BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1249 (Ducheny)
Hearing Date: 5/27/2010 Amended: 4/20/2010
Consultant: Bob Franzoia Policy Vote: G O 7-1
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BILL SUMMARY: SB 1249 would permit competitive bid contracts for
construction projects, contracts for goods and services, and
contracts for information technology acquisition to be awarded
as best value competitive bid contracts. The contracts would be
required to consider, when awarding the contract, the total
direct and indirect economic benefit to the state of the
proposed contract. This bill would authorize the Department of
General Services (DGS) to adopt regulations to assist state
agencies in implementing these provisions.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Regulations to implement Unknown, likely significant
costs one time Special*
best value competitive bid
contracts
Use of best value competitive Unknown costs, fully offset by
savings General/
bid process or revenue that must balance
or bid various
process could not be
used.special
* Service Revolving Fund
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Chapter 367/2006 (SB 667, Migden) established a five year Best
Value Construction Pilot Program for the University of
California, San Francisco (UCSF). The pilot program allows UCSF
to assign a "qualification score" to each bid solicited under
the program, which could, when divided into the bidder's price,
impact determination of the lowest cost per quality point based
on five statutory factors. Since January 2007, UCSF has awarded
172 contracts for $309.3 million, of which 23 contracts for
$158.3 million have been issued under this program. Of the 23
contracts, 12, (52%) were low bid contracts.
Under this bill, best value competitive bid contract means a
contract that is awarded on a competitive process that is 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. Commencing
January 1, 2011, every contract that would otherwise be required
to be awarded on a competitive basis and any other applicable
statue governing contracts may be awarded, instead, as a best
value competitive bid contract to the bid or proposal that
presents the best overall value to the state.
The indirect values include:
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SB 1249 (Ducheny)
(1) 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.
The value of this calculation is unknown. For example, if a
single filing California resident received wages of $100,000
pursuant to the contract and had deductions of $25,000, he or
she would pay $4,780 in taxes. Preliminary information
indicates the taxes paid on contract income by an out of state
resident may be the same. A comparison to non residents becomes
difficult if the person also had income from his or her state of
residence. Instead of taxing only the California income, the
Franchise Tax Board calculates the tax on all income, and then
calculates the tax owed to California based on the prorated
division of total income earned vs. income earned in California.
Additionally, the contractor, regardless of residence, is doing
business in the state for purposes of personal income and
corporation tax purposes.
(2) 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. The value of this calculation
could be significant. For example, a contractor could purchase
$50,000 in materials in Oregon, where there is no sales tax and
reduce his or her bid by $3,125, or the amount of state sales
tax (6.25 percent) that a contractor purchasing those materials
in California would pay. If this contractor's bid was $3,125
less than the low bid of a California contractor, would the
$3,125 in state sales tax paid by the California contractor
offset or mitigate a bid that is higher than the lowest bid?
(3) 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. For example, would the
local sales tax on the materials purchase noted in #2 ($50,000 x
2.75 percent = $1,375) serve as an additional offset?
(4) 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. For
example, would the taxes paid by the businesses producing or
selling the materials serve as an additional offset?
DGS would be required to adopt regulations exempt from the
Administrative Procedure Act to provide guidance on best methods
and practices. The regulations would include a matrix to assist
agencies in determining the overall best value. As noted above,
without knowing the values in the matrix it cannot be determined
if the indirect values set forth in the bill would result in
sufficient General Fund revenues in the form of increased
personal income, corporation, or sales tax to offset the
difference between the cost of the contract and the low bid
contract. For contracts funded with special funds, no such
comparison could be made.
The proposed amendment would specify best value contracting
shall not be used to award a contract where the benefit to any
fund is not demonstrated.