BILL ANALYSIS 1 1 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 2 5 4 8 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