Procurement of Financial Services

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Type: 
Best Practice
Background: 

Governments rely on a variety of vendors to provide essential financial services, including:

  • Banking services
  • Trustee/custodial
  • Securities broker/dealer
  • Underwriting and other debt related services
  • Financial advisory
  • Merchant services
  • Investment advisory services

These industries are subject to constantly changing regulations, technologies, and market conditions. As a result, governments must provide regular due diligence of all financial service providers. Part of ongoing due diligence includes regular competition for the procurement of services.

Recommendation: 

GFOA recommends that governments review their financial services contracts every five years and use a competitive process for the procurement of financial services. A competitive procurement process provides an opportunity for the government to obtain market competitive rates and negotiate preferable terms and conditions and/or service enhancements in financial service contracts. It also gives the government an opportunity to take advantage of technology enhancements, service changes, or evolution in the market. Identifying a regular schedule for soliciting competitive bids for financial service providers also helps reduce the risk of a government becoming too reliant on one vendor.

With every competitive procurement process, governments should define the scope of the procurement opportunity, identify specific evaluation criteria, and prepare a strategy to evaluate responses. Evaluation criteria should specifically address the following:

  • Product and service breadth, depth and quality – the service provider’s ability to provide solutions that meet the government’s specific needs.
  • Quality of servicing staff – the individual experience, skills, and qualifications of the staff members who will provide services on the account, if selected, and their ability to meet the government’s needs.
  • Financial strength – the service provider’s profitability, operating history, and net capital (which should be of sufficient size to satisfy service requirements).
  • Service capacity – the provider’s ability to process sufficient transaction volumes and dollars of throughput.
  • Regulatory standing – the provider’s status with the applicable regulatory agency.
  • Reputation and social responsibility – the experience peer governments have had with the provider and the provider’s demonstration of being a good citizen that is fair and honest in its dealings.
  • Cost – the overall cost or rate included in the proposal, which can include consideration of potential future price escalations.
Committee: 
Treasury and Investment Management
References: 
  • Sample RFPs
  • Sample evaluation criteria/checklist
Approved by GFOA's Executive Board: 
January 2017