Split Purchase Orders and an 'Emergency' HVAC Contract
The City of Riverton's purchasing policy requires formal sealed bids for purchases over $25,000 and council approval for contracts over $50,000. In March, the public works director needs a new roof for the maintenance barn. The low quote is $72,000. To 'keep things moving,' the finance clerk issues three purchase orders of $24,000 each to the same vendor for 'roofing materials,' 'labor,' and 'equipment rental.' In April, an HVAC failure at the senior center is declared an emergency; the city manager authorizes a $38,000 sole-source contract without council action. The finance director learns of both in May, when the vendor invoices exceed the budget line by $46,000. The city has a $12 million general fund and a balanced-budget requirement.
1. Analyze the roof purchase. What procurement and budgeting rules were violated, and how should the city have handled it?
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The roof is one procurement, not three. Breaking a $72,000 project into three $24,000 purchase orders to stay under the $25,000 sealed-bid threshold is improper split purchasing. The policy requires formal sealed bids over $25,000 and council approval over $50,000, and the project exceeds both. The city should have issued one solicitation, evaluated bids, and taken the contract to council. The finance clerk's labels do not change the substance: materials, labor, and equipment for the same roof are components of a single purchase. The purchase also appears to exceed the budget line, which is a separate violation of the balanced-budget requirement. The finance director should stop further payments, document the full file, and refer the matter to the city manager and counsel. Depending on state law and local policy, the contract may be voidable, the vendor may have a claim for payment for work accepted, and employees may face discipline for circumventing controls.
2. Was the HVAC contract a valid emergency procurement? What must happen now?
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An emergency procurement is valid only for a bona fide emergency that threatens health, safety, or essential operations and only to the extent necessary. A failed HVAC system at a senior center in April can qualify if the failure created dangerous conditions and there was no time for bids. But the city manager must document the facts, the scope, why the vendor was selected, and why the price was reasonable; the council should ratify the action at its next meeting. The emergency exception is not a budget workaround. If the failure was foreseeable or the contract included unnecessary work, the exception fails. The city should also check whether the vendor has a conflict of interest or is debarred. Because the contract exceeds $25,000, the file needs a written sole-source justification even if the emergency exception applies. Missing documentation shifts the burden to the city to prove the emergency was real.
3. What should the finance director do about the $46,000 overrun and the apparent split purchases?
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The finance director should freeze the line, notify the city manager and council in writing, and prepare a budget amendment or transfer for council action. The city cannot continue spending in excess of the adopted budget. The director should reconstruct the roof procurement, determine whether the three purchase orders were pre-approved, and identify who authorized them. The overrun should be presented to council with options: ratify and amend, re-bid, or terminate. Internal controls need repair: aggregate related purchases, require pre-approval above threshold, separate requisition and approval duties, and run a monthly exception report for vendors with multiple just-under-threshold orders. The director should also refer the split purchases to the city attorney and auditor because they may violate state law or grant conditions. Paying the disputed invoices without council action would compound the violation.