Introduction to Purchasing at UC Merced

1. Introduction to Purchasing at UC Merced Presented by: Karen Meade, C.P.M. Principal Buyer

2. 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

3. 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

4. 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)

5. 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.

6. Laws, Policies and Regulations that Govern Purchasing • California Political Reform Act (1974) • Disqualification of participation if financialConflict 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

7. 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

8. 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

9. Law of Agency • Body of law that governs agents • Authority to Contract

10. 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!)

11. 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

12. 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?

13. 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.

14. Formation of a Contract - Five Elements Offer and Acceptance Intent Competent Parties Legality of Purpose Consideration

15. 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.

16. 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

17. Offer, cont. May lapse May be rejected May be rejected by a counter-offer May be revoked May be accepted

18. 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 accept By 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. Acceptance

19. Intent • Parties must consent and intend to contract voluntarily.

20. 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

21. 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

22. Legality of Purpose • Contracts for illegal purposes are not enforceable.

23. 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?

24. 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.”

25. Contract Formation • Implied-In-Fact Contract • Some 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.

26. 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.

27. 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.

28. 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?

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

30. 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.

31. 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.

32. 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 FormsWhose terms and conditions govern?

33. Battle of the Forms Yes, there is a contract. “No warranties” becomes a contract term..

34. Other Purchasing/Contract Terms and Considerations

35. Taxable/non-taxable • 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

36. Buying for UC Merced

37. 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

38. Located at UCLA Accounting Department UC Merced Dedicated Team Jennifer Chhoeung, Team Leader Processes all UC Merced Invoices and Payments Your Accounts Payable Team

39. 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

40. 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

41. 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.

42. 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

43. 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 .

44. 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

45. Specifications, cont. * Sole source? • Specifications for Goods • Detailed description of goods • Model number or equal* • Installation • Training • Services • Date needed

46. 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)

47. 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

48. 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

49. Competitive Bidding Requirements • UC policy requires formal competitive bidding for all requirements $100,000 and over unless… • Sole source/unique product or service • Match-existing • Professional or personal service • Award to lowest responsive, responsible bidder

50. 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.