BILL ANALYSIS
SB 1484
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Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1484 (Wright) - As Amended: August 2, 2010
Policy Committee: Jobs, Econ.
Development and the Economy Vote: 6 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill prohibits the Department of General Services (DGS) and
other state agencies from entering into bundled contracts
because the contracts effectively exclude small businesses,
microbusinesses, or disabled veteran business enterprises
(DVBEs). Specifically, this bill:
1)Prohibits DGS and the directors of other state departments
from entering into bundled contracts.
2)Defines "bundling of contracts" to mean the use of a
solicitation for a single contract, or a multiple award
contract, to satisfy two or more requirements for goods, the
result of which restricts competition, as specified.
3)Allows DGS to enter into a bundled contract only upon approval
of the California Small Business Advocate.
4)Requires DGS to make a determination about the value of
bundled contract and submit a report to the Small Business
Advocate with the department's findings and determinations.
5)Requires the Small Business Advocate to review the report and
determine whether or not the bundled contract is appropriate.
6)Allows the Small Business Advocate to make recommendations to
the director regarding any terms and conditions that should be
incorporated into the contract.
7)Allows DGS to enter into a bundled contract during a declared
state of emergency.
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8)Sunsets the provisions of this legislation on January 1, 2017.
FISCAL EFFECT
1)The Bureau of State Audits recently determined that the 33
statewide bundled, or strategically sourced, contracts that
were awarded between 2005 and 2006 had saved the state at
least $160 million by June of 2007. Based on that finding,
prohibiting or limiting these types of contracts would likely
result in higher contract costs and could cost the state over
$80 million per year.
2)On-going annual costs of approximately $350,000 ($280,000 GF)
per year for the workload associated with DGS reviewing,
processing, auditing, and overseeing the state's bundled
contracts to ensure that they comply with the requirements of
this legislation.
3)Workload costs associated with the Small Business Advocate
reporting on and reviewing contracts would be approximately
$50,000 GF per year.
COMMENTS
1)Rationale . The intent of this legislation is to eliminate or
decrease the number of bundled or strategically sourced
contracts awarded by the state. The author asserts that this
type of bundling of contracts is detrimental to the state's
goal of increasing small business participation in state
contracts. The author also believes that prohibiting bundled
contracts will reduce costs for the state.
2)Strategically Sourcing State Contracts . The purpose of
strategic sourcing is to enter into statewide contracts that
leverage the state's purchasing power in order to save money
on the goods and services purchased most frequently by state
agencies. The strategic sourcing process involves identifying
regularly purchased goods and services through an analysis of
past purchasing data and estimating what savings could be
achieved through strategically sourcing future contracts.
Based on an analysis of state purchasing, DGS awarded 33
strategically sourced statewide contracts for 10 categories of
goods between February 2005 and July 2006.
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3)Bureau of State Audits Report on Strategically Sourced
(Bundled) Contracts . In July 2010, the State Auditor released
her findings regarding the state's efforts to strategically
source contracts in order to create efficiencies and save
state resources. As noted above, the initiative resulted in
the bundling of 33 state contracts. The auditor found that the
state had saved at least $160 million by strategically
sourcing the 33 contracts.
She also found that the extent to which strategic sourcing of
contracts affects the number of small businesses and DVBEs
contracting with the state is unclear. The report, however,
acknowledges that the nature of strategic sourcing, which
consolidates expenditures into statewide contracts to achieve
lower prices, can result in fewer contracting opportunities
for small businesses and DVBEs. For certain mandatory
statewide contracts, including strategically sourced
contracts, DGS provides state agencies with the option to
contract directly with small businesses and DVBEs in order to
meet their participation goals.
The audit also determined that DGS had not continued
strategically sourcing contracts beyond the 33 awarded,
despite the recommendation from the outside consultant that
the state strategically source contracts for 20 additional
categories of goods. The Auditor recommends that DGS conduct
its planned review of these categories to determine if there
are further opportunities to achieve savings through strategic
sourcing.
4)Key Questions . The definition of "bundling" provided in this
legislation is vague and unclear. As written, this bill would
prohibit or limit the state from entering into any leveraged
or strategically sourced contracts. DGS defines considers
their leveraged contracts as bundled because they buy a whole
class of products, e.g., ammunition, and the contracts are
used by the entire state for the purchase of that product. The
author may wish to refine the definition of "bundling" to
clarify whether or not they intend to prohibit or limit all of
these statewide contracts.
Currently, this legislation both prohibits the bundling of
contracts and establishes a process for determining whether or
not a bundled contract is appropriate. The committee may wish
to determine to prohibit the practice all together or simply
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provide protections for small businesses. To establish a new
process, it is not necessary to include language prohibiting
bundling.
5)Related Legislation . Currently, AB 2708 (Bill Berryhill)
prohibits the Department of General Services (DGS) and the
directors of other state departments or agencies that enter
into contracts from engaging in the bundling of contracts and
other requirements as specified. That bill has not been heard
by a policy committee.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081