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Bond Issues - Electronic Bidding i5~~~E ~c/k.~ 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. fYkIv~ itJA- Michael C. Van Milligen MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Ken TeKippe, Finance Director r-" t -.,....... .:,--,' 1 : ! c' DU~~E ~ck~ 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. KT/jg Enclosure cc: Barry Lindahl, Corporation Counsel Jeanne Schneider, City Clerk Dawn Lang, Budget Director Cindy Steinhauser, Assistant City Manager .. ~ =PFM .' ~ The PFM Group Pub I,\; Fln~illcl~_ll ry'bl1",q~~lllent, int PFM Aso;;d Mall8geme:lj LtC PFM Advisors 2800 Grand Avenue Suite 214 Des Moines, lA 50312 51&-243-2600 51S.~lax WtNi.pfm.oom 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. s;, aFM Electronic Bidding Febroary 1, 2005 Page 2 .. 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. I 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 " t~M · 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, ~m,D<C David M Dirks Senior Managing Consultant cc: Mr. Bill Noth, Ahlers & Cooney, P.C.