HARVARDFinancial Administration

Procurement Policy Brown Bag Session6/29/18

Office of the Controller

Karen Kittredge, OC, Manager Policy and Business ProcessRoseann Luongo, Associate Director, OSP Training and Compliance

Sara Malconian, Chief Procurement OfficerLauren Aiello, Director of Strategic Sourcing

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Procurement Policy Harvard University requires that faculty, staff, researchers, and students who plan for or purchase products, equipment, supplies, and services with University funds base purchases on sound business practice, best value, accountability, and compliance with donor, sponsor and regulatory requirements.

This policy is effective July 1, 2018 and in addition to detailing requirements and best practices for all funding sources, includes specific requirements that comply with Federal Uniform Guidance (UG) requirements. UG is a set of regulations that consolidate several federal guidelines and also goes into affect July 1 and related to purchases made with federal or cost-share funds or expenses transferred onto federal funds.

Key elements of the procurement policy include:• Conflicts of interest in procurement• Setting thresholds and processes for each procurement method• Reducing waste by avoiding duplication, considering lease versus buy, using surplus• Maintaining documentation • Encourage competition whenever possible, and working with responsible contractors

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Procurement Policy HighlightsHighlights and Resources:

• New Contract Thresholds – higher bid thresholds, reducing formal bid process requirements.

• Harvard Preferred Vendors – regularly updated Preferred Vendor list found on Strategic Procurement’s (SP) website. SP will review and vette vendors selected through a formal sourcing process as a Preferred Vendor. Using Preferred Vendors meets the Uniform Guidance requirements for those purchases of $250,000 or less and requires only the Preferred Vendor box and section A be completed on the Vendor Justification Form (VJF).• SP will continue to work on increasing Preferred Vendor relationships where appropriate.

• Updated Vendor Justification Form (VJF) – clearer and easier to use with examples. Schools may use paper VJF, electronic HCOM VJF or both. In all cases, schools and units must keep required back-up documentation.

• Tax Exemption – clarified use of tax exemptions and booking ineligible taxes to 8450

• Updated Procure-to-Pay Manual – updated manual will include guidelines regarding the formal bid process and contract template language.

• Frequently Asked Questions (FAQ) – most commonly asked questions (i.e., are shipping charges included in the threshold levels, is the threshold based on PO or line item, etc.)

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Key Elements of Procurement Policy and Related ResourcesProcurement Policy – New Policy effective 7/1/18

• Conflict of Interest Standards• Special Purchases• Use of Harvard Preferred Vendors• Tax Exemptions• Required Practices for Purchases with Federal Funds, Including

• Vendor Justification Form (VJF)• Debarment Form

• Best Practices for all Purchases, Including • Small and Small Disadvantaged Business• Wasteful or Duplicate Purchases• Record Retention

Other Procurement Related Policy Reminders & Updates• ROPPA• Upcoming Changes to Property, Plant and Equipment Policy and Software Policy

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Conflict of Interest StandardsConflicts of Interest in ProcurementAll individuals conducting purchasing activities on behalf of Harvard University must avoid conflicts of interest in their purchasing decisions. The Procurement Policy outlines specific conflicts of interest.

Included in the Conflicts of Interest are:• Avoid the intent, appearance, and conduct of unethical or compromising practice in relationships, actions, and

communications.• Follow the applicable laws, policies and procedures.• Refrain from any private business or professional activity that would create a conflict between personal interests and the

interests of Harvard University.• Avoid procuring goods or services from a vendor who participated in advising, developing or drafting the request for proposals

or bidding criteria. • Refrain from soliciting or accepting money or prejudicial discounts (e.g., acceptance of material gifts or entertainment, or

favors or services from present or potential suppliers).• Handle information of a confidential or proprietary nature appropriately.• Promote positive supplier relationships.• Do not use Harvard University systems or funds for personal purchases or use Harvard-negotiated agreements for personal

benefit.

If an individual believes that they may have a conflict of interest, they must promptly and fully disclose the conflict to their supervisor and suspend participation on the purchase until conflict question has been resolved. The supervisor is responsible for documenting the conflict and elevating it to the school Financial Dean’s office or other office as appropriate

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Special PurchasesCertain purchases carry additional restrictions per Harvard policy. Please refer to University and local tub policies and procedures for the following purchases:

• Air Emission Source Compliance (prior to buying equipment)• Alcohol and Tobacco (purchases of alcohol and tobacco may be subject to taxes)• Animals – Live• Chemicals Facility Anti-Terrorism Standards Chemicals of Interest• Controlled Substances• Employee and Nonemployee Gifts and Celebratory Events (e.g., thresholds, gift certificates)• Firearms – Prohibited by Massachusetts General Law• Human Subjects (IRB approval and processing payments)• Independent Contractor Policy• Radioactive Materials• Select Agents• University Purchasing Card Policy• University Staff Mobile Phone Policy• University Travel Policy (e.g., first class and business class, meal thresholds, etc.)

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Use Preferred Vendors When PossibleHarvard Preferred Vendors have been selected through a formal sourcing process resulting in a contract and/or pricing agreement with negotiated pricing, terms and conditions favorable to Harvard.• Strategic Procurement (SP) has identified 42 vendors which meet Preferred Vendor requirements.• SP is the only office which may classify a vendor as a Preferred Vendor. If a school or unit has negotiated an

agreement with a vendor/contractor and they meet certain requirements, they may qualify as a Preferred Vendor.

• Using Preferred Vendors meets the Uniform Guidance requirements for small purchases (purchases between $10,000-$250,000).

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Purchase Type List May be Found at:Travel All vendors on Harvard’s Travel and Reimbursements site are Preferred

VendorsGoods and Services

A complete list of Preferred Vendors may be found at Strategic ProcurementNote: Harvard may access additional competitively bid contracts conducted by different group purchasing organizations (GPO) and consortia – some examples are E & I Cooperative Services, Mass Higher Education Consortium (MHEC) and U.S. Communities. Contact Strategic Procurement for more information.

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Tax ExemptionsThe University, as a nonprofit educational institution, is exempt from sales and use tax in Massachusetts and in many other states. Since sales tax is generally imposed when goods are purchased and consumed in the same state, sales tax does not apply when goods are purchased from an out-of-state vendor and shipped to Harvard.• In no case may Harvard’s tax exempt certificates be used for personal purchases.• When using federal, cost-share or transferring expenses onto federal or cost-share funds, If the purchaser fails

to use Harvard’s tax exempt status where allowed, the taxes may not be charged to the federal award. The taxes must be charged to non-federal funds using object code 8450. If Harvard is required to pay the taxes then the tax may be charged to the federal award.

• Note: Resale of items may require payments of Unrelated Business Income Tax (UBIT) or sales tax: Contact your local Finance Office for additional guidance.

• See Strategic Procurement Tax Forms for more information.

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Procurement Policy – Federal FundsWhen directly charging federal funds (fund ranges 100000-199999) or cost-share commitments or intending to journal expenses to federal funds, follow these UG expectations:• Encourage competition whenever possible.• Consider small and disadvantaged businesses.

• For each contract of $700,000 and over, a Subcontracting Plan for Small and Small Disadvantaged Businesses is required, unless other arrangements are made during contract award.

• Avoid duplication, where possible, consider lease versus buy, use surplus• There may be opportunities to take advantage of local resources and other Harvard resources including:

VWR Biology Stockroom, Harvard Events Management, FAS Research Computing, Center for Nanoscale Systems, Small Molecule Mass Spectrometry, Electron Microscopy – Longwood Area, Harvard Libraries Reproductions, HUIT Vendor Management Office

• Follow contract threshold and processes requirements.• Follow contract threshold and process requirements including maintaining all back-up documentation.

• Vendor Justification Form (VJF) – Required for any purchase over $10,000 made with federal funds or cost-share funds.

• Suspension & Debarment Form – Required with payment request for any purchase ≥ $25,000 made with federal funds or cost-share funds.

• Retain records as appropriate - typically, federal sponsored records must be kept for seven years after the final financial close on the award; some sponsors may require longer retention periods.

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Thresholds for Federal FundsThresholds and processes for each procurement method

• Maintain documentation, work with responsible contractors• Vendor Justification Form (VJF) – Required for any purchase over $10,000 made with federal funds or cost-share funds.• Suspension & Debarment Form – Required with payment request for any purchase ≥ $25,000 made with federal funds or cost-share funds.

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Procurement Requirement Threshold Documentation Required for Federal, Cost-Share, or Expenses moved to Federal Funds

Micro Purchase ≤$10K • No additional documentation requirements.• Use of Preferred Vendors encouraged.

Small Purchases >$10K-250K • Two or more quotes (if Harvard Preferred Vendor isn’t used)• Completed Electronic HCOM VJF• Suspension & debarment form (if ≥$25K)

Large Purchases >$250K • Formal bid process (posting, review, selection)• Sealed (construction) or Competitive Bids

• Completed VJF• Documentation on how/why vendor selected• Cost and Price Analysis

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HCOM Electronic VJF

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Triggered by the total amount of sponsored funding on a PO (not by line item).

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HCOM Electronic VJF and Debarment

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Information Pop-Up Error code when purchasing on federal funds over $4,999.99 with no justification reason entered.

Message if purchase >$25,000

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Summary of Purchasing Procedures for Standard Purchases(Excluding Special Purchases)

Schools or Units may have more restrictive requirements; contact your Finance Office for guidance.

ThresholdREQUIRED for Federal Funds (100000-199999)

Cost-Share Funds or Expenses Journaled onto Federal FundsBEST PRACTICE

for Non-Federal Funds (all other funds)$0-$10,000

Micro Purchase

• University recognized Preferred Vendors are encouraged• Schools are responsible for timely removal of expenses from federal awards if a supplier is

identified as debarred (cost-share funding also applies). Download and save a pdf showing no active exclusions from the System for Award Management (SAM)

• Purchases should be distributed equitably among qualified suppliers to the extent practical

• No self-approval is allowed on federal funds

• University recognized Preferred Vendors are encouraged• Purchases should be distributed equitably among qualified suppliers

to the extent practical• Self-approval for purchase up to $2,499.99 is allowed, but not

recommended

>$10,000-$250,000

Small Purchase

Simplified Acquisition Threshold (SAT)

• University recognized Preferred Vendors are encouraged• Electronic VJF must be completed in HCOM (paper VJF may be completed at the school’s

discretion),o Non-Preferred Vendors require a minimum of 2 but recommend 3 written quotes (email

is allowable)o Back-up documentation regarding vendor selection justification, (quotes, explanation

around sole source vendors etc.) must be kept on file• Purchases should be distributed equitably among qualified suppliers to the extent

practical• For purchases ≥ $25,000: before Harvard makes a purchase commitment purchaser must

obtain a signed Debarment Certification Form or include debarment language in the contract.

• University recognized Preferred Vendors are encouraged, OR • Should obtain a minimum of 2 but recommend 3 written quotes

(email is allowable)• Purchases should be distributed equitably among qualified suppliers

to the extent practical• For purchases ≥ $25,000: before Harvard makes a purchase

commitment purchaser should obtain a signed Debarment Certification Form or have debarment language included in a contract or keep on file a pdf showing no active exclusions from the System for Award Management (SAM).

>>$250,000-$699,999 • Same as above, AND• Must conduct a formal written bid process,• If a competitive bid, vendor selection should be awarded to the bidder whose proposal is

most advantageous to the program with price being one of the factors. Sealed bids must select the vendor that meets the requirements & has the lowest bid

• Purchaser must complete sections A & C on the VJF.• Payments ≥ $250,000 require electronic approval of Tub Financial Dean or Designee and

Strategic Procurement

• Same as above, AND• Should obtain a minimum of 2 but recommend 3 written quotes.• Payments ≥ $250,000 require electronic approval of Tub Financial

Dean or Designee and Strategic Procurement

≥$700,000+ ($1.5M for construction) • Same as above, AND• Purchaser must develop minority vending goals & complete Individual Subcontractor

Reports (ISR) & Summary Subcontract Reports (SSR) & submit subcontracting plan if required by RFP

• Same as above

HARVARDFinancial Administration

Procurement Policy – Non-Federal FundsWhen using non-federal funds, these UG guidelines should be applied as best-practices:

• Encourage competition whenever possible.

• Consider small and disadvantaged businesses.

• Avoid duplication, consider lease versus buy, use surplus

• See if there are opportunities to take advantage of local resources and other Harvard resources. See examples under federal fund guidelines.

• Follow best practices for contract threshold and processes requirements.

• Retain records as appropriate - departments are encouraged to follow the same records retention procedures as for purchases with federally-sponsored funds.

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Procurement Policy – Other Best Practices for All Funds• If retaining an individual (incorporated or not) for services, be sure the individual is properly classified as either

an employee or an independent contractor before the work is started. • Use a contract template or template language found on the OGC or Strategic Procurement’s website. • Follow your school or unit’s contract signature hierarchy.• Follow HCOM’s approval hierarchy

Harvard strongly recommends that an Approver should not approve transactions for his or her direct supervisor. The hierarchy should be part of an approval process that reasonably ensures separation of duties, the protection of University assets and a thorough and disinterested review. While HCOM allows self-approval up to $2,499.99 on non-federal purchases, Harvard does not recommend self-approval as a routine practice. HCOM does not allow self-approval for federal funds.

• Follow opportunities to use diverse vendorsHarvard purchasers are encouraged to create a climate of inclusion and support of diverse and disadvantaged businesses. This category includes: disadvantaged business, minority owned business, women owned, HUBZone, small business, veteran-owned and service-disabled veteran-owned businesses. Resources for minority and women owned businesses and small business enterprises may be found at the Supplier Diversity Programs website.

• Environmentally preferred productsPurchasers are encouraged to reduce the environmental impact of purchasing decisions and ensure they are aligned with University-wide sustainability goals, including the Greenhouse Gas Reduction Goal, by buying goods and services from manufacturers and suppliers committed to protecting the environment. See Sustainable Purchasing Guidelines

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Responsibilities of Purchasers, Preparers and Approvers (ROPPA)

• Individuals who spend funds or who prepare or authorize expenditures on behalf of the University have a stewardship responsibility to ensure those transactions are reasonable, appropriate, and have a proper University business purpose.

• These responsibilities apply to users of all financial systems and mechanisms where money leaves the University (HCOM, PCard, Corporate Card, Concur, etc.)

• All new staff and postdocs who are users of HCOM, BCD Travel Authorization Forms, and PCard are required to take an on-line ROPPA training course.

• See the ROPPA Policy

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Responsibilities by Role

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Other Policy Updates

Effective 7/1/18Procurement Policy – NewFinancial Management of Property, Plant and Equipment – See highlights on next few pages

Coming Later This YearSoftware Policy – Previously the Accounting for Internally-Developed Software Policy – See highlights on next few pages

Independent Contractor - Updated

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Financial Management of Property, Plant and EquipmentHighlights

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Category Current New EffectFixed Equipment Silent, but in practice the equipment is

added to a project in CAPS.Capitalize Fixed Equipment over $100K without going through CAPS.

None, just clarifications, and ease of process for tubs.

Land Improvements There is an inconsistency between the main policy and the appendices as to whether or not to depreciate land improvements

Clarify that land improvements are depreciable. Will create minor categories for land improvements and assign useful lives to each of the minor categories

Depreciation expense, in the case that land improvements were not previously being depreciated. Land Improvements are depreciated over 35 years.

Leasehold Improvements Useful life is 35 years for leasehold improvements

Useful life is remaining life of the external lease plus any extensions, or 35 years, whichever is shorter

Accelerated depreciation

Silent on treatment of leasehold improvements when a lease is transferred internally

Provide guidance on transfers of leasehold improvements to one Harvard entity to another upon transfer of a lease. If the new entity takes the space as is, the leasehold improvement asset is transferred at NBV to new entity. If new entity re-purposes the space, then the original entity takes an impairment for the NBV.

No impact, just clarification

Fabrications Vague on Placed in Service expectations, leaves a lot up to interpretation, which has led to long outstanding WIP. Review of WIP projects that have not had activity in the prior 6 months.

Defines Flow chart for deciding if a Fabrication is capitalizable vs expense, with main attributes, being expected placed in service date, and deliverable on contract. Review all of WIP every 6 months to confirm all projects are still active.

Will Put assets into service sooner, and in more in line with the use of the asset

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Financial Management of Property, Plant and EquipmentHighlights (continued)

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Category Current New EffectIT & AV Useful Lives Depreciating 15 years More options for useful life to better align with

this equipment's life.15 years for IT5 years AV

Depreciation will be accelerated for much of the University's IT and AV equipment

Carpentry/Painting/Maintenance over $100K

Silent, but in practice these costs are added to a project in CAPS.

Provide guidance on capitalization of projects for carpentry, painting and landscaping >=$100k

None, just clarifications, and ease of process for tubs

Partial Place in Service Lack of information in the current policy, and only completed yearly.

Increased and clarified the language, and the process, and encourage review quarterly

No financial effect in total, but more align the deprecation in the periods rather than a large catch-up when the entire asset is placed in service

Impairment/Disposal for all assets

Vague language on when to impair or dispose. Lack of information on equipment impairments. Also the terms used by Oracle were not the same as used by the policy.

Clarified language on partial and full impairments and when it remains in or is removed from Oracle;Expanded language on disposition of equipment including sale of equipment. Also created a standard disposition form to be completed and scanned to Oracle Assets.

None, just clarification

Upgrades, Enhancement for Equipment

No Threshold $5,000 Threshold, to match the capitalization policy

All upgrades not over $5,000 will be expensed as incurred

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Financial Management of Property, Plant and EquipmentHighlights (continued)

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Category Current New EffectMulti-Component Equipment

Silent on the timing of the purchases for multi-equipment

Point in time, all items purchased at the same time, and prior to being placed in service.

Should have none, as the additional purchases could be treated as upgrades, to the extent the meet the upgrade requirements

Inventory Vague language on the physical inventory process

Threshold of $5k for all areas with federal sponsored research.

Areas with federal research funds must complete inventories for all equipment of $5K or greater purchased after 7/1/14

Appendix A Specific to federally funded research Includes any research area of a school Will require more areas to review and follow appendix A

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Software Policy HighlightsCategory Current New Effect Dollar ImpactScope of the Policy Policy focused on internally

developed software onlyPolicy now covers all software, including internally developed and SaaS solutions, and cloud computing

Clarification around what costs are capitalized and what are expensed within the full realm of software

n/a

Capitalization requirements

$ threshold - Must be capitalized if >$1M in costs, but schools may choose to capitalize if it falls in the range of $250,000-$999,999

Must be capitalized if $500,000+ in costs. Anything under this threshold must be expensed.

All software $500k+ will be capitalized, as opposed to option from $500K - $1M.

Software over $500K will be capitalization that previously might have been expensed (Tub option). No retroactive impact.

Useful life - Capitalized only if the software has an estimated useful life of 3 years or more

Software must be capitalized if it has an estimated useful life of at least 1 year, which matches the Financial Management of Property, Plant and Equipment Policy.

All software with a useful life of 1 year+ will be capitalized

Software will qualify for capitalization that previously would have been expensed. No retroactive impact.

SaaS & Cloud Computing capitalization

Silent, not addressed in current policy

All SaaS and cloud computing software in order to be capitalized have to pass 2 tests: (a) Have contractual right to take possession of the software without significant penalty (b) It is feasible to run the software on its own hardware

Some SaaS and cloud computing software will be capitalized and depreciated over the life of the contract

Additional capitalization as more SaaS and cloud computing software packages are purchased

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Software Policy Highlights (continued)

Category Current New Effect Dollar ImpactUseful life Software was assigned

a 4 year useful lifeOption to enter the appropriate useful life. It is still recommended that a 4 year useful life is generally appropriate, but there other factors should be considered when assigning a useful life, specifically around the SaaS solutions.

More flexibility in choosing an appropriate useful life for software

Potential to accelerate or decelerate depreciation expense on the assets currently being depreciated.

Purchased software Silent on purchased software

References the capitalization requirements in the Financial Management of Property, Plant and Equipment Policy. Details out specifics on what software/license costs should be capitalized vs expensed

Increased clarity Limited impact - most tubs were following the existing capitalization requirements for equipment already

Provided Guidance on coding for SaaS solutions that need to be expensed, which did not pass the test for capitalization or monthly usage fee

Silent, not addressed in current policy

Provided definition, and use cases for object codes 8071, 8074, 8075, 8076

Increased clarity n/a

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