PURPOSE
This Procedure provides guidelines for the negotiation process with the selected Consultant. It is written assuming that a Project Specific contract is being negotiated. The last section of this procedure provides guidelines for the Pre-Qualified On-Call (PQOC) Consultant contracts.
REFERENCES
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RESPONSIBILITIES
Project Manager (PM): The PM is responsible for conducting the negotiations with the Consultant and involving the appropriate City staff in reviewing the proposed scope and cost. This should be done in close communications with the Program Manager. The PM is responsible for getting the City Attorney’s “Approval as to Form” as well as the City Attorney’s signature on the final negotiated contract. The PM is also to prepare a Record of Selection and Negotiations package (City Staff only) prior to submitting the Board Report to execute the contract to management.
Program Manager: The Program Manager is responsible for reviewing the final negotiated contract and making recommendations to the City Engineer for approval.
Personal Services Contracts Section of Project Award and Control Division (PAC): The Contracts Section of PAC is responsible for developing and maintaining the Standard Form Personal Services Contracts and the review and approval of any proposed revisions in the contracts from the Standard Contract template's language. They also maintain copies of all active executed personal services contracts and related amendments.
Consultant: Signs the negotiated contract prior to the City Attorney.
City Attorney: Approves and signs the negotiated contract “As to Form” prior to submittal to the Board of Public Works for approval and signature.
Board of Public Works: Adopts the Board Report approving the consultant selection and the negotiated contract. The President of the Board or two Commissioners will execute the negotiated contract prior to the City Clerk attesting the contract.
PROCEDURE
General Goals
The PM’s primary goals in negotiating the contract should include:
Rapid finalization of the negotiation
Appropriately defining the scope of services
Negotiating a reasonable price for the contract (lump sum, hourly rates and overhead and profit percentages) that is both fair to the consulting firm and remains within budget
Developing a schedule for deliverables and completion of the project for the contract
Making minimal changes to the Standard Form Personal Services contract
Ensuring that unnecessary constraints are not inadvertently included in the contract which will limit the ability of the PM and the Consultant to respond to unanticipated situations
Consultant Cost Proposal Submittals
It is customary practice to have the consultant submit a preliminary cost proposal when responding to an RFP. This is always the case when the RFP selection criterion includes cost. The cost proposal should include all overheads and a schedule of costs for all billable employees to the contract. Situations may arise when it is advantageous to have the consultant submit a preliminary cost proposal in an RFQ process. Again, this will largely depend on whether cost is a criterion for determining the consultant’s qualifications.
It is good practice for the PM to conduct a pre-analysis of the consultant’s proposed rates comparing them to industry standards prior to the start of price negotiations with the consultant. This will help establish reasonableness in finalizing the contract.
Starting the Negotiations
Negotiations should begin with the PM and the selected Consultant discussing the appropriate and most current version of the Standard Personal Services Contract (see Procedure 6.6). The Consultant should be asked to review the contract closely to see if they understand the standard articles and/or have any questions. If they do, the Bureau’s Contracts Section of the PAC should be consulted. However, the PM cannot make any changes to the boilerplate language within the contracts without the approval of the City Attorney.
Finally, the PM and the Consultant should also set a tentative schedule for the negotiations and be somewhat aggressive about the schedule. Often, the negotiation process can drag on and take longer than necessary.
Documenting the Selection and Negotiations
The PM must clearly document the selection and negotiations with the consultant. A Record of Selection and Negotiations package (City Staff only) should be prepared that documents both the selection and negotiations processes. The report should include the original RFP/RFQ, the selection committee’s scoring sheets, proposals or qualification statements received from the consultants, any correspondence or documented conversations pertinent to either the selection or negotiation process. The goal is to document the process and to present the process in an understandable format to a third party. A copy of the Record of Selection and Negotiations package (City Staff only) must be kept in the project file.
Project Description
If the services to be provided are related to a specific project, that project must be described. The history and background related to the specified project is usually included in the project description. All details of the project that are known should be included in the description. If they are not known at the time of negotiating the contract, then a general description should be included as well as a statement to the effect that the City's PM will provide a more specific and final project description to the Consultant once it has been determined.
Scope of Services
The first major item to resolve in the negotiations is the Scope of Services, sometimes referred to as Scope of Work.
Consistency with RFP/RFQ: The Scope negotiated in the contract, as well as the Project Description, must be consistent with what was contained in the RFP/RFQ. The RFP/RFQ is typically more broadly stated than the scope contained in the contract. However, the contract’s scope must be encompassed within the more broadly stated scope in the RFP/RFQ. As an analogy, the RFP/RFQ should be considered as being an umbrella in its description of the project and/or the services that are being procured. Then the scope and definition of the project contained in the contract must fit underneath the umbrella.
For example, if the RFP/RFQ stated:
"...provide design services for the West Valley Police Facility in the Woodland Hills area….",
the contract COULD call for:
"…provide design services for the West Valley Police Facility including the Station and Parking Structure at the site which has been acquired in Chatsworth."
Adding the Parking Structure, which is integral to the use of the prime facility, is acceptable because it is an integral part of a Police Facility. Also, identifying a different community for the same facility does not significantly expand the intended scope as stated in the RFP/RFQ. Therefore, those changes are consistent with the intent of the RFP/RFQ.
However, given the same Scope statement in the RFP/RFQ, the contract COULD NOT contain the following:
"...provide design AND CONSTRUCTION MANAGEMENT services for the West Valley Police Facility…in Chatsworth AS WELL AS FOR THE LAPD’s PISTOL RANGE IN SYLMAR."
This fails the "umbrella" test because it adds an unrelated service, i.e., construction management for the police station and it adds services on an unrelated and geographically separate facility, the Pistol Range.
It is important to note that while the consulting firm was selected based on their response to a specific statement regarding scope or project definition in the RFP/RFQ; the final contract may very likely require a different Scope of Service or Project Definition. As described above, it must fit within the broad range of Project Definition and Scope of Services contained in the RFP/RFQ. In some instances, the RFP/RFQ asks the consultants to respond or propose on a specifically defined project or list of services that are theoretical in nature. This approach is often utilized when the details of the project are not known at that time but the objective is to consider "apples to apples" proposals from the firms. Consequently, the scope in the negotiated contract does not have to be exactly the same as it was in the RFP/RFQ, as long as it "fits under the umbrella".
The Contracts Section of PAC should be contacted at the start of negotiations for copies of previously negotiated Scopes of Service that might be of use in this instance.
Level of Detail Contained in the Scope: The Scope will probably take one of two general courses depending on how much specific information is known about the project or required services at the time of negotiations.
Highly Detailed Scope - If the full and complete nature of the project is clearly understood, it is generally desirable to have a highly detailed Scope. For example, if the project is the design of a new building of a known size on a known lot with a known type of use, the contract will likely be a Lump Sum contract. The Scope in this instance must clearly define what the project is and what services the consultant is to provide. Deliverables should also be identified. Sample Scopes of Services are available from the Contracts Section of PAC.
General Scope - If the details of the project or the detailed services that are required are not known, then the Scope should be general in nature. If this is the situation, the contract should be a cost reimbursement contract. The Scope must be written in such a way as to authorize the Consultant to perform the services that the PM needs during the term of the contract despite the fact that all of those services or the level of effort needed to perform them are not definable at the time of negotiations. This is done by using articles of the following types:
“Provide the necessary design services to produce a fully biddable set of plans and specifications for a new Community Center building to be located in the Van Nuys area. It is anticipated that the building size will be between 15,000 and 20,000 square feet.”
Or
“Determine the level of Environmental Documentation required and then provide the necessary Environmental Documentation preparation services for the proposed Van Nuys Community Center. The City's Project Manager will inform the consultant of specific project details once they have been determined.”
Or
“Provide the necessary design assistance services as may be requested by the City's Project Manager to assist City staff in designing the proposed Van Nuys Community Center.”
It is important to understand that while the Consultant was selected based on the City providing an anticipated scope and the Consultant may have provided a pricing proposal for performing that scope, the PM is not bound at all by either of those items. The negotiation process, not the RFP/RFQ nor the Consultant's proposal or submittal, will define the specific scope and the pricing for the contract. However, the final agreed upon scope and pricing must fit under the umbrella of the RFP/RFQ.
Compensation - Cost of the Contract
After agreeing on the description of the project and the Scope of Services, compensation is to be negotiated. The nature of the negotiations is governed by the type of compensation to be used in the contract — Cost-Reimbursement or Lump Sum Contract (see Procedure 6.3).
Lump Sum Contracts: The Lump Sum amount of money to be paid to the Consultant for performing the services, as well as when those amounts are to be paid, is to be negotiated and defined in the Compensation Article of the contract. There is no simple formula to use to derive what an appropriate cost should be. The process should begin with requesting a cost proposal from the Consultant that includes an estimate of Level of Effort by Task in the contract. Then the PM should consider numerous factors in arriving at the negotiated Lump Sum amount.
Level of Effort and Unit Cost - How many work hours are needed for the tasks? What level of expertise is needed for the tasks? What is the Consultant's hourly billing rate for this level of expertise?
Level of Risk - Is there a high degree of financial risk to the Consultant in this project?
Special, Unusual Services - Is it required, or is it likely, that special services will be needed and considered to be a part of the negotiated Lump Sum? Or will the Bureau compensate "Special Services" separately, and define how that will be paid in the contract?
Past Practice - Was a Fee Schedule or “payment formula” for similar services previously established? Was it codified, as in the typical Architectural Consultant payment tables adopted in the past by the Board of Public Works as a guideline for Architectural Projects (Attachment 6.5-1)? Has there been inflation since that time?
Comparison With City Costs - If Bureau staff performs the services, what would its estimated level of effort (hours or workdays) and fully burdened costs be?
The Business Climate - Is there currently great (or little) demand in the general economy for the type of services requested and therefore, might they be more expensive (or cheaper) than "normal"?
Budget - What is the project's budget for these services?
The Lump Sum amount is negotiated. After reviewing the Consultant's pricing proposal and understanding the proposed level of effort for the various tasks and what level of expertise and unit cost is proposed, each of these items is open to negotiation. While it is the Bureau’s aim to secure the required professional services from the selected Consultant at the lowest price possible, it is clearly in the City’s best interest if the Consultant can complete the negotiations feeling that they will be fairly compensated for the work. Their cooperation and good will are important to the success of the work. A negotiation which concludes with the Consultant agreeing to a Lump Sum amount which they believe is much too low will often result in disagreements about scope, level of effort and adequacy of their work during the contract.
Milestones or deliverables should then be negotiated after which payments will be due. The Lump Sum amount is apportioned to the various project milestones and deliverables and that amount is paid after the milestone is completed or the deliverable received and approved. In general, the payments should approximate the level of effort necessary to reach that milestone. The sum of all of the milestone payments equals the Lump Sum amount of the contract.
Extra Work or Additional Services and how these will be handled must be covered by an article in the contract. This will define the conditions under which the Bureau will pay an amount above and beyond the Lump Sum. The contract will include the maximum amount of money that can be paid under this article. Compensation for this work can be either on a negotiated lump sum basis or on a cost reimbursement basis based upon the actual hours worked and hourly billing rates that are negotiated and identified in the contract for this purpose.
Reimbursable Expenses must also be dealt with. Sample types of expenditures are listed in the article and a not-to-exceed contract limit amount of money is occasionally identified for this purpose. This may or may not be above and beyond the Lump Sum amount. If not included in the Lump Sum amount, supporting documentation must be provided by the consultant. It is generally best if the types of items that qualify as being reimbursable are kept to a minimum and are defined in the contract.
When the term "amount of the contract" is used, it is defined as the sum of the three elements:
| Amount of Contract = | Lump Sum + Extra Work (if applicable) + Reimbursable Expenses (if not included in the negotiated Lump Sum amount) |
Cost Reimbursement Contracts: The negotiation of a Cost Reimbursement contract differs from the Lump Sum contract in that the Bureau is not fixing the actual cost of the work in the contract. Rather, the contract defines how the Consultant will be reimbursed during the work and it defines a cost ceiling of the contract. At the conclusion of negotiations, the PM does not yet know what the final cost will ultimately be, but has established a maximum cost. This fact changes some of the aspects of the negotiations.
The process should begin by requesting a cost proposal from the Consultant that additionally includes an estimate of Level of Effort by Task in the contract and hourly billing rates (or salaries, overhead rates and proposed profit). Then the PM should consider the following factors in arriving at the cost ceiling amount.
Level of Effort and Unit Cost - How many work hours are needed for the tasks? What level of expertise is needed for the tasks? What is the Consultant's hourly billing rate for this level of expertise? If the cost reimbursement formula that is used is actual hourly salary plus overhead and profit, then those proposed values are needed and overhead and profit are subject to negotiation. (These factors are described in more detail below.)
Past Practice - Was a past practice of paying for similar services established at some level? Has there been inflation since that time?
Comparison With City Costs - If Bureau staff performs the services, what would its estimated level of effort (hours or workdays) and fully burdened costs be?
The Business Climate - Is there currently great (or little) demand in the general economy for the type of services requested and therefore, might they be more expensive (or cheaper) than "normal"?
Budget - What is the project's budget for these services?
Level of Effort - The number of hours of work, as proposed by the Consultant to perform each task, should be considered and negotiated if necessary. This is important not only because it directly impacts the contract ceiling, but it also helps the PM and the Consultant reach a better understanding on the level of detail expected for each task. For example, if the PM thinks that the structural design element of a wastewater pumping plant is a 200-hour activity and the Consultant thinks it is a 20-hour activity, there is clearly a misunderstanding about the facility to be designed. During negotiations is the time to resolve any misunderstandings.
Level of Expertise - The level of expertise proposed by the Consultant for the various tasks not only directly impact the contract ceiling, but also the "quality" of the work product. For example, senior- or executive-level engineers or architects performing the majority of the work in plan production will be very costly. On the other hand, Architectural or Engineering Assistants performing Value Engineering will probably not yield the quality of results the Bureau is seeking. Again, finding these points of misunderstanding during negotiations is best.
Unit Cost - Hourly Billing Rate - If the compensation is to be based on an Hourly Billing Rate for each individual or for their job classification, then this must be considered, negotiated if necessary, and defined in the contract. The Hourly Billing Rate is an all-inclusive rate, including the person’s actual salary, overhead, and profit. This would typically be done through the listing of job classifications and their billing rates. For example:
Sr. Environmental Specialist II - $135/hour
Sr. Environmental Specialist I - $115/hour
Associate Engineer - $90/hour
On smaller, short-term contracts, the actual individual's name is sometimes used in lieu of the job title.
Unit Cost – Hourly Salary + Overhead + Profit – In this case, the compensation is based on the person's actual salary plus a percentage for overhead (field or office) plus a percentage for profit (not to exceed the Bureau’s maximum). The overhead (field and office) and profit percentages need to be negotiated and specifically listed in the contract. The overhead and profit percentages proposed by consultants can be negotiated. This is particularly appropriate when the Bureau will be housing the consultants in our offices or offices paid for by the City. It also is applicable in cases where the Bureau will be utilizing people, nearly full-time, for a long period of time, thereby benefiting the consulting firm by booking 100% of their employee's time. This eliminates a significant negative drain on the Consultant’s overhead—unbillable time. Furthermore, contract language allows the PM to request the consultant’s overhead (field and office) rates at the three year anniversary of the contract execution and either accept the new rates or continue with the previous rates for the remaining term of the contract.
Other Direct Costs – These costs are directly identifiable to or incurred in the performance of services and are chargeable to the City without mark-up. At the time of billing, the City may review the appropriateness of these costs to the project.
Cost Contingencies – After determining, as best as can be done, the anticipated costs of performing the work, it is advisable to add a contingency amount in arriving at the actual Cost Ceiling to be used in the contract. In this way, if costs ultimately turn out to be higher than originally anticipated, which can easily happen, funds are available within the contract to pay these costs without requiring an amendment. The size of this contingency should be determined by discussions with the Program Manager.
Proposed Project Cost Breakdown
During the final stages of negotiations, the PM and the Consultant should develop the Proposed Project Cost Breakdown. It is the estimate of costs per task in the contract, and serves as the backup details to the total amount of the contract. It is included in the contract as Exhibit B (Attachment 6.5-4).
Contract Schedule
During negotiations, the PM and the Consultant should develop a simple bar chart of the planned schedule for the Consultant contract. It should identify the major activities in the contract, including all activities with milestone payments associated with them. It should, of course, be in agreement with the overall schedule for the project that the contract will support or assist. It is typically included in the contract as Exhibit A (Attachment 6.5-3).
Then, the actual duration of the contract is to be determined. It should be comfortably longer than the project schedule indicates so that there is a high probability that all of the needed work can be accomplished. The contract duration is defined in the contract Article “TERM OF AGREEMENT”.
Bureau of Contract Administration – Office of Contract Compliance (OCC) Requirements
As a part of their review of the contract approval Board Report (discussed at the end of this Procedure), OCC will review the status and subcontract amounts of the subconsultants proposed in the contract in compliance with the Mayor’s Business Inclusion Program as created on January 12, 2011 by Executive Directive No. 14. This information must be provided by the Consultant on a form that they should have submitted with their proposal, “Schedule B - Task Work Order List of Subconsultants (City Staff only)." The form must be consistent with the subconsultant firms and subcontract amounts proposed in the negotiated contract as listed in “Schedule A - List of Potential MBE/WBE/SBE/EBE/DVBE/OBE Subconsultants (City Staff only)."
For the Pre-Qualified On-Call (PQOC) consultant contracts, respondents to the RFQ provide the form titled “Schedule A - List of Potential MBE/WBE/ SBE/EBE/DVBE/OBE Subconsultants (City Staff only)." The Schedule A will be consistent with the subconsultant firms proposed on Task Orders issued to the PQOC consultant.
Consultant Objections to Standard Form Contract Articles - City Attorney Approval as to Form
Early in this Procedure, in the section titled, "Starting the Negotiations," it was mentioned that the Consultant needed to review and understand the many "standard" articles in the contract. Consultants may object to one or more of the contract articles. If this happens, the PM must review the matter with their Program Manager as well as with the Contracts Section in PAC. The Contracts Section functions as the Bureau's primary liaison to the City Attorney who has worked closely with the Bureau of Engineering in developing the Standard Form Contracts. The Contracts Section can approve some changes to the contract and may arrange for discussions between the PM, the City Attorney and others as necessary, such as the City’s Risk Manager. Ultimately, the City Attorney and Risk Manager will determine if any of the requested revisions to the standard contract are acceptable.
The entire contract must be approved and signed “As to Form” by the City Attorney when negotiations are complete. The City Attorney’s representative, who works as the Attorney for the Board of Public Works, is the person who will sign the contract “As to Form” for the City Attorney. The PM should review the contract with the Contracts Section of PAC and make arrangements with the City Attorney to get their approval “as to form” and signature on the contract.
Negotiation of Pre-Qualified On-Call (PQOC) Contracts
Two separate negotiations are needed for a Consultant to be able to begin work under a PQOC contract: the negotiation of the standby PQOC contract, and subsequently, the negotiation of numerous Task Orders over the life of the contract containing the specific scope, tasks and costs of the specific projects.
Contract Negotiations: These negotiations lead to the execution of a "standby" contract that contains all of the standard articles, except for a specific project description, scope of services for that project and the cost. A Standard Form Personal Services Contract for PQOC Consultants has been created and is maintained by the Contracts Section of PAC. The PQOC contract describes the assignment of work, by Task Order(s) issued by the City Engineer, at a later time when projects are identified. Therefore, the bulk of effort in negotiating the contract will go into resolving any potential objections that the Consultant might have with the standard contract, the hourly rates, overhead rates, and profit percentage that will be used in the contract. If there are Consultant-requested revisions to the standard contract, the PM will arrange a meeting with the Contracts Section of PAC, the City Attorney, and possibly the City’s Risk Manager, to get their approval on the requested revisions.
Task Order Solicitations and Consultant Selection: The use of the PQOC Consultant lists is covered in the Use of Pre-Qualified On-Call Consultant Lists Procedures document (Attachment 6.5-7) and described in Procedure 6.13. The procedures are constantly being revised so check with the Contracts Section of PAC for the most current version of these procedures. The following is a summary of the procedure to be followed when using a PQOC Consultant:
Prepare the Task Order Solicitation (TOS) Approval / Revision Form (City Staff only) and get all the necessary signatures. For emergency situations where the Task Order is expected to exceed $100,000, brief the Board of Public Works Liaison Commission prior to distributing the Solicitation.
Solicit the appropriate PQOC list by sending the TOS to one, three, or all of the Consultants on the list.
The Consultant is expected to utilize the subconsultants listed on their Schedule A at the participation levels anticipated by the City.
Proposals are evaluated and a PQOC Consultant is selected. If the Task Order exceeds $100,000, a Board Report is required authorizing the City Engineer to issue the Task. Depending on the language in the contract, the selected PQOC Consultant may be rotated to the bottom of the list.
Task Order Negotiations: All of the items discussed in the earlier parts of this Procedure regarding project description, scope of services, and compensation apply during the negotiations phase for the Task Order. The difference is that the City Engineer (with Board approval if the amount exceeds $100,000) is authorized to issue a Task Order whereas only the Mayor or Board may execute a Contract.
Task Order negotiations should be documented in a form similar to the documents provided in the Record of Selection and Negotiations package (City Staff only) and the documentation should clearly support the actions taken.
Record of Selection
After completion of the negotiation process, the PM is to prepare a Record of Selection which will remain as a permanent record of the process. It should contain, at a minimum, the following items:
RFP/RFQ or Task Order Solicitation
Statements of Qualifications or List of Firms Submitting Proposals
Submittals from all firms
Selection Criteria
Summary of Scoring Sheets
Individual Scoring Sheets
Non-Collusion Affidavits, if appropriate
Brief memo on the Record of Negotiations summarizing the negotiation process and what the Consultant may have proposed
The Record of Selection and Negotiations package (City Staff only) is to be retained in the Program’s official central files. The package is to be completed prior to processing the contract execution Board Report, the Board Report to issue a Task over $100,000, or the Notice to Proceed for Tasks under $100,000.
Board of Public Works Notification and Contract Approval Board Report
Board of Public Works policy adopted December 24, 2002 requires that the PM keep the Board President and Liaison Commissioner informed of the status of negotiations. Once the negotiations are complete, the PM prepares a Board Report that informs the Board of which firm was selected for the work, asks that they approve the contract, and recommends that the Mayor authorize them to execute the negotiated contract (see Procedure 6.7).
RELATED PROCEDURES
Procedure 6.2 - Pre-Qualified On-Call or Project-Specific Contract – Which to Use?
Procedure 6.3 -Cost-Reimbursement or Lump Sum Contract – Which to Use?
Procedure 6.13 - Using the Pre-Qualified On-Call Consultants Lists
Links / Attachments
Links
TOS Approval / Revision Form (City Staff only)
Record of Selection and Negotiations Package (City Staff only)
Business Inclusion Program “Schedule B - Task Work Order List of Subconsultants” (City Staff only)
Business Inclusion Program “Schedule C - MBE/WBE/SBE/EBE/ DVBE/OBE Utilization Profile” (City Staff only)
Comments