BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 835 (Wolk)
Hearing Date: 5/9/2011 Amended: 3/23/2011
Consultant: Bob Franzoia Policy Vote: Education 10-0
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BILL SUMMARY: SB 835 would extend from January 1, 2012, to
January 1, 2015, a pilot program authorizing the University of
California (UC) to award contracts based on the best value
procedures. This bill would require the UC to submit a report
on the pilot program before January 1, 2012. By extending the
requirement that bidders verify specified information under
oath, this bill would impose a state mandated local program by
expanding the scope of an existing crime.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Sunset extension Minor reporting cost one time; unknown,
General likely major savings through
1/1/2015 over
competitive (low bid) bidding process
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STAFF COMMENTS: Chapter 367/2006 established a five year pilot
program implementing a "best value" bidding process at the UC
San Francisco campus.
Existing law requires the UC Regents to let any contract for a
project to the lowest responsible bidder. This bill would
authorize the UC to select the lowest responsible bidder on the
basis of the best combination of price and qualifications,
including financial condition, relevant experience, and
demonstrated management competency. According to the UC, this
"best value" approach creates an incentive for contractors to
work with UC staff to identify issues early, eliminate the need
for litigation and arbitration where possible, and complete
projects on time and on budget. Failure by contractors to
demonstrate management competency reducing their ability to
secure future contracts because their best value is reduced.
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The value of competitive bidding is based on the assumption that
competition for projects will drive the lowest cost, but for
many projects the low bidder is not the contractor who can
deliver a complex project on time and at a reasonable price.
For example, a lowest bidder wins a contract to build a facility
based on his or her bid of $10 million. In this case, the
contractor encounters problems and by the time the facility is
finished costs have risen to $11 million. Under best value
contracting, the UC could award a contract to a contractor who
bid $10.5 million and because of the competency of the
contractor, the project is constructed for that amount and
delivered on time. If the cost of the project was determined
solely on the basis of the initial bids, use of a contractor
other than the lowest bidder would appear to result in increased
costs. If the cost of the project was determined by the costs
incurred at the point of beneficial occupancy, the best value
bidder would have the lowest cost.
In February 2010, the UC issued an interim report on the "Best
Value Pilot Program." Since the pilot was initiated, UCSF
reports having awarded 23 contracts totaling $158.3 million
under the program - the executive summary indicates the
following:
(1) A decrease in bid protests, communication problems,
disputes, the need for multiple inspections and re-work, change
order requests and claims, and litigation;
(2) An increase in incentives for contractors to perform
high-quality work safely, while adhering to high-labor
standards;
(3) Increased likelihood of contractors staffing a project with
their best workers and to choose subcontractors which are most
appropriate for the work (rather than "low bid");
(4) A reduction in administrative oversight and contract/project
management staff time.
UCSF believes that the Best Value Construction Pilot Program has
demonstrated that this selection method results in contracts
with a higher success rate in terms of price, quality, and
timely completion. Based on the volume of construction
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contracts bid in 2009 and 2010 - and applying the most
conservative estimate of savings to that number based on Pilot
Program experience (savings = two percent of contract value) -
UCSF would expect to yield approximately $30 million in annual
savings. In addition, UCSF notes that savings also accrue from
avoiding costs associated with bid protests, claims, and
litigation.