BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 835 (Wolk) Hearing Date: 5/9/2011 Amended: 3/23/2011 Consultant: Bob Franzoia Policy Vote: Education 10-0 _________________________________________________________________ ____ BILL SUMMARY: SB 835 would extend from January 1, 2012, to January 1, 2015, a pilot program authorizing the University of California (UC) to award contracts based on the best value procedures. This bill would require the UC to submit a report on the pilot program before January 1, 2012. By extending the requirement that bidders verify specified information under oath, this bill would impose a state mandated local program by expanding the scope of an existing crime. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Sunset extension Minor reporting cost one time; unknown, General likely major savings through 1/1/2015 over competitive (low bid) bidding process _________________________________________________________________ ____ STAFF COMMENTS: Chapter 367/2006 established a five year pilot program implementing a "best value" bidding process at the UC San Francisco campus. Existing law requires the UC Regents to let any contract for a project to the lowest responsible bidder. This bill would authorize the UC to select the lowest responsible bidder on the basis of the best combination of price and qualifications, including financial condition, relevant experience, and demonstrated management competency. According to the UC, this "best value" approach creates an incentive for contractors to work with UC staff to identify issues early, eliminate the need for litigation and arbitration where possible, and complete projects on time and on budget. Failure by contractors to demonstrate management competency reducing their ability to secure future contracts because their best value is reduced. SB 835 (Wolk) Page 1 The value of competitive bidding is based on the assumption that competition for projects will drive the lowest cost, but for many projects the low bidder is not the contractor who can deliver a complex project on time and at a reasonable price. For example, a lowest bidder wins a contract to build a facility based on his or her bid of $10 million. In this case, the contractor encounters problems and by the time the facility is finished costs have risen to $11 million. Under best value contracting, the UC could award a contract to a contractor who bid $10.5 million and because of the competency of the contractor, the project is constructed for that amount and delivered on time. If the cost of the project was determined solely on the basis of the initial bids, use of a contractor other than the lowest bidder would appear to result in increased costs. If the cost of the project was determined by the costs incurred at the point of beneficial occupancy, the best value bidder would have the lowest cost. In February 2010, the UC issued an interim report on the "Best Value Pilot Program." Since the pilot was initiated, UCSF reports having awarded 23 contracts totaling $158.3 million under the program - the executive summary indicates the following: (1) A decrease in bid protests, communication problems, disputes, the need for multiple inspections and re-work, change order requests and claims, and litigation; (2) An increase in incentives for contractors to perform high-quality work safely, while adhering to high-labor standards; (3) Increased likelihood of contractors staffing a project with their best workers and to choose subcontractors which are most appropriate for the work (rather than "low bid"); (4) A reduction in administrative oversight and contract/project management staff time. UCSF believes that the Best Value Construction Pilot Program has demonstrated that this selection method results in contracts with a higher success rate in terms of price, quality, and timely completion. Based on the volume of construction SB 835 (Wolk) Page 2 contracts bid in 2009 and 2010 - and applying the most conservative estimate of savings to that number based on Pilot Program experience (savings = two percent of contract value) - UCSF would expect to yield approximately $30 million in annual savings. In addition, UCSF notes that savings also accrue from avoiding costs associated with bid protests, claims, and litigation.