To:Works Committee

From:Chief Financial Officer and Treasurer

Date:September 22, 1999

Subject: Feasibility of Direct Purchasing as a method of Purchasing Commodities

Purpose:

The purpose of this report is to provide the information requested by Council at its meeting of

July 6, 7 and 8, 1999, to the Works Committee respecting the feasibility of direct purchasing as a

method of purchasing commodities.

 Financial Implications:

None

 Recommendation:

It is recommended that this report be received for information.

Background:

City Council, at its meeting of July 6, 7 and 8, 1999, in its consideration of Report 1, Clause 1 of the Works Committee regarding Quotations for liquid chlorine, adopted the report and amended the clause by adding thereto the following:

"It is further recommended that the Chief Financial Officer and Treasurer, be requested to submit a report to the Works Committee on the feasibility of direct purchase as a method of purchasing commodities".

This matter was one of the subjects of a report by the City Auditor to the Audit Committee dated February 15, 1999. The City Auditor consulted with the Chief Financial Officer and Treasurer, Purchasing and Materials Management Division (PMMD) during the preparation of this report. The following is an extract from that report:

"Purchase of Chemicals from Direct Sources

Awards totaling approximately $8 million have been issued for the supply and delivery of fifteen major chemical products in 1999. We have confirmed with PMMD and the Works Department that nine of the sixteen suppliers contracted (two suppliers for chlorine) are the manufacturers of the particular chemical they supply to the City. The value of these nine contracts represents 50 percent of the total contract value awarded.

PMMD staff indicate that for chemical requirements as well as for other goods and services, they send Tenders/Requests for Quotations/Proposals to all firms who expressed an interest in doing business with the City. All bid opportunities are also listed on the City's Internet Website. Rather than restricting competition to manufacturers, PMMD believes that an open, competitive, non-restrictive process in which all bidders are provided an equal opportunity to submit bids on City requirements, ensures maximum competition to achieve the best price possible. Municipalities that responded to our survey shared this opinion.

Our discussions with representatives of the Ministry of Environment, the National Institute of Governmental Purchasing and the Works Department confirmed that the option of direct purchasing of chemicals is not always viable. While some manufacturers may directly supply very high volume bulk orders, others prefer to stay solely in the wholesale business. Procurement sources of some chemicals may also be restricted to the manufacturer's choice of distribution and retail network. While adding a premium to the manufacturer's price, chemical distributors do, in some cases, offer value-added services such as hauling from more than one manufacturer, stocking, quality control and technical support.

In conclusion, the current process of procuring chemicals, with the exception of ferrous chloride, provides all interested suppliers, whether manufacturers or distributors, an opportunity to compete. Restricting the procurement of chemicals to manufacturers only, reduces the potential for getting the best possible price, since certain suppliers who could potentially offer a lower price would not be allowed to compete.

Conclusion:

In reviewing the feasibility of procuring chemicals from direct sources, it is our opinion that the current process allows all interested suppliers the opportunity to openly compete for chemical contracts. Restricting the procurement of chemicals to manufacturers only would reduce the potential for getting the best possible price since certain suppliers, who could potentially offer a lower price, would not be allowed to compete."

Conclusion:

PMMD has, in August 1999, reviewed this matter again with the City Auditor who continues to support his recommendation as detailed above.

Accordingly, the current process of purchasing commodities which provides all interested suppliers, whether manufacturers or distributors, an opportunity to compete and provide bids for City requirements should be maintained.

 Contact Name and Telephone Number:

 L. A. Pagano,

Director of Purchasing and Materials Management Division

Telephone: 392-7312

Wanda Liczyk

Chief Financial Officer and Treasurer

August 13, 1999

Reply to:Mr. Frank Spizarsky

(416)392-7316

Mr. Greg Priest,

Advanced Presentation Products,

450 Matheson Blvd. East, Unit 59,

Mississauga, Ontario

L4Z 1R5

 Dear Mr. Priest,

RE: BIDDERS'S APPLICATION FORM

Further to your letter dated July 30, 1999 to Ms. Brenda Glover - Executive Director, Human Resources, Corporate Services Department, this will confirm discussions today with Mr. Dave Beattie, your company is listed with the City of Toronto, but no commodities are assigned to you. In order to bid on future requirements, we ask you to complete and return the attached Bidders's Application Form.

Once your application has been approved your firm will be added to the mailing lists for the goods/services that you have to offer. You will automatically receive a copy of any Quotation Request that is issued for these commodities.

Should you have any questions feel free to contact me at (416)392-7316.

Yours truly,

Frank Spizarsky, Manager

Purchasing and Materials Management

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