BILL ANALYSIS Ó
Bill No: AB
740
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Bill Analysis
AB 740 Author: Blumenfield
As Introduced: February 17, 2011
Hearing Date: June 28, 2011
Consultant: Paul Donahue
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.
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.
3) Provides that contracting is permissible, after the
state makes every effort to use civil servants to provide
services, when any of the following can be met:
a) The services are exempt as defined by the State
Constitution (Article VII);
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;
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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.
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 circumventing or
disregarding the SPB's action by entering into another
contract for the same or similar services or to continue
the services that were the subject of the contract that was
disapproved.
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 a statement of related findings and declarations.
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COMMENTS :
1) Rationale : 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.
"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."
2) State Personnel Board review of contracts : Section
19130 of the Government Code codifies the exceptions to the
civil service mandate recognized in various court
decisions. The purpose of SPB's review of contracts under
Government Code § 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, after review, issues a decision that approves or
disapproves the contract.
3) State Auditor report : 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 request by the Joint Legislative Audit
Committee. The Auditor's report discloses that SPB
disapproved seventeen IT contracts over the last five years
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because the departments did not justify contracting for
these services under the conditions set forth in Government
Code § 19130. The union prevailed in 17 of its 23 IT
contract challenges, but many of SPB's decisions were moot
because the contracts had already expired before SPB had
ruled on the validity of the contract.
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.
The Auditor recommended that the Legislature specify that
contracts disapproved by SPB be terminated and state
agencies be required to provide documentation to SPB and
the applicable bargaining unit representatives indicating
that the contracts have in fact been terminated. The
Auditor also recommended that the Legislature clarify the
circumstances under which 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.
4) Veto of similar legislation in 2010 : Governor
Schwarzenegger vetoed AB 2494 (Blumenfield) 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."
5) Related legislation :
SB 252 (Vargas, 2011) requires a state agency or department
that enters into a privatization contract, as defined, to
report to the Department of General Services (DGS)
regarding that privatization contract and requires DGS to
make that report available for public inspection pursuant
to the California Public Records Act. (Assembly G.O.
Committee)
AB 172 (Eng, 2011) would establish the Reporting
Transparency in Government Internet Web Site to provide
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audit and summary data regarding contracts valued at $5,000
or more to the public. (On calendar today in this
Committee)
AB 2494 (Blumenfield, 2010) would have required a state
agency to immediately discontinue a contract that has been
disapproved by SPB, unless otherwise ordered. (Vetoed)
AB 756 (Eng, 2009) would have required a state agency to
provide a link to a centrally located and accessible state
Internet website that includes a list of the personal
services and consulting services entered into by the
agency. (Vetoed)
SB 1596 (Yee, 2008) would have required the Regents of the
University of California to establish a contractor
responsibility program and to establish a centralized
contract information data warehouse and would have required
contractors to file a questionnaire with the Regents
regarding such information with civil penalties for filing
incorrect information. (Held on the Senate Appropriations
Suspense File)
SB 1331 (Oropeza, 2008) would have required the Governor,
as part of the state budget, to submit to the Legislature
information regarding current and proposed service
contracts with a value of $5000 or more. (Held in Senate
Rules Committee)
SUPPORT:
American Federation of State, County and Municipal
Employees
California Labor Federation, AFL-CIO
Professional Engineers in State Government
Service Employees International Union, Local 1000
OPPOSE:
None on file
FISCAL COMMITTEE: Senate Appropriations Committee
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