HomeMy WebLinkAboutCity Council Agenda Item No. 22CITY OF
LADE LSINOIZE
DREAM EXTREME-
REPORT TO CITY COUNCIL
TO: HONORABLE MAYOR
AND MEMBERS OF THE CITY COUNCIL
FROM: THOMAS P. EVANS
INTERIM CITY MANAGER
DATE: SEPTEMBER 25, 2012
SUBJECT: LOCAL BIDDER PROGRAM - PREFERENCES FOR LOCAL
BUSINESSES IN CITY PURCHASING OF GOODS, SERVICES
AND PUBLIC WORKS
Recommendation
That the City Council direct City Staff regarding an amendment to the City's existing
purchasing ordinance with respect to the City's local bidder program.
Background
Under the City's existing purchasing ordinance (Chapter 3.08), the purchase of
supplies, equipment, and non - professional services generally requires that City staff (i)
solicit three bids for purchases of more than $2000 and less than $15,000 and (ii)
conduct a formal noticed request for bids for purchases of more than $15,000. The
underlying principle is that public contracts be awarded to the lowest responsible bidder.
Local bidder programs provide a preference to local businesses in recognition of local
economic benefits derived by awarding contracts locally.
In Lake Elsinore, a 3% "pricing allowance" is granted to "local business" in selecting the
lowest bidder. In order to obtain the 3% allowance when determining the lowest bid, at
least a portion of the purchase must be subject to sales taxes reported as collected
within the City, the vendor must have a fixed facility with employees within the City and
hold a current City business license.
At the August 28, 2012 City Council meeting, Councilmember Melendez requested that
the Interim City Manager and City Attorney report to the City Council regarding a local
bidder program and noted that the City of Corona had recently amended its municipal
code to provide a 5% local business preference.
AGENDA ITEM NO. 22
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Local Bidder Program
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Discussion
A local business preference allows the City to promote local businesses, as well as
benefit from enhanced economic activity as dollars re- circulate in the local economy by
way of multiplier effects. Multiplier effects have been shown to benefit the community in
three unique ways:
• Benefits the local economy by directly investing money through the awarding of a
City contract to a local business;
• Indirect effects occur when money awarded to a local business results in inter-
industry purchases of materials, supplies, goods and services. Another potential
indirect effect is the increase in employment associated with greater
workloads /demands; and
• Induced effects are the increases in household income as a result of both the
direct and indirect effects. Increases in household income have been found to
modify spending patterns and increase consumption.
The City's existing local preference provision was adopted in 2003 and represents a
middle ground in the range of preferences seen in other communities at that time
ranging from 1% to 5 %. That the City's preference requires at least a portion of the
purchase generate sale taxes was in recognition (at least in part) that approximately 1 %
of the sales taxes charged within the City is remitted to the City. This provision is
common among local bidder programs.
The City of Corona amended its municipal code to allow for a 5% preference to local
business (defined as having a fixed facility with employees within the city and a city
business license) for purchases of materials, supplies and equipment of $100,000 or
less. If the purchase also involves maintenance work or other general services, the cap
increases to $200,000. Corona's ordinance also allows for providing a local preference
for purchases in excess of $200,000 by taking into account the sale taxes to be returned
to the city if the local vendor is selected.
The imposition of such caps limits the additional purchasing cost to the City resulting
from the local bidder program balanced against the offsetting local economic benefits.
In other words, a 3% local business preference would cost the City up to $3,000 more
than the lowest bid for a $100,000 purchase order and up to $6,000 more for a
$200,000 purchase order; a 5% preference would cost up to $5,000 more for a
$100,000 purchase order and up to $10,000 more for a $200,000 purchase order and
so forth.
Some cities have attempted to extend a local business preference to public works
contracts (typically, street and public facilities construction). The California Pubic
Contract Code, Section 2002, provides for adoption of a "small business" preference of
up to 5 %. However, there is no express authorization for a "local business" preference
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Local Bidder Program
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on public works contracts. As a result, the City Attorney recommends against a local
business preference in the context of public works bidding.
Staff seeks direction as to whether the City Council would like to entertain an
amendment to the City's existing local preference ordinance and parameters for that
amendment. In particular, staff seeks direction as to the following:
• The percentage amount of the preference. We have identified two cities that
recently increased their local preference to 7% and 8 %, respectively; however,
3% - 5% is more typical.
• Whether the City Council desires to also provide a lesser preference to business
in Riverside County (e.g, the City of Redlands recently approved a 4%
preference for business located in San Bernardino County).
• Whether the preference should apply to service and maintenance contracts even
if there is no purchase of goods generating sales taxes.
• Whether the local preference should be applied without limits on the amount of
the purchase or should be subject to caps similar to Corona.
Fiscal Impact
None at this time.
Prepared by: Barbara Leibold
City Attorney /
Approved by: Thomas P. Evans`% e'
Interim City Manage
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