Using National Cooperative Contracts: Application of P.L. 2011, c.139 Introduction
https://www.state.nj.us/dca/divisions/dlgs/lfns/12/2012-10.pdf
The recently passed P.L.
2011, c.139 (the “Law” or “Chapter 139”) allows local contracting units to
utilize national cooperative contracts as a method of procurement.
The Division of Local Government Services has
consulted with the Division of Law, the Division of Purchase and Property
(DPP), and the Office of the State Comptroller in reviewing the Law and its
relationship to existing procurement statutes and regulations.
This Local Finance Notice provides guidance
to contracting units seeking to implement the new national cooperative
contracting option.
While
the guidance in this Notice has specific application to contracting units
subject to the Local Public Contracts Law (“LPCL”) and boards of education
under the Public School Contracts Law (“PSCL”), it has general application to
all local government contracting units.
Agencies should review this guidance in context of the new Law and their
own procurement laws and regulations to ensure consistency in application.
Contracting
units should carefully review this guidance, state laws affecting the agency’s
contracting authority, and relevant case law affecting the use of national
cooperatives.
Utilizing national cooperative
contracting, in certain circumstances, may make the procurement process more
efficient and provide cost savings. Contracting units are advised; however, to
not only review this guidance, but also be mindful of New Jersey laws affecting
the agency’s contracting authority and relevant case law affecting the use of
national cooperatives.
This
notice covers the following subjects: A. General Statutory Authority B.
Contracting Unit Policy Considerations C. Types of National Cooperatives D.
Legal Interpretations Concerning National Cooperative Contracts E. Legal
Requirements to Use a National Cooperative Contract F. Limitations, Fiscal, and
Reporting Requirements G. Appendix A. Model “Notice of Intent to Award Contract
under a National Cooperative Purchasing
Agreement” B. Purchasing Agent’s Guide
to Using National Cooperative Contracts
Distribution
Municipal and Freeholder Clerks Municipal and County Chief Financial Officers
Authority and Fire District Boards of Commissioners
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Finance Notice 2012-10 May 14, 2012 Page 2
A.
General Statutory Authority
Chapter
139 added the following language to subsection (b) of N.J.S.A. 52:34-6.2:
(3)
Notwithstanding any other law to the contrary, any contracting unit
authorized to purchase goods, or to contract for services, may make purchases
and contract for services through the use of a nationally-recognized and
accepted cooperative purchasing agreement that has been developed utilizing a
competitive bidding process by another contracting unit within the State of New
Jersey, or within any other state, when available. Prior to making purchases or contracting for
services, the contracting unit shall determine that the use of the cooperative
purchasing agreement shall result in cost savings after all factors, including
charges for service, material, and delivery, have been considered.
For purposes of this paragraph,
“contracting unit” means any county, municipality, special district, school
district, fire district or any board, commission, committee, authority or
agency, which is not a State board, commission, committee, authority or agency,
and which has administrative jurisdiction over any district, included or
operating in whole or in part, within the territorial boundaries of any county
or municipality which exercises functions which are appropriate for the
exercise by one or more units of local government, and which has statutory
power to make purchases and enter into contracts awarded by a contracting agent
for the provision or performance of goods or services.
The
second section makes clear that the Law applies to a wide range of local
contracting units. The first section
provides the operative language that these agencies must apply to their
circumstances.
In
context of the LPCL and PSCL, the provisions of this notice apply when the
aggregate value of the goods or services (see N.J.A.C. 5:34-8.2) exceeds the
contracting unit’s bid threshold. When
the aggregated value of goods and services is below the contracting unit’s bid
threshold, a national cooperative contract can be used subject to a contracting
unit’s political contribution disclosure (pay-toplay) requirements when
soliciting quotations.
Depending on the
circumstances, an award under a national cooperative contract may occur without
governing body approval. B. Contracting
Unit Policy Considerations 1) Local officials continue to have responsibility
to choose vendors in an open and transparent manner to ensure public confidence
in the integrity of government spending.
2)
Contracting officials should consider that procurement decisions often try to
balance a low price (economy) and an efficient and appropriate procurement
process. If a national cooperative
contract is chosen, the calculation of cost savings must be documented.
3)
When using online ordering systems, local officials must put in place
appropriate internal controls to ensure quote and bid aggregation thresholds
are maintained, encumbrances are established, purchases are documented, and
that an audit trail exists.
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Finance Notice 2012-10 May 14, 2012 Page 3
4)
Using a national cooperative contract before an existing contract has expired
could constitute a breach of contract, depending on contract terms. C. Types of
National Cooperatives
There
are generally two different types of organizations (“national cooperatives”)
that award “nationally-recognized and accepted cooperative purchasing
agreements” (“national cooperative contracts”).
The
first is an organization (profit or not-for-profit) that coordinates and
aggregates contracts from different state and local governments and promotes
their use. Such organizations often
include a “marketing fee” built into the bid price, which is used to support
their marketing efforts and/or provide revenue to the public agency issuing the
contract.
These types of national
cooperatives often have websites enabling contracting units to contact vendors
who have contracts, obtain contract terms and conditions, and instructions on
joining the organization.
The
second type of national cooperative is a state, regional, or single government
agency that awards contracts for its own use and is authorized under its own
laws to extend those contracts to other government agencies. This is similar to the N.J. Division of
Purchase and Property’s Cooperative Purchasing Program for New Jersey
contracting units. These agencies may
also charge a marketing or service fee and have a website, though membership is
not usually required. D. Legal
Interpretations Concerning National Cooperative Contracts
Consider the following elements in making
decisions to use a national cooperative contract.
1)
General interpretation: The use of the
term “notwithstanding any other law to the contrary” in this statute means that
public bidding is not required when using a national cooperative contract.
However, national cooperative contracts are still subject to procurement laws
and rules that apply to all other contracts awarded by a New Jersey contracting
unit.
For
example, like all other contracts of a local unit or board of education,
governing body approval is required when the value of the contract exceeds the
agency’s bid threshold. Internal control
practices, along with other requirements such as affirmative action compliance,
submission of a business registration certificate, statement of corporate
ownership, and other routine submission and compliance requirements are not
eliminated under the Law and national contractors are obliged to meet these
requirements.
Please
note that contracting units under the LPCL and PSCL do not have authority to
negotiate terms and conditions of national cooperative contracts.
2)
National cooperative contract standards: The following three requirements make
a contract part of a national cooperative: a. The national cooperative contract
must have been awarded through a “competitive bidding process” that complies
with the laws covering the issuing entity.
In this context, a
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Finance Notice 2012-10 May 14, 2012 Page 4
“competitive
bidding process” requires open competition, or competition among those
qualified or pre-qualified, submission of bids, and awarded pursuant to a
“lowest responsible”, “most advantageous to the public entity, price and other
factors considered”, or other similar standard employed by a public
entity. This excludes contract awards
based on unadvertised, “invitation only,” negotiated, local preference, or sole
source procurement practices.
b.
The contract being awarded pursuant to the national cooperative model must have
been awarded by a contracting unit as defined in c. 139, and cannot have been awarded by a
non-profit or private organization, even if a member of the cooperative. Stated differently, Chapter 139 only permits
contracting units to access national cooperative contracts that were solicited
by another “contracting unit” as defined by the statute.
c.
The original bid must have been advertised as a national cooperative contract
(or a regional contract that includes New Jersey in its region) – not as a
strictly local contract that is made “national” or “regional” after the receipt
of bids. This is required so that
vendors that bid on these contracts know the scope of government agencies
outside of the issuing agency that could potentially use the contract. Such information can affect pricing and the
range of bidders. E. Legal Requirements
to Use a National Cooperative Contract
Depending
on the source of the contract (a national organization or a state government),
the following New Jersey legal requirements must be met by contracting units
planning to use a national contract.
1)
Documentation requirements: The
contracting unit must verify that vendors on a national cooperative contract
comply with applicable New Jersey procurement documentation requirements. For example, vendors will need to comply with
the following New Jersey laws by submitting the required forms to the New
Jersey contracting unit as if the contract was originally awarded by that
contracting unit:
i.
New Jersey Business Registration Certificate for the contractor and any
subcontractors (i.e., copy of certificate) ii. Statement of Corporate Ownership
(an original form prepared for the contracting agency awarding the contract)
iii. Public Contract EEO Compliance (Employee Information Report form or proof
of participation in a federally approved affirmative action program) iv.
A
non-collusion affidavit (only if required by a local unit) Purchasing agents
should review national cooperative procurements to ensure compliance with any
other laws that may apply. Electronic
copies are acceptable for forms not requiring an original signature.
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“Cost-savings”
determination: The Law requires that a contracting unit can use national
cooperatives only when the contracting unit determines “that the use of the
cooperative purchasing agreement shall result in cost savings after all
factors, including charges for service, material, and delivery, have been
considered.”
Considering a Division of Purchase and Property
procurement, which applies a similar standard for cooperative contract
participation (most cost-effective), a court has agreed that the contracting
unit need not do an advertised procurement, in order to compare the prices
obtained with the cooperative prices.
Nonetheless, the statute still requires “cost savings” be demonstrated
in some fashion. Suggested methods of
demonstrating cost-savings include.
i. Comparing current State contract
pricing, available to other government entities, to that of the proposed
national cooperative. ii. Comparing
pricing for comparable goods or services under the contracting unit’s current
contracts or contracts available to it (i.e., New Jersey government based cooperative
purchasing programs) to that of the proposed national cooperative.. iii.
Comparing recently procured comparable contracts entered by other public
entities to that of the proposed national cooperative.
Other
factors that should be considered as part of the analysis of whether there is a
cost-savings. iv. The ability to avoid the cost and time of a separate
procurement v. Lower minimum purchase requirements at a lower price that allows
for the public entity to purchase the needed quantities and avoid storage
costs. vi. Additional costs which have
been factored in before contract award, such as: a. Administrative cost factors
required to participate in the cooperative agreement b. Shipping costs, if any
c. Vendor rebates
The
contracting unit is ultimately responsible for developing its own procedures
for implementing and documenting the due diligence necessary to reach a cost
savings determination that survives legal scrutiny. The documentation, which would be reviewed as
part of an audit, and which is subject to disclosure under the Open Public
Records Act, should be kept on file as part of the award package.
Whatever factors the contracting unit uses in
determining the cost effectiveness of a national contract, the court cases
referred to below in Subsection 4 strongly suggest that documentation of the
cost saving determination is a necessary and vital prerequisite to a
contracting unit’s award of a national cooperative contract under Chapter
139.
Before
using a national cooperative contract, the contracting unit should first check
with the Division of Purchase and Property to determine if the contract was
awarded as a State contract and is open to use by local governments by
cooperative partners. In such a situation, the contracting unit is not making
an award under Chapter 139.
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Finance Notice 2012-10 May 14, 2012 Page 6
1)
Political contribution disclosure: National cooperative contracts are also
subject to New Jersey’s Pay-to-Play laws.
New Jersey contracting units have different rules to apply as follows:
a)
Agencies subject to the Local Public Contracts Law (municipalities, counties,
local authorities, etc.) are subject to N.J.S.A. 19:44A-20.4 and 20.5
(pay-to-play laws). These laws require
all contracts (over $17,500) to be entered into through a fair and open
process, or otherwise be subject to contribution disclosure rules. In this case, the contracting unit awarding
the contract must comply with these laws.
The contracting unit using the contract must verify that the
“competitive bidding process” used by the issuing agency (see D-2 above) met
the fair and open definition of N.J.S.A. 19:44A-20.7 (below, formatted for
clarity):
“Fair
and open process" means, at a minimum, that the contract shall be: i. Publicly advertised in newspapers or on
the Internet website maintained by the public entity in sufficient time to give
notice in advance of the contract; ii.
Awarded under a process that provides for public solicitation of proposals or
qualifications; iii. Awarded and disclosed under criteria established in
writing by the public entity prior to the solicitation of proposals or
qualifications; and iv. Publicly opened
and announced when awarded. The decision
of a public entity as to what constitutes a fair and open process shall be
final. In most cases this standard would be met by obtaining information from
the issuing agency or national cooperative administrator about the bidding
process that was used. If the bidding
process did not meet the above definition of a “fair and open” process, the
vendor would have to submit a Business Entity Disclosure Certificate (BED-C)
and Political Contribution Disclosure (PCD) form to the contracting unit as
required by pay-to-pay laws. Otherwise,
a contract cannot be executed.
Similarly,
a contracting unit that desires to use a national contract for “window
contracts,” those contracts that are between $17,500 and the contracting unit’s
bid threshold, can treat a national contract like any other window contract
procurement. A national contract can be
used if it is found to be “most advantageous, price and other factor
considered” and that the contract was awarded in a fair and open process by the
issuing agency as described above.
b)
Boards of education under the Public School Contracts Law are not subject to
the provisions of N.J.S.A. 19:44A-20.5; they must, however, follow the
requirements of N.J.A.C. 6A:23A-6.3.
Among other matters, this rule requires boards of education to comply
with N.J.S.A. 19:44A-20.26. Also
required in N.J.A.C. 6A:23A-6.3 is submission of political contribution lists
by all contractors awarded contracts,
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Finance Notice 2012-10 May 14, 2012 Page 7
including
those that are publicly bid. This will
likely require the contractor to submit supplemental documents to the
contracting unit. Without the
documentation the contract cannot be executed.
These requirements also apply to charter schools.
2)
Legal advertising requirements: While not referenced in Chapter 139, recent
case law involving the use of national contracts by the Division of Purchase
and Property (“DPP”) strongly suggests that a contracting unit must provide
public notice to current contract holders and prospective bidders of their
decision to utilize a national cooperative purchasing agreement that would
otherwise require public bidding1.
Given
the similarities in the statute reviewed by the courts and Chapter 139, a
contracting unit is advised to employ notice practices similar to those in the
formal bidding process before passing a resolution to award a national
cooperative contract above the contracting unit’s bid threshold.
A
contracting unit that employs notice practices different than provided herein
should check with its attorney to ensure that notice practices utilized will
survive judicial scrutiny. There is no
need for such notices when a contracting unit joins or uses another authorized
New Jersey cooperative contract.
The
advised notice practices include the contracting unit providing notice of its
intent to utilize a national cooperative contract with a sufficient time period
for a vendor to offer alternative approaches.
This notice should be treated like any other procurement legal notice
and must be printed in an official newspaper (similar to advertisements to
receive bids) with at least 10 days’ notice before the next action is
taken. The Division suggests a public
notice template that contains the following elements (a sample is included as
Appendix “A” of this Notice):
“Notice
of Intent to Award a Contract under a National Cooperative Purchasing
Agreement”: i. Name of the entity that
awarded the contract ii. Title of contract (description of the contract, i.e.,
office supplies) iii. A web link to where the contract can be viewed online iv.
Length of contract (must be consistent with length of public contracts law
regulating the contracting unit) v. A statement naming the vendor to whom the
contracting unit intends to award the contract vi. A statement of the authority
under which the contract is being awarded; generally this will be N.J.S.A.
52:34-6.2(b)(3) vii. A notice of when the comment period ends
1 In the Matter of Protest of Award of N.J. State Contract A71188 for
Light Duty Automotive Parts, 422 N.J. Super. 275 (App. Div. 2011); In the
Matter of Challenge of the State’s Award of Contract to Staples Business
Advantage, decided Aug. 25, 2011
(Appellate Division, unpublished; Docket # A-0476-09T2).
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Finance Notice 2012-10 May 14, 2012 Page 8
Once
the notice is published, the contracting unit should also post the notice on
its local website. At this stage, the
contracting unit should have prepared the appropriate documentation to support
the award (as described in section E of this Notice).
3)
Miscellaneous requirements:
a.
National cooperative membership: Often the contracting unit may be required to
join or become a member of the entity.
If a contracting unit is using a national cooperative contract, it must
follow the national organization’s instructions for joining or becoming a
member prior to using a contract awarded by the organization. Under all circumstances, a copy of that
documentation should be kept on file for audit trail purposes.
Depending on the degree of authority given
to a contracting unit’s purchasing agent, the governing body of said unit may
need to approve membership in the national cooperative. Authorization to join a national cooperative
can be included in the same resolution as that awarding a national cooperative
contract. b. Time limits:
The contracting unit should be aware that its
agreements with vendors under a national cooperative contract will expire when
the original issuing agency’s contract expires.
Unless the national organization or sponsoring contracting unit extends
the contract, the contracting unit will have to rebid or otherwise make
alternative arrangements for procuring the goods or services. c. Both the
contractor and the contracting unit must meet the requirements of any other
laws that may cover a given contract, including, for example, “Buy American”
requirements and length-of- contract limitations.
d. Pricing must be for a known period, and
contracts with prepayments or down-payments are not permitted (unless otherwise
permitted by New Jersey law). e. The
contracting unit is responsible for determining what documents are needed for a
given procurement. F. Limitations,
Fiscal, and Reporting Requirements 1) Not applicable to public
works/construction contracts: The use of national cooperative contracts only
applies to contracts for goods and services; it does not apply to “public
works” or construction contracts.
This
prohibition may affect a contracting unit that plans to construct or install
turf and synthetic turf fields, masonry, fencing, roofing, or indoor carpet flooring
projects. There are several national
cooperative contracts offering time and material contracts for work that may
fall under New Jersey public works or construction laws. Before using such a time and material
national contract, the contracting unit should review the project to be sure
the work is not covered under New Jersey’s public works contracting laws.
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Finance Notice 2012-10 May 14, 2012 Page 9
Limits on GSA/FSS and other New Jersey agency contracts: The Law does not apply
to contracts issued by federal agencies, particularly General Services
Administration/Federal Supply Schedule (GSA/FSS) contracts. These contracts continue to be subject to the
Division of Purchase and Property authorizing them as State contracts, and
cannot be used unless authorized by DPP.
Note that vendors who are on GSA schedules may also have been awarded
contracts through a national cooperative procurement in which case, Chapter 139
allows the contracting unit to participate in the national cooperative
contract.
Contracting
units remain able to utilize only those State contracts that are authorized for
local use by the Division of Purchase and Property pursuant to N.J.S.A.
52:16.1, and may use only those local cooperative contracts that are authorized
by the Division of Local Government Services pursuant to N.J.A.C. 5:34-7.
3)
Vendor Payments: Some national
cooperative contracts require online payment as vendors may not accept purchase
orders or vouchers. Currently, local
government units that fall under the provisions of the Local Fiscal Affairs Law
(N.J.S.A. 40A:5-16 and rules at N.J.A.C. 5:30-9A) can take advantage of using
“Procurement Cards” (P-cards) as means of meeting statutory requirements that
vendors certify in writing that their goods or services were delivered. Current rules limit the use of P-cards in
online transactions to 15% of the contracting unit’s bid threshold. The Local Finance Board is proposing amendments
that will eliminate this limit. Please
note that boards of education do not currently have authority to use P-cards.
Until
the P-Card transaction limit threshold is eliminated, the contracting unit must
take into account its applicable laws and rules when choosing a national
cooperative to ensure that vendor payments are made consistent with law. 4)
Reporting to the Office of the State Comptroller (OSC): N.J.S.A. 52:15C-10 requires contracts
exceeding $2,000,000 but below $10,000,000 to be reported to the OSC within
twenty (20) days after award, and that proposed contracts exceeding $10,000,000
must be approved by the OSC prior to awarding the contract. Contracts awarded under a national
cooperative agreement are subject to these requirements. In addition, the OSC
may audit or review contracts of any amount or type and may audit or review the
records of the vendor as well.
Consequently,
the OSC has adopted a regulation, N.J.A.C. 17:44-2.2, that requires contracting
units to insert the following language into all contracts: "The vendor shall maintain all
documentation related to products, transactions or services under this contract
for a period of five years from the date of final payment. Such records shall
be made available to the New Jersey Office of the State Comptroller upon
request." This language should be
included in any national cooperative contract or purchase order issued to a
national cooperative.
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Finance Notice 2012-10 May 14, 2012 Page 10
Appendix
A Model “Notice of Intent to Award Contract under a National Cooperative
Purchasing Agreement”
Notice
of Intent to Award Contract under a National Cooperative Purchasing Agreement -
<name of contract>
The
<name of contracting unit> intends to participate in the <name of
agency issuing contract> contract for <name/purpose and number (if
applicable) of contract name> to purchase <goods or services being
purchased>.
Information
regarding the contract may be found at the <name of the location where
information is available> during regular business hours, as well as on the
<name of agency issuing contract> website at: <website link>.
The
<name of contracting unit> anticipates joining the <name of agency
issuing contract> contract on <date of award>. The <name of agency issuing contract>
contract term is <provide start and end date>.
Contract
Period: <contracting beginning and ending period>
It
is the intent of the <title of contracting agent> to make a contract
award to <name of vendor> pursuant to the proposal submitted in response
to the <name of agency issuing contract> <type of award, i.e., Request
for Proposals, Request for Bid(s) as appropriate>.
The
<name of contracting unit> is permitted to join national cooperative
purchasing agreements under the authority of N.J.S.A. 52:34-6.2(b)(3).
Comment
period ends <date comment period ends>.
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Finance Notice 2012-10 May 14, 2012 Page 11
Appendix B
Purchasing
Agent’s Guide to Using National Cooperative Contracts
Once
a decision is reached to utilize a national cooperative contract where the
amount is over the contracting unit’s bid threshold, the purchasing agent
should take the following steps: (Refer to Local Finance Notice 2012-10 for
guidance and forms).
1.
Conduct due diligence on a national contract to determine if the contract will
result in cost savings after all factors, including charges for service,
material and delivery, have been considered.
Ensure there is documentation backing up this determination.
Considerations to use a national contract can include: • Economy versus efficiency
• Comparison of the national contract pricing to the current State contract
price, to other national cooperative contracts, to comparable goods in other
cooperatives, and any existing contracting unit contract • Savings of time in
avoiding the time and cost of a separate procurement • Any record of
satisfactory vendor performance •
Administrative cost factors required to participate in the national cooperative
agreement • Other factors such as
rebates offered and unique needs to a particular situation 2. Review any
national contract under consideration to determine if it meets New Jersey
standards: • That the contract was based on a publicly advertised request for
bids (or proposals) that stated that the contract would be made available to
other government agencies that would have included New Jersey contracting
units. • It was awarded under a competitive bidding process that met NJ “fair
and open” criteria • Obtain the statutorily required forms or determine related
compliance matters as necessary, including but not limited to: New Jersey
Business Registration Certificate
Statement of Corporate Ownership disclosure statement (Chapter 33) Proof of
New Jersey Public Contract EEO compliance Compliance with Political
Contribution Disclosure Laws (Pay-to-Play) Non-collusion Affidavit (if
required) New Jersey’s “Buy American” Law Americans with Disabilities
requirements
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Finance Notice 2012-10 May 14, 2012 Page 12
If
the contract to be issued by the contracting unit is over $10 million, report
the proposed award to the Office of the State Comptroller thirty days prior to
the anticipated award date 3. Publish a
“Notice of Intent to Award Contract under a National Cooperative Purchasing
Agreement” in the official newspaper, on your official website, and on
“Bulletin NJ” when available.
•
Allow a minimum of ten days between the advertisement and award for affected
providers to protest the award. •
Consider comments received prior to the award and act accordingly. 4. Prepare a
contract and related documents (i.e., Certificate of Availability of Funds,
etc.) for governing body action. Include
the State Comptroller’s language requiring the vendor to maintain records for five
years in the contract document.
5.
Execute contract pursuant to routine practices.
If the contract is above two million dollars but below ten million
dollars, report the contract to the Office of the Comptroller within twenty
business days of award.
6.
Keep documentation of award on file for audit purposes, as with any other
