CONTRACTING AND PURCHASING 2017 Educational Series
CONTRACTING AND PURCHASING INTRODUCTION GOODS AND SERVICES Texas Department of Transportation (TxDOT) contracting activities are established and controlled by state and federal law and regulations. All of TxDOT s contracting activities must be tied to a specific law that authorizes its procurement and establishes the provider selection process. As a result of Senate Bill 20, 84th Legislative Session, 2015, the state s contracting and procurement process went through an extensive overhaul resulting in greater checks and balances as well as additional reporting requirements for state agencies. Procurement Process Highway construction contracts, maintenance contracts and most purchase orders are procured through competitive bids. The competitive bid process requires TxDOT to award a contract to the entity that offers the lowest price for the desired good or service. Most other contracts are awarded through a negotiated procurement process. This process is more complex, with each service TxDOT decides to outsource having unique procedures. For most types of services, the process requires TxDOT to assess the entities qualifications, select the most qualified and then negotiate items like costs, scope of work, required personnel, work hours and project schedules before the award and execution of the contract. TxDOT has procurement authority to purchase equipment, materials, goods, supplies and services. This purchasing is centralized to ensure consistency in compliance with state procurement statutes, rules and procedures. This authority does not include the procurement of highway construction and maintenance services, building construction and maintenance services, professional services, consultant services or scientific services. Federal funds may not be used to purchase any type of equipment through construction contracts. TxDOT s purchasing philosophy is to obtain the best value by purchasing the right quality, in the right quantity, at the right time, at the right price, from the right supplier and in the most effective manner. TxDOT s three purchasing goals are to satisfy the needs of the user, to spend the state s money wisely and to anticipate needs so that the most cost-effective method of purchase can be used. To accomplish these three goals, TxDOT has established standards, specifications and tests and inspects all purchases for compliance with requirements. TxDOT also manages its inventory to ensure an appropriate amount of materials are available to serve TxDOT s needs. TxDOT ensures that public purchasing is open to all eligible vendors. TxDOT also provides a continuing professional development and certification program for its purchasing staff and maintains open communication with users, other governmental entities and the public. Bidder s List The Texas Comptroller of Public Accounts (CPA) maintains the Centralized Master Bidders List (CMBL), which is a directory of vendors registered with the state to provide goods and services. Unless exempted by law, the CMBL must be used for all procurements of goods and services under the State Purchasing Act. Basis of Award If the decision is made to award a purchase order, state law requires the award to be based either on lowest price or best value, and TxDOT must consult with and receive approval from the Comptroller of Public Accounts before considering factors set in statute other than price and meeting specifications for goods or services. 2 Educational Series: Contracting and Purchasing
PROFESSIONAL SERVICES CONTRACTS TxDOT may enter into a contract for professional services including: Engineering; Architectural; Surveying; and Real estate appraisal. TxDOT contracts for engineering, architectural or survey services are referred to as PEPS (Professional Engineering Procurement Services) contracts. Services under PEPS contracts may include preliminary engineering, design or plan work, specifications and estimates as well as: Construction engineering and inspection; Bridge inspection and scour analysis services (inspection of soil erosion that surrounds a bridge foundation); Environmental engineering, project observation and inspection; Architectural design, plan work, specifications and estimates; Architectural observation and inspection; and Surveying and mapping. Professional service contracts between TxDOT and private sector entities are awarded through a selection process that assesses each prospective entity s qualifications and fees. Depending on the type of professional service provided, TxDOT awards professional service contracts using either a one-step process or a two- step selection process. Both processes require TxDOT to perform the following: Advertise the services to be outsourced; Develop a request for proposal (RFP) or request for qualifications (RFQ) package that communicates to prospective providers what they must be able to provide (scope of work) and the criteria that will be used to evaluate and score proposals; Select a provider that best demonstrates in its proposal the qualifications and ability to perform the required services; and Ensure that the selected provider can supply the services and resources at a fair and reasonable price to TxDOT. One-Step Selection Process TxDOT s one-step selection process consists of an evaluation of each prospective provider s qualifications and prices simultaneously, and the contract is awarded to the provider with the proposal that receives the best overall score. TxDOT scores proposals using criteria to asses a prospective provider s qualifications to perform specific job functions and the reasonableness of fees in relation to current industry averages and historical price data. The scoring of the qualifications component varies based on the type of contract but typically includes experience with similar projects, qualifications of the project manager and the project team, and the plan for the project. Contracts that may be awarded using a one-step selection process include: scientific services; private consultant services; landscape architectural services; and right-of-way acquisition provider services. Two-Step Selection Process PEPS contracts, which involve engineering, architectural or surveying services, employ a two-step selection process. This process, which is unique to PEPS contracts, evaluates a prospective provider s qualifications and price separately in two distinct phases a provider selection phase and a negotiations phase. Step one, the selection phase, requires TxDOT to rank prospective providers based on demonstrated competence and qualifications for the type of services to be performed without regard to price. Prospective entities are ranked in order of the most qualified to perform the required services. Step two, the negotiations phase, involves negotiating fair and reasonable fees and, depending on the contract, other factors, with the provider that exits the selection phase with the highest ranking. If rates cannot be negotiated to fall within an acceptable range based upon historical price data or current averages for the service being procured, TxDOT may discontinue negotiations with the highest ranked provider and begin negotiations with the second-most qualified provider. Once negotiations with the highest ranked provider are terminated they cannot be restarted. When both sides agree to what they consider fair and reasonable rates to perform the required services, TxDOT awards the contract. The two-step selection process helps ensure that a provider s qualifications remain the top priority for TxDOT when contracting for engineering, architectural or surveying services. Educational Series: Contracting and Purchasing 3
Monitoring the Work TxDOT s negotiated contracts do not permit TxDOT to pay the performing entity for the following: Tasks performed outside of the contract period; Tasks performed but not authorized in the contract s scope of work; or Tasks completed that do not meet the specifications set forth in the contract s scope of work. Therefore, monitoring the work and its progress is a critical contract management responsibility. TxDOT contract managers determine the monitoring methods and methods may vary depending on each contracting situation and on the type of service being procured. Amending the Scope of Work If TxDOT wants to increase or decrease the scope of work or alter its specifications in any way, it may negotiate an amendment provided the following conditions are met: The changes are necessary to facilitate successful completion of the project; The subject matter falls within the scope of work that was previously communicated to the performing entity in the RFP or RFQ it received from TxDOT; and The contract has not expired. CONSTRUCTION LETTING In 1925, the Texas Legislature passed legislation providing the basis for the TxDOT low-bid process that is still used today for construction and maintenance contracts. As a result of this legislation, TxDOT created a process known as letting. The letting process includes providing a public notice of the intent to receive bids for specific contracts, issuing proposals, receiving proposals and awarding contracts. TxDOT has established various regulations, specifications and procedures to ensure that it uniformly and consistently follows an established letting process. The letting process is divided into the following three major areas: Pre-letting; Letting; and Post-letting. This process is the foundation for the award of construction and maintenance contracts and is designed to protect against bias or favoritism entering into the contract award decision. Notification of Bid TxDOT is also required to advertise all projects in excess of $25,000 on the Electronic State Business Daily (ESBD) site, which is maintained by the CPA. The advertisement must be placed 21 days before the date of the bid opening. 4 Educational Series: Contracting and Purchasing
Release of Proposals Proposals for state and local let projects are made available for distribution 21 days before the contract letting. Contractors that have completed the prequalification process and that have available bidding capacity equal to or more than the engineer s estimate of a project may receive a bidding proposal. Contractors may receive as many bidding proposals as requested provided the available bidding capacity requirement is met for each project. Informational proposals are available to all parties through downloads from TxDOT s website. Informational proposals are available 21 days before the bid opening date. Requested proposals are sent by first-class mail unless the contractor provides an express or overnight account number. In addition, proposals may also be issued on a walk-in basis. Bidder s List TxDOT maintains a list of bidders that have received a proposal for each project. This list is used during the bid opening to ensure proposals are received only from qualified bidders. In addition, the bidder s list is used to notify contractors of the issuance of an addendum, if changes are made to the proposal or plans or if the project is cancelled. Bid Proposal Receipt TxDOT receives proposals through U.S. mail, by a courier such as FedEx or United Parcel Service, electronically or by handdelivery. A proposal receipt log is maintained for each letting to ensure that all proposals received on time are transported to the letting room and properly considered. Educational Series: Contracting and Purchasing 5
Contract Award The contract award process is the process of formally accepting or rejecting the proposal of the apparent low bidder. If the proposal is accepted, the apparent low bidder becomes the official low bidder and therefore becomes obligated to TxDOT to execute the contract. If the proposal is rejected, the apparent low bidder is not obligated to TxDOT. Authority The authority to award or reject contracts for TxDOT is distributed among the following groups or individuals: Construction and state let maintenance projects with an engineer s estimate of $300,000 or greater may only be considered by the Texas Transportation Commission (Commission); State let maintenance projects with an engineer s estimate of less than $300,000 may be awarded by TxDOT s deputy executive director; Local let maintenance projects may be awarded by the local TxDOT district engineer. These contracts are locally let projects and are for low dollar amounts under $300,000. Award to Lowest Bidder If TxDOT awards a contract, by law, the award is only available to the lowest bidder that meets all required criteria after examination of the bid. TxDOT commitment to DBEs The Disadvantage Business Enterprise (DBE) program is a federal program for contracts that expend federal funds. TxDOT must make a good faith effort to meet or exceed the assigned DBE contract goal. TxDOT and members of the Texas Unified Certification Program certify providers interested in becoming DBEs. Individual federal contracts have DBE assigned goals. Only work performed by providers certified as DBEs will satisfy DBE goals. At a minimum, in order to qualify as a DBE, members of a disadvantaged group (i.e., minority or women) must own and control at least 51 percent of the business. The woman-owner or minority-owner must be responsible for the day-today operations. TxDOT is committed to nondiscrimination on the basis of race, color, national origin or gender in purchasing activities and in the award and administration of contracts. TxDOT contract managers, procurement staff and contractors must make a good faith effort to solicit and use certified Disadvantaged Business Enterprises (DBEs) under federal law and for contracts and purchase orders using federal funds. TxDOT largely expends funds in the Heavy Construction Other than Building Contracts category in which the agency primarily receives federal funding and administers contracting with minority contractors following the federal DBE program guidelines. Opportunities for minority contractors bidding on federally-funded projects follow the guidelines through the federal DBE Program. To qualify as a DBE, members of a disadvantaged group must also own at least 51 percent of the business. The 51 percent woman-owner or minority-owner must own, control and be involved in day-to-day operations. Companies have to qualify as HUBs and DBEs to ensure that they are truly minority-owned. Then, bidding on large TxDOT contracts requires another step, TxDOT pre-qualification, to ensure that the company can perform the work, is stable financially, bonded and meets all the other requirements. 6 Educational Series: Contracting and Purchasing
PUBLIC-PRIVATE PARTNERSHIP AND COMPREHENSIVE DEVELOPMENT AGREEMENTS The earliest versions of public private partnership agreements, known as PPPs or P3s, in Texas were referred to as exclusive development agreements, as outlined in House Bill 749 enacted by the 72nd Legislature, Regular Session, 1991. This legislation authorized the Texas Turnpike Authority (TTA) to develop projects through P3s. TTA was granted latitude to negotiate the terms and conditions of these agreements. In 1997, the TTA was transferred to TxDOT, along with its enabling statutes. The authority to enter into exclusive development agreements had not been used at the time of the transfer. In 2003, recognizing the shortage of traditional funds for transportation, the Texas Legislature authorized TxDOT to use several new tools to realize the benefits of private sector participation. THE DESIGN-BUILD METHOD Design-Build (DB) is an alternative project delivery process to the traditional design-bid-build delivery method. This alternative project delivery method shifts certain risks to the design-build firm, may expedite the construction of many complex projects that might not have otherwise been completed for years, and also provides additional benefits to the state and traveling public as outlined below. To ensure that the Texas Department of Transportation (TxDOT) uses the DB project delivery method for the appropriate projects, a thorough analysis of the project is performed using a tool developed by the University of Texas Center for Transportation Research (CTR). Once a design-build project is selected, TxDOT then works to procure either a DB contract or Comprehensive Development Agreement (CDA) that will allow for the accelerated delivery and implementation of the project. TxDOT Commitment to HUBs Historically underutilized businesses and disadvantaged business enterprises The HUB program is a state program, for statefunded projects with the exception of Heavy Construction Other than Building Contracts. The purpose of the HUB Program is to promote full and equal business opportunities for all businesses in state contracting. The CPA certifies providers as HUBs. Only companies certified as HUBs will satisfy HUB goals. At a minimum, a HUB must be at least 51 percent owned by either an Asian Pacific American, Black American, Hispanic American, Native America, woman or Service Disabled Veteran. The HUB must also be a forprofit entity with an owner who resides in Texas and actively participates in the operations of the business. TxDOT makes a good faith effort to use HUBs in all TxDOT contracting opportunities either directly or indirectly as a subcontractor in order to meet or exceed its annual HUB goals. Moving Forward TxDOT will continue to maintain a program that facilitates purchasing and contracting opportunities for DBEs and HUBs. TxDOT will work to improve outreach programs and materials to better communicate training opportunities to minority and small businesses. TxDOT will also continue to expand market penetration by developing more partnerships with local and regional economic development organizations. Educational Series: Contracting and Purchasing 7
TEXAS DEPARTMENT OF TRANSPORTATION VALUES: People People are the Department s most important customer, asset, and resource. The well-being, safety, and quality of life for Texans and the traveling public are of the utmost concern to the Department. We focus on relationship building, customer service, and partnerships. Accountability We accept responsibility for our actions and promote open communication and transparency at all times. Trust We strive to earn and maintain confidence through reliable and ethical decision-making. Honesty We conduct ourselves with the highest degree of integrity, respect, and truthfulness. VISION: A forward-thinking leader delivering mobility, enabling economic opportunity, and enhancing quality of life for all Texans. MISSION: Through collaboration and leadership, we deliver a safe, reliable, and integrated transportation system that enables the movement of people and goods. GOALS AND OBJECTIVES: Deliver the Right Projects Implement effective planning and forecasting processes that deliver the right projects ontime and on-budget. Focus on the Customer People are at the center of everything we do. Foster Stewardship Ensure efficient use of state resources. Optimize System Performance Develop and operate an integrated transportation system that provides reliable and accessible mobility, and enables economic growth. Preserve our Assets Deliver preventive maintenance for TxDOT s system and capital assets to protect our investments. Promote Safety Champion a culture of safety. Value our Employees Respect and care for the well-being and development of our employees. This document is part of an educational series on transportation issues produced by the Texas Department of Transportation.