BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1280| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 SB 1280 Page 2 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, SB 1280 Page 3 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, SB 1280 Page 4 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 SB 1280 Page 5 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. SB 1280 Page 6 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 SB 1280 Page 7 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. SB 1280 Page 8 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 **** END ****