Existing law imposes requirements on, and authorizes procedures for, public contracting for equipment and services, among other things, by local and state agencies. Existing law authorizes certain procurements to be facilitated through a lowest responsible bidder requirement.

This bill would authorize a state or local agency, public entity, as defined, to award contracts through a best value procurement method, as describe, described, for the purchase of equipment goods with a base value of $250,000 or more. The bill would require the agency public entity to adopt and publish procedures and guidelines for evaluating the qualifications of the bidders to ensure the best value selections are conducted in a fair and impartial manner, as described. The bill would authorize the procedures and guidelines to include the adoption of a high road jobs plan policy that evaluates bidders high road jobs plan commitments as part of the overall score for the public contract, as specified.

This bill would require the solicitation document to include certain information and would direct the agency public entity to use a scoring method based on price and the factors described in the solicitation document, as specified. The bill would require the agency public entity to let any contract for these projects to the selected bidder that represents the best value or reject all bids. The bill would also authorize a public entity to award all contracts for the purchase of municipal fleets by using a best value procurement method, as specified.

Existing law imposes requirements on, and authorizes procedures for, public contracting for equipment and services, among other things, by local and state agencies. Existing law authorizes certain procurements to be facilitated through a lowest responsible bidder requirement.

This bill would authorize a state or local agency, as defined, to award contracts through a best value procurement method, as describe, for the purchase of equipment with a base value of $250,000 or more. The bill would require the agency to adopt and publish procedures and guidelines for evaluating the qualifications of the bidders to ensure the best value selections are conducted in a fair and impartial manner, as described. The bill would authorize the procedures and guidelines to include the adoption of a high road jobs plan policy that evaluates bidders high road jobs plan commitments as part of the overall score for the public contract, as specified.

This bill would require the solicitation document to include certain information and would direct the agency to use a scoring method based on price and the factors described in the solicitation document, as specified. The bill would require the agency to let any contract for these projects to the selected bidder that represents the best value or reject all bids.

Date of Hearing: August 7, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

SBPCA Bill Id:SB 1325

Author:(Durazo) – As Amended Ver:April 10, 2024

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

SUMMARY:

This bill authorizes a public entity to use the best-value procurement method to award contracts for goods over $250,000 and for the purchase of municipal fleets, subject to certain bid evaluation procedures and guidelines, including the adoption of a high road jobs plan policy.

Specifically, this bill:

1. Authorizes a public entity, as defined, to use the best-value procurement method for the purchase of public goods with a base value of $250,000 or more, subject to the following:
2. The public entity must adopt and publish procedures and guidelines for evaluating the qualifications of bidders that ensure the best-value selections are conducted in a fair and impartial manner. These procedures and guidelines may include the adoption of a high road jobs plan policy.
3. The solicitation documents must specify what criteria, in addition to price, will be given a weighted value. The public entity must use a scoring method based on those factors and price in determining the successful bid. Any evaluation and scoring method must ensure substantial weight is given to the contract price.
4. The public entity must let any contract for a project pursuant to this section to the selected bidder that represents the best-value or must reject all bids.
5. Authorizes a public entity to award all contracts for the purchase of municipal fleets by using the best-value procurement method that includes a high road jobs plan policy, as specified.
6. Defines “high road jobs plan policy” to mean a policy by which a public entity evaluates bidders’ high road jobs plan commitments as part of the overall score for the public contract, and incorporates these commitments into the selected applicant’s final contract as a material term.
7. Defines “public entity” to mean the state, county, city, city and county, district, public authority, public agency, municipal corporation, or any other political subdivision or public corporation in the state.

FISCAL EFFECT:

1. The Department of General Services (DGS) estimates General Fund (GF) costs of approximately $2 million annually for the first two years of program implementation and approximately $1 million annually ongoing for additional limited-term and permanent staff to implement procurement policies, procedures, and trainings. DGS indicates this bill creates a new acquisition method and new evaluation criteria, which will take a minimum of three years to implement.

The bill specifies a public entity must let any contract under this section to the selected bidder that represents the best-value or reject all bids. To the extent there are a significant number of re-bids because all bids are rejected, DGS notes it will require additional staff resources to handle the additional procurement workload. DGS further notes some plan requirements are vague or subjective, increasing the likelihood of bid protests. To the extent the number of bid protects increases, DGS may incur additional GF costs to manage this workload.

1. Potential costs savings (GF and local funds) of an unknown amount to public entities statewide. While entities may incur higher upfront costs to award certain contracts using the best-value procurement method, rather than awarding contracts to the lowest bidder, to the extent public entities successfully implement best-value purchasing, procurement savings could be realized over time.
2. Any costs to local entities would be non-reimbursable, as the bill is discretionary.

According to the Legislative Analyst’s Office, the General Fund faces a structural deficit in the tens of billions of dollars over the next several fiscal years. 

COMMENTS:

1. Purpose. This bill is sponsored by Jobs to Move America. According to the author:

As our state receives once-in-a-generation funding from the federal government and makes historic investments of our own, we continue to have the highest supplemental poverty rate of any state in our country. We must go beyond “job creation” – this is about access to high paid jobs and quality training. As the largest recipient of federal infrastructure funds complementing what our state and local governments are spending on transportation and climate adaptation, California can lead the way for people building these projects in our local communities.

1. Background. High Road Employers. In 2019, Governor Newsom established the Future of Work Commission to “study, understand, analyze, and make recommendations regarding the kinds of jobs Californians could have in the decades to come.” The commission’s final report, released March 2021, recommended support for efforts that promote job quality, citing a 2019 Gallup Poll stating fewer than half of California workers consider themselves in a “good job.” The report suggests taking measures to promote “high-road” employers, which pay above minimum wage and provide other benefits, so more employers seek such designation. Possible incentives include formal recognition, tax incentives, streamlined permitting or licensing and priority in procurement decisions.

There are ongoing efforts to ensure beneficiaries of state contracts, grants and programs provide equitable and sustainable workplace conditions, especially in climate- and transportation-related industries. SB 674 (Durazo), Chapter 875, Statutes of 2022, required a public contract over $10 million awarded by DGS or the Department of Transportation (Caltrans) for acquisition of zero-emission transit vehicles or electric vehicle supply equipment to incorporate high road job standards. AB 680 (Burke), Chapter 746, Statutes of 2021, required updates, by July 1, 2025, to Greenhouse Gas Reduction Fund guidelines to ensure all grant program applicants meet fair and responsible employer standards, have inclusive procurement policies and pay prevailing wage, and give preference to applicants based on such metrics. This bill continues these efforts by adding job quality considerations to public entity contracting requirements for goods over $250,000.

Public Procurement. Existing law requires public entities to comply with certain procedures in soliciting and evaluating bids and awarding contracts for the construction of public works and for the purchase of materials, supplies, and equipment. The majority of public sector contracts in California are awarded on a low-bid basis where the contractor submitting the lowest bid meeting specified criteria is awarded the contract. However, there is growing recognition that a system based strictly on the lowest price does not always provide the best overall product value and can result in higher costs over the long-term. DGS sets state procurement policies and provides purchasing services for all state departments, but occasionally delegates purchasing authority to individual state departments, such as Caltrans for the procurement of heavy mobile fleet vehicles and special equipment.

Best-Value Procurement. The best-value procurement process allows a bidder to be selected on the basis of objective evaluation criteria representing the best combination of price and qualifications. The process allows the contracting agency to consider “values” in addition to cost in awarding contracts. The best-value criteria can include factors such as lifetime costs, use of sustainable materials or practices, experience, timeliness, terms and conditions, and economic benefits to the community. Job quality standards are a more recent consideration. The bidder with the highest score (not necessarily the lowest bid) receives the contract.

For public construction projects, existing law specifically authorizes the University of California, California State University and community college systems, as well as K-12 school districts and municipal utility districts to use the best-value contracting method for projects meeting a minimum cost threshold, typically over $1 million. Existing law also authorizes counties, but not cities, to use the best-value method for construction projects in excess of $1 million. In limited cases, special districts have used the best-value method for specific projects. Most local government statutory authorizations for best-value construction contracting contain reporting requirements and sunset dates to allow for continued state oversight.

The use of best-value contracting for materials, supplies, and equipment is more limited and is not authorized for most state agencies or local governments generally. Past legislatures and governors have expressed concerns that allowing subjective methods to govern the bidding process for procurement of supplies and materials could lead to manipulation and abuse in the bid selection process. Some authorization does exist, however, particularly for the university and community college systems, municipal utility districts, and some transit districts, among a few others.

In addition, existing law, authorizes DGS to purchase and equip heavy mobile fleet vehicles and special equipment for use by Caltrans using best-value procurement, using specifications and criteria developed in consultation with Caltrans. This authorization, which began as a pilot project in 2014, is considered a success by DGS and has been extended to June 30, 2025.

This bill provides a sweeping authorization for all state and local entities to use the best-value contracting approach for the procurement of goods with a base value of at least $250,000, and for the purchase of municipal fleets. The bill does not define “goods,” although the author intends it to include materials, supplies, and equipment, nor does the bill contain reporting requirements or other accountability measures, as is traditionally required for local entities.

The bill conditions the use of the best-value procurement method provided in this bill on the public entity adopting guidelines for evaluating the qualifications of bidders, including the option to include a high road jobs plan policy. The best-value standards and required procedures in this bill differ from those in many existing authorizations for the use of best-value procurement, potentially creating conflicts for entities with existing authorizations.

1. Related Legislation. AB 1957 (Wilson), Chapter 58, Statutes of 2024, expanded the 10-county pilot program to allow all counties to use best-value contracting for construction projects in excess of one million dollars, and extended the sunset date on the authorization to January 1, 2030.

SB 822 (Durazo), of this legislative session, among other provisions, requires specified state agencies to report to the Legislature the agency’s plan to incorporate high road employment requirements in the agency’s procurement processes, contracts, and incentive programs. SB 822 was vetoed by the Governor who indicated he wanted to “allow time for [recent] policies to be implemented before adding more requirements that may duplicate efforts.”

1. Prior Legislation. SB 700 (Durazo), of the 2021-22 Legislative Session, would have required each bidder for a state contract, as a condition for contract eligibility, to submit a High Road Employment Plan to DGS, among other requirements. SB 700 was held on this committee’s suspense file.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: June 26, 2024

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Juan Carrillo, Chair

SBPCA Bill Id:SB 1325

Author:(Durazo) – As Amended Ver:April 10, 2024

SENATE VOTE: 30-8

SUBJECT: Public contracts: best value procurement: goods

SUMMARY: Allows public entities to use a “best value procurement method” when awarding contracts for goods over $250,000 instead of awarding them utilizing the traditional “lowest responsible bidder” method. Specifically, this bill:

1. Authorizes a public entity to use the best value procurement method for the purchase of goods with a base value of $250,000 or more, as specified.
2. Requires the public entity to adopt and publish procedures and guidelines for evaluating the qualifications of bidders that ensure the best value selections are conducted in a fair and impartial manner. These procedures and guidelines may include, but are not limited to, the adoption of a high road jobs plan.
3. Requires, in addition to disclosure of the minimum requirements for qualification, the solicitation document to specify what criteria, in addition to price, shall be given a weighted value. The public entity shall use a scoring method based on those factors and price in determining the successful bid. Any evaluation and scoring method shall ensure substantial weight is given to the contract price.
4. Requires the public entity to let any contract for a project pursuant to this bill to the selected bidder that represents the best value or shall reject all bids.
5. Allows a public entity to award all contracts for the purchase of municipal fleets by using a best value procurement method that includes a high road jobs plan policy.
6. Defines “best value procurement” to mean a process by which a contract award is determined by objective criteria related to price, quality, and other qualifications, including, but not limited to, the following:
   1. Product performance, productivity, and safety standards;
   2. The supplier’s ability to perform the contract requirements;
   3. Environmental benefits, including the reduction of greenhouse gas emissions;
   4. Community benefits, including the bidder’s participation in or commitments to a community benefits agreement, targeted hiring program, or high road training program; and
   5. Job quality benefits, as determined by a high road jobs plan policy;
7. Defines “community benefits agreement” to mean a legally binding contract between a private entity and at least one stakeholder organization that details specific, measurable, and enforceable commitments to a specified community.
8. Defines “high road jobs plan” to mean a component of an application submitted by applicants for public contracts where bidders are required to state, at a minimum, all of the following:
   1. The minimum number of full-time equivalent jobs that will be retained and created if awarded a contract;
   2. The minimum wage and benefit amounts by job classification for nonsupervisory workers on the contract;
   3. The minimum number of jobs that will be specifically retained and created for individuals with employment barriers if awarded the contract;
   4. Detailed information regarding any targeted hiring programs, community benefits agreements, high road training programs, or registered apprenticeship programs; and
   5. A statement that all workers are properly classified and an acknowledgment that knowingly submitting false information is a violation of the False Claim Act.
9. Defines “high road jobs plan policy” to mean a policy by which a public entity evaluates bidders’ high road job plan commitments as part of the overall score of the public contract, and incorporates these commitments into selected applicant’s final contract as a material term.
10. Defines “high road training program” to mean a program that provides comprehensive, equitable, and standardize training to a diverse set of participants, including, but not limited to, the following”
    1. A program that includes a standardized curriculum resulting in an industry-recognized credential, that includes measurable goals, regular reporting, and accountability standards to assess program effectiveness;
    2. Wages and stipends for program participants, including assistance with tuition, supplies, and materials;
    3. Pay increase tied to new skills gained and trainings completed; and
    4. Formalized agreements with a public entity, nonprofit, or labor organization to support the training program, whose purpose aligns with the program’s goals, or high road training partnerships, as defined
11. Defines “public entity” to mean the state, county, city, city and county, district, public authority, public agency, municipal corporation, or any other political subdivision or public corporation in the state.
12. Defines “stakeholder organization” to mean a nonprofit, unincorporated association of local impacted community members, or a labor organization whose purpose aligns with the program, project, or agreement’s goal.
13. Defines “targeted hiring program” to mean a program that meets all of the following conditions:
    1. Meaningful outreach and recruitment activities and measurable hiring goals specifically targeted to individuals with employment barriers or displaced workers;
    2. Hiring practices developed to provide fair access to and support the hiring of individuals with employment barriers; and
    3. Collaboration with community groups or public entities to directly support skill and career development for individuals with employment barriers, as well as provide wraparound services as needed by particular communities, such as transportation assistance or childcare vouchers.

FISCAL EFFECT: According to the Senate Appropriations Committee: “The Department of General Services (DGS) notes this bill creates a new acquisition method and evaluation criteria, which will take a minimum of 3 years to implement and require additional limited-term and permanent staff at the Associate Governmental Program Analyst level to implement procurement policies, procedures, and trainings. DGS estimates General Fund costs ranging from $1.89 million to $2.22 million annually for the first two years of program implementation and $1.06 million to $1.39 million annually ongoing.”

COMMENTS:

1. Bill Summary. This bill authorizes a public entity to use the best value procurement method for the purchase of public goods with a base value of $250,000 or more if the entity adopts and publishes procedures and guidelines for evaluating the qualifications of bidders that ensure the best value selections are conducted in a fair and impartial manner.

This bill requires the solicitation documents to specify what criteria, in addition to price, shall be given a weighted value and requires the entity to use a scoring method based on those factors and price in determining the successful bid. Any evaluation and scoring method shall ensure substantial weight is given to the contract price. This bill requires the entity to let any contract for a project pursuant to this section to the selected bidder that represents the best value or shall reject all bid. This bill authorizes a public entity to use a best value procurement method that includes a high road jobs plan policy to purchase municipal fleets.

This bill defines “public entity” to mean the state, county, city, city and county, district, public authority, public agency, municipal corporation, or any other political subdivision or public corporation in the state.

This bill is sponsored by Jobs to Move America.

1. Author’s Statement. According to the author, “I have worked my entire life, as a migrant farmworker and in my career, to make California more equitable. Now – in the midst of a seismic change in our economy – the greatest transformation since the Industrial Revolution – we cannot make the same mistakes of the past. A commitment to climate equity means a commitment to workers.

“As our state receives once-in-a-generation funding from the federal government and makes historic investments of our own, we continue to have the highest supplemental poverty rate of any state in our country. We must go beyond “job creation” – this is about access to high paid jobs and quality training.

“As the largest recipient of federal infrastructure funds complementing what our state and local governments are spending on transportation and climate adaptation, California can lead the way for people building these projects in our local communities.”

1. Public Procurement. The majority of public sector contracts in California are awarded on a low-bid basis where the contractor submitting the lowest bid that meets specified criteria is awarded the contract. 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.

While the low-bid procurement system has promoted open competition, there are concerns that a system based strictly on the lowest price does not provide the best overall product value and can result in higher costs over the long-term. In California, DGS sets state procurement policies and provides purchasing services for all state departments. However, in certain circumstances DGS delegates purchasing authority to individual state departments, such as Caltrans for the procurement of heavy mobile fleet vehicles and special equipment.

Over the years, the state has authorized both state and local agencies to use various other types of procurement processes in the awarding of contracts. For example, in 2014, SB 785 (Wolk, Chapter 931, Statutes of 2014) was signed into law which authorized specified state agencies, until January 1, 2025, and specified local agencies to use design-build for public work contracts in excess of $1 million. Under design-build, the public agency contracts with a single entity—which can be a single firm, a consortium, or a joint venture—to design and construct a project. Before inviting bids, the owner prepares documents that describe the basic concept of the project, as opposed to a complete set of drawings and specifications of the final product. In the bidding phase, the owner typically evaluates bids on a best-value basis, incorporating technical factors, such as qualifications and design quality, in addition to price.

Progressive design-build is a more recent variant on traditional design-build contracting. While there is some variation, the progressive design-build model generally includes two phases. In the first phase, the awarding authority uses a best value process to select a design-build entity who completes preliminary plans and preconstruction services necessary to provide a cost estimate and final design proposal. The project then “progresses” to the second phase of the project, where the awarding authority and the design-build entity agree to a final design, project cost, and schedule. If they cannot agree, there is an “off ramp” between the two phases where the awarding authority can pursue other options, but still benefit from having the first phase work complete. This is different from traditional design-build where the awarding entity contracts with a single entity to design and construct a project at a set price before design work begins, and without a similar off ramp.

1. Best Value Procurement. The best value procurement process is a procurement process whereby a bidder may be selected on the basis of objective evaluation criteria representing the best combination of price and qualifications. The process allows the contracting agency to consider “values” in addition to cost in awarding contracts, such as community benefit goals. Under design-build, the public agency contracts with a single entity—which can be a single firm, a consortium, or a joint venture—to design and construct a project. Before inviting bids, the owner prepares documents that describe the basic concept of the project, as opposed to a complete set of drawings and specifications of the final product. In the bidding phase, the owner typically evaluates bids on a best-value basis, incorporating technical factors, such as qualifications and design quality, in addition to price.

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. In order for a state or local agency to use the best value procurement method described in this bill, they must first adopt and publish procedures and guidelines for evaluating the qualifications of bidders in order to ensure the best value selections are conducted in a fair and impartial manner.

The author’s office argues that currently, state agencies face a confusing patchwork of best value procurement authorization within state code. Some agencies have explicit permission to utilize best value procurement while others do not, and some have authorization to enter into best value contracts but only under specific circumstances. This bill would explicitly provide the authority for state and local agencies to use best value procurement for equipment purchases over $250,000.

1. DGS and Caltrans Pilot Program. AB 1857 (Frazier), Chapter 381, Statutes of 2014, created the best value procurement pilot program, authorizing DGS to test the effectiveness of the “best value procurement” method when purchasing heavy fleet vehicles and special equipment for Caltrans. The bill also required DGS to evaluate the best value procurement program and recommend whether the process should be continued on June 1, 2020. Subsequent legislation extended the sunset date to January 1, 2022, and increased the cap from $20 million to $50 million per fiscal year.

DGS and Caltrans created a team to collaborate on various aspects of the procurement process. For each procurement, Caltrans was responsible for selecting the equipment type and specifications for purchase and defining a “performance and productivity” criteria for point allocation. DGS was responsible for specification review to ensure competition; drafting the solicitation package; and conducting the solicitation, including any protested awards.

In their report on the program, DGS and Caltrans stated the benefits, including that the program allowed participation from bidders who would normally be priced out of competition and the ability to use best value procurement to ensure purchased equipment would meet environmental requirements. DGS and Caltrans also noted lessons learned from the program, including the need to streamline the Request for Proposal solicitation package for bidders, and determining the appropriate scoring criteria and timeframes for solicitations. The report also noted that while legislation set the purchasing limit at $50 million, the program threshold should instead be based on Caltrans’ delegated budget authority of purchasing equipment.

In conclusion, DGS and Caltrans stated, “the project was an overall success. Twenty-nine of the 30 projects were awarded to bidders who offered performance and productivity upgrades. DGS and Caltrans were also able to determine what factors worked well and what factors need to be improved upon to encourage more participation. By implementing what we’ve learned, we hope to accomplish even greater success in the future.”

1. Best Value for Counties. SB 762 (Wolk), Chapter 627, Statutes of 2015, established a pilot program until January 1, 2020, that allowed the counties of Alameda, Los Angeles, Riverside, San Bernardino, San Diego, Solano, and Yuba to award contracts for construction projects in excess of $1 million to the bidder representing the best value.

Participating counties must satisfy a number of requirements in order to use this authority, including:

• 1. Adopting and publishing procedures and required criteria that ensure all selections are conducted in a fair and impartial manner.
  2. Evaluating at a public meeting the alternative of awarding the contract on the basis of the lowest bid price.
  3. Making a written finding that awarding a contract on the basis of best value will reduce project costs, expedite project completion, and/or provide features not achievable via the low-bid method.
  4. Preparing bid solicitations and providing notice as required by the Local Agency Public Construction Act (LAPC Act), and complying with the Subcontracting Fair Practices Act regarding subcontractors identified in a bid.
  5. Establishing prequalification procedures in accordance with the LAPC Act.
  6. Including in bid solicitations the criteria and rating system a county will consider in evaluating bids.
  7. Prequalifying or shortlisting only those contractors who provide an enforceable commitment to use a skilled and trained workforce to perform all work on the project that falls within an apprenticeable occupation, with specified exceptions.
  8. Appointing an evaluation committee, which must evaluate bidders solely upon the criteria in the bid solicitations and assign a qualifications score to each bid.
  9. Determining best value by dividing each bidder's price by its qualifications score, with the lowest cost per quality point representing the best value bid.
  10. Publicly announcing bid awards, including the score of the selected contractor in relation to all other bidders.
  11. Submitting a report to the Legislature, including information about the county’s use of the bill’s authority, before the pilot program sunsets.

SB 793 (Hill) Chapter 627, Statutes of 2017, expanded the pilot program with the following provisions:

• 1. Adding San Mateo County to the list of counties authorized to use the pilot program.
  2. Allowing counties in the pilot program to also use the program’s best value contracting method to award individual annual contracts for repair, remodeling, or other repetitive work to be done according to unit prices – also known as job order contracting or a job order contract. These contracts cannot exceed $3 million, adjusted for inflation, and must be based on plans and specifications for typical work. They also cannot be for new construction. Best value criteria must be applied to the annual contract for construction services, rather than to an individual, specific project. Annual contracts may be extended or renewed for two subsequent annual terms at a maximum of $6 million over the subsequent terms. Contract values must be adjusted annually to reflect the percentage change in the California CPI.

SB 128 (Beall) added the Counties of Monterey and Santa Clara to the authorization and extended the sunset date from January 1, 2020, to January 1, 2025.

1. Arguments in Support. Jobs to Move America, the sponsors of this bill, writes, “The current system of awarding public contracts to the lowest responsible bidder inherently rewards bad actors. When contractors are selected based on price and quality alone, they are incentivized to cut labor costs to offer more competitive bids. Best value procurement allows agencies to select bidders that will not only provide needed goods and services, but will also provide good jobs and benefits to the public.

“State and local agencies currently face a confusing patchwork of best value procurement authorization within state code. Some agencies have explicit permission to utilize best value procurement while others do not, and some have authorization, but only under specific circumstances. This patchwork makes it difficult for agencies to understand if they have authority to adopt best value procurement models.

“SB 1325 creates authorizing statutes for best value procurement so that cities, states, and public agencies can use public dollars to maximize benefits for the public, advance equity and environmental goals, and ensure the creation of good jobs that build the middle class.”

1. Arguments in Opposition. None on file.
2. Related Legislation. AB 1957 (Wilson) expands a pilot program for specified counties to use best value contracting to include all counties, and extends the sunset date on the authorization to January 1, 2030. This bill passed through both houses and is currently ordered to engrossing and enrolling.
3. Previous Legislation. AB 1983 (Fong, 2022) would have reinstated the best value procurement for the purchase of heavy fleet vehicles and special equipment for CalTrans by DGS, as specified. This bill was vetoed by Governor Newsom.

AB 271 (Robert Rivas), Chapter 48, Statutes of 2021, allows the Santa Clara Valley Water District to award contracts on a best value basis for any construction work to improve the safety of the Leroy Anderson and Reservoir.

AB 1981 (Nazarian), Chapter 46, Statutes of 2020, extended the authority of the Los Angeles Unified School District to use the best value procurement method by five years, from January 1, 2021, to January 1, 2026.

AB 3186 (Medina), Chapter 725, Statutes of 2018 authorizes the University of California and the California Community Colleges 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 relating reporting requirements.

SB 785 (Wolk), Chapter 931, Statutes of 2014, authorizes, until January 1, 2025, DGS, and specified local agencies to use design-build for their public works contracts in excess of $1 million, as specified.

AB 1857 (Frazier), Chapter 381, Statues of 2014, created the best value procurement program and authorized DGS to test the effectiveness of the program method when purchasing heavy fleet vehicles and special equipment for Caltrans.

REGISTERED SUPPORT / OPPOSITION:

Support

Jobs to Move America (SPONSOR)

California Environmental Voters (formerly Clcv)

California Labor Federation, Afl-cio

Natural Resources Defense Council (NRDC)

Water Replenishment District of Southern California

Support if Amended

Los Angeles Unified School District

Opposition

None on file.

Analysis Prepared by: Claire Norton / L. GOV. / (916) 319-3958

 THIRD READING  

Bill No: SB 1325

Author: Durazo (D)

Amended: 4/10/24

Vote: 21

SENATE GOVERNMENTAL ORG. COMMITTEE: 9-5, 4/9/24

AYES: Dodd, Alvarado-Gil, Archuleta, Bradford, Glazer, Padilla, Portantino, Rubio, Smallwood-Cuevas

NOES: Wilk, Jones, Nguyen, Ochoa Bogh, Seyarto

NO VOTE RECORDED: Ashby, Roth

SENATE LOCAL GOVERNMENT COMMITTEE: 5-2, 4/17/24

AYES: Durazo, Glazer, Skinner, Wahab, Wiener

NOES: Seyarto, Dahle

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/16/24

AYES: Caballero, Ashby, Becker, Bradford, Wahab

NOES: Jones, Seyarto

SUBJECT: Public contracts: best value procurement: goods

SOURCE: Author

DIGEST: This bill authorizes a state or local agency to award contracts through a best value procurement method for the purchase of equipment with a base value of $250,000 or more, as specified. This bill authorizes a public entity to award all contracts purchase of municipal fleets using a best value procurement method that includes a high road jobs plan policy, as specified.

ANALYSIS:

Existing law:

1. Established procedures for state agencies to enter into contracts for goods and services, including generally requiring that certain contracts by a state agency be approved by the Department of General Services (DGS).
2. Requires, generally, public contracts to be awarded by competitive bidding pursuant to procedures set forth, as specified.
3. Requires DGS to adopt, publish, and apply uniform standards for rating bidders, on the basis of questionnaires and required statements, with respect to contracts upon which each bidder is qualified to bid.
4. States that the Local Agency Public Construction Act generally requires local agencies to invite bids for construction projects and award contracts to the lowest responsible bidder.
5. Authorizes DGS, until January 1, 2025, to procure design-build contracts for public works projects in excess of one million dollars, as specified.
6. Authorizes the Department of Water Resources (DWR) and the Department of Transportation (CalTrans), until December 31, 2033, to procure progressive design-build contracts for public works projects for which the estimated price exceeds $25 million.

This bill:

1. Authorizes a public entity to use the best value procurement method for the purchase of goods with a base value of $250,000 or more, as specified.
2. Authorizes a public entity to award all contracts for the purchase of municipal fleets using a best value procurement method that includes a high road jobs plan policy, as specified.
3. Requires the public entity to adopt and publish procedures and guidelines for evaluating the qualifications of bidders that ensure the best value selections are conducted in a fair and impartial manner. These procedures and guidelines may include, but are not limited to, the adoption of a high road jobs plan.
4. Requires, in addition to disclosure of the minimum requirements for qualification, the solicitation document to specify what criteria, in addition to price, shall be given a weighted value. The public agency shall use a scoring method based on those factors and price in determining the successful bid. Any evaluation and scoring method shall ensure substantial weight is given to the contract price.
5. Requires the public agency to let any contract for a project pursuant to this bill to the selected bidder that represents the best value or shall reject all bids.

Background

Author Statement. According to the author, “I have worked my entire life, as a migrant farmworker and in my career, to make California more equitable. Now – in the midst of a seismic change in our economy – we cannot make the same mistake of the past. A commitment to climate equity means a commitment to workers. As our state receives once-in-a-generation funding from the federal government and makes historical investments of our own, we continue to have the highest supplemental poverty rate of any state in our country. We must go beyond ‘job creation’ – this is about access to good jobs. As the largest recipient of federal infrastructure funds complementing what our state and local governments are spending on transportation and climate adaptations, California can lead the way for people building these projects to have access to quality jobs.”

State Procurement. The majority of public sector contracts in California are awarded on a low-bid basis where the contractor submitting the lowest bid that meets specified criteria is awarded the contract. 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.

While the low-bid procurement system has promoted open competition, there are concerns that a system based strictly on the lowest price does not provide the best overall product value and can result in higher costs over the long-term. In California, DGS sets state procurement policies and provides purchasing services for all state departments. However, in certain circumstances DGS delegates purchasing authority to individual state departments, such as Caltrans for the procurement of heavy mobile fleet vehicles and special equipment.

Over the years, the state has authorized both state and local agencies to use various other types of procurement processes in the awarding of contracts. For example, in 2014, SB 785 (Wolk, Chapter 931, Statutes of 2014) was signed into law which authorized specified state agencies, until January 1, 2025, and specified local agencies to use design-build for public work contracts in excess of $1 million. Under design-build, the public agency contracts with a single entity—which can be a single firm, a consortium, or a joint venture—to design and construct a project. Before inviting bids, the owner prepares documents that describe the basic concept of the project, as opposed to a complete set of drawings and specifications of the final product. In the bidding phase, the owner typically evaluates bids on a best-value basis, incorporating technical factors, such as qualifications and design quality, in addition to price.

Progressive design-build is a more recent variant on traditional design-build contracting. While there is some variation, the progressive design-build model generally includes two phases. In the first phase, the awarding authority uses a best value process to select a design-build entity who completes preliminary plans and preconstruction services necessary to provide a cost estimate and final design proposal. The project then “progresses” to the second phase of the project, where the awarding authority and the design-build entity agree to a final design, project cost, and schedule. If they cannot agree, there is an “off ramp” between the two phases where the awarding authority can pursue other options, but still benefit from having the first phase work complete. This is different from traditional design-build where the awarding entity contracts with a single entity to design and construct a project at a set price before design work begins, and without a similar off ramp.

Best Value Procurement. The best value procurement process is a procurement process whereby a bidder may be selected on the basis of objective evaluation criteria representing the best combination of price and qualifications. The process allows the contracting agency to consider “values” in addition to cost in awarding contracts, such as community benefit goals. Under design-build, the public agency contracts with a single entity—which can be a single firm, a consortium, or a joint venture—to design and construct a project. Before inviting bids, the owner prepares documents that describe the basic concept of the project, as opposed to a complete set of drawings and specifications of the final product. In the bidding phase, the owner typically evaluates bids on a best-value basis, incorporating technical factors, such as qualifications and design quality, in addition to price.

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.

In order for a state or local agency to use the best value procurement method described in this bill, they must first adopt and publish procedures and guidelines for evaluating the qualifications of bidders in order to ensure the best value selections are conducted in a fair and impartial manner. The bill specifically defines “best value procurement” to mean a process by which a contract award is determined by objective criteria related to price, quality, and other qualifications. The bill does list a number of qualifications that can be considered; product performance, productivity, environmental benefits, community benefits, etc, however the bill does not limit what a state and local agency can include as a qualification.

The author’s office argues that currently, state agencies face a confusing patchwork of best value procurement authorization within state code. Some agencies have explicit permission to utilize best value procurement while others do not, and some have authorization to enter into best value contracts but only under specific circumstances. This bill would explicitly provide the authority for state and local agencies to use best value procurement for equipment purchases over $250,000.

DGS and Caltrans Pilot Program. AB 1857 (Frazier, Chapter 381, Statutes of 2014), created the best value procurement pilot program, authorizing DGS to test the effectiveness of the “best value procurement” method when purchasing heavy fleet vehicles and special equipment for Caltrans. The bill also required DGS to evaluate the best value procurement program and recommend whether the process should be continued on June 1, 2020. Subsequent legislation extended the sunset date to January 1, 2022, and increased the cap from $20 million to $50 million per fiscal year.

DGS and Caltrans created a team to collaborate on various aspects of the procurement process. For each procurement, Caltrans was responsible for selecting the equipment type and specifications for purchase and defining a “performance and productivity” criteria for point allocation. DGS was responsible for specification review to ensure competition; drafting the solicitation package; and conducting the solicitation, including any protested awards.

In their report on the program, DGS and Caltrans stated the benefits, including that the program allowed participation from bidders who would normally be priced out of competition and the ability to use best value procurement to ensure purchased equipment would meet environmental requirements. DGS and Caltrans also noted lessons learned from the program, including the need to streamline the Request for Proposal solicitation package for bidders, and determining the appropriate scoring criteria and timeframes for solicitations. The report also noted that while legislation set the purchasing limit at $50 million, the program threshold should instead be based on Caltrans’ delegated budget authority of purchasing equipment.

In conclusion, DGS and Caltrans stated, “the project was an overall success. Twenty-nine of the 30 projects were awarded to bidders who offered performance and productivity upgrades. DGS and Caltrans were also able to determine what factors worked well and what factors need to be improved upon to encourage more participation. By implementing what we’ve learned, we hope to accomplish even greater success in the future.”

Related/Prior Legislation

AB 1983 (Fong, 2022) would have reinstated the best value procurement for the purchase of heavy fleet vehicles and special equipment for CalTrans by DGS, as specified. (Vetoed by Governor Newsom)

AB 271 (R. Rivas, Chapter 48, Statutes of 2021) allowed the Santa Clara Valley Water District to award contracts on a best value basis for any construction work to improve the safety of the Leroy Anderson and Reservoir.

AB 1981 (Nazarian, Chapter 46, Statutes of 2020) extended the authority of the Los Angeles Unified School District to use the best value procurement method by five years, from January 1, 2021, to January 1, 2026.

AB 3186 (Medina, Chapter 725, Statutes of 2018) authorized the University of California and the California Community Colleges 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 relating reporting requirements.

SB 785 (Wolk, Chapter 931, Statutes of 2014) authorized, until January 1, 2025, DGS, and specified local agencies to use design-build for their public works contracts in excess of $1 million, as specified.

AB 1857 (Frazier, Chapter 381, Statues of 2019) created the best value procurement program and authorized DGS to test the effectiveness of the program method when purchasing heavy fleet vehicles and special equipment for Caltrans.

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

According to the Senate Appropriations Committee, DGS notes this bill creates new acquisition method and evaluation criteria, which will take a minimum of three years to implement and require additional limited-term and permanent staff at the Associate Governmental Program Analyst Level to implement procurement policies, procedures, and trainings. DGS estimates General Fund costs ranging form $1.89 million to $2.22 million annually for the first two years of program implementation and $1.06 million to $1.39 million annually ongoing.

SUPPORT: (Verified 5/16/24)

California Environmental Voters

California Labor Federation

Jobs to Move to America

Natural Resources Defense Council

Water Replenishment District

OPPOSITION: (Verified 5/16/24)

None received

ARGUMENTS IN SUPPORT: According to the California Labor Federation, “the current system of awarding public contracts to the lowest responsible bidder inherently rewards bad actors. When contractors are selected based on price and quality alone, they are incentivized to cut labor costs to offer more competitive bids. Best value procurement allows agencies to select bidders that will not only provide goods and services, but will also provide good jobs and benefits to the public. However, state and local agencies face a confusing patchwork of best value procurement authorization within state code. Some agencies have explicit permission to utilize best value procurement while others do not, and some have authorization, but only under specific circumstance. This patchwork makes it difficult for agencies to understand if they have authority to adopt best value procurement models. SB 1325 creates authorizing statutes for best value procurement so that cities, states, and public agencies can use public dollars to

maximize benefits for the public, advance equity goals, and ensure the creation of good jobs that build the middle class.”

Click here to enter text.

Prepared by: Felipe Lopez / G.O. / (916) 651-1530

5/17/24 19:18:05

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SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1325 (Durazo) - Public contracts: best value procurement: goods

Bill Summary:

SB 1325 authorizes a public entity to use the best value procurement method for the purchase of goods with a base value of $250,000 or more and for the purchase of municipal fleets, as specified.

Fiscal Impact:

The Department of General Services (DGS) notes this bill creates a new acquisition method and evaluation criteria, which will take a minimum of 3 years to implement and require additional limited-term and permanent staff at the Associate Governmental Program Analyst level to implement procurement policies, procedures, and trainings. DGS estimates General Fund costs ranging from $1.89 million to $2.22 million annually for the first two years of program implementation and $1.06 million to $1.39 million annually ongoing.

Background:

The majority of public sector contracts in California are awarded on a low-bid basis where the contractor submitting the lowest bid that meets specified criteria is awarded the contract. 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, current law sets certain monetary thresholds above which agencies generally must use a competitive bidding process to advertise and solicit bids before selecting a vendor.

While the low-bid procurement system has promoted open competition, there are concerns that a system based strictly on the lowest price does not provide the best overall product value and can result in higher costs over the long-term. In California, DGS sets state procurement policies and provides purchasing services for all state departments. However, in certain circumstances DGS delegates purchasing authority to individual state departments, such as California Department of Transportation for the procurement of heavy mobile fleet vehicles and special equipment.

Over the years, the state has authorized both state and local agencies to use various other types of procurement processes in the awarding of contracts.

Proposed Law:

• Authorizes a public entity to use the best value procurement method for the purchase of public goods with a base value of $250,000 or more if the entity adopts and publishes procedures and guidelines for evaluating the qualifications of bidders that ensure the best value selections are conducted in a fair and impartial manner.
  • Requires the solicitation documents to specify what criteria, in addition to price, shall be given a weighted value.
  • Requires the entity to use a scoring method based on those factors and price in determining the successful bid. Any evaluation and scoring method shall ensure substantial weight is given to the contract price.
  • Requires the entity to let any contract for a project pursuant to this section to the selected bidder that represents the best value or shall reject all bids.
• Authorizes a public entity to use the best value procurement method to purchase municipal fleets.
• Establishes definitions.

Staff Comments: DGS notes the upper range of its cost estimate is dependent on whether a public entity must reject all bids that aren’t awarded points in one of the categories noted in the bill, such as the High Road criteria. Section 2004 (a)(3) of the bill specifies that a public entity shall let any contract under this section to the selected bidder that represents the best value or shall reject all bids. To the extent that there will be a significant number of re-bids because all other bids that do not fit into the specified criteria are rejected, DGS notes it will require additional staff resources to handle the additional procurement workload.

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SENATE COMMITTEE ON LOCAL GOVERNMENT

Senator María Elena Durazo, Chair

2023 - 2024 Regular

Public contracts: best value procurement: equipment

Allows public entities to use a “best value procurement method” when awarding contracts for goods over $250,000 instead of awarding them utilizing the traditional “lowest responsible bidder” method.

Background

We’ll now open with a bid of … Generally in California, public entities – the state, counties, cities, special districts, public authorities, public agencies, municipal corporations, and any other political subdivision – are required to put contracts out to bid and award it to the “lowest responsible bidder.” That is, the bidder who the awarding agency deems to have the experience, facilities, reputation, financial resources and capability to fulfill the contract – and comes in with the lowest price – will be awarded the contract.

Alternative approaches. The state has permitted the use of alternatives to the “lowest responsible bidder” model in a number of circumstances over the years. For example, since 2006, school districts have been able to consider things such as vendor financing, performance reliability, standardization, life-cycle costs, delivery timetables, support logistics, manufacturer’s warranties, and other items when awarding contracts for technology, telecommunications, software, services, and related equipment. State and local agencies have been authorized to use a “best value procurement” (BVP) approach in a number of different circumstances:

• The state and many local entities use it when contracting for design-build construction projects;
• The state uses it when buying and equipping certain heavy mobile fleet vehicles;
• The Metropolitan Water District of Southern California has been authorized to use BVP for a regional recycled water project; and
• The Los Angeles Community College District has been authorized to operate a pilot project where it can use BVP on projects over $1 million.

The author wants to create a BVP method that any public entity could use when contracting for goods worth $250,000 or more.

Proposed Law

Senate Bill 1325 authorizes a public entity to utilize a BVP method when awarding contracts for goods over $250,000.

Should it wish to use this method instead of using the traditional “lowest responsible bidder” route, the public entity must adopt and publish procedures and guidelines for evaluating the qualifications of each bidder to ensure the best value selections are conducted in a fair and impartial manner. The procedures and guidelines may include the adoption of a “high road” jobs plan policy.

The bid solicitation document must specify what criteria, in addition to price, will be given a weighted value in the scoring. Any evaluation and scoring method must give substantial weight to the contract price.

The bill allows a public entity to award all contracts for municipal fleets by using a BVP that includes a high road jobs plan policy.

The bill defines “best value procurement” to mean a process by which a contract award is determined by objective criteria related to price, quality, and other qualifications, including, but not limited to:

• Product performance, productivity, and safety standards;
• The supplier’s ability to perform the contract requirements;
• Environmental benefits, including the reduction of greenhouse gas emissions;
• Community benefits, including the bidder’s participation in or commitments to a community benefits agreement, targeted hiring program, or high road training program; and
• Job quality benefits, as determined by a high road jobs plan policy.

A “community benefits agreement” is defined to mean a legally binding contract between a private entity and at least one stakeholder organization that details specific measurable and enforceable commitments to a specified community.

“High road jobs plan” is a component of the application requiring bidders to submit, at a minimum:

• The minimum number of full-time equivalent jobs that will be retained and created;
• The minimum wage and benefit amounts by job classification for non-supervisory workers;
• The minimum number of jobs that will be specifically retained and created for people facing employment barriers;
• Detailed information regarding any targeted hiring programs, community benefits agreements, high road training programs, or registered apprenticeship programs; and
• A statement that all workers are properly classified as employees or independent contractors as defined by Labor Code Section 2775 and that the bid complies with the state’s False Claims Act in Government Code Section 12650.

“High road jobs plan policy” means a policy by which a public entity evaluates a bidder’s high road jobs plan commitments as part of the overall score for the public contract, and incorporates these commitments into the selected applicant’s final contract as a material term.

“High road training program” means a program that provides comprehensive, equitable, and standardized training to a diverse set of participants, including, but not limited to:

• A program that includes a standardized curriculum resulting in an industry-recognized credential, measurable goals, regular reporting, and accountability standards to assess program effectiveness;
• Wages and stipends for participants, including assistance with tuition, supplies, and materials;
• Pay increases tied to new skills gained and trainings completed; and
• Formalized agreements with a public entity, nonprofit, or labor organization to support the training program, whose purpose aligns with the program’s goals or high road training partnerships as defined in Unemployment Insurance Code 14005(s).

“Stakeholder organization” is defined to include a nonprofit, unincorporated association of local impacted community members, or a labor organization whose purpose aligns with the program, project, or agreement’s goal.

“Targeted hiring program” means a program that:

• Conducts meaningful outreach and recruitment activities and measurable hiring goals specifically targeted to people with employment barriers or displaced workers;
• Utilizes hiring practices developed to provide fair access to and support the hiring of people with employment barriers; and
• Collaborates with community groups or public entities to directly support skill and career development for people with employment barriers, as well as provide wrap-around services as needed by particular communities, such as transportation assistance or childcare vouchers.

Comments

1. Purpose of the bill. According to the author, “I have worked my entire life, as a

migrant farmworker and in my career, to make California more equitable. Now – in the midst of a seismic change in our economy – we cannot make the same mistake of the past. A commitment to climate equity means a commitment to workers. As our state receives once-in-a-generation funding from the federal government and makes historical investments of our own, we continue to have the highest supplemental poverty rate of any state in our country. We must go beyond ‘job creation’ – this is about access to good jobs. As the largest recipient of federal infrastructure funds complementing what our state and local governments are spending on transportation and climate adaptations, California can lead the way for people building these projects to have access to quality jobs.”

2. Raising the floor – and the price? The traditional method of relying on the lowest responsible bidder when awarding contracts may result in the lowest dollar cost to the taxpayers, but whether it provides those same taxpayers with the best long-term value is, as everyone who has ever bought a car, a major appliance, or just about anything else, an open question.

The premise of this bill and its BVP model is that by allowing agencies to consider other factors beyond price when awarding a contract, the taxpayer will get a better value for their dollars – even if they are spending more money on the contract. Those better values could come in the form of products that have a longer lifespan or provide environmental benefits, create a better-trained and educated private workforce, develop a higher paid workforce that will contribute more to the local tax base, provide certain community benefits, and more.

3. The weight of the factors will vary by agency & contract. While the bill specifies the minimum factors that must be included in BVP, it doesn’t specify what weight an agency must assign to each factor. The bill also requires an agency’s evaluation and scoring method to give “substantial weight” to the contract price when evaluating bids. This type of flexibility is important given the wide range of procurement contracts that could be covered by this measure, plus it also is designed to ensure awarding entities don’t lose sight of who is paying the bill for each purchase – the California taxpayers.

4. Speed dating, committee style. The Senate Rules Committee double-referred this measure to the Senate Governmental Organization Committee, where it was approved on a 9-5 vote on April 9^th, and then to Senate Local Government Committee.

Support and Opposition

(4/12/24)

Support: California Environmental Voters (formerly CLCV)
California Labor Federation, AFL-CIO
Jobs to Move America
Natural Resources Defense Council (NRDC)
Water Replenishment District of Southern California

Opposition: None submitted.

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SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION

Senator Bill Dodd

Chair

2023 - 2024 Regular

Bill No: SB Hearing Date: 4/9/2024

SUBJECT:

DIGEST: This bill authorizes a state or local agency to award contracts through a best value procurement method for the purchase of equipment with a base value of $250,000 or more, as specified.

ANALYSIS:

Existing law:

1. Established procedures for state agencies to enter into contracts for goods and services, including generally requiring that certain contracts by a state agency be approved by the Department of General Services (DGS).
2. Generally requires public contracts to be awarded by competitive bidding pursuant to procedures set forth, as specified.
3. Requires DGS to adopt, publish, and apply uniform standards for rating bidders, on the basis of questionnaires and required statements, with respect to contracts upon which each bidder is qualified to bid.
4. The Local Agency Public Construction Act generally requires local agencies to invite bids for construction projects and award contracts to the lowest responsible bidder.
5. Authorizes DGS, until January 1, 2025, to procure design-build contracts for public works projects in excess of one million dollars, as specified.
6. Authorizes the Department of Water Resources (DWR) and the Department of Transportation (CalTrans), until December 31, 2033, to procure progressive design-build contracts for public works projects for which the estimated price exceeds $25 million.
7. Authorizes the Los Angeles Unified School District to use the best value procurement method until January 1, 2026.
8. Authorizes the University of California to utilize the best value method to award contracts for projects over $1 million.

This bill:

1. Authorizes a state or local agency to use the best value procurement method for the purchase of equipment with a base value of $250,000 or more, as specified.
2. Requires the state or local agency to adopt and publish procedures and guidelines for evaluating the qualifications of bidders that ensure the best value selections are conducted in a fair and impartial manner. These procedures and guidelines may include, but are not limited to, the adoption of a high road jobs plan.
3. Requires, in addition to disclosure of the minimum requirements for qualification, the solicitation document to specify what criteria, in addition to price, shall be given a weighted value. The state and local agency shall use a scoring method based on those factors and price in determining the successful bid. Any evaluation and scoring method shall ensure substantial weight is given to the contract price.
4. Requires the state or local agency to let any contract for a project pursuant to this bill to the selected bidder that represents the best value or shall reject all bids.
5. Defines “best value procurement” to mean a process by which a contract award is determined by objective criteria related to price, quality, and other qualifications, including, but not limited to, the following:
   1. Product performance, productivity, and safety standards.
   2. The supplier’s ability to perform the contract requirements.
   3. Environmental benefits, including the reduction of greenhouse gas emissions.
   4. Community benefits, including the bidder’s participation in or commitments to a community benefits agreement, targeted hiring program, or high road training program.
   5. Job quality benefits, as determined by a high road jobs plan policy.
6. Defines “community benefits agreement” to mean a legally binding contract between a private entity and a partner entity that details specific, measurable, and enforceable commitments to a specified community. The partner entity shall be a public entity, nonprofit, or labor organization whose purpose aligns with the purported goal of the community benefits agreement.
7. Defines “high road jobs plan” to mean a component of an application submitted by applicants for public contracts where bidders are required to state, at a minimum, all of the following:
   1. The minimum number of full-time equivalent jobs that will be retained and created if awarded a contract.
   2. The minimum wage and benefit amounts by job classification for nonsupervisory workers on the contract.
   3. The minimum number of jobs that will be specifically retained and created for individuals facing barriers to employment if awarded the contract.
   4. Detailed information regarding any targeted hiring programs, community benefits agreements, high road training programs, or registered apprenticeship programs.
   5. A statement that all workers are properly classified and an acknowledgment that knowingly submitting false information is a violation of the False Claim Act.
8. Defines “high road jobs plan policy” to mean a policy by which a state or local agency evaluates bidders’ high road job plan commitments as part of the overall score of the public contract, and incorporates these commitments into selected applicant’s final contract as a material term.
9. Defines “high road training program” to mean a program that provides comprehensive, equitable, and standardize training to a diverse set of participants, including, but not limited to, the following”
   1. A program that includes a standardized curriculum resulting in an industry-recognized credential, that includes measurable goals, regular reporting, and accountability standards to assess program effectiveness.
   2. Wages and stipends for program participants, including assistance with tuition, supplies, and materials.
   3. Pay increase tied to new skills gained and trainings completed.
   4. Formalized agreements with a public entity, nonprofit, or labor organization to support the training program, whose purpose aligns with the program’s goals.
10. Defines “targeted hiring program” to mean a program that meets all of the following conditions:
    1. Meaningful outreach and recruitment activities and measurable hiring goals specifically targeted to individuals facing barriers to employment or displaced workers.
    2. Hiring practices developed to provide fair access to and support the hiring of individuals facing barriers to employment.
    3. Collaboration with community groups or public entities to directly support skill and career development for individuals facing barriers to employment, as well as provide wraparound services as needed by particular communities, such as transportation assistance or childcare vouchers.

Background

Author Statement. According to the author, “I have worked my entire life, as a migrant farmworker and in my career, to make California more equitable. Now – in the midst of a seismic change in our economy – we cannot make the same mistake of the past. A commitment to climate equity means a commitment to workers. As our state receives once-in-a-generation funding from the federal government and makes historical investments of our own, we continue to have the highest supplemental poverty rate of any state in our country. We must go beyond ‘job creation’ – this is about access to good jobs. As the largest recipient of federal infrastructure funds complementing what our state and local governments are spending on transportation and climate adaptations, California can lead the way for people building these projects to have access to quality jobs.”

State Procurement. The majority of public sector contracts in California are awarded on a low-bid basis where the contractor submitting the lowest bid that meets specified criteria is awarded the contract. 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.

While the low-bid procurement system has promoted open competition, there are concerns that a system based strictly on the lowest price does not provide the best overall product value and can result in higher costs over the long-term. In California, DGS sets state procurement policies and provides purchasing services for all state departments. However, in certain circumstances DGS delegates purchasing authority to individual state departments, such as Caltrans for the procurement of heavy mobile fleet vehicles and special equipment.

Over the years, the state has authorized both state and local agencies to use various other types of procurement processes in the awarding of contracts. For example, in 2014, SB 785 (Wolk, Chapter 931, Statutes of 2014) was signed into law which authorized specified state agencies, until January 1, 2025, and specified local agencies to use design-build for public work contracts in excess of $1 million. Under design-build, the public agency contracts with a single entity—which can be a single firm, a consortium, or a joint venture—to design and construct a project. Before inviting bids, the owner prepares documents that describe the basic concept of the project, as opposed to a complete set of drawings and specifications of the final product. In the bidding phase, the owner typically evaluates bids on a best-value basis, incorporating technical factors, such as qualifications and design quality, in addition to price.

Progressive design-build is a more recent variant on traditional design-build contracting. While there is some variation, the progressive design-build model generally includes two phases. In the first phase, the awarding authority uses a best value process to select a design-build entity who completes preliminary plans and preconstruction services necessary to provide a cost estimate and final design proposal. The project then “progresses” to the second phase of the project, where the awarding authority and the design-build entity agree to a final design, project cost, and schedule. If they cannot agree, there is an “off ramp” between the two phases where the awarding authority can pursue other options, but still benefit from having the first phase work complete. This is different from traditional design-build where the awarding entity contracts with a single entity to design and construct a project at a set price before design work begins, and without a similar off ramp.

Best Value Procurement. The best value procurement process is a procurement process whereby a bidder may be selected on the basis of objective evaluation criteria representing the best combination of price and qualifications. The process allows the contracting agency to consider “values” in addition to cost in awarding contracts, such as community benefit goals. Under design-build, the public agency contracts with a single entity—which can be a single firm, a consortium, or a joint venture—to design and construct a project. Before inviting bids, the owner prepares documents that describe the basic concept of the project, as opposed to a complete set of drawings and specifications of the final product. In the bidding phase, the owner typically evaluates bids on a best-value basis, incorporating technical factors, such as qualifications and design quality, in addition to price.

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.

In order for a state or local agency to use the best value procurement method described in this bill, they must first adopt and publish procedures and guidelines for evaluating the qualifications of bidders in order to ensure the best value selections are conducted in a fair and impartial manner. The bill specifically defines “best value procurement” to mean a process by which a contract award is determined by objective criteria related to price, quality, and other qualifications. The bill does list a number of qualifications that can be considered; product performance, productivity, environmental benefits, community benefits, etc, however the bill does not limit what a state and local agency can include as a qualification.

The author’s office argues that currently, state agencies face a confusing patchwork of best value procurement authorization within state code. Some agencies have explicit permission to utilize best value procurement while others do not, and some have authorization to enter into best value contracts but only under specific circumstances. This bill would explicitly provide the authority for state and local agencies to use best value procurement for equipment purchases over $250,000.

DGS and Caltrans Pilot Program. AB 1857 (Frazier, Chapter 381, Statutes of 2014), created the best value procurement pilot program, authorizing DGS to test the effectiveness of the “best value procurement” method when purchasing heavy fleet vehicles and special equipment for Caltrans. The bill also required DGS to evaluate the best value procurement program and recommend whether the process should be continued on June 1, 2020. Subsequent legislation extended the sunset date to January 1, 2022, and increased the cap from $20 million to $50 million per fiscal year.

DGS and Caltrans created a team to collaborate on various aspects of the procurement process. For each procurement, Caltrans was responsible for selecting the equipment type and specifications for purchase and defining a “performance and productivity” criteria for point allocation. DGS was responsible for specification review to ensure competition; drafting the solicitation package; and conducting the solicitation, including any protested awards.

In their report on the program, DGS and Caltrans stated the benefits, including that the program allowed participation from bidders who would normally be priced out of competition and the ability to use best value procurement to ensure purchased equipment would meet environmental requirements. DGS and Caltrans also noted lessons learned from the program, including the need to streamline the Request for Proposal solicitation package for bidders, and determining the appropriate scoring criteria and timeframes for solicitations. The report also noted that while legislation set the purchasing limit at $50 million, the program threshold should instead be based on Caltrans’ delegated budget authority of purchasing equipment.

In conclusion, DGS and Caltrans stated, “the project was an overall success. Twenty-nine of the 30 projects were awarded to bidders who offered performance and productivity upgrades. DGS and Caltrans were also able to determine what factors worked well and what factors need to be improved upon to encourage more participation. By implementing what we’ve learned, we hope to accomplish even greater success in the future.”

Prior/Related Legislation

AB 1983 (Fong, 2022) would have reinstated the best value procurement for the purchase of heavy fleet vehicles and special equipment for CalTrans by DGS, as specified. (Vetoed by Governor Newsom)

AB 271 (R. Rivas, Chapter 48, Statutes of 2021) allows the Santa Clara Valley Water District to award contracts on a best value basis for any construction work to improve the safety of the Leroy Anderson and Reservoir.

AB 1981 (Nazarian, Chapter 46, Statutes of 2020) extended the authority of the Los Angeles Unified School District to use the best value procurement method by five years, from January 1, 2021, to January 1, 2026.

AB 3186 (Medina, Chapter 725, Statutes of 2018) authorizes the University of California and the California Community Colleges 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 relating reporting requirements.

SB 785 (Wolk, Chapter 931, Statutes of 2014) authorizes, until January 1, 2025, DGS, and specified local agencies to use design-build for their public works contracts in excess of $1 million, as specified.

AB 1857 (Frazier, Chapter 381, Statues of 2019) created the best value procurement program and authorized DGS to test the effectiveness of the program method when purchasing heavy fleet vehicles and special equipment for Caltrans.

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

SUPPORT:

California Environmental Voters

California Labor Federation

Natural Resources Defense Council

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the California Labor Federation, “the current system of awarding public contracts to the lowest responsible bidder inherently rewards bad actors. When contractors are selected based on price and quality alone, they are incentivized to cut labor costs to offer more competitive bids. Best value procurement allows agencies to select bidders that will not only provide goods and services, but will also provide good jobs and benefits to the public. However, state and local agencies face a confusing patchwork of best value procurement authorization within state code. Some agencies have explicit permission to utilize best value procurement while others do not, and some have authorization, but only under specific circumstance. This patchwork makes it difficult for agencies to understand if they have authority to adopt best value procurement models. SB 1325 creates authorizing statutes for best value procurement so that cities, states, and public agencies can use public dollars to maximize benefits for the public, advance equity goals, and ensure the creation of good jobs that build the middle class.”

DUAL REFERRAL: Senate Governmental Organization Committee & Senate Local Government Committee