BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 376 (Lara) - Public contracts: University of California ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: April 6, 2015 |Policy Vote: ED. 7 - 2 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 4, 2015 |Consultant: Jillian Kissee | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: This bill modifies the requirements for qualifying as a lowest responsible bidder or best value awardee for contracts for materials, goods, and services at the University of California (UC) by: (1) requiring bidders to certify that bids include a total employee compensation package that does not materially undercut the average total compensation for UC employees who perform comparable work; (2) eliminating the exception to the $100,000 threshold for competitive bidding of contracts for personal services; and (3) making any renewal or extension of an existing contract to be sold to the lowest responsible bidder if it involves an expenditure of $100,000 or more annually. Fiscal Impact: UC estimates that the bill would increase contract costs by at least $66 million, primarily as a result of the requirement that bidders certify total compensation packages for their SB 376 (Lara) Page 1 of ? employees have parity with those of UC employees. Actual costs are unknown and would depend upon a number of factors, including the impacts the bill would have on future contracting behavior by UC, the number of contracts entered into in the future, and any increases in bid prices to reflect the required compensation parity. UC administrative costs of approximately $354,000 for bid renegotiation. Background: Current law requires the UC to let any contract involving an expenditure of $100,000 or more annually for goods and materials, or for services to be performed (other than personal or professional services) to be sold to the lowest responsible bidder. It also authorizes the UC, when it determines that it can expect long-term savings, as specified, to select the lowest responsible bidder on the basis of the best value to the university. According to the UC, Article 5 of its contract with employees represented by American Federation of State, County and Municipal Employees (AFSCME) addresses the issue of contracting out. These provisions specifically prohibit the UC from contracting out services solely on the basis that savings will result from lower contractor pay rates and benefits for services customarily performed by bargaining unit employees. The UC is permitted to contract out for special services and equipment unavailable internally, to obtain special expertise or efficiencies better provided through an outside contractor, for short-term temporary staffing needs, financial necessity, and for remote facilities. The contract also requires that, for bargaining unit employees laid off or released because of a contract, the UC make available another bargaining unit position for which the employee is qualified at the same location. This bill includes legislative findings and declarations that reference findings of a recent study. This 2012 study was conducted as part of a professional education program at the Goldman School of Public Policy at UC Berkeley entitled, Temporary Workers in California are Twice as Likely as Non-Temps to Live in Poverty: Problems with Temporary and Subcontracted Work in California. The report notes that lowered wages mean that temporary workers rely more on the state safety net than SB 376 (Lara) Page 2 of ? their direct-hire counterparts. Furthermore, it asserts that by paying workers more, significant savings could be achieved to the state through less reliance on those programs. Proposed Law: This bill requires a bidder to certify in writing to the UC that the bid includes a total employee compensation package (including fringe benefits) that does not materially undercut the average UC per-employee value of total compensation that perform comparable work at the relevant campus, medical center, or laboratory. This bill also requires the UC to include in its request for proposals the calculation of the average per-employee value of total compensation for UC employees who perform comparable work, including all known cost escalators for future growth rate of average costs. This bill excludes personal services contracts from the $100,000 threshold for competitive bidding and applies requirements of existing law and the provisions of this bill to any renewal or extension of an existing contract if it involves an expenditure of $100,000 or more annually. Staff Comments: This bill's requirement to certify comparable compensation packages results in costs UC estimates to be of at least $66 million as bids could come in at significantly higher rates to achieve salary and benefit parity of contracted workers to total compensation paid to UC employees. UC estimates that of its total annual spending on service contracts, $120 million would be subject to increases in order to achieve parity. Their estimate includes a 25 percent increase for salaries and 30 percent increase for benefits. This estimate does not include pay and benefit differentials for contracted employees that work at UC medical centers or national laboratories, which this bill expressly includes. Actual costs are indeterminable and would depend a number of factors, including current compensation differentials between contractors and comparable UC employees, the number of prospective contracts impacted by the bill's requirements, and the potential impacts on the field of available bidders for these contracts. Any secondary impacts or potential savings from reduced reliance on state-provided social safety net services would be speculative. SB 376 (Lara) Page 3 of ? In addition, UC anticipates increased administrative costs of $354,000 to renegotiate bids that would have previously been extended or renewed without the $100,000 threshold. -- END --