BILL ANALYSIS                                                                                                                                                                                                    





          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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