BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 2548 - Cox Hearing Date: June 27, 2000
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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