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2 / Management ~fc~rmatiou Sefvke
<br />
<br />factors to co~dcr ~forc entering in~'o · contracting
<br />arrangement,
<br />
<br />CONTRACTING DEFINED
<br />
<br />One working definition of contracting, ~is formulated by
<br />ICMA's ",adternafiv~ .Approaches for thai Private Delivery
<br />of Public Services" Project is:
<br />
<br />Under this arrangement a private tinct or nonprofit
<br />otganlzafion has a contract with thc io~:al government
<br />to provide or deliver services. The loc/il government
<br />may contract to have all, or · portioa, of a service
<br />provided by the private fu~. Citi;,~ns, through
<br />their taxes or use~ fees, pay the local government,
<br />which in turn pay'.l the private firmJ
<br />
<br />Forms of Contract~. Contracts or ptu chase of service
<br />agreements take a variety of forms. ~nree basic ones
<br />arc: fixed price, uni~ price, and cost p~us fixed fee.
<br /> Ft~,,d Price: a contract that provides for a firm price,
<br />although this often includes a provisioii for inflation or
<br />price escalation, it i.~ used most often whe~ the quantity
<br />and quality of work to be performed ~;~m be estimated
<br />with a fair degree of accuracy. Examples include street
<br />paving, window washing, and landsc~ping. There are
<br />two types of t'~ed price contracts: 1) definite quantity
<br />contracts such as "trim the trees on ~ Street ~n such
<br />and such a manner in a specified period," and 2) indef-
<br />inite quantity contract~ that normally have · minimum
<br />quantity or level of service defined, with additional
<br />prices for quantifies above some maximum. An example
<br />might be to "re, hove the snow from .acLghborhood X
<br />up to Y inches for Z dollars, but ~f more than Y inches
<br />falls then the contractor will be paid Z+W dollars.'"
<br /> f/nit Pa'ce: · contract providing fo~' payment based
<br />on thc number of u~ts produced. The fixed cost is the
<br />nmnber of un~ts times the cortespon~ unit prices.
<br />Examples of these t.~pe of contracts a~. found in park-
<br />ing meter repait, tree trimming, and ~eal service. The
<br />unit price contract i~ often used when t~e ~nrice can be
<br />adequately defined but the number is ~ot known.
<br /> Co~ Plus Fee: · contract pmvidhg fc, r n~mbmsement
<br /> to the contractor fo~ all allowable cost.~ incurred in the
<br /> performance of the contract plus an additional fee. It is
<br /> often used whe~ thc service cannot be del'reed readily,
<br /> ixlch as with col~sulfing services. The fe: ~ be handled
<br /> in one of three ways~futed, percentage, or incentive.
<br /> Thc fixed fee is a s~m agreed upon by thc parties. The
<br /> percentage fee is normally based on a p~:~rcent of the cost
<br /> of the services provided. The incentive fee. provides a
<br /> bonus to reward thc contractor for st~perior perform-
<br /> ance. The incentive fee is preferable but k is normally
<br /> very difficult to formulate in a helpful ~aShion. The per°
<br /> centngc fee is ~¢ ]ea~t desintblc Since ~t cewa. vds contrac-
<br /> tors for increased costs. The fixed fee b the simplest and
<br />
<br />most often used because of the problems with the two
<br />other types.
<br />
<br />Negotiated Vetsm B4d. Contracts can be bid, negoti-
<br />ated, or bid-negotiated. A bid contract offers to provide
<br />service with · even quantity and quality of specifica.
<br />ttons, used when · competitive market exists and the
<br />service can be defined easily. A negotiated price is a
<br />· price arrived at jointly between thc two parties, used
<br />when · competitive market does not exist or it is diffi-
<br />cult to set forth detailed specifications. A common type
<br />of negotiated price evolves from a request for a pro-
<br />'posal (RFP). A combination of the two processes, a bid-
<br />negotiated contract is sometimes used.
<br />
<br />BASIC STEPS IN CONTRACTING
<br />
<br />The number of steps that concern a local government
<br />when considering contract services ranges from 3 or 4 to
<br />10 or 12, depending on the individual cir~m~ces. Five
<br />basic steps are suggested here: perform a do or buy study,
<br />prepare the contract, solicit bids, select a contractor,
<br />· and monitor (administer) the contract.
<br />
<br />Perform · "Do or Buy" Study. An important first step
<br />for every local government contemplating contracting a
<br />new service, expanding an existing service, or simply
<br />switching from government to private provision h to
<br />investigate the pros and cons of contracting. Such an
<br />investigation is equally useful in considering switching
<br />.from private to government service.
<br /> There are numerous examples of such studies as well
<br />· as a number of books on how to conduct such studies?
<br />'The federal government has a process that requires such
<br />studies (A-76), but there are few comparable processes
<br />at the local governmental level.' One study found that
<br />less than 10 percent of those governments that con-
<br />tracted undertook · comparison of the costs of private
<br />and public delivery.'
<br />
<br />.Prepare the Contract. Once the decision has been
<br />.to purchase service, a contract or a request for a proposal
<br />(RFP) needs to be drawn. This will include a det~oe
<br />· of the type of instnm~ent--fixed price, cost plus fixed fee,
<br />or negotiable; its specLqcations-=tasks, hours, location,
<br />bonding, and so forth; and criteria to be used in selecting
<br />the contractor--price, ability to perform, experience,
<br />and the like. A request is sent to the governing body to
<br />approve the bid or RFP instructions and specifications,
<br />call for bids, and establish bidding data and time.
<br />
<br />SoUdt Bids. The next step is to solicit the bid or RFP,
<br />including the development of a bidders list, announce-
<br />ment of the contract including advertising, distn'oution
<br />of the contract or RFP to interested bidders, presenta-
<br />· lion of the bidders conference, and ac~ of the bids.
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