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6.1.13. - Page 9 based on size of purchase. For smaller purchases of commodity items where competition already exists between vendors (e.g., paper products and other office supplies), the Cities allow for purchases on the open market without multiple bids. However, for larger purchases where generally less competition exists between vendors, stricter bidding requirements apply. Competitive bidding requirements range from requiring informal bids and formal bids to issuing a Request for Proposals. Departmental budget controls are another regulatory check on decentralized purchase systems. 27 Budget controls require city finance officials to confirm that any proposed purchase fits within a department's budget prior to authorizing a purchase order. As a result of these controls, a department proposing to make a substantial purchase is incentivized to seek the lowest responsible price. 28 DISCUSSION The Limitations of Decentralized Purchasing Systems While the Cities' decentralized purchasing systems have technically achieved the goals of obtaining fair market prices while minimizing labor costs, such decentralized purchasing approaches are not designed to use the Cities' collective marketing power, together with that of the County,29 to obtain optimum prices and terms. In modern supply chains, few goods and services have fixed prices. Rather, prices are generally negotiable, with outcomes contingent on factors like the quantity being purchased, the potential for future sales, the present level of market demand, the vendor's available stock, and profit margins .30 Often, the given market price—the price quoted on a store shelf or business' website—does not represent this variance. 31 In the private sector, dedicated buyers with deep expertise and experience take advantage of that knowledge and their firms' market power to negotiate lower prices. 32 Depending on the particular good, buyers can often negotiate prices 30 to 40 percent below "market." For some goods, like software, savings upwards of 50 percent are attainable. 33 21 Grand Jury Review of City Procurement Documents. 28 Interviews with City Finance Officials. 29 Market Power represents a firm's or, in this case, city's capacity to negotiate prices better than the going market price. Market power can be exerted through negotiation, buying in bulk, buying "higher" (e.g. buying from a wholesaler) in the supply chain, etc. 3' Henry Hazlitt, "How Should Prices Be Determined" Foundation for Economic Education, February 1, 1967. Accessed On: June 6, 2012 httr)s://fee.orv/articles/how-should-Drices-be-determined. 31 Krishna, Aradhna, Richard Briesch, Donald Lehmann, and Hong Yuan (2002), "A Meta -Analysis of the Impact of Price Presentation on Perceived Savings." Journal of Retailing 78 (2), 101-18. httDs://www8.2sb.columbia.edu/researcharchive/articles/969. 32 Severin Borenstein "Understanding Competitive Pricing and Market Power in Wholesale Electricity Markets" The Electricity Journal July 2000: 50. <http://faculty.haas.berkeley.edu/borenste/mba2l2/Elecjo00mktPower.pdf> 33 Seeking Alpha Editorial Board "Chart: Software Companies - Gross Profit Margins" seekingalpha.com May 7, 2006. Accessed On: June 12, 2018 https:Hseekinaalpha.com/article/10166-chart-software-companies-gross-profit- margins. 2017-2018 San Mateo County Civil Grand Jury 6