBTITLE D. STATE PURCHASING AND GENERAL SERVICES CHAPTER 2155.PURCHASING: GENERAL RULES AND PROCEDURES SUBCHAPTER A. GENERAL PROVISIONS CHAPTER 2156.PURCHASING METHODS SUBCHAPTER A. CONTRACT PURCHASE PROCEDURE CHAPTER 2157.PURCHASING: PURCHASE OF AUTOMATED INFORMATION SYSTEMS SUBCHAPTER A. GENERAL PROVISIONS CHAPTER 2161.HISTORICALLY UNDERUTILIZED BUSINESSES SUBCHAPTER A. GENERAL PROVISIONS 2. Texas Administrative Code (TAC) Each agency administers rules to comply with or further define the Texas Government Code. You are responsible for knowing and 21

28 abiding by your own agency s and CPA s procurement rules. You can find a list of TAC Rules on the Texas Register at 3. Agency Policy and Procedure Each agency will have internal policies and procedures to help further clarify and explain their rules. You are responsible for knowing both CPA s and your agency s policies and procedures regarding state purchasing. You must know what to do when you are solely responsible for a purchase based on your delegated purchasing authority, and what to do when a purchase is not delegated to your agency and must be processed by CPA. EVERY state purchaser has access to legal counsel. If you are unsure of how to interpret a statute, rule, or procedure, you should contact your procurement manager or designated legal counsel (i.e. internal general counsel, Office of the Attorney General (OAG), etc.). State of Texas Procurement Manual The State of Texas Procurement Manual (Manual) is a document that serves as a set of guidelines for action. The Manual describes the steps, policies, and procedures state purchasers should be aware of and adhere to when making a purchase. The Manual is a living document that is continually updated and can be found on CPAs website at Section 1 of the Manual provides additional reference to purchasing authority requirements, procedures, and best practices applicable to the procurement of goods and services. State of Texas Contract Management Guide The purpose of the CMG is to offer contract managers at state agencies recommendations on improving existing contract management processes and practices. Pursuant to , each state agency is required to comply with the CMG. Additionally, the SAO is required to periodically monitor for CMG compliance and report any non-compliance to the governor, the lieutenant governor, the speaker of the House of Representatives and the Contract Advisory Team (CAT). As well as assist, in coordination with the TPASS and the CPA, a non-complying state agency to comply with the aforementioned section. The CMG is not intended to be a manual on contract law nor does it constitute legal advice. General principles of law are discussed but are only general principles, inclusive of exceptions. A legal reference section provided at the end of the CMG provides general information regarding contracting issues within the contract management process. Consult your agency's attorney for legal advice concerning contracts. The Guide is a living document that is continually updated and can be found on CPAs website at 22

29 Purchasing Authority What is an agent? This statement might be more correctly phrased as who is an agent? A person with the authority to bind another is identified as an agent. In your agency you are empowered with certain rights and authority to spend funds on the agency s behalf. This can be assigned by a dollar limit on the transaction, a category of expenditure, or both. As an agent, you act on behalf of the organization/agency and as such have the legal empowerment to bind the principal (the agency) within the scope of your authority. The principal has endowed you with either actual or apparent authority. Actual authority is the expressed or stated expression that you have a level of empowerment through which to spend funds for the agency and as such the agency will be bound to honor your commitment to the vendor. Only persons having actual authority to act on behalf of the state can bind the state in a contract. In apparent authority the parties believe and act as if they have the empowerment of the organization, and the vendor often has reason to believe, by past performance, that your order or commitment will be both honored and paid for by the agency. The final party to an agency relationship is the third party. In state purchasing, we call them the vendor. They are the party with which we make transactions that bind our principal. 23

30 Contract Law Purchasers operate under two primary laws in the purchase of goods and services. The first is the Law of Contracts which has its origin in English common law of Since that time, it has been revised to reflect current standards and usage in the procurement profession. A purchaser falls under the control of contract law when they engage in any form of offer or acceptance to acquire goods or services. Statute of Frauds is a tenet of the Law of Contracts requiring certain contracts to be written in order to be enforceable and generally applies to contracts: Greater than $500. For the purchase and sale of real estate. With a duration greater than one year. A written contract can never be modified by only a verbal agreement. The second law a purchaser operates under is the Law of Agency. Under this law, purchasers receive their empowerment from their principal (agency) who provides rules and restrictions that purchasers are required to follow. Some of these parameters include: dollar spending limits, signature limitations, and items purchased. While not a law, another area describing purchasing empowerment is the Uniform Commercial Code (UCC) ( The UCC is a series of articles used to govern business transactions in most states. Article two of the UCC discusses sales and has the most bearing and influence on the purchasing profession. The Texas Business and Commerce Code (TBCC) ( ) is the state code that mirrors the UCC. Sections of the TBCC include: Title 1: Uniform Commercial Code Title 2: Competition and Trade Practices, Title 3: Insolvency, and Fraudulent Transfers, Fraud Title 4: Miscellaneous Commercial Provisions 24

31 Criteria for a Valid Contract The essential elements necessary to form a binding contract are: Criteria Application Generally involves a promise or commitment to do or not do a specified act in the future. Occurs when the contracting parties agree to accept the terms of the offer. The objective of the contract must be for a legal purpose. A contract may not violate criminal law or public policy. Both parties must understand and assent to, receive a benefit from the other, and be equally bound by the contract. A party may not accept an offer so as to form a contract unless the terms of that contract are reasonably certain. Requires that something of value must be tendered in exchange for goods or services. Parties to a contract must be competent and authorized to enter into a contract. 25

32 TEST YOUR KNOWLEDGE 1. Which ethical concern has the greatest risk and long-term stigma associated with a purchaser? a.) b.) c.) d.) Responsibility to your employer. Perception of your actions. Not knowing the statutes. Reporting conflict of interest. 2. Name the seven criteria required to form a legal contract. 1.) 2.) 3.) 4.) 5.) 6.) 7.) 3. CPA s rules allow state purchasers to accept gifts from vendors as long as the value does not exceed $50. True or False 4. The best action to take if you have a relative who is a potential bidder on an upcoming contract is to. 5. State purchasers are responsible for following only statute and CPA s purchasing rules. True or False 26

33 SPECIFICATIONS 27

34 INTRODUCTION TO SPECIFICATIONS Even if you are new to the purchasing profession you are probably familiar with the term specification or specs, but you may not fully appreciate how critical thorough and accurate specifications are to the purchasing process. What is a Specification? Take a minute to write a definition for specification. How did you do? Did you write key words or phrases like a detailed description, customer needs, requirements, performance, product or service, etc.? A specification is a detailed description of the requirements for a material, product, or service that includes performance or design criteria necessary to satisfy customer need. The Purchase Requisition (PR) is the most common document used to transmit the requirement. There are generally two main functions of a specification: 1. Internally, well written specifications ensure that the purchasing department and all other internal parties involved in the purchasing process understand exactly what the end user wants to procure. 2. Externally, specifications are the primary communication document for the vendor; therefore, well written specifications ensure that vendors understand exactly what is required to prepare a bid or offer. 28

35 SPECIFICATION TYPES Performance or Functional Performance specifications describe what the product or service the end user seeks is expected to do. Details of how the required performance will be achieved are not specified. The purchaser or end user is primarily concerned with the final result. Design or Technical Design specifications provide a complete description of what the product or service must look like. For products, design specifications often define the process by which a product will be made, including the required materials. For services, design specifications include step-by-step instructions on how the service should be performed. Combination Combination specifications include elements of both performance and design specifications. The end user may have some specific design requirements, but may be open to suggestions regarding performance. Brand or Trade Name Brand Name specifications identify, by name, model number or other designation, a specific product manufactured by a specific corporation. It is important to always use the terms only or equal to when using Brand Name specifications. Qualified or Approved Products List Approved Products List (APL) is a list of certain products or services whose acceptability has been tested and determined in advance of a purchase. The APL is extremely useful when a product s conformance to specifications is unknown and difficult to ascertain. Statement of Work A Statement of Work (SOW) is used in the purchase of services to define exactly what work is being contracted. A SOW should define what is to be done, when it is to be done, and what constitutes an acceptable result. 29

36 WRITING SPECIFICATIONS Although purchasers may not always write specifications, they still play a key role in ensuring standard specifications and/or specifications submitted by the end user are effective. An effective specification should be: Flexible - Avoid overly restrictive specifications which could prevent the acceptance of a bid or offer that could provide a better value (higher quality, lower price). Accurate - Use units of measurement that are compatible with industry standards. All quantities and packing requirements should be clearly identified. Clear - Use correct spelling and grammar. Avoid legalese and jargon whenever possible. Competitive - Avoid overly restrictive requirements, and avoid unneeded extras that may reduce or eliminate competition and increase costs. Simple - Avoid unnecessary detail and redundancy. The accessibility of specifications directly affects the level of competition obtained. It is also crucial that information you plan to use in making a best value determination be clearly defined in your specification or SOW. A good specification: Clearly identifies a minimum requirement. Identifies performance requirements and/or test methods. Allows for maximum competition. Contributes to obtaining best value. Specification Writing Resources Uniform Standards and Specifications Gov t Code, provides CPA with the authority, in coordination with other state agencies, to develop specifications or adopt nationally recognized standards and/or specifications. The Specification and Standards Program of CPA develops formal standards and specifications for a number of commodities purchased in volume by the state. These standards and specifications establish minimum quality requirements and are identified by a standard/specification number and an effective or revision date, and are available on CPA s website at 30

37 Request for Information A Request for Information (RFI) is an optional specification writing planning tool that may be used to gather information when an agency does not have the necessary information to prepare a complete and accurate solicitation document. RFI s can be used to identify industry standards, best practices, potential performance measures, and cost or price structures. Other Resources There are a variety of other resources for finding and developing specifications. Many of these resources provide pre-developed specifications that can save the agency administrative hours and provide purchasers with industry expertise. Resources include: 1.) Other government agencies - State - Federal 2.) National and International professional associations - National Institute for Governmental Purchasing - Institute for Supply Management - International Purchasing and Supply Education and Research Association - American Purchasing Society - International Federation of Purchasing and Materials Management 3.) Standards organizations - American Society for Testing and Materials - American Society of Mechanical Engineers - Society of Automotive Engineers - National Safety Council - National Electrical Manufacturers Association - Underwriter s Laboratory 4.) Catalogs and sales literature 5.) Sales representatives 6.) Consultants Specifications are not static. Advancements in technology and other industries may make a previously developed specification unsuitable for future purchases. Always be sure to customize standard specifications to meet your specific needs. 31

38 TEST YOUR KNOWLEDGE 1. When using a specification, the purchaser assumes most of the risk for the proper performance of a product. 2. Which of the following is not a type of specification? a.) b.) c.) d.) Performance Design Open Market Statement of Work 3. It is important to write specifications that are open enough to allow all vendors to submit a bid or make an offer. True or False 4. Name the five elements of an effective specification. 5. Which specification type provides the vendor with maximum latitude to determine how to satisfy the bid requirement? a.) b.) c.) d.) Design Performance Statement of Work Brand Name 32

39 TEXAS PURCHASING METHODS 33

40 STATE APPROVED PURCHASING METHODS The State of Texas provides a myriad of purchasing methods or opportunities. Each method provides you with the unique opportunity to make a best value determination and save state taxpayers valuable money. This chapter will highlight the various procurement methods and provide you with an outline on how to determine the appropriate method for your purchase. Section 2.4 of the Procurement Manual will provide additional information on selecting a Procurement Method ** Department of Information Resources (DIR) (Gov t Code, ; & 1 TAC, ) DIR is a state agency created in 1989 that serves as the chief information office for the State of Texas. DIR provides contracts for computer hardware, software, technical services, and telecommunications infrastructure and services for the state. All DIR contracts are competitively bid and comply with applicable purchasing laws. Most contracts offered by DIR are Information and Communication Technology (ICT) contracts meaning the purchase order (PO), with the DIR contract number referenced, is issued directly to the vendor. State agencies are required to purchase information technology (IT) commodity items through contracts established by DIR unless the agency first obtains an exemption from DIR. Telecommunications "Telecommunications services" are defined as intercity communications facilities or services that do not include single agency point-to-point radio systems or facilities, or services of criminal justice information communication systems. Gov t Code, Chapter 2170 requires state agencies to procure telecommunications services through DIR. A state agency may not acquire telecommunications services with a carrier other than DIR unless DIR s Telecommunications Planning and Oversight Council (TPOC) determines, and provides the agency with a waiver, that the agency's requirement for telecommunications services cannot be met at a comparable cost by the consolidated telecommunications system. Hardware, Software, and Technical Services Gov t Code, requires state agencies to purchase hardware, software, and technical services through DIR s cooperative contracts. Hardware, software, and technical services are defined as commercial software, hardware, or technology services, other than telecommunications services for which DIR determines that a reasonable demand exists in two or more state agencies. The term includes seat management, through which a state agency transfers its personal computer equipment and service responsibilities to a private vendor to manage the personal computing needs for each desktop in the state agency, including all necessary hardware, software, and support services. The Request for Offer method of procurement is mainly used to procure Automated Information System (AIS) and Information Technology (IT) services. 34

41 Buyer Alert DIR provides Buyer Alert notices on their website to inform purchasers of special offers and negotiated discounts. Buyer Alerts are updated every three (3) months. Purchasers can subscribe at to receive automatic e- mail notices regarding buyer alerts. ** Council on Competitive Government (CCG) (Gov t Code, Chapter 2162) The Texas Legislature created the Council on Competitive Government (CCG) in 1993 to explore how different institutional arrangements, such as managed competition, outsourcing, reengineering and public/private partnerships can create incentives for efficiency, improve customer service, enhance accountability, and save taxpayer dollars. CCG partners with state agencies in order to assist them with their efforts to improve services and save money by increasing competition within state government. Gov t Code, Chapter 2162 mandates agencies use contracts recommended and/or created by the CCG. Some current contracts include: Computer Assisted Legal and Investigative Research (CALIR) Services: A master contract for the acquisition of online legal and investigative research services Document Destruction: Efficient, secure destruction of documents as well as e- waste. Digital Imaging: Conversion of physical documents into accessible electronic formats. Energy Procurement: Expert support for energy procurement. Geographic Information Services: A master contract for acquisition of geographic imagery and geospatial datasets. Mail Services: Fast, efficient mail fulfillment services. Print Shops: Five state print shops providing a full range of print services. Retail Fuel Card: Innovative fuel card program that automatically reduces fuel costs. Specialty Paper & Supplies: A master contract for acquisition of print shop specialty papers and supplies. All of CCG s contracts can be found on their website ( 35