Fiscal Rules and Policies Basic Procurement Training 2008

Fiscal Rules and Policies Basic Procurement Training 2008 -2009 Fiscal Year

Presenter • • • Bob Jaros Deputy State Controller Office of the State Controller 303 -866 -3765 Bob. Jaros@state. co. us 633 17 th Street, 15 th Floor, Denver, CO

Agenda • Fiscal Rule 2 -2 and Policies • Fiscal Rule 3 -1 and Policies

Fiscal Rule 2 -2 Commitment Vouchers 1. Authority 2. Definitions 3. Rule 4. Dollar Limits and Requirements 5. State Purchase Orders 6. State Contracts 7. Statutory Violations 8. Advance Payments 9. Emergencies 10. Vendor Agreements 11. PO Terms and Conditions

Fiscal Rule 2 -2 1. Authority • § 24 -30 -202 CRS – State Controller Authority • § 24 -30 -1401 CRS – Professional Services

Fiscal Rule 2 -2 2. Definitions • Commitment Voucher - Form approved by the State Controller, evidencing: – Description of goods or services – Amount to be paid – Obligation charged to appropriate account – Procurement requirements have been satisfied

Procurement Card • Procurement card is not a commitment voucher • Procurement card is a method of payment; not a method of procurement

Examples of Commitment Vouchers • Documents usually associated with approval: – – – Purchase Order State contract Travel authorization Other agreements Any other approved document prescribed by the State Controller

Small Purchases Documentation • Small Purchases Documentation required for purchases $5, 000 or less • Documentation shall include: – Description of goods or services – Amount to be paid • Examples – – Invoice Billing Receipt Other documentation appropriate to the transaction

Small Purchases Documentation • Small Purchases Documentation is not required for purchases that do not require a receipt under Fiscal Rule 5 -1 (Travel)

Fiscal Rule 2 -2 3. Rule • No disbursement of funds unless supported by a commitment voucher

Responsibilities of Agencies and Institutions of Higher Ed 1. Expenditure authorized by appropriation and proper approvals have been received 2. Expenditure reasonable and necessary 3. Prices are fair and reasonable 4. Amount is within unencumbered balance

Responsibilities of Agencies and Institutions of Higher Ed 5. Commitment voucher defines requirements, respective performance, and pricing 6. Terms and conditions are a commercially reasonable allocation of risks 7. Commitment voucher complies with statutes, executive orders, rules, and policies 8. Commitment voucher, if a PO or contract, is encumbered

Fiscal Rule 2 -2 4. Disbursement Commitment Voucher Table Commitment Voucher Dollar Limit Any Approved Commitment Voucher $0 to $5, 000 Purchase Order or Contract Over $5, 000 Contract Over $100, 000 for personal services and capital construction

Dollar Limit • Total value of the commitment • For multiple-year commitments – Dollar limit is equal to the sum of the commitments for all contract years

State Contract Required ANY dollar amount • Professional services under CRS 24 -30 -1401: – – – Architects Industrial hygienists Engineers Landscape architects Land surveyors • Leasing and license of real property for term of more than 30 days for the use of land, buildings, or other space

Items where Purchase Order not required • 15 items where Purchase Order not required • Considering administrative burden, protecting State’s interest, and internal controls

Items where Purchase Order not required 1. Calculated payments required under a program within a state agency or institution of higher education 2. Copier rental agreements when the payment is based on cost per copy 3. Conference registrations 4. Financial aid or tuition assistance programs 5. Insurance purchases 6. Internal services routinely provided by a State agency or institution of higher education

Items where Purchase Order not required 7. Intra-agency or intra-institution purchases 8. Moving expenses reimbursed to State employees 9. Payroll and related disbursements Intraagency or intra-institution purchases 10. Postal and other delivery charges including messenger fees 11. State program payments to or on behalf of individuals qualified for program’s benefits

Items where Purchase Order not required 12. Subscriptions for journals, informational publications or similar materials (electronic or hard copy) that do not include services 13. Utility hook ups and line extensions 14. Water, gas, electric and customary local and long distance telephone services routinely purchased 15. Other disbursements as approved in writing by the State Controller

Fiscal Rule 2 -2 5. State Purchase Orders • Standard terms and conditions for every purchase order • 26 terms and conditions • Interagency PO – Agency or Institution of Higher Education may change or delete any standard provision

State Purchase Orders Revisions to Terms • Revisions to standard terms and conditions: – Changes, Vendor Offset, Assignment and Successor, Independent Contractor, and Funds Availability – Choice of Law, Public Contract for Services, and Public Contracts with Natural Persons • Allowed only if approved by: – State Controller, Attorney General, or Reviewing Attorney

State Purchase Orders Personal Services • If an Agency or Institution of Higher Education uses a PO to purchase personal services, the PO shall contain the personal services contract provisions: – – – Performance measures Accountability standards Payment provisions Evaluation requirements Process for resolving disputes with the vendor

Fiscal Rule 2 -2 6. State Contracts • State Contracts shall be used as a commitment voucher when a State agency or institution of higher education purchases or leases goods or services as required by Fiscal Rule 3 -1 and shall comply with the requirements of Fiscal Rule 3 -1 and this Fiscal Rule.

Fiscal Rule 2 -2 7. Statutory Violation • Statutory violation occurs when: – Liability is incurred or payment made – On State’s behalf – Without prior approval of a – State purchase order or contract – When required under Fiscal Rule 2 -2 (see table)

Statutory Violation • Any person(s) who incurs an obligation or makes a payment which creates a statutory violation shall be personally liable for such obligation • Unless the statutory violation is ratified by the State Controller

Statutory Violations • DON’T START WORK UNTIL YOU HAVE FINAL APPROVAL! • Otherwise …. Statutory Violation

Statutory Violation Ratification State Controller may ratify the expenditure provided that: 1. Prices are fair and reasonable 2. Amount is within unencumbered balance 3. State agency or institution of higher education provides explanation required in State Controller’s Policy 4. Parties did not act in bad faith or in fraudulent manner 5. Violation is not repeated or part of consistent pattern

Fiscal Rule 2 -2 8. Advance Payments • • Definition – Payment made prior to receipt of goods or services General Rule: Advance payment of financial obligations is not permitted 20 listed exceptions listed in Fiscal Rule Advance payment not covered by exceptions requires prior approval of State Controller obtained through fiscal rule waiver request

Advance Payments Exceptions to General Rule • • • Monthly or annual payments for maintenance of office equipment or for information technology (IT) maintenance (software and hardware), IT service agreements and software licenses Monthly or annual payments for leases of real or personal property Utility hook ups and line extensions performed by the utility company

Advance Payments Exceptions to General Rule • • • Advertising services and related goods Charter transportation Construction permits Federal grants awarded by the State to subgrantees (any advance payment must comply with Federal requirements) Overnight Travel accommodations such as hotels, motels, etc.

Advance Payments Exceptions to General Rule • • Insurance premiums Interagency agreements Licenses, including licenses for software Maintenance of office equipment or information technology maintenance, and other maintenance agreements Membership dues Personal property leases or rentals Post Office Box rentals

Advance Payments Exceptions to General Rule • • Professional services provided by expert witnesses hired for litigation purposes, mediators, entertainers, and speakers Real property leases, where the Ste is a tenant Sponsored projects – see Fiscal Rule 3 -1 Subscriptions for journals, informational publications or similar materials (electronic or hard copy), which do not include services Tuition, registration, and fees charged for trainings classes, conferences, and seminars Utility hook ups and line extensions Water rights purchases or temporary leases

Advance Payments Department Controller • Department controller can approve advance payment up to $10, 000 for one or more fiscal years if the advance payment provides a benefit to the State at least equal to the cost and risk of the payment

• Fiscal Rule 2 -2 9. Emergencies Definition – Immediate threat to public health, welfare, or safety, functioning of government, or preservation or protection of property – Which requires immediate response • State agency or institution of higher education can acquire goods or services needed to respond without a PO or contract • Commitment voucher shall be executed as soon as possible to define future performance obligations

Emergencies Notification • Notify the State Controller, in writing, as soon as possible, of – Circumstances – Goods and services purchased – Dollar amount of the commitment • Notify State Purchasing Office on method of procurement

Fiscal Rule 2 -2 10. Vendor Agreements • Definition – form of agreement provided by a vendor containing terms and conditions • A vendor agreement, including on-line vendor agreement, shall be executed only if it meets the State Controller Policy

Vendor Agreements State Controller Policy • Up to $5, 000 – Seven conditions must be met – Similar to existing requirements in Fiscal Rule 2 -2 • State purchase order or contract incorporating a vendor agreement over $5, 000 – Compliance with Fiscal Rules and Policies – Impermissible provisions deleted – Conflict resolved in favor of State PO or contract

Vendor Agreements State Controller Policy • Vendor agreement in lieu of State Contract or PO – Form approved by State Controller – Compliance with Fiscal Rules and Policies • Recognition of practice at certain institutions of higher education

Fiscal Rule 3 -1 State Contracts 1. 2. 3. 4. 5. 6. 7. Authority Definitions Categories Rule State Contract Content State Contract Forms State Contract Approvals 8. State Contract Legal Review 9. Review and Approval by State Controller 10. Contract Monitoring 11. Outsource Contracts 12. Independent Vendor Relationship 13. Exceptions to Rule 14. Special Provisions

Fiscal Rule 3 -1 1. Authority • • Constitution Governor’s Executive Orders Procurement Rules Colorado Revised Statutes – § 24 -30 -202 State Controller authority – § 24 -103. 5 -101 Monitoring of vendor performance

Fiscal Rule 3 -1 2. Definitions • Includes 40 definitions • Organized alphabetically

Fiscal Rule 3 -1 3. Categories • Expenditure contracts • Revenue contracts • Other contract categories

Expenditure Contracts • Formal, legally binding agreement or amendment • Between State agency or institution of higher education and another party • Resulting in an expenditure of funds • Directly or indirectly or • Creation of obligation on the part of the State

Revenue Contracts • Granting franchises • Sale of State real property • Leases and licenses of real property where State is lessor • Sponsored projects where State receives funds

Outsource Contract vs. Franchise Agreement • Outsource Contract – State has responsibility for providing the service – State maintains full control over management decisions – Expenditure contract • Franchise Agreement – Vendor has responsibility for providing the service – Vendor has control over management decisions – Revenue contract – Example: concession stands

Other Contract Types • • • Debt contracts Grant contracts Interagency agreements Intergovernmental contracts Loan contracts No cost/non-cash contracts Price agreements Sale of securities agreements Sponsored projects agreements

Grants • Depending on the nature of the project, grant contacts can be almost any contract type: – Revenue contracts or expenditure contracts – Intergovernmental contracts – Interagency agreements – Capital construction contracts

Grants • Grants for: – Personal services – Capital Construction • Are subject to the requirements of SB 07 -228

Fiscal Rule 3 -1 4. Rule • Each State agency or institution of higher education shall: – Use a State contract as the commitment voucher as required in Fiscal Rule 2 -2. – Be responsible for assuring that all constitutional and statutory requirements have been met prior to signing a State contract

Fiscal Rule 3 -1 5. State Contract Content The following contract types: • Expenditure contracts • Grant contract where State is the grantor and provides funds to the other party • Intergovernmental agreements • Debt contracts • Price agreements Shall have the following content:

State Contract Content 1. Identification of the parties 2. Funding obligation authority (except for institutions of higher education) 3. Statutory authority (except for institutions of higher education) 4. Statement of Work

State Contract Content (cont. ) 5. Payment terms including maximum dollar amount of the contract 6. Performance period 7. General terms and conditions 8. Special Provisions 9. Signature page 10. Statement that contract is not valid until approved by State Controller or delegate See State Controller Policy on State Contract Content

State Contract Added Content Personal Services Contracts 1. 2. 3. Performance measures and standards developed for specific contract by administering State agency or institution of higher education Accountability standards requiring regular reports on achievement of the specified performance measures and standards Payment provisions allowing the State agency of IHE to withhold payment until successful completion or all or specified part of contract

State Contract Added Content Personal Services Contracts 4. Monitoring requirements specifying how State agency or IHE and vendor will evaluate each other’s performance, including progress reports, site visits, inspections, and reviews of performance data. 5. Resolution process with the vendor

Contracts with Unique Content • • • Real property purchases, leases, and licenses Capital construction contracts Settlement agreements and voluntary separation incentive agreements Interagency agreements Intergovernmental agreements Sponsored projects where the State pays funds

Inter-Agency Agreements • Typically have: – Identification of the parties – Spending authority – Statement of work – Statement of consideration – Payment and other performance terms – Definition of breach and resolution process

Limitation of Liability • Bodily injury and property damage - No limitation of liability allowed • Other types of damages – Commercially reasonable – Benefits outweigh the risks – Documented to contract file – Approval by State controller or other individuals specified in delegation letter

No Indemnification by State • • Unless specifically authorized by statute, Agency or Institution of Higher Education Shall not indemnify and/or hold harmless Another party No matter how phrased Against liability incurred as a result of Acts or omission of such Agency or Institution of Higher Education

Fiscal Rule 3 -1 6. State Contract Forms • • Capital construction contracts – State Architect Model contracts – State Controller Policy Contract amendments – SC Policy Contract modification tools – SC Policy Real property lease agreements Special provisions Waived contracts Other contract forms as approved by the State Controller

Fiscal Rule 3 -1 7. State Contract Approvals • Unless State agency or institution of higher education is: – Exempted (by Statute, Executive Order, Fiscal Rule), or – Delegated • The State Agency or institution of higher education must obtain prior approval from central approvers for the following contract types:

State Contract Approvals TYPE OF CONTRACT APPROVAL REQUIRED Capital Construction Central Services Contingency-based Debt Collection Service Financial Systems Information Technology Legal Services Personal Services Real Property Utility Cost-Savings State Buildings Director, Central Services Office of State Plan & Bud State Controller Office of Information Tech Attorney General’s Office State Personnel Director State Architect State Personnel Director

Fiscal Rule 3 -1 8. State Contract Legal Review • At the discretion of the State Controller or delegate, State contracts shall be subject to legal review by and approval of a reviewing attorney • Scope of legal review – “legal sufficiency” • Additional items at discretion of the State Controller or delegate

Fiscal Rule 3 -1 9. State Controller Review and Approval • Contract types requiring State Controller review and approval: – Expenditure contracts – Grant contract where State is the grantor and provides funds to the other party – Intergovernmental agreements – Debt contracts – Price agreements – All outsource contracts unless exempted by statute

Three Processes for State Controller Review • Delegated State Agencies – Automatic high and low risk categories – Risk assessment • Non-delegated State Agencies – Contracts to the Office of the State Controller • Institutions of Higher Education – Campus controllers can sign unless if not delegated, then to Office of State Controller – Contracts in excess of $100, 000 require review by authorized attorney

Items for State Controller Review • Expenditure – Authorized, within unencumbered balance, in compliance, encumbered • Prices – Fair and reasonable • Form and Content – Sufficient and appropriate • Risk – Outweighed by the benefits

Contracts NOT approved by the State Controller • Expenditure is not binding • Expenditure is null and void • Personal Liability – Person incurring obligation wihtout State Controller or delegate signature is personally liable – CRS 24 -30 -202(3)

Fiscal Rule 3 -1 10. Accounting for State Contracts • Encumbrance – All contracts shall be encumbered • Outsource contracts – Record gross revenues and expenditures – Do not net expenditures against revenues

Fiscal Rule 3 -1 11. Contract Monitoring • All agencies and institutions of higher education shall: – Designate at least one person who will be responsible for monitoring – Certify that the proposed performance measures provide a valid basis for assessing vendor’s performance

Monitoring Responsibilities 1. Compliance with requirements, standards, and measures of additional Personal Services contract content in Section 4 2. Completion of contract according to performance schedule specified in the contract 3. Satisfactory performance and completion of the scope of work as specified in contract 4. Extent to which vendor met or exceeded budgetary requirements of contract

Contract Management System • Contract Management System – Applies to all agencies and institutions of higher education – Personal services contracts over $100, 000 • Reporting – Construction contracts over $500, 000

Exclusions to Section 11 does not apply to the following contracts: • Medicare • Indigent care • Colorado Medical Assistance Act • Children’s Basic Health Plan • Sponsored Projects

Fiscal Rule 3 -1 12. Independent Contractor Relationship • Important distinction between independent contractor and employee • State agencies and institutions of higher education shall follow guidelines issued by: – – Internal Revenue Service Colorado Division of Human Resources Colorado statutes Opinions of the State Attorney General

Fiscal Rule 3 -1 13. Exceptions to Rule Fiscal Rule 3 -1 does not apply to • Personal Services Contracts – State contracts for personal services which are exempt from the State personnel system by the Colorado Constitution or statute • Examples – – – Appointees by the Governor and Lieutenant Governor Members of boards or commissions Faculty members of institutions of higher education Attorney at law serving in Office of the Attorney General Employees of the Legislative and Judicial departments

Exceptions to Rule (cont. ) Fiscal Rule 3 -1 does not apply to • Elective Officers – CRS 24 -2 -102(4) – Elective Officer may exempt contract from Fiscal Rules and Procurement Code by personally signing the contract – Such contract is a non-complying contract, and – Elective Officer is personally liable for all claims arising therefrom

Fiscal Rule 3 -1 14. Special Provisions • • Controller’s Approval Fund Availability Governmental Immunity Independent Contractor Compliance with law Choice of law Binding Arbitration prohibited • Software Piracy Prohibition • Employee Financial Interest • Vendor Offset • Public contracts for services • Public contracts with natural persons

Special Provisions Public Contracts for Services • Contractor has choice: – Department Program or e-verify • If contractor chooses Department Program, Contractor required to affirm that contractor has: – Examined legal work status of newly hired employees for the public contract for services, – Retained file copies of the documents required by 8 USC 1324 a (Form I-9) – Not altered or falsified the identification documents for such employees • Contractor required to provide a written notarized affirmation to the contracting State entity

Thank you!