BILL ANALYSIS 1 1 SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE DEBRA BOWEN, CHAIRWOMAN AB 2548 - Cox Hearing Date: June 27, 2000 A As Amended: June 26, 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 at lowest cost" criteria to award contracts, allowing districts to consider factors other than cost when awarding supply and material contracts over $50,000. This bill defines "best value" as any factor or criterion established by an MUD to ensure that its business needs and goals are effectively met and that it obtains the most value for an authorized acquisition. This bill requires the MUD using a "best value" bidding process to ensure that all businesses have an ability to bid on a contract and that the contract doesn't discriminate against a bidder or potential bidder. This bill requires that once an MUD adopts a best value procurement process, it must submit a report to the 1 Legislature, as prescribed, within three years. BACKGROUND The current process for letting contracts over $25,000 (for larger districts, it's contract 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 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 at lowest cost" 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 at lowest cost acquisition" contracting be extended to municipal utility districts for supplies and materials? 2.Does this bill adequately define "best value?" 3.Does going to a "best value" contracting process have a positive or a negative impact on small and/or new and/or minority contractors who may wish to bid on a contract? COMMENTS 1)Amendments Since The June 13, 2000 Hearing . The Committee had an extensive discussion on this measure at its June 13, 2000 hearing. Since that time, the author has made four major amendments to the bill in response to concerns raised by various Committee members: a)Instead of allowing MUDs to purchase supplies and materials based on "best value," they must purchase them based on the "best value at the lowest cost." b)The section of the bill that allowed an MUD board to delegate the decision-making authority to its general manager has been deleted. c)The bill defines "best value" as "any factor or criterion established by a district to ensure that its business needs and goals are effectively met and that the district obtains the most value for an authorized acquisition." d)The bill requires an MUD to ensure all businesses have a fair and equitable opportunity to compete for contracts. It also requires an MUD to ensure that discrimination based on race, color, sex, national origin, marital status, sexual preference, creed, ancestry, or medical condition doesn't occur when awarding a contract. 1)Best Value at Lowest Cost . 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 - and MUDs - 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 actually wind up being more expensive in the long run. 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. 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. 4)Defining "Best Value" - It's In The Eye Of The Beholder . Awarding a contract on the basis of "best value" is an imprecise process because no matter how "best value" is defined, there's always going to be some degree of subjectivity in the process. In the end, it comes down whether one trusts the awarding entity to follow all of the applicable laws and the common sense notion behind the "best value at lowest price" concept. "Best value" and related terms are defined in different ways throughout California's statutes: a)Government Code Section 14661 allows the Department of General Services (DGS) to issue design-build construction project contracts based on a "best value at the lowest price" criteria. That criteria isn't set forth in statute, but rather DGS is required to develop such a criteria before putting a contract out to bid. b)AB 3307 (Brewer) of 1996 was sponsored by DGS and sought to define "best value" and "value effective" as "any factor or criterion established by a state agency to ensure that their business needs and goals are effectively met and that the state obtains the most value." That bill - which contained numerous other provisions - was defeated in the Senate Governmental Organization Committee on a 4-5 vote. c)Welfare & Institutions Code Section 10083 was added by AB 150 (Aroner), Chapter 479, Statutes of 1999. It requires the state, when purchasing an automated child support computer system, to use "'best value' evaluation methods, which means to select the solution based upon achieving the best solution based on business performance measures not necessarily the lowest price." d)Public Contract Code 12100.7, which was added by AB 1727 (Polanco), Chapter 1106, Statutes of 1993, defines the term "value-effective acquisition" as it pertains to the acquisition of electronic data processing and telecommunications goods and services. It uses 14 terms to define "value-effective acquisition," including: 1) The operational cost that the state would incur if the bid or proposal is accepted; 2) Quality of the product or service, or its technical competency; 3) Reliability of delivery and implementation schedules; 4) The maximum facilitation of data exchange and systems integration; 5) Warranties, guarantees, and return policy, 6) Vendor financial stability, 7) Consistency of the proposed solution with the state's planning documents and announced strategic program direction, 8) Quality and effectiveness of business solution and approach, 9) Industry and program experience, 10) Prior record of vendor performance, 11) Vendor expertise with engagements of similar scope and complexity; 12) Extent and quality of the proposed participation and acceptance by all user groups; 13) Proven development methodologies and tools; and 14) Innovative use of current technologies and quality results. e)Public Contract Code 20193, which was added by SB 2009 (Greene), Chapter 144, Statutes of 1998, was sponsored by the Sacramento Municipal Utility District (SMUD) to 7 define "value-effective acquisition" for the purposes of buying information technology, telecommunications, metering, computer, software, and other electronic equipment. That definition includes the 14 items above, along with a 15th - "Improvement in business operations responsiveness with regard to timeliness or providing service or products, and greater flexibility." While that section of law applies to any MUD that provides electricity to more than 250,000 people, the practical effect is that only SMUD can take advantage of it since it's the only MUD that meets the criteria. Clearly, the definitions in "c," "d," and "e" above apply to computer projects where the "best value" criteria is relatively imperative to be used in the wake of the state's less than positive experiences with issuing multi-million dollar computer contracts. After all, if a "low bid" criteria brings the state a computer system that costs less than another system but it, for example, doesn't collect child support payments in a timely fashion, the computer system not only isn't the "best value," it probably has no value since it's not serving the purpose for which it was purchased. This bill, which applies to the purchase of supplies and materials, relies on the definition noted in "b," which was developed by DGS for AB 3307 (Brewer) of 1996. As noted, that bill was defeated in the Senate Governmental Organization Committee. 4)Impacts On Small, New, and/or Minority Businesses . During the Committee's June 13, 2000 hearing on this bill, there was a discussion about whether the subjective nature of "best value" contracting would have a negative impact on small, new, and/or minority businesses. The bill attempts to address that concern by adding a new subsection (e) to require an MUD awarding a contract under this section to ensure all businesses have a fair and equitable opportunity to compete for contracts. It also requires an MUD to ensure that discrimination based on race, color, sex, national origin, marital status, sexual preference, creed, ancestry, or medical condition doesn't occur when awarding a contract. This subsection is, essentially, existing law that all public and private institutions have to follow because all forms of discrimination are illegal. As such, the author and Committee may wish to consider whether this new subsection addresses the concerns raised during the Committee's June 13, 2000 hearing. At a minimum, the author and Committee may wish to consider striking the phrase "For the purposes of this section" at the beginning of subsection (e). As written, this subsection inadvertently implies that while certain types of discrimination are banned under the form of contracting created by this bill, they aren't banned when an MUD engages in other forms of contracting. 5)Lawsuit . On June 20, 2000, the Pacific Legal Foundation filed a lawsuit against SMUD in defense of Proposition 209, the voter-approved initiative that bans the use of race or gender preferences by public agencies when hiring or contracting. The suit targets a 1998 SMUD policy giving minority and women-owned firms a 5% bidding advantage on certain contracts. 9 7)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: California Municipal Utilities Association Oppose: None on file. Anna Ferrera AB 2548 Analysis Hearing Date: June 27, 2000