Procurement of goods and services for the university must be conducted in an open and competitive environment to ensure that prices paid are fair and reasonable. Purchasing activities are conducted in central Procurement Services as well as by academic and administrative departmental employees. Purchasing activities include obligations for proper transaction documentation, fiscal responsibility, ethical behavior, adherence to federal and state government regulations, and compliance with university By-laws and policies.
Procurement Services provides support to the university community in the selection, acquisition, use and disposal of goods and services by:
- Maximizing the university’s purchasing power by focusing on strategic sourcing and obtaining the best value
- Leveraging its expertise in contract negotiations and supplier management to advantage the university
- Streamlining processes and investing in new technologies to provide administrative efficiencies.
- Ensuring that purchases are made in accordance with all applicable university By-laws, laws, regulations, codes, and ordinances
- Minimizing risk exposure while maintaining flexibility in procurement activity
II. PROCUREMENT AUTHORITY
The procurement of goods and services is the responsibility of the Regents. Per Regental By-Law 3.07 (2)(d), the Regents have delegated procurement responsibility to the Executive Vice President and Chief Financial Officer, who in turn has delegated this function to Procurement Services. As a result, Procurement Services is responsible for assisting university units in the procurement process and for overseeing all procurement activities.
Through further but more limited delegation of authority, detailed in SPG Section 601.24, Delegation of Authority to Bind the University to External Agreements on Business and Financial Matters, authorized department end users may commit funds on behalf of the university using a Purchase Order or purchasing card (P-Card). Department end users are not authorized to sign contracts; only those individuals given such authority in Table 1 – UM Business and Finance Authority Delegations may do so. The university is not bound by and does not recognize as binding any promise or obligation made by an unauthorized person. Those signing external agreements or attempting to bind the university by any other means without authority may be subject to legal and disciplinary action up to and including termination.
Only Procurement Services has the authority to negotiate and sign agreements. However, it is the responsibility of the university unit to:
- Understand and uphold the university’s obligations under the agreement.
- Understand and oversee the supplier’s performance, and notify Procurement Services of any significant performance issues.
Additional details on a university unit’s responsibilities are available on the Procurement Services website.
University units do not have the authority to change agreements; only Procurement Services may do so, and only after diligent review. Contact Procurement Services to request a change or extension.
The university requires special approval for and/or prohibits the purchase of certain goods and services. Special approval does not exempt a transaction from the remainder of the procurement policy, including the competitive bid process. It is the university unit’s responsibility to be aware of restrictions on the purchases of goods or services on the chart field combination being charged. If a university employee has questions about whether an item is restricted, Procurement Services should be contacted before the purchase is made. The full list of Restricted Commodities and Special Approvalsis available on the Procurement Services website.
III. PURCHASING WITH SPONSORED FUNDS
Purchases using sponsored funds must be made in accordance with U.S. Office of Management and Budget Circular No. A-21, Cost Principles for Educational Institutions. The A-21 guidelines require Sponsored Programs to review transactions meeting certain criteria prior to purchase.
IV. ETHICAL CONDUCT
Care must be taken to avoid the intent and appearance of unethical practice in relationships, actions and communications. All procurement activities conducted on behalf of the university must be in compliance with the standards outlined in federal, state and local laws; university policies; the University of Michigan Statement on Stewardship; and Procurement Services procedures. For more information about the university’s legislative and regulatory obligations, visit the university’s Compliance Resource Center. It is the responsibility of each faculty and staff member of the university to ensure that the university does not knowingly enter into any purchase commitment that could result in a conflict of interest. Units with questions about a particular situation should contact Procurement Services. Procurement Services Management is the ultimate decision maker on whether a procurement-related activity has the intent or appearance of unethical practice. Procurement Services may require individuals involved in supplier proposal evaluations or contract activities to sign confidentiality agreements and/or conflict of interest disclosures.
Procurement Services is charged with the responsibility of maintaining an open and competitive process for procuring goods and services. Bids and proposals from competing vendors will be evaluated by Procurement Services which will also award contracts. As part of their stewardship responsibilities, departmental end users are encouraged to compare prices between vendors even when the purchase amount does not require a formal bidding procedure. An open and competitive purchasing environment requires that information pertinent to the bidding process be kept confidential until the conclusion of the process.
A. CONFLICTS OF INTEREST
The university is particularly diligent before entering into purchasing contracts with its employees, their family members or any other individual who would be perceived as having a potential conflict. Situations in which a supplier affiliated with a university employee is seeking a contract with the university to provide the same or similar services that the employee provides in his or her position as a university employee require special attention because of the high risk of a conflict. University employees should not make purchasing decisions or otherwise influence the university’s decisions to do business with any supplier affiliated with the university employee, a relative of the university employee or any other individual who would be perceived as a potential conflict.
University employees must promptly disclose in writing all actual or potential conflicts to a designated university official as actual or potential conflicts arise or are identified. Similarly, the designated official must disclose in writing all actual or potential conflicts to Procurement Services Management. If found to be significant, the conflicts must be eliminated or managed as described in SPG Section 201.65-1, Conflicts of Interests and Conflicts of Commitment. University employees who are unsure whether a conflict exists are encouraged to contact Procurement Services for help in determining whether disclosure is appropriate.
Michigan Public Act 317 of 1968 prohibits university employees from soliciting, negotiating, renegotiating, approving or otherwise representing the university or the supplier affiliated with the university employee in transactions. In accordance with Michigan Public Act 317 of 1968, the university may not enter into a contract with any supplier affiliated with a university employee without first disclosing certain information to the Regents and receiving approval via a 2/3 vote of the Board of Regents. This disclosure is public record in the Regents’ Proceedings. Regental approval must be obtained before proceeding with the transaction. A person who violates this law is guilty of a misdemeanor. The university can void violating contracts.
B. GRATUITIES FROM SUPPLIERS
University employees should neither solicit nor accept money, loans, credits, entertainment, favors, services or gifts from current or prospective suppliers. Such gratuities, even if of seemingly low value, can give rise to a conflict of interest or the appearance of a conflict of interest. In particular, university employees should never accept gratuities from a current or prospective supplier that has submitted or may submit a bid for a university contract for which a bid solicitation is being contemplated, developed or is actively accepting bids. If it is deemed necessary to visit a vendor site for a demonstration, the university pays all related expenses.
University employees must handle confidential or proprietary information with due care and proper consideration of ethical and legal ramifications and governmental regulations. University employees may not tell outside parties the prices, terms, or conditions quoted by other suppliers. Procurement Services must pre-approve all communications with outside parties regarding potential or anticipated procurement-affiliated relationships.
University employees who receive Freedom of Information Act (FOIA) requests should contact the university’s FOIA Office. If the request is procurement-related, the employee should notify Procurement Services of the request.
V. PURCHASING THAT REFLECTS THE UNIVERSITY’S VALUES
Diversity, social responsibility and environmental sustainability are central to the university’s mission. The university is committed to providing business opportunities to suppliers who help the university honor these values. Visit the MConnect website for detailed information about how the university promotes supplier participation that reflects these values.
VI. DONATIONS AND CONTRIBUTIONS
University resources are to be used to further the university’s mission. Article IX, Section 18 of the Michigan Constitution has been interpreted as strictly limiting the donation of university resources to any person or entity. University employees with questions about whether a transaction constitutes a donation should direct questions to the University Controller. The University Controller must approve any donations.
University purchases are not subject to Michigan sales and use taxes when used for educational and charitable purposes. Certain other states also honor this or have an equivalent rule. University employees with questions about a particular situation should contact the Tax Department.
VIII. FINANCIAL CONTROLS
When designed as described in SPG Section 500.01, Fiscal Responsibilities, financial controls provide reasonable assurance of the effectiveness and efficiency of operations, compliance with laws and regulations, and reliability of financial reporting. Procurement internal controls focus on ordering, approving, receiving, and reconciling. Each university unit should have the appropriate policies and procedures in place to provide for adequate controls in each of these steps within the procurement process and must separate among two or more people the duties of these steps; whenever possible, there should be no direct reporting relationship among these individuals.
IX. INFORMATION TECHNOLOGY SECURITY AND PRIVACY
All university acquisitions of information technology or data goods and services are required to have a security addendum as part of their contract; and, where required, undergo a privacy and security assessment to ensure compliance with the university's security program and governmental regulations. Please see the Procurement Services website for more information.
Any vendor with access to patient health information or student information must follow university rules to safeguard this information. When a vendor has access to this type of information, units must involve Procurement Services in the transaction.
X. PROCURE-TO-PAY PROCESS
All purchases of goods and services must be done in an open and competitive environment to ensure that the prices that the university pays are fair and reasonable. Below is an outline of the appropriate steps to take each time a purchase is made. While Procurement Services’ involvement is required for some of these steps, its staff can assist with any and all steps. Note that purchases of $10,000 or more must also follow the competitive bid process, as described in the Competitive Bid Process section below.
A. DETERMINE NEEDS
The first step in the purchasing process is to determine the need. The specifications, performance standards and/or scope of work should be outlined. These items should be general in nature to allow for sufficient competition in meeting them; they should neither reference nor be written specific to a particular brand, model or company.
B. IDENTIFY POTENTIAL SOURCES
The university requires and encourages competition among suppliers in providing goods and services to the university. Competition provides the greatest opportunity for the university to procure goods and services at the best value. Accordingly, those involved in supplier selection have the responsibility to search broadly and completely for viable suppliers. Sources for the goods or services should be considered in the following order:
An Internal Service Provider is a university unit that provides goods and/or services to another university unit. Related costs are billed to the receiving unit using an approved recharge rate.
2. Supplier with a University Contract
University Contracts are contracts with suppliers that have been through a competitive process and the terms have been secured at the best value and are available to authorized users university-wide. These suppliers provide goods and services with favorable terms for pricing, delivery and other factors and thus are the preferred source for purchasing goods or services from external entities. Procurement Services should be contacted before placing large-quantity orders off of University Contracts, as the orders may be eligible for additional discounts.
3. Other Supplier
When neither of the aforementioned sources offers the goods or services that the unit needs, Procurement Services should be contacted to identify other suppliers. Procurement Services may establish a department-level contract if there is a purchasing need unique to a specific unit and either 1) the unit will be making repetitive purchases of a good and/or service from the same supplier over a period of time or 2) a contract is necessary to adequately define the goods and/or services to be provided.
C. COLLECT QUOTES AND SELECT BEST VALUE
It is generally good practice to price transactions and collect quotes from a variety of sources before selecting one. The lowest price may not always be the best value; Units should consider the total cost of ownership, which includes the purchase price, transportation, handling, inspection, quality, rework, maintenance, disposal and other associated costs. For purchases under $10,000, department end users should obtain pricing from the supplier before creating a Purchase Order. Purchases of $10,000 or more must follow the competitive bid process, as described in the Competitive Bid Process section below.
D. PLACE THE ORDER
If ordering from an Internal Service Provider, the university unit providing the good or service should be contacted for instructions on how to place the order. Ordering methods for purchasing from a University Contract vary; instructions for the appropriate way to place an order are stated on the webpage for that University Contract. If not ordering from an Internal Service Provider, authorized university employees may order goods or services using a Purchase Order or P-Card. Because Purchase Orders offer the university the best legal and financial protections, they are the preferred method for ordering goods and services. Procurement Services, however, should be contacted before any repetitive purchases are made with a Purchase Order, as a vendor contract may be more appropriate and efficient.
The Purchase Order is the mechanism that places the order with the supplier and provides a method for payment of the invoice; goods and services should not be obtained prior to the supplier receiving the Purchase Order. For information about how to request a Purchase Order, visit the Procurement Services website. The order quantities, pricing and payment schedule on the Purchase Order should be established in the same way as the supplier will invoice.
A university purchasing card or P-Card is a credit card, granted to authorized users, that the university issues through a banking institution and that the university pays directly. P-Cards are intended for travel and for small-dollar, infrequent transactions. SPG Section 507.10-1, Travel and Business Hosting Expense Policies and Procedures for Concur Users provides details regarding use of the P-Card for travel expenses. P-Cards should rarely be used to make purchases from payment systems that do not provide on the P-Card statement visibility into the item(s) that was purchased (e.g., PayPal, Google Wallet, etc.). If such a system is the only way the supplier accepts payment, detailed receipts showing the final vendor and item details must be provided.
The P-Card should be used when a supplier does not accept a Purchase Order and when buying goods or services not available through Internal Service Providers or University Contracts. The P-Card should not be used to make a purchase that will be reimbursed by an external party. The cardholder is accountable for all purchases made on his or her card and must keep all required receipts. Cardholders or their delegates must expense P-Card transactions monthly in Concur and secure the appropriate university unit approval(s).
Cardholders should contact Procurement Services as needs arise or are identified for 1) purchases to any one supplier or for any one good or service for $5000 or more; 2) more than $25,000 in purchases of any good or service in one year; or 3) more than six purchases of any good or service in a year. Procurement Services will assist the cardholder in determining if another procurement method is more appropriate
E. RECEIVE THE GOODS OR SERVICES
University units have a number of responsibilities related to receiving goods and services. The university’s system of internal controls requires that the proper separation of duties in completing these tasks, i.e., different individuals perform the various functions of the procurement process. Persons who are authorized to procure goods and services may not approve those transactions or be connected to the payment of those transactions.
It is university practice to have vendors direct shipments to either the location of the departmental end user or to an appropriate receiving point. Suppliers may only direct shipments to either a university address or other university-approved location. Guidance for help in choosing the appropriate address for receiving goods is available on the Procurement Services website.
Upon receipt, the university unit should immediately inspect the shipment to be sure that it is correct, complete and not damaged.
- If there are any order-related problems, including discrepancies in pricing or amount, incorrect or missing items, etc. the supplier should be contacted immediately.
- If the goods are damaged, save all materials and the shipper should be contacted to come and inspect the items.
- If either of these situations arise or if there are delivery or supplier performance issues, contact Accounts Payable before the payment terms expire to request a hold on payment. Once an invoice is paid, Procurement Services’ ability to provide assistance in resolving disputes is diminished.
If there is a problem with goods or services received and they were purchased through a University Contract, then Procurement Services can provide assistance in resolving disputes with suppliers. For supplier performance tracking, university units should notify Procurement Services of any significant supplier performance issues.
Finally, the university unit is responsible for returning items that need to be returned and for verifying that the proper credit, if needed, is made to the affected chartfield combination.
F. INVOICING AND PAYMENT
Accounts Payable is responsible for processing the payment of goods and services to suppliers in compliance with university policies and standard processes, external regulations and legal requirements. It is standard process for suppliers to send invoices directly to Accounts Payable. Suppliers that send invoices to university units may experience delays in payment. If a university unit receives an invoice, it should be scanned immediately and a copy of that invoice should be emailed to Accounts Payable.
When a university unit approves a payment, it is attesting that it received the good or service, where applicable; that the payment amount is correct; that the payment should be made; and that the payment is business appropriate. Once the university unit records the required approvals, Accounts Payable will process and issue the payment.
G. RECONCILE STATEMENTS
University units must reconcile their Statements of Activity and P-Card statements on a timely basis to:
- Verify the business appropriateness of each transaction.
- Confirm that all purchases were allowable and within budget and spending limits.
- Ensure proper reporting of payments to suppliers.
- Resolve any errors as soon as possible.
- Check that proper credits have been made.
- Ensure that the appropriate buying method was used.
As part of this process, the statement should be matched to the Purchase Order and packing slip or other documentation that documents the transaction.
H. MAINTAIN RECORDS
University units must maintain records for all transactions as described in SPG Section 604.1, Departmental Record Retention for Business and Financial Records. When purchasing with sponsored funds, the retention requirements may be much longer; questions regarding retention requirements should be directed to Sponsored Programs.
XI. COMPETITIVE BID PROCESS
The Regents require that all transactions $10,000 and greater be competitively bid. Competitive bidding is the process that allows the university to properly survey the marketplace and secure goods and services at fair and reasonable prices. It helps ensure that the university receives goods and services of the best value while also satisfying federal, state and university requirements. Procurement Services is the authorized organization to conduct the competitive bid process. For transactions less than $10,000, units may request that Procurement Services to conduct a competitive bid process.
Goods or services bought from Internal Service Providers are exempt from this requirement since the transactions are internal to the university. Similarly, because Procurement Services has already completed a competitive analysis for vendors with University Contracts, it is not necessary to hold another competitive process for purchases from those contracts. Bid limits, where applicable, are stated on the webpages for specific University Contracts.
Splitting a transaction into smaller dollar amounts, delaying, staggering purchases, and using multiple staff members to purchase the same or related items to avoid the competitive bid process are serious policy violations. All transactions found to be in violation of the university’s competitive bid process will be reported to the Regents as unauthorized purchases. Employees responsible for violating transaction(s) may be subject to disciplinary action up to and including termination.
Although Procurement Services conducts the competitive bid process, university units have responsibilities as well. Upon request, Procurement Services will assist university units with any of their responsibilities related to the competitive bid process.
A. SUBMIT SPECIFICATIONS
University units must outline and submit to Procurement Services the detailed specifications, performance standards and/or scope of work of the goods or services needed. These items should be generic in nature to allow for sufficient competition in meeting them; they should neither reference nor be written specific to a particular brand, model or company. If a vendor’s assistance is required to develop the bid specifications that vendor cannot submit a bid without approval of the Director of Procurement Services and all materials gathered or prepared must be shared with all potential bidders.
B. SOLICIT BIDS
Informed by the specifications that the university unit provides, Procurement Services develops and issues a Request for Information (RFI), Request for Quotation (RFQ) or Request for Proposal (RFP) to solicit bids from suppliers. Each supplier receives the same directions, information, terms and conditions. Procurement Services only considers valid those submissions from suppliers that meet the bid requirements and are sent to Procurement Services by the specified deadline.
C. EVALUATE PROPOSALS
Procurement Services works with the university unit to assess each proposal to determine which represents the best value to the university.
An open and competitive purchasing environment requires that information related to the bidding process be kept confidential; university employees must conduct themselves ethically, as described above, at all times. Suppliers must contact Procurement Services to obtain bid results.
D. NEGOTIATE THE AGREEMENT AND MAKE THE AWARD
Procurement Services is the only university department with the authority to negotiate and sign procurement contracts. Department end users are not authorized to sign contracts; only those individuals given such authority in Table 1 – UM Business and Finance Authority Delegations may do so.
XII. SOLE SOURCE PROCESS
The State of Michigan and federal government, our granting agencies and other stakeholders, expect the university to make purchases in an open and competitive environment to ensure that the university receives fair and reasonable pricing. Because a sole source process doesn’t include a survey of the marketplace nor competition among suppliers, it makes it difficult for the university to meet these expectations. Despite these drawbacks, there are some situations in which a sole source process is in the best interest of the university:
- If only one supplier provides the good or service.
- If an emergency purchase is necessary to avoid or mitigate a significantly disruptive event. In such a case, university units must first contact Procurement Services to approve the purchase.
When submitting a request to deviate from the standard competitive bid process, the university unit must complete the Sole Source Justification Form and submit all necessary attachments. Completion of this form does not guarantee that Procurement Services will approve the request. Goods or services available from more than one supplier are subject to the competitive bid process described above. Procurement Services will help the unit identify vendors and facilitate a competitive bid process.
Units must not create or attempt to create sole source situations through delay or other manipulation of the procurement process. Procurement Services will work with units to determine whether a sole source situation exists and, in such cases, reserves the right to negotiate pricing or solicit additional information. For those non-competitive transactions, a report is developed for quarterly submission to the Board of Regents.
XIII. NON-PURCHASE ORDER PROCESS
The Non-Purchase Order Voucher (Non-PO Voucher)is a method of payment to be used primarily for reimbursements for guests and students who are unable to utilize Concur and for other centrally-used functions. It may also be used in limited circumstances with prior approval from Procurement Services for payments when a supplier will not accept a Purchase Order or P-Card. It is not an ordering method. Non-PO Vouchers for $10,000 or more must have prior approval from Procurement Services. Additionally, Non-PO Vouchers should not be used for purchases that are recurring in nature and total more than $10,000 in transactions per year to an individual supplier, unless Procurement Services gives prior approval. Accounts Payable must receive receipts with approved Non-PO Vouchers before payment will be processed. Specific guidelines for travel and hosting reimbursements are in SPG 507.10-1 Travel and Business Hosting Expense Policies and Procedures for Concur Users.
XIV. PETTY CASH
The university reimburses suppliers using Petty Cash, when use of a Purchase Order or P-Card is impractical and the expenditure is of a low dollar amount. Details regarding the policies governing petty cash are in SPG 507.02 Imprest Cash Fund.
XV. VENDOR MAINTENANCE
If during the process of identifying the source from which to procure a good or service, a new supplier is identified as the best source, the supplier should visit the MConnect program website to register with the university. University units may not place an order with a supplier until a supplier record is created by the Vendor Maintenance team.
Suppliers and university units may request the creation, update or inactivation of a supplier record, and Procurement Services will work with them to determine whether such a change is appropriate. Visit the Procurement Services website for details on the items that must accompany a Vendor Maintenance request.
XVI. BEST PRACTICES
The university continually strives to improve its practices to ensure the integrity and effectiveness of its procurement processes. As a major research university, our procurement policies and practices are audited by the Office of Naval Research, which expects us to engage in competitive and modern business practices. The University of Michigan is also a member of the Council on Government Relations (COGR), an association of large research universities in the United States. The university regularly exchanges information about best procurement practices with other COGR members as part of its ongoing effort to improve its practices.
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