BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 959 (Lara) - University of California: contracts: bidding
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|Version: February 8, 2016 |Policy Vote: ED. 7 - 2 |
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|Urgency: No |Mandate: No |
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|Hearing Date: April 18, 2016 |Consultant: Jillian Kissee |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: Beginning January 1, 2018, this bill modifies
requirements for qualifying as a lowest responsible bidder or
best value awardee for certain types of service contracts at the
University of California (UC). Bidders are required to certify
in writing that its employees are compensated at a level that
does not undercut, by more than five percent, the average
per-employee value of total compensation for UC employees who
perform comparable work, and provide specified items to the UC
when they submit bids. It also makes these provisions
applicable to any renewal or extension of an existing contract
for services involving an expenditure of $100,000 or more
annually.
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Fiscal
Impact:
The UC estimates that this bill would increase contract costs
at each campus and medical center totaling in the high tens of
millions due to its requirements that would likely drive
increased salary and benefit costs for bidders to demonstrate
that employees are compensated at a level not less than five
percent of those employed by the UC who perform comparable
work. Costs that would have more of a direct state impact
would likely be impacts to campus contracts (though these
costs are likely to be comprised of a variety of fund sources
outside of UC's core budget), as opposed to medical center
contracts, which comprise slightly more than half of this cost
estimate (about $47 million). Actual costs are unknown and
would depend upon a number of factors, among them being,
vendor employee compensation data as well as similar detailed
data pertaining to UC employees to determine the difference in
total compensation for UC employees for similar work. See
Staff Comments
The UC also estimates significant administrative costs to
comply with the bill's requirements for activities that could
fluctuate from year to year, but could be in the mid to high
hundreds of thousands initially. See Staff Comments
Background: Existing law outlines the requirements and procedures for
competitive bidding at the University of California, including
those applicable to the acquisition of materials, goods and
services. (Public Contract Code § 10500, et seq.)
Existing 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 the lowest responsible bidder.
(PCC § 10507.7)
Existing law 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. (PCC §10507.8)
In July 2015, the UC adopted the Fair Wage Fair Work Plan.
Under the Plan, the UC has established a minimum level of pay
for employees to ensure that all UC workers are provided a fair
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wage with a goal of reaching a minimum wage of $15 per hour on
October 1, 2017. In addition, the UC reports that it is
implementing annual compensation audits and interim audits, paid
for by contractors, to monitor wage and working conditions as
well as compliance with federal, state, and UC workplace laws
and policies for contracted employees working pursuant to
contracts entered into or renewed after October 2015. The UC
will also establish a phone hotline and central online system to
report complaints directly to the Office of the President.
Proposed Law:
This bill sets forth certain requirements a bidder must
fulfill to qualify as a lowest responsible bidder or best value
awardee on a contract for certain types of services, including
those such as building maintenance, cleaning or custodial
services, and dining and food services. This bill requires that
all the information provided by the bidder or contractor to the
UC be public records and open to inspection upon request.
Beginning January 1, 2018, this bill:
Requires a bidder to certify that:
The bid includes a total employee compensation package,
including fringe benefits, that is valued on a per-employee
basis that does not undercut by more than five percent that of
a UC employee who performs comparable work at the campus,
medical center, or laboratory. UC is required to include this
calculation of average per-employee value of compensation in
its request for proposals, and use all known cost escalators
to project the future rate of growth of average per-employee
total compensation costs.
It has not been found liable for violation of compensation,
work hours, working conditions, as specified, or any Wage
Order issued by the Industrial Welfare Commission for
specified amounts, within the prior ten years.
Requires a bidder to provide to the UC:
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Specified items when it submits its bid, including: (1) a
spreadsheet showing, for each employee supplied to the UC all
applicable compensation and benefits to be offered, as
specified, and the anticipated hours to be worked on a daily
and weekly basis; (2) an organizational chart showing the
bidder's supervisory structure for the work to be performed;
(3) all employee handbooks or other policies applicable to the
contracted workers; (4) projected total and itemized gross and
net revenues and itemized expenses for each of the first three
years of the proposed contract.
Requires successful bidders, once they commence work for the UC
to:
Notify the UC of any changes to all of the information
required above within 30 days, as specified.
Provide the UC with all notices provided to the contracted
employees at the time they were hired, consistent with
existing labor laws, before they begin work at the UC.
Provide the UC with a monthly certified payroll report for all
employees who performed work at the UC for the preceding
month.
Annually provide the UC with data showing compliance with
state labor law regarding equal wages among genders, as
specified, for each job classification performing work at any
UC location.
Annually provide the UC an audited statement prepared by a
certified public accountant showing work performed and gross
and net revenues.
Finally, this bill requires that beginning on January 1, 2018,
the $100,000 threshold for competitive bidding of contracts for
services is also applicable to any renewal or extension of an
existing contract if it involves an expenditure of $100,000 or
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more annually.
Related
Legislation: SB 376 (Lara, 2015) is substantially similar to
this bill. It was vetoed by the Governor.
Staff
Comments: The bill's provisions become effective January 1,
2018 at which time the UC's Fair Wage Fair Work plan is
anticipated to be fully operational. It is reasonable to assume
that the plan will close some of the salary gap that exists
between contracted workers and UC employees. The incremental
costs to achieve parity (within five percent) for wages beyond
the UC minimum wage of $15 per hour would be attributable to
this bill. The UC's Fair Wage Fair Work Plan is not anticipated
to decrease the gap of benefits received between contracted
workers and UC employees.
Actual, and precise costs attributed to this bill are unknown.
This is largely due to the lack of data available from UC
vendors that comprise a total employee compensation package,
including fringe benefits, for comparison to that of UC
employees. In addition, this information would need to be
broken down by position in each service category specified in
this bill, and by campus, medical center, or laboratory. The UC
has indicated that this level of data is not currently readily
available for university employees and that to generate it, the
UC would have to perform an extensive analysis of staff
explained further below.
In absence of these data, assumptions have been made as a proxy
to arrive at UC's estimate of increased contract costs at each
campus and medical center totaling in the high tens of millions,
or approximately $88 million. This estimate is based upon a
total systemwide service contract value that is attributed to
the specified categories applicable to this bill as reported by
each campus and medical center ($345 million). The estimate
also discounts this base by 40 percent try to arrive at a total
contract value attributed to salaries and benefits. According
to the UC, random sampling of these contracts is currently
underway to better inform this assumption. Assuming a 12.5
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percent increase in salary costs in bids (after the
implementation of the Fair Wage Fair Work Plan) and a 30 percent
increase in costs due to benefit disparities, total potential
increases in future contracts could reach $88 million. This
estimate does not include contract costs for the three U.S.
Department of Energy national laboratories, which have an
operating budget of about $1 billion. For context, the medical
centers have over $8 billion in operating revenue, out of a
total funding level for the UC of over $28 billion from a
variety of revenue sources.
Funding used to support these contracts likely comes from a
variety of fund sources, including the state General Fund,
student tuition payments, federal contracts and grants, private
donations, and revenue from sales and services (including
medical center revenue). Therefore, the direct state fiscal
impact of this bill is difficult to identify. For example, two
service categories that are specified in this bill include
building maintenance and cleaning or custodial services. Though
UC core funds (state General Fund, tuition and fees, and UC
General Funds) support these functions, it is likely only for
services provided on a UC campus. Similar services occurring at
the medical centers, for example, are likely supported through
the medical centers' budget. Another category, "nursing
assistant services" is likely to be supported by medical center
revenues. However, it should be noted that academic functions
taking place at the medical centers would likely have an effect
on UC's core budget. Therefore, UC's estimate would not be
appropriately be characterized as all direct state costs but
UC's core budget could be impacted by outside cost pressures.
This bill also drives significant administrative costs at the
UC. The UC reports costs related to an evaluation of UC staff
total compensation on a facility-by-facility basis to develop an
average per-employee compensation package for each contract
type, including required escalators. Other costs include
revising bid specifications; maintaining all required
documentation submitted by bidders, and increased bidding for
contract renewals or extensions. Many of these costs are
unknown but they could be in the mid to high hundreds of
thousands.
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Additional factors to note that could affect actual costs to
implement this bill would include the potential impacts on the
field of qualified bidders for these contracts. To the extent
that providing the required documentation, certifications,
monthly payroll, and a firm's audited revenues and expenditures
is a barrier to doing business with the UC, this could reduce
the pool of qualified bidders from which UC is required to pick
the lowest or best value bid. The bill's provisions could also
change or restrict the contracting behavior of the UC. These
factors would ultimately affect the costs of this bill.
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