BILL ANALYSIS                                                                                                                                                                                                    �



                                                                  AB 1517
                                                                  Page  1

          Date of Hearing:   April 18, 2012

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                AB 1517 (Buchanan) - As Introduced:  January 13, 2012 

          Policy Committee:                              Business and 
          Professions  Vote:                            9-0

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:               

           SUMMARY  

          This bill deletes the July 1, 2013 sunset date on provisions 
          authorizing the Department of General Services (DGS)-in lieu of 
          requiring a performance bond on information technology (IT) 
          contracts and requiring the withholding of at least 10% on IT 
          progress payments-to apply lesser withholding levels, as 
          specified, based on the evaluation of risk.

           FISCAL EFFECT  

          Maintaining DGS's contracting flexibility should result in more 
          qualified bidders on IT contracts, thus, in general, increasing 
          competition and reducing the state's IT contract costs.

          (Current law requires the State Information Officer to report, 
          by July 1, 2012, on (1) the contracts approved pursuant to the 
          flexibility provisions and (2) any recommendations to change 
          these provisions.)

           COMMENTS  

           1)Background  . DGS executes approximately 8,000 to 10,000 IT 
            goods and services contracts for state agencies annually, 
            using a best value, multi-phase process. While the majority of 
            these contracts may only take weeks or months to bid and 
            award, the procurement of large-scale IT systems may take 
            years. Though these large-scale projects comprise only 3% of 
            state IT contracts, they account for 35% of all such contract 
            expenditures. Recent legislation has attempted to address the 
            often low number of bids received on these large IT contracts:









                                                                  AB 1517
                                                                  Page  2

             a)   AB 617 (Torrico)/Chapter 736  of 2007, repealed the 
               requirement that IT vendors provide a performance bond 
               worth 50% of the state IT goods and services contract 
               price. The intent was to allow DGS to better negotiate with 
               the vendor on contract terms and conditions.  

             b)   ABX4 21 (Evans)/Chapter 19 of 2009, authorized DGS to 
               use risk evaluation criteria to determine whether it was 
               appropriate to withhold less than 10% from progress 
               payments on an IT contract. Based on this assessment, no 
               less than 5% would be withheld on contracts exceeding $10 
               million, and no less than 3% would be withheld for 
               contracts less than $10 million. DGS's risk analysis also 
               determines the need for additional financial protections 
               for a contract, which may include performance bonds, 
               letters of credit, liquidated damages, independent 
               deliverables, and limitations of liability.

           2)Purpose  . AB 1517 extends indefinitely the authorizations 
            described above.  

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081