Purchasing Goods and Services
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Anyone involved in the purchasing process should be aware of all related policies and procedures. To assist departments in learning about the purchasing process, review training materials are available through Training Services. This Training Services site provides current descriptions on all workshops and includes registration information.
Laws, Policies, Requirements
University policy, state law or Federal statute as well as purchasing best practices described in these procedures govern the purchasing process. Some funding sources will identify whether funds are restricted to a specific purpose or whether monetary gifts are allowed from the funds. All funding sources require the purchase to be justified for the employee’s purpose and require departmental approval.
Individuals, who may directly or indirectly influence a purchasing decision, must follow limitations imposed by Minnesota Statute 15.43: (Acceptance of advantage by state employee; penalty) regarding acceptance of gifts or other items.
Targeted Group Business (TGB)
The University establishes a goal annually for purchasing from Minnesota historically underutilized businesses like certified businesses owned by women, minorities or persons with a disability. Department purchases help to meet this goal.
Lists of certified vendors are available at the Office for Business and Community Economic Development (BCED) website. See the Cert Directory or the Targeted Business Database.
Purchasing identifies whether a University-Wide Contract is awarded to a TGB. Departments should look for UWide Contracts awarded to targeted businesses. Click on the Targeted Business listing on the website.
Departments must obtain approval before using any of the following:
|Lab Animals||Contact Research Animal Resources (RAR) to purchase lab animals. Do not purchase lab animals without RAR involvement.|
|Radioactive Isotopes||Contact Environmental Health and Safety (EHS) to purchase radioactive materials. Do not purchase radioactive isotopes or sealed sources without EHS involvement. Also follow EHS regulations for storage and disposal of alcohol and hazardous items. See Radiation Safety Policy.|
|Alcohol for Research||Contact University Stores to purchase Alcohol for research. Follow EHS regulations for storage and disposal of alcohol.|
|Chemicals of Interest||These are chemicals requiring additional review and approval in the financial system by Environmental Health and Safety (EHS) before ordering.|
|Controlled Substances||Contact the Office of Research Education and Oversight for more information. See Administrative Policy: Using Controlled Substances for Research.|
Items with Additional Requirements
|Audit or Financial Services||These services require the Controller’s review and approval in the financial system before contracting with the vendor.|
|Architects, Engineers, Designers and Construction Services||These services require review and approval from Capital Planning and Project Management (CPPM) to ensure compliance with State statutes on architectural services.|
|Legal Services||These services require the review and approval of the Office of General Counsel. OGC will determine if the expertise is available within the University or which legal firm is best suited for the request.|
Federal Funded Purchases $25,000 and over
Purchases that meet the Federal Funding Accountability and Transparency Act (FFATA) reporting requirements must include information from the vendor for reporting to the Federal Government before purchases may be issued to the vendor. These purchases include subcontracts under federally-awarded contracts and are valued greater than or equal to $25,000. Contact firstname.lastname@example.org for more information on this reporting requirement.
University Stores and University Wide Contracts
Departments are encouraged to purchase lab supplies, office supplies, chemicals, and other supply items from University Stores, through the financial system. University-Wide Contracts exist for such items as computers, furniture and lab equipment. Both University Stores and University-Wide Contracts have been pre-bid and offer discounted prices.
Board of Regents Approval
Purchases $1 Million and over require Board of Regents approval before awarding a contract or purchase order. The dollar amount is based on the awarded time period. For example, a one-year contract that is for $700,000 with an option to renew for a 2nd year at $700,000 does not need Board of Regents approval since each year is a new business decision. However, if the contract is awarded for a 2 year period at $700,000 per year, the purchase will require Board of Regents approval for the total of $1,400,000.
Change Orders that amend an award to be $1 Million or more, or adjusts the original total to be more that 10% over the amount approved by the Board requires review and approval by the Board of Regents on the changes before continuing with the award.
Blanket Orders/Time Period Contracts
Departments may issue blanket orders, spanning up to a 3-year period, so long as the total of the contract is less than $50,000. Purchases of goods or services from the same vendor which will total $50,000 or more over the stated time period will route to Purchasing for bidding. Departments are responsible for renewing blanket orders before they expire. The UM Burn Rate Report is used to identify blanket orders and Contracts for Professional Services that are nearing an expiration date. To renew an order, contact the vendor to confirm the same prices, terms and conditions apply to the renewal period. If the blanket orders continue past three years, a new bid process may be required. Discuss these issues with Purchasing Services.
The University recommends a lease versus buy analysis for all equipment costing more than $250,000. Purchasing Services can assist in obtaining lease proposals and in the analysis.
Purchasing Goods and Services $49,999 and Under
The following procedure covers the purchase of equipment, supplies and standard services. To purchase professional services (for example, consultants or graphic design) see Administrative Policy: Purchasing a Professional Service.
The department is responsible for ensuring that the University receives all agreed to goods or services designated in an award. Contact Purchasing Services for any vendors that have unresolved performance issues. Repetitive performance issues documented by the department with Purchasing Services may jeopardize future business for the vendor with the University.
Employees making a purchase should determine the appropriate purchase and payment process:
|Requisition/Purchase Order||Requests to purchase require a financial system requisition and purchase order, before receipt of goods. All Purchase Order invoices require a financial system receipt for matching.|
|University Wide Contract||If the item is available from a U Wide Contract (or other approved contracts), complete a financial system requisition for a vendor purchase order to order the item. After the item is received, process the invoice through the financial system with a PO and receipt reference.|
|University Stores||If an item is available from University Stores, place the order through the financial system. An electronic voucher is processed against the purchase order. Receipts are not required.|
|PCard||If the item/service is allowable on the PCard and within PCard limits. Capital assets may not be purchased by this method.|
|Non-Purchase Order||If an item is allowable as a non-Purchase Order transaction, place the order and process the invoice without a PO reference. Capital Assets may not be purchased by this method. Go to the Non Purchase Order Related Payments grid in the appendix.|
|Out-of-Pocket Provision||Employees may purchase items to be reimbursed if the item is approved by the employee’s supervisor or management.|
Employees should not invoke the University's tax-exempt status when making an out of pocket purchase. Since the University is not directly making the purchase, tax exempt status does not apply. Sales tax associated with out of pocket purchases will be reimbursed to the employee.
Selecting the Vendor
Departments must document the vendor choice and price by completing a Price Comparison form for goods and standard services. This form is used to document the department's attempt to solicit three or more quotes for items to be purchased. Where possible, include a targeted business in the quotes.
An optional Departmental Quote form is available for departments to use in collecting price comparisons. The quotes should include item costs, freight terms, delivery date and payment terms. Vendor freight and payment terms will default from the vendor’s record. Verify the freight and payment terms match the quoted information or the U Wide Contract information. Edit the requisition terms if needed.
Freight Terms are defined as the FOB (Freight on Board) point, which refers to the point at which ownership or title, and therefore, responsibility for the safety of the goods in transit, transfers to the University.
The preferred FOB point is either FOB Delivered or FOB University of Minnesota. This means that the University takes ownership only when the goods are delivered to the University. Then, any damage or loss of the goods in transit is the vendor's responsibility, not the University's. If a vendor insists on shipping FOB Factory or FOB Shipping Point, have the vendor insure the package. The department will be billed for the insurance, but will avoid the risk of incurring the costs associated with loss or damage to the shipment.
Payment options for shipping charges are defined as either prepaid or collect. If the department requests shipping charges be prepaid, the vendor will pay the carrier's charge and usually add it as a separate line on the invoice sent for the goods. If the freight is included in the cost quoted there will be no separate freight line on the invoice. Freight charges included on the vendor's invoice will often include a markup from the vendor. Freight costs should be listed in the comment field on the requisition and entered as a freight charge on the voucher.
Payment terms refer to how quickly the vendor will be paid. The University's standard payment terms are net 30. The net amount of the invoice is paid in 30 days from the invoice date.
Vendors may offer discounts for early payment; e.g., 2% 10, net 30. In this example, the University deducts 2% discount off the vendor's invoice for paying in 10 days. The University only encourages paying early when there is a discount and the terms can be met.
Prepayment: It is not recommended to pay vendors before items are shipped, received and approved by the department. Where it is to the University’s advantage, purchase orders may include a partial or down payment. Prepayment includes the risk of vendors not completing the shipment and leaving the University unable to recover the prepayment.
Purchasing Goods and Services $50,000 and Over
For purchases $50,000 and over, policy requires that Purchasing Services conduct a public competitive process to select a vendor. Departments complete a financial system requisition in order to initiate the process - requisitions $50,000 and over automatically route to Purchasing Services.
Purchasing Services uses a variety of tools to perform the competitive process. Tools for the bidding process include the RFB – Request for Bid which is used for products for which exact specifications can be written and communicated to vendors. Purchasing solicits bids and refers the bids to the department for evaluation. (See Evaluating the Responses.) The vendor offering the lowest bid for the product as specified is awarded the purchase order or contract.
The Request for Proposal (RFP) is used for services or combinations of goods and services. In this process, a variety of factors or evaluation criteria, including price, are considered in selecting a vendor. The vendor offering the best overall solution is awarded the purchase order or contract.
Request for Bid Process
Bid Process: Check the University-Wide Contract or University Stores website to determine if the item is available. If so, enter the requisition in the financial system. NOTE: University Stores orders are exempt from bidding and University-Wide Contracts are bid at the discretion of Purchasing at $250,000 or more.
Exceptions to Bid: Some purchases may be approved as Exceptions to Bid when acceptable criteria are met. (See Exception to Bid Process).
Vendor Invitations to Bid: All vendors invited to bid must be registered in Purchasing Service's MBid system. All responses are returned through this system and tabulated for the departments review. Departments should refer any new vendors to the MBid website for registration before bidding.
Requisitions should include the name, and email address of vendors you wish to bid. Purchasing Services will attempt to include any other possible vendors in the bidding. Small Businesses should be included in the list of invitees wherever possible. BCED Website has lists of certified small businesses available for bidding.
Bid Specifications: Specifications must be sufficient for open and fair competition by vendors. This means the specifications will need to be clear and complete but not restrictive enough to limit competition. Specifications must permit fair consideration of all known sources qualified to bid. Since the order goes to the lowest bid meeting specifications, the specifications need to be accurate. Every feature or condition that will be used in making the selection must be included on the requisition. These will become the bid specifications.
Below are some suggestions on what to include in specifications. The buyer will include these features or conditions as part of the bid specifications to vendors:
- Use generic specifications whenever possible. Include any accessories needed.
- If ordering multiple items, determine if the award be "all or none "or "as a package". Will each item be ordered from a separate low bidder?
- Is used or demo equipment acceptable? If so, are certifications necessary?
- Include any trade-in items that may be considered part of the specifications. For old equipment purchased with sponsored funds, verify the University has title of the equipment. If the trade-in is an asset and is accepted, contact Inventory Services to document the disposal of the equipment.
- Is a trial period or demonstration required? If yes, identify the time period for the trial or demo.
- Is local servicing of the equipment required? Or is there a specific service response time required?
- What is the cost of supplies for the equipment?
- Does the facility impose limitations to the type of delivery, e.g.3rd floor - no elevator?
- Is a specific delivery date required or is delivery on a weekend or off hours required? Will the delivery date be a factor in the award?
Bid Award Process: Purchasing Services tabulates all responsive bids and forwards them to the department. The department reviews the responses and recommends a vendor for an award. If this is not the lowest price bid, the department will include additional information as to why the lower priced bid(s) are not acceptable.
Purchasing Services awards the bid using the department's financial system requisition entered earlier. The requisition is modified by Purchasing to reflect the bid information and is routed through the approval process in the financial system. The Purchase Order is dispatched through the financial system by the method specified from the vendor as notated in the vendor file.
Request for Proposal (RFP) Process
A competitive proposal process is used for complex services or combinations of goods and services. In this process, a variety of factors besides price must be taken into consideration when selecting a vendor. Purchasing Services will help determine whether it is appropriate to invite competitive proposals in lieu of bids. A Purchasing Services Category Manager will oversee all aspects of the competitive proposal process.
A Request for Proposal (RFP) is an invitation to vendors to submit a written offer to supply good and services. Purchasing makes the RFP publically available to vendors to review and respond with a proposal. Competing proposals are judged based on the evaluation criteria defined in the RFP.
Evaluation team members, including a Category Manager from Purchasing Services, are selected on the basis of their interest in and/or expertise in the services. Before awarding proposals $50,000 or over, the Category Manager will send all non-selected respondents a notification stating the reasons for non-selection of their proposal.
The Evaluation Team may invite finalist(s) to do a presentation to the Team. Information learned from the presentations may be considered in the final scoring of the proposals. The Team may also negotiate with finalist(s).
Board of Regents' Policy requires that individual purchases and contracts valued at $1 Million and over be presented to the Board of Regents for approval after the bid / proposal process has been completed and prior to making the purchase or contract.
The timeline for the RFP process varies based on the complexity of the goods and services to be purchased. A complex service will require a complex RFP, which will require more time to write, more time for vendors to compose a response, more time to evaluate, and more time to negotiate contract terms with the finalist.
Initiating the RFP Process
The Purchasing Category Manager will work with the department to construct the RFP. The Category Manager will send the RFP to all vendors registered under the appropriate commodities in MBid, as well as any vendors provided by the department. The RFP may also be advertised on the State of Minnesota web site.
Confidentiality of RFP Process
Each potential respondent is provided with the same information and is subject to the same requirements and deadline in order to provide the same opportunity to all.
To preserve the integrity of this highly controlled process, all who are involved, either directly or indirectly, must keep all aspects of the process and the proposals confidential. Only the Purchasing Category Manager may communicate with potential respondents.
Proposals are not available for review by anyone, other than the evaluation team, until after the award is made.
Evaluating the Responses
When the deadline for the proposal submission has arrived, the Purchasing Category Manager will provide the Evaluation Team with responses. (RFP Referral Form and Proposal Evaluation Instructions.) The Team may, under the Purchasing Category Manager’s direction, request proposal clarifications from the Respondents.
When the proposal evaluation is complete, the Team will identify finalist(s) and may invite them to do presentations. Negotiations with one or more finalists are also appropriate at this time, as part of the presentations or following the presentations.
For request for proposals $500,000 or more, the document will include a Targeted Business related evaluation criterion to be weighted at 10% of the overall evaluation. If, at the presentations, information is learned that would affect the scoring against the evaluation criteria, the Team may revise their scoring. An explanation for the scoring changes must accompany the revised score sheet.
Awarding the Contract
The Purchasing Category Manager works with the evaluation Team and completes their evaluation, by preparing the Template for Documenting Evaluation of Proposals.
The Purchasing Category Manager, with assistance from the Evaluation team, and an attorney representative from the Office of the General Counsel, will negotiate, if appropriate, the final terms and conditions of any contract(s). Contracts under $1 million may then be signed. If the contract is valued at $1 million or over, the Purchasing Category Manager will require the department to prepare Regents approval documents and arrange for the purchase to be presented at the next Board of Regents meeting. Once the purchase has been approved, the contract may be signed.
Changing a Purchase Order
A purchase order which has been dispatched to the vendor can only be changed by a change order transaction in the financial system. Procurement Specialists issue change orders for dispatched orders up to $50,000. If the original order was $50,000 or more or the changed amount will be at $50,000 or more, the department requests Purchasing Services do the change order in the financial system.
There are two parts to receiving at the University; the department physically receives the goods, or the service is provided. Departments are responsible for electronically documenting receipt of purchases from external vendors in the financial system. A receipt transaction is entered into the financial system to authorize the voucher to be paid.
The receipt must refer to the purchase order to authorize payment. No receiving transaction is necessary for goods received from University Stores, or Internal Service Organizations (ISOs) or purchases on the Non-PO Related Payments List.
Upon Receipt of Goods
- Inspect packaging and goods for signs of damage. Save packing materials. Insurers may want to inspect the materials if the goods are damaged.
- Do not accept the shipment if the goods are damaged. Document damage directly on the receiving carrier's forms as justification for non-acceptance.
- Compare the merchandise received to the vendor generated documentation (usually a packing slip or vendor invoice). The merchandise and documentation should match. Verify that the shipment is the correct quantity and price.
- If this is incorrect, call vendor immediately to discuss the problem. If returning any merchandise, request a Returned Goods Authorization (RGA) number from the vendor.
- Sign the receiving forms. Sign only for what was actually received. Verify the item belongs to the proper department.
- Verify, immediately, that the product performs correctly. If the product is defective call the vendor, and arrange for the return of the product. Do not try to fix a defective product. This may violate the warranty or it may be construed as acceptance of an inferior product.
Documenting Receipt of Non-Assets
Non-assets are expendable items and equipment having a cost of less than $2,500 OR a useful life of less than one year. Non-asset equipment can be tracked by the department, but is not centrally tracked nor are the records maintained centrally.
Documenting Receipt of Assets
If equipment valued at $2,500 and over is received, it is capital equipment and must be electronically received by the Procurement Specialist. Forward the receiving documents and the request to Procurement Specialist in the financial cluster. For more information on Capital Equipment, see the Administrative Policy: Managing University Capital Equipment.
Match errors hold voucher payments until the errors are cleared in the financial system. Errors need to be cleared in a timely manner to avoid late vendor payments. Wherever possible, the financial system vouchers should be created from receipts. See Training Materials (Go to Appendix D, page 105) for more details on clearing match errors.