BILL ANALYSIS �
AB 1917
Page 1
Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Marty Block, Chair
AB 1917 (Dickinson) - As Introduced: February 22, 2012
SUBJECT : Education finance: acquisition of food services.
SUMMARY : Requires the governing board of each California
Community College district (CCC districts) and the Trustees of
the California State University (CSU), and requests the Regents
of the University of California (UC) to develop and adopt
policies regarding the acquisition of food service.
Specifically, this bill :
1)Requires CCC districts and CSU, and requests UC, to develop
and adopt policies and procedures for the acquisition of food
services to ensure that a service contractor fully discloses
to the campus, auxiliary organization, or other unit of the
segment all discounts, rebates, allowances, and incentives
received by the service contractor from its suppliers.
Requires suppliers to disclose and pay to the campus the full
amount of the discount, rebate or credit that is based on
purchases made on behalf of the institution. Requires
language stating this requirement to be placed in all
agreements covered by this bill.
2)Requires the discount, rebate or incentive to be paid to the
institution during a mutually agreed upon time frame and a
record of transactions to be available for review as part of
any audit conducted pursuant to existing law.
3)Defines "services contractor" to include those providing food,
janitorial, laundry, maintenance, window cleaning or landscape
services.
4)Defines "rebate" to include any return of monetary value
including, but not limited to, any volume discounts,
allowances, or discount purchase incentives.
5)Provides that if the Commission on State Mandates determines
this act to contain costs mandated by the state, reimbursement
to local agencies and school districts are required.
6)Requires K-12 public schools to adopt the aforementioned
AB 1917
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policies to ensure that food service contractors disclose and
reimburse all discounts, allowances, and incentives the
contractor receives.
EXISTING LAW
1)Establishes UC as a public trust and confers the full powers
of the UC upon the Regents, subject to legislative control
only to the degree necessary to ensure the security of its
funds and compliance with the terms of its endowments (Section
9 of Article IX of the California Constitution). Establishes
a competitive bid threshold for goods and services purchased
by UC of $100,000; contracts under this amount can be awarded
directly to a vendor or can be informally bid by soliciting
bids from several venders (Public Contract Code �10507.7).
2)Provides the CSU Trustees broad powers to establish policies
and procedures governing the acquisition of services,
facilities, materials, goods, supplies, or equipment.
Requires the policies to include a competitive means for
obtaining best value while complying with legislative intent
regarding competitive bids or proposals as expressed in the
California Public Contracts Code (Education Code �89036).
3)Provides CCC governing boards authority to manage and control
district property, including contracting for the procurement
of goods and services (EC �70902). Authorizes CCC governing
boards to enter into contracts for management consulting
services related to food service for up to a one year term
renewed on an annual basis, so long as the contract does not
result in the elimination of classified personnel, among other
requirements (EC �8804.5). Establishes various requirements
for public bidding processes for CCC governing boards to enter
into service contracts (Public Contract Code �20650).
4)Requires every contract involving the expenditure of public
funds in excess of $10,000 by any public entity to be subject
to the examination and audit of the State Auditor for a period
of three years after final payment under the contract.
Requires every contract to contain a provision stating that
the contracting parties shall be subject to that examination
and audit (Government Code �8546.7).
FISCAL EFFECT : Unknown
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COMMENTS : Double-referral . This bill was double-referred to
the Assembly Education Committee, which heard and approved this
bill on a vote of 7-to-3 on March 28, 2012. This analysis
focuses on the higher education components of this legislation.
Background . On March 7, 2012 the Assembly Committee on
Accountability and Administrative Review (AAR) held an oversight
hearing on "Rebates and Transparency in K-12 and Higher
Education Food Service Contracts." According to background
information prepared by the Committee, food service companies
are collecting potentially millions of dollars a year in
off-invoice rebates from national suppliers through contracts
with California schools, community colleges and public
universities. In 2010, after significant controversy
surrounding the amounts of those rebates, the U.S. Department of
Agriculture enacted regulations requiring contractors under the
federally-subsidized school meals program to disclose all
discounts, rebates and other applicable credits received by the
contractor and to credit those rebates back to the school. The
regulations are designed to ensure that the limited school meals
program resources are used as efficiently as possible and that
federal agencies are only paying "net costs". After concerns
were raised that large vendors were not returning rebates
received, the New York Attorney General conducted an
investigation, revealing that over a five-year period beginning
in 2004, Sodexo received significant rebates from suppliers
without acknowledging or passing the savings on to these
schools-in violation of the contracts between Sodexo and the
schools as well as state and federal laws. In July of 2010,
Sodexo agreed to pay New York $20 million to settle complaints.
Purpose of this bill . According to the author, current law
allows universities to contract for food services but provides
no guidance on how to do so. Many colleges and universities
lack the knowledge that off-invoice rebates exist, let alone the
amount of the rebates. This bill is intended to provide needed
guidance to the UC, CSU, and CCC systems to ensure disclosure
and remittance of off-invoice rebates. The author argues, "In
economic times such as these, when cuts to higher education are
implemented year after year, remittance of off-invoice rebates
will offset the funds that are not being provided by the
Legislature."
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UC food service contracts . The UC Office of the President
(UCOP) has identified four UC campuses that contract out for
some or most of their food services: Davis, Irvine, San
Francisco and Riverside. While these contracts do not appear to
require the disclosure and reimbursement of rebates, existing
law would authorize UC to negotiate contracts requiring
disclosure and reimbursement of rebates. Further, UCOP has
identified other benefits currently received by UC campuses
through food service contracts with vendors such as Sodexo and
Aramark. For example, campus agreements for food services can
include provisions that require vendor-financed campus
infrastructure improvements, sustainable practices, campus
continuity of services and local food-sourcing. With regard to
infrastructure improvements specifically, Davis and Irvine,
which have vendors engaged in traditional meal service for
resident undergraduates, have benefitted from extensive
investments in capital facilities from their vendor at an
approximate value of $5 million (Davis) and $9 million (Irvine)
over the course of their recent multi-year contract periods.
CSU food service contracts . As previously noted CSU Trustees
have broad authority over campus procurement policies for
services and goods. The CSU Policy Manual for Contracting and
Procurement contains detailed policies and procedures for
selecting contractors for goods and services. While a complete
accounting of these policies is beyond the scope of this
analysis, it is important to note that these policies and
procedures are generally designed to ensure responsible
contractors and the best price/value for CSU, and contracts of
greater than $50,000 require a competitive bidding process.
According to information provided by the author, six CSU
campuses currently contract with food service providers:
Bakersfield, East Bay, Monterey Bay, San Bernardino, San
Francisco and Stanislaus. Of these campuses, the author notes
that most indicate they are aware of off-invoice rebates but
unaware of the rebates' value when contracts are negotiated. It
appears that under existing law, CSU campuses would have the
authority to enact provisions requiring contractors to credit
manufacturer rebates to campuses.
CCC food service contracts . Each of California's 72 CCC
districts is local controlled by elected governing boards. As
such, CCC Chancellor's Office does not review or establish rules
governing local vendor contracts entered into by individual
districts. According to information provided by the author, a
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sample of CCC contracts reviewed by the Assembly Committee on
Accountability and Administrative Review showed many off-invoice
rebates were sanctioned by boilerplate industry language and at
least one contract was silent on rebates, leaving open the
question of whether rebates should have been remitted to the
college. According to the Assembly Committee on Accountability
and Administrative Review, during the course of their
investigation, officials at Sierra College in Rocklin
renegotiated an existing food service contract to reflect
information provided by the Committee about off-invoice rebates.
This example would suggest that legislation is not needed for
CCC governing boards to negotiate contracts that require
disclosure and reimbursement of off-invoice rebates, if so
desired by the CCC district.
Prior legislation . AB 450 (Wieckowski) would have required CSU
service contractors to disclose and credit manufacturer rebates
to CSU campuses. In vetoing AB 450, the Governor stated that
the bill "targets a narrow set of contracts between the
California State University campuses and their food vendors. It
aims to correct a problem that may or may not exist by requiring
those vendors to disclose supplier discounts and pass them on to
the campuses. Since they can already do this on their own, this
measure is not necessary."
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Laura Metune / HIGHER ED. / (916)
319-3960