California Proposition 224, Bid Requirements (1998)
Proposition 224 would have required public entities to use a new process prior to awarding a contract for:
- Landscape architecture
- Environmental studies
- Geologic studies.
The new process would have applied to:
- All state agencies, except the University of California and the California State University.
- Many local governments and private entities.
Supporters of Proposition 224 spent $3,884,182. The top contributors to pass the measure were:
- Professional Engineers in California Government: $2,293,835
- Professional Engineers in California Government PAC: $100,000
- California State Employees Association Initiative Committee: $23,525
- California Correctional Peace Officers Association Issues Committee: $10,000
Opponents of Proposition 224 spent $10,142,468. The top contributors to defeat the measure were:
- American Institute of Architects, California Council's Architects Registered in California PAC: $1,768,795
- Taxpayers Against 224, A Coalition of Taxpayers, Architects, Engineers and Business: $8,373,673
Text of measure
The ballot title was:
The official ballot summary for Proposition 224 was:
- Prohibits contracting where performance of work by civil service employees is less costly unless urgent need for contract.
- Prohibits contracts which Controller or awarding agency determines are against public interest, health, safety or where quality of work would be lower than civil service work.
- Contractors must indemnify state in suits related to performance of contracts.
- Requires defined competitive bidding of state-funded design and engineering contracts over $50,000, unless delay from bidding would endanger public health or safety.
- Provisions severable and should be harmonized with similar measures on subject.
Fiscal impact (summary)
The California Legislative Analyst's Office provided a summarized estimate of net state and local government fiscal impact for Proposition 224. That estimate was:
- "Unknown impact on state and local government costs to obtain construction-related services. Impact would depend largely on factors included in the cost comparison analyses required by the proposition."
- "Administrative costs to the State Controller--one-time costs of probably less than $500,000 and annual costs of up to $2 million."
- Under California law, services provided by state agencies generally must be performed by state civil service employees. These services cover a broad range of activities--such as clerical support, building maintenance and security, and legal services. In some cases, however, the state may contract with private firms to obtain services. Such contracting is allowed, for example, if services needed by the state are: (1) of a temporary nature, (2) not available within the civil service, or (3) of a highly specialized or technical nature. Unlike the state, local governments are not subject to constitutional restrictions on contracting for services.
- The state and local governments frequently contract with private firms for construction-related services, which include architecture, engineering, and environmental impact studies. State and local governments enter into these contracts through a process of advertising for the service, selecting the firm that is determined to be best qualified, and negotiating a contract with that firm. Neither the state nor local governments competitively bid for these services. By comparison, competitive bidding generally is used to acquire goods and for construction of projects.
Fiscal impact (detailed)
The potential fiscal effects of this proposition on the state and local governments are discussed below.
- Impact on the Cost of Providing Services
- The fiscal impact would depend in large part on the determination of which cost factors to use in comparing the cost of contracting out a service with the "additional direct cost" of the state providing the service. The cost of contracting for a service would be determined from the bid submitted by the private firm. On the other hand, because the term "additional direct costs" is not defined in the proposition, the Controller would have to determine which cost factors associated with using state employees should be included in order to prepare the required analyses.
- What Are "Additional Direct Costs?"
- Because the proposition does not define "additional direct cost" there is not a clear answer to this question.
- Cost Analysis on Contract-by-Contract Basis.
- A cost analysis would be required on each individual contract basis. Thus, a cost analysis may not reflect the accumulation of administrative costs if the state workforce increases to meet workload demand. For example, additional clerical and managerial positions or additional office space for state employees may not be needed for any one contract, but could be needed if work on many projects were assigned to state employees rather than private firms.
- Fiscal Effect Depends on Cost Comparisons.
- The impact of the proposition on state and local costs would depend on the extent to which the cost analyses include all state costs associated with providing these services using state employees. For example:
- If more of the costs associated with using state employees are included in the analyses, it is more likely that they would provide an "apples-to-apples" comparison of total costs. In this case, the proposition could result in savings. This is because public entities would no longer contract in situations where it is more costly. These savings, however, probably would not be significant.
- On the other hand, if fewer of the state's costs are counted as "additional direct costs," the analyses would not reflect a true "apples-to-apples" comparison of total costs. In this case, the proposition could result in costs. This is because state employees would be used to perform work where contracting would have been less costly. Because of the uncertainties discussed above, it is difficult to predict the fiscal effect of this proposition. However, a strict interpretation of additional direct costs (for example, only those identified in Figure 1 as "likely to be counted") could result in significant costs to state and local governments.
- What Cost Factors Might Be Counted As "Additional Direct Costs?"
- Cost Factors Likely to Be Counted
- Salaries and benefits of additional state employees needed to perform a service.
- Office space, furniture, equipment, and travel expenses for the additional employees.
- Cost Factors Likely Not to Be Counted
- State agency overhead costs ("top management").
- Other state agency overhead costs--such as payroll, accounting, and personnel functions.
- May or May Not Be Counted
- Hiring and training costs for any additional state employees needed to perform a service.
- Increased construction costs due to project delays caused by time needed to hire and train additional state employees.
- Costs of maintaining excess state staff if workload declines.
- Other Fiscal Impacts
- The proposition would have other fiscal effects on the state and local governments. For instance, the Controller would have costs to perform the required cost analyses. These costs would depend on the number of requests from state agencies and local governments. We estimate the Controller would have both one-time costs of probably less than $500,000 and ongoing costs of up to $2 million annually.
- The proposition would affect the state and local governments in other ways. For example, it would take time to develop and implement the new process for evaluating contracts. This would lead to one-time delays in certain public sector construction projects, resulting in possible added inflation-related costs for those projects.
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The text that Proposition 224 would have added to the constitution, if it had been approved, was:
| SEC. 12. (a) This section shall apply to contracts for engineering, architectural, landscape architectural, surveying, environmental, or engineering geology services awarded by the State of California or by any state agency to any public or private entity. As used in this section, "state agency" means every state office, officer, agency, department, division, bureau, board, and commission but does not include the University of California, the California State University and Colleges, and local public entities. "State agency" also includes a state agency acting jointly with another state agency or with a local public entity. As used in this section, "local public entity" means any city, county, city and county, including a chartered city or county, public or municipal corporation, school district, special district, authority, or other public entity formed for the local performance of governmental and proprietary functions within limited boundaries. "Local public entity" also includes two or more local public entities acting jointly.
(b) This section shall also apply to contracts for services specified in subdivision (a) awarded by private entities or local public entities when the contract awarded by the public or private entity involves expenditure of state funds or involves a program, project, facility, or public work for which the State or any state agency has or will have ownership, liability, or responsibility for construction, operation, or maintenance. As used in this section, "state funds" means all money appropriated by the Legislature for expenditure by the State or a state agency and all money included in special funds that the State or a state agency controls.
(c) Prior to the award of any contract covered by this section, the Controller shall prepare and verify an analysis of the cost of performing the work using state civil service employees and the cost of the contract. In comparing costs, the cost of performing the work using state civil service employees shall include only the additional direct costs to the State to provide the same services as the contractor, and the cost of the contract shall include all anticipated contract costs and all costs to be incurred by the State, state agencies, and the contracting entity for the bidding, evaluation, and contract award process and for inspecting, supervising, verifying, monitoring, and overseeing the contract.
(d) The contract shall not be awarded if either of the following conditions is met: (1) the Controller's analysis concludes that state civil service employees can perform the work at less cost than the cost of the contract, unless the services are of such an urgent nature that public interest, health, or safety requires award of the contract; or (2) the Controller or the contracting entity concludes that the contract would not be in the public interest, would have an adverse impact on public health or safety, or would result in lower quality work than if state civil service employees performed the services.
(e) Except for contracts for which a delay resulting from the competitive bidding process would endanger public health or safety, every contract, including amendments, covered by this section that exceeds fifty thousand dollars ($50,000), adjusted annually to reflect changes in the appropriate consumer price index as determined by the Controller, shall be awarded through a publicized competitive bidding process involving sealed bids. Each contract shall be awarded to the lowest qualified bidder. If the contract cost based on the lowest qualified bid exceeds the anticipated contract costs the Controller estimated pursuant to subdivision (c), the Controller shall prepare and verify a revised analysis using the contract bid cost, and that revised analysis shall be used in applying subdivision (d).
(f) For every contract covered by this section, the contractor shall assume full responsibility and liability for its performance of the contract and shall defend, indemnify, and hold the State, the contracting entity, and their agents and employees harmless from any legal action resulting from the performance of the contract.
(g) This section shall not be applied in a manner that will result in the loss of federal funding to the contracting entity for contracts for services.