BILL ANALYSIS
Bill No: SB
1249
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 1249 Author: Ducheny
As Amended: April 5, 2010
Hearing Date: April 13, 2010
Consultant: Art Terzakis
SUBJECT
Public Contracts: best value competitive bid contracts
DESCRIPTION
SB 1249 adds a new chapter to the Public Contract Code that
requires every contract that would otherwise be required to
be awarded on a competitive basis to instead be awarded as
a "best value competitive bid contract" that presents the
best overall value to the state. Specifically, this
measure:
1. Declares Legislative intent to do both of the
following:
a. Require a contract entered into between the state
and outside entities to reflect the true costs, both
direct and indirect, of the contract to the state.
b. Require the method established for calculating the
actual cost of any contract entered into to include
both direct and indirect economic benefits to the state
through the employment of individuals or companies or
both or the purchase of goods or services or both that
generate revenues to the state (e.g., personal,
corporate, income taxes, property taxes, or sales and
use taxes.)
2. Defines "best value competitive bid contract" to mean a
contract that is awarded on a competitive process that is
SB 1249 (Ducheny) continued
Page 2
not based merely on the lowest direct cost to the state
under the contract, but rather is awarded to the bidder
that presents the overall best value to the state after
consideration of the total direct and indirect economic
benefit to the state under the contract.
3. Requires DGS to consider the direct cost of the
contract, including, but not limited to, materials,
goods, and services.
4. Requires DGS to consider the indirect value to the
state generated by the contract, including, but not
limited to, an analysis of the proposed contract to
determine all of the following when scoring a contract:
a. The total projected indirect revenue to the state
generated by the wages that the contractor and
subcontractors, if any, propose to pay their workers in
performing under the contract.
b. The total projected indirect revenue to
California local governments generated by the wages
that the contractor and subcontractors, if any, propose
to pay their workers in performing under the contract
and the indirect revenue to the state generated
thereby.
c. The total projected indirect revenue to the state
generated from the goods and materials that the
contractor and subcontractors, if any, propose to
purchase or provide in performing under the contract.
d. The total projected indirect revenue to
California local governments generated by the goods
and materials that the contractor and subcontractors,
if any, propose to purchase or deliver in performing
under the contract and the indirect revenue to the
state generated thereby.
e. The indirect economic benefit to the state
generated by the economic activity related to the
production of the goods and materials to be purchased
or delivered under the contract.
5. Requires DGS to adopt regulations that shall take
effect immediately and are exempt from the rulemaking
SB 1249 (Ducheny) continued
Page 3
provisions of the Administrative Procedure Act to provide
guidance to state agencies on best methods and practices
and a related matrix to assist those agencies in
determining the overall best value.
EXISTING LAW
Existing law governs contracting between state agencies and
private contractors, sets forth requirements for the
bidding, awarding, and overseeing of contracts for
construction projects, and regulates the awarding of
contracts for the purchase of goods and services.
Existing law establishes various programs and preferences
in public contract law designed to serve a broad public
purpose, such as preference for small businesses, disabled
veteran business enterprises (DVBE) and recycled products.
Existing law designates the Department of General Services
(DGS) to administer the Small Business Procurement and
Contract Act, including, but not limited to, small
business, microbusinesses and DVBE certification processes.
The Small Business Procurement and Contract Act requires
the Director of DGS and the heads of other state agencies
that enter into contracts for the provision of goods,
services,
and information technology and for the construction of
state facilities to establish goals for the participation
of small businesses in these contracts, to provide for
small business preference in the award of these contracts,
to give special consideration and special assistance to
small businesses, and, whenever possible, to make awards to
small businesses, as specified.
BACKGROUND
Purpose of SB 1249: According to the author's office, this
measure is intended to encourage job creation and economic
recovery by requiring DGS to use an additional criterion in
the contract bidding and procurement process that takes
into consideration the relative economic benefit to
California in considering bids for goods and/or services.
The author's office contends that "publicly contracted
business that creates or maintains California jobs and/or
SB 1249 (Ducheny) continued
Page 4
uses California products will generate state and local
revenue through the income, sales, and property taxes. The
additional DGS criterion would factor in this additional
benefit of conducting business in this state. Since the
cost of doing business in California can be higher than
outside the state, it is possible with this criterion that
a higher bidder demonstrating the creation of California
jobs and/or use of California products could be chosen over
a lower bidder that uses out-of-state jobs and products.
However, the true value of the contract may not be
reflected if such public revenue benefits are not
considered in the cost of the contract."
Staff Comments: As currently drafted, this measure would
require competitive bid contracts for construction
projects, including, but not limited to, projects of the
California State University, contracts for goods and
services and contracts for information technology (IT)
acquisition to be awarded as "best value competitive bid
contracts" taking into consideration (when awarding the
contract) the total direct and indirect economic benefit to
the state.
In today's challenging economic environment, it's not clear
whether this proposal will lead the State of California
down the right road. State agencies and local governments
should probably consider a number of factors when making
"best value" procurement decisions involving contracts for
goods and services and complex IT projects and not limit
purchasing decisions to factors such as "direct or
indirect" costs. An array of other factors should also be
taken into account including, total cost of ownership,
quality, security, reliability, past performance, and
overall value, to name a few.
SB 1249 could create a scenario in which companies seeking
to comply with the new "direct and indirect economic
benefit" policies established by this measure may
artificially add to their California workforce, or increase
pay and benefits to their current California workers. Most
employers will very likely not absorb these costs; rather
they will pass along their increased costs to the
government agency as part of their bid.
Additionally, such a scenario could create winners and
losers among state agencies and programs, as the state is
SB 1249 (Ducheny) continued
Page 5
forced to trim some budgets in order to fund higher
spending under other programs, most likely those programs
and contracts that are creating the greatest "direct and
indirect" economic benefit to the state. To elaborate, the
state has programs that address social and health insurance
issues. If the state were to award bids based on factors
that are irrelevant to whether the bid is the one best
suited to achieving the aims of the program, then the
result may very well be that those who depend upon state
services will not obtain them in ways that best help them
or in a manner best tailored to serve the aims of the
program itself.
Another unintended consequence of SB 1249 may involve a
decrease in small-business participation in the state
contracting process. For example, small businesses are
heavily reliant on cash flow and many don't have access to
the ready cash or credit necessary to provide workers with
pay increases.
PRIOR/RELATED LEGISLATION
SB 1259 (DeSaulnier) 2009-10 Session. Would creates the
Economic Development and Job Creation Agency and require
the new agency to perform duties relating to economic
development and job creation. (Pending in this Committee)
SB 1231 (Corbett) 2009-10 Session. Would make substantive
and clarifying changes to existing provisions of the Public
Contract Code (Section 6108) related to "sweatfree"
procurement policy and code of conduct. (Pending in this
Committee)
SB 1108 (Price) 2009-10 Session. Would authorize DGS to
direct all state agencies, departments, boards and
commissions to establish and achieve a goal of 25% small
business participation in state procurements and contracts.
(Pending in this Committee)
SB 967 (Correa) 2009-10 Session. Would require that a 5%
bid preference be provided on state contracts for goods and
services, including bids or proposals for the distribution
of funds pursuant to the federal American Recovery and
Reinvestment Act (ARRA) of 2009, to contractors who
substantiate that 90% of their employees performing work on
the contract are residents of California. (Pending in this
SB 1249 (Ducheny) continued
Page 6
Committee)
SUPPORT: None on file as of April 9, 2010.
OPPOSE: None on file as of April 9, 2010.
FISCAL COMMITTEE: Senate Appropriations Committee
**********