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HomeMy WebLinkAboutMINUTES - 04141998 - C70 TO: BOARD OF SUPERVISORS Contra FROM: PHIL BATCHELOR, COUNTY ADMINISTRATOR Costa p rrl°.~ County DATE: April 3, 1998 SUBJECT: LEGISLATION: PROPOSITION 224 - INITIATIVE CONSTITUTIONAL AMENDMENT SPECIFIC REOUEST(S)OR RECOMMENDATiON(S)&BACKGROUND AND JUSTIFICATION RECGIMMENt77ATIt"1►'N: ADOPT a position in OPPOSITION to Proposition 224 on the June 2, 1998 ballet. BACKOWU D: 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 generally competitively bid for these services. By comparison, competitive bidding generally is used to acquire goods and for construction of projects. Proposition 224,which is a constitutional amendment, requires public entities to use a new process prior to awarding a contract for the following construction-related services:engineering,architecture,landscape architecture,surveying,environmental studies, and geologic studies. The proposition would not affect contracting out for other types of services. CONTINUED ON ATTACHMENT: YES SIGNATURE: 6�zz RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER ezr SIGNATURES: ACTION OF BOARD ON April-14, 1998 APPROVED AS RECOMMENDED � OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE UNANIMOUS(ABSENT V } AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORSON T DATE SHOWN, C ATTESTED " Contact: PHIL BA CHELOR,CLERK OF THE BOARD OF cc: See Page 3 SUPERVISORS AND COUNTY ADMINISTRATOR BY DEPUTY w 70 Under the process established by the proposition, the State Controller would be required to prepare an analysis for each proposed contract and compare the following: • The cost of contracting with a private firm for the services. This would include the anticipated amount a private firm would charge to provide the services plus the cost to bid, award, administer, and monitor the contract. • The "additional direct costs" if State employees provide the same services. Generally, the service could be contracted out if the Controller's analysis indicated that the contract was lgas costly than using State employees. On the other hand, the work would have to be done by State employees if the analysis showed they could do it at lower cost. Local governments and private entities would have to use this new process in the following situations: • State Funding of Services for Local 'Government or Private Projects. Historically, the State has provided significant funding to local governments for various types of facilities such as local roads, and jails. Under the proposition, a local government would have to use the new process if it uses State funds to pay a private firm for any part of a construction-related project. • State Ownership, Liability, or Responsibility for a Project. In many cases, the State assumes ownership, liability, or responsibility for construction, operation, or maintenance of a local project. This is the case, for example, with regard to the building of K-12 and community college buildings and many locally funded highway projects. One problem with determining the fiscal effect of the proposition is that the term "additional direct costs" is not clearly defined in the language of the proposition. Therefore, the State Controller will have to establish what costs are to be included. The Legislative Analyst has assumed that cost factors likely to be,counted would include the salaries and benefits of additional State employees needed to perform a service and their related costs for office space, furniture, equipment, and travel expenses but that overhead expenses are unlikely to be included. The Legislative Analyst also points out that 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. This new process would also require that the County apply to the State Controller every time a contract covered by the proposition is considered. Contracts covered by this process that are for$50,000 or more must, in addition, be awarded through a publicized competitive bidding process, including sealed bids. Each contract must be awarded to the lowest qualified bidder. If the cost of the lowest qualified bird exceeds the anticipated contract cost the Controller used in determining whether the contract could be awarded through this process, then the Controller has to prepare and verify a revised analysis using the actual contract bid cost. Passage of Proposition 224 would result in a substantial loss of local control by having to go through the State Controller for every contract, would likely result in substantial delays in being able to award contracts and would force the County to frequently rely on State employees to perform construction-related services for the County. -2- C,70 The Public Works Director and many other local agencies oppose Proposition 224. This office concurs with that opposition and recommends that the Board appose Proposition 224. Attached is a letter from an architectural firm opposing the proposition and the material from the Voters Handbook on Proposition 224. cc; County Administrator Public Works Director General Services Director County Counsel Steve Szalay, Executive Director California State Association of Counties 1100 K Street, Suite 101 Sacramento, CA 95814 Casey Sparks Kaneko, Executive Director Urban Counties Caucus 1100 K Street, Suite 101 Sacramento, CA 95814 Les Spahnn Heim, Noack, Kelly & Spahnn 1121 L Street, Suite 100 Sacramento, CA 95814 -3- C,70 HELLER • MANUS A R C H I T E C T S CLARK DAVID MANUS, FAIR 1yv �V S 1S'l(';OSTA,�..JIJU S RECEEIVED Mr. Claude Van Matter Assistant County Administrator . ` Contra Costa County y 651 Pine Street C}esrrM# Martinez,CA 94553 COUNTY , F 'TF, T R Dear Mr. Van Marter, Thanks for taking the time to review this material. This letter is a follow-up to material sent to you about the Competition Killer Initiative. It's imperative that all parties affected by this measure be aware of its real language and intent. This initiative is so far-reaching, it could eliminate your control over public design and construction projects within your own community. To date, there are more than 600 organizations, cities and counties, fire districts,water districts,and school districts that oppose the initiative. Slated for the June 1998 ballot,this initiative virtually shuts out any possibility for contracting with private enterprise to perform design and engineering services,even if private enterprise can do the job more quickly and efficiently, and produce a better quality product. Backed by the State engineers union, Professional Engineers in California Government (PECG), this initiative would require the State Controller to perform a cost analysis on every project receiving any amount of state funding or administration,to determine if it would be cheaper to have it designed by state-employed architects and engineers or contract with the private sector. PECG spent over$2 million gathering signatures to qualify this initiative for the next ballot.The objective of this initiative is to force local governments and other state agencies to use state-employed designers and engineers. They call it the "Government Cost Savings and Taxpayers Protection Amendment," but it's really a Competition Killer. Specifically,this initiative would do the following: • Eliminates local control. Local governments would have no control over the design or construction of projects within their own district. In fact, local governments are taken out of the selection process entirely. If passed, this initiative would require the state controller to perform a cost analysis of any public or private contract where an expenditure of state funds involves a "program, project, facility or public work" and determine the contract award based on the lowest bid. Currently, local governments have the option of seeking a"competitive bid" or conducting a "qualifications-based selection" (QBS) process for the design and construction of public works projects.You lose this option under this initiative. • Creates costly delays for local government projects. Any project involving state funding would have to be analyzed by the State Controller's office, a process the office has never performed and is ill-equipped to perform given its current staff size and traditional expertise. Combined, these factors would create unnecessary and costly delays in the approval process. Local projects such as the Bay Bridge Design and Retrofit,the Alameda Rail Corridor, and the BART extension, among others,would be lost in a backlog of other projects waiting for the controller's review and decision. Scarier still,the initiative does not specify a deadline upon which the controller must act. Local projects would be held hostage, lost in a backlog of projects and bureaucratic red-tape. 22 1 MAIN STREET SUITE 940 SAN FRANCISCO, CALIFORNIA 94 1 05 - 19 2 3 4 1 5 - 2 4 7- 1 1 0 0 H E L M A N A R C H @AOL . COM FAX 4 1 5 - 247- 1 1 1 1 C"70 HELLER • 'MANUS ARCHITECTS CLARK DAVID MANUS, FAIR Claude Van Marter February 9, 1998 Page 2 • Creates a rigged bidding system. Buried in the fine print is a provision that rigs the system,virtually shutting out competition from private architects and engineers. By ignoring essential job expenses such as employee salaries,benefits,rent,utilities,phones and office expenses,as well as insurance,health and safety experts, legal and capital costs, state bureaucrat costs would appear artificially low. • Hidden casts. If it becomes law,the State would be forced to hire up to 12,000 new employees at a cost of$1.5 billion each year. Where are the cost-savings? Local governments are already subject to many state mandates, must they also be forced to hire only state employees when contracting for design and engineering services on their most important local projects? Shouldn't local governments have the option to select design and engineering services on either a "competitive bidding" system or a"qualifications-based selection" (QBS)process? Enclosed is a sample resolution.Please help to defeat the Competition Killer. If you have any questions,do not hesitate to call myself or Betsy Blanchard at(415)247-1100. Regards, Clark Manus, FAIA Bay Area Regional Director CM/bjp Attachments E:\MANUS\C0MPKI-I\L0CAL0-I.WPD 22 1 MAIN STREET SUITE 940 SAN FRANCISCO, CALIFORNIA 94 1 05 - 1 9 2 3 4 1 5 - 2 4 7 - I 1 0 0 H E L M A N A R C H �7a AOL . COM FAX 4 1 5 - 247- 1 1 1 1 G;'7 State-Funded Design and Engineering Services. Initiative`Constitutional Amendment. Official Title and Summary Prepared by the Attorney General STATE-FUNDED DESIGN AND ENGINEERING SERVICES. ii INITIATIVE CONSTITUTIONAL AMENDMENT. * 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. s * 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. Summary of Legislative Analyst's Estimate of Net State and Local Government Fiscal Impacts * 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. Analysis by the Legislative Analyst BACKGRouNU (The proposition would not affect contracting out for Under California law, services provided by state other types of services.)The new process would apply to: agencies generally must be performed. by state civil All state agencies, except the University of service employees. These services cover a broad range of * California and the California State University. activities--such as clerical support, building Many local governments and private entities (see maintenance and security, and legal services. In some below). cases,however,the state may contract with private firms What Is Involved in This New Contracting Process? to obtain services,_Such contracting is allowed, for The Cost Comparison. Under the proves exarrmple, if services needed by the state are» (1) of a temporary nature, (2) not available within the civil established by the proposition, the State Controller service,or(3)of a highly specialized or technical nature. would be required to prepare an analysis for each Unlike the state, local governments are not subject to Proposed contract and compare the following: constitutional restrictions on,contracting for services. The cost of contracting with a private firm for the The state and local governments frequently contract services.This would include the anticipated amount with private :firms for construction-related services, a private firm would charge to provide the services which include architecture, engineering, and plus the cost to bid, award,administer, and monitor environmental impact studies. State and. local the contract. governments enter into these contracts througha process ' The: "additional direct costs" if state employees of advertising for theservice, selecting them that is provide the sante services. determined to be best qualified, .and negotiating a Generally,-the service could be contracted out if the contract with that firm. Neither the state nor local Controllers analysis indicated that the contract was less governments competitively bid`for these services. By work would,singge to beate md to b s.Oto aotherhand, the the comparison, Competitive bidding generally is used toyemployees acquire goods and for construction of projects. analysis showed they could do it at lower cost. Competitive id!dfn�g. As noted earlier, public PROPOSALenes currently negotiate contract terms for ` construction-related.services. This proposition r"squires 'I`his proositioxt,a constitutional amendment,reqquires that such contracts costing mitre than $b{l,Ofl#1 be public entities,to use mew process prior to'awarding a competxtively bid to,select the lowest qua, ed bidder. contract for the following construction-related services» Competr#ive bidding v�oulcl not have to be used if it would engineering, architecture, landscape architecture, delay a prect and :the delay would endanger,public surveying, environmental studies, and geologic studies. health or s:14 20 P98 What Contracts Are Covered Cinder the • If more of the costs associated with using state Proposition? ' employees are included in the analyses, it is more Direct Contracting by the State. State agencies likely that they would provide an"apples-to-apples" would have to use this new process if they wanted to comparison of total costs. In this case, the contract for construction-related services. In recent proposition could result in savings. This is because years, state agencies have averaged about $150 million public entities would no longer contract in situations annually in spending on these typos of contracts. This where it is more costly. These savings, however, amount varies annually depending on the states level of probably would not be significant. construction activity. On the other hand, if fewer of the state's costs are Contracts Awarded by Local Governments and counted as "additional direct costs," the analyses Private Entities. Local governments and private would not reflect a true "apples-to-apples" entities would also have to use this,new process in the comparison of total costs. In this case, the following situations: proposition could result in costs. This is because • State Funding of Services for Local state employees would be used to perform work Government or Private Projects. Historically, where contracting would have been less costly. the state has provided significant funding to local Because of the uncertainties discussed above, it is governments for various types of facilities---K-12 fflcult to predict the fiscal effect of this proposition. schools, local roads, community collages,jails, and However, a strict interpretation of additional direct costs ernment perks. Under the proposition, a local gov would have to use the.new process if it uses state (for example, only those identified in Figure 1 as "likely funds to pay a private firm for any part of a to be counted"} could result in significant costs to state construction-related service, and local governments. • State Ownership, Liability, or Responsibility for ca Project. In many cases, the state assumes ownership, liability, or responsibility for . construction,operation, or maintenance of a local TNMat Cost Factors Might Be Counted project. This is the case,for example, with regard to Additional Direct Costs?" the building of K-12 and community college buildings and many locally funded highway projects. FISCAL Ela FELTS ' The potential fiscal effects of this proposition on the " Salaries and benefits of additional state employees state and local governments are discussed below. needed to perform a service. -• impact on the Cost of Providing Services • Office space,furniture, equipment,and travel expenses P g" for the additional employees. The fiscal impact would depend in large part on the determination of which cost factors to use in comparing or the.cost of contracting out a service with the "additional State agency overhead costs("top management"). o: direct cost"of the state providing the service. The cost of of contracting for a service would be determined from the ' Other state agency overhead costs--such as payroll, bid submitted by the private firm. On the other hand, accounting,and personnel functions. ee 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 . Hiring and training costs for any additional state S? employees should be included in order to prepare the employees needed'to perform a service. required analyses. er What Are Additional direct Costs?" Because the Increased construction costs due to project delays proposition does not define "additional direct cost"there caused by time needed to Hire and train additional state is not a clear answer to thisquestion.Figure l lists some employees. 14D of the cost factors the Controller would,need to review to * Costs of maintaining excess state staff if workload nt determine if they should be counted as additional direct declines. es costs. or Cost Analysis on Contract-by-Contract Basis. A OtherFiscal Irmpacts cost analysis would be required on each individual The proposition would have other fiscal effects on the es contract basis. Thus, a cost analysis may not reflect the state and local governments. For instance the Controller accumulation of administrative costs if the state would have costs to perform the required cost analyses. ae workforce increases to meet workload demand. For These costs would depend on the number of requests ,as example, additional clerical and managerial positions or from"state agencies and local governments. We estimate he additional office space for state employees may not be 'the Controller would have both one-tinge costs of oe needed for any one contract,,but could be.needed if work probably less than,$500,000 and ongoing costs of up to$2 on many projects were assigned to state employees million annually - lie rather than rivate firms.' The proposition,would. affect ;the state .and local or Fiscal +la�t Depend on Coit Comparisons. The 'governments in other ways. For example, it would take es impact of t e proposition�on state and 4ocal costs would time to:,develop and implement the new process for be de nd on the.extento whish.the cost analyses include 'evaluating contracts;.'.Phis would lead to cine-time delays ,r all state coots assorted with providing these services in certaiti'ppAlic ssctor construction projeeti resulting in 1d using state employees.For example: . possible added in#lation- rel ated costs for those projects: lie For the text of Proposit on 224 Ewe page>70 98 P98 21 C.1,70 State-Funded Design and Engineering Services. Initiative Constitutional Amendment. Argument in Favor of proposition 224 Vote YES on: IMPROVE HIGHWAY SAFETY + COMPETITIVE BIDDING Proposition 224 will mean safer highways for all of us."--Dan Terry, + CONTRACTOR RESPONSIBILITY President,California Professional Firefighters + COST SAVINGS through COST COMPARISONS No-bid contracts contributed to corruption and street collapses in Los + Improved SAFETY of our state freeways and bridges Angeles,thousands of defects in San Diego bridges,and higher tolls in + STOP POLITICAL FAVORITISM AND WASTE the Bay Area.While money was being wasted on overpriced,no-bid Proposition 224, the "Competitive Bidding Initiative," ends the contracts to campaign contributors,the earthquake,strengthening of politicians'practice of giving huge,overpriced,no-hid state engineering our freeway bridges was delayed.As a result,bridges which hadn't been contracts to their campaign contributors.By requiring competitive strengthened collapsed in earthquakes. Proposition.224 improves bidding from qualified contractors and holding contractors responsible highway safety by awarding contracts only to qualified firms'through and financially liable for their own ii iistakes,it will improve the safety competitive bidding and holding contractors responsible and financially of our freeways,bridges,and other public works.By requiring a cost liable for their own mistakes. analysis before contracts are awarded,it ensures that taxpayers get the "?'he ultimate responsibility for faulty workmanship has to be on the best value for their dollar.Fair,objective competitive,bidding will break part of the contractors hired to do the job. They, not taxpayers,should the link between campaign contributions and state politicians who give• foot the bill for redoing the work."--San Diego Union-71�ibune ' overpriced,no-bid contracts to their contributors. "Private contractors receive millions of dollars irk_work without The politicians even allowed a contractor to hire its own inspectors, competition.Reforms are needed to;protect the public interest."--State resulting in more than 10,000 defective welds on a bridge strengthening Auditor Kurt Sjoberg project! "No-.bid contracts are always suspect."—Contra Costa Times. "When the state of California lets the faxes guard the hen house,no one Although state highway and freeway construction contracts are should be surprised when the chickens get eaten."---San Diego competitively bid,contracts for construction inspection, design, and Union-7Fbune other services aren't.Instead,Sacramento politicians simply give out Join with law enforcement,firefighters,teachers,seniors,and small these contracts,to their campaign contributors, at twice what they businesses. should cost. Proposition 224 ends this political spoils system by VOTE YES ON COMPETITIVE BIDDING: requiringcompetitive bidding. SAVE LIVES,SAVE MONEY,AND END POLITICAL CRONYISM! END THE WASTE OF YOUR TAX DOLLARS VOTE YES ON PROPOSITION 224! Official government documents prove that more than half a billion DON BROWN dollars has been wasted since.. 1990 on excessive costs of no-bid President,California Organization of contracts.under the current system.When contractors walk away from Police&,Sheriffs,COPS their'inferior work,the taxpayers get stuck with the bili for doing it BEN HUDNALL over and repairing the mistakes. Proposition 224 requires impartial cost analyses to prove cost effectiveness before contracts are awarded, Business Manager,'Engineers&Scientists of California followed by competitive bidding and contractor responsibility to ensure WOODY ALLSHOUSE' that tax dollars ate spent wisely. President,CDF Firefighters Rebuttal to Argument in Favor of Proposition 224 i deception:n.the practice of deceiving or misleading —Will it increase accountability?No.Proposition 224'LETS STATE The STATE BUREAUCRATS BEHIND PROPOSITION 224 and their BUREAUCRATS OFF THE HOOK!Current law already holds private political cronies are trying.to deceive you. contractors fully liable for their mistakes.Proposition 224 could also Ask yourself: Would a state bureaucrats group (mostly Caltrans hold them responsible for DANGEROUS:HIGHWAY AND BRIDGE employees)really spend millions of dollars on a ballot measure to DESIGN MISTAKES MADE BY CALTRANS EMPLOYEES (the protect YOUR interests?Not likely bureaucrats promoting this deceptive initiative). —Will Proposition 224 save taxpayers money?No. Proposition 224 BIGGER GOVERNMENT SHIFTS PRIVATE. SECTOR JOBS TO the PUBLIC PAYROLL. , BIGGER GOVERNMENT.' HIGHER TAKES. That's why the HIGHER;TAXES. CALIFORNIA TAXPAYERS' ASSOCIATION and other MAJOR LESS ACCOUNTABILITY. TAXPAYER GROUPS OPPOSE IT DON'T LET THE BUREAUCRATS GET AWAY WITH IT! —Will it make bidding more competitive? No. Talk about the IF YOU SUPPORT COMi?ETITIVE:BIDDING . ULTIMATE DECEPTION1 DISGUISED as "competitive bidding,". Proposition 224 RIGS the SYSTEM to PROTECT STATE VOTE"NO"onPROPOSIT'ION 2241 BUREAUCRATS AGAINST COM PETITION from the private sector by virtually PROHIBITING STATE and LOFROM PROFESSOR PAUL F ,E CONTRACTING OUT design,engineering and.environP mental work. Fd PROFESSOR Chair,Setsmia'Sitfety Gnrnnntiesion SSA —Will ;it save lives. No. It virtually ELIMINATES.the USE of PRIVATE SEISMIC EXPERTSi DELAYING and COMPROMISING AMANZARMWERG} - ALREADY. OVERDUE, Rafi.TH�UAItE RETR4I+IT'liN4 .of .Pr+esid�x;t.>G'alat�orri€fa�h�nbero,�Cr�mmerce 1001IWAYS,.SCHOOLS and II,OSPIT,AIA JANE ARIMSMONG 'Proposition 224 will also delay constructionof hdditional classrooms Sts.e;Cha r»rxu+,Alliattaia of tf> rnia needed to reduce class sizes and accommQdatt x tht..krowth�a student " 31payers and lnuolped'Yr+fe Population. -�CaliforsYin State . 22 Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency. P98 State-Funded Design and Engineering Services. 11R Initiative Constitutional Amendment. Argument Against Proposition 224 BEWARE:Proposition 224 is NOT what it pretends to be.It's a wolf in —THESE AND HUNDREDS OF OTHER,GROUPS SAY VOTE NO sheep's clothing. on PROPOSITION 2241 That's why EARTHQUAKE SAFETY EXPERTS, CITIES, California Taxpayers'Association OPPOSES COUNTIES, SCHOOL DISTRICTS, HOSPI'T'ALS, BUSINESSES, Alliance of California Taxpayers and Involved Voters OPPOSES LABOR, TEACHERS, PARENTS and TAXPAYER GROUPS Responsible Voters for Lower Taxes OPPOSES throughout California OPPOSE PROPOSITION 2241 Howard Jarvis Taxpayers Association OPPOSES L --WHO'S BEHIND.PROPOSITION 224? WHY HAVE THEY Structural,Engineers Association of California OPPOSES r DISGUISED.ITS REAL PURPOSE? American Institute of Architects OPPOSES A group of state bureaucrats(primarily Caltrans employees)spent League of California Cities and over 100 cities and counties OPPOSE millions to put Proposition 224 on the ballot. Why?They want you to California Teachers Association OPPOSES i believe it's to save taxpayers money.Would a state bureaucrats group California School Boards Association OPPOSES really spend millions of their OWN dollars to save YOU money?Hardly. California State PTA OPPOSES Read the fine printf DISGUISED as a "competitive bidding" National Federation of Independent Business OPPOSES, initiative,Proposition 224 creates a RIGGED formula that virtually California Association of .Homes and Services for the Aging PROHIBITS STATE' GOVERNMENT, CITIES, COUNTIES and l SCHOOL DISTRICTS FROM CONTINUING to CONTRACT for California OPPOSES SCHOOL Association OPPOSES design,environmental and engineering work with the private sector; —PROPOSITION 224 VIRTUALLY PROHIBITS THE CONTINUED Califotniia Building Industry Association OPPOSES USE OF PRIVATE SECTOR SEISMIC EXPERTS TO MAKE California Chamber of Commerce[''POSES HIGHWAYS,OVERPASSES AND BRIDGES EARTHQUAKE-SAFE. Consulting Engineers and Land Surveyors of California OPPOSES Contracting out design work for seismic retrofitting, schools, California Minority&,Women Businesses Coalition OPPOSES hospitals,highways and bridges keeps the government payroll from California Council for Environmental and Economic Balance l ballooning and permits the use of private expertise. Proposition 224 OPPOSES would essentially halt this practice. The bureaucrats behind California Association of School Business Officials OPPOSES Proposition 224 want more work brought in-house,CREATING MORE Association of California Water Agencies OPPOSES PUBLIC PAYROLL JOBS, California Park and Recreation Society OPPOSES -PROPOSITION 224 REPRESENTS A HUGE SHIFT OF JOBS State Building and Construction Trades Council of California, FROM THE PRIVATE SECTOR TO THE PUBLIC PAYROLL.MORE AFL-CIO OPPOSES STATE BUREAUCRATS!BIGGER GOVERNMENT!HIGHER'TAXES! Operating Engineers,Local 3,AFL-CIO OPPOSES Economic analysis reveals it would mean thousands of LOST California Association of Realtors OPPOSES PRIVATE SECTOR JOBS and force California to HIRE up to 15,604 Associated General Contractors OPPOSES NEW BUREAUCRATS at a TAXPAYER COST of $1,700,000,000 and ANNUALLY—that's BILLION,with a"B". HUNDREDS of SEISMIC ENGINEERS OPPOSE PROPOSITION 224? m --LOCAL' GOVERNMENTS OPPOSE PROPOSITION 224. IT TAKES AWAY LOCAL CONTROL, CREATES COSTLY LARRY MCCARTHY BUREAUCRATIC DELAYS AND GIVES ONE POLITICIAN President,California ENORMOUS NEW POWERS. � ?`aixgayers'Association It forces cities, counties and school districts to seek the state LUI3IIVG A. 4YYI,LIE, controller's approval before contracting out design work on school,road, Past President,.Earthquake Engineering hospital, water treatment and other building projects. That's TOO Research Institute MUCH POWER to give ONE POLITICIAN. It would DELAY VITAL RON BATES PROJECTS and REDUCE TAXPAYER ACCOUNTABILITY. President,League of California Cities r Rebuttal to Argument Against Proposition 224 90%OF THE OPPOSITION'S CAMPAIGN MONEY COMES FROM CONTRACTORS RESPONSIBLE for their work improves highway and CONSULTANTS WHO RECEIVE NO-BID GOVERNMENT bridge safety.Claims that competitive bidding will raise taxes;cause CONTRACTSI Of course,they oppose Prop.22"requirements for cost delays, or prohibit contracting oust are ridiculous!Will competitive effectiveness,competitive bidding,and contractor responsibility! If it . bidding SAVE TAXPAYERS MONEY?OF COURSII IT WILL1 passes,their gravy train will run out of gravy!All the pork will be gone "We need competitive bidding. The current system favors the big boys, from,their political pork barrell excludes small companies,promotes,corruption, THE SAME GANG THAT OPPOSED PROPOSITION 13 OPPOSES P ,p pract and wastes tax dollars." PROPOSITION 2241 The Chamber of Commerce(big business),the Edmu A Lopez,President,Hispanic Contractors Association League of Cities(local politicians),CalTax and others.Voters ignored BREAK THE LINK BETWEETrt'CAMPAIGN CONTRIBUTIONS them and approved Proposition 13,saving billions for taxpayers Vote AND NO-BID CONTRACTS. yes on Prop,2241 COMPETITIVE BIDDING MAKES SENSE. YES ON "We are,ivery strong supporters ofprivaati*ation,but the only way mt as PROPOSITION 2241 going to work is to have open"bidding,"Joel Fox,President,Howard ARTHUR P.DUI?FY Jarvis Taxpayers Association:;Sail BerMwI do Sun,9/12!95. REAL EARTHQUAKE SAFETY EXPERTS, THE-ENGINEERSChairman,Taxpayers for Competitive Bidding: WHO DESIGN AND BUILD OUR BRIDGES, SUPPORT. LE#3lIiR W10LINGiTtiAT PROPOSITION 224,Sa do the Engineers and Architects Association, Prse�Pic`Tent;Cong as of Paldfbrnia Seniors and the Council of Engiheeri and Scientists Organizations. America is based on competition.COIrIPETI'I'NE BIDDING AMONG E)«II�1UNl2O LUPE , QUALIFIED FINIS saves money and outs bureaucracy..HOLDING President;Hispanic Contractors Association P98 Arguments printed,on this page are the opinions of the authors and have not been checked for accuracy by any official agency. 23 MNSIDER WITH COUNTY COUNSEL'S OFFICE CONTRA COSTA COUNTY MARTINEZ,CALIFORNIA Date: April 10, 1998 To: Gayle B. Uilkema, Supervisor, District 2 From: Victor J. Westman, County Counsel By: David F. Schmidt, Deputy County Counsel Re: Proposition 224("Government Cost Savings and Taxpayer Protection Amendment") This memo responds to your March 24, 1998 memo about Proposition 224. In that memo, you requested our analysis and perspective on certain claims made by the East Bay Chapter of the Consulting Engineers and Land Surveyors of California(CELSOC). You also asked, "What is in the best interest of the county on this issue?" According to the materials forwarded with your memo, the initiative would require that state employees design any project the County undertakes that may involve state funds. Thus, CELSOC claims that local control will be lost over schools,hospitals, roads,jails, sanitary sewers, treatment plants, and any other project that has state funding or federal funding administered by the state. In order to understand and evaluate these claims, it is helpful to briefly review the initiative"s main provisions. Proposition 224 applies to contracts for engineering,architectural, landscape architectural, surveying, environmental, or engineering geology services. For state contracts, the initiative applies to all such contracts,including those where a state agency is acting jointly with a local public entity and those where a contract is awarded by a state agency to another public entity. For County contracts, the initiative applies only where a contract"involves expenditure of state fiords 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." Before a covered contract can be awarded, it first must be referred to the State Controller for a cost analysis. The required cost analysis compares the extra cost of using state employees to perform the work (i.e.,additional direct costs to the state)with the total cost of using a private service provider(i.e., all costs to be incurred by the state, state agencies, and contracting entity for the bidding, evaluation, and contract award process and for inspecting, supervising, verifying, monitoring, and overseeing the contract). If the analysis shows that state employees can perform the work for less than the private service provider, the contract cannot be awarded. The contract also cannot be awarded if the State 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 employees performed the services. Memo to Gayle B. Uilkema April 10, 1998 All covered contracts that exceed $50,000, including amendments, must be awarded through a publicized competitive bidding process involving sealed bids and be awarded to the lowest qualified bidder. The only exception to this requirement is where a delay resulting from the competitive bidding process would endanger public health or safety. In addition, the successful awardee must'assume full liability for the work and indemnify the state and the contracting entity against any legal action resulting from the performance of the contract. As can be seen from the above summary, Proposition 224 would not apply to all County contracts for engineering, architectural, landscape architectural, surveying, environmental, or engineering geology services. However, it would apply to any such County contract that involves expenditure of state funds, as well as to any such contract awarded to the County by a state agency(e.g., Caltrans). It also would apply to any such County contract that 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. At first blush, it may seem easy to understand which County contracts would be affected by the initiative—those involving state funding and those involving an existing or future state project or facility. Unfortunately, this determination may not be as clear-cut as it seems. Some uncertainty exists over what constitutes state funding. For example, does it apply to federal funding that flows through the state? What about gas tax revenues,which are allotted to local governments but over which the state has some control? Because of these uncertainties, it may be difficult to determine exactly what County contracts would be affected by the initiative.' For those County contracts that are covered by the initiative, there is uncertainty over how the analysis and award process would work in practice. One potential problem is the lack of a deadline for completion of the pre-award analysis by the State Controller. If such analyses become backlogged or the State Controller is inefficient, this could cause delays in necessary County projects. Another potential problem involves the lack of a requirement that the state perform services for local public entities. In a situation where an analysis determines that state employees could perform services more cheaply than a private firm,the County could not award a contract to the private firm, and it also could not force the state to perform the services. To avoid delays, the County might have to increase its own staff of architects, engineers, surveyors, etc., instead of using private firms or relying on state employees. However this process turns out in actual practice,one thing is almost certain---the initiative would provide less flexibility and options to the County. The Public Works Department,which definitely would be affected by Proposition 224, has analyzed the initiative from an operational standpoint. To coordinate our review, we have contacted Public Works 'For a discussion of this issue, see the attached analysis prepared by Stephen N. Roberts of the San Francisco law firm of Nossaman, Guthner, Knox&Elliott, LLP, especially pp. 8-9. -2- Memo to Gayle B. Uilkem April 10, 1998 to discuss the initiative. While we have not been provided with actual figures or estimates, we have been told that many of the contracts handled by Public Works involve state funding of one kind or another. Having reviewed the actual provisions of the initiative, it is our impression that the claims made by CELSOC generally appear to be valid. In some cases, their claims may be somewhat exaggerated or oversimplified. For example, the claim that local control would be lost would depend on how the initiative is interpreted and applied. If the County is able to avoid the procedures specified in the initiative, such as by increasing the County's staff of architects, engineers, surveyors, etc., local control probably would not be lost. As mentioned above, the initiative definitely would provide less flexibility and options to the County for projects involving state funding or an existing or future state project or facility. From the standpoint of preserving flexibility, the initiative would not appear to be in the County's bestinterest. According to CELSOC's materials, 26 different counties have taken a position in opposition to Proposition 224, Assuming this information is correct,this is a good indication that many counties consider the initiative not to be in their best interest. DFS/ Attachment cc. Jim Rogers, Supervisor, District 1 Donna Gerber, Supervisor, District 3 Mark DeSaulnier, Supervisor, District 4 Joe Canciamilla, Supervisor, District 5 Phil Batchelor, County Administrator J. Michael Walford, Public Works Director _3_ 1 COUNTY COUNSEL'S OFFICE CONTRA COSTA COUNTY MARTINEZ,CALIFORNIA Date: ,April 10, 1998 To: Gayle B. Uilkema, Supervisor, District 2 r ,: Victor J. Westman, County Counsel By: David F. Schmidt,Deputy County Counsel PC: Proposition 224 ("Government Cost Savings and Taxpayer Protection Amendment") This memo responds to your March 24, 1998 memo about Proposition 224. In that memo, you requested our analysis and perspective on certain claims made by the East Bay Chapter of the Consulting Engineers and Land Surveyors of California(CELSOC). You also asked, "What is in the best interest of the county on this issue?" According to the materials forwarded with your memo, the initiative would require that state employees design any project the County undertakes that may involve state funds. 'Thus, CELSOC claims that local control will be lost over schools,hospitals, roads,jails, sanitary sewers, treatment plants, and any other project that has state funding or federal funding administered by the state. In order to understand and evaluate these claims, it is helpful to briefly review the initiative's main provisions. Proposition 224 applies to contracts for engineering, architectural, landscape architectural, surveying, environmental, or engineering geology services. For state contracts, the initiative applies to all such contracts, including those where a state agency is acting jointly with a local public entity and those where a contract is awarded by a state agency to another public entity. For County contracts, the initiative applies only where a contract"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." Before a covered contract can be awarded, it first must be referred to the State Controller for a cost analysis. The required cost analysis compares the extra cost of using state employees to perform the work (i.e., additional direct costs to the state)with the total cost of using a private service provider(i.e., all costs to be incurred by the state, state agencies, and contracting entity for the bidding, evaluation, and contract award process and for inspecting, supervising, verifying, .monitoring, and overseeing the contract). If the analysis shows that state employees can perform the work for less than the private service provider, the contract cannot be awarded. The contract also cannot be awarded if the State 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 employees performed the services. Memo to Gayle B. Uilkema April 10, 1998 All covered contracts that exceed $50,000, including amendments, must be awarded through a publicized competitive bidding process involving sealed bids and be awarded to the lowest qualified bidder. The only exception to this requirement is where a delay resulting from the competitive bidding process would endanger public health or safety. In addition, the successful awardee must assume full liability for the work and indemnify the state and the contracting entity against any legal action resulting from the performance of the contract. As can be seen from the above summary, Proposition 224 would not apply to all County contracts for engineering, architectural, landscape architectural, surveying, environmental, or engineering geology services. However, it would apply to any such County contract that involves expenditure of state funds, as well as to any such contract awarded to the County by a state agency(e.g., Caltrans). It also would apply to any such County contract that 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. At first blush, it may seem easy to understand which County contracts would be affected by the initiative—those involving state funding and those involving an existing or future state project or facility. Unfortunately, this determination may not be as clear-cut as it seems. Some uncertainty exists over what constitutes state funding. For example,does it apply to federal funding that flows through the state? What about gas tax revenues, which are allotted to local governments but over which the state has some control? Because of these uncertainties, it may be difficult to determine exactly what County contracts would be affected by the initiative.' For those County contracts that are covered by the initiative, there is uncertainty over how the analysis and award process would work in practice. One potential problem is the lack of a deadline for completion of the pre-award analysis by the State Controller. If such analyses become backlogged or the State Controller is inefficient, this could cause delays in necessary County projects. Another potential problem involves the lack of a requirement that the state perform services for local public entities. In a situation where an analysis determines that state employees could perform services more cheaply than a private firm,the County could not award a contract to the private firm, and it also could not force the state to perform the services. To avoid delays, the County might have to increase its own staff'of architects, engineers, surveyors, etc., instead of using private firms or relying on state employees. However this process turns out in actual practice, one thing is almost certain--the initiative would provide less flexibility and options to the County. The Public Works Department,which definitely would be affected by Proposition 224, has analyzed the initiative from an operational standpoint. To coordinate our review, we have contacted Public Works 'For a discussion of this issue, see the attached analysis prepared by Stephen N. Roberts of the San Francisco law firm ofNossaman, Guthner, Knox& Elliott, LLP, especially pp. 8-9. –2– ......... ......... ......... ...........__..__. 1..11.1 . ...... ......._..... ......... ......... ......... ......... ......... ......... ......... ...._.._. ...... ............................................................................................................................ .......................1111........................... 74 Memo to Gayle B. Uilkema April 10, 1998 to discuss the initiative. While we have not been provided with actual figures or estimates, we have been told that many of the contracts handled by Public Works involve state funding of one kind or another. Having reviewed the actual provisions of the initiative, it is our impression that the claims made by CELSOC generally appear to be valid. In some cases, their claims may be somewhat exaggerated or oversimplified. For example, the claim that local control would be lost would depend on how the initiative is interpreted and applied. If the County is able to avoid the procedures specified in the initiative, such as by increasing the County's staff of architects, engineers, surveyors, etc., local control probably would not be lost. As mentioned above, the initiative definitely would provide less flexibility and options to the County for projects involving state funding or an existing or future state project or facility. From the standpoint of preserving flexibility, the initiative would not appear to be in the County's bestinterest. According to CELSOC's materials, 26 different counties have taken a position in opposition to Proposition 224. Assuming this information is correct, this is a good indication that many counties consider the initiative not to be in their best interest. DFS! Attachment cc: Jim Rogers, Supervisor, District I Donna Gerber, Supervisor, District 3 Mark DeSaulnier, Supervisor, District 4 Joe Canciamilla, Supervisor, District 5 Phil Batchelor, County Administrator J. Michael Walford, Public Works Director -3- C70 THE EFFECT OF THE PECG INITIATIVE ON LOCAL AGENCIES SEMINAR MATERIALS Prepared by Stephen N. Roberts Nossaman, Guthner, Knox & Elliott, LLP 50 California Street, 34th Floor San Francisco, CA 94121 TEL: (415) 398-3600 FAX: (415) 398-2438 EMAIL: snr@ngke.com t I. INTRODUCTION An Initiative measure has been placed on the June, 1998 ballot by the Professional Engineers in California Government("PECG"),a union largely consisting of engineers from Caltrans. The PECG Initiative,as it is usually called,would dramatically alter the civil service provisions of article VII of the California Constitution. Among other things, local agencies would for the first time be directly affected by article VII, whenever State money is involved in their relevant activities or the agencies'programs or projects have some other identified nexus to State government. When a local agency does fall under its terms,the Initiative imposes a rather baroque review and bidding procedure. As a bottom line that procedure will likely prohibit local agencies from co4tracting out architectural,engineering and related types of consultant work under most circumstances, instead requiring there to rely upon State employees for such work. The State is already restricted from contracting out most services, and the PECG Initiative would make the restrictions even tighter. But because such limitations are not new to the State,the primary change in California law will be the effect on local agencies which previously had no such restrictions. These seminar materials will therefore focus on the effect the PECG Initiative would have on local agencies. The full text of the PECG Initiative is attached as Appendix,A. Section 3 of the Initiative would, if passed, become a new section 12 of article VII of the.California Constitution. 2 II. BACKGROUND ON THE CURRENT LAW RELATED TO CONTRACTING OUT The current article VII of the California Constitution establishes a State civil service system. Although there are no express provisions of article VII which forbid contracting out, for reasons set forth below the courts have read such restrictions into article V11, while also permitting numerous exceptions. The predecessor to article VII(article XXIV) was enacted into the California Constitution in 1933 for the dual purposes of promoting efficiency in government and getting rid of the spoils system. These continue to be identified by the courts as the underlying purposes of article VII. (Professional Engineers in California Government v. California Department of Transportation(1997) 15 CalAth 543, t 563-564 (The "1997 PECG decision").) ` Article VII establishes a civil service system for employees of the State. The contracting out prohibition arises from contracts with independent contractors, as opposed to employees. The courts have prohibited the State from avoiding the civil service system by simply making contracts with independent contractors as opposed to employees. In a series of cases beginning in 1937,the Supreme Court and later the Court of Appeal established the principle that unless there was a good reason for an exception, the State could not contract out. However, over the years the courts have permitted an ever expanding list of exceptions, including the right to contract out in emergencies, for purposes of greater efficiency in government, for new types of State programs (e.g. the privately financed SR91 toll road in Orange County) and for other reasons. A lengthy summary of those cases and statutes is set forth by the California Supreme Court in the 1997 PECG decision.. 1 3 The prohibition against contracting out in a general sense affects those functions which the civil service has traditionally performed. Thus, in the transportation arena,the design of State roadways and related environmental work have traditionally been done by Caltrans engineers. On the other hand, actual construction of roads has not traditionally been done by State employees and is usually contracted out. The prohibition against contracting out thus applies only to those functions such as engineering which the State has traditionally performed or which at some point have been added to the civil servants' repertoire. Article VII of the Constitution does not now apply directly to local agencies. Consequently, unless a local agency has its own similar civil service provision it may contract out most any function. Disputes between PECG and Caltrans about when the State could contract out came to a head before the Supreme Court in the 1997 PECO decision. In litigation dating back several years, PECO had been seeking to enjoin Caltrans from contracting out with private engineers unless it specifically complied with sections 14101 and 14130 of the California Government Code,which set forth detailed criteria identifying when Caltrans may do so. In early hearings in the case,the Superior Court determined Caltrans had not complied with those sections and therefore enjoined Caltrans from further contracts without compliance. Rather than appealing the injunction, Caltrans relied upon a new statute passed by the Legislature which in essence overturned the judge's decision and made contrary findings. But the Superior Court judge determined that the new legislationwas unconstitutional under article VII. The Court of Appeal then reversed the Superior Court 4 judge by a 2:1 decision and the parties took the case to the Supreme Court. In August, 1497 the Supreme Court issued a ruling. The Court held the statutory changes by the Legislature were unconstitutional and therefore the original injunction stood. However,the Supreme Court took occasion to comment on the general state of the law. Among other things,the court favorably commented on all of the exceptions introduced by the Supreme Court and the Court of Appeal over the years since the original enactment in 1933. In that vein, the Supreme Court quoted the brief of amici local transportation agencies: "As the amicus curiae brief of various county transportation agencies correctly observes, Riley's[,Mate Compensation..Fund v. Riley(1937)9 Cal.2d 125] test`is broad enough to permit contracting out where the nature of the task is such that the civil service could not perform the task efficiently, or quickly enough, or with the same degree of skill. There is nothing lin Riley to suggest that personnel shortages, earthquakes, economic efficiencies,new State functions,higher skills, etc., would not be within the meaning of this exception."' In sum,at present local agencies are not prevented from contracting out on local projects,and while the State in general is restricted from contractingout there are a number of exceptions. The PECG Initiative would change that state of affairs substantially. III. THE PECG INITIATIVE The PECG Initiative has qualified for the June, 1998 ballot. The Initiative seeks to amend article VII of the Constitution(by adding a section 12)to change the process of contracting in California in a number of ways. The Initiative measure creates an elaborate system of comparing the theoretical costs of State civil servants doing services against those of private consultants. Such provisions will be an onerous burden on both State and local 5 �•�t� government efforts to contract out. But since the State already was largely restricted from contracting out, the biggest effect will be on local agencies which previously have not been so restricted. The PECG Initiative will potentially eliminate the ability of local agencies to contract out for engineering, architectural environmental or related services in most circumstances and require them to use State employees. It does so by creating an artificial bidding competition that the private consultants could not usually win, whether or not their services would be less costly. Yet,there is no corresponding requirement that the State actually perform these services. Also,the Initiative measure eliminates the ability of local agencies to choose consultants under current request for proposal procedures(RFD's),instead substituting a program under which they would be required to accept the lowest of qualified bidders. The Initiative would apply to local agencies whenever there is any State money involved in the project or in circumstances where the State may have some other responsibility for the project. The full text of the PECG Initiative is attached as an appendix to this paper. Following is a point by point discussion of some of the Initiative's key points. Since this is a proposed measure, it has by definition never been analyzed by the courts. Consequently some of the following comments may be disputed by PECG! The reader can compare the comments to the actual text to determine if they have merit. 6 A. The Initiative Applies To Engineers,Architects, Environmental Consultants And Other Consultants Section 3(a)" of the Initiative says it applies to "engineering,architectural, landscape architectural, surveying,environmental [and] engineering geology services." A reference in this paper to "consultants" or to any of these subgroups should be read as applying to all. There may be a dispute over the meaning of some of the professional services which are covered. For example,construction management or construction contract administration are not services which expressly fall under the measure. Yet engineers and architects do perform these types of services,and such services are identified in statutes as activities of these types of professionals. (Cal. Bus. & Prof. Code, §§ 55('I, 6701.) Proponents of the Initiative may therefore argue that construction management is an engineering or architectural service within the meaning of the Initiative regardless of what it is called. Ironically the Initiative measure might result in local agencies being able to hire some outside consultants to act in these capacities,but not if they happen to be engineers or architects. B. The Initiative Applies To Both The State And Local Agencies ncies The relevant sections to determine what entities the Initiative affects are 3 (a) and(b). Subsection(a)indicates that the Initiative measure applies to the State,which is defined not to include local agencies. However, subsection(b)provides that the Initiative measure also applies to contracts awarded by either private entities or local public entities when the contracts involve the expenditure of State funds or involve projects for which the 7 State, or any of its agencies will have 'ownership, liability, or responsibility for construction, operation, or maintenance." Thus for the first time article VII will have direct application to local agencies. There may be some litigation or other disputes over the definitions here. For example,what is the "expenditure of State funds?" Would that include a loan, or loan guaranty? If earmarked federal money flows through the State,would that be State or Federal funds? The measure does not answer these questions. It does define"State funds" as all money which the legislature appropriates for spending by the State and all money in any special fund which the State controls. Many dollars which are spent by local agencies on engineering for transportation,and on other projects such as architectural design for school construction, may well fall within this definition. Much money for local expenditure passes through State bank accounts. Each particular type of expenditure would have to be analyzed individually to determine if there is State control. The Initiative does not spell out what control means. A primary example of a dispute would be over gas tax revenues. Such revenues are required by article XIX, section 3, of the California Constitution to be allotted to local governments in accordance with the provisions of article XIX. However, section 3 of article XIX gives the State Legislature certain, although not unfettered, discretion to change the allocation formula. Since the State Legislature has some discretion on how the money is to be spent, it can be argued it has some control over the fiends and they therefore fit within the meaning of the Initiative. An opposing argument may be that because the Constitution !t 'Phe new subsections(a),(b),(c)etc.of article Vil are sections 3(a),(b),(c)etc.of the Initiative. 8 7e limits the Legislature's discretion, there might be no "control" within the meaning of the Initiative pleasure. It is an ironic circumstance of the Initiative Campaign that PECG is forced to minimize the threatened impact on local governments to try to gather political support. In that vein,PECG has submitted to at least one local government a legal argument from its attorney that the measure does not apply to local gas tax revenues. That is certainly what a local agency could argue if the Initiative passed. However, after the June election, Initiative proponents will be'free to change their mind and such pre-election legal arguments and reassurances could prove meaningless,no matter how honestly given and well intended at the time. All that will matter after passage is the language of the measure and perhaps the ballot arguments or other material in front of the voters which could be used in aid of interpretation. A gas tax fund over which the Legislature has some discretion might well deemed a fiend over which the State has some control, and local agencies would have to comply with the Initiative before spending such money. While no one can say for certain now that would come out,there is a great deal of danger to local agencies. C. The Controller's Analysis The Initiative sets up a rather labyrinthian procedure under;which the State Controller must analyze proposals for the covered outside consulting services, a procedure which may be quite time consuming in practice. Also, the procedure leaves a great number of gaps as to what should happen(and when), and thus may need some enabling State legislation. 9 To begin, subsection(c) states that prior to the award of any contract, the State Controller shall prepare an analysis of the work using State civil service employees, and compare that to the"cost of the contract," apparently meaning the cost if done by private consultants. It is unclear when this would happen; however, the analysis under 3 (c)probably would take place prior to receipt of any proposals from private parties, since later section 3 (e) provides for a procedure where the Controller's office will revise its analysis after proposals are received. The Initiative measure does not specify how quickly the Controller must act. Considering all of the local public agencies in the State and all of the public works projects which might involve State funds,along with the various State projects for which private contractors might be sought,the Controller's office may well be overrun with requests. No one,to the author's knowledge,has reasonably quantified what the effect might be. It could be months, if not years,before the Controller's office actually issues a ruling on a specific project. This is compounded by the fact the Controller does not have a large existing staff with expertise in evaluating such proposals. Thus,at least at first, local public agency contracts may be delayed extensively because the Controller's office is unable to deal with this. Again,enabling legislation and additional funding for the Controller's,office would have to cure this problem,but we do not know if and when that would happen. D. The Uneven Comparison Subsection(c)provides that, in comparing the cost of the private contractor and the State employees,the cost of performing the work by the civil service employees shall only include the."additional direct cost to the State to provide the same services as the 10 2e) contractor." In contrast, it says the private consultant's costs "shall include all anticipated contract costs"plus all costs to be incurred by State agencies and the local agency to go through the contract award process and to oversee the contracting parties' work. Of course, the price which the engineering firm will charge the local agency will self-evidentially include that firm's indirect costs,plus some profit. While it is subject to debate what"additional direct costs to the State" means, Initiative proponents may argue overhead such as buildings,the State's equivalent of home office staff,etc.,would not be included. Further, if these State employees were going to be there anyway, it is unclear whether even the total of the employee's salary and benefits would be included. If the state has to add extra employees 4Lnd buildings as part of a general increase,arguably such costs could be said to be "additional" costs to the State, but they might not be deemed"direct." It is not hard to see why engineers and architects do not feel they could ever "win" this comparison. Thus,they would be shut out from competing. PECG would argue the cost comparison shows the merit of the measure. If the State can do it cheaper,then the public will save. Of course that ignores the enormous indirect cost of building up and maintaining the State government infrastructure to do all this. That is a cost to the taxpayer, even though it might not get added into the artificial bid formula. Moreover,the purported savings may not in fact be passed along to local agencies. One reason is that a significant anomaly creeps into the Initiative Measure in subsection (c). In making the comparison, the costs of the local agency to administer the contract are to be added only to the computed costs of the private contractor, not to those of the State. For example, if the local agency's costs were$30,000, the private consultant's 11 $80,000, and the State's$100,000, the total cost to the local agency wouldbe $130,000 if the State did the work but only$110,000 if the private party did the work. Yet the comparison formula in section 3(e)dictates that the State wins the cost comparison, $100,000 to$110,000, because the$30,000 of local agency costs only gets added to the private bid. Perhaps this is not in fact an anomaly, and PECG just assumes that if State employed engineers "win" the bids there will be no local agency costs because the State engineers will run everything and local government employees will be irrelevant. In sum, it will be extraordinarily difficult for private firms to show under this test that they are less expensive than State engineers,even though in actual fact they may be. E. What Happens If State Engineers Are Calculated To Bel Cheaper? If the Controller concludes that the costs of State civil service employees would be cheaper under the foregoing test,then the local agency may not award the contract to the private entity. (Subsection 3 (d).) A major hole in the Initiative appears here. The measure does not require that the State perform the services. Thus the services will either not be carried out at all or they will wait until the time when Caltrans or some tither State agency can get to them. The exceptions to the local agency being barred from contracting out in subsection(d)are instances where health and safety are so endangered that the services must be rendered urgently. While this could apply to some possible future services a local agency might need, it self-evidently does not deal with routine procurements. Note subsection 3 (e)discussed below applies a$50,000 contract-size threshold to the procedures in that subsection. That threshold does not appear to apply to the 12 7d system of State Controller analysis in subsection(b)-(d). Thus every outside contract for a penny or more apparently must go though the basic system. It is easy to see how the Controller could be overwhelmed. There is no provision in the measure for considering quality of services of the State engineers. That is,on the face of section 3 (a) - (d), the local agencymay not be permitted to go forward with a private contract under the belief that the services rendered would be of a higher quality than that rendered by State engineers. In contrast, subsection (d) provides that even if a private contractor is cheaper than the estimated cost of the State civil service employees performing the services, either the Controller or the local agency can refuse the right to contract if the private services would be of lower quality than those rendered by State employees. F. Bid Procedures Substituted for RFP Procedures In subsection 3 (e)the Initiative measure confuses the traditional distinctions between requests for proposal and invitations to bid- -essentially it abolishes the RFP procedure. Subsection(e)provides that-every contract exceeding$50,000.00 shall be awarded through a"competitive bidding process," the cheaper bidder getting the work. It does say that awards will be made only to "qualified" bidders, so there is some threshold quality analysis. Presumably local agencies would be able to require minimum qualifications for engineers but would not be allowed to make any evaluations of which is the better firm among those which meet the minimum qualifications. The Initiative thus proposes a bidding procedure usually used with construction contractors which have set specifications to build against; it is not a procedure normally applied to consultant work. This may render 13 _. ......... ......... ......... ......... ......... ......... ......... ......... . ........ _ .._ ........ .. .......... ......... ......... ............ ....... ......... ....... ......... ......... ......... ......... ......... ......... ........ ......... ............. ..... ......... unconstitutional the qualifications procurement practices now used by local agencies under the "Little Brooks Act" (Govt. Code, §4525 et seq.) insofar as they apply to procurements above $50,000. G. The Second Evaluation Once the bidders have done their work and the local agency has the lowest priced qualified bid, the Controller gets a second crack at comparing the estimated State costs against the actual bid. The last sentence of subsection(e) sends the matter back to the Controller to determine how the actual lowest bid matches up compared to the original comparitive estimates by the Controller. Then if"the lowest qualified bid exceeds the anticipated contract costs the Controller estimated pursuant to subsection(c), the Controller shall prepare and verify a revised analysis using the contract bid cost, and that revised analysis shall be used in applying subsection(d)." This sentence is somewhat of a mystery because it does not explain fully how the revisions will affect the analysis in subsection(d). Possibly it means the following. when the Controller originally did the estimate,he or.she was supposed to estimate the private firm's costs as well as the State's costs,and do the comparison, then when the private bid comes in, if it is higher than the estimated amount,the Controller adjusts the private firm's costs originally estimated up to what the private firm actually bid. If that is what is meant, it would have an anomalous result in cases where the Controller overestimated the private firm's costs. That is because the Controller changes the analysis only if the lowest qualified bid "exceeds" the cost estimated earlier by the Controller, if on the other hand the Controller had estimated the costs too high, the actual cheaper bid by the private firm would not be 14 '. 70 considered because the Controller would not redo the analysis. Thus the private engineering firm could lose even when its costs are lower than the State's. Combine this with the inclusion of only "direct" costs in the State's bid, and inclusion of local agency costs only in the private party's bid,and it would be difficult for the State ever to lose this "competition." Possibly this section means something else. It might mean the Controller would readjust its analysis of the State's purported cost, not the private contractor. If so,then it could always reduce the estimate below the private bidder's cost and the private bidder could never win. 4r perhaps it means the State revises its own cost up to that of the private bidder and then charges the local agency the higher amount,but with the State doing the work. Linder that analysis,the local agency would never get the benefit of the State"s lower rates. In sum,the section is unclear,but most scenarios are bad for local agencies. H. The Indemnity Assuming a private engineering firm actually gets through',the labyrinth and receives a contract award from a local agency,subsection(f)of the Initiative measure provides that the private contractor shall "hold the State,the [local agency], and their agents and employees harmless from any legal action resulting from the performance of the contract." Hopefully a court would interpret that later to mean that the indemnity is only for something the engineering firm did negligently in its performance of the contract, which is largely the standard used now. However,as drafted,the language is at least subject to the interpretations that the private engineering firm would be holding everyone harmless even from their own misconduct and would be liable for any consequences of its own work even if 15 '70 it were not negligent. This provision may make it impossible to obtain insurance. There is no language requiring the State to offer a similar indemnity to the local agency. L Design Build Some local agencies have design build authority. The Initiative measure does not directly contemplate a design/build contract. The reason is that the Initiative measure applies only to "engineering, architectural, landscape architectural, surveying,environmental, or engineering geology services." A design/build contract includes some of those services as well as others, primarily construction services. The Initiative measure arguably might not apply to design/build contracts. The basic analysis is that a contract which combines engineering and construction services is not a contract for "engineering" or"architectural" services within the meaning of the Initiative measure. Rather such a"turnkey" contract is a different animal. In an earlier case involving PECG and Caltrans,PECG v. Department of Transportation (1993)'l 3 Cal.App.4th 585, the Court of Appeal found that,the private toll road projects being proposed under"AB 680" were constitutional under article VII of the State Constitution. Those projects involved a combination of private financing, design and construction of roads. One of the exceptions to the ban on contracting out which the courts had found over the years was an exception for new State functions. The proponents of the private toll roads argued that a private toll road was a new State function. PECG replied that Caltrans had traditionally engineered roads and that therefore that portion of the AB 680 contracts which provided for private design was unconstitutional. The court concluded that PECG took too narrow a view of what was a new State function. The different function was 16 C.70 the combining of the private financing,design, and construction in the experimental projects. That made the turnkey projects different from the traditional Caltrans role of designing roads. The analogy may carry over to a design/build contract under the circumstances of the PECG Initiative. A turnkey design/build contract is different from traditional Caltrans approaches to engineering design, followed by a bid process, where the successful contractors follow the preexisting design. Design/build consolidates some of the responsibilities and risks. Consequently design/build may be deemed to be different than the types of engineering services contemplated by the Initiative measure. For those local agencies which have design- build authority under the law,this might be a way to avoid the impacts of the Initiative. On the other hand,consistent with its prior stance, PECQ may argue the engineering or architectural part of design build contracts would be subject to the Initiative and that therefore design/build contracts would no longer be legal. J. Federal.Funds Subsection 3 (g) states the Initiative will not be applied in such a way as to lose federal funding. Thus federal procurement rules pertaining to consulting services may in some circumstances negate the impact of the Initiative. K. Conflict With Other Law The Initiative will become part of the State Constitution. With most Initiative measures, statutes which conflict would thus be overridden by the Initiative. If an Initiative conflicted with other parts of the State Constitution,then the issue would land in the courts. This particular Initiative throws in an additional twist, Section E of the Initiative says it will not expand or restrict the State's constitutional authority in this area as previously determined 17 0.70 by the courts. Since some of the sections of the Initiative would seem to conflict with prior interpretations of article VII, the meaning of Section E of the Initiative is therefore unclear. It may lead to litigation, but it does not provide any clear rules as to what local agencies can do. Also, article 3.5 of the California Constitution provides that a State administrative agency may not treat a statute as unconstitutional until a Court of Appeal or the Supreme Court has declared it is unconstitutional. Thus even if the Initiative Measure renders certain statutes as the Little Brooks Act unconstitutional,a certain amount of uncertainly will rule until the courts begin making decisions. L. Retroactivity While the retroactivity of Initiative measures is a complicated legal subject, it does not appear PECG has intended this to have any retroactive effect. Thus procurements done prior to June, 1998 may not fall under the Initiative. M. Employees Of Local Agencies There is a possibility of reading the Initiative to say a local agency might no longer employ in-house engineers,architects, and other consultants, at least to work on State funded projects. The Initiative applies literally "to contracts for engineering, architectural, etc. services . . . ." (Section 3 (a).) When a local agency hires an employee,engineer, architect or otherwise, it forms an employment contract. Thus, literally read,employees might have to go through these procedures to be employed and a local agency might have to accept State employees in lieu of its other staff. Hopefully the courts would never reach this result. Disputes over contracting out have involved independent contractor contracts, not employment contracts. The Initiative 18 ...................................................................................................................................................................................... would appear generally to be aimed at independent contractor arrangements, not employment arrangements. Nevertheless the literal language of the measure would permit proponents to argue local agency employees are covered. 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