BILL ANALYSIS Ó SENATE COMMITTEE ON EDUCATION Alan Lowenthal, Chair 2011-2012 Regular Session BILL NO: SB 835 AUTHOR: Wolk AMENDED: June 30, 2011 FISCAL COMM: Yes HEARING DATE: September 1, 2011 URGENCY: No CONSULTANT:Daniel Alvarez NOTE: This bill has been referred to committee pursuant to Senate Rule 29.10 because Assembly amendments either deleted or substantially changed the version of the bill that passed the Senate earlier this year. At today's 29.10 hearing, the committee may not amend the bill further and may only hold the bill or return the bill as approved by the committee to the Senate floor. SUBJECT : University of California: Best Value Procedures. SUMMARY This bill extends the sunset and expands the application of the University of California (UC) San Francisco pilot program - to all UC campuses and medical centers - to award construction contracts on a "best value" basis, rather than just the lowest responsible bid. The sunset would be extended from January 1, 2012, to January 1, 2017. BACKGROUND Current law authorizes the University of California (UC) to conduct a pilot program, from January 2007 through December 2011, at their San Francisco campus that allows for construction contracts to be awarded on a "best value" basis, rather than just to the lowest bid. (Public Contract Code § 10506.4 et. seq.) "Best value" means a procurement process whereby the lowest responsible bidder may be selected on the basis of objective criteria with the resulting selection representing the best combination of price and qualifications. SB 835 Page 2 ANALYSIS This bill: 1) Expands the "best value" pilot program to all UC campuses and medical centers for construction projects exceeding $1 million. 2) Extends the sunset for the expanded pilot program from January 1, 2012, to January 1, 2017, whereby the UC is permitted to award construction contracts on the basis of "best value" rather than just to the lowest bid. 3) Clarifies that the UC Regents will adopt and publish guidelines for evaluating the qualifications of bidders when awarding contracts based on "best value" procedures. 4) Redefines "best value" to mean a procurement process whereby the lowest responsible bidder may be selected on the basis of objective criteria for evaluating the qualifications of bidders with the resulting selection representing the best combination of price and qualifications. 5) Requires UC to submit a report to the Legislature, by January 1, 2016, that describes the various aspects of the implementation of the program, including an assessment of project performance and a summary of any delays or increases in costs. STAFF COMMENTS 1) Need for the bill . According the University of California, the sponsor of the bill, "best value" contracting ensures that there is a match between the price proposed and the capability of the contractor to perform the work. Use of the best value method of evaluation to select a contractor allows the university to take into account both the proposed price and other defined criteria, including financial condition, relevant experience and demonstrated management competency. 2) As passed by the Senate , the "best value" approach applied only to UCSF campus and extended the pilot program sunset to January 2015, with a report to the Legislature due January 2012. SB 835 Page 3 3) Additional Background . Chapter 367, Statutes of 2006 (SB 667, Migden) established a five-year pilot program (1/1/2007 - 12/31/2011) authorizing UCSF to assign a "qualification score" to each construction contractor's bid which could, when divided into the bidder's price, impact determination of the lowest cost per quality point based upon five factors which impart best value to the University. The five statutory non-price factors are (1) financial condition, (2) relevant experience, (3) demonstrated management competency, (4) labor compliance, and (5) safety record of the bidder. 4) Interim Report . 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: a) A decrease in bid protests, communication problems, disputes, the need for multiple inspections and re-work, change order requests and claims, and litigation; b) An increase in incentives for contractors to perform high-quality work safely, while adhering to high-labor standards; c) 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"); d) 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 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 SB 835 Page 4 with bid protests, claims, and litigation. 5) According to opponents the selection of a contractor based on "best value" qualifications may lead to favoritism and fraud. The lowest responsible bidder is an objective standard devoid of interpretation. 6) Senate Rule 29.10 . This bill has been referred to committee pursuant to rule 29.10 because Assembly amendments either deleted or substantially changed the version of the bill that passed the Senate earlier this year. At today's 29.10 hearing, the committee may not amend the bill further and may only hold the bill or return the bill as approved by the committee to the Senate floor. 7) Assembly votes . Floor: 50-23 Appropriations: 10-5 Business, Professions and Consumer Protection Committee: 6-1 SUPPORT (as of 10am Wednesday 8/30) University of California California Legislative Conference of the Plumbing, Heating and Piping Industry Associated General Contractors National Electrical Contractors Association - California Chapter OPPOSITION (as of 10am Wednesday 8/30) Engineering and Utility Contractors Association Southern California Contractors Association