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
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          ____
          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.
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          ____
                            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
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          ____

          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. 









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          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 








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          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.