BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2013-2014 Regular Session AB 2332 (Wieckowski) As Amended May 23, 2014 Hearing Date: June 24, 2014 Fiscal: Yes Urgency: No RD SUBJECT Courts: Personal Services Contracts DESCRIPTION This bill would require specified standards to be met if a trial court intends to enter into a new contract, or renew or extend an existing contract, for any services that are currently or customarily performed by that trial court's employees. Among other things, the bill would require the trial court to clearly demonstrate that the contract will result in actual overall cost savings to the trial court for the duration of the entire contract as compared with the trial court's actual costs of providing the same services. This bill would also require specific, measurable performance standards for any contract for services in excess of $100,000 annually and require audits, as specified. This bill would also authorize courts to execute personal service contracts under certain circumstances, without meeting the required standards, including where: the contract is between a trial court and another trial court or a local government entity for services to be performed by employees of the other trial court or employees of the local government entity; or due to an emergency, a contract is necessary for the immediate preservation of the public health, welfare, or safety. BACKGROUND Under California law, most governmental entities can use personal services contracts (i.e. contracting out) to achieve (more) AB 2332 (Wieckowski) Page 2 of ? cost savings only if specified standards are satisfied, chief among them being that the entity clearly demonstrates actual overall cost savings based upon certain information. These entities include executive branch agencies, public schools, community colleges, and libraries. (See AB 3336 (Ryan, Ch. 1057, Stats. 1982); SB 1419 (Alarcon, Ch. 894, Stats. 2002); AB 438 (Williams, Ch. 611, Stats. 2011).) In recent years, California's judicial branch has experienced catastrophic budget reductions that have crippled California's court system by, among other things, forcing the closure of courts and self-help centers, which has resulted in delayed access to justice for a large number of Californians. In response, many courts have begun seeking ways in which to operationalize those budget reductions. According to information provided to this Committee by the Judicial Council of California, examples of services that trial courts currently contract out for include: court reporters; interpreters; child custody evaluations; probate investigations; family law facilitators; minor's counsel in dependency cases; child custody mediation services; mediators/alternative dispute resolution; security guards; personnel services; payroll; information services; collections; adoption investigation services; services for self-represented litigants; labor negotiation services; transcripts for electronically recorded proceedings; and more. Last year, AB 566 (Wieckowski, 2013), which was substantially similar to this bill and approved by this Committee, sought to limit the types of personal service contracts entered into by courts for services previously performed by that trial court's employees. Similarly, this bill would permit the trial courts to engage in personal service contracts for any services that are currently or customarily performed by that trial court's employees, only if certain requirements are met, or if a specified exception applies. CHANGES TO EXISTING LAW Existing law provides that civil service includes every officer and employee of the State, except as otherwise provided in the California Constitution. That article also specifies that certain employees are exempt from civil service, including among others: officers and employees appointed or employed by AB 2332 (Wieckowski) Page 3 of ? councils, commissions or public corporations in the judicial branch or by a court of record or officer thereof. (Cal. Const., article VII.) Existing law permits a state agency to contract out for personal services only if specified standards are satisfied, including, among other things, that: the contracting agency clearly demonstrates actual overall cost savings, as specified; proposals to contract out work are not approved solely on the basis that savings will result from lower contractor pay rates or benefits, except that proposals to contract out work are eligible for approval if the contractor's wages are at the industry's level and do not significantly undercut state pay rates; the contract does not cause the displacement of civil service employees, as specified; the savings must be large enough to ensure that they will not be eliminated by cost fluctuations that could normally be expected during the contracting period; the amount of savings clearly justify the size and duration of the agreement; the contract is awarded through a publicized, competitive bidding process; the potential for future economic risk to the state from potential contractor rate increases is minimal; and the potential economic advantage of contracting is not outweighed by the public's interest in having a particular function performed directly by state government. (Gov. Code Sec. 19130(a)(1)-(11).) Existing law provides that in determining whether the proposed contract will result in actual savings to the state, in comparing costs, the contracting agency must clearly demonstrate actual overall cost savings as follows: the state's additional cost of providing the same service as proposed by a contractor, including the salaries and benefits of additional staff that would be needed and the cost of additional space, equipment, and materials needed to perform the function must be included; the state's indirect overhead costs, as defined, must not be included unless these costs can be attributed solely to the function in question and would not exist if that function was not performed in state service; and in the cost of a contractor providing a service, any continuing state costs (such as inspection, supervision, and AB 2332 (Wieckowski) Page 4 of ? monitoring) that would be directly associated with the contracted function must be included. (Gov. Code Sec. 19130(a)(1)(A)-(C).) Existing law exempts personal services contracting from the above requirements if, among other things: the functions contracted are exempt from civil service under the State Constitution; the contract is for a new state function and the Legislature has specifically mandated or authorized the performance of the work by independent contractors; the services contracted are not available within civil service, cannot be performed satisfactorily by civil service employees, or are of such a highly specialized or technical nature that the necessary expert knowledge, experience, and ability are not available through the civil service system; the legislative, administrative, or legal goals and purposes cannot be accomplished through the utilization of persons selected pursuant to the regular civil service system, such as where there is a conflict of interest or to ensure independent and unbiased findings in cases where there is a clear need for a different, outside perspective (e.g., obtaining expert witnesses in litigation); the nature of the work is such that specified existing law standards for emergency appointments apply; the contractor will provide equipment, materials, facilities, or support services that the state could not feasibly provide in the location where the services are to be performed; or the services are of such an urgent, temporary, or occasional nature that the delay incumbent in their implementation under civil service would frustrate their very purpose. (Gov. Code Sec. 19130(b).) Existing law provides similar requirements and exceptions for personal service contracting for school districts, community college districts, and libraries. (See Ed. Code Secs. 19104.5, 45103.1, 88003.1.) This bill would provide that if a trial court intends to enter into a contract, or renew or extend an existing contract, for any services that are currently or customarily performed by that trial court's employees, all of the following must be met: the trial court must clearly demonstrate that the contract will result in actual overall cost savings to the trial court for the duration of the entire contract as compared with the trial court's actual costs of providing the same services, as AB 2332 (Wieckowski) Page 5 of ? specified; the contract must not be approved solely on the basis that savings will result from lower contractor pay rates or benefits, except contracts are eligible for approval if the contractor's wages are at the industry level and do not undercut trial court pay rates; the contract cannot cause an existing trial court employee to incur a loss of his or her employment or employment seniority, a reduction in wages, benefits, or hours, or an involuntary transfer to a new location requiring a change in residence; the contract cannot be approved if, in light of the services provided by trial courts and the special nature of the judicial function, it would be inconsistent with the public interest to have the services performed by a private entity; the contract must be awarded through a publicized, competitive bidding process; the contract must include specific provisions pertaining to the qualifications of the staff that will perform the work under the contract, as well as assurances that the contractor's hiring practices meet applicable nondiscrimination standards; the contract must provide that it may be terminated at any time by the trial court without penalty if there is a material breach of the contract and notice is provided within 30 days of termination; the term of the contract shall not be more than five years from the date on which the trial court approves the contract; and if the contract is for services over $100,000 annually, the contract must include certain audit-related provisions, and the trial court must (1) meet certain auditing requirements, as specified, and (2) require the contractor to disclose a description of all of the following as part of its bid, application, or answer to a request for proposal: o all charges, claims, or complaints filed against the contractor with a federal, state, or local administrative agency during the prior 10 years; o all civil complaints filed against the contractor in a state or federal court during the prior 10 years; o all state or federal criminal complaints or indictments filed against the contractor, or any of its officers, directors, or managers, at any time; and o any debarments of the contractor by a public agency or licensing body at any time. This bill would require that the audits required for contracts AB 2332 (Wieckowski) Page 6 of ? over $100,000, above, be made available to the public upon request within 10 calendar days from receipt of the request. A charge per page, per copy, may be charged representing the direct costs of equipment, supplies, and staff required to duplicate or produce the requested audit. This bill would require that in comparing costs to demonstrate that the contract will result in actual overall cost savings to the trial court for the duration of the entire contract as compared with the trial court's actual costs of providing the same services: the trial court's additional cost of providing the same services as proposed by the contract shall be included, such as the salaries and benefits of additional staff that would be needed and the cost of additional space, equipment, and materials needed to perform the services; the trial court's indirect overhead costs, as defined, shall not be included unless those costs can be attributed solely to the function in question and would not exist if that function was not performed by the trial court; and the cost of a contractor providing a service for any continuing trial court costs, including costs for inspection, supervision, and monitoring, that would be directly associated with the contracted function shall be included. This bill would exempt contracts from the requirements listed above in any of the following circumstances: the contract is between a trial court and another trial court or a local government entity for services to be performed by employees of the other trial court or employees of the local government entity; the contract is for a new trial court function and the Legislature has specifically mandated or authorized the performance of the services by independent contractors; the services are incidental to a contract for the purchase or lease of real or personal property. Those contracts shall include, but not be limited to, agreements to service or maintain office equipment or computers that are leased or rented, but exclude agreements to operate equipment or computers, except as necessary to service or maintain that equipment; the legislative, administrative, or legal goals and purposes cannot be accomplished through the utilization of trial court employees because of the need to protect against a conflict of interest or to ensure independent and unbiased findings in situations where there is a clear need for an independent, AB 2332 (Wieckowski) Page 7 of ? outside perspective; due to an emergency, a contract is necessary for the immediate preservation of the public health, welfare, or safety; the contractor will conduct training courses for which appropriately qualified trial court employee instructors are not available from the court, provided that permanent instructor positions shall be filled through the process for hiring trial court employees; the services are of such an urgent, temporary, or occasional nature that the delay incumbent in their implementation through the process for hiring trial court employees would frustrate their very purpose. This provision does not apply to the services of official court reporters, except individual official reporters pro tempore may be used by a trial court when the criteria of this provision are met; the contract is a personal services contract developed pursuant to specified rehabilitation programs and the contract will not cause an existing trial court employee to incur a loss of his or her employment or employment seniority, a reduction in wages, benefits, or hours; or an involuntary transfer to a new location requiring a change in residence; or the contract is for the services of any court interpreter, which shall be governed by the Trial Court Interpreter Employment and Labor Relations act and any memorandum of understanding or agreement entered into pursuant to that act, or by other provisions of the Trial Court Employment Protection and Governance Act, and any memorandum of understanding or agreement entered into pursuant to that act, as applicable. This bill would apply the above standards and exceptions to any contract entered into, renewed, or extended after the effective date of this Act. This bill would require each trial court to provide a specified report by no later than February 1, 2015, to the chairpersons of the Senate and Assembly Judiciary Committees and the Joint Legislative Budget Committee if the trial court entered into a contract between July 1, 2014, and December 31, 2014, inclusive, for services that were provided or are customarily provided by its trial court employees and that contract has a term extending beyond March 31, 2015. This bill would state the intent of the Legislature to consider the reduction of future budget appropriations to each trial court by the amount of any contract analyzed pursuant to the aforementioned report if the Legislature concludes that the contract would not have been AB 2332 (Wieckowski) Page 8 of ? permissible under the provisions added by this Act. This bill would include a severability clause. COMMENT 1. Stated need for the bill According to the author, this bill is needed because "[a]s a result of recent budget cuts to the trial courts, some courts have sought alternative ways to provide critically important services to the public, including privatizing some of the most sensitive services that help preserve the integrity of our impartial trial court system. Alternatives being considered include privatizing the handling and maintenance of private, confidential and sensitive information contained in official court records." The American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO, co-sponsor of this bill, writes that "AB 2332 would provide an efficient way of evaluating whether privatizing trial court jobs is in the best interest of the state. These specific standards in this bill would protect trial court services, and ensure all contracts pay living wages and cannot undercut current employees' wages. This bill is important because it would protect trial court employees and stops automatic privatization of these public sector jobs." The Service Employees International Union (SEIU), co-sponsor of this bill, adds that: AB 2332 would allow for privatization of trial court services if certain good government contracting standards are first met; such as: 1) a fair cost analysis, 2) proven savings to the taxpayers, 3) competitive bidding, 4) proven qualifications of the contractor, 5) doesn't displace employees, and 6) performance and financial audits are conducted. . . . [T]ax dollars have the dual responsibility of being well spent for quality services, as well as being an investment in the larger society. In fact, it could be argued that the level of accountability should be higher for trial court services. Being a nation of laws, a fair and impartial judicial system that is accessible to all is a critical underpinning of democracy and is fundamental to the success of a civilized AB 2332 (Wieckowski) Page 9 of ? society. Trial court services represent a "public good," which are most effectively delivered by government and public employees. AB 2332 correctly places the burden of altering one of the most essential public services on those advocating it. Additionally, profit should never be associated with any aspect of fair review and fair rights to redress in an impartial judicial system that should be accessible to all people. Finally, the provisions contained in AB 2332 are neither radical nor a departure from current law governing most other parts of government and will ensure that tax dollars are accountable. 2. Contracting out of services in the Judicial Branch Modeled upon existing statutes that require various governmental entities (executive branch agencies, public K-12 schools, community colleges, and public libraries) to meet specified standards before executing personal service contracts, this bill would allow the trial courts to engage in personal service contracts for any services that are currently or customarily performed by that trial court's employees, or that were performed or customarily performed by that trial court's employees if certain requirements are met, or if a specified exception applies. First, the bill would require that a trial court wishing to enter into a new contract, or to renew or extend a contract, for personal services, clearly demonstrate that the contract will result in actual overall cost savings to the trial court for the duration of the entire contract as compared with the trial court's actual costs of providing the same services. Moreover, the contract must not be approved solely on the basis that savings will result from lower contractor pay rates or benefits (except that contracts would be eligible for approval if the contractor's wages are at the industry level and do not undercut trial court pay rates). Furthermore, this bill would prohibit the contracting out of services if the contract would cause an existing trial court employee to incur a loss of his or her employment or employment seniority, a reduction in wages, benefits, or hours, or an involuntary transfer to a new location requiring a change in residence. AB 2332 (Wieckowski) Page 10 of ? Additionally, this bill would differ from the current statutes that apply to state entities seeking to contract out personal services by including elements that reflect the unique role of trial courts. For example, the bill would provide that a contract cannot be approved if, in light of the services provided by trial courts and the special nature of the judicial function, it would be inconsistent with the public interest to have the services performed by a private entity. Also, in contrast to the current statutes (except for the statute relating to libraries), this bill would impose additional requirements for any contract for services in excess of $100,000 annually. Namely, the bill would require that such a contract also include specific, measurable performance standards and provisions for audits on performance and cost savings, as well as a requirement for the trial court to obtain certain documentation from the potential contractor as to their qualifications and any history of charges, claims, or complaints against them. This bill also contains several exceptions to the above requirements that are similar to the exceptions provided under the existing statutes. Pursuant to these exceptions, a trial court would be permitted to contract out for services without meeting the above standards, if, for example: the contract is between a trial court and another trial court or a local government entity for services to be performed by employees of the other trial court or employees of the local government entity; the contract is for a new trial court function and the Legislature has specifically mandated or authorized the performance of the services by independent contractors; the legislative, administrative, or legal goals and purposes cannot be accomplished through the utilization of trial court employees because of the need to protect against a conflict of interest or to ensure independent and unbiased findings in situations where there is a clear need for an independent, outside perspective; due to an emergency, a contract is necessary for the immediate preservation of the public health, welfare, or safety; or the services are of such an urgent, temporary, or occasional nature that the delay incumbent in their implementation through the process for hiring trial court employees would frustrate their very purpose, except as specified for court reporter services. Notably, the current version of this bill includes amendments AB 2332 (Wieckowski) Page 11 of ? that were taken in this Committee with respect to a substantially similar bill, AB 566 (Wieckowski, 2013), which added exceptions to that bill that would permit the courts to contract out for services that are: (1) urgent, temporary, or occasional in nature if the delay in hiring trial court employees would frustrate their very purpose; or (2) of such a highly specialized nature that the requisite experience, knowledge, or ability cannot be obtained from court employees. In that same regard, this bill includes an exception that was added to AB 566 as a result of concerns raised in this Committee relating to personal services contracts developed pursuant to rehabilitation programs. Moreover, this bill includes an exception for services of court interpreters whose contracts are governed by other applicable laws specific to those employees. As a matter of public policy, any restriction on the ability for trial courts to enter into personal service contracts must be appropriately tailored so as to address concerns that arise when a trial court elects to privatize services. At the same time, those restrictions must be carefully balanced so as not to unduly restrict a trial court's ability to perform its vital functions in times of fiscal crisis. In support of this bill, Laborers' Locals 777 & 792 writes that "[a]s a result of substantial budget cuts to the trial courts, and as a means to reduce costs, some courts have begun providing or are considering providing critically important services to the public via private servicers. This includes privatizing the handling and maintenance of private, confidential and sensitive information contained in official court records. Given the important work done by the trial courts the sensitivity of the information that is processed and maintained, and the sanctity of the rights of public court consumers, the contracting out of court work should never be used as a cost savings measure." Similarly, the California Labor Federation writes in support that "[c]ontracting out can result in less transparency and less accountability. It can lead to lower wages and less investment in an experienced workforce. With the introduction of a profit motive to the delivery of public services, the public interest is often compromised as companies seek to cut services and increase consumer costs. All of these issues are particularly troubling as they relate to the operations of our state trial courts. Privatization of those services means that justice truly is in the hands of a private contractor who is primarily concerned not with fairness or equality, but their own bottom line. For these reasons, it is essential to have safeguards in AB 2332 (Wieckowski) Page 12 of ? the law." 3. Oppose unless amended The Judicial Council notes various problems with the bill that require the Council to take an "oppose unless amended" position. Specifically, according to the Judicial Council, the bill: Presumes no personal services contract is valid unless it meets one of several very limited exceptions or has achieved the near impossible balance of attaining actual savings without reducing labor and benefits costs. [ . . . ] AB 2332's contradictory and conflicting provisions requiring that personal services contracts demonstrate savings while forbidding those savings from lower salary and benefit costs present a literal Catch-22; a contract that cannot demonstrate savings from lower contracting rates will have no savings and thus be prohibited. Inhibits the trial courts' ability to manage their staff and resources, which is critical in view of a funding gap of $875 million, as detailed in the Chief Justice's Blueprint for a Fully Functioning Judicial Branch. [ . . . ] The flexibility of contracting out for certain services is integral to the trial courts' ability to meet their budget obligations while also providing access to justice for the public. Reduces local control and discretion over trial court management. Trial courts are uniquely and constitutionally independent, as well as different from one another. Each presiding judge has the responsibility to manage the court in a manner deemed appropriate to the unique characteristics of that court and its court users. Restrictions on the way trial courts provide for appropriate staffing reduces the courts' ability to serve the public. Many courts currently contract for services, such as child custody evaluations and probate investigations. In light of judicial branch autonomy, and taking into consideration the budget crisis facing the trial courts, the courts should not be even further hampered in their ability to provide court services. Conflicts with recently enacted legislation regarding judicial branch contracting. The Judicial Branch Contract Law (JBCL), Chapter 10, Statutes of 2011, is modeled after Public Contract Code provisions governing state agency contracting. AB 2332 is inconsistent with JBCL and the Judicial Branch Contracting Manual (JBCM). For example, under the JBCM, not all service AB 2332 (Wieckowski) Page 13 of ? contracts need to be procured through a publicized, competitive bidding process. [ . . . ] Further, AB 2332 goes beyond what is required for other state entities and undermines the goals of fair competition and efficiency embodied in the Public Contract Code (as set forth in sections 100 and 101) and the Judicial Branch Contract Law. Affects circumstances that are more appropriately addressed at the local level through collective bargaining agreements. [ . . . ] Applying one-size-fits-all contracting restrictions on the 58 trial courts unnecessarily interferes with the ability of the trial courts and the respective bargaining units to enter into agreements the courts and court employees consider best for the individual courts, court users and court employees Judicial Council writes that the bill appears to be modeled after Government Code Section that limits contracting for executive branch for services that could be performed by civil service employees (Gov. Code, § 19130). This contracting restriction model is inappropriate for the trial courts because, unlike the executive branch agencies, the trial courts must operate independently from one jurisdiction to the next." The Council adds that in contrast to the executive branch which can largely manage the amount of work they receive, the number and types of people they serve, and the services provided, trial courts must accept all filings from the public, have no control over the number and types of cases they must process, and have no ability to limit court users. Hence, the courts require more flexibility, the Council believes. Lastly, the Judicial Council argues that the bill, as currently drafted, is both overly broad and restrictive in comparison to the existing contracting restrictions placed on executive branch agencies, K-12 school districts, and community colleges, for a variety of reasons. For example, AB 2332 has additional restrictions for contracts over $100,000 that those other entities' statutes do not; and unlike the statutes for those other entities, AB 2332 does not contain a "grandfather clause" allowing for the continuation and renewal of existing contracts without being affected by the new restrictions. While the Judicial Council has submitted an "oppose unless amended" letter and has provided the author with suggested amendments to remove their opposition, the amendments are rather substantial. At this time, the author commits to continuing discussions with Judicial Council as the bill moves through the AB 2332 (Wieckowski) Page 14 of ? legislative process. Staff notes that, if approved by this Committee, this bill will be headed to the Senate Appropriations Committee. 4. Governor's veto message of AB 566 This bill is substantially similar to AB 566 (Wieckowski, 2013), as it was approved by this Committee. In vetoing AB 566, Governor Brown stated that while he agrees that decisions to change the way court services are provided should be carefully evaluated to ensure they are both fair and cost-effective, "this measure goes too far. It requires California's courts to meet overly detailed and - in some cases - nearly impossible requirements when entering into or renewing certain contracts. Other provisions are unclear and will lead to confusion about what services may or may not be subject to this measure." Support : AFSCME District Council 57; Association for Los Angeles Deputy Sheriffs; California Court Reporters Association; California Labor Federation; California Official Court Reporters Association; California Professional Firefighters; Glendale City Employees Association; Laborers' Locals 777 & 792; Los Angeles Court Reporters Association; Los Angeles Probation Officers Union, AFSCME, Local 685; Northern California Court Reporters Association; Orange County Employees Association (OCEA); Organization of SMUD Employees; Professional and Technical Engineers, IFPTE Local 21; Riverside Sheriffs' Association; Sacramento Official San Bernardino Public Employees Association; San Luis Obispo County Employees Association; Santa Rosa City Employees Association Opposition : Judicial Council (oppose unless amended) HISTORY Source : American Federation of State, County and Municipal Employees, AFL-CIO; Service Employees International Union Related Pending Legislation : None Known Prior Legislation : AB 566 (Wieckowski, 2013) See Background. AB 438 (Williams, Ch. 611, Stats. 2011) See Background. AB 2332 (Wieckowski) Page 15 of ? SB 78 (Committee on Budget and Fiscal Review, Ch. 10, Stats. 2011) See Comment 3. AB 3084 (Horton, 2004) would have applied specified contracting requirements to a metropolitan water district's contracts for services. AB 3084 was held in the Senate Local Government Committee and died without a hearing. SB 906 (Alarcon, 2003) would have required all general law county and city contracts for services to achieve cost savings and meet certain other requirements. SB 906 died on the Assembly Floor. SB 163 (Alarcon, 2003) was substantially similar to SB 906 and was held in the Senate Appropriations Committee. SB 1419 (Alarcon, Ch. 894, Stats. 2002) See Background. AB 233 (Escutia and Pringle, Ch. 850, Stats. 1997) See Comment 1. AB 3336 (Ryan, Ch. 1057, Stats. 1982) See Background. Prior Vote : Assembly Floor (Ayes 52, Noes 23) Assembly Appropriations (Ayes 12, Noes 5) Assembly Judiciary Committee (Ayes 7, Noes 3) **************