WSR 06-17-105

OFFICE OF THE GOVERNOR


[ Filed August 17, 2006, 9:02 a.m. ]


NOTICE OF APPEAL

RCW 34.05.330(3)



Pursuant to RCW 34.05.330(3), you are hereby notified for publication in the Washington State Register that:

On May 5, 2006, the Governor received an appeal from Greg Devereux, Executive Director of the Washington Federation of State Employees (WFSE), relating to General Administration's denial of a petition to it to repeal and amend portions of the following rules:

WAC 236-51-005(3), WAC 236-51-006, WAC 236-51-010(11), WAC 236-51-110, WAC 236-51-115, WAC 236-51-120, WAC 236-51-200 and WAC 236-51-225

On May 30, 2006, the Governor received an appeal from Greg Devereux, Executive Director, WFSE, relating to Department of Personnel's denial of a petition to it to repeal the following rule:

WAC 357-43

On June 13, 2006, the Governor received three appeals from Greg Devereux, Executive Director, WFSE, relating to General Administration's denial of petitions to it to repeal and/or amend portions of the following rules:

WAC 236-51-100, WAC 236-51-215, WAC 236-51-306, and WAC 236-51-400

On June 12, 2006, Petitioner agreed to consolidate all five rules appeals and to extend the response deadline. On July 28, Petitioner agreed to further extend the deadline to August 7. The Governor denied WFSE's Petitions on August 7, 2006.

DATE: August 14, 2006

Richard E. Mitchell, General Counsel to the Governor

August 7, 2006

Greg Devereux, Executive Director

WFSE Council 28 AFSCME

121 Jefferson Street, Suite 300

Olympia, WA 98501-2332

RE: Review of the General Administration's and Department of Personnel's Denial of Washington Federation of State Employees (Federation) Petitions

Dear Mr. Devereux:

I have received and reviewed the Federation's five appeals to the General Administrations (GA) and the Department of Personnel (DOP) concerning the competitive contracting rules. In accordance with your letter dated June 12, 2006, agreeing to consolidate the petitions, I am addressing all five appeals in this response. I have kept in mind the judicial criteria by which rules are reviewed and have given due deference to the rulemaking process. After careful review of the original petitions from the Federation, the agency responses, and your petitions to me, I am denying four appeals and remanding one to DOP, as explained further below.

I understand from the agencies that the process for obtaining input from stakeholders was extensive and lengthy and that the Federation raised many of the same issues contained in the appeals during the rulemaking process. Some of the suggestions and changes the Federation recommended were included in the development of the rules; some were not. However, it is clear that the agencies weighed seriously all the suggestions brought forward and that each of the interpretive and substantive rules eventually promulgated and properly before me were well reasoned and consistent with state law.

In the broader context, I am concerned that the rules that the agencies have put forward regarding contracting out have never been used or tested. It troubles me that years after the landmark legislation that brought state employees collective bargaining, we are continuing to argue over the details of the implementation of the competitive contracting sections of that law. It is time to move forward with the process, and, if refinements need to be made, I am convinced that people of good will can sit down and make the necessary modifications so that the process works smoothly and fairly.

I believe we share a common goal of providing state services in the most efficient and effective manner possible. The intent of the law was to do that through both collective bargaining and the competitive contracting provisions. The rules that the agencies developed provide a reasonable set of guidelines that will allow us to both move forward and at the same time to treat state employees fairly.

Sincerely,

Christine O. Gregoire

Governor

I will attempt to paraphrase the arguments generally presented because throughout the process most of the appeal letters to me were non-specific.


Petition I: Displaced Employees


I have reviewed the Federation's appeal of GA's denial of its petition. In that petition, the Federation requested the GA repeal or amend Washington Administrative Code (WAC) 236-51-005(3), WAC 236-51-006, WAC 236-51-010(11), WAC 236-51-110, WAC 236-51-115, WAC 236-51-120, WAC 236-51-200 and WAC 236-51-225. After careful consideration of the Federation's initial petition and GA's denial, I am denying the appeal.

GA's actions rest on three conclusions: 1) the above-noted rules are within GA's rulemaking authority; 2) the definition of "displaced employee" in the rule is consistent with the law; and 3) WAC 236-51-225 is also within GA's statutory authority and does not unfairly restrict state employees' rights to bid for work.

State law directs GA to establish procedures by rule to ensure that competitive contracts are properly submitted and fairly evaluated. The law further establishes the underlying authority for the processes and criteria by which a state agency may purchase services customarily and historically provided by employees in the classified service. GA's rules must and do address the process elements and criteria outlined by state law and therefore are within its rulemaking authority.

The boarder context of RCW 41.06.142 makes clear that the right to compete is necessarily limited to employees who can be readily identified as being displaced and considered for employment by an outside contractor. The term "potentially displaced employees" used in the WACs is consistent with this interpretation. As a practical matter, the repeal and amendment of certain WACs related to the displacement of employees would lead to considerable confusion and inefficiency in contracting and personnel processes and outcomes that are inconsistent with the full context of the law.

Finally, the purpose of WAC 236-51-225 is to ensure a fair bid submittal and evaluation process and therefore is within the rulemaking authority of GA. In addition, in order to properly manage state liability, costs and resources, state agencies must maintain control over the performance of additional services by an Employee Business Unit (EBU -- including the authority to authorize or deny the bid or performance of those services.

For these reasons, I am denying the Federation's petition.


Petition 2: Creation of Separate Class of Public Employees and DOP's Authority to Adopt Rules Regarding Employee Business Units

I have reviewed the Federation's appeal of DOP's denial of the petition to repeal WAC chapter 357-43. After careful consideration of the review of the initial petition and the agency response, I am remanding to DOP.

The original appeal to the agency rests on the argument that DOP lacked the statutory authority to adopt the rules pertaining to employee business units. The appeal to me presents an entirely different and new argument -- that the rules inappropriately create a separate class of public employees. In fact, the Federation admits in its appeal to me that that DOP does have the general authority to promulgate rules for state employees in employee business units, but then argues that the new rules are unnecessary since rules already exist for employees in the classified service.

Since the Federation has presented a new argument -- one not presented in the original appeal to the agency -- it is not properly before me under the Administrative Procedure Act. I am remanding to DOP the Federation's petition.


Petition 3: Placement of Cost Evaluation Criteria and the Consideration of the Performance Bond

I have reviewed the Federation's appeal GA's denial of its petition that asks GA to repeal WAC 236-51-305 regarding cost evaluation criteria and the performance bond and add certain provisions to the bid evaluation process in WAC 236-51-400. After careful consideration of the Federation's initial petition and GA's denial, I am denying the appeal.

The Federation's petition presents two arguments: 1) that "cost evaluation criteria" currently contained in the "bid solicitation" portion of the rule is better located in the "bid evaluation" portion; and 2) that the rule that exempts the cost of a performance bond from a non-employee business unit's bid gives an unfair advantage to the non-employee business unit in the competitive process by excluding real and actual costs.

The law requires that an agency in the context of competitive contracting make a determination that a contract results in "savings of efficiency improvements." Therefore, it is critical that the bid solicitation establish and make known how the state will evaluate bids received, including determination of the "savings." It follows, then, that the cost evaluation criteria are appropriately located in the bid solicitation portion of the rule as the agency contends. It is important also to understand the "cost evaluation criteria" will be used in the bid evaluation process as well.

The second issue revolves around the issue of the performance bond. In order to assure that bids are submitted and evaluated in a fair and objective manner, the state must treat risk costs for both employee business units and non-employee business units in an equitable fashion. Since the state assumes risk costs for employee business units and does not require a performance bond from these units, it is appropriate for the state to exclude the costs of performance bonds for non-employee business units in order to strike a fair balance.

For these reasons, I am denying the Federation's petition.


Petition 4: Establishment of a Competitive Market

I have reviewed the Federation's appeal of GA's denial of its petition requesting the repeal of WAC 236-51-100, regarding the determination of a competitive market. After careful consideration of the Federation's initial petition and GA's denial, I am denying the appeal.

The Federation's petition contends that GA has not meet the statutory requirement of establishing a competitive market before the agency solicits bids for contracting for services because the method GA is using is overly simplistic and fails to include certain factors that you believe should be included in the determination. Those factors include the requirement that the contractor must consider employment of state employees displaced by the contract, the determination of whether a potential bidder is a responsible bidder, the incorporation of elements of a DOT study on outsourcing and GA's requirements for establishing a competitive market in purchasing services.

The agency's denial is based on the fact that the determination of competitive market is a preliminary step that occurs prior to full development of the solicitation or contract and that potential service providers have yet to submit any information to the agency. WAC 236-51-100(2) provides that a competitive market exists when there are two more separate businesses, individuals, nonprofit organizations, or other entities capable of providing the services. The additional criteria that you wish to apply to the initial determination of a competitive market are impractical at this point in the process.

For example, to determine a whether potential vendor is a "responsible bidder" the agency must first have bidders. The same is true concerning the issue of whether the bidder will affirm their willingness to consider employment of state employees displaced by a particular contract. These criteria are appropriately included in the bid solicitation information and, of course, are used by the agency in the evaluation of the bid. The requirements that you are seeking are included in this latter stage of the process. To include them at the initial phase of determining a competitive market before the bid solicitation places an almost impossible burden on the agency and potentially wastes state resources to achieve an outcome that is already guaranteed by the processes outlined in the WAC's.

For these reasons, I am denying the Federation's petition.


Petition 5: Extending Cost Evaluation Criteria to All Bidders

I have reviewed the Federation's appeal of GA's denial of its request to repeal WAC 236-51-215, regarding extending bid criteria applied exclusively to Employee Business Units (EBU) to all bidders. After careful consideration of the Federation's initial petition and GA's denial, I am denying the appeal.

The argument presented by the Federation is that establishing bid criterion applicable only to employee business units does not create a fair and objective process to evaluate bids as required by state law. The rule put forward by GA recognizes that since EBUs remain state employees, the overhead costs of service performed by the EBU are born differently than if the contracted service provider was not comprised of state employees. This difference makes it necessary to have different cost criteria for EBUs than for non-employee bidders when soliciting and evaluating bids. The GA acted appropriately in promulgating WAC 236-51-215 which recognizes the different natures of the EBU and non-employee business unit.

For this reason, I am denying the Federation's petition.

Washington State Code Reviser's Office