BILL ANALYSIS                                                                                                                                                                                                                   1
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             SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
                            DEBRA BOWEN, CHAIRWOMAN
          

          AB 2548 -  Cox                Hearing Date: June 13, 2000    
              A
          As Amended:         May 15, 2000                   
          NON-FISCAL       B

                                                                       
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                                   DESCRIPTION
           
           Current law  requires municipal utility districts (MUDs) to  
          award contracts for supplies and materials to the lowest  
          responsible bidder for contracts of more than $25,000 (in  
          districts with populations over 250,000, the law applies to  
          contracts over $50,000).  This dollar level is adjusted  
          annually to reflect U.S. Department of Commerce price  
          indicators for state and local government purchases.

           This bill  allows MUDs to use a "best value" criteria to  
          award contracts, allowing districts to consider other  
          factors besides cost when awarding supply and material  
          contracts over $50,000.

           This bill  allows MUDs to delegate decision-making authority  
          in determining which contract should be awarded to their  
          general managers.

           This bill  also requires that once a MUD decides to adopt a  
          best value procurement process, it must submit a report to  
          the Legislature within three years. 

                                    BACKGROUND
           
          Currently, the process for letting contracts over $25,000,  
          and, for larger districts, over $50,000, requires the  











               utility to put out a request for proposals (RFP) that  
               describes the supplies or materials needed, deadlines, and  
               any other relevant information required for the development  
               of a bid.  Vendors respond to the RFP with an offer to  
               provide those goods for a specific price.  These bids are  
               evaluated by the MUD's elected board (or, in some cases,  
               the board's appointed general manager) and under existing  
               law's "lowest responsible bidder" criteria, the vendor with  
               the lowest price is awarded the contract. 

               This bill would allow MUDs to use something known as the  
               "best value procurement process."  Under this proposal,  
               vendors responding to an RFP wouldn't just be judged on  
               price, they'd be judged on a number of criteria laid out in  
               the bill.

               Under this bill, the best value acquisition policies  
               adopted by any MUD board must, at a minimum, consider: 

                    1)Price and service levels which reduce operating  
                      costs; 

































               2)Supplies and materials standards; and,
               3)A procedure to resolve protests from vendors.

          Once the MUD board establishes its policies, any best value  
          acquisition  may  - but is not required to - take into  
          account the following:

               1)The total cost of the contract;
               2)The operational cost or benefit of the contract;
               3)The value of any vendor-added services;
               4)The quality, effectiveness, and innovation of  
                 supplies, materials, and services;
               5)The reliability of delivery and installation  
                 schedules;
               6)The terms and conditions of product warranties and  
                 vendor guarantees;
               7)The financial stability of the vendor;
               8)The vendor's quality assurance program;
               9)The vendor's experience; and 
               10)    The vendor's consistency of the proposed  
                 supplies with the district's overall procurement  
                 program.

                                    QUESTIONS
                                         
          1.Should "best value acquisition" contracting be extended  
            to municipal utility districts for supplies and  
            materials?

          2.Should this bill rely only on "best value" or should it  
            instead rely on "best value at the lowest price?"

          3.Should the authority to award "best value" contracts rest  
            only with the elected board members of a MUD or should  
            the elected board be permitted to delegate  
            decision-making authority to its appointed general  
            manager?

                                     COMMENTS
           
           1)Best Value  .  The notion of allowing public agencies to  
            buy supplies and materials using a "best value" process  
            instead of the traditional "low bid" process is an idea  
            that's growing in popularity.  Some state agencies have  










                 the authority to purchase this way in specified instances  
                 because many have realized that while the low bid method  
                 may save taxpayer dollars in the short run, it may wind  
                 up actually being more expensive to taxpayers in the long  
                 run. 

                 However, at the state level, contracts awarded under the  
                 notion of "best value" also include the caveat that the  
                 winning bidder should be the one who provides the "best  
                 value at the lowest price."  Specifically, this concept  
                 is embodied in Government Code Section 14661, which deals  
                 with the awarding of design-build construction contracts.

                 As such,  the author and committee may wish to consider   
                 amending this bill to require bids to be awarded to the  
                 vendor that provides the "best value at the lowest  
                 price."





































           2)Eyes Open Or Shut  .  The low bidding process is also a  
            "blind" bidding process in that the names of the bidders  
            aren't known to the people selecting the winning bid.   
            The names are, after all, not important if the agency is  
            required to pick the lowest responsible bidder and one of  
            the benefits of such a system is it's virtually  
            impossible to show favoritism and steer lucrative  
            contracts toward certain vendors.

            This blind bidding is lost in best value procurements  
            because if an agency is going to judge a contract award  
            on a vendor's history, performance, financial stability,  
            experience, etc., it's clearly going to have to know who  
            the bidders are.  

            While value bidding can give taxpayers great value, it  
            also can be an extremely subjective process because  
            variables such as the quality of a product and the  
            reputation of a supplier are open to interpretation by an  
            individual bid reviewer. 

           3)Accountability - Who Makes The Decisions?   All MUDs are  
            made up of elected board members who are directly  
            accountable to the voters.  While this bill requires the  
            elected board to create - presumably in an open meeting  
            process subject to a public vote - the "best value  
            acquisition policies" that will govern the award of  
            contracts, this bill also allows a board to delegate to  
            its general manager the sole authority to determine which  
            bidder(s) meet the criteria established by the board.

            This runs contrary to Public Utilities Code 12751, which  
            only allows a board to authorize its general manager to  
            reject all bids for a given contract and to decide  
            whether, after all bids have been rejected, the contract  
            should be put out to bid again.

            Public Utilities Code Section 12751.1 was created in 1987  
            to allow certain MUD boards to authorize the general  
            manager to determine the lowest responsible bidder and to  
            award a contract to that bidder.

            Public Utilities Code Section 12751.2, created in 1997 by  
            SB 357 (Rainey), Chapter 313, Statutes of 1997, was  










                 sponsored by the East Bay Municipal Utility District.  It  
                 gives certain MUD boards the ability to authorize the  
                 general manager to act for the board in determining the  
                 lowest responsible bidder in contracts up to $100,000.   

                 Giving an appointed general manager the sole authority to  
                 reject all bids or the sole authority to determine who  
                 the lowest responsible bidder is in a "blind bidding"  
                 situation is vastly different than the concept in this  
                 bill, which allows boards to give a general manager the  
                 sole authority to award a "value based" contract.  Under  
                 this bill, the general manager will know who all of the  
                 bidding vendors are and the MUD board will be allowed to  
                 give the general manager the sole discretion over which  
                 bidder shall be awarded the contract.  

                 Granted, the general manager is accountable to the MUD  
                 board and the MUD board is accountable to the voters, but  
                  the author and committee may wish to consider  whether an  
                 MUD board should have the authority to delegate sole  
                 decision-making authority to its general manager in a  
                 "value based" procurement system.
































           4)Double Referral  .  Should this measure be approved by this  
            committee, the Senate Rules Committee has asked that it  
            be referred to the Senate Local Government Committee.

                                  ASSEMBLY VOTES
           
          Assembly Utilities & Commerce Committee(9-0)
          Assembly Local Government Committee(9-0)
          Assembly Floor                     (72-3)

                                    POSITIONS
           
           Sponsor:
           Sacramento Municipal Utility District
           
          Support:
           None on file.

           Oppose:
           None on file.


          Anna Ferrera 
          AB 2548 Analysis
          Hearing Date: June 13, 2000