BILL ANALYSIS �
SB 224
Page 1
Date of Hearing: June 14, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 224 (Pavley) - As Amended: April 14, 2011
SENATE VOTE : 37-0
SUBJECT : Public contracts: Department of Water Resources.
SUMMARY : Exempts Department of Water Resources (DWR) goods and
services contracts from Department of General Services (DGS)
approval if they are authorized to be entered into under the
Water Code or if they are are federally or locally funded.
EXISTING LAW :
1)Provides that state goods and services contracts are void
until approved by DGS, and exempts specified contracts entered
into by the following entities:
a) The California State University, the California
Community Colleges, or a department under the State
Contract Act or the California State University Contract
Law;
b) The California Department of Transportation (CalTrans),
including contracts funded by federal and local taxes;
c) The Department of Personnel Administration;
d) The Legislature; or,
e) The State Compensation Insurance Fund.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "Each
year, DWR enters into hundreds of contracts, often valued in the
millions. Despite having an extensive contracting operation
staffed by dozens of experienced attorneys and contract
specialists, DWR must still have many of its contracts reviewed
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and approved by DGS. This additional level of review delays the
execution of contracts and adds unnecessary costs to each
contract. SB 224 will provide DWR the same exception to DGS's
contract review that has been given to CalTrans. In doing so,
SB 224 will eliminate costly contract delays and unnecessary
bureaucratic review."
Background . DGS's Procurement Division is the central
purchasing authority for all state departments and agencies.
DGS also has the statutory authority to delegate its purchasing
authority to departments that meet specific requirements. DWR
has an information technology (IT) purchasing authority limit of
$1 million, and a non-IT purchasing authority limit of 100,000,
similar to Caltrans. There are only a few state agencies with
higher purchasing authority limits.
According to the State Contracting Manual, each state agency is
responsible for making sure that its contracts comply with
applicable legal requirements and is based on sound business
practices. DGS provides the final approval if required by law.
In some instances additional approvals may be needed, such as
those from the Attorney General, State Personnel Board, State
Fire Marshal, DGS/Office of Risk and Insurance Management, or
other DGS offices. Contract approval by DGS serves to assist
state agencies by ensuring effective compliance with applicable
laws and policies, conserving the fiscal interests of the state
and preventing improvident acts, and applying contract knowledge
and legal expertise prior to final approval.
Some specific types of contracts which would require DGS
approval, regardless of dollar amount, include, but are not
limited to contracts that: limit the contractor's liabilities
or require the state to indemnify or hold the contractor
harmless, require the state to assume liabilities beyond the
state's control, provide for advance payment of services, create
a contingent liability against the state, contain moving
services, or contain hazardous activity.
DGS reviews state procurement contracts, and charges state
agencies a fee of 1.6% of the overall contract value. This bill
would eliminate DGS review of DWR contracts, which annually
amount to billions of dollars. DWR's powers, duties,
responsibilities in relation to water and dams are authorized by
the Water Code. This bill would eliminate DGS review of a broad
range of DWR goods and services contracts that include, but are
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not limited to, maintenance, construction, energy, levee
inspections, management of wildlife areas, legal services, and
auditing services. In Fiscal Year 2009-10, the top 30 non-IT
service contracts had a value between $2 million to $770
million.
The proponents of this bill, the majority of which are water
districts and agencies, contend that time delays in purchasing
energy can result in increased prices due to the fluctuating
prices of the energy market coupled with the high volume of
energy that water districts and agencies purchase. In addition,
any construction or maintenance to the State Water Project (SWP)
is paid for by the users, or the water districts and agencies.
Previous legislation has attempted to exempt DWR from state
contracting requirements for energy purchases. SB 1506
(Margett) of 2006, would have waived provisions of state
contracting requirements for DWR to buy and sell electricity and
natural gas, and engage in other financial instruments for the
operation of the SWP. This bill was held in the Assembly Water,
Parks, and Wildlife Committee. The committee analysis for SB
1506 noted that during the 2001 energy crisis, DWR was granted
authority to purchase energy for public utilities, including
waivers from Government Code and Public Contract Code
contracting provisions. Subsequent questions arose over DWR's
contracting performance, and many of the energy contracts were
renegotiated.
Support . According to the Desert Water Agency and the Valley Ag
Water Coalition, "SB 224 seeks to expedite the making of
contracts in particular when timing is of critical importance
for the procurement of goods and services. For example, the
energy marketplace can be very volatile and energy rates can
change rapidly. Delay in the approval of contracts by DGS can
affect DWR's ability to procure electricity in a timely manner,
thus driving up energy costs that ultimately result in increased
water costs for business and consumers. This situation has had
costly, multimillion dollar consequences for the SWP and the 29
state water contractors who pay all SWP-related expenses.
"Furthermore, DGS charges the contracting department for DGS's
time in the reviewing process of the contract. The DGS fee for
contracts for last fiscal year was 1.6% of the value of the
contract. Each year, DWR enters into hundreds of contracts,
often valued in the millions of dollars. Despite having an
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extensive contracting operation staffed by dozens of experienced
attorneys and contract specialists, DWR must still have many of
its contracts reviewed and approved by DGS. Our clients believe
that this additional level of review not only delays the
execution of contracts, but it also adds unnecessary costs to
each contract."
Previous Legislation . AB 1383 (Fuller) of 2007, would have
authorized DWR to enter into contracts and agreements for the
purchase, sale, exchange, trading, financial hedging,
commodities and energy brokerage services, information
subscription, transmission, or interconnection of electric power
or natural gas that would be exempt from the Government Code and
Public Contract Code contracting provisions. This bill was held
in the Assembly Utilities and Commerce Committee.
SB 1506 (Margett) of 2006, would have waived provisions of state
contracting requirements for DWR to buy and sell electricity and
natural gas, and engage in other financial instruments for the
operation of the SWP. This bill was held in the Assembly Water,
Parks, and Wildlife Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Alameda County Flood Control and Water Conservation District
Zone 7
Alameda County Water District
Association of California Water Agencies
Burbank Water and Power
California Municipal Utilities Association
Calleguas Municipal Water District
Castaic Lake Water Agency
Central Coast Water Authority
Cucamonga Valley Water District
Desert Water Agency
East Valley Water District
Eastern Municipal Water District
Glendale Water and Power
Kern County Water Agency
Las Virgenes Municipal Water District
Metropolitan Water District of Southern California
Mojave Water Agency
Newhall County Water District
SB 224
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Rancho California Water District
San Bernardino Valley Municipal Water District
Santa Clara Valley Water District
Southern California Water Committee
State Water Contractors
Three Valleys Municipal Water District
Tulare Lake Basin Water Storage District
Upper San Gabriel Valley Municipal Water District
Valley Ag Water Coalition
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301