Meeting_Body
FINANCE, BUDGET AND AUDIT COMMITTEE
SEPTEMBER 19, 2024
Subject
SUBJECT: PRE-QUALIFICATION PROGRAM
Action
ACTION: APPROVE RECOMMENDATIONS
Heading
RECOMMENDATION
Title
CONSIDER:
A. ADOPTING an amendment to Metro’s Administrative Code Chapter 4-05 to replace the existing contractor pre-qualification language with Attachment A of this Board Report; effective January 1, 2025; and
B. RECEIVING AND FILING streamlining initiatives, including electronic signature deployment for procurement contracts and purchase orders.
Issue
ISSUE
On average, Vendor/Contract Management (V/CM) manages over 22,000 procurement requisitions per year. Staff has received feedback across the Agency that the cycle time to complete some procurement transactions poses a challenge to meeting schedule deadlines. In addition, the small business and disadvantaged business community have expressed frustration with the burdensome amount of paperwork required in Metro’s procurement and contracting process.
Staff identified opportunities to reduce cycle times for procurements, as well as post-award contract administration. By increasing the pre-qualification contract value threshold for certain contracts, an immediate benefit can be realized in reducing the administrative burden on small businesses, V/CM, and obstructions to faster procurement processing. The pre-qualification process timing can be just as effectively monitored by moving specifics of the Program to an Agency procurement policy for controls.
After adoption of the simplified ordinance, specifics beyond the ordinance of the Program shall instead be provided for in Metro’s Procurement Policy & Procedures (ACQ 2). This modernization not only brings it in line with other procurement policies but improves the pre-qualification process efficiency by facilitating future updates to the Program more readily.
Background
BACKGROUND
California Public Utilities Code section 130051.22 requires Metro to have a program to pre-qualify contractors seeking to do business with Metro. Metro Administrative Code Chapter 4-05 was adopted by the Board in 2004 and details the pre-qualification program and process (“Program”) for all vendors seeking to do business with Metro.
In order to minimize Metro’s risk in awarding contracts, pre-qualifying vendors is recognized as an effective method of ensuring that Metro does business only with responsible entities. As such, Pre-Qualification Department staff verifies the information provided by vendors on the Program application by reviewing financial records, searching public records and US Treasury sanctions lists, and evaluating the business entity’s credit history. Maintaining this best practice, reduces the risk to Metro of doing business with companies that are not financially solvent, are sanctioned, debarred, or engaged in unlawful activity. Once an application is reviewed and approved, companies are pre-qualified for two years.
Currently, Metro Administrative Code Chapter 4-05 details the Program process for all vendors seeking to do business with Metro. Contracts, other than for public works construction contracts, in which the awarded contract, or first-tier subcontract, is reasonably expected to exceed $100,000 in value are subject to a prequalification review. This $100,000 threshold adopted by the Board in 2004 is outdated. It fails to reflect inflation, cost increases, market fluctuations, and similar changed economic conditions that have occurred in the economy in the last 20 years. The threshold amount also does not present the same level of risk for the agency at this time.
Discussion
DISCUSSION
Currently, the Program applies to all contractors, consultants, first-tier subcontractors, and direct suppliers to Metro in which the awarded contract, or first-tier subcontract, is reasonably expected to exceed $100,000 in value. This threshold has not been updated for 20 years. There are no exceptions for small businesses, minority-owned businesses, or any other categories of businesses with whom Metro has actively sought to increase participation. Pre-qualification reviews adds an average of 3days to the timeline for a procurement. Increasing the threshold would yield an immediate benefit to our vendor and small business community since it would eliminate the pre-qualification review for contracts under $500,000 for small dollar procurements where the risk to Metro is minimal. In the past two fiscal years, an average of 35% of all procurement contract reviews conducted by Program staff fell within the $100,000 to $499,999 range. This represented a total of 507 pre-qualification reviews within the threshold - with 15% of those attributed to small businesses. Furthermore, a higher threshold will enable existing Program staff to prioritize required reviews to address higher award risk procurements to Metro, such as those supporting rolling stock and other time-sensitive requests - including bench task order contract awards, with an objective of improving processing time in procurement processes.
Therefore, increasing the Program threshold from $100,000 to $500,000 for the eligible contract types is prudent, and aligns this Program with other areas of Metro’s Procurement Policy by incorporating the detailed procedures of the Pre-Qualification process into Procurement Policy & Procedures (ACQ-2). This will also reduce the administrative workload for the small business and disadvantaged business community who are awarded contracts under $500,000.
In addition to increasing Program thresholds, incorporating the Pre-Qualification Program specifics within Metro Procurement Policy will ensure that the Program can evolve and be updated based on Metro’s and the vendor community’s needs and business best practices more nimbly.
Other Streamlining Initiatives
V/CM’s e-Signature processes went live on March 1st, 2024, and was formally announced to the Transportation Business Advisory Council (TBAC) with a training demonstration on Thursday, March 7th, 2024 at the monthly TBAC Board meeting. An announcement was posted to Metro’s Vendor Portal on Friday, February 23rd, 2024, in advance of the launch date. Additionally, Metro Contract Administrator, Buyer, and Procurement Clerk training was conducted during the week of February 26th, 2024. For Metro staff, training consisted of an overview of new contract, purchase order and solicitation language, legal requirements, and workflow modifications including loading documents to a digital repository.
The benefit of the new e-Signature processes is multi-faceted, encompassing environmental sustainability, faster contract execution for Vendors, multi-platform delivery across computers, tablets, and smartphones, as well as consistency and security rooted in Vendor registered email. Over the past two months since implementation, V/CM has issued over 3100 inventory e-purchase orders (e-POs) with over 26% awarded to Small Business Enterprises (SBE) and Disadvantaged Business Enterprises (DBE).
The e-Signature project delivery marks the beginning of a V/CM transformational effort to shift from paper-based processes to full electronic workflow, creating efficiencies for our staff and Vendor community. With the rollout, Metro V/CM anticipates a reduction in paper output of approximately 500,000 sheets annually, contributing significantly to Metro’s environmental sustainability efforts. Additionally, we anticipate contract execution cycle times to collapse from days or weeks to minutes or hours which will be a significant benefit to both Metro and its Vendors. Furthermore, through email notification, the Vendor e-Signature process can be performed securely on any computer, tablet or cellphone through the embedded email link. Secure email addresses are captured during the Vendor Registration and Solicitation processes and will be used to complete the Vendor contract execution process.
In addition to this Prequalification change and e-Signature implementation, over the past 12 months V/CM has also implemented a number of other Business Process Improvements such as, Change Order Cycle Time process reductions, Increased Escrow Thresholds, Removal of Prequalification Notarization requirement, and Set-Aside goal waivers for all ITS Maintenance and License renewals. V/CM staff continues to pursue new ways to create process efficiencies in areas like the RFP Award process, Option Terms, Contract Mods within CMA, Procurement Milestone Scheduling, and Reference Checks to name a few.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
Approval of this item will have no direct impact on the physical safety of Metro’s employees, patrons, or customers.
Financial_Impact
FINANCIAL IMPACT
As this is a policy update only, there is no financial impact to Metro.
There is no financial impact.
Equity_Platform
EQUITY PLATFORM
The lack of prequalification exceptions for small businesses, minority-owned businesses, or any other categories of businesses with whom Metro actively seeks to increase participation has created contracting inequities and barriers. The small business community has expressed concerns regarding burdensome administrative procurement processes. By raising the threshold to $500,000, the burden on the small, disadvantaged, and minority owned business community will be lessened since smaller contracts under the threshold will not have to go through Pre-Qualification during the procurement process. Staff anticipates that this improvement will not only facilitate the process for small businesses, but will increase participation since the administrative burden is lessened and a higher threshold expands contracting opportunities.
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
Raising the Pre-Qualification threshold amount and expressing the details and specifics of the Program in ACQ-2 supports Strategic Goal 5: Provide responsive, accountable, and trustworthy governance within the Metro organization. This modernization shows Metro’s commitment to responsive, accountable, and trustworthy governance to continue building credibility with decision-makers, public and private sector partners, customers, and employees. By improving its business practices, Metro can perform more effectively and adapt more nimbly to the changing needs of its customers.
Alternatives_Considered
ALTERNATIVES CONSIDERED
The Board may not approve staff’s recommendations. This alternative is not recommended because proceeding with the recommendations presents an opportunity to streamline the procurement process to enable staff to reduce cycle times on procurements and reduce the amount of administration for the vendor community.
Next_Steps
NEXT STEPS
Subject to the Board of Directors' approval to adopt these recommendations, the amended ordinance shall be effective January 1, 2025, and staff will update the ACQ-2 Policy & Procedure to increase the contract value threshold in the Program as indicated herein, and update the ACQ-2 to incorporate the changes approved in this report and specifics of the Program substantially consistent with ordinance into the policy.
ATTACHMENTS
Attachment A - Revised Metro Administrative Code - Chapter 4-05
Attachment B - Revised Metro Administrative Code - Chapter 4-05 (Redlined)
Prepared_by
Prepared by: Dr. Irma L. Licea, Executive Officer, Support Services, (213) 922-2207
Debra Avila, Deputy Chief Vendor/Contract Management Officer, (213) 418-3051
Karen Gorman, Inspector General, (213) 922-2975
Reviewed_By
Reviewed by: Nalini Ahuja, Chief Financial Officer, (213) 922-3088
