February 9, 1999

To:Strategic Policies and Priorities Committee

From:Chief Financial Officer and Treasurer Commissioner of Works and Emergency Services

Subject:Information in Reports on comparable costs for previous year's pricing for purchases.

Purpose:

The purpose of this report is to respond to the Committee's request from its meeting of September 9, 1998, for information on comparable costs for previous year's pricing for purchases.

Financial Implications:

Not applicable.

Recommendation:

It is recommended that reports for Standing Committees and Council include prices received on current Request for Quotation/Request for Proposals/Tender Calls based on current requirements and market conditions, together with the previous year's pricing, for information purposes only, in cases where the purchase is made each year, where practical.

Background/History:

The Works and Utilities Committee on September 9, 1998 had before it a joint report (August 25, 1998) from the Chief Financial Officer and Treasurer and the Commissioner of Works and Emergency Services for the purchase of Bulk Common Coarse Rock Salt for the 1998-99 season.

The Committee recommended to Council the adoption of the report and "requested the Chief Financial Officer and Treasurer and the Commissioner of Works and Emergency Services to submit a joint report to the Strategic Policies and Priorities Committee on a policy for including in such reports the following information:

(1)comparable costs for the two previous years; and

(2)a sampling of five-year pricing in other municipalities surrounding the Greater Toronto Area and the Cities of London and Ottawa."

City Council, at its meeting of October 1, 1998, adopted this report.

Comments and/or Discussion and/or Justification:

Established purchasing procedures require that all goods and services be obtained as the result of an open, competitive, non-restrictive process in which all bidders are provided an equal opportunity to submit bids on City requirements. This ensures maximum competition to achieve best price possible. These standard procedures are summarized as follows:

(i)Requirements are determined by the Department and forwarded to the Purchasing and Materials Management Division (PMMD). PMMD reviews these requirements to ensure that any necessary approvals are in place, the specifications are non-restrictive, the quantities are accurate, etc. so that the purchase can proceed.

(ii)PMMD prepares and issues competitive Tenders/ Requests for Quotations/Proposals to all firms on PMMD bidders list. The bidders list includes all firms who have responded to PMMD outreach activities which encourage firms wishing to do business with the City to have their names added to the City's list for the goods and service they offer.

Outreach activities include advertising in various ethic, local and national newspapers/publications inviting firms to apply to be placed on our bidders list; conducting supplier outreach briefings using an audio - visual presentation; setting up a booth at Trade Shows and Exhibitions where new and developing businesses go to expand their client base; conducting consultation sessions at Community Centres where local businesses can "drop in" to discuss how to do business with the City.

(iii)PMMD receives submitted quotations up to the closing date and time and all quotations are opened in public by PMMD at the Daily Public Quotation Opening held at PMMD location.

(iv)PMMD summarizes and analyses the received quotations ensuring that all City terms and conditions are complied with and sends the acceptable quotations together with the summary to the Department for review and recommendation.

(v)Department reviews quotations and recommends to PMMD, the bidder to whom the award should be made (the bidder who has submitted the lowest quotation meeting specifications.

(vi)PMMD reviews Department recommendation for accuracy including compliance with City Policies and after reaching concurrence, either awards the requirement to the successful bidder (within dollar limits delegated by by-law), or prepares a report seeking approval to award the requirement and forwards same to the appropriate Committee or to Council for approval.

(vii)When approval is received, the successful bidder is awarded the requirement and PMMD issues a Purchase Order to the successful bidder.

This process ensures that the City is obtaining the best price and delivery for the required goods and services since all interested firms have an equal opportunity to bid.

Prices obtained for goods and services are subject to many variables including total required volumes, revisions to specifications, technological updates, seasonal variations, market conditions, prior sale, etc. These variables may change from year to year. Thus a comparison of current pricing to historical data may not be reflective of current conditions and future trends for any good or service in a given industry or market sector and it could be misleading to rely on this historical data to make a decision on current Quotations/Tenders/Proposals. For example, quotations for vehicles and heavy equipment requirements (i.e. fire trucks, bulldozers) are issued when replacement units are needed and these items are not replaced every year. Over the years, there are changes to vehicle specifications, technological updates, revisions to client Department optional features due to changing operational needs, revisions to Health and Safety requirements, fluctuations in market conditions etc. which impact on the pricing that is offered for a particular unit. Another example are quotations for the supply and delivery of food for the Community and Neighbourhood Services Department. Costs for food are dependant local, national and international market conditions for food products, the needs among those in the establishments where the food is being consumed and on the nutritional requirements specified by dieticians in the Community and Neighbourhood Services Department. Thus a simple comparison of pricing from one purchase to the next may be of little meaning.

All interested suppliers have an opportunity to submit prices for current City requirements. Advertisements are regularly placed in newspapers which encourage suppliers to register on City mailing lists to receive Tenders and Requests for Quotations or Proposals. All Tenders and Requests for Quotations or Proposals are also listed on the City's Website to further provide access by the business community to City opportunities. This open, competitive process ensures maximum competition to achieve the best prices possible for the City's current requirements.

The reports currently prepared for Committees and Council state the number of firms who communicated their interest and received a copy of the Quotation/Tender/Proposal documents, along with the names of the firms who submitted bids based on the current requirements, together with the amount of each bid. Pricing comparison for current purchases should be made between the bids offered at the present time for the present requirements, rather than historical pricing data which were based on past requirements and often times significantly different market conditions.

As requested by the Works and Utilities Committee, the following municipalities were contacted by PMMD to request if they could provide to the City of Toronto five-year pricing information for inclusion in such reports:

- York Region

- Peel Region

- Halton Region

- Durham Region

- Ottawa-Carleton

- London

- Hamilton-Wentworth

All of these municipalities advised that they were not in a position to provide this information.

The reasons given for not providing the information were: the amount of work involved and their lack of resources, their policy of not disclosing suppliers' unit prices for commodities purchased and their concerns about how pricing information from their municipality could be used by other suppliers to determine pricing on future bids. They consider the prices offered to their municipality by bidders to be confidential information and not to be made public.

A spokesperson for the National Institute of Governmental Purchasing (NIGP), a Professional Purchasing Association of which PMMD is a member, confirms that it is more valuable to compare the results of current pricing from the present year's bid call instead of a comparison of historical previous prices from the bid results of former years. The NIGP is of the opinion that it is unrealistic to base a purchasing decision on previous years' bid prices since market conditions are too variable from to year to year, resulting in price fluctuations which are not reflective of current price conditions.

Currently resources are focussed on following a process to ensure that the best price possible is achieved in the purchase of all goods and services as the result of an open, competitive, non-restrictive purchasing procedure followed consistently by the Purchasing and Materials Management Division as detailed earlier in this report.

However, for information purposes on basic bulk large volume single requirements that are purchased every year (e.g. Rock Salt, Water Treatment Chemicals, Gasoline, Fuel Oils), reports prepared for Standing Committees and Council could include the City of Toronto's previous year's pricing together with the percentage increase or decrease for that commodity and the rationale for the change in pricing. This procedure would not apply to one-time purchases which are not made each year, where outdated historical pricing data would not be reflective of current requirements and present conditions and in cases in which the nature or variety or assortment of commodities cannot be easily compared ie. office supplies, building materials, equipment rentals, health and safety goods and services, etc. For the reasons outlined above, providing two or more years of historical pricing data would be of no significant additional value in making decisions on the purchase of current requirements.

It is therefore recommended that we include in our reports for Standing Committee and Council prices received on current Requests for Quotations/Request for Proposals/Tender Calls based on current requirements and market conditions, together with the previous year's pricing for information purposes in cases where the purchase is made each year where practical.

Conclusion:

This report provides the Committee with the information requested at its meeting of September 9 with respect to a policy for including in reports, information on comparable costs for the previous two years and a sampling of five-year pricing in other municipalities surrounding the Greater Toronto Area and the Cities of London and Ottawa. Since historical data on past City requirements is not of significant value and information from other municipalities is not available, it is recommenced that reports for Standing Committees and Council include prices received on current Requests for Quotation /Request for Proposals/Tender Calls based on current requirements and market conditions, together with the previous year's pricing for information purposes in cases where the purchase is made each year, where practical.

Contact Names:

L.A. PaganoD. C. Kaufman

DirectorGeneral Manager

Purchasing and Materials ManagementTransportation Services

Telephone: 392-7312Telephone: 392-8431

W. A. LiczykB. H. Gutteridge

Chief Financial Officer and Treasurer Commissioner

Works and Emergency Services

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