Introduction to Purchasing at UC Merced

Presented by:

Karen Meade, C.P.M.

Principal Buyer

Objectives

To provide participants with a basic understanding of…

Public contract law and UC policies and how they relate to our purchasing activities at UC Merced

Purchasing fundamentals

Campus Purchasing procedures

Ethical considerations related to Purchasing

Overview

Purchasing Laws and Policies Contract Formation Battle of the Forms Purchasing Terms and Considerations Systems and Services Procurement Methods Purchasing Procedures and Process Documentation Ethics

Laws, Policies and Regulations that Govern Purchasing

Sherman Antitrust Act (1890) First U.S. legislation enacted to curb concentrations

of power that restrict trade and reduce economic competition

Clayton Antitrust Act (1914) Supplement to Sherman Antitrust Act Established Federal Trade Commission (FTC)

Robinson-Patman Act (1936)

Laws, Policies and Regulations that Govern Purchasing (con’t.)

Uniform Commercial Code (UCC) Adopted by 49 States Commercial transactions Does not cover services – Common Law

United Nations Convention on International Contracts for the Sale of Goods (C.I.S.G.) Adopted by U.S. , Canada and 48 other major trading nations Unless a contract specifically provides for application of

alternate body of law, CISG will automatically apply if buyer’s and seller’s countries have adopted it

Differs from UCC.

Laws, Policies and Regulations that Govern Purchasing

California Political Reform Act (1974) Disqualification of participation if financial Conflict of

Interests are present

State of California Public Contract Code 100-10 (1981)Objectives

Protect the public from misuse of public funds Provide qualified bidders with a fair opportunity,

stimulate competition Prevent favoritism, fraud, and corruption

Laws, Policies and Regulations that Govern Purchasing (cont’d.)

Bylaws and Standing Orders of the Regents of the University of California

Regental Policies

Administrative policies issued by the President of the University

BUS-43 Materiel Management UC Merced Campus Purchasing Policy & Procedure

Policies and requirements of the funding agencies for Federal contracts and grants, and other extramural agreements

Recent Legislation

SB 1467 & SB 41 – Conflict of Interest Employees as independent contractors Former employees and contracting limitations Follow-on contracts

SB 1386 – Privacy-------------------------------------------------------------------------------------------

Employee-Vendor Relationship Financial Interest >10% Conflict of Interest Form

Law of Agency

Body of law that governs agents Authority to Contract

Law of Agency

Agent - an individual who is authorized to act for someone else in business dealings with a third party.

For purchase transactions, who are agents for the University? Purchasing Directors Buyers All individuals that are authorized / delegated

authority to place orders for the University (Authority is not delegated to departments!)

Law of Agency Authority

Express (actual authority)Written (UC Merced delegation)Oral

Implied (customary/apparent) Usual course of Business - customary

• Prior practice of individuals - apparent

Purchasing’s obligation regarding Unauthorized (After-The-Fact) purchases

Example of Authority

Mark Smith is a clerk at XYZ company. Mark has been purchasing office supplies and occasionally, office equipment from ABC company. A salesman from ABC offers Mark a deal on 25 calculators and Mark signs the sales contract form. When Mark tells his boss, the boss calls on the salesman and tells him that Mark is not a buyer and does not have the authority to enter into a contract.

Is there a contract?

Example of Authority, cont.

Yes.

When an agent with authority (express or implied) makes a contract with a third party which binds the agent’s principal, THERE IS A BINDING CONTRACT.

Formation of a Contract - Five Elements

1. Offer and Acceptance

2. Intent

3. Competent Parties

4. Legality of Purpose

5. Consideration

Offer and Acceptance

Offer and acceptance in the eye of courts has to do with a “meeting of the minds" and conduct. Absent any written contract, the courts may judge that a contract existed if it can be established that there was mutual assent relative to the matter in question.

Offer

A promise or commitment to do or not to do a specified thing in the future.

Advertisements, circulars, price sheets or generally not offers- they are an invitation to negotiate.

Can be made by a buyer or seller.

Purchase Order, Bid, Quotation (depends on terms), Letter of Intent

Offer, cont.

May lapse May be rejected May be rejected by a counter-offer May be revoked May be accepted

Acceptance

Occurs when the person to whom the offer is made exchanges their own promise or performance for the promise made in the offer

For Sale of Goods-3 ways to acceptBy words of acceptance (bilateral)By the supplier’s act of prompt shipment (unilateral)By the promise of shipment (bilateral)

• e.g., Acknowledgement

Mailed acceptance becomes effective upon mailing.

Intent

Parties must consent and intend to contract voluntarily.

Consideration

Consideration embodies a mutuality of obligation, and can also be a forbearance (agreement NOT to do something). Money Goods Forbearance (not doing what one has a legal

right/obligation to do, such as “I will pay you $1,000 not to build a road next to my fence.”)

Return promise

Competent Parties

The parties to contract must be of legal age, not insane, and not mentally impaired by foreign substances (drugs or alcohol). Or under duress (threat or exercise of force)

Misrepresentation or fraud Insanity Minor status

Legality of Purpose

Contracts for illegal purposes are not enforceable.

Contract Formation—Offer and Acceptance, example

A seller sends you a quotation with a very good price on the front and many unattractive terms and conditions on the back of the form. One of these terms states that the buyer is responsible for payment of freight. You send a PO to the seller and reference their Quote #. Seller invoices you and includes freight. Is there a contract? Whose terms and conditions, including freight govern?

Contract Formation—Offer and Acceptance, example

It is very important for the buyer to make clear when he is accepting a seller’s quotation that he is accepting only the price, not the terms and conditions of the quotation.

“Your quotation of (date) for (Product) is accepted, provided, however, exception is taken to your terms and conditions.”

Contract Formation

Implied-In-Fact ContractSome of the formal elements occur

through conduct rather than words.

e.g.. Taking your car to a car wash and giving your keys to the attendant.

Contract Formation

The law requires all contracts for the sale of goods over $500 to be evidenced by a “writing signed by the party to be charged” in order to be enforceable.

Contract Formation

Some companies might have a policy for not issuing a Purchase Order under $2500 because they feel they are not of significant enough value or they are unimportant.

Contract Formation

Remember—The value of a Purchase Order is not just the cost of the item, but the risks involved. Terms and conditions?Example: A phone order of $200 for

photography services. Are there any risks?

Contract Formation

“Get it in writing, put it in writing, and make the writing as complete, clear and comprehensive as possible”

Battle of the Forms

Parties will use "boilerplate" language to govern the terms of a sale.

The buyer, for example, will send a purchase order with a set of boilerplate terms.

The seller usually responds with an acknowledgment and invoice with another set of boilerplate terms.

Battle of the Forms, Whose Terms and conditions Govern?

Conflicting terms always cancel out one another.

Additional terms become a part of the contract. In other words, you are stuck with the additional terms on the seller’s form, or they are stuck with yours.

Battle of the Forms

Whose terms and conditions govern?

A buyer sends out a Purchase Order that does not list any terms and conditions. The seller responds with a sales acknowledgement with one term, a disclaimer of warranties.

Do you have a contract? Do you have any warranties?

Battle of the Forms

Yes, there is a contract.

“No warranties” becomes a contract term..

Other Purchasing/Contract Terms and Considerations

Most orders are taxable (Even if supplier doesn’t charge tax) Tangible goods/services Out-of- State purchases

Non-taxable orders Resale orders Non-taxable services Non-tangible software Federal Government has title

Taxable/non-taxable

Buying for UC Merced

Procurement System/Services

PAC/CatBuy UC Merced Online Purchasing System Hosted by UCLA Customized for UC Merced

UC Merced Purchasing Team Cindi Deegan, C.P.M., Director of Purchasing Terry Thun, A.P.P., Principal Buyer Karen Meade, C.P.M., Principal Buyer Denise Garcia, Principal Buyer Jackie Mendez, Buyer

UC Merced Accounts Payable Team

Your Accounts Payable Team

Located at UCLA Accounting Department UC Merced Dedicated Team

Jennifer Chhoeung, Team Leader Processes all UC Merced Invoices and Payments

Team Objectives

Satisfy End-User Requirements Achieve Maximum Value Minimize University Risk and Liability Ensure Compliance with Federal & State Laws

and UC Policies Further UC Merced Programmatic Goals

Environmental Sustainability Economic Development of Local Region

Procurement Methods Departmental Orders

Low Value Order (LVO) = “N” class order Blanket Order Release = “A” class order Special Class Orders = “X” & “T” class orders (which are

used for utilities, training, travel…) Procurement Card

Petty Cash Recharge (through other department or campus) Purchase Requisition

Regular “R” requisition = “P” class PO issued by Purchasing Blanket “J” requisition = “B” class PO issued by Purchasing

Low Value Orders

Low Value Orders (LVOs) Orders issued by individuals in departments that

have been delegated Purchasing authority. Order limit is $5,000 per vendor, per day. Non-restricted items only. Complete/post order at time of vendor

commitment.

Restricted Items – LVO(partial list – see LVO policy)

Agreements/Contracts that require signatures Furniture Alcohol Guns Controlled Substances, Radioactive substances Explosives Alcohol (ethyl alcohol) Independent Contractor Services (other than one-time repair),

Consultants, Professional Services, etc. Communications (phone system, etc) Items from employee or near relative Firearms, explosives, and ammunition Installation requiring contractor’s license Lasers, X-ray and safety equipment Lease purchases

Purchase Requisitions

Purchase Requisition Submitted Online by Department Preparer via CatBuy. Provides Purchasing approval to commit funds. Back-up information (quotes, proposals, scope of work

etc.) attached to “R” (regular purchase) or “J” (blanket purchase) Requisitions in CatBuy .

Requisition/Order Specifications

Defines statement of needs – End User Describes what buyer buys and what supplier

provides. Will be the basis for the contract. Types:

Functional - defines task or desired result Technical - physical characteristics Performance - capability, performance

characteristics

Specifications, cont.

Specifications for GoodsDetailed description of goodsModel number or equal* InstallationTrainingServicesDate needed

* Sole source?

Specifications, cont.

Specifications for Services Statement of Work (SOW) – may also be

referred to as Scope of Work Contract term/Period of performance Frequency of service, Response time Deliverables Payment terms (progress, monthly, upon

delivery)

Purchase Orders (common types)

Regular Purchase Order (Class “P”) (w/encumbrance) One-time purchase

Blanket Orders (Class “B”) (w/o encumbrance) Long-term contracts Repetitiously purchased goods/services Departments issue releases against As-needed basis Higher release limits Fixed pricing, terms, and conditions Department specific or Campus-wide

Procurement Methods - Purchasing

Requirements < $100,000 (effective 01/01/11) Informal Bids Negotiations

Requirements > $100,000 (effective 01/01/11) Formal Bid Process

RFI (Request for Information)RFQ (Request for Quotation)RFP (Request for Proposal)

Negotiations

Competitive Bidding Requirements

UC policy requires formal competitive bidding for all requirements $100,000 and over unless… Sole source/unique product or serviceMatch-existingProfessional or personal service

Award to lowest responsive, responsible bidder

Responsive

A responsive bidder is one who has submitted a quotation, bid, or proposal that is determined to be in substantial conformance with the specifications, delivery requirements, and conditions prescribed in the request for quotation, free of material mistakes or errors.

Responsible

A responsible bidder is one who is capable in all respects to perform the contract requirements (factors that are considered

include financial resources, past performance,

technical skills, organizational structure,

personnel, equipment, delivery capacity,

facilities, client base, etc.).

Basis of AwardLowest cost

(used for RFQs, RFBs)

Lowest cost-per-quality point (used for RFPs)

Sole Source Justification

UC /UC Merced requires sole source justification, in writing signed by end-user/end-user department. Form available online or in Buyer guide. Focus on why unique features are critical to specific

need/application. Avoid justifications based on quality & price -

formal bidding provides that determination. Match-existing requirements must be

valid/reasonable. Requires Purchasing approval.

What Can You Negotiate? Price

Education/Academic discounts GSA discounts or CMAS discounts Volume discounts Price Protection

Favorable Terms and Conditions FOB Payment Guarantee Warranty

Services Used or refurbished Training

Product substitutionAlternate brandsDemo/refurbished equipment

Donations Annual contracts Year-end/Sales quarter-end purchases Standardization

Other Cost-saving Techniques

Always Remember….

Win - Win

Unauthorized Purchase/After-The-Fact Purchase

Purchase transactions that are entered into by an individual that is not duly authorized to contract for the University.

Purchase transactions that are entered by a person who is authorized to contract but who exceeds their delegated authority or uses an unauthorized procurement method.

Unauthorized Purchase/A.T.F., cont…

An individual may be personally responsible for payment of charges incurred by an unauthorized purchase.

Time constraints do not constitute a reason for an unauthorized purchase If there is an emergency, call

Purchasing!! Partnership = Department + Purchasing

(working together)

Order Documentation/Justification

Vendor Selection (Basis of Award)

Price Reasonableness

Sourcing methods/tools Business Information Form

Pre-qualification Substitute W-9 form

Strategic Sourcing suppliers Small & local businesses Disabled veteran business enterprises (DVBE) Conflict of Interest issues

Vendor Qualification/Selection

Vendor Selection

Vendor Selection Multiple Quotes Sole Source Match existing Only known source Emergency Purchase Agreement Source Best Source

Price Reasonableness

A reasonable price is one that does not exceed that which would be incurred by a prudent person in the conduct of a competitive business.

Price Reasonableness

Multiple Quotes/Bids Price previously paid Vendor certifies lowest price Market knowledge/Professional judgment Educational/GSA/CMAS pricing Standard commercial price – no discounts Vendor certifies lowest price Cost/price analysis UC Agreement

Order Documentation

Justification for Vendor Selection and Price Reasonableness

All University orders are subject to audit. Order backup should be kept on file for a

period of 5 years after order is placed.

Checklist copy in Catbuy Buyers Guide will be available online at purchasing.ucmerced.edu.

Process Timeline - Purchasing

Negotiation and Informal Bids In general, one to two weeks to order

placement, but depends on complexity Formal Bids

Six to twelve weeks to contract awardEarly involvement is key

Emergency Requirements Immediate turnaround

Completing the Process

Contract Award/Purchase Order Posted Order Documentation Goods Delivered to Central Receiving Department Central Receiving Delivers Goods to Department Payment is Processed by Accounts Payable

Ethics

Avoid even the appearance of anything

less than complete integrity, objectivity,

and impartiality.

Ethics (cont’d.)

ACID Test Would you like to read about it -- your

decision or action -- on the Merced Sun Star’s front page?

Ethics (cont’d.)

SupplierTreat all suppliers fairly in all matters.Conduct complete and open bidding process.Don’t divulge competitor pricing until after

award.Protect proprietary/confidential information.Do not knowingly take advantage of a

Supplier error.

Ethics (cont’d.)

Anyone that buys for the University must perform their roles in a manner that protects the University.

Reputation and fairness are key characteristics that must be established in the buying process.

Please . . .

DO NOT provide requisition numbers to suppliers. DO NOT sign supplier paperwork/agreements. DO NOT commit to a supplier unless you will be

awarding the contract. DO NOT provide suppliers with budget

information. DO NOT communicate with suppliers during a bid

process.

Please …

DO contact Purchasing with questions, issues or suggestions.

DO provide input regarding supplier and contract performance.

DO share your success stories. DO let us know how we can better assist

you and your department .

Purchasing is your Resource for…

Locating Sources of Supply Suggesting Alternatives Discussing Policies and Procedures Providing Pricing and Product Information Discussing Legal Considerations Creating Formal Bid Documents

Purchasing, Can I

help you?

Purchasing is your Resource for… (cont’d.)

Assistance in Specification Development Supplier Pre-Qualification Accessing Insurance Requirements Determination of Best Procurement Method Contract Negotiations Assistance in Sole Source Documentation Facilitating Emergency Requirements Problem Resolution

Other Activities

Strategic Sourcing Initiatives Local Campus Contracts Sustainability Efforts Expanded Training Offerings Streamlined Procurement Supplier Outreach

Path Forward - Together

We strive to provide excellent service to you, our campus customers. By effectively working together, we are able to maximize University value and minimize University risk in the procurement of your campus requirements.

Future Focus…

Simplify and Streamline Processes Increase Number of Strategic Contracts Enhance Communication Identify and Address Additional Training

Needs Continue to Maximize Value, Minimize

University Risk and Support Campus Programmatic Requirements

Questions ?

Purchasing WebsiteAn Invaluable Resource!

purchasing.ucmerced.edu

Questions ?

Thank you!