Bond Issues - Electronic Bidding
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MEMORANDUM
February 14, 2005
TO:
The Honorable Mayor and City Council Members
FROM:
Michael C. Van Milligen, City Manager
SUBJECT: Electronic Bidding on Bond Issues
Finance Director Ken TeKippe is reporting that Public Financial Management, Inc., our
financial advisor for bond issues, is recommending that the City utilize electronic bidding
for future bond issues to broaden the pool of potential bidders. Fax bids will continue to
be accepted as well. No formal City Council action is required.
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Michael C. Van Milligen
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Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
Ken TeKippe, Finance Director
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Memorandum
TO: Michael C. Van MiUiQeD, City Manager
FROM:
Ken TeKippe, Finance Director ~ 0 ~
SUBJECT: Electronic Bidding on Bond Issues
DATE:
February 7, 2005
Our financial advisor for bond issues, Public Financial Management, Inc. (The PFM
Group), recommends the City utilize electronic bidding for future bond issues. A letter
dated February 1, 2005 explaining the process from The PFM Group is enclosed. Most
major cities in Iowa accept electronic bidding. Fax bids will continue to be accepted.
This change may broaden the pool of potential bidders. Formal Council approval is not
required; however, our financial advisor felt it would be beneficial to inform them of this
change.
If you have any questions on this matter, please feel free to contact me at 4133.
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Enclosure
cc: Barry Lindahl, Corporation Counsel
Jeanne Schneider, City Clerk
Dawn Lang, Budget Director
Cindy Steinhauser, Assistant City Manager
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PFM Advisors
2800 Grand Avenue
Suite 214
Des Moines, lA
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February 1, 2005
Via Email
Mr. Ken TeKippe
Finance Director
City of Dubuque, IA
50 W. 13lh Street
Finance Department, City Hall
Dubuque, IA 52001-4864
Re: Electronic Bidding for future issues
Dear Mr. TeKippe,
We recommend that the City use the Parity electronic bidding system as one element of the process for
receiving bids on its competitively-sold bond issues in the future. Parity is a product of i-Deal LLC and is
one of the systems in use for the electronic submission of bids. It has become the dominant system in use
today. There is no cost to the City to accept bids electronically via Parity, this product is supported by the
use of underwriters and investment bankers who are charged a fee for the use of other products that are
provided by i-Deal LLC in connection with the preparation of their bids.
Under current non-e1ectronic methods of bid submission underwriting syndicates transmit or deliver their
bids in written fonn either by personal delivery, fax, or via telephone transmission. Bids are manually
recorded and placed in envelopes which are then sealed and presented to the governing body. Under this
system several opportunities for delay, blocked transmission due to busy signals, and human error exist
throughout the process.
Under the Parity system of electronic bid submission bidding underwriters using Bidcomp (another i-Deal
product) calculate their bids using the Bidcomp software and submit it over private leased lines (not over
the internet) via the Parity system. When the bid deadline is reached, the issuer and the financial advisor
can immediately view the submitted bids using an ioternet-based Parity interface on a computer at the
office of the issuer.
There are several advantages to this system which will improve the bidding process by making it more
efficient, timely and error-free. Among these advantages are the following:
1. Bidcomp alerts users to any violation of bid parameters such as minimum-bid and interest-
rate constraints.
2. By eliminating middlemen and handwritten bids, the occurrence of transcription errors is
reduced and bids can be submitted more quickly. This also allows underwriters to make last-minute
changes to their bids.
3. All risk of error in bid submission is on the bidder, and this eliminates human error that can
occur at the hands of City staff or its financial consultant when manual recording of bids is occurring.
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aFM
Electronic Bidding
Febroary 1, 2005
Page 2
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4. Time deadlines are strictly observed. Parity and Bidcomp both contain a clock displaying local
time and a COWltdown clock for use in the fmal minutes before the sale. Oocks are synchronized off a single
i-Deal server to guarantee that they display the same time. Starting at five minutes before the time of the sale,
the COWltdown clock cOWlts down the remaining minutes and seconds to the time of the sale. When the
Bidcomp COWltdown clock displays 00:00:00 a bidding Wlderwriter may no longer submit a bid. When the
Parity COWltdown clock displays 00:00:00, the detllils of bids submitted may be accessed by the financial
advisor or the Issuer.
Because Parity bid submission is virtually instantaneous, a single timestllmp is associated to
each bid when it is submitted through Parity. This timestamp represents the time that the bid is accessible by
the financial advisor or the Issuer. This timestllmp is displayed to bidding Wlderwriters when they submit
their bids, and to the financial advisor and the Issuer on Parity's Bid Results Screen and Bid Form.
5. The system provides immediate access to all bid information. When the Parity COWltdOwn
clock displays 00:00:00, clicking on the Results Button on Parity's Bid Screen will result in the display of
submitted bids in ranked order. Oicking on a bidder's name from the Bid Results Screen will provide access
to the bid form for that bid for viewing. printing or downloading.
6. The linking of the bid-calculation system to the bid-submission system and the capability of
making last-minute changes has the effect of encournging underwriters to bid where they might not otherwise
choose to bid.
Although the Parity system is becoming more and more widely-used, it is not used by all underwriters so the
submission of bids by traditional methods is also permitted so as not to exclude any potential bidders.
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The system is structured to maximize security. Bidding Wlderwriters using Bidcomp to submit bids to Parity
connect to Bidcomp and i-Deal's New Issue database over private leased lines or dial-up connections. Parity
bids are never submitted over the Internet. The financial advisor and the Issuer use an Internet-based Parity
interface to access the TFMG New Issue database to monitor the submission of Parity bids and to view the
actual bids. The fmancial advisor and the Issuer may not view bid details Wltil after the time of the sale.
No external databases or copies of i-Deal data are created. The i-Deal databases are protected from the
Internet by dual FireWall-1 gateways. These Firewalls provide comprehensive network control by
implementing an advanced filtering technology wbich inspects each network packet and promptly blocks all
Wlwanted communication attempts.
Access to databases is limited to requests originating from our Web server. Each customer is authorized to
"log-in" to the Web server using an individually assigned user name and password. Each i-Deal subscriber
agreement stipulates that users may not share passwords. Only authorized users are provided access to the
back-end data. Also, i-Deal has implemented Netscape's Commerce Server as its Web interface including
Netscape's advanced security features. Communications are based on a Secure Sockets Layer (SSL) protocol,
wbich provides:
.
Server authentication, allowing any SSL-compatible client to verify the identity of the server
using a certificate and digital signature
Electronic Bidding
February 1, 2005
Page 3
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· Data encryption, ensuring the privacy of client-server communications by encrypting the
data stream between the two entities; and
. Data integrity, verifying that the contents of a message anive at their destination in the same
form as they were sent.
SSL employs public key cryptographic technology from RSA data security, an established leader in computer
data security.
Parity is owned by i-Deal LLC which was organized by Merrill Lynch, Microsoft, Citigroup (formerly
Salomon Smith Bamey), and Thomson Financial. These four firms have seats on i-Deal's Board of Directors,
but do not have administrative access to the internal operating data of i-Deal's customers. One of the
essential services that i-Deal provides as a non-broker-dealer vendor is integrity of data. The information in i-
Deal's systems belongs to the creators of that data not i-Deal. i-Deal is contractually committed not to share
this data with any other broker dealer or other party without the express authorization of the creator of the
data. These policies and procedures apply to all of i-Deal's products including Bidcomp/Parity. There has
been no evidence or credible suggestion that Merrill Lynch or Citigroup by virtue of their ownership interest
in i-Deal have a competitive advantage over other users of the Parity system.
In swnmary, we believe that the Parity bidding system is secure, efficient, promotes the maximum number of
bids on a panicular sale and is a positive step forward in the use of technology to enhance the sale of
municipal securities. It is widely used by underwriters and fl11ancial advisors throughout the country. We
have used it extensively and recommend it for the City's future issues. The City's future issues will attract the
type of bidders who are most likely to use the Parity system.
Sincerely,
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David M Dirks
Senior Managing Consultant
cc: Mr. Bill Noth, Ahlers & Cooney, P.C.