BILL ANALYSIS �
SB 467
Page 1
Date of Hearing: June 28, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 467 (Pavley) - As Amended: May 31, 2011
SENATE VOTE : 33-6
SUBJECT : Department of General Services: contracts for energy
efficiency products or services.
SUMMARY : Requires the Department of General Services (DGS) to
deem a contract for an energy efficiency product or service to
be a no-cost or net-neural cost contract when funding is
provided, as specified, and to place energy efficiency providers
on the Master Services Agreement (MSA) for direct procurement
instead of competitive bidding. Specifically, this bill :
1)Requires DGS to deem a contract for an energy efficiency
product or service to be a no-cost or net-neural cost contract
when funding is provided through either of the following
methods:
a) The state pays the vendor in monthly or scheduled
incremental payments, an amount that is less than the
difference between the state's energy costs before and
after entering into the contract, for the life of the
contract. Includes in the energy costs, the cost of
maintaining the electrical and mechanical energy systems
providing that facility's energy; or,
b) The vendor pays the state a single sum at the execution
of the contract to provide its technology and services, at
a calculated net present value figure, in exchange for the
state paying the vendor monthly or scheduled incremental
payments equal to the difference between what the state was
paying for energy for a facility before and after entering
into a contract, for the life of the contract.
2)Requires DGS, by January 1, 2013, to issue a non-mandatory MSA
permitting owners, operators, and tenants of state facilities
to procure a wide range of energy efficiency products or
services from a wide range of approved companies in the MSA.
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3)Requires that companies in the MSA must have provided energy
efficiency products or services for at least two years, prior
to January 1, 2012.
4)Requires DGS to work with relevant university centers by
January 1, 2012, for guidance in the development of energy
efficiency product and service specifications for the MSA.
5)Authorizes pilot or demonstration contracts for energy
efficiency products or services, notwithstanding any other
provision of law. Requires that:
a) Energy efficiency products or services shall not be
excluded from the MSA because:
i) They have been in business for less than two years;
or,
ii) It is an emerging technology or service that has
been demonstrated to be effective in prototypical or
limited production and could become commercially viable
and successful with appropriate market development
efforts.
b) DGS work with relevant university centers by January 1,
2012, for guidance in the development of energy efficiency
product and service specifications for a pilot or
demonstration portion of the MSA.
6)Bases the difference between the amount the state would have
paid for energy and maintenance of energy consuming devices
before and after entering into the contract, on either of the
following:
a) The amount the state paid to utility and maintenance
service contractors for a kind of energy at a particular
facility in the 36 months prior to entering into the
contract, divided by month or another increment of time;
or,
b) Another amount calculated by an outside third party
selected by the state and agreed to by the contract vendor.
7)Defines "energy efficiency product or service" to mean a
technology or technology service where the energy cost savings
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to the state are projected to exceed the compensation the
state pays for the technology or service within 36 months of
the initial deployment of the product or service.
8)Makes legislative findings and declarations.
EXISTING LAW :
1)Establishes the State Building Construction Act of 1955 and
requires that all new public buildings be equipped with all
energy efficiency measures, materials, and devices that are
feasible and cost-effective, as defined, over the life of the
building or the life of the energy efficiency measure,
whichever is less, and sets forth the duties of DGS in this
regard.
1)Authorizes contracting between state agencies and private
contractors and sets forth the requirements for the
procurement of goods and services and for the solicitation and
evaluation of bids and the awarding of contracts by public
entities.
2)Authorizes state agencies that have been granted delegated
purchasing authority to procure leveraged procurement
contracts, under specified limits, without competitive bidding
requirements.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office,
"Federal and local governments and an increasing number of
private entities have been able to take advantage of
"performance-based" energy efficiency contracts. These
contracts either require the vendor to be paid from the savings
generated by the contract, such that there is no upfront cost to
the state, or provide assurances that the cost of the product or
service will be less than the money saved in reduced energy
consumption. In addition to providing immediate or near-term
cash savings to the purchaser, the contracts have the additional
environmental benefit of reducing greenhouse gases, reducing
energy consumption, and aiding the environment.
"Unfortunately, despite the urgent need to save General Fund
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money, reduce energy consumption, and emissions, it is generally
understood that the state is not on track to meet that target.
A significant part of the reason for this presumed failure is
that DGS has not provided state building owners, operators, and
tenants with an effective contracting process for the
procurement of performance-based or otherwise energy saving
technologies or services."
Background . Current law allows energy efficiency providers to
bid on a goods and services contract. This bill would introduce
a new method to allow state agencies to procure energy
efficiency products and services by selecting a provider from
the MSA list and entering into a "no cost" or "cost-neutral"
contract instead of competitive bidding. Below is a summary of
the leveraged procurement process outside of the competitive
bidding process known as the lowest responsible bidder, and a
discussion of "no-cost" and "cost-neutral" contracts and their
implications.
Leveraged Procurement Contracts . A leveraged procurement
combines DGS's requirements for the same items or for families
of similar items, thus providing standardization and
"leveraging" the state's buying power to achieve lower prices,
better terms and conditions, and improved service through volume
purchasing. In addition, leveraged procurement minimizes the
administrative costs associated with individual departments
having to undergo the acquisition process repetitively to
fulfill their individual, ongoing requirements for the same
items. Two types of leveraged contracts are summarized below:
the MSA, and the California Multiple Award Schedule (CMAS). DGS
sends an annual market survey to 125 state agencies to assess
the purchasing needs for goods and services and negotiates a
contract using collective purchasing power.
MSA . DGS utilizes the MSA procurement process when the majority
of state agencies demand a particular product. For example, all
state agencies use office supplies. Therefore, there is a sole
vendor under the MSA from which all state agencies must order
their office supplies. This provides a monopoly for the vendor.
Currently, DGS adds vendors to the MSA every two years through
competitive bidding.
CMAS . DGS uses CMAS when there is not universal, but sufficient
demand for a product that justifies DGS's negotiation with
vendors to procure rates in advance for a specified range of
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products and services and make that available to state agencies.
CMAS contracts cover a variety of commodities and information
technology (IT) products and services at prices that have been
assessed to be fair, reasonable and competitive. State agencies
use CMAS like a purchase catalog. Without having to go out to
bid, state agencies may select the contractor of choice, select
the products and services to be ordered, and send the purchase
order directly to the contractor. Under CMAS, a state agency is
not obligated to purchase a product through a specific vendor
and purchases are not guaranteed for the vendor. Currently,
many energy efficiency products, including light bulbs, are
purchased through CMAS. In addition, DGS may procure multiple
items in a single contract on a project basis. State agencies
using CMAS are required to solicit a minimum of three bids and
select the lowest bid.
Exemption from Delegated Purchasing Authority Limits . DGS
grants delegated purchasing authority to state agencies to
acquire IT goods and services and non-IT goods and services
without going out to bid. Delegated purchasing authority must
be obtained prior to use of most existing sources, such as the
State's leveraged procurement agreements. Generally, the limits
are $100,000. Since this bill allows no-cost or cost-neutral
contracts to be procured through the MSA, state agencies may be
able to bypass the delegated purchasing authority limit and
procure these energy efficiency goods and services contracts
without DGS putting these contracts out to bid.
No-Cost and Cost-Neutral Contracts . Existing law authorizes
state agencies to enter into no-cost or cost-neutral contracts.
There are a few such contracts, and one example would be a
contract in which a vendor has a concession stand located in a
state facility and does not pay the state to operate, but earns
income from sales. Another example would be the Clean Energy
Management Solutions contract, which allows a state agency to
contract with a company to install solar panels at no cost to
the state, although the state will pay the company for the cost
of energy used. In this instance, the state does not own or
maintain the equipment that achieves energy savings. This
process is more cost-effective than purchasing the solar panels
because DGS can solicit bids to procure the lowest cost of
energy per unit and can renegotiate the contract after the
contract term expires.
Deferred-Cost Contracts . In this bill, the state agency is
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paying the vendor for their services and product. The only
difference is that the costs are not paid upfront and are
instead realized in monthly or incremental payments.
It appears the vendor only has to charge the state less than the
difference of what the state previously paid for energy costs in
the previous three years before entering into a contract, and
the amount paid after entering into a contract; in other words,
the state agency may not realize the full cost savings from
energy efficiency projects.
If the state agency can only select the energy efficiency
provider from the MSA, there is no requirement that multiple
bids need to be solicited to determine a state agency is
receiving the best value on an energy efficiency contract. It
may not be in the best interests of the state to enter into a
contract that would only achieve minimal savings, if the staff
time to procure and implement the contract would cost
significantly more.
Support . According to Scientific Conservation, Inc. (SCI),
"SCI, a leading, California-based provider of energy efficiency
and pro-active building systems management via Predictive
Diagnostics and Analytics for the $5 billion commercial building
market, is pleased to support SB 467.
"For both budgetary and environmental reasons, California has an
immediate need to reduce its energy use. In fact, through
Executive Order (EO) S-20-04, former Governor Schwarzenegger
directed the state to reduce its grid-based energy purchases 20%
by 2015.
"It is generally understood that the state is not on track to
meet that goal. Although DGS has audited and retrofitted
approximately 25 state buildings pursuant to EO S-20-04,
attempts to more broadly reduce energy use in state owned or
leased buildings has been unsuccessful. To put the fiscal and
environmental importance of this effort in context, the state
owns and leases about 33 million square feet of office space,
the equivalent of over 11 Empire State Buildings.
"SB 467 simply directs DGS to develop a non-mandatory �MSA]
contract that would allow state building owners, operators, and
tenants to procure a wide range of energy efficiency products
and services from a DGS-approved list of companies. It also
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clarifies that energy efficiency contracts that produce more
savings than their cost over the term of the contract are no
cost or cost neutral."
According to the South Coast Air Quality Management District
(AQMD), "The State Building Construction Act of 1955 requires
that all new public buildings be equipped with all energy
efficiency measures, materials, and devices that are feasible
and cost-effective, as defined, over the life of the building or
the life of the energy efficiency measure, whichever is less,
and sets forth the duties of DGS in this regard? Consistent
with AQMD's clean air objectives, SB 467 brings contracting
methods employed by DGS up-to-date with current practices to
save the state money while reducing energy demand in state
buildings, which may further reduce electricity generation and
criteria pollutant emissions."
Opposition . According to the California State Association of
Electrical Workers, The California State Pipe Trades Council,
and the Western State Council of Sheet Metal Workers, "SB 467
irresponsibly guarantees an energy efficiency vendor payment
equal to the difference in energy costs for a state facility
after work is performed for the life of a contract, even if
future energy savings are unrelated to the work performed. SB
467 fails to prescribe a method for quantifying or assessing the
energy savings derived from the work performed.
"Nowhere in SB 467 is there a requirement or a procurement model
proposed that ensures that these energy efficiency contracts
will be competitively bid. There are no requirements that state
agencies publicly notice the availability of these contracts or
establish the basis for selecting a vendor. The lack of detail
gives us great concern that state agencies will seize on this
new authority to engage in secret non-public negotiations with
energy service companies and award sole source contracts.
"SB 467 authorizes DGS to develop a MSA to allow for the
'procurement of a wide range of energy efficiency products or
services' from a list of pre-approved companies without specific
qualifications or a prescribed process for selecting companies.
Instead, the legislation gives DGS the authorization to develop
the contract specifications at a later date. We strongly
believe this is an inappropriate delegation of legislative
authority and that the specifications should either be
prescribed in SB 467 or DGS should report back to the
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Legislature and receive approval. In addition, this section
would allow sole-source, no-bid contracts for anyone fortunate
enough to make the MSA without an open, transparent public bid
process.
"Without question, the payment for these works of improvement is
being paid using both public property and public funds.
Consequently, we insist that SB 467 be amended to make it
crystal clear that these �no-cost or cost-neutral] contracts are
public works contracts within the meaning of Section 1720 of the
Labor Code, and that prevailing wages apply."
Double-referred . This bill is double-referred to Assembly
Natural Resources Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Scientific Conservation, Inc.
South Coast Air Quality Management District
Opposition
California Association of Sheet Metal and Air Conditioning
Contractors National Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California State Association of Electrical Workers
California State Pipe Trades Council
National Electrical Contractors Association
Service Employees International Union, Local 1000
State Building and Construction Trades Council
Western State Council of Sheet Metal Workers
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301