BILL ANALYSIS Ó
Bill No: AB
1517
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Staff Analysis
AB 1517 Author: Buchanan
As Introduced: January 13, 2012
Hearing Date: June 12, 2012
Consultant: Paul Donahue
SUBJECT
Public contracts: Information technology goods and services
DESCRIPTION
1)This bill deletes a July 1, 2013 sunset date on
provisions authorizing the Department of General Services
(DGS)-in lieu of requiring a performance bond on
information technology (IT) contracts and requiring the
withholding of at least 10% on IT progress payments-to
apply lesser withholding levels, as specified, based on
the evaluation of risk.
2)Thus, DGS would be allowed to withhold:
a) No less than 5% on a contract valued over $10
million; or,
b) No less than 3% on an IT contract valued less
than $10 million.
3)This bill also deletes provisions of law set to become
operative on July 1, 2013 that 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, to develop and maintain criteria for the
AB 1517 (Buchanan) continued
Page 2
evaluation of risk to the State in the acquisition of IT
goods or services.
2)Authorizes DGS until July 1, 2013 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.
3)Requires the California Technology Agency, 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 best interests of the state.
5)Commencing July 1, 2012, reinstates a 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.
BACKGROUND
1)Author's statement : This bill would give 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 with the necessary flexibility to
determine withholding percentages that best protect the
financial interests of the State, while also promoting
increased competition from vendors and lowering 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.
AB 1517 (Buchanan) continued
Page 3
2)DGS executes approximately 8,000 to 10,000 IT goods and
services contracts for state agencies annually, using a
best value, multi-phase process. While the majority of
these contracts may only take weeks or months to bid and
award, the procurement of large-scale IT systems may take
years. Though these large-scale projects comprise only 3%
of state IT contracts, they account for 35% of all such
contract expenditures.
3)Recent legislation has attempted to address the often low
number of bids received on these large IT contracts.
This bill extends indefinitely the authorizations
described below:
AB 617 (Torrico) of 2007 repealed the requirement that
IT vendors provide a performance bond worth 50% of the
state IT goods and services contract price. The intent
was to allow DGS to better negotiate with the vendor
on contract terms and conditions.
ABX4 21 (Evans) of 2009 authorized DGS to use risk
evaluation criteria to determine whether it was
appropriate to withhold less than 10% from progress
payments on an IT contract. Based on this assessment,
no less than 5% would be withheld on contracts
exceeding $10 million, and no less than 3% would be
withheld for contracts less than $10 million. DGS's
risk analysis also determines the need for additional
financial protections for a contract, which may
include performance bonds, letters of credit,
liquidated damages, independent deliverables, and
limitations of liability.
4)Support : Supporters note that former California law
required a performance bond in the amount of 50% on all
contracts with the State for IT goods or services that
contained "progress payments" provisions. However well
intended, these mandates served to severely limit
competition on state contracts because small IT companies
cannot afford scarcely available performance bonds.
Supporters believe there are several other methods by
which the State can secure performance by vendors, and
therefore supports making the current statutory
exemptions permanent.
AB 1517 (Buchanan) continued
Page 4
PRIOR/RELATED 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) 2005-2006 Session . 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. (Held in Senate
Appropriations Committee.)
SUPPORT:
Natoma Technologies
TechAmerica
OPPOSE:
None on file
FISCAL COMMITTEE: Senate Appropriations Committee
**********