Existing law establishes the University of California, under the administration of the Regents of the University of California, and the California Community Colleges, under the administration of the Board of Governors of the California Community College, as 2 of the segments of public postsecondary education in this state. Existing law establishes community college districts, administered by governing boards, throughout the state, to provide instruction to students.

Existing law requires the Regents of the University of California, except as provided, to let all contracts involving an expenditure of more than $100,000 annually for goods and materials or services to the lowest responsible bidder meeting certain specifications, or to reject all bids. Existing law requires the governing board of any community college district to let specified contracts involving an expenditure of more than $50,000 to the lowest responsible bidder meeting certain specifications, or else reject all bids. Existing law, until January 1, 2019, provides that the bid evaluation and selection for these contracts may be determined by the best value for the University of California or the community college district, as specified. Existing law makes a violation of these provisions relating to the University of California a crime. Existing law provides for the University of California and the California Community Colleges to report to the Legislative Analyst regarding the use of best value procurement, and requires the Legislative Analyst to report to the Legislature in this regard by February 1, 2018.

This bill would delete the January 1, 2019, repeal date applicable to best value procurement authority, thereby extending operation of these provisions indefinitely and would delete the references to the reports described above regarding use of best value procurement by the University of California and community college districts. By extending these provisions relating to the University of California indefinitely, the bill would expand an existing crime, thereby imposing a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law establishes the University of California, under the administration of the Regents of the University of California, and the California Community Colleges, under the administration of the Board of Governors of the California Community College, as 2 of the segments of public postsecondary education in this state. Existing law establishes community college districts, administered by governing boards, throughout the state, to provide instruction to students.

Existing law requires the Regents of the University of California, except as provided, to let all contracts involving an expenditure of more than $100,000 annually for goods and materials or services to the lowest responsible bidder meeting certain specifications, or to reject all bids. Existing law requires the governing board of any community college district to let specified contracts involving an expenditure of more than $50,000 to the lowest responsible bidder meeting certain specifications, or else reject all bids. Existing law, until January 1, 2019, provides that the bid evaluation and selection for these contracts may be determined by the best value for the University of California or the community college district, as specified. Existing law makes a violation of these provisions relating to the University of California a crime. Existing law provides for the University of California and the California Community Colleges to report to the Legislative Analyst regarding the use of best value procurement, and requires the Legislative Analyst to report to the Legislature in this regard by February 1, 2018.

This bill would delete the January 1, 2019, repeal date applicable to best value procurement authority, thereby extending operation of these provisions indefinitely and would delete the references to the reports described above regarding use of best value procurement by the University of California and community college districts. By extending these provisions relating to the University of California indefinitely, the bill would expand an existing crime, thereby imposing a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law establishes the University of California, under the administration of the Regents of the University of California, and the California Community Colleges, under the administration of the Board of Governors of the California Community College, as 2 of the segments of public postsecondary education in this state. Existing law establishes community college districts, administered by governing boards, throughout the state, to provide instruction to students.

Existing law requires the Regents of the University of California, except as provided, to let all contracts involving an expenditure of more than $100,000 annually for goods and materials or services to the lowest responsible bidder meeting certain specifications, or to reject all bids. Existing law requires the governing board of any community college district to let specified contracts involving an expenditure of more than $50,000 to the lowest responsible bidder meeting certain specifications, or else reject all bids. Existing law, until January 1, 2019, provides that the bid evaluation and selection for these contracts may be determined by the best value for the University of California or the community college district, as specified. Existing law makes a violation of these provisions relating to the University of California a crime. Existing law provides for the University of California and the California Community Colleges to report to the Legislative Analyst regarding the use of best value procurement, and requires the Legislative Analyst to report to the Legislature in this regard by February 1, 2018.

This bill would delete the January 1, 2019, repeal date applicable to best value procurement authority, thereby extending operation of these provisions indefinitely and would delete the references to the reports described above regarding use of best value procurement by the University of California and community college districts. By extending these provisions relating to the University of California indefinitely, the bill would expand an existing crime, thereby imposing a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

 THIRD READING  

Bill No: AB 3186

Author:

:

Vote:

SENATE EDUCATION COMMITTEE: 6-1, 6/27/18

AYES: Allen, Galgiani, Leyva, McGuire, Pan, Vidak

NOES: Wilk

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

AYES: Portantino, Beall, Bradford, Hill, Wiener

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 56-21, 5/30/18 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill authorizes the University of California (UC) and California Community Colleges (CCC) to continue using best value contracting for the procurement of certain goods and services by eliminating the January 1, 2019, repeal date of the program pilot and removing related reporting requirements.

ANALYSIS:

Existing law:

1. Requires the Regents of the UC, except as provided, to let all contracts involving an expenditure of more than $100,000 annually for goods and materials or services to the lowest responsible bidder meeting certain specifications, or to reject all bids. (Public Contract Code (PCC) § 10507.8.)
2. Requires the governing board of any community college district to let specified contracts involving an expenditure of more than $50,000 to the lowest responsible bidder meeting certain specifications, or else reject all bids. Existing law, until January 1, 2019, provides that the bid evaluation and selection for these contracts may be determined by the best value for the UC or the community college district, as specified. Existing law makes a violation of these provisions relating to the UC a crime. (PCC § 20651.7.)
3. Provides for the UC and the CCC to report to the Legislative Analyst regarding the use of best value procurement, and requires the Legislative Analyst to report to the Legislature in this regard by February 1, 2018. (PCC § 10507.8. and 20651.7.)
4. Requires a CCC governing board to let any contract involving an expenditure of $50,000 or more for purchase of equipment, materials, supplies repairs and services, other than construction services, to the lowest responsible bidder or to reject all bids. (PCC § 20651)
5. Requires that the UC Regents let any contract involving an expenditure of $100,000 or more for purchase of equipment, materials, supplies repairs and services, other than construction services, to the lowest responsible bidder or to reject all bids. (PCC § 10507.7)
6. Authorizes University of California (UC) to use best value for construction projects valued over $1 million. (PCC § 10506.4)

This bill authorizes the UC and CCC to continue using best value contracting for the procurement of certain goods and services, by eliminating the January 1, 2019, repeal date of the program pilot and removing related reporting requirements.

Comments

1. How it works. According to the Legislative Analyst’s office, when procuring goods and services, the state seeks to promote fair and open competition that is free from bias and favoritism. To this end, statute includes various requirements for the procurement of goods and services, particularly those of significant monetary value. Specifically, statute sets certain monetary thresholds above which agencies generally must use a competitive bidding process to advertise and solicit bids before selecting a vendor. Statute sets the competitive bidding threshold at $50,000 for CCC. Pursuant to statute, CCC’s level is adjusted annually for inflation and is currently at $88,300. Statute sets the threshold for UC at $100,000. Under the best value approach, the state issues a solicitation for proposals. The state then verifies that the bidders are responsible and responsive. The proposals are then evaluated and scored based on cost as well as other criteria. The best value criteria can include factors such as lifetime costs, use of sustainable materials or practices, experience, timeliness, terms and conditions, or economic benefits to the community. The bidder with the highest score (not necessarily the lowest bid) receives the contract. Though not without its draw backs, best value procurement potentially can yield long‑term state savings while avoiding the hassle of hiring vendors unlikely to perform adequately.

This bill proposes to permanently allow UC and CCC to utilize best value contracting for the acquisition of goods and services.

1. Legislative Analyst’s Office (LAO) evaluation of UC and CCC best value pilot program. SB 1280 (Pavely, Chapter, statutes of 2012) required community college districts and UC to develop best value policies and report information about contracts procured during the pilot period. It further required the LAO to evaluate the pilots and recommend to the Legislature whether to continue CCC’s and UC’s best value authority after the January 1, 2019 sunset. In its 2017 statutorily required report, “An Evaluation of Best Value Procurement Pilot Programs,” on the use of best value procurement by UC and CCC districts, the LAO finds and recommends the following:

University of California

• Make UC’s best value authority permanent but require UC to include additional best value best practices in its procurement policies.
• Have UC phase out alternative procumbent method.
• UC’s overall procurement policies and specific best value policies are generally reasonable.
• UC’s policies should include some additional guidance about best value best practices to help campuses implement the approach.
• UC generally selected best value vendors using a core set of reasonable evaluation criteria.
• Majority of best value contracts awarded to the lowest bidder.
• Remainder of best value contracts cost more up front but likely have long‑term savings or qualitative benefits.
• Bid protests are rare.

California Community College (CCC) districts

• • Extend, rather than make permanent, the CCC pilot program and clarify statute to indicate that consideration of noncost factors in any procurement constitutes participation in the pilot.
  • Simplify reporting requirements and require CCC to develop systemwide best value policies to promote the use of best practices among districts.
  • No CCC districts participated in the best value pilot program.

This bill’s provisions mirror the LAO recommendation for UC but not for CCC. As noted in the report best value procurement practices at CCC were not adequately vetted for lack of participation in the program and as such the report concludes that the CCC pilot be granted an extension rather than permanency.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to Senate Appropriations Committee:

• To the extent that UC and community college districts successfully implement best value purchasing and use it more broadly, significant savings could be realized over time. Community college districts did not utilize best value contracting during the pilot program.
• UC indicates that as the use of best value contracting grows with the removal of the sunset date, UC savings will be in the low millions of dollars annually, potentially reaching $10 million to $15 million per year in the future. This estimate assumes that UC saves in the range of two to three percent of the overall contract value for best value procurements. However, UC may incur higher upfront costs to award certain contracts using this procurement method rather than awarding contracts to the lowest bidder. For example, during the pilot program, the best value contracts that UC awarded had upfront costs that, on average, were 16 percent more expensive than those that were awarded based on the lowest cost.

SUPPORT: (Verified 8/17/18)

California Teachers Association

CATESOL

Education Trust-West

The Campaign for College Opportunity

OPPOSITION: (Verified 8/17/18)

None received

ASSEMBLY FLOOR: 56-21, 5/30/18

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bonta, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chiu, Chu, Cooley, Cooper, Daly, Eggman, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Lackey, 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, Choi, Cunningham, Dahle, Flora, Fong, Harper, Kiley, Mathis, Mayes, Melendez, Obernolte, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Patterson

Prepared by:

8/18/18 14:56:58

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 3186 (Medina) - Public postsecondary education: University of California: California Community Colleges: competitive bidding: best value

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

Bill Summary:

This bill allows the University of California (UC) and the California Community Colleges to continue using best value (BV) contracting for the procurement of certain goods and services by eliminating the January 1, 2019 repeal date of the program pilot and removing related reporting requirements.

Fiscal Impact:

• To the extent that UC and community college districts successfully implement BV purchasing and use it more broadly, significant savings could be realized over time. Community college districts did not utilize BV contracting during the pilot program.
• UC indicates that as the use of BV contracting grows with the removal of the sunset date, UC savings will be in the low millions of dollars annually, potentially reaching $10 million to $15 million per year in the future. This estimate assumes that UC saves in the range of two to three percent of the overall contract value for BV procurements. However, UC may incur higher upfront costs to award certain contracts using this procurement method rather than awarding contracts to the lowest bidder. For example, during the pilot program, the BV contracts that UC awarded had upfront costs that, on average, were 16 percent more expensive than those that were awarded based on the lowest cost.

Background:

Existing law provides that when procuring goods and services, the state seeks to promote fair and open competition that is free from bias and favoritism. Existing law includes various requirements for the procurement of goods and services, particularly those of significant monetary value. Specifically, the law sets certain monetary thresholds above which agencies generally must use a competitive bidding process to advertise and solicit bids before selecting a vendor. Statute sets the competitive bidding threshold at $50,000 for the California Community Colleges. This level is adjusted annually for inflation and is currently at $88,300. Statute sets the threshold for UC at $100,000. Under the best value approach, the state issues a solicitation for proposals. The state then verifies that the bidders are responsible and responsive. The proposals are then evaluated and scored based on cost as well as other criteria. The best value criteria can include factors such as lifetime costs, use of sustainable materials or practices, experience, timeliness, terms and conditions, or economic benefits to the community. The bidder with the highest score (not necessarily the lowest bid) receives the contract.

Existing law, until January 1, 2019, provides that the bid evaluation and selection for these contracts may be determined by the BV for the UC or the community college district, as specified. Existing law makes a violation of these provisions relating to the UC a crime.

Existing law provides for the UC and the CCC to report to the Legislative Analyst regarding the use of best value procurement, and requires the Legislative Analyst to report to the Legislature in this regard by February 1, 2018.

Proposed Law:

This bill allows, for the procurement of certain goods and services, the UC and California Community Colleges (CCC) to continue using best value contracting for goods by eliminating the January 1, 2019, repeal date of the program pilot and removing related reporting requirements.

Related Legislation:

SB 1280 (Pavely, Chapter 708, Statutes of 2012) authorizes, until January 1, 2018, a community college district and the UC to let any contract for expenditures greater than $50,000 and $100,000, respectively, for the purchase of supplies and materials in accordance with “best value” policies.

-- END --

SENATE COMMITTEE ON EDUCATION

Senator Benjamin Allen, Chair

2017 - 2018 Regular

Bill No: Hearing Date: June 27, 2018

Subject:

SUMMARY

This bill allows, for the procurement of certain goods and services, the University of California (UC) and California Community Colleges (CCC) to continue using best value contracting for goods by eliminating the January 1, 2019, repeal date of the program pilot and removing related reporting requirements.

BACKGROUND

Existing law:

1. Requires the Regents of the UC, except as provided, to let all contracts involving an expenditure of more than $100,000 annually for goods and materials or services to the lowest responsible bidder meeting certain specifications, or to reject all bids. (Public Contract Code (PCC) § 10507.8.)
2. Requires the governing board of any community college district to let specified contracts involving an expenditure of more than $50,000 to the lowest responsible bidder meeting certain specifications, or else reject all bids. Existing law, until January 1, 2019, provides that the bid evaluation and selection for these contracts may be determined by the best value for the UC or the community college district, as specified. Existing law makes a violation of these provisions relating to the UC a crime. (PCC § 20651.7.)
3. Provides for the UC and the CCC to report to the Legislative Analyst regarding the use of best value procurement, and requires the Legislative Analyst to report to the Legislature in this regard by February 1, 2018. (PCC § 10507.8. and 20651.7.)
4. Requires a CCC governing board to let any contract involving an expenditure of $50,000 or more for purchase of equipment, materials, supplies repairs and services, other than construction services, to the lowest responsible bidder or to reject all bids. (PCC § 20651)
5. Requires that the UC Regents let any contract involving an expenditure of $100,000 or more for purchase of equipment, materials, supplies repairs and services, other than construction services, to the lowest responsible bidder or to reject all bids. (PCC § 10507.7)
6. Authorizes University of California (UC) to use best value for construction projects valued over $1 million. (PCC § 10506.4)
7. Authorizes school districts to consider, in addition to price, factors such as vendor financing, performance reliability, standardization, life-cycle costs, delivery timetables, support logistics, the broadest possible range of competing products and materials available, fitness of purchase, manufacturer’s warranties, and similar factors in the award of contracts for technology, telecommunications, related equipment, software, and services, in recognition of the highly specialized and unique nature of these items and services, and the rapid technological changes they undergo. Existing law specifically limits this authority to the procurement of this type of equipment and prohibits its application to contracts for construction or the procurement of any product available in substantial quantities to the general public. (PCC § 20118.2.)
8. Authorizes Municipal Utility Districts to let contracts for the purchase of supplies and materials in excess of $50,000 in accordance with “best value at the lowest cost acquisition” policies adopted by the local governing board and outlines specific elements to be included in these policies. (Public Utilities Code § 12751.3)

ANALYSIS

This bill allows, for the procurement of certain goods and services, the UC and California Community Colleges (CCC) to continue using best value contracting for goods by eliminating the January 1, 2019, repeal date of the program pilot and removing related reporting requirements.

STAFF COMMENTS

1. Need for the bill. According to the author, “best value is an alternative to a lowest cost procurement methodology that is increasingly being used by other entities for certain goods and services. According to a study by LAO on prior to the passage of SB 1280 (Pavely), the Sacrament Utility District 6, using the same UC best value procurement practices proposed in this bill, experience $8 million in economic benefits over 13 contracts totaling $27 million dollars. With lowest cost procurement, organizations ironically often pay more over time if the quality of a good or service is poor. Additionally, other factors that were not calculated into the price of the product during the bid evaluation process will increase cost over time. UC estimates that if they were allowed to use best value procurement they would save $3 million annually. Should the program sunset at the end of 2019, UC would no longer be able to use this method of best value selection.”

This bill proposes to permanently allow UC and CCC to utilize best value contracting for the acquisition of goods and services.

1. How it works. According to the Legislative Analyst’s office, when procuring goods and services, the state seeks to promote fair and open competition that is free from bias and favoritism. To this end, statute includes various requirements for the procurement of goods and services, particularly those of significant monetary value. Specifically, statute sets certain monetary thresholds above which agencies generally must use a competitive bidding process to advertise and solicit bids before selecting a vendor. Statute sets the competitive bidding threshold at $50,000 for California Community Colleges (CCC). Pursuant to statute, CCC’s level is adjusted annually for inflation and is currently at $88,300. Statute sets the threshold for University of California (UC) at $100,000. Under the best value approach, the state issues a solicitation for proposals. The state then verifies that the bidders are responsible and responsive. The proposals are then evaluated and scored based on cost as well as other criteria. The best value criteria can include factors such as lifetime costs, use of sustainable materials or practices, experience, timeliness, terms and conditions, or economic benefits to the community. The bidder with the highest score (not necessarily the lowest bid) receives the contract. Though not without its draw backs, best value procurement potentially can yield long‑term state savings while avoiding the hassle of hiring vendors unlikely to perform adequately.
2. Legislative Analyst’s Office (LAO) evaluation of UC and CCC best value pilot program. SB 1280 (Pavely, Chapter, statutes of 2012) required community college districts and UC to develop best value policies and report information about contracts procured during the pilot period. It further required the LAO to evaluate the pilots and recommend to the Legislature whether to continue CCC’s and UC’s best value authority after the January 1, 2019 sunset. In its 2017 statutorily required report, “An Evaluation of Best Value Procurement Pilot Programs,” on the use of best value procurement by UC and CCC districts, the LAO finds and recommends the following:

UC

• Make UC’s best value authority permanent but require UC to include additional best value best practices in its procurement policies.
• Have UC phase out alternative procumbent method.
• UC’s overall procurement policies and specific best value policies are generally reasonable.
• UC’s policies should include some additional guidance about best value best practices to help campuses implement the approach.
• UC generally selected best value vendors using a core set of reasonable evaluation criteria.
• Majority of best value contracts awarded to the lowest bidder.
• Remainder of best value contracts cost more up front but likely have long‑term savings or qualitative benefits.
• Bid protests are rare

California Community College (CCC) districts

• • Extend, rather than make permanent, the CCC pilot program and clarify statute to indicate that consideration of noncost factors in any procurement constitutes participation in the pilot.
  • Simplify reporting requirements and require CCC to develop systemwide best value policies to promote the use of best practices among districts.
  • No CCC districts participated in the best value pilot program. CCC provided Legislative Analyst’s Office (LAO), three primary reasons for not reporting the statutorily required information to our office:
    • Since none of the districts reported changing procurement practices to use their new best value authority, they believed it was not necessary to report contract information.
    • Districts found the reporting requirements too cumbersome, particularly collecting information about past comparable lowest bidder contracts.
    • Some districts lacked the staff, expertise, and data systems necessary to compile the required information.

This bill’s provisions mirror the LAO recommendation for UC but not for CCC. Given that CCC districts best value procurement practices were not adequately vetted at CCC for lack of participation as noted in the LAO report and as such performance of best value contracting at CCCs could not be evaluated, the committee may wish to consider extending the sunset rather than making CCC authority permanent.

1. Prior legislation.

SB 1280 (Pavely, 2012) authorized, until January 1, 2018, authorizes a CCC district and the UC to let any contract for expenditures greater than $50,000 and $100,000, respectively for the purchase of supplies and materials in accordance with “best value” policies as adopted by the local governing board, and UC Regents, respectively.

SB 1280 (Pavely, 2012) almost identical to AB 2448 (Furutani, 2010) and AB 2550 (Furutani, 2008), with the exception that these bills did not include the provisions regarding the UC. Both bills were vetoed by the Governor whose veto messages read, in pertinent part:

AB 2448 (Furutani, 2010) - This bill is substantially the same as legislation I have vetoed in the past because it may allow subjective methods to govern the bidding process for procurement of supplies and materials, which could be more open to manipulation and abuse in the ultimate bid selection. Such abuse could lead to non-competitive bidding and higher costs to the State's taxpayers and community college students.

AB 2550 (Furutani, 2008) - I support the notion that best value contracting is a reasonable alternative for construction projects which allows projects to be awarded based on a combination of best price and qualifications because construction projects represent a large, long term investment of resources. However, I am concerned that this legislation may allow subjective methods to govern the bidding process for procurement of supplies and materials with a relatively short life cycle, which could be more open to manipulation and abuse in the bid selection process.

SUPPORT

University of California

Community College Facility Coalition

Los Rios Community College District

OPPOSITION

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 3186

Author:(Medina)

As Introduced Ver:February 16, 2018

Majority vote

SUMMARY: Allows the University of California (UC) and California Community Colleges (CCC) to continue using best value contracting by eliminating the January 1, 2019, repeal date and removing reporting requirements.

FISCAL EFFECT: According to the Assembly Committee on Appropriations, there may be potentially higher General Fund costs to UC of about $2 million annually to award certain contracts using multiple best value variables, instead of awarding contracts to the lowest bidder.

If and when best value becomes used more broadly within UC, the estimated cost savings are in the low millions of dollars annually. Costs to CCC to use best value contracting are unknown because CCC did not use best value during the pilot program. Based on UC's participation, there will likely be higher upfront General Fund costs to CCC of about 16% of contract value, with longer-term cost savings of 2% to 3% percent of total best value contracting annually.

COMMENTS: Need for the bill. According to the author, "AB 3186 seeks to allow the CCC's and UC's to continue using the best value procurement method by eliminating the sunset date. The ability for UC's and CCC's to structure a competitive bid process that recognizes life cycle cost, sustainable characteristics and efficiency in acquisition process will allow them to stretch scarce funds as far as possible by giving them the flexibility to make wise procurement decisions."

Background. SB 1280 (Pavley), Chapter 708, Statutes of 2012, authorized the CCC and the UC to use best value procurement methodology on a pilot basis for five years. The best value procurement methodology pilots allowed CCC and UC to consider non-cost factors, such as quality and experience, when selecting vendors, rather than having to select the lowest-cost bidder. The current statute required CCC and UC to develop best value policies specifically to the procurement of goods, materials or services and report information about contracts produced during the pilot period. The Legislative Analyst Office (LAO) was required to review the pilot program, and that report was issued in December of 2017.

LAO report findings. The LAO's report, titled "An Evaluation of Best Value Procurement Pilot Programs" found that UC considered non-cost factors in the procurement of goods and services before the pilot. Prior to the pilot, UC used an alternative procurement method called "Cost Per Quality Point" (CPQP). During the pilot period, UC continued to use CPQP, using it more frequently than best value. Specifically, CPQP accounted for 42 percent of reported contracts during the period, while best value accounted for 14 percent of such contracts. Though UC did not heavily rely on best value during the pilot period, the LAO believed UC's use of it was reasonable and generally recommended making UC's best value authority permanent.

That LAO's support of UC's use of best value did come with some recommendations. LAO noted that UC to develop a more comprehensive written set of policies that reflect best practices for BV procurement. To promote transparency in procurement, LAO recommended this revised policy should be available on UC's website for the vendor community and public to access. The LAO also recommended that UC phase out the CPQP alternative procurement method.

The LAO also reported that no CCC's chose to participate in the pilot, and thus did not report any findings to LAO. Citing the benefits that best value procurement can have in some cases, the LAO recommended continuing to authorize the CCC to offer best value on a pilot basis.

Prior legislation. SB 1280 (Pavley) Chapter 708, Statutes of 2012, is described above in the "Background" section of this analysis.

SB 1280 was almost identical to AB 2448 (Furutani) of 2010) and AB 2550 (Furutani) of 2008), with the exception that these bills did not include the provisions regarding UC. Both bills were vetoed by the Governor Schwarzenegger, whose veto messages read, in pertinent part:

AB 2448: The bill is substantially the same as legislation I have vetoed in the past because it may allow subjective methods to govern the bidding process for procurement of supplies and materials, which could be more open to manipulation and abuse in the ultimate bid selection. Such abuse could lead to non-competitive bidding and higher costs to the State's taxpayers and community college students.

AB 2550: I support the notion that best value contracting is a reasonable alternative for construction projects which allows projects to be awarded based on a combination of best price and qualifications because construction projects represent a large, long term investment of resources. However, I am concerned that this legislation may allow subjective methods to govern the bidding process for procurement of supplies and materials with a relatively short life cycle, which could be more open to manipulation and abuse in the bid selection process.

Analysis Prepared by: Kevin J. Powers / HIGHER ED. / (916) 319-3960 FN: 0003216

Date of Hearing: May 2, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 3186

Author:(Medina) – As Introduced Ver:February 16, 2018

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

SUMMARY: This bill allows, for the procurement of certain goods and services, the University of California (UC) and California Community Colleges (CCC) to continue using best value (BV) contracting for goods by eliminating the January 1, 2019, repeal date of the program pilot and removing reporting requirements.

FISCAL EFFECT:

1. Potentially higher General Fund costs to UC of about $2 million annually to award certain contracts using multiple BV variables, instead of awarding contracts to the lowest bidder. (Estimate assumes UC uses BV for 15 projects annually averaging $855,000 each, consistent with the pilot program. During the pilot, the BV contracts UC awarded based on cost and other variables had upfront costs on average 16% more expensive than those that were awarded based on lowest cost.) If and when BV becomes used more broadly within UC, estimated cost savings in the low millions of dollars annually (2% to 3% of total BV contract value).
2. Costs to CCC to use BV contracting are unknown because CCC did not use BV during the pilot program. Based on UC’s participation, likely higher upfront General Fund costs to CCC of about 16% of contract value, with longer-term cost savings of 2% to 3% percent of total BV contract value annually.

COMMENTS:

1. Lowest Responsible Bidder Versus Best Value Contracting. For contracts over a certain monetary threshold, agencies generally must use a competitive bidding process to advertise and solicit bids before selecting a vendor. The state uses two main competitive bid approaches in these cases: lowest responsible bidder (LBR) and best value (BV).

Under LRB, the state issues a solicitation seeking bidders. The state then verifies the bidders meet the solicitation’s minimum qualifications, but assigns no score to the applications. The state then awards the contract to the qualified bidder offering the lowest price. LRB is best used when the features of the desired good or service are easy to specify and there is little variation in observed quality across vendors. However, LRB can sometimes be an inflexible approach when features or quality of a desired good or service are hard to define or the upfront price does not reflect the longer-term costs.

Under BV, the state issues a solicitation for proposals. Similar to LRB, the state then verifies the bidders meet minimum qualifications. Unlike LRB, the proposals are then evaluated and scored based on cost as well as other criteria. The BV criteria must be specified in the solicitation for proposals and can include factors such as lifetime costs, use of sustainable materials or practices, experience, timeliness, terms and conditions, or economic benefits to the community. The bidder with the highest total score receives the contract.

BV is best used in situations where it is difficult to define up front the quality or features of a good or service to be procured. Although most state procurement has used the LBR approach, the state has allowed certain agencies to use BV for goods and services, including the California Department of Technology and the California State University. BV is best used in situations where it is difficult to define up front the quality or features of a good or service to be procured. While the BV approach and can yield longer-term state savings, upfront costs can be higher. Moreover, procurement staff and customers generally need more intensive training on how to carry out BV procurement successfully, because the process it is more complex than LBR.

1. Best Value Pilot Program. SB 1280 (Pavley) Chapter 708, Statutes of 2012, authorized the UC and the CCC to use BV on a pilot basis for five years for goods and services (not construction contracts). The pilot’s authorizing statute required UC and CCC to develop BV policies and report information about contracts produced during the pilot period.
2. Best Value Pilot Program Evaluation. The Legislative Analyst’s Office (LAO) issued an evaluation of the pilot program in late 2017.

The evaluation found UC used BV for few purchases during the pilot period and instead used a BV-like approach or LBR more often. The evaluation found that even with BV contracts, the majority of BV contracts were awarded to the lowest bidder. In cases where BV contracts considered various factors, upfront costs were on average 16% more than the lowest bid. The LAO recommended granting permanent authority to UC to use BV, with some modifications. Specifically, it recommended the Legislature require UC to develop more comprehensive policies for BV and phase out its BV-like approach.

The evaluation indicated no CCCs participated in the pilot program The LAO recommended extending the BV pilot for CCC and made additional recommendations, such as requiring CCC to adopt a set of system-wide BV policies.

1. Purpose. According to the author:

AB 3186 seeks to allow the CCC’s and UC’s to continue using the best value procurement method by eliminating the sunset date. The ability for UC’s and CCC’s to structure a competitive bid process that recognizes life cycle cost, sustainable characteristics and efficiency in acquisition process will allow them to stretch scarce funds as far as possible by giving them the flexibility to make wise procurement decisions.

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

Date of Hearing: April 17, 2018

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

ABPCA Bill Id:AB 3186 (

Author:Medina) – As Introduced Ver:February 16, 2018

SUBJECT: Public postsecondary education: University of California: California Community Colleges: competitive bidding: best value

SUMMARY: Allows the University of California (UC) and California Community Colleges (CCC) to continue using best value contracting by eliminating the January 1, 2019 repeal date and removing reporting requirements.

EXISTING LAW:

1. Requires the Regents of the University of California, except as provided, to let all contracts involving an expenditure of more than $100,000 annually for goods and materials or services to the lowest responsible bidder meeting certain specifications, or to reject all bids. (Public Contract Code (PCC) Section 10507.8.)
2. Existing law requires the governing board of any community college district to let specified contracts involving an expenditure of more than $50,000 to the lowest responsible bidder meeting certain specifications, or else reject all bids. Existing law, until January 1, 2019, provides that the bid evaluation and selection for these contracts may be determined by the best value for the University of California or the community college district, as specified. Existing law makes a violation of these provisions relating to the University of California a crime. (PCC Section 20651.7.)
3. Existing law provides for the University of California and the California Community Colleges to report to the Legislative Analyst regarding the use of best value procurement, and requires the Legislative Analyst to report to the Legislature in this regard by February 1, 2018. (PCC Sections 10507.8. and 20651.7.)
4. Requires a CCC governing board to let any contract involving an expenditure of $50,000 or more for purchase of equipment, materials, supplies repairs and services, other than construction services, to the lowest responsible bidder or to reject all bids. (Public Contract Code Section 20651)
5. Requires that the UC Regents let any contract involving an expenditure of $100,000 or more for purchase of equipment, materials, supplies repairs and services, other than construction services, to the lowest responsible bidder or to reject all bids. (PCC § 10507.7)
6. Authorizes UC to use best value for construction projects valued over $1 million. (PCC Section 10506.4)
7. Authorizes school districts to consider, in addition to price, factors such as vendor financing, performance reliability, standardization, life-cycle costs, delivery timetables, support logistics, the broadest possible range of competing products and materials available, fitness of purchase, manufacturer’s warranties, and similar factors in the award of contracts for technology, telecommunications, related equipment, software, and services, in recognition of the highly specialized and unique nature of these items and services, and the rapid technological changes they undergo. Existing law specifically limits this authority to the procurement this type of equipment and prohibits its application to contracts for construction or the procurement of any product available in substantial quantities to the general public. (PCC Section 20118.2.)
8. Authorizes Municipal Utility Districts to let contracts for the purchase of supplies and materials in excess of $50,000 in accordance with “best value at the lowest cost acquisition” policies adopted by the local governing board and outlines specific elements to be included in these policies. (Public Utilities Code § 12751.3)

FISCAL EFFECT: Unknown. This bill is keyed fiscal.

COMMENTS: Need for the bill. According to the author, “AB 3186 seeks to allow the CCC’s and UC’s to continue using the best value procurement method by eliminating the sunset date. The ability for UC’s and CCC’s to structure a competitive bid process that recognizes life cycle cost, sustainable characteristics and efficiency in acquisition process will allow them to stretch scarce funds as far as possible by giving them the flexibility to make wise procurement decisions.”

Background. SB 1280 (Pavley) Chapter 708, Statutes of 2012, authorized the CCC and the UC to use best value procurement methodology on a pilot basis for five years. The best value procurement methodology pilots allowed CCC and UC to consider non-cost factors, such as quality and experience, when selecting vendors, rather than having to select the lowest-cost bidder. The current statute required CCC and UC to develop best value policies specifically to the procurement of goods, materials or services and report information about contracts produced during the pilot period. The Legislative Analyst Office (LAO) was required to review the pilot program, and that report was issued in December of 2017.

LAO report findings. The LAO’s report, titled “An Evaluation of Best Value Procurement Pilot Programs” found that UC considered non-cost factors in the procurement of goods and services before the pilot. Prior to the pilot, UC used an alternative procurement method called “Cost Per Quality Point” (CPQP). During the pilot period, UC continued to use CPQP, using it more frequently than best value. Specifically, CPQP accounted for 42 percent of reported contracts during the period, while best value accounted for 14 percent of such contracts. Though UC did not heavily rely on best value during the pilot period, the LAO believed UC’s use of it was reasonable and generally recommended making UC’s best value authority permanent.

That LAO’s support of UC’s use of best value did come with some recommendations. LAO noted that UC to develop a more comprehensive written set of policies that reflect best practices for BV procurement. To promote transparency in procurement, LAO recommended this revised policy should be available on UC’s website for the vendor community and public to access. The LAO also recommended that UC phase out the CPQP alternative procurement method.

The LAO also reported that no CCC’s chose to participate in the pilot, and thus did not report any findings to LAO. Citing the benefits that best value procurement can have in some cases, the LAO recommended continuing to authorize the CCC to offer best value on a pilot basis.

Arguments in support. UC is the sponsor of this legislation, and writes that “…under traditional procurement processes, the University is required to award contracts to the lowest responsible bidder, thereby limiting its consideration to lowest price as the primary factor. Best Value is an alternative procurement methodology that is increasingly being used by other entities for certain types of goods and services where consideration of criteria other than the lowest unit cost would significantly improve the total value of a purchase.

With lowest price procurement methodology, organizations often pay more over time if the quality of a good or service is poor, or if additional factors that were not calculated into the price of a product during the bid evaluation process increase costs over time. These factors include but are not limited to: freight, delivery, maintenance, warranty terms, service, training, energy usage, payment terms and end-of-life disposal costs… The LAO completed their review in December of 2017, concluding that UC had implemented the pilot program effectively – and recommended that the Best Value authority be granted to the University on a permanent basis.

Prior legislation. SB 1280 (Pavley) Chapter 708, Statutes of 2012, is described above in the “Background” section of this analysis.

SB 1280 was almost identical to AB 2448 (Furutani, 2010) and AB 2550 (Furutani, 2008), with the exception that these bills did not include the provisions regarding UC. Both bills were vetoed by the Governor Schwarzenegger, whose veto messages read, in pertinent part:

AB 2448 (Furutani, 2010): This bill is substantially the same as legislation I have vetoed in the past because it may allow subjective methods to govern the bidding process for procurement of supplies and materials, which could be more open to manipulation and abuse in the ultimate bid selection. Such abuse could lead to non-competitive bidding and higher costs to the State's taxpayers and community college students.

AB 2550 (Furutani, 2008): I support the notion that best value contracting is a reasonable alternative for construction projects which allows projects to be awarded based on a combination of best price and qualifications because construction projects represent a large, long term investment of resources. However, I am concerned that this legislation may allow subjective methods to govern the bidding process for procurement of supplies and materials with a relatively short life cycle, which could be more open to manipulation and abuse in the bid selection process.

REGISTERED SUPPORT / OPPOSITION:

Support

Los Rios Community College District

University of California (Sponsor)

Opposition

None on file

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