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20-0701_HDL COMPANIES_Professional Services AgreementCITY OF SAN JUAN CAPISTRANO PROFESSIONAL SERVICES AGREEMENT This Agreement is made and entered into as of July 1, 2020, by and between the City of San Juan Capistrano, a public agency organized and operating under the laws of the State of California with its principal place of business at 32400 Paseo Adelanto, San Juan Capistrano, CA 92675 ("City"), and HdL Companies, a Corporation, with its principal place of business at 120 S. State College Blvd., Ste 200, Brea, CA 92821 (hereinafter referred to as "Consultant"). City and Consultant are sometimes individually referred to as "Party" and collectively as "Parties" in this Agreement. RECITALS A. City is a public agency of the State of California and is in need of the following professional services: Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the Comprehensive Annual Financial Report (CAFR) (hereinafter referred to as "the Project"). B. Consultant is duly licensed and has the necessary qualifications to provide such services. C. The Parties desire by this Agreement to establish the terms for City to retain Consultant to provide the services described herein. AGREEMENT NOW, THEREFORE, IT IS AGREED AS FOLLOWS: Services. Consultant shall provide the City with the services described in the Scope of Services attached hereto as Exhibit "A." 2. Compensation. a. Subject to paragraph 2(b) below, the City shall pay for such services in accordance with the Schedule of Charges set forth in Exhibit "B." b. In no event shall the total amount paid for services rendered by Consultant under this Agreement throughout the Term exceed the sum of $ 45.000.00. This amount is to cover all printing and related costs, and the City will not pay any additional fees for printing expenses. Periodic payments shall be made within 30 days of receipt of an invoice which includes a detailed description of the work performed. 3. Additional Work. If changes in the work seem merited by Consultant or the City, and informal consultations with the other party indicate that a change is warranted, it shall be processed in the following manner: a letter outlining the changes shall be forwarded to the City by Consultant with a statement of estimated changes in fee or time schedule. An amendment to this Agreement shall be prepared by the City and executed by both Parties before performance of such services, or 61147.02 1 00\10974777.3 Updated March 2019 the City will not be required to pay for the changes in the scope of work. Such amendment shall not render ineffective or invalidate unaffected portions of this Agreement. 4. Maintenance of Records. Books, documents, papers, accounting records, and other evidence pertaining to costs incurred shall be maintained by Consultant and made available at all reasonable times during the contract period and for four (4) years from the date of final payment under the contract for inspection by City. 5. Term The term of this Agreement shall be from July 1, 2020 to June 30, 2025, unless earlier terminated as provided herein. The Parties may, by mutual, written consent, extend the term of this Agreement if necessary to complete the Project. Consultant shall perform its services in a prompt and timely manner within the term of this Agreement and shall commence performance upon receipt of written notice from the City to proceed ("Notice to Proceed"). The Notice to Proceed shall set forth the date of commencement of work. 6. Delays in Performance. a. Neither City nor Consultant shall be considered in default of this Agreement for delays in performance caused by circumstances beyond the reasonable control of the non- performing party. For purposes of this Agreement, such circumstances include but are not limited to, abnormal weather conditions; floods; earthquakes; fire; epidemics; war; riots and other civil disturbances; strikes, lockouts, work slowdowns, and other labor disturbances; sabotage or judicial restraint. b. Should such circumstances occur, the non-performing party shall, within a reasonable time of being prevented from performing, give written notice to the other party describing the circumstances preventing continued performance and the efforts being made to resume performance of this Agreement. 7. Compliance with Law. a. Consultant shall comply with all applicable laws, ordinances, codes and regulations of the federal, state and local government, including Cal/OSHA requirements. b. If required, Consultant shall assist the City, as requested, in obtaining and maintaining all permits required of Consultant by federal, state and local regulatory agencies. C. If applicable, Consultant is responsible for all costs of clean up and/ or removal of hazardous and toxic substances spilled as a result of his or her services or operations performed under this Agreement. 8. Standard of Care Consultant's services will be performed in accordance with generally accepted professional practices and principles and in a manner consistent with the level of care and skill ordinarily exercised by members of the profession currently practicing under similar conditions. 2 61147.02100110974777.3 Updated Manch 2019 9. Assignment and Subconsultant Consultant shall not assign, sublet, or transfer this Agreement or any rights under or interest in this Agreement without the written consent of the City, which may be withheld for any reason. Any attempt to so assign or so transfer without such consent shall be void and without legal effect and shall constitute grounds for termination. Subcontracts, if any, shall contain a provision making them subject to all provisions stipulated in this Agreement. Nothing contained herein shall prevent Consultant from employing independent associates, and subconsultants as Consultant may deem appropriate to assist in the performance of services hereunder. 10. Independent Contractor Consultant is retained as an independent contractor and is not an employee of City. No employee or agent of Consultant shall become an employee of City. The work to be performed shall be in accordance with the work described in this Agreement, subject to such directions and amendments from City as herein provided. 11. Insurance. Consultant shall not commence work for the City until it has provided evidence satisfactory to the City it has secured all insurance required under this section. In addition, Consultant shall not allow any subcontractor to commence work on any subcontract until it has secured all insurance required under this section. a. Commercial General Liability (i) The Consultant shall take out and maintain, during the performance of all work under this Agreement, in amounts not less than specified herein, Commercial General Liability Insurance, in a form and with insurance companies acceptable to the City. (ii) Coverage for Commercial General Liability insurance shall be at least as broad as the following: Insurance Services Office Commercial General Liability coverage (Occurrence Form CG 00 01) or exact equivalent. (iii) Commercial General Liability Insurance must include coverage for the following: (1) Bodily Injury and Property Damage (2) Personal Injury/Advertising Injury (3) Premises/Operations Liability (4) Products/Completed Operations Liability (5) Aggregate Limits that Apply per Project (6) Explosion, Collapse and Underground (UCX) exclusion deleted (7) Contractual Liability with respect to this Agreement (8) Property Damage (9) Independent Consultants Coverage (iv) The policy shall contain no endorsements or provisions limiting coverage for (1) contractual liability; (2) cross liability exclusion for claims or suits by one insured against another; (3) products/completed operations liability; or (4) contain any other exclusion contrary to the Agreement. 3 61147.02100\10974777.3 Updated March 2019 (v) The policy shall give City, its officials, officers, employees, agents and City designated volunteers additional insured status using ISO endorsement forms CG 20 10 10 01 and 20 3710 01, or endorsements providing the exact same coverage. (vi) The general liability program may utilize either deductibles or provide coverage excess of a self-insured retention, subject to written approval by the City, and provided that such deductibles shall not apply to the City as an additional insured. b. Automobile Liability (i) At all times during the performance of the work under this Agreement, the Consultant shall maintain Automobile Liability Insurance for bodily injury and property damage including coverage for owned, non -owned and hired vehicles, in a form and with insurance companies acceptable to the City. (ii) Coverage for automobile liability insurance shall be at least as broad as Insurance Services Office Form Number CA 00 01 covering automobile liability (Coverage Symbol 1, any auto). (iii) The policy shall give City, its officials, officers, employees, agents and City designated volunteers additional insured status. (iv) Subject to written approval by the City, the automobile liability program may utilize deductibles, provided that such deductibles shall not apply to the City as an additional insured, but not a self-insured retention. C. Workers' Compensation/Employer's Liability (i) Consultant certifies that he/she is aware of the provisions of Section 3700 of the California Labor Code which requires every employer to be insured against liability for workers' compensation or to undertake self-insurance in accordance with the provisions of that code, and he/she will comply with such provisions before commencing work under this Agreement. (ii) To the extent Consultant has employees at any time during the term of this Agreement, at all times during the performance of the work under this Agreement, the Consultant shall maintain full compensation insurance for all persons employed directly by him/her to carry out the work contemplated under this Agreement, all in accordance with the "Workers' Compensation and Insurance Act," Division IV of the Labor Code of the State of California and any acts amendatory thereof, and Employer's Liability Coverage in amounts indicated herein. Consultant shall require all subconsultants to obtain and maintain, for the period required by this Agreement, workers' compensation coverage of the same type and limits as specified in this section. d. Professional Liability (Errors and Omissions) At all times during the performance of the work under this Agreement the Consultant shall maintain professional liability or Errors and Omissions insurance appropriate to its profession, in a form and with insurance companies acceptable to the City and in an amount indicated herein. This insurance shall be endorsed to include contractual liability applicable to this Agreement and shall be written on a policy form coverage specifically designed to protect against acts, errors or 4 61147.02100\ 10974777.3 Updatcd March 2019 omissions of the Consultant. "Covered Professional Services" as designated in the policy must specifically include work performed under this Agreement. The policy must "pay on behalf of" the insured and must include a provision establishing the insurer's duty to defend. e. Minimum Policy Limits Required (i) The following insurance limits are required for the Agreement: Combined Single Limit Commercial General Liability $1,000,000 per occurrence/ $2,000,000 aggregate for bodily injury, personal injury, and property damage Automobile Liability $1,000,000 combined single limit Employer's Liability $1,000,000 per accident or disease Professional Liability $1,000,000 per claim and aggregate (errors and omissions) (ii) Defense costs shall be payable in addition to the limits. (iii) Requirements of specific coverage or limits contained in this section are not intended as a limitation on coverage, limits, or other requirement, or a waiver of any coverage normally provided by any insurance. Any available coverage shall be provided to the parties required to be named as Additional Insured pursuant to this Agreement. f. Evidence Required Prior to execution of the Agreement, the Consultant shall file with the City evidence of insurance from an insurer or insurers certifying to the coverage of all insurance required herein. Such evidence shall include original copies of the ISO CG 00 01 (or insurer's equivalent) signed by the insurer's representative and Certificate of Insurance (Acord Form 25-S or equivalent), together with required endorsements. All evidence of insurance shall be signed by a properly authorized officer, agent, or qualified representative of the insurer and shall certify the names of the insured, any additional insureds, where appropriate, the type and amount of the insurance, the location and operations to which the insurance applies, and the expiration date of such insurance. g. Policy Provisions Required (i) Consultant shall provide the City at least thirty (30) days prior written notice of cancellation of any policy required by this Agreement, except that the Consultant shall provide at least ten (10) days prior written notice of cancellation of any such policy due to non-payment of premium. If any of the required coverage is cancelled or expires during the term of this Agreement, the Consultant shall deliver renewal certificate(s) including the General Liability Additional Insured Endorsement to the City at least ten (10) days prior to the effective date of cancellation or expiration. 5 61147.02100\ 10974777.3 Updated March 2019 (ii) The Commercial General Liability Policy and Automobile Policy shall each contain a provision stating that Consultant's policy is primary insurance and that any insurance, self-insurance or other coverage maintained by the City or any named insureds shall not be called upon to contribute to any loss. (iii) The retroactive date (if any) of each policy is to be no later than the effective date of this Agreement. Consultant shall maintain such coverage continuously for a period of at least three years after the completion of the work under this Agreement. Consultant shall purchase a one (1) year extended reporting period A) if the retroactive date is advanced past the effective date of this Agreement; B) if the policy is cancelled or not renewed; or C) if the policy is replaced by another claims -made policy with a retroactive date subsequent to the effective date of this Agreement. (iv) All required insurance coverages, except for the professional liability coverage, shall contain or be endorsed to provide a waiver of subrogation in favor of the City, its officials, officers, employees, agents, and volunteers or shall specifically allow Consultant or others providing insurance evidence in compliance with these specifications to waive their right of recovery prior to a loss. Consultant hereby waives its own right of recovery against City, and shall require similar written express waivers and insurance clauses from each of its subconsultants. (v) The limits set forth herein shall apply separately to each insured against whom claims are made or suits are brought, except with respect to the limits of liability. Further the limits set forth herein shall not be construed to relieve the Consultant from liability in excess of such coverage, nor shall it limit the Consultant's indemnification obligations to the City and shall not preclude the City from taking such other actions available to the City under other provisions of the Agreement or law. h. Qualifying Insurers (i) All policies required shall be issued by acceptable insurance companies, as determined by the City, which satisfy the following minimum requirements: (1) Each such policy shall be from a company or companies with a current A.M. Best's rating of no less than A:VII and admitted to transact in the business of insurance in the State of California, or otherwise allowed to place insurance through surplus line brokers under applicable provisions of the California Insurance Code or any federal law. Additional Insurance Provisions (i) The foregoing requirements as to the types and limits of insurance coverage to be maintained by Consultant, and any approval of said insurance by the City, is not intended to and shall not in any manner limit or qualify the liabilities and obligations otherwise assumed by the Consultant pursuant to this Agreement, including but not limited to, the provisions concerning indemnification. (ii) If at any time during the life of the Agreement, any policy of insurance required under this Agreement does not comply with these specifications or is canceled and not replaced, City has the right but not the duty to obtain the insurance it deems necessary and any premium paid by City will be promptly reimbursed by Consultant or City will 6 61147.02100\ 10974777.3 Updated March 2019 withhold amounts sufficient to pay premium from Consultant payments. In the alternative, City may cancel this Agreement. (iii) The City may require the Consultant to provide complete copies of all insurance policies in effect for the duration of the Project. (iv) Neither the City nor any of its officials, officers, employees, agents or volunteers shall be personally responsible for any liability arising under or by virtue of this Agreement. j. Subconsultant Insurance Requirements. Consultant shall not allow any subcontractors or subconsultants to commence work on any subcontract until they have provided evidence satisfactory to the City that they have secured all insurance required under this section. Policies of commercial general liability insurance provided by such subcontractors or subconsultants shall be endorsed to name the City as an additional insured using ISO form CG 20 38 0413 or an endorsement providing the exact same coverage. If requested by Consultant, City may approve different scopes or minimum limits of insurance for particular subcontractors or subconsultants. 12. Indemnification. a. To the fullest extent permitted by law, Consultant shall defend (with counsel of City's choosing), indemnify and hold the City, its officials, officers, employees, volunteers, and agents free and harmless from any and all claims, demands, causes of action, costs, expenses, liability, loss, damage or injury of any kind, in law or equity, to property or persons, including wrongful death, in any manner arising out of, pertaining to, or incident to any acts, errors or omissions, or willful misconduct of Consultant, its officials, officers, employees, subcontractors, consultants or agents in connection with the performance of the Consultant's services, the Project or this Agreement, including without limitation the payment of all damages, expert witness fees and attorney's fees and other related costs and expenses. Consultant's obligation to indemnify shall not be restricted to insurance proceeds, if any, received by Consultant, the City, its officials, officers, employees, agents, or volunteers. b. If Consultant's obligation to defend, indemnify, and/or hold harmless arises out of Consultant's performance of "design professional" services (as that term is defined under Civil Code section 2782.8), then, and only to the extent required by Civil Code section 2782.8, which is fully incorporated herein, Consultant's indemnification obligation shall be limited to claims that arise out of, pertain to, or relate to the negligence, recklessness, or willful misconduct of the Consultant, and, upon Consultant obtaining a final adjudication by a court of competent jurisdiction, Consultant's liability for such claim, including the cost to defend, shall not exceed the Consultant's proportionate percentage of fault. 13. California Labor Code Requirements. a. Consultant is aware of the requirements of California Labor Code Sections 1720 et seq. and 1770 et seq., which require the payment of prevailing wage rates and the performance of other requirements on certain "public works" and "maintenance" projects ("Prevailing Wage Laws"). If the services are being performed as part of an applicable "public works" or "maintenance" project, as defined by the Prevailing Wage Laws, and if the total compensation is $1,000 or more, Consultant agrees to fully comply with such Prevailing Wage Laws. Consultant shall defend, indemnify and hold the City, its officials, officers, employees and 7 61147.02100\ 10974777.3 Updated March 2019 agents free and harmless from any claims, liabilities, costs, penalties or interest arising out of any failure or alleged failure to comply with the Prevailing Wage Laws. It shall be mandatory upon the Consultant and all subconsultants to comply with all California Labor Code provisions, which include but are not limited to prevailing wages (Labor Code Sections 1771, 1774 and 1775), employment of apprentices (Labor Code Section 1777.5), certified payroll records (Labor Code Sections 1771.4 and 1776), hours of labor (Labor Code Sections 1813 and 1815) and debarment of contractors and subcontractors (Labor Code Section 1777.1). The requirement to submit certified payroll records directly to the Labor Commissioner under Labor Code section 1771.4 shall not apply to work performed on a public works project that is exempt pursuant to the small project exemption specified in Labor Code Section 1771.4. b. If the services are being performed as part of an applicable "public works" or "maintenance" project, then pursuant to Labor Code Sections 1725.5 and 1771.1, the Consultant and all subconsultants performing such services must be registered with the Department of Industrial Relations. Consultant shall maintain registration for the duration of the Project and require the same of any subconsultants, as applicable. Notwithstanding the foregoing, the contractor registration requirements mandated by Labor Code Sections 1725.5 and 1771.1 shall not apply to work performed on a public works project that is exempt pursuant to the small project exemption specified in Labor Code Sections 1725.5 and 1771.1. C. This Agreement may also be subject to compliance monitoring and enforcement by the Department of Industrial Relations. It shall be Consultant's sole responsibility to comply with all applicable registration and labor compliance requirements. Any stop orders issued by the Department of Industrial Relations against Consultant or any subcontractor that affect Consultant's performance of services, including any delay, shall be Consultant's sole responsibility. Any delay arising out of or resulting from such stop orders shall be considered Consultant caused delay and shall not be compensable by the City. Consultant shall defend, indemnify and hold the City, its officials, officers, employees and agents free and harmless from any claim or liability arising out of stop orders issued by the Department of Industrial Relations against Consultant or any subcontractor. 14. Verification of Employment Eligibility. By executing this Agreement, Consultant verifies that it fully complies with all requirements and restrictions of state and federal law respecting the employment of undocumented aliens, including, but not limited to, the Immigration Reform and Control Act of 1986, as may be amended from time to time, and shall require all subconsultants and sub-subconsultants to comply with the same. 15. Reserved. 16. Laws and Venue. This Agreement shall be interpreted in accordance with the laws of the State of California. If any action is brought to interpret or enforce any term of this Agreement, the action shall be brought in a state or federal court situated in the County of Orange, State of California. 17 Termination or Abandonment a. City has the right to terminate or abandon any portion or all of the work under this Agreement by giving ten (10) calendar days written notice to Consultant. In such event, 8 61147.021001 10974777.3 Updated March 2019 City shall be immediately given title and possession to all original field notes, drawings and specifications, written reports and other documents produced or developed for that portion of the work completed and/or being abandoned. City shall pay Consultant the reasonable value of services rendered for any portion of the work completed prior to termination. If said termination occurs prior to completion of any task for the Project for which a payment request has not been received, the charge for services performed during such task shall be the reasonable value of such services, based on an amount mutually agreed to by City and Consultant of the portion of such task completed but not paid prior to said termination. City shall not be liable for any costs other than the charges or portions thereof which are specified herein. Consultant shall not be entitled to payment for unperformed services, and shall not be entitled to damages or compensation for termination of work. b. Consultant may terminate its obligation to provide further services under this Agreement upon thirty (30) calendar days' written notice to City only in the event of substantial failure by City to perform in accordance with the terms of this Agreement through no fault of Consultant. 18 Documents. Except as otherwise provided in "Termination or Abandonment," above, all original field notes, written reports, Drawings and Specifications and other documents, produced or developed for the Project shall, upon payment in full for the services described in this Agreement, be furnished to and become the property of the City. 19. Organization Consultant shall assign Andrew Nickerson as Project Manager. The Project Manager shall not be removed from the Project or reassigned without the prior written consent of the City. above. 20. Limitation of Agreement. This Agreement is limited to and includes only the work included in the Project described 21. Notice Any notice or instrument required to be given or delivered by this Agreement may be given or delivered by depositing the same in any United States Post Office, certified mail, return receipt requested, postage prepaid, addressed to: *Irs City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: Michelle Dagget-Short Finance Manager 9 61147.02100\10974777.3 Updatcd March 2019 CONSULTANT: HdL Companies 120 S. State College Blvd., Ste 200 Brea, CA 92821 Attn: Andrew Nickerson and shall be effective upon receipt thereof. 22. Third Party Rights Nothing in this Agreement shall be construed to give any rights or benefits to anyone other than the City and the Consultant. 23. Equal Opportunity Employment. Consultant represents that it is an equal opportunity employer and that it shall not discriminate against any employee or applicant for employment because of race, religion, color, national origin, ancestry, sex, age or other interests protected by the State or Federal Constitutions. Such non-discrimination shall include, but not be limited to, all activities related to initial employment, upgrading, demotion, transfer, recruitment or recruitment advertising, layoff or termination. 24. Entire Agreement This Agreement, with its exhibits, represents the entire understanding of City and Consultant as to those matters contained herein, and supersedes and cancels any prior or contemporaneous oral or written understanding, promises or representations with respect to those matters covered hereunder. Each Party acknowledges that no representations, inducements, promises or agreements have been made by any person which are not incorporated herein, and that any other agreements shall be void. This Agreement may not be modified or altered except in writing signed by both Parties hereto. This is an integrated Agreement. 25. Severability The unenforceability, invalidity or illegality of any provision(s) of this Agreement shall not render the remaining provisions unenforceable, invalid or illegal. 26. Successors and Assigns This Agreement shall be binding upon and shall inure to the benefit of the successors in interest, executors, administrators and assigns of each Party to this Agreement. However, Consultant shall not assign or transfer by operation of law or otherwise any or all of its rights, burdens, duties or obligations without the prior written consent of City. Any attempted assignment without such consent shall be invalid and void. 27. Non -Waiver None of the provisions of this Agreement shall be considered waived by either Party, unless such waiver is specifically specified in writing. 28. Time of Essence Time is of the essence for each and every provision of this Agreement. 10 61147.02100\10974777.3 Updated March 2019 29. City's Right to Employ Other Consultants City reserves its right to employ other consultants, including engineers, in connection with this Project or other projects. 30. Prohibited Interests Consultant maintains and warrants that it has not employed nor retained any company or person, other than a bona fide employee working solely for Consultant, to solicit or secure this Agreement. Further, Consultant warrants that it has not paid nor has it agreed to pay any company or person, other than a bona fide employee working solely for Consultant, any fee, commission, percentage, brokerage fee, gift or other consideration contingent upon or resulting from the award or making of this Agreement. For breach or violation of this warranty, City shall have the right to rescind this Agreement without liability. For the term of this Agreement, no director, official, officer or employee of City, during the term of his or her service with City, shall have any direct interest in this Agreement, or obtain any present or anticipated material benefit arising therefrom. 31. Confidentiality Reauirements Section 7056 of the State of California Revenue and Taxation code specifically limits the disclosure of confidential taxpayer information contained in the records of the State Board of Equalization. This section specifies the conditions under which a CITY may authorize persons other than CITY officers and employees to examine State Sales and Use Tax records. The following conditions specified in Section 7056 (b), (1) of the State of California Revenue and Taxation Code are hereby made part of this agreement. a. CONSULTANT is authorized by this Agreement to examine sales, use or transactions and use tax records of the Board of Equalization provided to CITY pursuant to contract under the Bradley -Bums Uniform Sales and Use Tax Law. b. CONSULTANT is required to disclose information contained in, or derived from, those sales, use or transactions and use tax records only to an officer or employee of the CITY who is authorized by resolution to examine the information. c. CONSULTANT is prohibited from performing consulting services for a retailer, as defined in California Revenue & Taxation Code Section 6015, during the term of this Agreement. d. CONSULTANT is prohibited from retaining the information contained in, or derived from those sales or transactions and use tax records, after this Agreement has expired. Information obtained by examination of Board of Equalization records shall be used only for purposes related to collection of local sales and use tax or for other governmental functions of the CITY as set forth by resolution adopted pursuant to Section 7056 (b) of the Revenue and Taxation Code. The resolution shall designate the CONTRACTOR as a person, authorized to examine sales and use tax records and certify that this Agreement meets the requirements set forth above and in Section 7056 (b), (1) of the Revenue and Taxation Code. [SIGNATURES ON FOLLOWING PAGE] 11 61147.02 1 00\10974777.3 Updated March 2019 SIGNATURE PAGE FOR PROFESSIONAL SERVICES AGREEMENT BETWEEN CITY OF SAN JUAN CAPISTRANO AND HDL COMPANIES IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above. CITY OF SAN JUAN CAPISTRANO By: e -" City S' City Manager ATTES 0 ' 11 11- l\,— Its: President APPROVED AS TO FORM: JefVey 9611inger, City Attorney (ted Name: Andrew Nickerson 12 LI I V.02MI09)a➢D.3 uptl lw Mecb 2019 Exhibit A Proposal for Sates Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 E. SCOPE OF WORK Sales Tax 1. General Strategy a. Sales and Use Tax Auditing Over the last decade, administration of sales and use tax revenues has become increasingly complex. The difficulty of properly allocating the local share of revenues has been compounded by the constant turnover, selling and consolidation of businesses, evolving regulations impacting the allocation of sales and use tax from e-commerce, warehousing and construction projects and the trend of larger companies to outsource order taking and distribution as well as tracking and filing of their state tax returns to other firms. If not monitored closely, allocation errors can accumulate to the point where agencies pay exorbitant fees for recovery of revenues lost because of insufficient tracking and poor follow-up. HdL's systematic approach minimizes these costs by: • Reduction of errors through detailed quarterly analysis and advanced data mining techniques to insure correct permit registration information. • Ongoing monitoring to ensure that errors that do occur are quickly identified and not allowed to age and become inordinately large. • Aggressive monitoring and follow-up on claims to the CDTFA to ensure rapid tum around and reduction in the amount of fees associated with retroactive payments. HdL maintains a secure intemal system which contains the City's data back to 1992. HdL's extensive database is supplemented with quarterly updates from the CDTFA, and continually reviewed and enhanced by staff to improve quality. HdL provides approved City staff with unlimited access to our web -based sales tax system to facilitate in-house analysis and printing of reports. The system allows City staff to search all sales tax producers in the City by business name, address, CDTFA account number and current or historical sales tax allocations. b. Role of City Staff: HdL's services are designed to require minimal involvement of the City's valuable staff resources. Should the City choose to engage HdL for these services, our firm would require the following assistance to successfully complete the services. • The name and contact information for our primary point of contact and other key contacts. • The name and contact information for the individual responsible for scheduling quarterly sales tax meetings. • The name and contact information for the individual responsible for reviewing and authorizing Work Authorizations. • A listing of all staff (names and email addresses) the City would like to be authorized access to HdL's web -based sales tax system. • The name and contact information for submitting quarterly invoices. HdP Companies ,s Exhibit A - Page 1 of 9 Exhibit A Proposal for Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 c. Interaction with CDTFA HdL submits an average of 6,000 claims a year including complex industrial, e- commerce, distribution and out-of-state misallocations that require specialized knowledge and methodology to identify and correct. HdL ensures that its claims are corrected in the timeliest manner possible by employing a full-time case manager whose sole responsibility is to monitor and work with the CDTFA to insure that cases are not allowed to idle, and are instead aggressively pursued and processed. HdL employs a polite and professional approach when working with the City's business community; maintaining a careful balance between compliance and revenue collection, and tactfulness, sensitivity and taxpayer education. Taxpayer interviews are always conducted in a business friendly, non -intrusive manner that emphasizes cooperation and protection of confidentiality. d. Sources of Information HdL currently has all of the information necessary to provide quarterly analysis and management support, and to perform point of sale audits. Our primary information source is the CDTFA registration and allocation data, which is updated quarterly. HdL has historical data for the City back to 1992. The following items will be required from the City: • An executed agreement. • Placement of HdL on mailing list of major planning and construction permit activity (if City wishes HdL to pursue use tax maximization opportunities). 2. Objectives and Methodology Using confidential taxpayer records as authorized by Revenue and Taxation Code Section 7056, HdL will continue to identify and correct errors that result in underpayments of tax to the City of San Juan Capistrano. The firm will employ a series of analyses, comparisons with other data sources and physical field canvassing to find, document and submit for correction all taxpayer errors that result in lost City revenue or could result in lost revenue in the future. When errors are identified, HdL staff will promptly file claims for their correction following CDTFA procedures. Thereafter, HdL will work with CDTFA to ensure the prompt recovery of all escaped revenues. Documentation of errors will be regularly provided to the City. In conducting these activities on behalf of the City, HdL will provide reports that accurately depict the City's sales tax base, use tax collections and revenues. All reports, graphs, tables and revenue forecasts are designed to enhance the City's capacity to plan for, expand and manage its sales, use and district tax revenues. Reports identifying and comparing the retail composition of various sub -geographic areas of the City will also be provided. HdL has recovered $202,942 for the City of San Juan Capistrano since 2096. This represents a return of 292% on aH audit, reporting and management fees paid to HdL. HdP Companies 16 Exhibit A - Page 2 of 9 Exhibit A Proposal for Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 To achieve the highest audit and recovery results, HdL employs the following audit techniques and programs: a. Identification of Errors and Revenue Maximization Opportunities Field Surveys: Field inventories of the City's business and industrial areas are conducted to identify businesses located within the City that appear to be under- reporting revenues or are not on the CDTFA allocation rolls. Specially trained field auditors, using the latest in mapping, GPS and digital recording technology, document not only the existence of sales tax producing businesses but also any relevant factors such as size, presence of a large stock of goods, will -call windows and any specific references to sales activity. This process identifies a wide range of registration errors including erroneous consolidation of multiple outlets, misreporting of point of sale from an erroneous location and delays in reporting new outlets. Tax Area Code (TAC) Review: HdL reviews every active account on the CDTFA's allocation rolls reporting $50 or more in local tax to ensure proper TAC assignment. Government and private sector property tax mapping and GIS databases are- used extensively in this process. These programs are important because physical canvassing will not reveal businesses with missing or incomplete signage, or those that are home-based. A complete TAC review is performed at least once every 3-6 months. Deviation Assessment: Each quarter, HdL applies proprietary queries and analyses to its statewide allocation database to identify all accounts for which there has been a substantial change in allocation pattern. HdL's database, unmatched in size, comprises over 99.8% of all sales and use tax transactions in California and allows for the most comprehensive audits in the state. The review is applied to direct allocations and to the county pools and allows for a much broader view and understanding of what has happened in any given quarter. Well-founded leads are quickly extracted from this process, often without the need for time-consuming manual reviews of taxpayer files. This allows for faster processing and less time used for preparing submittals. This in tum lowers recovery fees by reducing the amount of prior quarter revenue requiring redistribution. Use Tax Errors and Opportunities: HdL analyzes the use tax allocation pools of the 58 counties and the state each quarter to identify instances where a taxpayer may have misidentified a transaction as use tax rather than sales tax. Further specialized reviews and techniques are employed to identify direct allocation opportunities of local use tax. CDTFA Regulation 1802(d) allows for direct allocation of local use tax on qualifying individual sales or purchases over $500,000. Out-of-state and foreign- based companies in particular often have large transactions that meet the criteria for direct allocation under this section. Under Regulation 1699.6, businesses and organizations (including local government agencies) with aggregate purchases subject to use tax of least $500,000 per year can apply for a Use Tax Direct Payment Permit, allowing for direct allocation of the corresponding local share. Finally, under a resolution adopted in December 1994, a construction contractor who enters into a contract equal to or greater than $5,000,000 may elect to obtain a sub -permit for the jobsite resulting in a direct allocation of local use tax to the jurisdiction where the jobsite is located. HdO Companies „ Exhibit A - Page 3 of 9 Exhibit A Proposal for Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 Regulation 1699 Evaluations: CDTFA Regulation 1699 controls when and where a permit should be issued to a given business location. Wholesalers, contractors, processors, manufacturers, and other non -retail businesses that do not normally sell merchandise often conduct occasional sales, self -accrue use tax or are levied deficiency assessments by the state. HdL uses proprietary methods for finding companies that should be taking out permits so that those revenues are allocated to the City. b. Monitorina and Recovery of Misallocated Revenue Development of Correction Data: Preliminary lead lists developed through the audit programs are further refined using a variety of programs and databases to reduce the need for taxpayer contact. Companies remaining in the audit database are then contacted by a specialized audit team whose members are specifically selected and trained to interview tax preparers and marketing, warehouse and management staff. Taxpayer interviews are always conducted In a business friendly, non -intrusive manner that emphasizes cooperation and protection of confidentiality. Documentation: Telephone contacts are often accompanied by a written follow-up questionnaire concerning business activities, a specific one-time transaction or a written confirmation of our findings. This documentation is always filed with the petition to minimize CDTFA processing time. Solid documentation and follow-up lowers client fees by reducing the number of quarters requiring retroactive adjustment and ensures faster recovery of misallocated revenues. City Review: HdL will provide the City with a quarterly report of all revenue recovery work in progress. This report will include an electronic Work Authorization which, once approved, will include active links to copies of all inquiries filed with the CDTFA on the City's behalf. This information is archived and is accessible to authorized users at any time through the HdL client portal. HdL will also keep the City apprised of any additional oral or written communication with the CDTFA on any matter directly impacting the City These reports, along with a detailed quarterly invoice listing all relevant information about the taxpayer and the amount of revenue recovered, will keep the City of well informed of all ongoing audit activity. Preparation and Submittal of Corrections: Petitions are prepared (CDTFA Form 549- S or 549-L) that notify the CDTFA the existence and nature of the misallocation. All relevant and available supporting documentation is attached, including any information from taxpayer file reviews or any other sources that provide evidence of an earlier date of knowledge regarding the error. This documentation facilitates the maximum recovery of revenue due the City from prior periods. Copies of all transmittal forms and correspondence with the CDTFA and taxpayers are sent to City staff. Continuous Follow-up: HdL employs a full-time case manager whose responsibility is to monitor and follow-up on case inventory. An aging report is updated and reviewed on a monthly basis and the appropriate follow-up is initiated on cases that are taking an inordinate amount of time to correct. This follow-up emphasizes partnership and cooperation with CDTFA Allocation Group staff. HdL's continuous efforts to check on the status of submittals are made to ensure that corrections are being pursued. Timely follow-up on cases reduces the time it takes for the City to recover its revenue. HdL©Companies 18 Exhibit A - Page 4 of 9 Exhibit A Proposal for Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 Appeals: HdL cases are thoroughly researched, vetted and documented prior to submittal. This ensures the fastest possible processing times and reduces the number of cases that are initially disclaimed and must be further researched and defended through a very lengthy CDTFA appeals process. Nearly all HdL cases are resolved favorably at either the first or second levels of the CDTFA petition process described in Regulation 35056. Track Record: HdL is effective in recovering misallocated revenue for client agencies in 97% of all cases submitted to the CDTFA. The small number of cases that do require an appeal is evidence of HdL's thorough research and the quality of the well- documented information included to support claims. c. Use Tax Maximization Major construction projects and even ongoing business operations often generate significant use tax revenues from purchases of machinery, equipment and other fixed assets. HdL has worked with numerous clients to ensure that use tax from manufacturing and assembly plants, food processing, cold storage facilities, power/energy projects, medical, research and technical facilities, oil fields/refineries and extraction/mining industries are properly allocated to the host jurisdiction. HdL's sales tax team includes a staff of specialists who review new business startups that might present potential self-assessed use tax opportunities, meets with contractors to advise on sub -permits and reporting procedures and provides materials and advice on purchasing companies and direct payment permits. The firm monitors major construction projects to make sure that any use tax generated is properly allocated to the job site's host jurisdiction. When brought into a project early, HdL assists clients with inserting provisions in conditional use permits and development agreements to guarantee that use tax maximization procedures are followed and monitors projects and subcontractors to make certain that sales tax is properly allocated back to the client jurisdiction. Direct payment permits and purchasing corporations can sometimes be utilized where conditions offer mutual opportunities for the client agency to capture additional sales tax revenues and the participating company can increase control of sales and use tax liabilities. d. Preserve and Enhance Sales and Use Tax When properly refined and organized, sales tax data analysis is an important tool for strengthening and expanding local economies. The data shows companies that are growing and may need expansion space and should be contacted as part of an agency's business retention program. When broken out geographically, the data produces patterns of industries that potentially share common customers, suppliers, technology and labor and therefore offer opportunities for attracting new businesses. The data further exposes retail areas that may be over saturated in some retail segments while also identifying voids and opportunities for additional retail development. HdL©Companies !9 Exhibit A - Page 5 of 9 Exhibit A Proposal for Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 Although numerous companies and agencies use the CDTFA's published data as a basis for analysis, the results are usually inaccurate and misleading due to address and business categorization errors in the data. To correct those deficiencies, HdL performs data validation and scrubbing techniques on an ongoing basis, fixing business addresses and re -categorizing merchants to differentiate brick and mortar retailers from "business to business" suppliers and on-line retailers. The company further creates and groups businesses into additional categories and classifications, not provided by the CDTFA, to better track new and emerging economic trends. Samples include the breaking out of biotech/medical suppliers, online fulfillment centers, alternate energy and utility providers, wineries and marijuana dispensaries. This focused approach to data management allows agencies to more accurately compare the impact of trends in their jurisdiction with state and regional trends. On a regional basis, it also allows for the identification of true economic voids and opportunities to expand the City's tax base. Accurate addressing allows for improved performance monitoring and comparison of specific economic areas such as shopping centers, downtown districts and auto malls with similar projects throughout California. In addition to using our large database, HdL's principals leverage their experience analyzing client data throughout California to identify new trends and developments that might help other clients. The service includes analyses to identity retail voids and opportunities -and an annual publication of retailers seeking expansion in the region and state. 3. Sales and Use Tax Reporting Services a. HdL Sales Tax Web Application HdL maintains San Juan Capistrano's detailed sales tax data back to 1992 and will provide City staff with unlimited access to its quarterly updated web -based sales tax system to facilitate "in-house" analysis and printing of reports. The system allows City staff to search, print and export sales tax data for a variety of financial, management and planning functions. The system provides the ability to search all sales tax producers by business name, address, CDTFA account number and current or historical sales tax allocations. The web application also provides access to archived quarterly sales tax reports. Data is easily queried and exported to either comma delimited or native Excel formats, allowing for convenient use with applications in the Microsoft Office suite. The web application is accessible from all major operating systems, internet browser platforms, and device types (laptop, tablet, PC, mobile). HdL's geo-area feature supports use of address ranges, which ensures the inclusion of all CDTFA registrations and allows City staff to create and modify geo-areas without a separate GIS system. HdL also supports interfacing with the City's GIS by including accurately geocoded latitude and longitude for each business. The database includes historical allocation information and can be quickly exported by City staff on demand. Additionally, City created shape files can be used to define Geo -areas. Training on use of the software and ongoing upgrades is provided at no additional charge. H&P Companies 20 Exhibit A - Page 6 of 9 Exhibit A Proposal fa Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 Preliminary sales and use tax reports are provided each quarter within 5 days following the receipt of the quarterly distribution report. These PDF reports can be accessed online via HdL's web -based sales tax application immediately after the data has been updated from the CDTFA. Hard copy reports are provided at the regularly scheduled quarterly sales tax meetings. A variety of other reports, sales tax issues papers and legislative updates are also accessible on the HdL website, www.hdlcomoanies.com b. Quarterly Meetinas and Reoorts Quarterly Meetings: Each quarter, a principal of the firm analyzes the City's data in detail and meets with appropriate City officials to review trends, and discuss and make recommendations regarding the budget implications of the quarter's data. Hard copies of written reports are provided and reviewed with the City staff. Analysis of sales and use tax data for the quarterly presentations to City staff are led by seasoned professionals, whose experience and knowledge adds value by identifying emerging retail trends, business retention needs, leveraging of economic clusters and reviewing successes in client jurisdictions with similar characteristics. HdL staff also prepares sales and use tax projections for proposed development projects, responds to technical questions relating to CDTFA processes, procedures and regulations, and monitors revenue sharing agreements. HdUs services are superior to other vendors because the firm provides data analysis instead of bound stacks of raw data printouts. The firm's quarterly analysis is done in context with regional market areas, countywide and statewide trends to better monitor and compare the City's economic performance by business category and geographical area. A non -confidential newsletter is included to support management's efforts to inform and engage the public. Reports: Quarterly sales tax reports are provided on both a cash and adjusted basis. Cash reports reconcile to CDTFA payments and are necessary for any revenue sharing agreements that the City might have in place. The adjusted reports shift payment aberrations (double -up payments, CDTFA audit adjustments, etc.) into the quarter where the sales occurred to accurately show the City's true economic trends. The quarterly sales tax data will be presented in reports for major sales tax producers by both rank and category, analysis of sales tax activity by category, business or geographic areas specified by the City. HdL's quarterly sales tax reports include a summary of top sales tax producers and comparisons of local, regional and statewide trends. Retailer information is provided in grouped form or in business by business detail. Quarterly information also includes tables that track year -to -dale receipts and show comparisons with past periods to measure progress toward achieving the City's annual budgeted revenue amount. Budget Projections: HdL has developed a comprehensive, detail -oriented method for projecting and monitoring client sales and use tax revenues that has proved to result in estimates that fall within 2% of actual receipts two-thirds of the time. Initial and mid -year projections are made by factoring out payment aberrations that skew the base revenue and factoring in known changes such as new or closed businesses. HdL© Companies 21 Exhibit A - Page 7 of 9 Exhibit A Proposal for Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 HdL also incorporates information from over 90 economic sources as well as information gathered from client meetings to develop economic factors to apply to individual retail business segments; the results are combined into a single estimate of anticipated revenue. HdL further enhances its projections by contacting builders of large-scale development projects to better time and estimate the value of potential use tax payments into its estimates. Three and five-year forecasts are also provided. Legislative Updates: HdL prepares Legislative Updates for clients to keep them informed of all proposals that may impact local revenues. The firm also provides Issue Updates which are similar in nature but deal with specific issues such as Sales Tax Participation Agreements, legal decisions or regulation changes. Each issue is presented in detail so that City staff is equipped to respond to questions on topics important to their community leaders. Tim Cromartie, HdL Senior Advisor, who previously worked as the Legislative Representative for the League of California Cities, provides legislative support to clients. Prior to his work with the League of California Cities, Tim held a variety of positions in the Legislature and state government, including legislative representative for CalPERS Governmental Affairs, legislative director and public safety consultant to former state Senator Gloria Romero, and field representative for Congresswoman Barbara Lee. The firm also retains Rebecca Marcus as a lobbyist to represent client interests in matters before the CDTFA and the state legislature. With over 20 years of experience in state and national politics, Rebecca has developed the necessary institutional knowledge and established relationships to effectively advance clients' interests in Sacramento. As a Chief of Staff for 13 years in the California State Assembly for several distinguished Members including Assembly members Mark Stone, Mike Feuer and Johan Klehs, Rebecca successfully advanced legislation across a diverse array of policy areas. As a result, over 100 of these Members' bills became law ranging from landmark green chemistry legislative to a transformative transportation tax. 4. Onaoina Consultation HdL also serves as "on-call" staff to provide sales tax estimates for proposed projects, assist with budget projections and answer sales and use tax questions related to economic development, budgeting and related revenue collection. A principal of the firm analyzes the City's data in detail and meets with appropriate City officials each quarter to review trends and discuss and make recommendations regarding the budget implications of the year's data. When requested by the City, principals also meet with committees of the City Council, advisory committees and other groups to explain sales tax regulations, economic trends and legislative proposals that will impact the City's tax base. HdL will, when requested by the City, conduct technical seminars for City personnel on California sales and use tax processes. To support in-house efforts to maximize use tax, the seminars will cover the fundamentals of direct payment permits, purchasing corporations and maximizing "use tax" from construction projects. H&O Companies 22 Exhibit A - Page 8 of 9 Exhibit A Proposal for Sales Tax Audit and Reporting Services and the Statistical Reporting Package for the CAFR City of San Juan Capistrano March 30, 2020 HdL maintains close and positive relationships with CDTFA executives and staff to quickly resolve policy issues unique to individual clients. The firm also advocates regulation and legislative changes when they are of benefit to clients. Examples are the Company's work in the change of allocation of "use tax" for major construction projects, securing an Executive Order from the Governor to allow publishing of top taxpayers in public documents and the introduction of the problem of "point of sale" for warehouses to the CDTFA. B. Statistical Reporting Package for CAFR 1. CAFR Annual Reports HdL Coren & Cone has been providing reports for inclusion in the CAFR Statistical Section since 1996. Our staff is thoroughly familiar with reports in the Statistical Section related to property tax and sales tax and common issues and problems facing cities trying to comply with GASB 44. We provide the package to over 180 cities and special districts in California annually. During the term of the contract, Consultant shall provide the following reports annually: • Use Category Summary for current fiscal year • Property tax dollar breakdown for current fiscal year • City Roll Summary for current fiscal year • Net taxable assessed value for last ten fiscal years • Assessed value of taxable property by secured, unsecured and non -unitary for last ten fiscal years • Assessed value of taxable property by category for last ten fiscal years • Top ten property taxpayers for current fiscal year • Top ten property taxpayers ten fiscal years ago • Direct and overlapping property tax rates for last ten fiscal years • Demographic and economic statistics for last ten calendar years • Single family residential sales value history HdP Companies 23 Exhibit A - Page 9 of 9 Exhibit 6 City of San Juan Capistrano COST PROPOSAL FOR SALES TAX AUDIT AND REPORTING SERVICES AND THE STATISTICAL REPORTING PACKAGE FOR THE COMPREHENSIVE ANNUAL FINACIAL REPORT MARCH 30, 2020 Hde©Companies Exhibit B COST PROPOSAL 1. Sales Tax Services a. Audit Recoveries HdL proposes a fee of 15% of all new sales and use tax revenue received by the City as a result of audit and recovery work performed by the firm. This audit fee applies to monies received in the first eight consecutive reporting quarters beginning with the receipt of the audit revenue and includes retroactive back quarter adjustments obtained by HdL. Audit fees are billed only after completion of the audit, submittal of corrections to the CDTFA and receiot of revenues by the client. 100% of all new revenue generated by HdL flows to the City after the completion of the eight quarters. The fee constitutes the full reimbursement to HdL and covers all direct and indirect costs incurred by the firm under this contract. This includes all salaries of our employees, travel expenses and service contracting costs as well as the software to be delivered to the City under this proposal. Invoices are submitted only for recoveries previously approved by the City. HdL does not bill for audit revenues until the client has actually received said monies. Further, if during the billing cycle, a taxpayer receives a refund for overpayment of taxes generated during that cycle, HdL credits back any proportionate share of the fee that may have been levied. Invoices are submitted quarterly after the City has received the revenue from the audit correction. The invoice includes a printout showing the name, address, and sales tax registration number of each company, and the specific amount of revenue allocated by the CDTFA to the City for those businesses. If a misallocation correction involves additional revenue from a company that had already been partially allocating revenues to the City, the City and HdL will agree in a Work Authorization, prior to billing, the methodology for identifying the incremental revenue attributable to HdL's work. b. Web -Based Application and Sales Tax Management Services This includes access to the City's sales tax database through our web -based software and quarterly meetings with one of our principals. In preparation for each meeting, a principal of the firm analyzes the City's data in detail and meets with appropriate City officials to review trends, point out businesses that should be contacted as part of the City's business retention program and discuss and make recommendations regarding the economic and budget implications of the quarter's data. Also included is a non - confidential newsletter that can be shared with your council and the public. The price for this option is $600 per month.* *The monthly fee will increase annually by the percentage increase in the "CPI" for the preceding twelve-month period. HdP Companies Exhibit B - Page 2 of 3 Exhibit B c. Additional Services Additional services beyond the scope of services in this proposal are priced separately depending on the complexity of the tasks involved. Such fees can either by fixed or time and materials. Our currently hourly rates are listed below. 2. CAFR'Statistical Reporting Package The cost for the Statistical Reporting Package for the Comprehensive Annual Financial Report is $645 annually. HWCompanies Exhibit B - Page 3 of 3 Hourly Rate Principal $325 Programmer $295 Senior Analyst $245 Analyst $195 2. CAFR'Statistical Reporting Package The cost for the Statistical Reporting Package for the Comprehensive Annual Financial Report is $645 annually. HWCompanies Exhibit B - Page 3 of 3