If a Contracting Department determines that an Agreement is exempt from the MCO, it shall submit a request for exemption to the OCA using MCO Exemption and Waiver Request (form P-360) referenced in Appendix A. The Contracting Department shall submit any documentation it has received from Contractor along with the exemption form. If the OCA agrees with the determination of exemption, it shall sign the exemption form and process the order. A ruling by the OCA that an agreement is exempt from the MCO shall apply only to the specific agreement to which the exemption request form is directed, and shall not affect any other agreements. If the OCA denies a Contracting Department's request for exemption, the OCA shall notify the Contracting Department. Thereafter, the Contracting Department shall process the agreement as an agreement subject to the MCO.
Requirements for Exemption
The following categories of agreements shall be exempt from the MCO, as stated below:
- Public Entities
Agreements with public entities are not subject to the MCO unless the public entity's jurisdictional boundaries are coterminous with the City's boundaries. Public entities whose boundaries are coterminous with the City, thereby making them subject to the MCO, include: Local Agency Formation Commission; San Francisco Community College District; San Francisco Housing Authority; San Francisco Redevelopment Agency; San Francisco Transportation Authority; and San Francisco Unified School District.
- Aggregate Monetary Threshold
If an entity has entered into agreements with a Contracting Department, the aggregate amount of which equals $25,000 or less payable from that Contracting Department, these agreements shall be exempt from the MCO. However, when prospective contracting reaches the appropriate threshold, all future contracts shall be covered by the MCO, and all current contracts exempt from the MCO due to the dollar threshold become subject to the MCO from that point forward.
In determining whether an agreement exceeds the $25,000 threshold, the Contracting Department shall calculate the total amount of the agreement by adding together the amount provided for in the original agreement and all amendments, modifications, renewals, or extensions. An agreement previously exempt because it did not meet the monetary threshold of the MCO may become subject because an amendment, modification, renewal, or extension increases the total amount of the agreement. In that case, the Contracting Department shall incorporate the standard MCO contract language in the Model Contract Amendment (form P-550), referenced in Appendix A.
If an agreement specifies a maximum amount to be expended, then the Contracting Department shall use the maximum amount stated in the agreement to determine whether the agreement meets the MCO monetary threshold.
- Number of employees
If a Contractor has 5 or fewer employees, then the contract is exempt from the MCO. The number of employees includes:
¥ the Contractor's employees as of the date the contract is signed;
¥ the employees the Contractor reasonably believes it will hire during the course of the contract, whether those employees will work on the City contract or not;
¥ the employees of the Contractor's parent and subsidiary entities, if any;
¥ the employees of any subcontractors the Contractor proposes to use to perform all or a portion of the service covered by the contract.
The Contractor must provide written documentation of the number of employees for this exemption. A letter on the Contractor's letterhead, and signed by an officer who is authorized to legally bind the entity, shall be sufficient.
The number of employees shall be reviewed on a year-by-year basis. This means that if an employer has more than 5 employees at the beginning of the contract and the contract is covered by the MCO; or that the employer has 5 or fewer employees at the beginning of the contract and the contract is exempt from the MCO; then the employer in advance of the contract's anniversary date must recalculate the number of employees. If the number has risen to 6 or more, then the previously exempt contract becomes covered by the MCO for the next year. Conversely, if the number has fallen to 5 or fewer, then the previously covered contract becomes eligible for exemption from the MCO for the next year.
- Purchase of Goods
The MCO does not apply to the purchase of goods, or for guarantees, warranties, shipping, delivery, or initial installation of such goods. If a contract is for the purchase of both goods and services, then the Contracting Department shall make a determination whether the contract is primarily a goods contract or a service contract. The Contracting Department's determination is subject to review by the OCA. If the former, the MCO does not apply; if the latter, the MCO does apply.
In determining what a contract is primarily for, the Contracting Department shall consider the general nature of the contract, as well as how much of its cost is for goods, and how much for services. If the services account for more than 50% of the total cost, that is an indication that the contract is primarily for services.
If a contract's service and product components are clearly differentiated in the budget for a contract that includes both goods and services, then the MCO applies to the service component only if the service component meets the MCO's $25,000 threshold.
- Legal Proceedings
Contracts for the settlement of legal proceedings are exempt from the MCO, and those for urgent or specialized litigation advice may be exempt from the MCO if it is in the best interests of the City to do so. The OCA shall determine whether a contract is for the settlement of legal proceedings, and thus exempt. The City Attorney shall determine whether a contract is for urgent or specialized litigation advice, and whether it would be in the best interests of the City not to include the MCO. The City Attorney shall submit these findings to the OCA in writing.
- Grant or Special Fund Expenditures
Agreements involving the expenditure of grant or special funds by the City shall be exempt if the application of the MCO would violate the terms of the grant or any rule of the grantor agency that require compensation lower than the Minimum Compensation; and/or, if the City would be required to use general fund monies to supplement the grant or special funds in order to maintain the current level of services, such agreement shall also be exempt, subject to review by OCA. The OCA will consider blanket exemptions for non-profit contracts that are receiving grant or special funds for services. These funds shall not flow from the City's General Funds.
- Prevailing Rate of Wage
Section A7.204 of the San Francisco Charter and Chapter 6 of the San Francisco Administrative Code set forth agreements to which the prevailing rate of wage law applies. Such agreements shall be exempt from the MCO only if each covered employee receives the prevailing rate, and if the prevailing rate is higher than the wage required by the MCO.
- Trust Assets
Any agreement for the investment, management, or other use of trust assets shall be exempt if the application of the MCO would violate the fiduciary duties of the trustee.
- City Employee Benefits
Agreements to provide benefits to City employees shall be exempt from the MCO where the Director of Human Resources makes a determination that no entity is willing to comply with the MCO and is capable of providing the required benefits. The Director shall make such determination in writing and submit it to the OCA.
- City acting as Creditor or Grantor
If the City is providing funds in the form of loans or grants to entities for the purpose of: (1) acquiring an interest in real property on which residential improvements for low or moderate income households will be constructed, (2) constructing improvements on real property owned by grantee or debtor, if residents of the improvements qualify as low or moderate income households, or (3) rehabilitating improvements owned or leased by a grantee or debtor, then any agreement to provide such funds is exempt from the MCO.
- Non-Airport Leases
An agreement for the exclusive use of property owned by, or under the exclusive control of the City, and not under the jurisdiction of the Airport Commission, shall be exempt from the MCO.
- Investments that Violate Fiduciary Duties
Agreements for the investment of City monies where the Treasurer finds that requiring compliance with the MCO will violate Treasurer's fiduciary duties and for the investment of retirement, health or other funds held in trust pursuant to Charter, statute, ordinance or MOU where the official or officials responsible for investing or managing such funds finds that requiring compliance with the MCO will violate their fiduciary duties, shall be exempt from the MCO. To effect this exemption, the fiduciary must make its finding in writing and submit it to the OCA.
- Agreements Prior to Effective Date
Agreements entered into prior to October 8, 2000, or pursuant to and in accordance with solicitations advertised prior to October 8, 2000 and not amended thereafter, are exempt from the MCO.
Contractor May Suggest Exemption
The prospective Contractor may suggest to the Contracting Department that an exemption may be appropriate for the contract under consideration.