BILL ANALYSIS SB 1122 Page 1 Date of Hearing: June 15, 2010 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Mary Hayashi, Chair SB 1122 (Wright) - As Amended: March 22, 2010 SENATE VOTE : 33-0 SUBJECT : Public contracts: University of California: competitive bidding and employment. SUMMARY : Increases the threshold above which the University of California (UC) must let goods and services contracts to $100,000, and exempts student employees holding multiple campus positions from certain conflict of interest provisions. Specifically, this bill : 1)Increases the annual expenditure threshold above which UC is required to competitively bid contracts for materials, goods and specified services from $50,000 to $100,000. 2)Exempts student UC employees from the prohibition on concurrent employment sponsored or funded by UC, as specified, for additional campus activities or engagements outside of the scope of their primary university employment. EXISTING LAW : 1)Requires UC to let all contracts with expenditures of more than $50,000 annually for goods and materials to the lowest responsible bidder. 2)Requires UC to let contracts for services to be performed, other than personal or professional, with expenditures of more than $50,000 annually to the lowest responsible bidder. 3)Exempts officers or employees of the university with teaching or research responsibilities from employment restrictions when sponsored or funded by university departments or contracts unrelated to the officer or employee's regular university employment. FISCAL EFFECT : Unknown SB 1122 Page 2 COMMENTS : Purpose of this bill . According to the author's office, "This bill makes changes to the Public Contract Code (PCC) to provide for increased efficiencies and cost savings for the UC. Specifically, this bill would increase the UC's purchasing bid threshold for goods and services from $50,000 to $100,000. The statutory purchasing bid threshold of $50,000 for goods and services was put in place in 1985, while the cost of goods and services has more than doubled since that time. A formal bid process on relatively small contracts adds significantly to costs and the complexity can serve as a barrier to small businesses." On a separate provision, the author's office adds that "the PCC contains a conflict of interest provision that creates an administrative barrier for student employees that are employed in a campus department to receive timely payment for other campus activities (e.g., performing arts)." Background . Existing law establishes a competitive bid threshold for goods and services purchase by UC of $50,000. For purchases in excess of $50,000, UC must competitively bid the goods and services. According to UC, bids are managed by the Procurement department, which is understaffed. Increasing the bid threshold to $100,000 before conducting a competitive bid process creates greater efficiencies and reduces costs because it takes anywhere from two to 12 months to run a bid process depending upon the complexity, number or bids, and the origin of the bid. According to UC, the change in the bid threshold proposed by this bill affects contracts for goods, materials and services that can include items such as laboratory instruments and supplies, chemical reagents, computer software licenses and updates, janitorial supplies, commercial kitchen supplies, furniture, consultant services, and equipment repair, among other things. This bill does not affect UC contracts for labor and materials related to construction projects, which, under current law, are subject to a $50,000 competitive bid threshold. Current law prohibits university employees, including student employees from engaging in any employment, activity or enterprise for compensation when that employment is sponsored or funded by university departments or contracts unrelated to the SB 1122 Page 3 officer or employee's regular university employment. According to UC, these provisions continually raise issues for student employees employed by campus departments but receiving payment for other campus activities as well. Though these students eventually get paid, this requires issuance of an exception, review and research by campus purchasing and human resource directors, then manual keying of each check by staff processors, resulting in delaying payment to students and increased administrative costs. Support . According to the sponsor, UC, "Currently, if UC anticipates that it will spend more than $50,000 with any one supplier, it must run a competitive bid process?. Formal bud processes can be costly and the complexity of bid requests can serve as a barrier to small business. California small businesses often do not have the resources to respond to UC bid proposal requests and are challenged in meeting UC requirements in the formal competitive bid process. "Increasing the bid threshold would result in immediate cost savings for UC by reducing the number of contracts that would be subject to the bid process. UC estimates that this proposal would save $780,000 annually in administrative costs associated with managing a competitive bid proposal. Additionally, increasing the limit would make the requirements for the procurement of goods and services for UC more in line with those of the California State University, which has a less rigorous process for bids between $50,000 and $100,000. "SB 1122 would exempt student employees from an existing provision that prohibits university employees from being an independent contractor with any university department to provide services or goods. The existing law, which includes an exemption for employees in teaching and research positions, raises issues for many of our student employees not covered by this exemption. Many student employees perform other activities at UC to supplement their income, such as performing arts. Because existing law does not provide a specific exemption for student employees, UC must review payments to these students on a case-by-case basis to determine if it is allowed by law. "This review process, which occurs approximately 475-500 times per year, can result in delayed payments to students of up to three weeks. In addition to allowing more timely payment to students, UC estimates that an exemption would result in SB 1122 Page 4 additional administrative cost savings for UC upwards of $175,000 annually." Previous Legislation . AB 2037 (Portantino) of 2008 would have increased: the expenditure threshold above which UC is required to competitively bidding construction projects from $50,000 to $100,000; the thresholds below which UC may use its own employees rather than contract out for labor from $20,000 to $100,000 for painting projects and from $50,000 to $100,000 for all other projects; and, the threshold under which UC can use an informal competitive bidding process from $100,000 to the definition of minor capital outlay as determined by the Department of General Services. This bill was amended to address an unrelated subject matter. SB 1596 (Yee) of 2008 would have limited the terms of all contracts for goods, materials, and services awarded by UC to no more than three years and would have limited any contract extensions to one year. This bill was held in the Senate Appropriations Committee. SB 1467 (Bowen), Chapter 1122, Statutes of 2002, applies standard PCC conflict of interest and penalty provisions to procurement by UC. Double-referred . This bill is double-referred to Assembly Higher Education Committee. REGISTERED SUPPORT / OPPOSITION : Support University of California (sponsor) Opposition None on file. Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916) 319-3301