PURPOSE:

The purpose of this report is to request City Council approval to re-contract with U.S. Bank National Association N.D. (U.S. Bank) to continue its Citywide procurement card (credit card) program.  This is accomplished through the City�s execution of an Addendum to a Master Services Agreement (Agreement) for the CAL-card procurement program (DGA MSA 5-06-99-01).  Specifically, the Agreement is between the State�s Department of General Services (DGS) and U.S. Bank.  A local agency contracts to be a participating agency of the Agreement through an Addendum between it and U.S. Bank.  This arrangement is beneficial to local agencies because they can take advantage of the economies of scale offered by the State by getting favorable contract terms and not having to individually contract with a financial institution.  Currently, over 820 local agencies and 185 cities participate in the program.

BACKGROUND:

The City has been a signatory to the current Agreement and Addendum for the CAL-Card program since 1998, and the program has been very successful.

The new Agreement was put out to bid by DGS and they evaluated the proposals submitted by financial institutions.  Once again, the winning bidder was U.S. Bank, and DGS negotiated the contract terms with them.  Local agencies may then elect to participate in the overall Agreement through signing an Addendum.  Every time there is a new Agreement (which usually runs five years), there is a new Addendum for local agencies to sign if they elect to continue services.

The current agreement expired on December 22, 2006, however, U.S. Bank will not disrupt existing credit card services to the City.  Even though services will not be disrupted, it is nevertheless important that the City re-contract as soon as possible.  Because the Agreement is a multi-year (five-year) agreement, it requires City Council approval.  The new Agreement was executed on October 19, 2006 between the State of California�s Department of General Services and U.S. Bank, and runs from October 19, 2006 through October 18, 2011 (five years), with one 2-year option for renewal.

ANALYSIS:

Some benefits of employees utilizing credit cards for purchases under the Agreement are:  (1) To ensure appropriate controls are established through pre-set dollar amount limits; (2) to ensure that credit cards are only used for authorized purposes through merchant types (for example, an employee whose city credit card is authorized to purchase only fuel cannot purchase computer equipment); and (3) to ensure that the City bears no legal liability from inappropriate use of credit cards (for example, gambling, political or church donations, bail bonds, etc.).  However, the use of credit cards is not intended to replace effective procurement planning by each department.  Credit cards are a supplement to the City�s other purchasing methods (check payment requests, purchase orders, department purchase orders, etc.).

Other controls include department approvals.  Once an employee receives his or her monthly credit card statement, he/she must review the statement for accuracy and fill out a Monthly Procurement Card Purchase Report.  This report must be approved by the department approving official before it is forwarded to Accounts Payable.

In addition, U.S. Bank provides online servicing of accounts, comprehensive reports, fraud detection, and dispute resolution.

FISCAL IMPACT:

There is no negative fiscal impact because the program is free to the City.  U.S. Bank pays .004 (4/10 of 1%) on the total sales for all participating agencies to the State of California as an administrative fee, and pays incentives to participating agencies (details below).

As mentioned above, the new Agreement provides three incentive programs to local agencies:  (1) Average transaction incentive, (2) Volume sales incentive, and (3) prompt payment incentive.  (The average transaction and the volume sales incentives are additional incentives provided in the new Agreement.)

1) Average Transaction Incentive:             Total Sales (Quarterly)            x  .75

                                                            No. of Transactions (Quarterly)

2) Volume Sales Incentive:                  Total Sales (Quarterly) x .00393

3) Prompt Payment Incentive:            45 Days � No. of Days (payment on invoice) x .0045 x invoice amount

CONCLUSION:

The new Master Services Agreement and Addendum are enhancements from the expired Agreement.  Since its inception in 1998, the CAL-Card program has been successful and cost effective.

RECOMMENDATION:

Staff recommends that the City Council adopt the resolution approving the new Master Services Agreement and authorizing the City to enter into the Addendum of the Master Services Agreement with U.S. Bank for the CAL-Card program.

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