BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  SB 1280|
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                              UNFINISHED BUSINESS


          Bill No:  SB 1280
          Author:   Pavley (D)
          Amended:  8/13/12
          Vote:     21

           
           SENATE EDUCATION COMMITTEE  :  9-0, 4/25/12
          AYES:  Lowenthal, Alquist, Blakeslee, Hancock, Huff, Liu, 
            Price, Simitian, Vargas
          NO VOTE RECORDED:  Runner, Vacancy

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           SENATE FLOOR  :  33-0, 5/25/12
          AYES:  Alquist, Anderson, Berryhill, Blakeslee, Cannella, 
            Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, 
            Evans, Fuller, Gaines, Harman, Hernandez, Huff, La Malfa, 
            Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, 
            Pavley, Price, Rubio, Steinberg, Vargas, Walters, Wolk, 
            Wright, Yee
          NO VOTE RECORDED:  Calderon, Hancock, Kehoe, Runner, 
            Simitian, Strickland, Wyland

           ASSEMBLY FLOOR  :  72-3, 8/23/12 - See last page for vote


           SUBJECT  :    Public contracts:  University of California and 
          California 
                      Community College districts

           SOURCE  :     Glendale Community College District
                      Kern Community College District
                      Los Angeles Community College District
                                                           CONTINUED





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                      Peralta Community College District
                      San Bernardino Community College District
                      San Diego Community College District
                      San Jose-Evergreen Community College District
                      University of California
                      West Kern Community College District
                      Yosemite Community College District


           DIGEST  :    This bill, until January 1, 2018, authorizes a 
          California Community College (CCC) district and the 
          University of California (UC) to let any contract for 
          expenditures greater than $50,000 and $100,000, 
          respectively for the purchase of supplies and materials in 
          accordance with "best value" policies as adopted by the 
          local governing board, and UC Regents, respectively.  

           Assembly Amendments  (1) add language to require, on or 
          before July 1, 2016, the UC shall provide the Legislative 
          Analyst's Office (LAO) with a list of the policies and 
          procedures adopted pursuant to subdivision (a).  In 
          addition, the UC shall also collect and provide the 
          following information to the LAO for each contract 
          involving an expenditure of more than $100,000 for goods, 
          materials, or services that was entered into on or after 
          the effective date of this section, as specified; and (2) 
          make various technical changes.

           ANALYSIS  :    Existing law requires a community college 
          governing board to let any contract involving an 
          expenditure of $50,000 or more for purchase of equipment, 
          materials, supplies repairs and services, other than 
          construction services, to the lowest responsible bidder or 
          to reject all bids.  

          Existing law also requires that the Regents of the UC let 
          any contract involving an expenditure of $100,000 or more 
          for purchase of equipment, materials, supplies repairs and 
          services, other than construction services, to the lowest 
          responsible bidder or to reject all bids.

          Existing law also authorizes school districts to consider, 
          in addition to price, factors such as vendor financing, 
          performance reliability, standardization, life-cycle costs, 







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          delivery timetables, support logistics, the broadest 
          possible range of competing products and materials 
          available, fitness of purchase, manufacturer's warranties, 
          and similar factors in the award of contracts for 
          technology, telecommunications, related equipment, 
          software, and services, in recognition of the highly 
          specialized and unique nature of these items and services, 
          and the rapid technological changes they undergo.  Existing 
          law specifically limits this authority to the procurement 
          this type of equipment and prohibits its application to 
          contracts for construction or the procurement of any 
          product available in substantial quantities to the general 
          public.  

          Existing law authorizes Municipal Utility Districts (MUDs) 
          to let contracts for the purchase of supplies and materials 
          in excess of $50,000 in accordance with "best value at the 
          lowest cost acquisition" policies adopted by the local 
          governing board and outlines specific elements to be 
          included in these policies.

          This bill: 

          1. Authorizes community college districts, until January 1, 
             2018, to use best value contracting, pursuant to 
             policies adopted by the local governing board, for the 
             purchase of supplies and materials when the expenditure 
             exceeds $50,000 and the district determines that it can 
             expect long-term savings through the use of objective 
             performance criteria other than price.  Specifically, 
             this bill:

          2. Defines "best value" as the most advantageous balance of 
             price, quality, service, performance, and other elements 
             as defined by the CCC district board or UC. 

          3. Specifies procedures for CCC districts and UC to follow 
             in advertising, evaluating, and awarding such contracts. 


          4. Requires CCC districts using the above authority to 
             report specified information to the Chancellor's Office 
             by January 1, 2016, and requires the LAO to request this 
             information from the CCC Chancellor's Office by July 1, 







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             2016, and requires UC to provide the LAO with similar 
             information by that date. 

          5. Requires the LAO to report to the Legislature by 
             February 1, 2017, on CCC districts' and UC's use of this 
             contracting method, including any recommendation as to 
             whether this authority should be continued. 

           Comments

           I.  Experience with best value contracting .  This bill 
             proposes best value contracting for the acquisition of 
             goods and services.  While this will be the first 
             attempt authorized for educational entities, best value 
             has been authorized and used in other instances.

             A.     Best value contracting for goods and services  .  
                The provisions of this bill are generally patterned 
                after the authority extended to MUDs which appear to 
                be the only sector of state government currently 
                authorized to use best value contracting for the 
                acquisition of goods and services.  AB 793 (Cox), 
                Chapter 665, Statutes of 2001, authorized MUDs to use 
                best value procurement for individual supplies and 
                materials purchased over $50,000 until 2007.  SB 1169 
                (Cox), Chapter 248, Statutes of 2006, extended this 
                authority on a limited basis, making the statute 
                permanent for those that used the process before 
                January 1, 2006.  However, any MUD that did not use 
                the "best value" contract process prior to January 1, 
                2006, but now elects to use the process, must submit 
                a specified report to the Legislative Analyst on or 
                before January 1, 2011. If best value contracting is 
                not utilized by a MUD during this period, the 
                authority to do so expires on January 1, 2012.

             B.     Best value contracting in construction projects  .  
                Best value contracting has generally been recognized 
                as a viable alternative for construction projects.  
                Traditionally, construction projects have been bid 
                out and awarded based upon a "lowest-cost" approach.  
                Best value, a competitive contracting process, allows 
                projects to be awarded to the contractor offering the 
                best combination of price and qualifications, instead 







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                of just the lowest bid.  In California, for example, 
                design-build best value is a method of project 
                delivery/procurement based on combining the 
                requirements for designing and constructing a project 
                into one contract.  In addition to submitting bids 
                for project cost, prospective design-build teams also 
                submit technical proposals.  The technical proposals 
                are evaluated based on evaluation criteria, and 
                scores are compiled.  The scores are then used to 
                weigh or adjust the submitted bid price.  The 
                contract is awarded to the design-build team with the 
                best value.  The Senate Education Committee recently 
                heard and passed SB 1509 (Simitian, 2012) which 
                eliminates the sunset on the authority of CCC and 
                K-12 districts to use design-build for their 
                construction projects.

             C.     Best value contracting for technology equipment  .  
                Best value contracting has also been used for the 
                acquisition of technology, telecommunications and 
                related equipment.  As noted in the background of 
                this analysis, school districts are granted this 
                authority, but specifically prohibited from applying 
                this authority to contracts for construction or to 
                the procurement of any product available in 
                substantial quantities to the general public.  
                Similarly, MUDs serving more than 250,000 customers 
                have been authorized to use best value procurements 
                to acquire information technology and industry 
                specific equipment.  This specific authority was 
                repealed in 2006.

          II.  Related LAO study  .  According to its 2006 statutorily 
             required report on the use of best value procurement by 
             MUDs, the LAO opines that best value procurement can 
             provide MUDs with an important tool.  The LAO also notes 
             that an organization must make the up-front investment 
             necessary to support such procurement through staff 
             training and develop procurement requirements that 
             promote the organization's strategic goals.  The LAO 
             also noted that, early on, best value procurements could 
             be time-consuming and cumbersome as bid evaluation 
             criteria are developed and fine-tuned.








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          III.  Broader discretion  .  In 2011, issues and concerns were 
             raised around the implementation of the Los Angeles 
             Community College District's (LACCD) construction 
             program. An independent panel was appointed by the 
             District's Chancellor to review the district's 
             rebuilding projects and recommend changes to ethics 
             rules and construction oversight.  In January 2012, the 
             panel recommended that district implement stronger 
             financial controls, modify construction management 
             structures and implement new procedure to ensure all 
             actions within the building program met the highest 
             ethical standards.  The panel also determined that the 
             building program generally had achieved "a good level of 
             success" in the number of projects that had been 
             completed.  The LACCD reports that it has taken numerous 
             steps to reform its building program by strengthening 
             the District Citizen's Oversight Committee, directing 
             the preparation of a master budget plan, and 
             implementing cost controls.  

           Prior Legislation
           
          This bill is almost identical to AB 2448 (Furutani, 2010) 
          and AB 2550 (Furutani, 2008), with the exception that these 
          bills did not include the provisions regarding the UC.  
          Both bills were vetoed by the Governor whose veto messages 
          read, in pertinent part:

            AB 2448 (Furutani, 2010) - This bill is substantially 
            the same as legislation I have vetoed in the past 
            because it may allow subjective methods to govern the 
            bidding process for procurement of supplies and 
            materials, which could be more open to manipulation and 
            abuse in the ultimate bid selection.  Such abuse could 
            lead to non-competitive bidding and higher costs to the 
            State's taxpayers and community college students.

            AB 2550 (Furutani, 2008) - I support the notion that 
            best value contracting is a reasonable alternative for 
            construction projects which allows projects to be 
            awarded based on a combination of best price and 
            qualifications because construction projects represent 
            a large, long term investment of resources.  However, I 
            am concerned that this legislation may allow subjective 







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            methods to govern the bidding process for procurement 
            of supplies and materials with a relatively short life 
            cycle, which could be more open to manipulation and 
            abuse in the bid selection process.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

          According to the Assembly Appropriations Committee: 

           Minor absorbable one-time costs for UC and CCC districts 
            to provide the required information for the LAO, and for 
            the LAO to complete the required reports. 

           Any costs to districts would be non-reimbursable, as the 
            bill is discretionary. 

           To the extent UC and CCC districts successfully implement 
            best value purchasing, significant savings could be 
            realized over time.  UC estimates that it could save up 
            to $20 million in five years in computer software and 
            hardware alone. 

           SUPPORT  :   (Verified  8/23/12)

          Glendale Community College District (co-source)
          Kern Community College District (co-source)
          Los Angeles Community College District (co-source)
          Peralta Community College District (co-source)
          San Bernardino Community College District (co-source)
          San Diego Community College District (co-source)
          San Jose-Evergreen Community College District (co-source)
          University of California (co-source)
          West Kern Community College District (co-source)
          Yosemite Community College District (co-source)

           ARGUMENTS IN SUPPORT  :    According to the author's office, 
          awarding contracts on the basis of "lowest responsible 
          bidder" does not always result in the ability to purchase 
          supplies and materials in the most cost effective and 
          economic manner.  An ability to consider criteria other 
          than price (such as longevity of product, sustainable 
          characteristics, operating expenses) and the ability to 
          include additional discounts and services are necessary.  







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          This bill provides the ability to structure a competitive 
          bid process that recognizes life cycle cost, sustainable 
          characteristics and efficiency in the acquisition process.  
          According to the author's office, this bill allows the UC 
          and the CCC the ability to stretch scarce funds as far as 
          possible by giving them the flexibility to make wise 
          procurement decisions.


           ASSEMBLY FLOOR  :  72-3, 8/23/12
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Cook, Davis, Dickinson, Eng, 
            Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, 
            Galgiani, Garrick, Gatto, Gordon, Hagman, Hall, Harkey, 
            Hayashi, Hill, Huber, Hueso, Huffman, Jeffries, Knight, 
            Lara, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, 
            Mitchell, Monning, Morrell, Nestande, Nielsen, Norby, 
            Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, 
            Skinner, Smyth, Solorio, Swanson, Torres, Valadao, 
            Wagner, Wieckowski, Williams, Yamada, John A. Pérez
          NOES:  Donnelly, Grove, Jones
          NO VOTE RECORDED:  Conway, Gorell, Halderman, Roger 
            Hernández, Mansoor


          PQ:dmk  8/25/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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