BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 959 (Lara) - University of California: contracts: bidding ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: February 8, 2016 |Policy Vote: ED. 7 - 2 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: April 18, 2016 |Consultant: Jillian Kissee | | | | ----------------------------------------------------------------- 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. SB 959 (Lara) Page 1 of ? 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 SB 959 (Lara) Page 2 of ? 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: SB 959 (Lara) Page 3 of ? 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 SB 959 (Lara) Page 4 of ? 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 SB 959 (Lara) Page 5 of ? 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. SB 959 (Lara) Page 6 of ? 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. -- END --