HomeMy WebLinkAbout1998-04-27 City Council (26)City
City of Palo Alto
Manager’s Report
TO:HONORABLE CITY COUNCIL
7
FROM:CITY MANAGER DEPARTMENT: PUBLIC WORKS
DATE:APRIL 27, 1998 CMR:205:98
SUBJECT:RESOLUTION OPPOSING~ PROPOSED BALLOT MEASURE
PROPOSITION 224 - STATE-FUNDED DESIGN AND ENGINEERING
SERVICES
RECOMMENDATION’
Staff recommends that Council adopt and authorize the Mayor to execute the attached
resolution authorizing the City to oppose the Initiative Constitutional Amendment entitled
"State-Funded Design and Engineering Services," Proposition 224, scheduled to appear in
the June 6, 1998, Statewide election.
BACKGROUND
On April 13, 1998, Council requested staff to prepare a resolution opposing Proposition 224.
Attached for reference is a copy of the full text of the proposed law.
DISCUSSION
Under the current law, the State of California and local governments may contract on a
competitive basis for engineering and design services for a wide variety of public projects.
Proposition 224 is a constitutional amendment on the June ballot which would require public
entities to use a new process before awarding contracts funded with State resources, reviewed
by a State Agency, or on State facilities, for the following construction-related services:
engineering, architecture, landscape architecture, surveying, environmental studies and
geologic studies. Under this process, cities, school districts and other public entities would
be required to submit contracts in excess of $50,000 for the above construction-related
services to the State Controller for analysis. If the State Controller’s analysis determined that
the contract could be performed at a lower cost by State employees, the City would be
required to work with State employees and would not be permitted to issue a contract to
private consulting companies. A key issue in that cost comparison is that the mandated cost
analysis for State employees includes only direct costs and excludes overhead and support
costs, Attached for additional information is the State Legislative Analyst’s analysis of
Proposition 224.
Agencies, organizations and cities that oppose this ballot measure include, but are not limited
to: City of San Jose, City of Campbell, Santa Clara County Cities Association, California
CMR:205:98 Page 1 of 2
State Association of Counties, California Teachers Association, County of Santa Clara, Santa
Clara Valley Transportation Agency, League of California Cities, American Society of Civil
Engineers, California Taxpayers Association, California Chamber of Commerce, California
Teachers Association, and Associated General Contractors of California.
POLICY IMPLICATIONS ~
Proposition 224 would drastically affect the use of consultant services for public works
departments and other departments that contract for Capital Improvement Project consulting
services for State-funded or reviewed projects. The Public Works Department utilizes
consultants to provide design construction services in order to minimize City staffing.
Consultants are an integral part of the project team with staff and typically are selected for
expertise, ability to understand and use the "Palo Alto process", ability to marshal resources
to meet City scheduling needs, and for cost-effectiveness.
The wording in Proposition 224 would changethe basis of award for consultant services to
low bid on projects that are funded or reviewed by the State. While low bid is satisfactory
for construction, it is not recommended for consulting services. Awarding the consultant
service by low bid does not ensure that any of the qualifications listed above will be met.
Especially, staff is concerned that the State will not have the personnel to give the attention
that is needed for a City project nor will the State have an incentive to meet the priorities and
scheduling needs of the City.
Some of the past and future projects that would be affected by this proposition are the Main
Library remodel, Page Mill Road/Foothill Expressway intersection improvements, Alma
Street Bike Bridge, Embarcadero Path and Bridge, Page Mill Road/Hanover Street
intersection improvements, and Children’s Library seismic upgrade.
ATTACHMENTS
A - Full text of Proposition 224
B - Analysis by the Legislative Analyst
C - Resolution
PREPARED BY:John A. Carlson, Acting Assistant Public Works Director
GLENN S. ROBERTS
~ector of Public Works
,/
CITY MANAGER APPROVAL.’~(/~. ~/0~(~
’ Mm, am iso
Assistant City Manager
CMR:205:98 Page 2 of 2
CA Secreta~’ of State - Primal’98 - Text of Proposition 224 ATTACHMENT A
I Proposition 224 I ~[
~~S tate-Funded Design and Engineering Services.
Initiative Constitutional Amendment.
Proposition 224 - Full Text of the Proposed Law
This initiative measure is submitted to the people in accordance with the provisions of Article
II, Section 8 of the Constitution.
This initiative measure expressly amends the Constitution by adding a section thereto;
therefore, new provisions proposed to be added are printed in italic #’pe to indicate that they
are new.
PROPOSED AMENDMENT TO ARTICLE VII
SECTION 1. TITLE
This measure shall be known and may be cited as the Government Cost Savings and Taxpayer
Protection Amendment.
SECTION 2. PURPOSE AND INTENT
It is the intent of the People of the State of California in enacting this measure that
engineering, architectural, and similar services provided by the State and certain other entities
be furnished at the lowest cost to taxpayers, consistent with quality, health, safety, and the
public interest; that contracts for such services be awarded through a competitive bidding
process, free of undue political influence; and that contractors be held fully responsible for the
performance of their contracts.
SECTION 3. REQUIREMENTS .FOR CONTRACTS FOR ENGINEERING,
ARCHITECTURAL, AND SIMILAR SERVICES
Section 12 is added to Article VII of the Constitution, to read:
SEC. 12. (a) This section shall apply to contracts for engineering, architectural, landscape
architectural, surveying, environmental, or engineering geology sOrvices 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 enti~.’. As used in this section,
"local public entity" means any city, county, city and county, inchtding a chartered city or
county, public or mtmicipa! corporation, school district, special district, attthority, or other
public enti~. ’ formed for the local performance of governmental and proprietary fimctions
within limited botmdaries. "Local public entity" also inchtdes 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 invoh’es 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
responsibilio’for construction, operation, or maintenance. As used in this. sectidn, "state
funds" means all money appropriated by the Legislature for expenditure by the State or a state
agency and al! money inchtded in special funds that the State or a state agency controls.
1 of 3
CA Secretary of State - Primat3’98 - Text of Proposition 224
(c) Prior to the award of any contract covered b)’ this section, the Controller shall prepare
and verif)’ an analysis of the cost of petforming the work using state civil service employees
and the cost of the contract, b~ comparing costs, the cost of performing the work using state
civil service employees shall inchtde only the additional direct costs to the State to provide the
same services as the contractor, and the cost of the contract shall inchtde all anticipated
contract costs and all costs to be incurred b)’ the State, state agencies, and-the contracting
enti~. ’Jbr the bighting, evaluation, and contract award process and for inspecting, supervising,
ver~’ing, monitoring, and overseeing the contract.
(d) The contract shall not be awarded if either of the following comtitions is met: (1) the
Controller’s analysis concl,tdes 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 safeo’ requires award of the contract; or (2) the Controller or the
contracting entity concludes that the contract wouht not be in the public interest, wouht hm’e
an adverse impact on public health or safety, or wouht result in lower quality work than if
state civil service employees performed the services.
(e) Except for contracts for which a delay resulting fi’om the competitive bidding process
would endanger public health or sc~,ty, every contract, including amendments, covered by this
section that exceedsjTfty 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 invoh,ing sealed bids. Each contract shall be
awarded to the lowest qualifed 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).
(/) For every contract covered by this section, the contractor shall assume full responsibility
and liability for its performance of the contract and shall defend, indemnifi.’, and hold the
State. the contracting entit); and their agents and employees harmless from an)’ legal action
resulting f’om 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.
SECTION 4. SEVERABILITY
If any provision of this amendment or its application to any person or circumstance is held
invalid, that invalidity shall not affect other provisions or applications of the amendment
which can be given effect without the invalid provision or application, and to this end the
provisions of this amendment are severable.
SECTION 5. APPLICABILITY OF CURRENT LAW
Nothing in this amendment shall expand or restrict the State’s constitutional authority, as
determined by’ decisions of the California Supreme Court and California Courts of Appeal in
effect on the effective date of this amendment, to enter into contracts with private or public
entities.
SECTION 6. RELATIONSHIP TO OTHER MEASURES
To the extent that any’ other measure on the same subject shall be on the ballot at the same
election, it is the intent of the voters that this measure be deemed, to the maximum extent
possible, not to be in conflict with such other measure, but rather that this measure should be
harmonized with the other measttre.
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CA Secreta~’ of State - Primary98 - Analysis of Proposition 224 ATTACHMENT B
I -re’~t or" l’r~p,~sed [.a~ I Proposition 224 1 Argument in Favor
I.nitiative Constitutional Amendment.
,
Analysis by the Legislative Analyst
Background
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
loca! governments enter into these contracts through a process of advertising for the service,
selecting the firm that is determined to be best qualified, and negotiatinga 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.
Proposal
This proposition, 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.) The new process
would apply to:
All state agencies, except the University of California and the California State University.
Many local governments and private entitieg (see below).
What Is Involved in This New Contracting Process?
The Cost Comparison. 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 less 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.
Competitive Bidding. As noted earlier, public entities currently negotiate contract terms for
construction-related services. This proposition requires that such contracts costing more than
1 of 3
CA SecretaW of State - Primar3,’98 - Analysis of Proposition 224
$50,000 be competitively bid to select the lowest qualified bidder. Competitive bidding would
not have to be used if it would delay a project and the delay would endanger public health or
safety.
Whai Contracts Are Covered Under the Proposition.?
Direct Contracting by the State. State agencies would have to use this new process if they
wanted to contract for construction-related services. In recent years, state agencies have
averaged about $150 million annually in spending on these types of contracts. This amount
varies armually depending on the state’s level of construction activity.
Contracts A warded by Local Governments and Private Entities. Local governments and
private entities would also have to use this new process in the following situations:
State Fttnding of Services for Local Government or Private Projects. Historically, the
state has provided significant funding to local governments for ;’arious types of
facilities--K-12 schools, local roads, community colleges, jails, and parks. 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 service.
State Ownership, Liabilit); 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.
Fiscal Effect
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 sen’ice 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. Figure 1 lists some of the cost factors
the Controller would need to review to determine if they should be counted as additional direct
costs.
Cost Analysis on Contract-by-Contract Basis. A cost analysis v¢ould be required on each
indivi~htal contract basis. Thus, a cost analysis may not reflect the accumulation of
administrative costs if the state v¢orkforce increases to meet workload demand. For example,
additional clerical and managerial positions or additional office space for state employees may
not be needed for an), 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 sen’ices using state employees. For example:
*If more of the costs associated with using state employees are included in the analyses, it
2 of 3
CA Secreta~’ of State - Primary98 - Anal.vsis of Proposition 224
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 emplo.vees xvould 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.
Figure 1
\Vhat Cost Factors Might Be Counted As "Additional Direct Costs?"
Cost Factors Likely to Be Counted
e Salaries and benefits of additional state employees needed to perform a service.
e 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 employee~ needed to perform a
service.
’~Increased construction costs due to project delays caused by time needed to hire and
train additional state employees.
e 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.
I Text ~rProposed t.awI Proposition 224 Argument in Fa,.o’"I
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ATTACHMENT
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
DECLARING ITS OPPOSITION-TO THE INITIATIVE MEASURE
ENTITLED "GOVERNMENT COST SAVINGS AND TAXPAYER
PROTECTION AMENDMENT" AMENDING ARTICLE VII OF THE
CALIFORNIA CONSTITUTION
WHEREAS, the City of Palo ~lto is authorized under the Palo
Alto Municipal Code to seek competitive proposals for engineering,
architectural, landscape architectural, surveying, environmental,
engineering geology services and related services under informal
competitive biddingrules and to negotiate the terms and conditions
of such contracts;
WHEREAS, the City of Palo Alto~from time to time obtains
state funding of engineering and other related services as such
services may relate, directly, to City public works projects;
WHEREAS, Proposition 224, the "Government Cost Savings and
Taxpayer Protection Amendment", proposes to amend Article VII of
the California Constitution, and would require the City of Palo
Alto to competitively bid engineering and other related services if
the City obtains state funding of these services, and would permit
the State Controller to nullify the City’s award of contracts for
engineering and related services under prescribed conditions; and
WHEREAS, this proposed constitutional amendment, if
approved, would substantially interfere with and undermine the
City’s authority and control over its procurement of specialized
services, would require the City to amend its procurement ordinance
and modify its procurement rules and regulations, and would require
the City staff to engage in time-consuming interactions with the
State Controller’s staff at substantial~cost to the City;
NOW, THEREFORE, the Council of the City of Palo Alto does
hereby RESOLVE as follows: -
SECTION 1 .The Council hereby finds that Proposition 224,
the "Government Cost Savings and Taxpayer Protection Amendment", (I)
would require the competitive bidding of professional services of
engineers, architects, landscape architects and other similar
design professionals in contracts, costing in excess of $50,000 per
year, where the services are paid for by State of California funds
or are subject to review by State of California authorities, (2)
would give the Controller of the State of California the power to
review and reject Palo Alto construction projects incorporating.the
services of private industry design professionals, and (3) would
require an examination of the relative costs of performing these
professional services by State and private professionals under a
cost analysis which invariably would render the cost of private
industry design professional services more expensive than that of
the employees of the State of California who are design
professionals.
980421 syn 0071407
SECTION 2. The Council hereby declares its opposition to
Proposition 224, because (I) the power of the City of Palo Alto as
a charter city to establish its own competitive bidding rules and
procedures would be adversely affected, (2) local control over the
selection of design professionals who are more familiar with the
Palo Alto community and its local requirements would be
relinquished, and significant delays in the scheduling, of
construction projects might occur, (3)the pricing of private
industry design professional services cannot favorably compare with
design services provided by State of California employee design
professional under a cost analysis formula which unfairly excludes
certain administrative costs incurred by State employees, and (4)
the initial start-up costs and annual costs to be incurred by the
State Controller are estimated to be in the millions of dollars,
and taxpayer funds could be more effectively spent.
SECTION 3. The Council finds that the adoption of this
resolution is not a project under the CEQA Guidelines and,
therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Acting Director of
Administrative Services
Director of Public Works
980421 syn 0071407