BILL ANALYSIS Ó
AB 1333
Page 1
ASSEMBLY THIRD READING
AB 1333 (Roger Hernández)
As Amended May 20, 2013
Majority vote
LOCAL GOVERNMENT 5-3
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|Ayes:|Alejo, Bradford, Gordon, | | |
| |Mullin, Rendon | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Achadjian, Levine, | | |
| |Melendez | | |
| | | | |
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SUMMARY : Requires the legislative body of a city, county, or
district to review any contract or memorandum of understanding
with a private party with a total annual value of $250,000 or
more that contains an automatic renewal clause on or before the
annual date by which the contract may be rescinded.
Specifically, this bill :
1)Requires the legislative body of a city, county, or district
to review any contract or memorandum of understanding (MOU)
with a private party with a total annual value of $250,000 or
more that contains an automatic renewal clause, sometimes
referred to as an "evergreen provision," at least once every
three years on or before the annual date by which the contract
may be rescinded.
2)Requires the legislative body of a city, county, or district
to make findings on the record, prior to the renewal of the
contract or MOU, including, but not limited to, all of the
following:
a) Whether the contract or MOU contains updated
information;
b) Whether the contract or MOU fits the needs of the
legislative body;
c) Whether the contract or MOU includes a provision that
requires a contractor to pay its employees at least the
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general prevailing rate of per diem wages for work of a
similar character in the locality, or a living wage given
the locality, whichever is greater; and,
d) Whether the contract or MOU includes a provision that
requires the retention of employees of the prior contractor
or subcontractor for at least 90 days if the contract is
awarded, transferred, or assumed by a subsequent
contractor.
3)Provides that this bill's review requirements shall not apply
to a contract or MOU between a public agency and an employee
organization that establishes terms and conditions of
employment for the agency's employees.
4)Requires, for the purpose of this bill, the prevailing rate of
per diem wages to be determined pursuant to current law
governing the prevailing rate of per diem wages for public
works projects.
5)Requires, for the purpose of this bill, "per diem wages" to
include the employer payments described in current law
governing per diem wages and employer payments for public
works projects.
EXISTING LAW :
1)Authorizes the legislative body of a city, county, or district
to include or cause to be included in contracts for public
projects a provision establishing the time within which the
whole or any specified portion of the work contemplated is to
be completed.
2)Authorizes the legislative body of any public or municipal
corporation or district to contract with and employ any
persons for the furnishing to the corporation or district
special services and advice in financial, economic,
accounting, engineering, legal, or administrative matters
if the persons are specially trained and experienced and
competent to perform the special services required.
3)Authorizes a public entity subject to the Local Agency Public
Construction Act to require each prospective bidder for a
contract to complete and submit to the entity a standardized
questionnaire and financial statement in a form specified by
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the entity, including a complete statement of the prospective
bidder's experience in performing public works.
4)Requires that not less than the general prevailing wage rate
be paid to all workers employed on a "public works" project
costing over $1,000 dollars and imposes misdemeanor penalties
for a violation of this requirement.
5)Defines "public work" to include, among other things,
construction, alteration, demolition, installation or repair
work done under contract and paid for in whole or in part out
of public funds.
6)Requires the Director of the Department of Industrial
Relations to use a specified methodology to determine the
general prevailing rate of per diem wages in the locality in
which a public work is to be performed, as specified.
7)Requires per diem wages, when the term is used in statutes
applicable to public works, to be deemed to include employer
payments for specified items, such as health and welfare,
pension, vacation, travel, subsistence, and other components.
FISCAL EFFECT : None
COMMENTS : This bill requires cities, counties and districts to
review contracts and MOUs with a total annual value of $250,000
or more that have automatic renewal clauses before the date on
which the contract can be rescinded. Before the contract is
renewed, this bill requires the local agency to make findings
regarding whether the contract contains updated information,
whether it meets the needs of the local agency, whether the
contractor pays prevailing wages, and whether the contractor
retains employees of a prior contractor for at least 90 days.
The bill's requirements do not apply to a contract or MOU
between a public agency and an employee organization that
establishes terms and conditions of employment for the agency's
employees. This bill is sponsored by the American Federation of
State, County and Municipal Employees.
According to the author, "AB 1333 seeks to provide an adequate
level of local government oversight and review of high cost
contracts that contain automatic renewal clauses. These
contracts are often referred to as evergreen contracts. The
bill does not prohibit local governments from entering into
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evergreen contracts; it simply provides elected officials,
charged with a duty to oversee the fiscal well-being of a city
or county, with an opportunity to annually review the terms of
an evergreen contract, as well as the level of service provided
and employer-employee relations of the contractor.
"It has been brought to light that certain evergreen contracts
do not serve the best interests
of the people. For example, in 2008 the City Council of
Montebello awarded exclusive trash collecting rights to Athens
services beginning in 2015, effectively ousting 12 independent
haulers from the bargaining table, (which) sparked a recall of
elected officials. With no competition, a lone entity may offer
fewer services at a greater cost. AB 1333 will promote
competition for government contracts, and will ensure ratepayers
are receiving the best services at the best rates. In addition,
the bill ensures that employees of government contractors are
compensated fairly and treated with dignity."
An evergreen contract is an agreement between two parties that
is automatically renewed after each maturity period until one of
the contracting parties gives notice at a specified interval in
the manner required to terminate the otherwise perpetual
agreement. The specified interval could be annually or as long
as several years. Evergreen contracts are commonly used for
long-term agreements, such as memberships and maintenance
agreements. This type of contract differs from fixed-term
agreements, where both parties are required to affirmatively
agree to extend the term of the contract beyond the initial
term. Local governments commonly use evergreen contracts for
service contracts, including waste hauling, park maintenance,
road maintenance, and public safety.
Long-term contracts with evergreen clauses allow recycling and
waste disposal facilities to be financed by the private sector
because these contracts are what financial institutions require
to extend financing over a 10- to 20-year term. In addition,
smaller service providers are able to amortize the costs of
expensive facilities and equipment over an extended period of
time, allowing them to compete against larger companies. In
exchange, local governments receive a stabilized rate of service
from the recycling and waste disposal provider. The Legislature
may wish to consider whether it is prudent to make it more
difficult for local governments to use this long-term financing
tool.
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This bill requires a legislative body of a city, county, or
district to make findings on the record as to whether the
evergreen contract contains updated information and fits the
needs of the legislative body. This language is vague and could
be interpreted in different ways by local agencies. It could be
interpreted to require a local agency to issue a request for
proposals as part of their review for their official findings.
Conversely, a legislative body could consider itself to be in
compliance with this requirement if it does nothing more except
issue a perfunctory finding that the contract meets these
requirements. The Legislature may wish to consider whether this
bill needs more specific language to provide local governments
with clearer guidance on how to comply with its provisions.
This bill does not define local agency and there is no
controlling definition of local agency in this division or title
of the Government Code, which covers cities, counties, and other
agencies. This bill's prohibition on evergreen contracts with a
total value of $250,000 or more would apply not only to special
districts but also school districts and potentially other types
of districts.
This bill requires a legislative body of a city, county, or
district to make findings on the record as to whether the
evergreen contract pays prevailing wages. Current law requires
the payment of prevailing wages on public works projects costing
more than $1,000 that are paid for in whole or in part with
public funds. The Legislature may wish to consider whether it
is appropriate to require such a finding in a review of service
contracts.
The American Federation of State, County and Municipal
Employees, in support, argues that automatic renewal clauses "do
not always serve the best interests of the people of a city,
county, or district, especially when the private party does not
pay their employees adequately."
The Maintenance Cooperation Trust Fund, in support, writes, "We
have conducted investigations of city and county janitorial
contractors and have found that some are not in compliance with
living wage ordinances. Many times living wage ordinances may
not have the mechanisms in the ordinance to rescind a contract
when a contractor has been found to be non-compliant with the
local living wage. AB 1333 would give a city, county, or
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district the clear authority to rescind a contract when the
contractor is found to be in non-compliance with a living wage
or prevailing wage.
"In addition, AB 1333 would give protections to workers who may
lose their jobs because a contractor has had their contract
rescinded or terminated by requiring a new contractor to hire
workers for at least 90 days. Many times employers will
threaten workers that if they lose their contract then they will
lose their job. This chills workers from cooperating with
investigations of non-compliant employers. (This bill's
provision) neutralizes employer threats and facilitates
investigations of non-compliant contractors."
The League of California Cities, in opposition, states that
"waste recycling is a very capital-intensive industry" and that
"long-term contracts with waste contractors have been a
particularly important tool for cities as lending agencies
provide low interest on extended term financing that builds the
necessary infrastructure to provide the service. Without these
arrangements, low-cost financing cannot be guaranteed?Several of
our cities use some form of rolling term or evergreen
contract?for the benefit of lower rates?The conditions this bill
imposes ?suggest that local governments are incapable of
properly managing their own affairs and that?State oversight is
required into what has traditionally and purely been a local
affair?Evergreen contracts are entered into voluntarily and all
of these contracts can be converted to a fixed term contract if
the local government believes that is necessary or can be
terminated for cause at any time."
The City of Lakewood, in opposition, notes that California has
had "some of the most ambitious diversion mandates in the United
States, including a $10,000 a day penalty on local jurisdictions
for failing to meet the 50% waste diversion threshold." The
city notes that the state's new diversion goal of 75% by 2020 is
a figure that will require additional capital intensive
infrastructure in the near future.
This bill is similar to AB 834 (Roger Hernández) of 2011. The
Assembly Local Government Committee approved AB 834 on a 6-0
vote on April 27, 2011. AB 834 subsequently failed passage on
the Assembly Floor on a 28-26 vote on May 16, 2011.
Support arguments: Supporters argue that this bill improves
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oversight and review of evergreen contracts and helps protect
workers employed under these contracts.
Opposition arguments: Opponents argue that this bill encroaches
unnecessarily into local government's necessary authority.
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958
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