BILL ANALYSIS Ó SB 741 Page 1 Date of Hearing: June 14, 2011 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Mary Hayashi, Chair SB 741 (Dutton) - As Introduced: February 18, 2011 SENATE VOTE : 40-0 SUBJECT : Alternative Protest Pilot Project. SUMMARY : Deletes the sunset date for the Alternative Protest Process (APP), which is a alternative protest process used by the Department of General Services (DGS) for state contracts related to the acquisition of information technology (IT), materials, supplies, equipment, and ancillary services, in order to expedite a protest decision and utilize arbitration as a resolution tool. EXISTING LAW : 1)Establishes the APP, which provides for alternative protest procedures for state contracts related to the acquisition of IT materials, supplies, equipment, and ancillary services. 2)Sunsets the APP on December 31, 2011. 3)Requires a contracting department, in order to be eligible for the APP, to agree to participate, and requires bid submissions to be subject to the APP. 4)Requires any bid protest conduct under the APP to include one or more of the following alternative procedures: a) Prohibits the APP from preventing work from commencing on a project for an awarded contract and permits a contract to be entered into pending a final decision on the protest; b) Requires DGS to review the protest within seven days of the filing date to determine if the protest is frivolous. If determined to be frivolous, the protest shall not proceed until the bidder posts a protest bond in an amount not less than 10% of the estimated contract value; SB 741 Page 2 c) Requires DGS to issue a decision within 45 days from the date the protest is filed; or, d) Requires arbitration, as defined and established by DGS, to be the resolution tool. FISCAL EFFECT : Unknown COMMENTS : Purpose of this bill . According to the author's office, "SB 741 seeks to remove the sunset date for the APP. The APP process has been proven to effectively reduce the time and cost of the appeals process - cases were resolved at least 40% faster for all protests and 49% faster for protests that went to hearing. Given its success, the sunset date should be removed and the program should be made permanent." "In addition, under the traditional protest process, the full cost of a protest hearing is borne by the state. Conversely, under the APP, a protestant is required to put up an arbitration deposit ranging between $1,000 and $7,000, depending upon the estimated contract value (California certified small businesses submit a copy of their certification in lieu of the deposit)." Background . The APP was established in 1998 as a pilot project, and its sunset date was extended twice. The traditional protest process provides that any unsuccessful bidder may appeal or protest the proposed award of a contract for the acquisitions of goods or IT services. If the issues cannot be resolved between the state department and the unsuccessful bidder, the California Victim Compensation and Government Claims Board decides the protest. Under this process, a contract under protest cannot be awarded until the protest is resolved and there is no statutory or regulatory time limitation to resolve protests. This can prove to be an expensive and time-consuming process and often delays the progress of many state programs. For example, major IT projects that are protested often take months to resolve. Additionally, if a contractor holds an existing contract with a state agency, but loses the subsequent award, the contractor will often file a protest just to prolong the contract period. Under the provisions of the APP, any unsuccessful bidder may appeal or protest the proposed award of a contract for the SB 741 Page 3 acquisition of goods or IT, and the Office of Administrative Hearings decides the protest. A contract may be awarded prior to the resolution of the protest and an alternative protest must be resolved within 45 days. At the discretion of the Administrative Law Judge, the timeline may be extended for an additional 15 calendar days. This allows state programs to plan and avoid costly delays. From July 1, 2000 to June 30, 2009, DGS approved 22% of all solicitations for participation in the APP. Protests administered under the APP were resolved, on average, in half the time as protests filed under the traditional process, with no significant subsequent challenges in the courts. Previous Legislation . SB 837 (Dutton), Chapter 272, Statutes of 2005, extended the sunset date for the APP to December 31, 2011. SB 951 (Committee on Governmental Organization), Chapter 610, Statutes of 2001, extended the sunset date for the APP to December 31, 2005. AB 1159 (Bowen), Chapter 762, Statutes of 1997, established the APP, with a sunset date of December 31, 1999. Support . According to the sponsor, DGS, "The key to the APP process is a fast and fair protest decision and DGS has found the APP to be a very effective tool for resolution of protests on contract awards. Under its provisions, DGS is required to issue a protest decision within 45 days using arbitration and is authorized to dismiss frivolous protests. Suppliers carefully weigh the merits of filing a frivolous protest knowing that they must post a bond at least 10% of the value of the contract. "DGS has experienced considerable savings from the use of the expedited protest process conducted under the APP. In fact, the resolution period for protests resolved under the APP is one-half the time of those resolved under the traditional protest process. Making these alternative provisions permanent in statute allows DGS to continue to utilize this streamlined protest process, make government more efficient, and save money." REGISTERED SUPPORT / OPPOSITION : Support SB 741 Page 4 Department of General Services (sponsor) Opposition None on file. Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916) 319-3301