BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1517|
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CONSENT
Bill No: AB 1517
Author: Buchanan (D)
Amended: As introduced
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMM. : 13-0, 6/12/12
AYES: Wright, Anderson, Berryhill, Calderon, Cannella,
Corbett, De León, Evans, Hernandez, Padilla, Walters,
Wyland, Yee
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 74-0, 4/26/12 (Consent) - See last page
for vote
SUBJECT : Public contracts
SOURCE : Author
DIGEST : This bill deletes the 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.
ANALYSIS : Existing law generally requires DGS, for any
contract for information technology goods or services
meeting specified requirements, to provide that not less
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than 10% of the contract price is required to be withheld
until final delivery and acceptance of the goods and
services, and requires the department to conduct a risk
evaluation, as specified. However, existing law, until
July 1, 2013, requires DGS, if it determines that lesser
withholding levels are appropriate based on the evaluation
of risk, to withhold no less than 5% of the contract price,
if the contract price is $10 million or more, or no less
than 3% of the contract price, if the contract price is
less than $10 million, until final delivery and acceptance
of the goods or services.
Existing law, operative until July 1, 2013, also requires
DGS, in consultation with the Department of Finance, to
develop and maintain criteria for the evaluation of risk to
the state that results from the acquisition of information
technology goods or services and requires DGS to submit the
criteria developed and maintained for the evaluation of
risk to the state that results from the acquisition of
information technology goods and services to the Joint
Legislative Budget Committee and to the State Chief
Information Officer, as specified. Existing law, until
July 1, 2013, requires the State Chief Information Officer
to review all contracts approved pursuant to this
provision, as specified, and to submit a report to the
Legislature, as provided. Existing law, commencing July 1,
2013, requires a contractor to submit a faithful
performance based in a specified sum.
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 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.
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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.
Prior/Related Legislation
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.
AB 21X4 (Evans), Chapter 19, Statutes of 2009-10, 4th
Extraordinary Session, 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 3% 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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SUPPORT : (Verified 8/7/12)
Government Technology Solutions
TechAmerica
TechNet
ARGUMENTS IN SUPPORT : 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."
According to TechNet, "This legislation would remove the
current July 1, 2013 sunset date from the Public Contract
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."
ASSEMBLY FLOOR : 74-0, 4/26/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Beth
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Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell, Grove,
Hagman, Hall, Hayashi, Roger Hernández, Hill, Huber,
Hueso, Huffman, Jeffries, Knight, Lara, Logue, Bonnie
Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel Pérez, Portantino, Silva, Skinner,
Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski,
Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Cedillo, Furutani, Halderman, Harkey,
Jones, Smyth
DLW:m 8/7/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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