BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 376 (Lara) - Public contracts:  University of California
          
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          |Version: April 6, 2015          |Policy Vote: ED. 7 - 2          |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: May 4, 2015       |Consultant: Jillian Kissee      |
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          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  







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            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  








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          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.








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          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.  


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