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APPROVE BY MOTION THE SECOND AMENDMENT TO THE AGREEMENT WITH CB MERCHANT SERVICES
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a motion to:
1. Approve the findings for exemptions from competitive bidding requirements to extend the Agreement with CB Merchant Services; and
2. Authorize the City Manager to execute the Second Amendment to the Agreement with CB Merchant Services to provide collection services through September 30, 2017.
It is further recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of the motion.
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Summary
The Administrative Services Department had an Agreement (Attachment A) with CB Merchant Services (CBMS) that provided for the collection of outstanding third party debts to the City. As stipulated in the Agreement, the fees/commissions due to CBMS for its services are based on a percentage of the debt it recovers or are assigned to recover and reduce the collected amount provided to the City.
On October 10, 2014, the First Amendment (Attachment B) to the Agreement with CBMS was executed. Significant changes in the Amendment included the addition of collection services for Risk Services in the Human Resources Department, revision to the fee schedule, and establishment of September 30, 2015 as the termination date. The Amended Agreement expired and was not extended timely. However, CBMS continued to provide services to the City in accordance with the contract terms. To ratify the Agreement for services currently being rendered, a Second Amendment to the Agreement (Attachment C) is recommended to extend the term to no later than September 30, 2017.
In an effort to procure the highest quality services at the most competitive rates for the City, staff will conduct a new procurement for collection services and issue a Request for Proposal (RFP). The termination date specified in the Second Amendment will continue services and provide sufficient time for the City to complete the RFP process and select a firm.
DISCUSSION
Background
On January 6, 2000, the City entered into an agreement with CBMS, previously Credit Bureau of San Joaquin County, to provide for the collection of outstanding third party debts for the City. Prior to that time, the City of Stockton performed collections with internal staffing in the Revenue Services Division. However, during the financial crisis leading up to the City’s bankruptcy, staffing reductions and low collection rates prompted the City to seek expert collection services with Credit Bureau of San Joaquin County.
Subsequent to the initial agreement, an Addendum lowering the fees/commissions due to CBMS was submitted on June 26, 2009 (Attachment D). Industry standards for collection service rates range between 30% and 40%, whereas the Addendum lowered the rate for City of Stockton to 25%. In addition, CBMS collections have maintained an average collection rate of slightly more than the industry standard of 10% of amounts owed.
More recently, the City began periodic reviews of all contracts and agreements which prompted a First Amendment to be executed on October 10, 2014 to update the Scope of Services for the addition of collection services for Risk Services, revise the fee schedule, and establish September 30, 2015 as the termination date. Although the contract termination date passed, the City continued to send accounts to CBMS through an automated process that connects the City’s receivable system to the CBMS system, and services continued absent the planned contract review and procurement. .
Present Situation
CBMS actively collects overdue accounts on behalf of the City. The recommended Second Amendment to the Agreement with CBMS would ratify expenditures to date since the contract end date and allow collection services to continue until September 30, 2017. This extension will provide sufficient time for the City to complete an RFP process for debt collection services and select a firm. If a new firm is ultimately selected, transition activities including data conversion, accounting and financial protocol establishment, account set up, and collection reporting procedures will be completed prior to the expiration date specified in the Second Amendment.
The Second Amendment to the Agreement with CBMS also adds Insurance Requirements and Indemnity and Hold Harmless provisions. These provisions were not stipulated in the original Agreement or First Amendment.
During Fiscal Year 2014-15, CBMS collected $342,268 of nearly $3.4 million receivable accounts in collection. This 10% collection rate is consistent with industry standards. These revenues were offset by service fees of $85,567, which is consistent with the 25% recovery fee/commission stipulated in the existing Agreement with CBMS.
Findings
Stockton Municipal Code section 3.68.070 provides for an exception to the competitive bidding requirement for contracts in cases where the City Council has approved findings that support and justify exceptions to the competitive bidding process. It is recommended that Council adopt findings to allow CBMS to continue collecting outstanding third party debts for the City. The findings are as follows:
1. CBMS is able to accommodate the high level of service, including system integration, and quantity of accounts required by the City.
2. CBMS is a collections service that provides account data system integrity and compatibility, has the ability to report results, provides continuity of current services, and maintains organizational stability.
3. CBMS is an experienced professional firm that can provide these specialized services for an organization of the size and complexity of the City.
4. CBMS is a local firm located in the City of Stockton.
5. The City does not currently have the necessary resources or capacity to provide the services internally.
6. As cited in the recent audit finding # 2015-04, collection efforts must be exhausted before write off of uncollectable accounts can be completed.
7. The uninterrupted collection of third party debts is critical to providing continued revenue to the City.
FINANCIAL SUMMARY
During Fiscal Year 2014-15, CBMS collected $342,268 for the City. These revenues were offset by expenditures of $85,567, which is consistent with the 25% recovery fee/commission stipulated in the existing Agreement with CBMS. Fee charges are recorded to the funds impacted by the specific collections. Appropriations are budgeted in FY 2015-16 and will be budgeted in future years at a similar and/or sufficient amount to cover these fees in the following accounts.
General Fund: 010-1331-510
Parking Authority: 418-4010-572
Community Development: 048-1830-530
Fire Prevention: 048-2631-530
Utility Customer Service - MUD: 498-1350-572
General Liability/Risk Services: 541-5732-571
There are no additional impacts to the General Fund with the execution of the Second Amendment to the Agreement with CBMS.
Attachment A - Agreement with CB Merchant Services
Attachment B - First Amendment to the Agreement with CB Merchant Services
Attachment C - Second Amendment to the Agreement with CB Merchant Services
Attachment D - Addendum to the Agreement with CB Merchant Services