BILL ANALYSIS                                                                                                                                                                                                                   1
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             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

                                                                       
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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 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  



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               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  

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                    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. 




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                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