Existing law establishes the 3 segments of public postsecondary education in this state, including the University of California, which is administered by the Regents of the University of California.

This bill would request the Regents of the University of California to record and report to the Legislature, through a publicly accessible Internet Web site maintained by the university and updated each January 1 and July 1, specified information regarding service work performed by a contractor pursuant to an outsource contract, as defined, with links to specified related documents. To qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the University of California, the bill would require that a contractor agree to provide the university with specified information. If a contractor fails to provide any of the required information, or provides information that is false, the contractor would be disqualified from bidding on any contract with the university for a period of 2 calendar years from the date that the accurate information should have been provided or the date on which the violation was discovered, whichever is later.

Existing law establishes the 3 segments of public postsecondary education in this state, including the University of California, which is administered by the Regents of the University of California.

This bill would request the Regents of the University of California to record and report to the Legislature, through a publically publicly accessible Internet Web site maintained by the university and updated each January 1 and July 1, specified information regarding service work performed by a contractor, as defined, pursuant to an outsource contract, as defined, with links to specified related documents. To qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the University of California, the bill would require that a contractor agree to provide the university with specified information. If a contractor fails to provide any of the specified required information, or provides information that is false, the contractor would be disqualified from bidding on any contract with the university for a period of 5 2 calendar years from the date that the accurate information should have been provided or the date on which the violation was discovered, whichever is later.

Existing law establishes the 3 segments of public postsecondary education in this state, including the University of California, which is administered by the Regents of the University of California.

This bill would request the Regents of the University of California to record and report to the Legislature, through a publically accessible Internet Web site maintained by the university and updated each January 1 and July 1, specified information regarding service work performed by a contractor, as defined, pursuant to an outsource contract, as defined, with links to specified related documents. To qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the University of California, the bill would require that a contractor agree to provide the university with specified information. If a contractor fails to provide any of the specified required information, or provides information that is false, the contractor would be disqualified from bidding on any contract with the university for a period of 5 calendar years from the date that the accurate information should have been provided or the date on which the violation was discovered, whichever is later.

Existing law establishes the 3 segments of public postsecondary education in this state, including the University of California, which is administered by the Regents of the University of California.

This bill would require request the Regents of the University of California to follow the directions of the bill with respect to to record and report to the Legislature, through a publically accessible Internet Web site maintained by the university and updated each January 1 and July 1, specified information regarding service work performed by a contractor, as defined, pursuant to an outsource contract, as defined. defined, with links to specified related documents. To qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the University of California, the bill would require that a contractor agree to provide to the university and the office of the State Controller with specified information. The bill would direct that within 10 days of executing any outsource contract, the university or the contractor is to provide to the office of the State Controller a copy of the relevant contract documents, including all attachments and amendments and any and all subcontracts, and to provide specified information if that information is not contained in the contract documents. The bill would require the office of the State Controller to publish specified information on an Internet Web site maintained by the office within 30 days of receiving the information. The bill would require the University of California, on or before January 31 of each calendar year, to provide to the office of the State Controller specified information regarding service work performed pursuant to an outsource contract during the prior calendar year. The bill would require the office of the State Controller, on or before March 31 of each calendar year, to publish that specified information on an Internet Web site maintained by the office. The bill would provide that the University of California and a contractor are each jointly and severally responsible for ensuring that accurate information is provided to the office of the State Controller in a timely manner and that if the University of California or the contractor fails to provide the office of the State Controller with If a contractor fails to provide any of the specified required information, or provides information that is false, the contractor is would be disqualified from bidding on any contract with the university for a period of 5 calendar years from the date that the accurate information should have been provided or the date on which the violation was discovered, whichever is later.

Existing law establishes the 3 segments of public postsecondary education in this state, including the University of California, which is administered by the Regents of the University of California.

This bill would require the Regents of the University of California to follow the directions of the bill with respect to service work performed by a contractor, as defined, pursuant to an outsource contract, as defined. To qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the University of California, the bill would require that a contractor agree to provide to the university and the office of the State Controller with specified information. The bill would direct that within 10 days of executing any outsource contract, the university or the contractor is to provide to the office of the State Controller a copy of the relevant contract documents, including all attachments and amendments and any and all subcontracts, and to provide specified information if that information is not contained in the contract documents. The bill would require the office of the State Controller to publish specified information on an Internet Web site maintained by the office within 30 days of receiving the information. The bill would require the University of California, on or before January 31 of each calendar year, to provide to the office of the State Controller specified information regarding service work performed pursuant to an outsource contract during the prior calendar year. The bill would require the office of the State Controller, on or before March 31 of each calendar year, to publish that specified information on an Internet Web site maintained by the office. The bill would provide that the University of California and a contractor are each jointly and severally responsible for ensuring that accurate information is provided to the office of the State Controller in a timely manner and that if the University of California or the contractor fails to provide the office of the State Controller with the specified required information, or provides information that is false, the contractor is disqualified from bidding on any contract with the university for a period of 5 calendar years from the date that the accurate information should have been provided or the date on which the violation was discovered, whichever is later.

GOVERNOR'S VETO

GV Bill Id:AB 2361

Author:(Weber)

As Enrolled Ver:August 30, 2018

2/3 vote

SUMMARY: Requests that the University of California (UC) post on a publicly available website specified types of contracts, contract information, and information about contractors' employees and their wages and benefits. Specifically, this bill:

1. Requests UC to post specified information about each outsource contract, including information about contractors' employees conducting work.
2. Requests UC to post links to a complete copy of each outsource contract along with amendments, attachments, price schedules, and agreements with any subcontractor, vendor, or service provider.
3. Requests UC to post specified information about each individual who performed service work at any university location pursuant to an outsource contract.
4. Requires for a contractor to qualify as the lowest responsible bidder or best value awardee, or to otherwise perform service work at UC, to agree in writing to provide UC with any information necessary to comply with the provisions of this bill.
5. Bans a contractor for two years from contracting with UC if the contractor fails to provide required information or provides false information.
6. Requires the Legislature to deduct funds, as specified, to UC the next fiscal year after UC fails to provide specified contracts, contract information, and information about contractors' employees that was requested and obtained from the contractor on the website.
7. Requires the Legislature to deduct funds, as specified, to UC the next fiscal year if UC contracts with a banned contractor during the two-year period of the ban.

FISCAL EFFECT: The Assembly Committee on Appropriations identified one-time General Fund cost pressures to UC in the mid hundreds-of-thousands of dollars to develop a publically accessible website, and ongoing General Fund cost pressures to the UC likely in the low millions of dollars annually, to hire staff at UC locations to collect and report certain data to the website twice a year and certain data annually.

COMMENTS: Need for the bill. According to the author, "The Legislature made it clear that it is concerned about the increase in UC contracting with contingency worker firms. We have passed three previous bills to address this issue. This is what we know about temporary workers: they are more likely to be an immigrant or person of color, earning lower wages with fewer if no benefits, less likely to have access to healthcare, and are more likely to rely on public assistance. The question once again before the Legislature is whether the University of California's contracting practices are resulting in the avoidance of hiring direct UC employees (as found by the State Auditor), contributing to the displacement of African Americans in UC career jobs, and condemning low-wage contractors into poverty and a reliance on social services. This bill would require transparency of UC outsourcing regarding contractors' pay compared to University employees doing comparable work, whether the University is enforcing its own minimum wage policies, whether these employees receive any health or retirement benefits - similar to the UC's current reporting of State of California public contracts subject to prevailing wage. The bill will also allow the State to gauge the extent to which these contracts shift costs to the state by UC contractors having to rely on public assistance."

Background. According to a 2012 UC Berkeley Labor Center report, entitled, "Temporary Workers in California are Twice as Likely as Non-Temps to Live in Poverty: Problems with Temporary and Subcontracted Work in California," in California almost one-quarter of a million people worked in the temporary help services industry in 2010. The report finds that temporary and subcontracted workers on a whole, are more likely to be female, less likely to be white non-Hispanic, and less likely to have a high school diploma or equivalency certificate than the average non-temporary employee.

Additionally, the report finds that temporary and subcontracted employees are twice as likely as non-temporary employees to live in poverty, receive food stamps, and be on Medicaid. The report finds that temporary and subcontracted employees earned roughly 18% less than equivalent non-temporary employees of the same age, gender, and ability.

The report also finds that temporary and subcontracted employees were also more susceptible to workplace illness and injury, and were less likely to get benefits. The report notes that lowered wages mean that temporary and subcontracted employees rely more on the state safety net than their direct-hire counterparts and that these employment arrangements undermine worker protections by allowing employers to avoid certain provisions of worker protection; making it difficult to enforce other protections. Lastly, the report finds that these employment relationships create downward pressure on wages.

UC's Fair Wage/Fair Work plan. In July 2015, the UC adopted a Fair Wage/Fair Work Plan. Under the Plan, the UC has established a minimum level of pay for employees to ensure that all UC workers are provided a fair wage with a goal of reaching a minimum wage of $15 per hour on October 1, 2017. In addition, the UC reports that it is implementing annual compensation audits and interim audits, paid for by the contractor, to monitor wage and working conditions as well as compliance with federal, state, and UC workplace laws and policies for contracted employees working pursuant to contracts entered into or renewed after October 2015.

Joint Legislative Audit Committee (JLAC) actions. During the May 25, 2016 JLAC hearing, the Committee approved an audit request by Senator Ricardo Lara to, among others, have the California State Auditor (CSA) conduct an audit of UC contracting policies and processes and comparisons of compensation and benefits of UC employees versus contract employees.

The audit, report number 2016-125.1, titled "The University of California Office of the President - It Has Not Adequately Ensured Compliance With Its Employee Displacement and Services Contract Policies," was completed in August, 2017 and found that:

1. UC has not fully followed its policy for justifying its decisions to displace university employees with services contract workers.
   1. Two of the 31 services contracts we reviewed contained documentation that university employees were displaced.
   2. The two university locations administering these contracts did not fully adhere to the displacement guidelines in either contract.
2. The Office of the President has not enforced compliance with the displacement guidelines and weaknesses in the guidelines may undermine their effectiveness.
3. Low‑wage services contract workers received hourly wages that were $3.86 lower than comparable university employees received.
4. The university generally adhered to the Office of the President's contract policy, but it could make improvements, such as ensuring the standard terms and conditions are included in services contracts.
5. Some university locations avoided competitive bidding by repeatedly amending contracts and through sole‑source exceptions.
6. The Office of the President lacks a systemwide database that would allow it to track contracts at all university locations and report basic contract data.
7. The Office of the President could not substantiate $109 million in benefits it claimed as resulting from its systemwide procurement program.

Regarding the specific provisions of this bill, page 35 of the CSA report found that:

In response to the Legislature's request for data on the university's contracting activities over the past five years, we contacted each campus, medical center, and the Office of the President to obtain extracts from the systems they use to track contract information. Specifically, we requested that each university location provide us with an extract of its contracts along with basic information about each contract, including whether the contract was to purchase a good or service, the contract amount, and the period it covered. However, despite the basic nature of our request, many of the campuses and medical centers, as well as the Office of the President, were unable to provide complete extracts, as Table 7 on the following page shows. For example, the University of California, Los Angeles, campus could not provide data on the procurement methods it used, such as whether contracts were competitively bid or were sole source. The university's decentralized approach to contract management has resulted in its inability to report even the most basic contract information in the aggregate without a manual review of all of its contracts. Moreover, because the campuses, medical centers, and the Office of the President all lack complete data in their tracking systems, we were unable to respond to the Legislature's request for information about the university's contract activities over the past five years.

Prior legislation. SB 574 (Lara) of 2017, which was vetoed by the governor, modified the requirements to qualify as a lowest responsible bidder or best value awardee for certain types of contracts at the University of California.

SB 959 (Lara) of 2016, which was vetoed by the Governor, is very similar in nature to SB 572.

SB 376 (Lara) of 2015, which was vetoed by the Governor, is very similar in nature to SB 959.

GOVERNOR'S VETO MESSAGE:

This bill would require vendors to provide, and the Regents of the University of California to collect and report on, information about outsourcing contracts, including the wages, employee classifications and nature of work being provided by the vendor.

I have vetoed similar bills three times before because of what I view as unreasonable interference into university management on this topic. While I support the goal of the author to increase transparency into the possible pay disparities between university employees and contracted workers, I believe this bill goes too far and could potentially limit the UC's appropriate contracting.

Since my veto last year, the University has reviewed their contracting practices and have taken appropriate steps to improve transparency and reduce pay disparities.

I have no doubt that there is more work to be done and I encourage the Office of the President and the Regents to move forward on the remaining recommendations from the auditor. To that end, I urge the Regents to promptly turn their attention to this matter.

Analysis Prepared by: Kevin Powers / HIGHER ED. / (916) 319-3960 FN: 0005313

 THIRD READING  

Bill No: AB 2361

Author:

:

Vote:

SENATE EDUCATION COMMITTEE: 4-2, 6/27/18

AYES: Galgiani, Leyva, McGuire, Pan

NOES: Wilk, Vidak

NO VOTE RECORDED: Allen

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/16/18

AYES: Portantino, Beall, Bradford, Hill, Wiener

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 54-22, 5/31/18 - See last page for vote

SUBJECT:

SOURCE: American Federation of State, County and Municipal Employees, AFL-CIO

DIGEST:

This bill requires that a contractor agree to provide the University of California (UC) with specified information regarding each active outsource contract in order to qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the university; requests the UC to report through a publicly accessible Web site that information; and requires the Legislature to deduct a certain amount from the UC’s General Fund appropriation should UC fail to report the information.

ANALYSIS:

Existing law:

1. Outlines the requirements and procedures for competitive bidding at the UC;

and, outlines requirements and procedures, specifically for the acquisition of materials, goods, and services. (Public Contract Code § 10500, et seq.)

1. Declares the intent of the Legislature to facilitate the participation of small businesses, particularly small disadvantaged or minority business enterprises, women business enterprises, and disabled veteran business enterprises in business contracting with the UC. (PCC § 10500.5)
2. Requires the UC to let any contract involving an expenditure of $100,000 or more annually for goods and materials, or for services to be performed (other than personal or professional services) to the lowest responsible bidder. (PCC § 10507.7)
3. Authorizes the UC, when it determines that it can expect long-term savings, as specified, to select the lowest responsible bidder on the basis of the best value to the university. (PCC § 10507.8)

This bill requires that a contractor agree to provide the UC with specified information regarding each active outsource contract in order to qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the university; requests UC to report through a publicly accessible Web site that information; and requires the Legislature to deduct a certain amount from the UC’s General Fund appropriation should the UC fail to report the information. Specifically, this bill:

1. Requests UC to record and report to the Legislature, through a publicly accessible Web site maintained by the university, specified information regarding each active outsource contract including descriptions of the work, cost of the work, and hourly pay of employees performing the work.
2. Requests the Web site provide links to copies of outsource contracts and that the UC update this information every January 1 and July 1, as specified.
3. Requests the UC to report by January 31 of each year information about each individual performing work as part of an outsourced contract, including the individual’s job title, total hours worked, pay, and benefits. Provides that the university substitute a unique identifier in place of an individual’s name.
4. Specifies that a contractor failing to provide specified information or provides false information necessary for the UC to update the Web site will be disqualified from bidding on any UC contract for two years, as specified.
5. Specifies, if the university declares an unqualified contractor to be a qualified bidder, the Legislature is to deduct an amount equal to the value of those contracts from the UC’s General Fund appropriation in the subsequent year.
6. Specifies that if the university fails to provide the specified information that has been requested or obtained, the Legislature is to deduct an amount equal to the value of all contracts for which information is omitted in whole or in part from the UC’s General Fund appropriation in the subsequent year.
7. Defines various terms for purposes of the bill including, “outsourced contract,” to mean a contract, purchase order, or other agreement to which the UC is a party or beneficiary, including any extension, renewal, change order, or other revision to the contract, that provides for or allocates funding for service work to be performed by employees who are not employees of the UC at any university location or for the university’s benefit. “Outsource contract” also includes any subcontract or other arrangement through which a third party provides employees who are not university employees to perform service work at any university location or for the UC.
8. States various legislative findings and declarations.

Comments

1. Need for the bill. According to the author, “In a 2012 report by the University of California, Berkeley Center for Labor Research and Education, found temporary workers are more likely to be young , female an immigrant or person of color, earning lower wages with fewer benefits, less likely to have access to healthcare and to be more likely to rely on public assistance. As the third largest employer in the state, the University’s use of low-wage outsourced workers has become an issue of statewide concerns.” The author highlights that a recent review of the UC service contracting practices by the State Auditor found, among other things, UC Office of the President has not adequately ensured compliance with its employee displacement and services contract policies.
2. Related Study. According to a 2012 study by the UC Berkeley Labor Center, Temporary Workers in California are Twice as Likely as Non-Temps to Live in Poverty: Problems with Temporary and Subcontracted Work in California, almost one-quarter of a million people worked in the temporary help services industry in California in 2010. These workers were slightly younger, more likely to be female, less likely to be white non-Hispanic, and less likely to have a high school diploma or GED than the average non-temp worker. These workers were also more susceptible to workplace illness and injury, earned less than their non-temp counterparts, and were less likely to get benefits. The report notes that lowered wages mean that these workers rely more on the state safety net than their direct-hire counterparts and that these employment arrangements undermine worker protections by allowing employers to avoid certain provisions of worker protection and making it difficult to enforce other protections. The report also notes that these employment relationships create downward pressure on wages.
3. Related audit. A request was made by the office of Senator Lara to the Joint Legislative Audit Committee to investigate specified employment contracts at the UC. The audit, report number 2016-125.1, titled “The University of California Office of the President - It Has Not Adequately Ensured Compliance With Its Employee Displacement and Services Contract Policies,” was completed in August 2017, and found in its review of 31 service contracts at six university locations found that:

• The university’s decentralized approach to contract management has resulted in its inability to report even the most basic contract information in the aggregate without a manual review of all of its contracts. Staff notes that the UC began implementation of its new software in July 2017.
• The university has not fully followed its policy for justifying its decisions to displace university employees with service contract workers.
  • Two of the reviewed service contracts contained documentation that university employees were displaced.
  • The two university locations administering these contracts did not fully adhere to the displacement guidelines in either contract.
• The Office of the President has not enforced compliance with the displacement guidelines and weaknesses in the guidelines may undermine their effectiveness.
• Low‑wage service contract workers received hourly wages that were $3.86 lower than comparable university employees received.
• The university generally adhered to the Office of the President's contract policy, but it could make improvements, such as ensuring the standard terms and conditions are included in services contracts.
• Some university locations avoided competitive bidding by repeatedly amending contracts and through sole-source exceptions.
• The Office of the President lacks a systemwide database that would allow it to track contracts at all university locations and report basic contract data.
• The Office of the President could not substantiate $109 million in benefits it claimed as resulting from its systemwide procurement program.

The report recommends that the Legislature revise state law to specify the conditions under which the university may amend contracts without competition and more narrowly define the professional and personal services that the university may exempt from competitive bidding.

1. UC's Fair Wage/Fair Work plan. In July 2015, the UC adopted a Fair Wage/Fair Work Plan. Under the Plan, the UC has established a minimum level of pay for employees to ensure that all UC workers are provided a fair wage with a goal of reaching a minimum wage of $15 per hour on October 1, 2017. In addition, the UC reports that it is implementing annual compensation audits and interim audits, paid for by the contractor, to monitor wage and working conditions as well as compliance with federal, state, and UC workplace laws and policies for contracted employees working pursuant to contracts entered into or renewed after October 2015. The UC has also established a phone hotline and central online system to report complaints directly to the Office of the President.
2. Penalties. This bill subjects UC to a penalty should it fail to post the required information or if it contracts with a contractor who is prohibited from working with the UC pursuant to this bill. Specifically, it requires the Legislature to deduct an amount of funds from the UC’s General Fund that is equal to the value of all contracts for which information is omitted in whole or in part. This appears to be overly punitive and unnecessary as the Legislature has the authority to modify UC’s General Fund appropriation through the budget process. This bill requires the Legislature to reduce UC’s funding under the conditions described.

Related/Prior Legislation

SB 574 (Lara, 2017) would have modified the requirements for qualifying as a lowest responsible bidder or best value awardee for contracts for materials, goods, and services at the UC. SB 574 was vetoed by the Governor.

SB 959 (Lara, 2016), nearly identical to SB 574, was heard and passed by the Senate Education Committee in March 2016, by a vote of 7-2. SB 959 was subsequently vetoed by the Governor.

SB 376 (Lara, 2015) was substantively similar to SB 959 (Lara, 2015), which was heard and passed by the Senate Education Committee in April 2015, by a vote of 7-2. SB 376 was subsequently vetoed by the Governor.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

• There could be potential ongoing General Fund cost pressure in the millions to tens of millions of dollars to the extent that the bill leads to fewer contractors willing to perform work at the UC, which would require UC to insource more contracts. For example, if this bill led UC to insource between 10 to 20 percent more of the work now performed by outsourced contracts in the first year, UC estimates cost pressure of up to $17.6 million. This number could increase if UC is required to insource a higher percentage of contracts (e.g. a 50 percent increase in insource contracts would represent cost pressure of $44 million). These estimates assume an annual outsource contracts value of about $207 million. UC indicates insourcing contracts would lead to increases in employee costs of about 42.5 percent when compared to outsourced contracts.
• The UC also estimates ongoing General Fund costs of between $5.2 million and $8.6 million to hire between three to five positions at each campus for compliance costs and supervisory responsibility for insourced employees as a result of this bill. The UC has 15 locations (10 campuses and five medical centers) which largely operate independently of one another to contract out work for their campuses.
• The UC estimates one-time General Fund costs of $500,000 to comply with the bill’s data collection and reporting requirements.

SUPPORT: (Verified 8/15/18)

American Federation of State, County and Municipal Employees, AFL-CIO (source)

California Labor Federation

University of California Student Association

OPPOSITION: (Verified 8/15/18)

California Chamber of Commerce

University of California

ARGUMENTS IN SUPPORT: According to the sponsor, the American Federation of State, County and Municipal Employees, AFL-CIO, this bill will inform the Legislature about UC's compliance in meeting its minimum wage requirements and provide information about the extent to which UC contractors provide employees with health and retirement benefits. The sponsor indicates contractors already report information required by this bill in their tax filings.

ARGUMENTS IN OPPOSITION: UC opposes this bill and indicates its requirements will lead to progressively more service work being insourced by the university as a result of fewer bidders being willing to work for the university. UC believes that the reluctance on the part of bidders to participate will be based on their unwillingness to share detailed and sensitive information about their workforce, such as their employee’s wage information, on a publicly available Web site. The California Chamber of Commerce, an opponent of this bill, also raises concerns about requiring the disclosure of proprietary information.

ASSEMBLY FLOOR: 54-22, 5/31/18

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bonta, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chiu, Chu, Cooley, Cooper, Daly, Eggman, Frazier, Friedman, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Levine, Limón, Low, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Travis Allen, Baker, Bigelow, Brough, Chávez, Chen, Cunningham, Dahle, Fong, Gallagher, Harper, Kiley, Lackey, Mathis, Mayes, Melendez, Obernolte, Patterson, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Choi, Flora

Prepared by:

8/18/18 13:55:28

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 2361 (Weber) - University of California: outsource contracts

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

This bill requires that a contractor agree to provide the University of California (UC) with specified information regarding each active outsource contract in order to qualify as the lowest responsible bidder or the best value awardee. This bill also requests UC to report that information on a publicly accessible website.

Fiscal Impact:

• There could be potential ongoing General Fund cost pressure in the millions to tens of millions of dollars to the extent that the bill leads to fewer contractors willing to perform work at the UC, which would require UC to insource more contracts. For example, if this bill led UC to insource between 10 to 20 percent more of the work now performed by outsourced contracts in the first year, UC estimates cost pressure of up to $17.6 million. This number could increase if UC is required to insource a higher percentage of contracts (e.g. a 50 percent increase in insource contracts would represent cost pressure of $44 million). These estimates assume an annual outsource contracts value of about $207 million. UC indicates insourcing contracts would lead to increases in employee costs of about 42.5 percent when compared to outsourced contracts.
• The UC also estimates ongoing General Fund costs of between $5.2 million and $8.6 million to hire between three to five positions at each campus for compliance costs and supervisory responsibility for insourced employees as a result of this bill. The UC has 15 locations (ten campuses and five medical centers) which largely operate independently of one another to contract out work for their campuses.
• The UC estimates one-time General Fund costs of $500,000 to comply with the bill’s data collection and reporting requirements.

Background:

Existing law outlines the requirements and procedures for competitive bidding at the University of California, including those applicable to the acquisition of materials, goods and services. (Public Contract Code § 10500, et seq.)

Existing law requires the UC to let any contract involving an expenditure of $100,000 or more annually for goods and materials, or for services to be performed (other than personal or professional services) to the lowest responsible bidder. (PCC § 10507.7)

Existing law authorizes the UC, when it determines that it can expect long-term savings, as specified, to select the lowest responsible bidder on the basis of the best value to the university. (PCC §10507.8)

In July 2015, the UC adopted the Fair Wage Fair Work Plan. Under the Plan, the UC has established a minimum level of pay for employees to ensure that all UC workers are provided a fair wage with a goal of reaching a minimum wage of $15 per hour on October 1, 2017. In addition, the UC reports that it is implementing annual compensation audits and interim audits, paid for by contractors, to monitor wage and working conditions as well as compliance with federal, state, and UC workplace laws and policies for contracted employees working pursuant to contracts entered into or renewed after October 2015. The UC will also establish a phone hotline and central online system to report complaints directly to the Office of the President.

Proposed Law:

This bill requests the UC to record and report to the Legislature, through a publicly accessible website maintained by the university, specified information regarding each active outsource contract including descriptions of the work, cost of the work, and hourly pay of employees performing the work. The website shall provide links to copies of outsource contracts and be updated every January 1 and July 1, as specified.

This bill requests UC report by January 31 of each year information about each individual performing work as part of an outsourced contract, including the individual’s job title, total hours worked, pay, and benefits.

This bill specifies that a contractor failing to provide specified information or provides false information necessary for UC to update the website will be disqualified from bidding on any UC contract for two years, as specified.

This bill provides that if the UC declares an unqualified contractor to be a qualified bidder, the Legislature is to deduct an amount equal to the value of those contracts from the UC’s General Fund appropriation in the subsequent year.

This bill also provides that if the UC fails to provide the specified information that has been requested or obtained, the Legislature is to deduct an amount equal to the value of all contracts for which information is omitted in whole or in part from the UC’s General Fund appropriation in the subsequent year.

This bill defines various terms for purposes of the bill including, “outsourced contract,” to mean a contract, purchase order, or other agreement to which the University of California is a party or beneficiary, including any extension, renewal, change order, or other revision to the contract, that provides for or allocates funding for service work to be performed by employees who are not employees of the UC at any university location or for the university’s benefit. “Outsource contract” also includes any subcontract or other arrangement through which a third party provides employees who are not university employees to perform service work at any university location or for the UC.

Related Legislation:

SB 574 (Lara, 2017) would have modified the requirements for qualifying as a lowest responsible bidder or best value awardee for contracts for materials, goods, and services at the UC.SB 574 was vetoed by the Governor, whose message read:

After twice vetoing prior attempts, I am tempted to sign this measure, for no other reason than it is a well-intentioned bill that seeks to improve the financial security of contracted workers, or, alternatively, expand direct employment at the UC for lower wage workers. As the UC prides itself on being an agent of social mobility for students, it might follow that UC could similarly be an agent of social mobility for lower-wage workers at its campuses.

Good intentions, however, aren't always enough. The mechanism to create this social change locks in cumbersome and overly costly contracting rules that provide little flexibility, regardless of circumstance. This will not serve the university or the state well.

What the state requires of the university's contracting policy should be more carefully considered, thoughtfully debated and weighed against other high value programs of expenditure. The State Auditor's recent report made some useful recommendations on contracting practices, which the UC can act on now. Other actions to improve UC's policies can be considered when the UC's total budget is considered by the state.

-- END --

SENATE COMMITTEE ON EDUCATION

Senator Benjamin Allen, Chair

2017 - 2018 Regular

Bill No: Hearing Date: June 27, 2018

Subject: .

SUMMARY

This bill requires that a contractor agree to provide the University of California (UC) with specified information regarding each active outsource contract in order to qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the university; it requests UC to report through a publicly accessible website that information and; requires the Legislature to deduct a certain amount from the UC’s General Fund appropriation should UC fail to report the information.

BACKGROUND

Existing law:

1. Outlines the requirements and procedures for competitive bidding at the UC; and, outlines requirements and procedures, specifically for the acquisition of materials, goods, and services. (Public Contract Code § 10500, et seq.)
2. Declares the intent of the Legislature to facilitate the participation of small businesses, particularly small disadvantaged or minority business enterprises, women business enterprises, and disabled veteran business enterprises in business contracting with the UC. (PCC § 10500.5)
3. Requires the UC to let any contract involving an expenditure of $100,000 or more annually for goods and materials, or for services to be performed (other than personal or professional services) to the lowest responsible bidder. (PCC § 10507.7)
4. Authorizes the UC, when it determines that it can expect long-term savings, as specified, to select the lowest responsible bidder on the basis of the best value to the university. (PCC § 10507.8)

ANALYSIS

This bill requires that a contractor agree to provide the UC with specified information regarding each active outsource contract in order to qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the university; it requests UC to report through a publicly accessible website that information and; requires the Legislature to deduct a certain amount from the UC’s General Fund appropriation should University of California (UC) fail to report the information. Specifically it,

1. Requests UC to record and report to the Legislature, through a publicly accessible website maintained by the university, specified information regarding each active outsource contract including descriptions of the work, cost of the work, and hourly pay of employees performing the work.
2. Requests the website provide links to copies of outsource contracts and that the UC update this information every January 1 and July 1, as specified.
3. Requests UC report by January 31 of each year information about each individual performing work as part of an outsourced contract, including the individual’s job title, total hours worked, pay, and benefits. Provides that the university substitute a unique identifier in place of an individual’s name.
4. Specifies that a contractor failing to provide specified information or provides false information necessary for UC to update the website will be disqualified from bidding on any UC contract for two years, as specified.
5. Specifies, if the university declares an unqualified contractor to be a qualified bidder, the Legislature is to deduct an amount equal to the value of those contracts from the UC’s General Fund appropriation in the subsequent year.
6. Specifies that if the university fails to provide the specified information that has been requested or obtained, the Legislature is to deduct an amount equal to the value of all contracts for which information is omitted in whole or in part from the UC’s General Fund appropriation in the subsequent year.
7. Defines various terms for purposes of the bill including, “outsourced contract,” to mean a contract, purchase order, or other agreement to which the University of California is a party or beneficiary, including any extension, renewal, change order, or other revision to the contract, that provides for or allocates funding for service work to be performed by employees who are not employees of the UC at any university location or for the university’s benefit. “Outsource contract” also includes any subcontract or other arrangement through which a third party provides employees who are not university employees to perform service work at any university location or for the UC.
8. States various legislative findings and declarations.

STAFF COMMENTS

1. Need for the bill. According to the author, “In a 2012 report by the University of California, Berkeley Center for Labor Research and Education, found temporary workers are more likely to be young , female an immigrant or person of color, earning lower wages with fewer benefits, less likely to have access to healthcare and to be more likely to rely on public assistance. As the third largest employer in the state, the University’s use of low-wage outsourced workers has become an issue of statewide concerns.” The author highlights that a recent review of the University of California (UC) service contracting practices by the State Auditor found, among other things, UC Office of the President has not adequately ensured compliance with its employee displacement and services contract policies.
2. Related Study. According to a 2012 study by the UC Berkeley Labor Center, Temporary Workers in California are Twice as Likely as Non-Temps to Live in Poverty: Problems with Temporary and Subcontracted Work in California, almost one-quarter of a million people worked in the temporary help services industry in California in 2010. These workers were slightly younger, more likely to be female, less likely to be white non-Hispanic, and less likely to have a high school diploma or GED than the average non-temp worker. These workers were also more susceptible to workplace illness and injury, earned less than their non-temp counterparts, and were less likely to get benefits. The report notes that lowered wages mean that these workers rely more on the state safety net than their direct-hire counterparts and that these employment arrangements undermine worker protections by allowing employers to avoid certain provisions of worker protection and making it difficult to enforce other protections. The report also notes that these employment relationships create downward pressure on wages.
3. Related audit. A request made by the office of Senator Lara to the Joint Legislative Audit Committee to investigate specified employment contracts at the UC. The audit, report number 2016-125.1, titled “The University of California Office of the President - It Has Not Adequately Ensured Compliance With Its Employee Displacement and Services Contract Policies,” was completed in August 2017, and found in its review of 31 service contracts at six university locations found that:

• The university’s decentralized approach to contract management has resulted in its inability to report even the most basic contract information in the aggregate without a manual review of all of its contracts. Staff notes that the UC began implementation of its new software in July 2017.
• The university has not fully followed its policy for justifying its decisions to displace university employees with service contract workers.
  • Two of the reviewed service contracts contained documentation that university employees were displaced.
  • The two university locations administering these contracts did not fully adhere to the displacement guidelines in either contract.
• The Office of the President has not enforced compliance with the displacement guidelines and weaknesses in the guidelines may undermine their effectiveness.
• Low‑wage service contract workers received hourly wages that were $3.86 lower than comparable university employees received.
• The university generally adhered to the Office of the President's contract policy, but it could make improvements, such as ensuring the standard terms and conditions are included in services contracts.
• Some university locations avoided competitive bidding by repeatedly amending contracts and through sole‑source exceptions.
• The Office of the President lacks a systemwide database that would allow it to track contracts at all university locations and report basic contract data.
• The Office of the President could not substantiate $109 million in benefits it claimed as resulting from its systemwide procurement program.

The report recommends that the Legislature revise state law to specify the conditions under which the university may amend contracts without competition and more narrowly define the professional and personal services that the university may exempt from competitive bidding.

1. UC's Fair Wage/Fair Work plan. In July 2015, the University of California (UC) adopted a Fair Wage/Fair Work Plan. Under the Plan, the UC has established a minimum level of pay for employees to ensure that all UC workers are provided a fair wage with a goal of reaching a minimum wage of $15 per hour on October 1, 2017. In addition, the UC reports that it is implementing annual compensation audits and interim audits, paid for by the contractor, to monitor wage and working conditions as well as compliance with federal, state, and UC workplace laws and policies for contracted employees working pursuant to contracts entered into or renewed after October 2015. The UC has also established a phone hotline and central online system to report complaints directly to the Office of the President.
2. Arguments in opposition. According to the sponsor, the American Federation of State, County and Municipal Employees, AFL-CIO (AFSCME), this bill will inform the Legislature about UC's compliance in meeting its minimum wage requirements and provide information about the extent to which UC contractors provide employees with health and retirement benefits. The sponsor indicates contractors already report information required by this bill in their tax filings.
3. Arguments in support. UC opposes this bill and indicates its requirements will lead to progressively more service work being insourced by the university as a result of fewer bidders being willing to work for the university. UC believes that the reluctance on the part of bidders to participate will be based on their unwillingness to share detailed and sensitive information about their workforce, such as their employee’s wage information, on a publicly available website. The California Chamber of Commerce, an opponent of this bill, also raises concerns about requiring the disclosure of proprietary information.
4. Penalties. This bill subjects UC to a penalty should it fail to post the required information or if it contracts with a contractor who is prohibited from working with the UC pursuant to this bill. Specifically, it requires the Legislature to deduct an amount of funds from the University of California’s (UC’s) General Fund that is equal to the value of all contracts for which information is omitted in whole or in part. This appears to be overly punitive and unnecessary as the Legislature has the authority to modify UC’s General Fund appropriation through the budget process. This bill requires the Legislature to reduce UC’s funding under the conditions described. Are the statutory penalties imposed on UC by this bill the best way to address issues of concern around use of outsourcing contracts?

Staff recommends that the bill be amended to strike penalty provisions from the bill as follows:

(f)(2) If a contractor fails to provide any information described in subdivision (a) or (c), or provides information that is false, and the university declares the contractor to be a qualified bidder for future contracting while the contractor is disqualified from bidding pursuant to paragraph (1), the Legislature shall deduct from the subsequent fiscal year’s appropriation of moneys from the General Fund for the university an amount equal to the value of all contracts for which the contractor is awarded a contract.

(g) If the university fails to provide any information identified in subdivisions (a) and (c) that it has requested and obtained from the contractor, or fails to provide the information described in subdivision (b), the Legislature shall deduct from the subsequent fiscal year’s appropriation of moneys from the General Fund for the university an amount equal to the value of all contracts for which information is omitted in whole or in part.

1. Prior legislation.

SB 574 (Lara, 2017) would have modified the requirements for qualifying as a lowest responsible bidder or best value awardee for contracts for materials, goods, and services at the UC.SB 574 was vetoed by the Governor, whose message read, in pertinent part:

“After twice vetoing prior attempts, I am tempted to sign this measure, for no other reason than it is a well-intentioned bill that seeks to improve the financial security of contracted workers, or, alternatively, expand direct employment at the UC for lower wage workers. As the UC prides itself on being an agent of social mobility for students, it might follow that UC could similarly be an agent of social mobility for lower-wage workers at its campuses.

Good intentions, however, aren't always enough. The mechanism to create this social change locks in cumbersome and overly costly contracting rules that provide little flexibility, regardless of circumstance. This will not serve the university or the state well.

What the state requires of the university's contracting policy should be more carefully considered, thoughtfully debated and weighed against other high value programs of expenditure. The State Auditor's recent report made some useful recommendations on contracting practices, which the UC can act on now. Other actions to improve UC's policies can be considered when the UC's total budget is considered by the state.”

SB 959 (Lara, 2016) nearly identical to SB 574 was heard and passed by this Committee in March 2016, by a vote of 7-2. SB 959 was subsequently vetoed by the Governor, whose message read, in pertinent part:

“Earlier this year, the author requested and the Legislature approved a specific state audit of UC contracting practices and contracted employees. As has been the case with prior audits, this process will likely yield some number of recommendations for change, and it would be prudent to await the recommendations from the State Auditor before embarking on the path prescribed by this bill.

While this audit is pending, I would strongly caution the University to keep its spending in check, specifically as it relates to the compensation of its highest wage earners-many of whom already make hundreds of thousands of dollars more in salary and benefits than the average UC employee or its contracted workers in the aforementioned job categories.

Continuing to enrich the highest paid workers-and they are workers for the public good-will only undermine UC's essential argument that it can't afford parity policies such as the one contemplated in this bill.”

This bill is substantively similar to SB 959 (Lara, 2015) which was heard and passed by this Committee in April 2015, by a vote of 7-2. SB 376 was subsequently vetoed by the Governor, whose message read, in pertinent part:

“It's worth noting that the University of California recently

responded to criticisms of its wage and contracting practices

with a plan to incrementally increase its minimum wage for both employees and contract workers, and a pledge to better oversee

contracts generally.

The effort to provide increased compensation to those who work

for UC - either directly or on a contract basis - is well-intentioned,

but I'm not prepared to embrace the provisions of this bill.

I would caution the University, however, to provide a transparent

accounting of its contracts and clearly demonstrate how the

interests of all its lower paid workers are being protected.”

SUPPORT

AFSCME

California Labor Federation

University of California Student Association

OPPOSITION

CalChamber

University of California

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:

Author:(Weber)

As Amended Ver:May 1, 2018

Majority vote

SUMMARY: Requests that the University of California (UC) post on a publicly available website specified types of contracts, contract information, and information about contractors' employees and their wages and benefits. Specifically, this bill:

1. Requests UC to post specified information about each outsource contract, including information about contractors' employees conducting work.
2. Requests UC to post links to a complete copy of each outsource contract along with amendments, attachments, price schedules, and agreements with any subcontractor, vendor, or service provider.
3. Requests UC to post specified information about each individual who performed service work at any university location pursuant to an outsource contract.
4. Requires for a contractor to qualify as the lowest responsible bidder or best value awardee, or to otherwise perform service work at UC, to agree in writing to provide UC with any information necessary to comply with the provisions of this bill.
5. Bans a contractor for two years from contracting with UC if the contractor fails to provide required information or provides false information.
6. Requires the Legislature to deduct funds, as specified, to UC the next fiscal year after UC fails to provide specified contracts, contract information, and information about contractors' employees that was requested and obtained from the contractor on the website.
7. Requires the Legislature to deduct funds, as specified, to UC the next fiscal year if UC contracts with a banned contractor during the two-year period of the ban.

FISCAL EFFECT: The Assembly Committee on Appropriations identified one-time General Fund cost pressures to UC in the mid hundreds-of-thousands of dollars to develop a publically accessible website, and ongoing General Fund cost pressures to the UC likely in the low millions of dollars annually, to hire staff at UC locations to collect and report certain data to the website twice a year and certain data annually.

COMMENTS: Need for the bill. According to the author, "The Legislature made it clear that it is concerned about the increase in UC contracting with contingency worker firms. We have passed three previous bills to address this issue. This is what we know about temporary workers: they are more likely to be an immigrant or person of color, earning lower wages with fewer if no benefits, less likely to have access to healthcare, and are more likely to rely on public assistance. The question once again before the Legislature is whether the University of California's contracting practices are resulting in the avoidance of hiring direct UC employees (as found by the State Auditor), contributing to the displacement of African Americans in UC career jobs, and condemning low-wage contractors into poverty and a reliance on social services. This bill would require transparency of UC outsourcing regarding contractors' pay compared to University employees doing comparable work, whether the University is enforcing its own minimum wage policies, whether these employees receive any health or retirement benefits - similar to the UC's current reporting of State of California public contracts subject to prevailing wage. The bill will also allow the State to gauge the extent to which these contracts shift costs to the state by UC contractors having to rely on public assistance."

Background. According to a 2012 UC Berkeley Labor Center report, entitled, "Temporary Workers in California are Twice as Likely as Non-Temps to Live in Poverty: Problems with Temporary and Subcontracted Work in California," in California almost one-quarter of a million people worked in the temporary help services industry in 2010. The report finds that temporary and subcontracted workers on a whole, are more likely to be female, less likely to be white non-Hispanic, and less likely to have a high school diploma or equivalency certificate than the average non-temporary employee.

Additionally, the report finds that temporary and subcontracted employees are twice as likely as non-temporary employees to live in poverty, receive food stamps, and be on Medicaid. The report finds that temporary and subcontracted employees earned roughly 18% less than equivalent non-temporary employees of the same age, gender, and ability.

The report also finds that temporary and subcontracted employees were also more susceptible to workplace illness and injury, and were less likely to get benefits. The report notes that lowered wages mean that temporary and subcontracted employees rely more on the state safety net than their direct-hire counterparts and that these employment arrangements undermine worker protections by allowing employers to avoid certain provisions of worker protection; making it difficult to enforce other protections. Lastly, the report finds that these employment relationships create downward pressure on wages.

UC's Fair Wage/Fair Work plan. In July 2015, the UC adopted a Fair Wage/Fair Work Plan. Under the Plan, the UC has established a minimum level of pay for employees to ensure that all UC workers are provided a fair wage with a goal of reaching a minimum wage of $15 per hour on October 1, 2017. In addition, the UC reports that it is implementing annual compensation audits and interim audits, paid for by the contractor, to monitor wage and working conditions as well as compliance with federal, state, and UC workplace laws and policies for contracted employees working pursuant to contracts entered into or renewed after October 2015.

Joint Legislative Audit Committee (JLAC) actions. During the May 25, 2016 JLAC hearing, the Committee approved an audit request by Senator Ricardo Lara to, among others, have the California State Auditor (CSA) conduct an audit of UC contracting policies and processes and comparisons of compensation and benefits of UC employees versus contract employees.

The audit, report number 2016-125.1, titled "The University of California Office of the President - It Has Not Adequately Ensured Compliance With Its Employee Displacement and Services Contract Policies," was completed in August, 2017 and found that:

1. UC has not fully followed its policy for justifying its decisions to displace university employees with services contract workers.
   1. Two of the 31 services contracts we reviewed contained documentation that university employees were displaced.
   2. The two university locations administering these contracts did not fully adhere to the displacement guidelines in either contract.
2. The Office of the President has not enforced compliance with the displacement guidelines and weaknesses in the guidelines may undermine their effectiveness.
3. Low‑wage services contract workers received hourly wages that were $3.86 lower than comparable university employees received.
4. The university generally adhered to the Office of the President's contract policy, but it could make improvements, such as ensuring the standard terms and conditions are included in services contracts.
5. Some university locations avoided competitive bidding by repeatedly amending contracts and through sole‑source exceptions.
6. The Office of the President lacks a systemwide database that would allow it to track contracts at all university locations and report basic contract data.
7. The Office of the President could not substantiate $109 million in benefits it claimed as resulting from its systemwide procurement program.

Regarding the specific provisions of this bill, page 35 of the CSA report found that:

In response to the Legislature's request for data on the university's contracting activities over the past five years, we contacted each campus, medical center, and the Office of the President to obtain extracts from the systems they use to track contract information. Specifically, we requested that each university location provide us with an extract of its contracts along with basic information about each contract, including whether the contract was to purchase a good or service, the contract amount, and the period it covered. However, despite the basic nature of our request, many of the campuses and medical centers, as well as the Office of the President, were unable to provide complete extracts, as Table 7 on the following page shows. For example, the University of California, Los Angeles, campus could not provide data on the procurement methods it used, such as whether contracts were competitively bid or were sole source. The university's decentralized approach to contract management has resulted in its inability to report even the most basic contract information in the aggregate without a manual review of all of its contracts. Moreover, because the campuses, medical centers, and the Office of the President all lack complete data in their tracking systems, we were unable to respond to the Legislature's request for information about the university's contract activities over the past five years.

Prior legislation. SB 574 (Lara) of 2017, which was vetoed by the governor, modified the requirements to qualify as a lowest responsible bidder or best value awardee for certain types of contracts at the University of California.

SB 959 (Lara) of 2016, which was vetoed by the Governor, is very similar in nature to SB 572.

SB 376 (Lara) of 2015, which was vetoed by the Governor, is very similar in nature to SB 959.

Analysis Prepared by: Kevin J. Powers / HIGHER ED. / (916) 319-3960 FN: 0003214

Date of Hearing: May 16, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 2361

Author:(Weber) – As Amended Ver:May 1, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY: This bill requests the Regents of the University of California (UC) to record and report, on a publicly accessible website, information regarding active outsource contracts, including descriptions of the work, cost of the work, and hourly pay of employees performing the work. It requests the website provide links to copies of contracts and that the UC update this information every January 1 and July 1. The bill also requests UC report by January 31 of each year information about each individual performing work as part of an outsourced contract, including the individual’s job title, total hours worked, pay, and benefits. Beginning with contracts awarded after January 1, 2019, any contractor failing to provide accurate information necessary for UC to update the website will be disqualified from bidding on any UC contract for two years. If the UC fails to provide the information on the website specified in this bill, with the exception of information it cannot provide because a contractor does not comply, the Legislature will deduct an amount equal to the value of those contracts from the UC’s GF appropriation in the subsequent year.

FISCAL EFFECT:

1. One-time GF cost pressures to UC in the mid hundreds-of-thousands of dollars to develop a publically accessible website and platform for campus to input information regarding active outsource contracts and links to contracts.
2. Ongoing GF cost pressures to the UC, likely in the low millions of dollars annually, to hire staff at UC locations to collect and report certain data to the website twice a year and certain data annually. The UC indicates it has 15 locations (ten campuses and five medical centers), which largely operate independently of one another to contract out work for their campuses. Estimate assumes each location hires two staff.
3. Potential ongoing GF cost pressures in the millions of dollars if this bill leads to fewer contractors being willing to perform work at UC, therefore requiring UC to insource more contracts. (For example, if this bill led UC to insource 10% more of the work now performed by outsourced contracts, UC estimates cost pressures of about $9 million annually. UC indicates annual outsource contracts have a value of about $350 million and estimates about 65% of these costs go to pay employee salaries and benefits, rather than other costs, such as for materials and insurance. UC indicates insourcing contracts would lead to increases in employee costs of about 43% when compared to outsourced contracts.)

COMMENTS:

1. Purpose. According to the author:

This bill would require transparency of UC outsourcing regarding contractors’ pay compared to University employees doing comparable work, whether the University is enforcing its own minimum wage policies, whether these employees receive any health or retirement benefits - similar to the UC’s current reporting of State of California public contracts subject to prevailing wage. The bill will also allow the State to gauge the extent to which these contracts shift costs to the state by UC contractors having to rely on public assistance.

1. Background. In July 2015, the UC adopted a Fair Wage Fair Work Plan. Under the plan, the UC established a minimum level of pay for employees with the goal of reaching a minimum wage of $15 per hour. In addition, the UC indicates it is implementing annual compensation audits and interim audits to monitor wage and working conditions and compliance with federal, state, and UC workplace laws and policies.

In May 2016, the Joint Legislative Audit Committee directed the California State Auditor (CSA) to audit the UC’s contracting policies and processes and compare compensation and benefits of UC employees with contracted employees. The audit, released in August 2017, provided various findings. It found UC has not fully followed its policy for justifying its decisions to displace university employees with services contract workers. In addition, it found low wage services contract workers received hourly wages that were $3.86 lower than comparable university employees. It also found the university generally adhered to the Office of the President's contract policy, but it could make improvements, such as ensuring standard terms and conditions are included in services contracts.

Specific to the this bill, the auditor found when it requested basic data from UC locations about their contracting activities over the past five years, many locations were unable to provide complete information.

1. Support and Opposition. According to the sponsor, the American Federation of State, County and Municipal Employees, AFL-CIO (AFSCME), this bill will inform the Legislature about UC's compliance in meeting its minimum wage requirements and provide information about the extent to which UC contractors provide employees with health and retirement benefits. The sponsor indicates contractors already report information required by this bill in their tax filings.

UC opposes this bill and indicates its requirements will lead to progressively more service work being insourced by the university as a result of fewer bidders being willing to work for the university. UC believes that the reluctance on the part of bidders to participate will be based on their unwillingness to share detailed and sensitive information about their workforce, such as their employee’s wage information, on a publically available website. The California Chamber of Commerce, an opponent of this bill, also raises concerns about requiring the disclosure of proprietary information.

1. Related Legislation. AB 3186 (Medina), of this session, allows, for the procurement of certain goods and services, the UC and California Community Colleges to continue using best value contracting for goods by eliminating the January 1, 2019, repeal date of the program pilot and removing reporting requirements. The bill is currently on this committee’s suspense file.

SB 959 (Lara), of the 2015-2016 Legislative Session, would have modified requirements for qualifying as a lowest responsible bidder or best value awardee for contracts for specified types of service contracts at UC by requiring a bidder to certify in writing that its employees are compensated at a level that does not undercut, by more than 5%, the average per-employee value of total compensation for UC employees. The bill was vetoed by the governor with a message indicating it would be imprudent to sign the bill before the CSA released its audit of UC outsourcing practices.

SB 376 (Lara), of the 2015-16 Legislative Session, was similar to SB 959. It modified requirements for qualifying as a lowest responsible bidder or best-value awardee for contracts for specified services at the UC by requiring a bidder to certify in writing that its employees are compensated at a level that does not materially undercut the average per-employee total compensation for UC employees who perform comparable work. The bill was vetoed by the governor with a message indicating he was not prepared to sign the bill, but encouraged the UC to protect the interests of its lower paid workers and provide accounting transparency of its contracts.

Analysis Prepared by: Natasha Collins / APPR. / (916) 319-2081

Date of Hearing: April 25, 2018

ASSEMBLY COMMITTEE ON ACCOUNTABILITY AND ADMINISTRATIVE REVIEW

Susan Talamantes Eggman, Chair

ABPCA Bill Id:AB 2361 (

Author:Weber) – As Amended Ver:April 19, 2018

SUBJECT: University of California: outsource contracts

SUMMARY: Requests that the University of California (UC) post on a publicly available website specified types of contracts, contract information, and information about contractors' employees and their wages and benefits. Specifically, this bill:

1. Requests UC to post specified information about each outsource contract, including information about contractors' employees conducting work.
2. Requests UC to post links to a complete copy of each outsource contract along with amendments, attachments, price schedules, and agreements with any subcontractor, vendor, or service provider.
3. Requests UC to post specified information about each individual who performed service work at any university location pursuant to an outsource contract.
4. Requires for a contractor to qualify as the lowest responsible bidder or best value awardee, or to otherwise perform service work at UC, to agree in writing to provide UC with any information necessary to comply with the provisions of this bill.
5. Bans a contractor for five years from contracting with UC if the contractor fails to provide required information or provides false information.
6. Requires the Legislature to deduct funds, as specified, to UC the next fiscal year after UC fails to provide specified contracts, contract information, and information about contractors' employees on the website.

EXISTING LAW:

1. Outlines the requirements and procedures for competitive bidding at the UC; and, outlines requirements and procedures, specifically for the acquisition of materials, goods, and services (Public Contract Code (PCC) Section 10500, et seq.).
2. Declares the intent of the Legislature to facilitate the participation of small businesses, particularly small disadvantaged or minority business enterprises, women business enterprises, and disabled veteran business enterprises in business contracting with the UC (PCC Section 10500.5).
3. Requires the UC to let any contract involving an expenditure of $100,000 or more annually for goods and materials, or for services to be performed (other than personal or professional services) to the lowest responsible bidder (PCC Section 10507.7).
4. Authorizes the UC, when it determines that it can expect long-term savings, as specified, to select the lowest responsible bidder on the basis of the best value to the university (PCC Section 10507.8).

FISCAL EFFECT: Unknown

COMMENTS: This bill requests that UC post specified outsourced contracts, contract information, and information about contractors' employees, including their wages and benefits, on a publicly available website.

If complete information is not posted as specified, this bill requires the Legislature to reduce funds from the state General Fund to UC the next fiscal year in an amount equal to the value of all contracts for which information is omitted. If a contractor does not provide requested information or provides false information, it would be banned from contracting with UC for five years.

This bill defines a contractor to include a contractor's subcontractor and applies to broad types of UC locations for all service work specified as "building maintenance, cleaning or custodial services, call center services, dining and food services, gardening, grounds keeping and plant nursery services, laborer services, mail room services, parking, shuttle bus, or transportation services, security services, storekeeper services, truck driving services, patient care technical employee services, patient billing services, medical transcribing services, patient escort services, or nursing assistant services."

The author states that this bill is needed because of inequities between UC employees and contracted workers, and in light of a 2017 California State Auditor report about UC's outsourcing of service contracts.

According to the author:

“The Legislature made it clear that it is concerned about the increase in UC contracting with contingency worker firms.  We have passed three previous bills to address this issue. This is what we know about temporary workers: they are more likely to be an immigrant or person of color, earning lower wages with fewer if no benefits, less likely to have access to healthcare, and are more likely to rely on public assistance. The question once again before the Legislature is whether the University of California’s contracting practices are resulting in the avoidance of hiring direct UC employees (as found by the State Auditor), contributing to the displacement of African Americans in UC career jobs, and condemning low-wage contractors into poverty and a reliance on social services. This bill would require transparency of UC outsourcing regarding contractors’ pay compared to University employees doing comparable work, whether the University is enforcing its own minimum wage policies, whether these employees receive any health or retirement benefits - similar to the UC’s current reporting of State of California public contracts subject to prevailing wage. The bill will also allow the State to gauge the extent to which these contracts shift costs to the state by UC contractors having to rely on public assistance.”

In 2015, UC announced the UC Fair Wage/Fair Work Plan (Plan), which sets a minimum wage for both UC employees and contractors that is now $15 per hour. Under the Plan, contractors must guarantee at least this minimum wage for their workers when establishing or renewing contracts with UC. UC has established a phone hotline and online complaint system for workers employed by contractors to report issues related to their wages or working conditions. Additionally, UC contractors are subject to audits related to the Plan requirements. The Plan does not set minimum standards for benefits that the contractor must provide its employees.

According to the sponsor, the American Federation of State, County and Municipal Employees, AFL-CIO, (AFSCME), this bill will inform the Legislature about UC's compliance in meeting its minimum wage requirements and provide information about the extent to which UC contractors provide employees with health and retirement benefits.

UC did not have a position on this bill, as of April 22, but has expressed concerns that it won’t be able to implement this bill because some of the required information is considered by contractors to be proprietary. Besides wage information of contractors' individual employees, this bill requests the posting of the total value of their fringe benefits. California Chamber of Commerce, an opponent of this bill, also raises concerns about requiring the disclosure of proprietary business operational information.

In addition to implementation issues, UC explains that it believes this bill's requirements will ultimately discourage potential contractors from bidding on UC work and that fewer contractors would result in greater costs.

RECOMMENDED AMENDMENTS: After consultation with the author and sponsor, the committee recommends the following amendments:

1. Change the contractor ban to two years;
2. Specify that UC would be subject to reduced funding if it contracts with a banned contractor during the ban; and
3. Clarify that UC would only be penalized if it fails to post the specified contracting information that it possesses. Current language subjects UC to a penalty if it fails to post information - even when that information may be withheld by a contractor.

Below are recommended amendments, with changes in bold:

(f) (1) If a contractor fails to provide any information described in subdivision (a) or (c), or provides information that is false, the contractor shall be disqualified from bidding on any contract with the university, or entering into any contract extension, renewal, or other agreement with the university or a university contractor for a period of five two calendar years from the date that the information should have been provided, or the date on which the violation was discovered, whichever is later.

(f) (2) If a contractor fails to provide any information described in subdivision (a) or (c), or provides information that is false, and the University of California declares them a qualified bidder for future contracting while the contractor is prohibited by (f) (1), the Legislature shall deduct from the subsequent fiscal year’s appropriation of moneys for the General Fund for the university, an amount equal to the value of all contracts for which the contractor is awarded a contract.

(g) If the university fails to provide any information identified in subdivision (a), (b), or and (c) that it has requested and obtained from contractors and/or fails to provide information provided in (b), the Legislature shall deduct from the subsequent fiscal year’s appropriation of moneys from the general fund for the university an amount equal to the value of all contracts for which information is omitted in whole or in part.

PRIOR LEGISLATION:

1. SB 574 (Lara), of 2017, which was vetoed by the Governor, modified the requirements to qualify as a lowest responsible bidder or best value awardee for certain types of service contracts at UC.
2. SB 959 (Lara), of 2016, which was vetoed by the Governor, was similar to SB 574.
3. SB 376 (Lara), of 2015, which was vetoed by the Governor, was similar to SB 959.

DOUBLE REFERRAL: This bill was previously heard in the Assembly Higher Education Committee on April 17, 2018, with a vote of 9-4.

REGISTERED SUPPORT / OPPOSITION:

Support

AFSCME (sponsor)
California Labor Federation, AFL-CIO

Opposition

California Chamber of Commerce

Analysis Prepared by: Scott Herbstman / A. & A.R. / (916) 319-3600

Date of Hearing: April 17, 2018

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

ABPCA Bill Id:AB 2361 (

Author:Weber) – As Amended Ver:April 9, 2018

[Note: This bill is doubled referred to the Assembly Committee on Accountability and Administrative Review and will be heard by that Committee as it relates to issues under its jurisdiction.]

SUBJECT: University of California: outsource contracts

SUMMARY: Requires that a contractor agree to provide the University of California (UC) with specified information in order to qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the university. Specifically, this bill:

1. Requests the Regents of the UC to record and report to the Legislature, through a publically accessible Internet Web site maintained by the university and updated each January 1 and July 1, specified information regarding service work performed by a contractor, as defined, pursuant to an outsource contract, as defined, with links to specified related documents.
2. Requires that a contractor agree to provide the UC with specified information in order to qualify as the lowest responsible bidder or the best value awardee, or otherwise to perform any service work for the university.
3. Specifies if a contractor fails to provide any of the specified required information, or provides information that is false, the contractor would be disqualified from bidding on any contract with the university for a period of 5 calendar years from the date that the accurate information should have been provided or the date on which the violation was discovered, whichever is later.
4. Makes various findings and declarations.

EXISTING LAW:

1. Outlines the requirements and procedures for competitive bidding at the UC; and, outlines requirements and procedures, specifically for the acquisition of materials, goods, and services (Public Contract Code (PCC) Section 10500, et seq.).
2. Declares the intent of the Legislature to facilitate the participation of small businesses, particularly small disadvantaged or minority business enterprises, women business enterprises, and disabled veteran business enterprises in business contracting with the UC (PCC Section 10500.5).
3. Requires the UC to let any contract involving an expenditure of $100,000 or more annually for goods and materials, or for services to be performed (other than personal or professional services) to the lowest responsible bidder (PCC Section 10507.7).
4. Authorizes the UC, when it determines that it can expect long-term savings, as specified, to select the lowest responsible bidder on the basis of the best value to the university (PCC Section 10507.8).

FISCAL EFFECT: Unknown. This bill is keyed fiscal.

COMMENTS: Need for the bill. According to the author, “The Legislature made it clear that it is concerned about the increase in UC contracting with contingency worker firms. We have passed three previous bills to address this issue. This is what we know about temporary workers: they are more likely to be an immigrant or person of color, earning lower wages with fewer if no benefits, less likely to have access to healthcare, and are more likely to rely on public assistance. The question once again before the Legislature is whether the University of California’s contracting practices are resulting in the avoidance of hiring direct UC employees (as found by the State Auditor), contributing to the displacement of African Americans in UC career jobs, and condemning low-wage contractors into poverty and a reliance on social services. This bill would require transparency of UC outsourcing regarding contractors’ pay compared to University employees doing comparable work, whether the University is enforcing its own minimum wage policies, whether these employees receive any health or retirement benefits - similar to the UC’s current reporting of State of California public contracts subject to prevailing wage. The bill will also allow the State to gauge the extent to which these contracts shift costs to the state by UC contractors having to rely on public assistance.”

Background. According to a 2012 UC Berkeley Labor Center report, entitled, "Temporary Workers in California are Twice as Likely as Non-Temps to Live in Poverty: Problems with Temporary and Subcontracted Work in California," in California almost one-quarter of a million people worked in the temporary help services industry in 2010. The report finds that temporary and subcontracted workers on a whole, are more likely to be female, less likely to be white non-Hispanic, and less likely to have a high school diploma or equivalency certificate than the average non-temporary employee.

Additionally, the report finds that temporary and subcontracted employees are twice as likely as non-temporary employees to live in poverty, receive food stamps, and be on Medicaid. The report finds that temporary and subcontracted employees earned roughly 18 percent less than equivalent non-temporary employees of the same age, gender, and ability.

The report also finds that temporary and subcontracted employees were also more susceptible to workplace illness and injury, and were less likely to get benefits. The report notes that lowered wages mean that temporary and subcontracted employees rely more on the state safety net than their direct-hire counterparts and that these employment arrangements undermine worker protections by allowing employers to avoid certain provisions of worker protection; making it difficult to enforce other protections. Lastly, the report finds that these employment relationships create downward pressure on wages.

UC's Fair Wage/Fair Work plan. In July 2015, the UC adopted a Fair Wage/Fair Work Plan. Under the Plan, the UC has established a minimum level of pay for employees to ensure that all UC workers are provided a fair wage with a goal of reaching a minimum wage of $15 per hour on October 1, 2017. In addition, the UC reports that it is implementing annual compensation audits and interim audits, paid for by the contractor, to monitor wage and working conditions as well as compliance with federal, state, and UC workplace laws and policies for contracted employees working pursuant to contracts entered into or renewed after October 2015.

Joint Legislative Audit Committee (JLAC) actions. During the May 25, 2016 JLAC hearing, the Committee approved an audit request by Senator Ricardo Lara to, among others, have the California State Auditor (CSA) conduct an audit of UC contracting policies and processes and comparisons of compensation and benefits of UC employees versus contract employees.

The audit, report number 2016-125.1, titled “The University of California Office of the President - It Has Not Adequately Ensured Compliance With Its Employee Displacement and Services Contract Policies,” was completed in August, 2017 and found that:

1. UC has not fully followed its policy for justifying its decisions to displace university employees with services contract workers.
   1. Two of the 31 services contracts we reviewed contained documentation that university employees were displaced.
   2. The two university locations administering these contracts did not fully adhere to the displacement guidelines in either contract.
2. The Office of the President has not enforced compliance with the displacement guidelines and weaknesses in the guidelines may undermine their effectiveness.
3. Low‑wage services contract workers received hourly wages that were $3.86 lower than comparable university employees received.
4. The university generally adhered to the Office of the President's contract policy, but it could make improvements, such as ensuring the standard terms and conditions are included in services contracts.
5. Some university locations avoided competitive bidding by repeatedly amending contracts and through sole‑source exceptions.
6. The Office of the President lacks a systemwide database that would allow it to track contracts at all university locations and report basic contract data.
7. The Office of the President could not substantiate $109 million in benefits it claimed as resulting from its systemwide procurement program.

Regarding the specific provisions of this bill, page 35 of the CSA report found that:

In response to the Legislature’s request for data on the university’s contracting activities over the past five years, we contacted each campus, medical center, and the Office of the President to obtain extracts from the systems they use to track contract information. Specifically, we requested that each university location provide us with an extract of its contracts along with basic information about each contract, including whether the contract was to purchase a good or service, the contract amount, and the period it covered. However, despite the basic nature of our request, many of the campuses and medical centers, as well as the Office of the President, were unable to provide complete extracts, as Table 7 on the following page shows. For example, the University of California, Los Angeles, campus could not provide data on the procurement methods it used, such as whether contracts were competitively bid or were sole source. The university’s decentralized approach to contract management has resulted in its inability to report even the most basic contract information in the aggregate without a manual review of all of its contracts. Moreover, because the campuses, medical centers, and the Office of the President all lack complete data in their tracking systems, we were unable to respond to the Legislature’s request for information about the university’s contract activities over the past five years.”

Arguments in support. The American Federation of State, County, and Municipal Employees, AFL-CIO, write that, “AB 2361 would finally allow the Legislature to determine the extent to which UC outsources low-wage service work, how much low-wage contractors are paid compared to University employees doing comparable work, whether the University is enforcing its own minimum wage policies, whether these contractors receive any health and/or retirement benefits (allowing the State to gauge the extent to which contractors may rely on public assistance), and whether the University of California is following competitive bidding requirements by allowing vendors, in particular women- and minority-owned companies, to bid for services.”

“By following similar disclosure requirement currently in place for California public employees, UC contractors would provide data that could help legislator and other policy makers tackle the issue of income inequality in the State of California.”

Arguments in opposition. The California Chamber of Commerce (CalChamber), which wrote opposing the legislation as introduced, raised concerns regarding certain information disclosures that still apply to the bill. CalChamber writes, “This measure would require any contractor with the University, who provides service work in building maintenance, cleaning or custodial services, call center services, dining services, parking, shuttle bus, or transportation services, security services, storekeeper services, truck driving services, patient care technical employee services, patient billing services, medical transcribing services, patient escort services, or nursing assistant services, to provide voluminous information about business operations for publication on state websites.”

“For the employer, reporting of pay and benefits of workers and of the number of workers on a contract would disclose to its competitors the contractor’s proprietary data on how it executes its contract. The contractors’ staffing and compensation is not a matter of state concern – delivery of the contracted services at a competitive price and abiding by the University’s specifications is the key matter of state concern.”

Committee notes and recommendations. According to the author, and as noted in the findings and declarations, UC has not taken sufficient steps to develop or maintain a centralized database of contract labor or to ensure that its policies governing the compensation of contract labor are enforced. Committee staff notes that any database, especially one accessible by the public, must safeguard personally identifiable information (PII). In order to address PII concerns, committee staff recommends and the author has agreed to accept the following amendments:

1. Amend Section 92062(c)(1) to read: “(1) Name Unique individual identifier.”
2. Amend Section 92062(d) to read: “If an employee of a contractor objects in writing to the publication of his or her name pursuant to subdivision (c), the The university may shall substitute a unique identifier in place of that individual’s name and shall use the same unique identifier for that individual for all periods of time worked by that individual. Neither the university nor the contractor may require or encourage employees to submit an objection.”

Staff also notes that this legislation contains two different enforcement mechanisms. The first mechanism, as described in Section 92062(f), provides that if a contractor fails to provide any information required, or provides information that is false, the contractor shall be disqualified from bidding on any contract with the university, or entering into any contract extension, renewal, or other agreement with the university or a university contractor for a period of five calendar years from the date that the information should have been provided, or the date on which the violation was discovered, whichever is later.

The enforcement mechanism in Section 92062(g) stipulates that, if UC fails to provide any information identified as described, the Legislature shall deduct from the subsequent fiscal year’s appropriation of moneys from the general fund for the university an amount equal to the value of all contracts for which information is omitted in whole or in part. This enforcement language exists notwithstanding the language in Section 92062(f), meaning that a contractor could fail to provide certain pieces of information and the UC would be held financially accountable. This seems overly burdensome and could have a serious impact on programmatic funding for an oversight completely outside of UC’s control.

Committee staff recommends, and the author has agreed to, strike Section 92062(g) from the bill.

In order to meet policy committee deadlines, the amendments described above will be processed by the Assembly Committee on Accountability and Administrative Review.

Prior legislation. SB 572 (Lara), of 2017, which was vetoed by the governor, modified the requirements to qualify as a lowest responsible bidder or best value awardee for certain types of contracts at the University of California.

SB 959 (Lara), of 2016, which was vetoed by the Governor, is very similar in nature to SB 572.

SB 376 (Lara), of 2015, which was vetoed by the Governor, is very similar in nature to SB 959.

REGISTERED SUPPORT / OPPOSITION:

Support

American Federation of State, County and Municipal Employees, AFL-CIO

California Labor Federation

California Teamsters Public Affairs Council

Opposition

California Chamber of Commerce

Analysis Prepared by: Kevin J. Powers / HIGHER ED. / (916) 319-3960