BILL ANALYSIS Ó
AB 740
Page 1
Date of Hearing: April 5, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 740 (Blumenfield) - As Introduced: February 17, 2011
SUBJECT : Personal services contracts.
SUMMARY : Requires a state agency to immediately discontinue a
contract that has been disapproved by the State Personnel Board
(SPB), unless otherwise ordered. Specifically, this bill :
1)Requires a state agency to immediately discontinue a contract
that SPB or its delegate disapproves, unless otherwise ordered
by SPB or its delegate.
2)Prohibits the state agency from entering into another contract
for the same or similar services, or from continuing the
services that were the subject of the contract disapproved by
SPB or its delegate.
3)Requires a state agency ordered to discontinue a contract to
serve notice to the vendor within 15 days from SPB's final
action, unless another time period is specified, and requires
the state agency to provide a copy of the notice to SPB and
the employee organization that filed the contract challenge.
4)Declares that failure of the state agency to provide notice to
the vendor, SPB, and employee organizations may be grounds for
rejection of future contracts for the same or similar services
that were discontinued.
5)Makes findings and declarations.
EXISTING LAW :
1)Governs contracting between state agencies and private
contractors, and sets forth requirements for the procurement
of supplies, materials, equipment, and services by state
agencies.
2)Provides that contracting is permissible to achieve cost
savings when specified conditions are met, and all efforts are
made to use civil servants to provide services.
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3)Provides that contracting is permissible, after all efforts
are made to use civil servants to provide services, and when
any of the following can be met:
a) The services are exempt as defined by the State
Constitution;
b) The services are for new state functions and the
Legislature has specifically authorized contracting for the
services;
c) The work is of a highly technical nature and the skills
needed cannot be provided by civil servants;
d) The services are incidental to the purchase of goods;
e) The services are contracted to avoid a conflict of
interest;
f) Emergency services are being provided;
g) Legal services are provided to avoid a conflict of
interest;
h) It is infeasible for the state to provide the services;
i) Service providers are training civil servants on an
interim basis; or,
j) Services provided are temporary, urgent, or of an
occasional nature.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "The
state in 2009 paid an estimated $34 billion for 13,600 personal
services and consulting contracts. A recent report by the
California State Auditor (Auditor) cited serious flaws in the
process for personal services contracts ordered terminated. AB
740 would implement key recommendations by the Auditor to remedy
the serious flaws.
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"The Auditor concluded that a serious problem was the lack of
knowing whether state agencies are complying with SPB's decision
to disapprove a contract. The Auditor also stated that under
current law state departments are able to enter into new
contracts for substantially the same services that had already
been reviewed and rejected."
"This bill would: specify that contracts disapproved by SPB
must be terminated; require state agencies that have had
contracts ordered terminated to notify and provide documentation
of compliance to SPB and applicable unions; and, prohibit state
agencies from entering into subsequent contracts for
substantially the same service that had been under SPB review
and rejected."
Background . On March 12, 2008, the Assembly Business and
Professions Committee along with the Assembly Public Employees,
Retirement and Social Security Committee, held a joint hearing
entitled, "Use of Personal Services Contracts for Informational
Technology Services in State Government." A memo provided by
SPB outlines the civil service mandate: "Government Code
Section 19130 codifies the exceptions to the civil service
mandate recognized in various court decisions. The purpose of
SPB's review of contracts under Government Code Section 19130 is
to determine whether, consistent with Article VII and its
implied civil service mandate, state work may legally be
contracted to private entities or whether it must be performed
by state employees.
"A state agency seeking to enter into a personal services
contract on a cost savings basis must submit the contract to the
SPB for review and approval prior to the contract becoming
effective. Upon receipt of the request for contact review, SPB
will forward the contract to the affected employee organization.
The employee organization can file a challenge to the contract
within ten days of receipt of the notification by the SPB. If
the employee organization challenges the contract, SPB's
Executive Officer will, after receipt of written briefs from the
parties, issue a decision that approves or disapproves the
contract."
In September 2009, the Auditor prepared an audit report on the
use of information technology personal services and consulting
contracts (IT contracts) at Department of Health Care Services
(DHCS) and Department of Public Health (DPH), following a
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request by the Joint Legislative Audit Committee. According to
the Auditor, over the last five years, SPB has disapproved 17 IT
contracts because the departments, upon formal challenges from a
union, could not adequately justify contracting under the
Government Code Section 19130. Although the union prevailed in
17 of its 23 IT contract challenges, many of SPB's decisions
were moot because the contracts had already expired before SPB
rendered its decisions.
According to the Auditor, because SPB lacks a mechanism for
determining whether state agencies comply with its decisions,
the departments experienced no repercussions for failing to
terminate these contracts. Although not prohibited by law from
doing so, the departments entered into numerous subsequent
contracts for the same services as those in the contracts
previously disapproved by SPB.
The Auditor recommended that the Legislature specify that
contracts disapproved by SPB be terminated and require state
agencies to provide documentation to SPB and the applicable
unions to demonstrate to the satisfaction of SPB the termination
of these contracts. The Auditor also recommended that the
Legislature clarify when state agencies must terminate contracts
disapproved by SPB, when payments to the contractors must cease,
and for what periods of service the contractors are entitled to
receive payments.
Support . According to the sponsor, Service Employees
International Union (SEIU) Local 1000, "This bill improves
government operations and saves money in California?. After an
investigation into certain IT contracts in DHCS and DPH, the
Auditor concluded that there is no mechanism for knowing whether
state agencies are complying with SPB's decision to disapprove a
contract and made several legislative recommendations. The
Auditor estimates that changes made in contracting practices and
conversion of certain IT contracts to state positions saved the
state more than $1.7 million. This bill would codify some of
those key recommendations and ensure that when SPB takes action
on an abusive contract, that action is complied with."
According to the California Labor Federation, "When government
services are contracted out, there is often less public
oversight. Contracts may be duplicative of work already done by
public employees or even more costly than keeping work in-house.
At a time of such scarce public resources, we simply cannot
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afford to enter into or maintain contracts without real
accountability."
Previous Legislation . AB 2494 (Blumenfield) of 2010 was a
similar bill that would have required a state agency to
immediately discontinue a contract that has been disapproved by
SPB, unless otherwise ordered. The Governor vetoed AB 2494 with
the following message: "The abrupt termination of contracts
that may be providing critical services could leave departments
unable to meet their programmatic responsibilities and cause
unknown fiscal and operational problems. Furthermore, it is
unclear if the immediate discontinuation of a contract as a
result of this bill may conflict with the termination language
in the terms and conditions of that contract."
REGISTERED SUPPORT / OPPOSITION :
Support
Services Employees International Union (SEIU) Local 1000
(sponsor)
California Labor Federation
California State Employees Association
Professional Engineers in California Government
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301