BILL ANALYSIS Ó
AB 1517
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Date of Hearing: March 27, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 1517 (Buchanan) - As Introduced: January 13, 2012
SUBJECT : Public contracts: information technology goods and
services.
SUMMARY : Deletes the July 1, 2013 sunset date authorizing the
Department of General Services (DGS) to withhold less than 10%
of the price of an information technology (IT) goods and
services contract requiring progress payments, as specified.
Specifically, this bill :
1)Deletes the July 1, 2013 sunset date for state IT goods and
services contracts requiring progress payments, thereby
allowing DGS to withhold:
a) No less than five percent of a contract valued over $10
million; or,
b) No less than three percent of an IT contract valued less
than $10 million.
2)Deletes provisions of law that would become operative on July
1, 2013 and require an IT vendor to provide a performance bond
equal to 50% of the value of a state IT goods and services
contract.
EXISTING LAW :
1)Requires DGS, in consultation with the Department of Finance
(DOF), to develop and maintain criteria for the evaluation of
risk to the State in the acquisition of IT goods or services.
2)Authorizes DGS to determine whether withholding levels less
than 10% of a state IT goods and services contract requiring
progress payments is appropriate by evaluating the risk to the
State in the acquisition. DGS may withhold no less than five
percent of contracts valued at $10 million or more and no less
than three percent for contracts valued less than $10 million,
until July 1, 2013.
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3)Requires the California Technology Agency (CTA), by July 1,
2013, to review and report to the Legislature on approved IT
goods and services contracts affected by the flexible
withholding schedule along with any recommendations for
changes to law or the risk evaluation criteria.
4)Authorizes DGS, until July 1, 2013, to require an IT vendor on
a state goods and services project to provide an acceptable
performance bond in an amount DGS determines is in the state's
best interest.
5)Reinstates the provision of law requiring an IT vendor on a
state goods and services project to provide a performance bond
equal to 50% of the value of the contract, commencing July 1,
2013.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "AB
1517 removes the July 1, 2013 sunset date Ýallowing DGS to
withhold less than 10% of the value of a state IT goods and
services contract]. Removal of this sunset date Ýgives] DGS
continued flexibility in determining the appropriate contract
price withholding percentage for state IT contracts based on a
risk evaluation. Current law requires DGS to evaluate each
state IT contract that includes progress payments based on DGS's
risk-mitigation framework developed by DGS in consultation with
DOF and the CTA to determine the most appropriate withholding
percentage. This current process provides DGS Ýwith] the
necessary flexibility to determine withholding percentages that
best protect the financial interests of the State, while also
promoting increased competition from vendors and lowerÝing]
contract costs for the State. If this sunset date is not
removed, DGS will no longer have this extra flexibility and will
instead have to require a one size fits all 10% minimum contract
withholding percentage."
Background . DGS executes approximately 8,000 to 10,000 IT goods
and services contracts for state agencies annually. These
purchases include IT hardware, software, services, and systems.
State IT goods and services contracts are procured using a best
value, multi-phase process that is not entirely dependent on the
lowest bid. First, DGS reviews and accepts bids meeting
AB 1517
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baseline bid specifications. Then, DGS interviews qualifying
vendors to negotiate and refine the terms of the bid and to
clarify proposed project details. Afterwards, vendors submit a
final bid proposal and DGS scores the bid and awards the
contract to the highest-scoring bid.
While the majority of state IT goods and services contracts may
only take weeks or months to bid and award a contract, the
procurement of large-scale IT systems may take years and require
additional levels of financial protection that the vendor must
comply with. Large-scale IT projects account for 35% of all
state IT goods and services contract expenditures even though
they comprise only three percent of the number of state IT
contracts. As a result, DGS may receive only one bid or two
bids for any large-scale project and an uncompetitive bid offer.
Recent legislation has addressed the low number of bids
submitted for state IT goods and services projects and to
encourage more vendors to bid.
AB 617 (Torrico), Chapter 736, Statutes of 2007, repealed the
requirement that IT vendors provide a performance bond worth 50%
of the state IT goods and services contract price. The
performance bond requirement was eliminated to allow DGS to
simultaneously better negotiate with the vendor on contract
terms and conditions while receiving competitive bids.
ABX4 21 (Evans), Chapter 19, Statutes of 2009, authorized DGS to
use risk evaluation criteria to determine whether it was
appropriate to withhold less than the standard 10% of the value
of an IT goods and services contract requiring progress payments
from a vendor until final completion of a project. This
assessment would be used to retain no less than five percent of
contracts valued at $10 million or more, and no less than three
percent for contracts valued at less than $10 million. DGS's
risk analysis must also determine what final protections the
state would need for the contract, which may include
withholding, performance bonds, letters of credit, liquidated
damages, independent deliverables, and limitations of liability,
depending on the level of risk a vendor poses to the awarding
entity.
Support . According to TechNet, "This legislation would remove
the current July 1, 2013 sunset date from the Public Contract
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Code, which will enable DGS to continue its current practice of
determining the appropriate contract withholdings. TechNet
believes that this legislation will provide opportunities for
more companies to bid on state contracts, thereby increasing
competition for state IT contracts. This is beneficial not only
to the many companies who are interested in competing for state
IT opportunities, but also for the state."
Previous Legislation . ABX4 21 (Evans), Chapter 19, Statutes of
2009, authorized DGS to use risk evaluation criteria to
determine whether it is in the state's best interest to withhold
less than 10% of the value of an IT goods and services
contracts, as specified.
AB 617 (Torrico), Chapter 736, Statutes of 2007, repealed the
requirement that IT vendors provide a performance bond worth 50%
of the value of an IT goods and services contract.
AB 2561 (Horton) of 2006, would have deleted the requirement
that IT contractors provide a performance bond worth 50% of the
value of a state IT goods and services contract requiring
progress payments. This bill was held in the Senate
Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Government Technology Solutions
TechAmerica
TechNet
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301