Background:

Contracting Out.

Prior to July 1, 2005, state agencies and institutions of higher education were prohibited from contracting out for services regularly and historically provided by classified employees. Employees in classified services include state employees not specifically exempt from the state civil service statute. Beginning July 1, 2005, the Personnel System Reform Act of 2002 lifted the prohibition and authorized state agencies and institutions of higher education to purchase services, including services traditionally and historically provided by state employees in classified service, if the following criteria are met:

the request for proposal contains measurable performance standards;
the contract contains a provision to require the contracted entity to consider employment of state employees who may be displaced by the contract;
a contract monitoring process is established to measure contract performance and to cancel contracts not meeting standards;
there is a determination that contracts would lead to savings or efficiencies; and
classified service employees are allowed to provide alternative solutions to purchasing the services by contract and, in the event those solutions are not approved, form employee business units and bid for the contract.

Certain entities and contracts are exempt from these criteria, such as contracts for services expressly mandated by the Legislature, printing services, and certain contracts by the Department of Enterprise Services (DES) and Consolidated Technology Services Agency.

Contract Management Policies and Procedures.

The DES must adopt policies and procedures for effective and efficient management of contracts by state agencies. These include procedures for selecting potential contractors based on their qualifications, performance measures, model contract terms to ensure contract performance and compliance with state and federal standards, executing contracts using electronic signatures, and procedures and criteria for terminating contracts. Agencies must provide, on an annual basis, a list of contracts that the agency has entered into or renewed.

The DES must maintain a list of all contracts entered into by agencies. Agencies are encouraged to enter into performance-based contracts that identify expected deliverables and performance measures or outcomes. Payment for goods and services under performance-based contracts should be contingent on the customer achieving performance outcomes.

To provide the maximum practicable opportunity for increased participation by minority- and women-owned and controlled businesses in public works and agency procurement, goals are established in statute for each state agency. If necessary to meet these goals, contracts may be awarded to the next lowest responsible bidder, or all bids may be rejected and new bids obtained, if the lowest responsible bidder does not meet the goals established for a particular contract.

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Summary of Substitute Bill:

Contracting Out.

The application of the contracting out requirements under statute is narrowed to apply only to contracts for services that have been customarily and historically provided by classified employees since July 1, 2005.

The following additional criteria must be met before the department, agency, or institution of higher education contracts for services:

A comprehensive impact assessment is completed by the department, agency, or institution of higher education which must include:
- an estimate of the cost of performance of the service if done by employees;
- an estimate of the cost of performance of the service if contracted out;
- the reason for proposing to contract out; and
- the reasons for determining that the contract results in savings are efficiency improvements.
When the contract will result in termination of state employees or elimination of state positions, the comprehensive impact assessment may include an assessment of potential adverse impacts on the public from outsourcing the contract.

Departments, agencies, or institutions of higher education must also:

post on their website the request for proposal, the contract or a statement of the decision to not move forward with contracting out, and the comprehensive impact assessment;
prepare and maintain in the contract file, every five years or upon completion of the contract, a report that contains:
- documentation of the contractor's performance measured by itemized performance standards;
- an itemization of any contract extensions or change orders that resulted in the cost of the contract; and
- remedial actions that were taken to enforce compliance with the contract and the estimate of the cost incurred by the department, agency, or institution of higher education in enforcing such compliance; and
include specified terms in any agreement to contract for a service.

Previously exempt contracts relating to the DES's activities are now subject to the contracting out requirements.

The following contracts are exempt from the additional criteria for contracting out, as well as the requirements above relating to posting information on a website, maintaining specified records, and including certain terms in contracts for service:

contracts awarded for the purposes of or by the Department of Transportation;
contracts with an estimated cost of contract performance of $20,000 or less; and
contracts awarded on major projects, as defined by the Office of Financial Management, for services related to construction, architecture, engineering, and land surveying.

The bill specifies that contracts for fire suppression awarded by the Department of Natural Resources are contracts expressly mandated by the Legislature, and are therefore also exempt from all statutory contracting out provisions.

The new provisions under the bill only apply prospectively and do not impact contracts in effect prior to the enactment of the bill.

Contract Management Policies and Procedures.

The uniform policies and procedures for management of contracts are modified to include: precontract procedures to ensure compliance with minority- and women-owned business participation; model terms to facilitate recovery of the costs of employee staff time expended to achieve substantial compliance; and procedures and criteria for terminating contracts that are not achieving performance standards. Agencies must monitor performance-based contracts to ensure that all aspects are being properly performed and that performance standards are being achieved.

Substitute Bill Compared to Original Bill:

The substitute bill makes the following changes:

The application of the contracting out requirements under statute is narrowed to apply only to contracts for services that have been customarily and historically provided by classified employees since July 1, 2005.
The exemption for contracts awarded on major projects for services related to construction, architecture, engineering, and land surveying is modified to instead be an exemption from the additional criteria relating to the comprehensive impact assessment, inclusion of certain terms in agreements to contract out, and maintenance of certain records and records disclosure.

The language pertaining to the DES's uniform policies and procedures is moved to the procurement chapter of the code.

Staff Summary of Public Testimony:

(In support) This bill is about management making more thoughtful decisions. When management in state agencies decide whether to keep a state job in house or contract it out, the natural inclination is to contract out when there are dollars available to do so. This bill would require management to make thoughtful decisions about when and what to contract out. The bill is effective on contracts prospectively only, and would only apply to jobs traditionally done by the state since July 1, 2005. July 1, 2005, is when unions were formed and when the state was first allowed to contract out. That date was put in the bill to prevent the requirements under the bill from being applied to jobs traditionally done by the state prior to July 1, 2005.

The bill would also require management to oversee the contract and make sure that it is done well. The bill protects taxpayer funds by holding contractors who fail to meet conditions of a state contract accountable. For example, at Western State Hospital (Western), there was an issue with contracting out for workers who ended up not being supervised by their agency and arrived untrained and unscreened. The contracting out process allowed Western to avoid employing qualified staff. This contributed to Western losing federal funding because it did not meet federal standards. Another example is subcontracts for court-ordered visits awarded by the Department of Social and Human Services (DSHS). The contractors have at times submitted incomplete reports or case notes that have been cut and pasted without noting important information such as information relating to allergies. This places children's safety at risk.

Although the bill is a positive step to ensure diligence in public contracting, agencies should: use all direct and indirect costs in its analysis; include quality, accessibility, and experience in the cost analysis; and include language around uniform guidance.

(Opposed) The problem that this bill is trying to fix would be solved just by bringing the contractor back to fix their work in cases where they did not meet the expectations of the contract. The problem is a management and oversight issue. Current law already requires agencies to address management issues. The problem can be addressed by putting a state agency in charge of overseeing requirements in current law. Although there were examples of failed contracts, there has not been a problem with architectural and engineering construction services. The bill would also negatively affect construction design services and maintenance. The bill would create an "us versus them" mentality and will create an expectation to not contract out. The proponents say that the bill is not trying to affect architectural and engineering contracts, or construction design and maintenance, but if that's the case there should be an exemption in the bill for those contracts.