Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss, City Manager
FROM:	Diane Stoddard, Assistant City Manager
CC:	Cynthia Boecker, Assistant City Manager
Date:	May 12, 2009
RE:	Contracting for Professional Services- a Study Session Topic for May 19, 2009

Recently, the City Commission indicated a desire to have a discussion about the City’s Purchasing Procedures related to Contracting for Professional Services. This memo outlines the City’s current policy, as well as some other processes for the selection of professional services.

City’s Purchasing Procedures for Contracting for Professional Services:

Chapter 5 of the City’s purchasing procedures addresses this issue, sets forth the City’s policy and identifies the procedure that will be followed for the selection of vendors providing professional services. The procedures cover acquisition of a variety of professional services, including financial services, engineering services, architectural services, etc. The policy indicates that “award shall be made to the offeror determined to be the best qualified on the basis of demonstrated competence and qualification for the type of services required, and at fair and reasonable prices.”

The procedures call for the issuance of a Request for Proposals to vendors. Included in the RFP is a request for a breakdown of estimated project costs. However, costs are not routinely provided related to the acquisition of engineering services, though a summary estimate of required effort typically is included, as are standard billing rates. The primary reason that total cost is not provided by vendors is because in most cases, a scope for the work is not yet defined.

For engineering services, the “qualifications based selection process” (QBS) is utilized. QBS emphasizes the most qualified design team for the project at hand. Typically, the City Commission receives a request from staff to commence negotiations with the most qualified firm. Negotiations regarding scope and fees do not commence until the most qualified firm has been identified. Typically, the agreement, which includes the scope and fee, is then presented to the City Commission for authorization at the conclusion of negotiations. The reason that a detailed scope of services is typically not formulated prior to the selection of a consultant is to directly involve the chosen consultant in the formulation of a scope of services to take advantage of the consultant’s expertise and view of the project.

It is important to note that the City’s current process does include the negotiation of fees during the negotiation phase to ensure fair and reasonable fees. However, it does appear that perhaps staff could improve its communication with the City Commission regarding fees for projects by reporting how the negotiated fee compares to “standard” fees for similar services as a percentage of the project budget. This step might improve the information available to the City Commission and the public at the time of contract authorization.

The following is a summary regarding some considerations for the City Commission as it discusses the City’s selection process.

The Brooks Act:

Federal contracts are covered by the Brooks Architect/Engineer Act, which was adopted by Congress in 1972. The law requires federal agencies to use qualification based selection when procuring design services. In addition, the Brooks Act must be followed when federal funding is involved. For example, Federal Aviation Administration regulations are very specific that cost must not a factor in the selection process until the best qualified design firm is selected. The Kansas Department of Transportation also requires that their process be utilized when cities undertake state-sponsored transportation projects due to the federal funding involved. Therefore, it is important to note that if the City changes its policy, a QBS process must still be utilized as it relates to FAA and KDOT projects.

Major Consultant Selection Processes:

There are several main methods for selecting professional consultants along with many hybrids of the major methods. Major methods include QBS, two-envelope system, and value selection. These are outlined below. The major differences between these methods are how cost information is required, and more importantly, the timing of the request for cost information. In addition, some cities request cost information from consultants at a different point depending upon the complexity of a project. If a project were more complex, the scope may not be set forth until it can be mutually developed between the city and the consultant. A scope on a simple project may be much more straight forward.

QBS Process: In general, a QBS process emphasizes finding the best qualified firm for the project. Only after the best qualified firm has been identified is the scope defined mutually between the owner and the firm and then design fees are negotiated on that scope. Advocates of QBS believe that the process creates the best overall value for the owner by ensuring an appropriate, safe and functional design and that a good design will help reduce other costs, such as construction and operating costs. The National Society of Professional Engineers and the American Institute of Architects has taken a strong stance in favor of QBS. Both associates have been vigorous in their defense of QBS processes at the federal, state and local levels. As previously stated, the City currently uses QBS for engineering service procurement.

Two Envelope System: In the two-envelope system, clients ask candidate consultants to submit proposals in two sealed envelopes. One envelope contains the technical proposal, exclusive of the fee. The other contains the proposed fee for the services. Upon receipt of this information, clients use the QBS system to evaluate the technical proposals and establish their order of merit. During the evaluation period, envelopes containing proposed fees remain sealed. Once selection has been made, the client reviews the selected consultant’s proposed fee. In the cases where two proposals are considered comparable, clients may wish to review the proposed fee for both, before making a final selection. All envelopes containing proposed fees submitted by unsuccessful firms are returned unopened to the respective firm. A major challenge associated with this process is that the scope of work must be fairly well-defined when the Request for Proposals (RFP) is written.

The timing of when the firms are asked to submit fee proposals can vary. For example, all firms could be asked to submit fee proposals along with the initial response, or just the short-listed firms (those that will be interviewed) could be asked to submit fee proposals. It should be recognized that submitting a fee proposal is more time consuming for firms to prepare.

Value Selection Process: This process is a weighted point score system that allows both price and non-price considerations to be taken into account in the selection of the most appropriate consultant. Again, the timing of when the submittal of fee proposals is required is an issue. Only those firms which are short listed could be asked to submit a fee proposal. Also, this process would require a fairly well-defined scope for work in order the firms to prepare a cost estimate. Cities that use this process in Kansas generally indicate that they allow opportunity for consultant creativity by asking consultants to address their unique approaches to the project in their proposal responses. Of the cities in Kansas using this process, none used this process for projects involving federal funding or KDOT funding. In those circumstances, they followed the state or federal selection process.

Hybrid QBS and Value Selection or Two Envelope: This process is a hybrid of a pure QBS process and the above processes which request cost information for each project. Many variations could be derived between the QBS and other processes. For example, price could be requested only in the event the selection committee does not unanimously recommend one firm to complete the project. It would be assumed that if the recommendation for selection of the consultant by the selection committee is unanimous, that firm clearly has the most applicable and best expertise for the project. In that case, the QBS process could apply and negotiations on scope and fee would commence with the unanimous highest ranked firm. In the event that the recommendation was not unanimous, cost information could be requested from the two highest ranked firms.

Another option may be to ask the consultant historical information related to cost on similar projects, such as the type and effect of project change orders, contract prices versus engineer’s estimate, final construction costs compared with contract prices, quality of services during construction and post-construction contract award start-up and operations and maintenance problems. This may be a strategy to take cost information more into account without asking for a specific fee proposal, which is not possible to request without a detailed scope of services.

Another example is requesting cost information from only those firms that are selected for an interview but keeping cost information separate until after other factors are ranked. In the case of Johnson County, this is the process that is followed. Johnson County requests cost information, yet the selection committee evaluates interviewed firms independent of the cost information. Once the committee has ranked the firms based upon qualifications and other non-cost factors, the purchasing officer opens sealed cost proposals and assigns points to cost, merging those points with points assigned by the selection committee. The highest ranking proposal, based upon points assigned for qualifications an cost is then the selected firm. Costs may bear a greater factor or a less significant factor, depending upon the complexity of a given project.

Suggested Next Steps:

The City Commission should provide some direction to staff regarding this issue and how it wishes to proceed.