BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1249|
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THIRD READING
Bill No: SB 1249
Author: Ducheny (D)
Amended: 6/1/10
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE : 7-1, 4/13/10
AYES: Wright, Calderon, Florez, Oropeza, Padilla, Price,
Yee
NOES: Denham
NO VOTE RECORDED: Harman, Negrete McLeod, Wyland
SENATE APPROPRIATIONS COMMITTEE : 7-3, 5/27/10
AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
NOES: Denham, Walters, Wyland
NO VOTE RECORDED: Cox
SUBJECT : Public contracts: best value competitive bid
contracts
SOURCE : Author
DIGEST : This bill (1) permits 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, (2) requires that these contracts consider, when
awarding the contract, the total direct and indirect
economic benefit to the state of the proposed contract, and
(3) authorizes the Department of General Services to adopt
regulations to assist state agencies in implementing these
CONTINUED
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provisions.
ANALYSIS : 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.
This bill:
1.Declares Legislative intent to do both of the following
to:
A. Permit 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. Permit 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
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sales and use taxes.)
2.Defines "best value competitive bid contract" to mean 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 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
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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 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.
6.Provides that no contract shall be awarded to a bidder
under this bill if the Director of DGS determines that
the award of the contract to that bidder would result in
a net loss of revenues to the General Fund based on
estimates of the total direct and indirect economic
benefit to the state under the contract.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
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 Unknown
costs, fully offset by savings
General/
competitive bid process or
revenue that must balance or bid
various
process could not be used.
Special
* Service Revolving Fund
SUPPORT : (Verified 5/27/10)
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- - - -
OPPOSITION : (Verified 5/27/10)
Department of Finance
Associated Builders and Contractors of California
California Chamber of Commerce
Seawright Custom Precast, Inc.
ARGUMENTS IN SUPPORT : According to the author's office,
this bill 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
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."
ARGUMENTS IN OPPOSITION : Opponents contend that this
bill does not provide sufficient safeguards so that the
taxpaying public has confidence the method does not result
in procurement fraud, undue influence, and favoritism in
the selection of contractors. Opponents believe that this
will cause firms to make unsustainably low bids in order to
win a contract. Opponents believe that placing best value
factors into the procurement process will encourage bidders
to try and downplay the substantive weaknesses of their
products and services by playing up factors that have no
actual impact on the quality of the final product.
Opponents conclude that this bill will place small
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contractors at a competitive disadvantage, as they will not
be able to provide the higher wage levels that larger
companies do in order to receive favorable consideration
under a "best value" system.
TSM:nl 5/28/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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