1 UNEDITED 2 3 4 --o0o-- 5 GOVERNOR'S TASK FORCE ON 6 CONTRACT & PROCUREMENT REVIEW 7 EXECUTIVE ORDER D-55-02 8 --o0o-- 9 10 11 12 13 --o0o-- 14 PUBLIC MEETING 15 FRIDAY, JULY 12, 2002 16 1:10 P.M. 17 --o0o-- 18 19 20 21 Reported By: Jamie Lynne Oelrichs, CSR No. 8086 22 23 24 25 1 1 APPEARANCES 2 Governor's Task Force: 3 ANNETTE PORINI, Deputy Director, Department of 4 Finance 5 CLIFF ALLENBY, Director, Department of Developmental Services 6 DAVID E. JANSSEN, Chief Administrative Officer, 7 County of Los Angeles 8 --o0o-- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 1 I N D E X 2 Page 3 Meeting 4 4 Reporter's Certificate 89 5 6 --o0o-- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 BE IT REMEMBERED, that on Friday, July 12, 2 2002, commencing at the hour of 1:10 p.m., at the 3 offices of the Department of General Services, 707 4 Third Street, West Sacramento, California, before 5 me, JAMIE LYNNE OELRICHS, a Certified Shorthand 6 Reporter in and for the county of Sacramento, state 7 of California, the following proceedings were had: 8 --o0o-- 9 MS. PORINI: My name is Annette Porini. I 10 am the chairperson of this task force on procurement 11 and contracting review. I am joined by Cliff 12 Allenby, who's the director of the Department of 13 Developmental Services, and by David Janssen, who's 14 the chief administrative officer of Los Angeles 15 county. 16 We are here today to hear testimony from 17 people who want to talk about procurement 18 provisions. And I'm going to -- we have quite a few 19 people who have signed up to talk, so I am going to 20 impose a time limit. I'd like people to try to make 21 their comments within four minutes. And you're 22 always welcome to submit written testimony that we 23 will include in our transcript. I know many of you 24 that I see here have already sent letters and other 25 written testimony. 4 1 I'm going to take folks in the order in 2 which you signed in. And I believe that there is a 3 hand-held microphone there. So you can walk to the 4 podium directly in front of the seats. We do have a 5 court reporter today. So you will need to state 6 your name for the record before you begin to speak. 7 So we'll start off with the first item of 8 business on our agenda, is adoption of minutes. And 9 we do have proposed minutes from our first meeting 10 in our packet. Do I have any -- we have two 11 meetings. We have minutes from our two -- first two 12 meetings. Do I have any -- 13 MR. ALLENBY: I move that we approve the 14 minutes for the previous meetings. 15 MR. JANSSEN: Second. 16 MS. PORINO: We have a motion and a 17 second. We'll go ahead and adopt that unanimously. 18 We'll move on to introductory comments. And I know 19 that we have -- one of our task force members needs 20 to catch an airplane, so I have none. 21 MR. ALLENBY: None. 22 MR. JANSSEN: No. 23 MS. PORINI: Moving right along, we'll see 24 if the Department of General Services has any 25 specific information to present to us. 5 1 MR. CHANDLER: Chair, members, I'm Ralph 2 Chandler, deputy director of the procurement 3 division. I'll keep my remarks brief. Since we met 4 earlier this week in Los Angeles, we have held one 5 additional session. It was here in Sacramento to 6 receive departmental input. We did two sessions. 7 One in the morning and one in the afternoon. And I 8 think we received quite a bit of good input. 9 Very briefly, the theme that came across 10 from passing for more clarity what constitutes 11 adequate competition, we looked for full efficiency 12 in the process. Determination of best value, risk 13 avoidance and uniformity, all areas that came across 14 consistently with those that came forward and 15 offered perspective in the departments. There were 16 specific comments, and we will be preparing some 17 notes and transcripts of those meetings, as well as 18 make them available on the internet. 19 I know that you've asked for some 20 additional material. We're not going to go over the 21 material you were provided on Monday. But the 22 reports and the publications that were not presented 23 on Monday, I'm going to ask Pat Jones to briefly 24 summarize the documents that we have provided since 25 the Monday session. Pat? 6 1 MS. JONES: Patricia Jones, Department of 2 General Services. The documents that we provided 3 Monday, for the rest of the crowd, one is a summary 4 of the GS Smart program. One is a table of all the 5 transactions that have been executed under that 6 program since its inception. And there is a third 7 table of what we call sole source transactions since 8 1999. The non-competitively bid transactions. It's 9 just in a summary format. Those materials we did 10 provide to the task force on Monday. 11 I have some additional materials to 12 provide to the task force today. And we will make 13 these available to folks as you leave. We did not 14 put these out on the table yet. But we do have 15 copies for folks. We might have to make some more, 16 though. 17 One of the documents is something that 18 says a comparison of the types of competition 19 methodologies. And I won't go into a lot of detail 20 on this. But you may recall from the presentation 21 that we made on June 20th that we discussed that 22 there was a lot of different types of competition, 23 and they occur at different times in certain 24 processes. So what we tried to do is reflect that 25 in a table that would be useful to the task force 7 1 during their review. 2 Just so that you know, across the top of 3 the table, the first item is competition process 4 steps. And we've indicated one-time transactions 5 statewide, commodity contracts, and so forth. Those 6 are heading -- titled columnar headings just for 7 clarity. They're not highlighted in any other way. 8 What this table shows you, briefly, is where the 9 competition occurs. And sometimes in the leverage 10 procurement charts we established for use by state 11 agencies that competition occurs when they're 12 establishing the contracts. 13 If you look on the flip side of the page, 14 you will see that during the ordering process 15 against certain types of transactions, the 16 competition actually occurs at that stage. So it's 17 a method of trying to clarify for you when the 18 competition occurs in certain types of 19 transactions. We've gone over and over it, and I 20 hope nobody finds mistakes. We think it's as 21 accurate as it possibly can be. 22 We also will have copies of the minutes 23 that you just adopted, and we will make those 24 available to everyone. We are also attaching or 25 giving to you a historical summary of selected 8 1 audits, task force review reports and so forth 2 during the years. And some of it goes back pretty 3 far. But there are things in some -- in many of 4 these reports that you're looking at today also as 5 members of the task force. So we give this to you 6 in summary format so you could glance through these 7 and see if there is any you would like to review in 8 detail, in which case we'll make copies available 9 for you. 10 The same thing of the contracting and 11 procurement information abstracts. Those are a 12 brief description of different types of transactions 13 or acquisition process and sometimes even just 14 different types of programs. Again, these are 15 summarized, and we have a more detailed description 16 of each of these in case you would like to look 17 beyond the summary information. So we wanted to 18 make sure that the task force had this information 19 in case you would like to do any review of the 20 historical data. 21 And that's all I've got for now. Again, 22 as I said, we will make copies available to 23 everyone. And we may have to make some more. I 24 think I'm going to have to make a phone call. 25 MS. PORINI: Pat, will you also have these 9 1 posted on the website so people can get them from 2 the website? 3 MS. JONES: Yes. We'll be happy to do 4 that. We will put them -- we can make them 5 available. If the chair would prefer, we can send 6 them to finance, and you can put them on your 7 website, and we have a link to that website from 8 DGS. 9 MS. PORINI: That's great. 10 MS. JONES: All right. 11 MS. PORINI: Okay. That takes us to 12 legislation. Now, we did a report on the Bowen 13 legislation at our last meeting. Do we have 14 anything to add today? Okay. 15 So we'll move straight on to public 16 comments. Our first speaker is Babette Davis. If 17 you'd please come forward. Remember to state your 18 name for the record. 19 MS. DAVIS: Can I try it without the 20 microphone? Can you hear me in the back? 21 My name is Babette Davis. I'm from 22 Science Application International Corporation. I 23 wish to highlight a couple of key facts that are 24 lost and that might be lost in our effort to address 25 how best to restructure the procurement of IT, 10 1 information technology, within the State of 2 California. We don't want to lose sight of the 3 historical perspective that initially led to the use 4 of the various contract vehicles. The key facts are 5 traditional competitive vendor procurement processes 6 are costly and provide restricted, limited 7 environment for vendors to compete, rather than 8 providing a more open competitive environment. 9 The processes are lengthy and result in 10 single vendor awards, particularly for product, 11 resulting in static pricing which the state pays a 12 premium dollar for commercial off-the-shelf 13 solutions. 14 Not all vehicles are identical. The 15 master rental agreement, MRA, is a targeted hardware 16 based contract that was competed under a state 17 sanctioned competitive process, and has a defined 18 process for purchase order competition and award. 19 The IT master service agreement was 20 competitively competed with a pool of vendors 21 participating in the process. Moreover, the MSA has 22 a defined process that has a defined process that 23 can be augmented to have clearly defined award 24 selection criteria. 25 The traditional competitive processes are 11 1 restrictive. Prior to the advent within the state 2 of a portfolio of contracting vehicles, the 3 procurement and delivery of technology was rooted in 4 a single competitive procurement process. The 5 negative effects have been well-documented by 6 numerous legislative and executive committees. 7 Moreover and most important to the issue 8 at hand, the traditional process was found to limit 9 competition, not increase it. The huge investment 10 needed by the vendor community to compete in these 11 procurements blocked many small and medium 12 businesses that work with the state. Out of these 13 efforts by the state in terms of committees and 14 general services, contract language was crafted and 15 processes were defined that put in place a series of 16 vehicles to meet the wide needs of the state. They 17 are rooted in competitive procurement practice of 18 the state, and they do provide for competition. 19 A single vendor award, especially for 20 hardware, is a worse value for the state. 21 Historically lengthy procurement processes for 22 procurement and maintenance of hardware has resulted 23 in the state paying a large premium for products 24 that are readily available in the commercial 25 marketplace. The MRA runs under a state sanctioned 12 1 procurement process and provide a pool of vendors. 2 The selected vendors are committed to list price 3 discounts at a maximum price obtained for a defined 4 length of time. The reality is there is a limited 5 pool of vendors, and the state benefits from the 6 competition at its purchase order level. That 7 competition benefits them by providing them timely 8 quick solutions that any business should expect. 9 The state store and the MRA work and are 10 competitive contracts. They were devised to meet 11 the traditional competition requirements and allowed 12 to a number of vendors to hold the contracts. The 13 requirement is simple, a limited number of vendors 14 provide the best source, availability and price for 15 the product. 16 The IT MSA was a competitively completed 17 contracted and provides timely solutions. Without 18 reading, to keep within the four minutes, basically 19 what it says is that the number of large bids still 20 need to do competitive procurement, but there has to 21 be a marketplace whereby you can have small projects 22 timely funded and vendor selections of these types 23 and usually results in an almost 100-percent success 24 rate for this state. It is unrealistic to assume 25 that requiring the state to post procurement under 13 1 $100,000, or even $500,000 is a sound threshold to 2 safeguard competition. The reality is that there's 3 already a process in place that the agencies can use 4 to get competition among the MSA holders. This 5 process can be further strengthened by establishing 6 a published best value criteria for MSA 7 procurements. And I'll give you some examples in my 8 handout. 9 In conclusion, the environment today is 10 even more dynamic than it was five years ago. IT 11 needs cannot be met by single isolated systems or 12 vendors providing single isolated solutions under 13 single vendor awards. Support is needed for the 14 incremental phased delivery modes for the state to 15 add that technology base that already exists. 16 I recommend that the MRA and state store 17 be excluded from additional notification beyond the 18 holders of these vehicles. Because especially under 19 the MRA, contractually if I'm leasing equipment to 20 you, no one else can provide the maintenance but 21 me. That is written into the contract. That 22 addition of competition at that purchase level for 23 maintenance would be in conflict to a contract 24 you've already had me sign. 25 The current General Services website is 14 1 modified so that you can allow for a wider 2 distribution of posting for low dollar amounts so 3 people can easily have access from one location. 4 Thank you. 5 MS. PORINI: All right. Do members have 6 any questions of Babette? Thank you. Our next 7 speaker is Dawn Lewis. 8 MS. LEWIS: I'm Dawn Lewis with GE Capital 9 Information Technology Solutions. What we'd like to 10 do, as contract holder for the CAL Store contract, 11 is have Charity Kenyon come up and speak on behalf 12 of Marketware Copy Systems and -- 13 MS. PORINI: Okay. 14 MS. KENYON: I think that's on behalf of 15 the next group of three speakers. But there's such 16 a large group, I'd have to say -- Charity Kenyon, 17 Riegels, Campos and Kenyon on behalf of Marketware 18 Technologies, and the three holders of the CAL Store 19 contract. 20 Also here are the general manager of the 21 Marketware Technologies store, Jean-Paul Taylor, and 22 Jill Houlahan from Latham and Watkins on behalf of 23 GE Capital. Dawn Lewis you heard from. Rob Philips 24 on behalf of CompuCom. And Richard Shuba, the 25 general manager for CompuCom. 15 1 As I said, we have together worked for 2 over 16 months, nearly two years on a highly 3 competitive contract. We brought as a visual aid 4 you can see to the -- right there in the aisle all 5 the volumes of all the responses to the RFP which as 6 a 16-month course of development was protested, and 7 we have just concluded litigation. 8 The award of that contract of the three 9 vendors has now been upheld by the Sacramento County 10 Superior Court. And we find ourselves, despite that 11 competition, swept into the executive order. And 12 that's the issue that we would like to address to 13 the panel today. We have a handout which really 14 takes two forms. Slides, and a presentation of 15 testimony with considerable detail in it. But I'd 16 like to take the time to summarize the problem. 17 The executive order, the problem we see, 18 the executive order seeks, and we seek also, to 19 ensure that we have open and vigorous competition at 20 best value to the state, and equal access to the 21 opportunity to compete and price protection. That 22 has been achieved through this two year long process 23 of competition, which now is impaired by the 24 executive order. 25 This is a contract that has been 16 1 competitively bid and evaluated since 1986. It 2 provides one stop shopping for information 3 technology goods and services to agencies large and 4 small, who can then go to a website, it's one of 5 three websites, and get pricing for simple or 6 complex purchases of information technology goods 7 and services, can get assistance of certified and 8 highly skilled consultants who are required to be 9 provided by this RFP and by contract, and then issue 10 a purchase order to one of those three. CAL Store 11 is not State Store, Inc., which is a confusingly 12 similar CMAS contract vendor. It is not a sole 13 source contract. There has been no conflict of 14 interest or impropriety associated with this 15 contract since 1986. 16 One hundred and sixty vendors responded 17 with interest to the RFP. Twenty-four vendors 18 submitted letters stating that they wished to learn 19 more and might bid. Seven bidders participated in 20 confidential pre-bid conversations. Six bidders 21 submitted draft proposals by January 12, 2001. 22 Five submitted final proposals. This whole process 23 was steered by a panel of customers who guaranteed 24 for the benefit of all those agencies that the needs 25 of the state would be met and reflected in the 17 1 RFP. 2 The cost proposal methodology had all the 3 bidders bid on the same 17 product and service 4 categories with specified manufacturers, so they 5 were competitive prices, and they had to bid a cost, 6 the cost to them, plus a specified markup. The 7 contract requires that throughout the terms of the 8 contract they reduce the price to the state, the 9 markup remains the same, but if the distributor's 10 cost goes down, the cost to the agencies goes down. 11 I mentioned the website. That happens on 12 a daily basis. If the distributor lowers the price, 13 the price of the state goes down that same day and 14 the markup stays the same. So there is price 15 protection to the State of California throughout the 16 course of this contract. 17 Throughout the course of the contract 18 there's also competition among the three bidders 19 based on cost and service. So there's competition. 20 And I hope that Pat Jones' handout identifies Cal 21 Store as one that's not only competitively bid at 22 the outset, but competition continues throughout the 23 term of the contract. As I mentioned, each of those 24 awards has been protested under Public Contract Code 25 section 12102, et seq. Each of those awards has 18 1 been upheld by the Sacramento Superior Court. 2 This contract, as Babette Davis mentioned, 3 is one of the vehicles that allows the state to 4 aggregate the purchasing power of all of its 5 agencies. Because of the anticipated volume of the 6 contract which is identified in the RFP, the 7 vendors' competitors are able to go to their 8 distributors and get pricing and are able to offer 9 very low markups. And because there's competition, 10 the state is aware that those prices have come in. 11 They've been selected for the purpose of competition 12 to be as low as possible, that those vendors who won 13 the contract are the ones that had the lowest 14 prices. And as I mentioned, price protection 15 continues throughout the course of the contract. 16 And then there's the arms length oversight 17 throughout the terms of the contract by the 18 Department of General Services which can audit those 19 prices and in compliance with all of the onerous 20 contract terms. Hundreds of thousands of dollars 21 have been invested in this RFP and in performing the 22 onerous requirements of the contracts. And those 23 were entered into in anticipation of the volumes and 24 the terms in those contracts, and not under the 25 terms that the executive order now has opposed. 19 1 We are required to have a dedicated 2 customer service center in Sacramento County, each 3 one of us. Each one of us has an E-commerce catalog 4 which, as I said, daily posts prices and reduces 5 prices to the state where applicable. We have to 6 have on-site and telephonic consultations, technical 7 consultations. We have to have a marketing plan. 8 We have to have certified network engineers. The 9 amount of service and experience that those vendors 10 have is mandated by the contract. It's 11 significant. We have to have on-site engineering 12 and project management services. Free delivery. 13 All of this is offered in anticipation, 14 again, of the volumes and terms that are set out in 15 a competitively awarded contract, and not on the 16 terms that the executive order has now posted. The 17 purpose, again, as Babette said, was to simplify the 18 ordering process. It's very onerous to, 19 particularly small agencies, but any agency to go 20 out on a process which I just described as taking 24 21 months when what you need is five or six computers 22 today, or even a more sophisticated system. 23 It's very onerous and time consuming to go 24 out, and such a long process, and then have not any 25 confidence that the technology you eventually 20 1 purchased is up to date and that the prices are also 2 up to date. I can see you looking at your time, but 3 I am speaking on behalf of the next three 4 speakers. 5 MS. PORINI: I think we wanted to 6 interrupt you for a question. 7 MS. KENYON: Please. I really welcome 8 questions. Because we wonder how we can be in this 9 position. 10 MR. JANSSEN: Well, my question is, why 11 are you here? Because I am -- correct me if I'm 12 wrong. I thought the purpose of the task force was 13 to take a look at not whether or not an individual 14 vendor is impacted by the executive order. That's 15 General Services' concern. I think, and if I'm 16 right, you should be beating up on them and asking 17 them why they haven't exempted you from the 18 executive order. My interest is what works and what 19 doesn't work. And you're making a good argument for 20 your type of purchase is a good one. But I really 21 am not interested in whether or not you're affected 22 by the executive order, not to be blunt. 23 MS. KENYON: And I can understand your 24 question. Actually, we have made this presentation 25 to the Department the General Services. They told 21 1 us this was the forum to raise this issue. And we 2 have had no other forum in which we can do it, 3 frankly. So I'm sure -- 4 MR. JANSSEN: I'd like to hear from 5 Ralph. That was not my understanding was to hear 6 appeals. From your position -- 7 MR. CHANDLER: I think it's a fair 8 statement to say that when the Cal Store contract 9 holders realized that they are brought in 10 specifically by name into the executive order, that 11 they immediately turned their attention as to, "Mr. 12 Chandler, what's the appropriate forum that we 13 address this situation?" And I instructed them that 14 it was not the forum to go to the task force, that 15 the forum was to work with us. We did raise this 16 particular situation, along with a number of other 17 areas where there was immediate concern on the scope 18 and impact of the executive order and the interim 19 guidelines to the administration. And 20 administration indicated that they were not 21 interested at that time in, if you will, moving away 22 from the specifics of the executive order. 23 However, we also know that it is the 24 charge of us as staff to recommend to you what 25 elements of these interim guidelines should perhaps 22 1 be carried forward, but carried forward in some 2 fashion where they're slightly relaxed, be 3 maintained, or perhaps even enhanced. 4 And I think what you're hearing today is 5 an effort to try to get on the record if there's 6 going to be any continuation of the interim 7 guidelines that are reflective of the executive 8 order that there be some consideration for the 9 situation of this particular contract holder as it 10 relates to any extension of those interim 11 guidelines. 12 I don't want to speak for them, but I 13 believe that they acknowledge that the 90-day period 14 is one which is pretty much firm. But they also 15 recognize that on August 21st, there's going to be 16 some recommendations for some changes. And I think 17 they're trying to clarify, that is, State Store, 18 Inc. this is a competitively bid contract that they 19 hope would be so recognized by any specific 20 recommendation and ultimately the task force. 21 MS. KENYON: That's a very fine summary of 22 why we're here. 23 MS. PORINI: Would you wait just a moment 24 and see if our members have any additional questions 25 before you start talking about -- I will ask -- you 23 1 had ten minutes before Mr. Chandler said -- 2 MS. KENYON: As I said, it's a fine 3 summary. And I'd be happy to answer questions. 4 MS. PORINI: Any other questions? 5 MS. KENYON: So we do ask your 6 consideration in review of that. There is an 7 exemption already in the interim guidelines for 8 commodities. We can't see any reason to distinguish 9 this very vigorously competed contract and the 10 current exemption in the 90-day guidelines. And 11 thank you very much for giving us this opportunity. 12 I'm sure you understand how important it is. 13 MS. PORINI: Absolutely. Other 14 questions? Now, as I understood that, the next -- 15 you were speaking on behalf of Rich, Darryl and 16 Jean-Paul; is that correct? 17 MS. KENYON: Correct. 18 MS. PORINI: Okay. So our next speaker is 19 Jeff Kossick. 20 MR. KOSSICK: Thank you very much. 21 Hello. My name is Jeff Kossick, and I'm the client 22 business manager representing the State of 23 California for the New HP. I want to thank Chairman 24 Porini, Mr. Allenby and Mr. Janssen for the 25 opportunity to address this panel. I will keep my 24 1 comments brief. 2 Hewlett-Packard is a California business 3 established in Palo Alto in 1939. We've been in 4 business for 63 years, but we've only done business 5 with the State of California for approximately 15 to 6 20 of those years. Up until that time, we at HP 7 made a conscious decision to walk away from business 8 in the State of California due to the some of the 9 unlimited risk requirements posted in contracts, as 10 well as the requirement to have the ability to have 11 discussions with customers in a closed environment 12 in an RFP type of a format. These concepts were a 13 bit different from our company's procedures. And so 14 it was something that we really didn't pursue in 15 doing business with the state. 16 But with the advent of procurement reform 17 in the State of California and a more results 18 oriented approach to information technology, HP 19 began to make a significant investment in doing 20 business with the state. We choose a customer to 21 work with closely. And when we do that, there's a 22 cost associated with doing that. We deployed sales 23 specialists, software analysts, and engineers, 24 customer service support engineers and so on. And 25 we did that with the State of California for three 25 1 reasons. 2 One is to establish ourselves as a viable 3 vendor. Two was to act as a good business partner, 4 and a good corporate citizen, number three. As a 5 partner, we've had the unique opportunity to share 6 many of our best practices as a Silicon based valley 7 company. When talking with a variety of state 8 departments, we've shared the challenge of changing 9 culture through best practices. We opened our 10 procurement practices to the state's Department of 11 General Services so they could better understand 12 Hewlett-Packard's selection process and understand 13 the dynamics of electronic buying. 14 Although HP is a multi billion dollar 15 corporation, there are many similarities between 16 that and the State of California, which is a multi 17 billion dollar public entity. HP is a company made 18 up of many autonomous divisions. The state is made 19 up of many individual departments. The difference 20 is that HP, through the road of hard knocks, has 21 established standards that every division must 22 adhere to. 23 As an example, prior to the establishment 24 of procurement standards, we learned that many of 25 our divisions were paying different prices for the 26 1 same product. My observation of the State of 2 California is up until the advent of leveraged 3 contracts, that may well have been true at the state 4 as well. Today implemented leveraged contracts, 5 much like HP, the state has been able to standardize 6 those contracts, and to begin driving the price down 7 and realize enormous value. 8 As you begin the process of evaluating how 9 the state will proceed ahead with acquisitions and 10 leveraged contracts, in my opinion there is a risk 11 of the state returning to what I refer to as the 12 road of hard knocks. There are reasons why 13 leveraged contracts were created in California, just 14 as why they are currently used in the federal 15 government, and in many, many states, is they 16 clearly focus on getting projects done on time and 17 within budget. Departments can seek out vendors who 18 have a history of success in implementing their 19 specialties in the state as opposed to potentially 20 shifting through minimally qualified responses to 21 well-written RFPs. 22 In my opinion, the reasons for retaining 23 and expanding competitively bid leveraged contracts 24 are for a streamlined procurement process, a gradual 25 building block approach for solving large and 27 1 complex IT issues in a prudent time frame, and 2 three, an effective means to allow small and 3 disadvantaged businesses to play in the mix. And 4 fourth, the opportunity for effective oversight. 5 In my opinion, the issue is not really the 6 contracting tool. It's potentially rather the 7 state's expertise in requiring acquisitions and 8 oversight of those contracts. As you task your 9 department heads, as we do within our own company, 10 to solve business problems with technology, really 11 should be giving them the state of the art methods 12 to meet those objectives. 13 In summary, I ask that you take a look at 14 reinventing as opposed to revolutionizing the 15 procurement process within the state. I would ask 16 consideration on four issues. I would like to see a 17 reinstatement of the $500,000 CMAS threshold. I 18 would like to see recognition of the master 19 agreements like MRA, CAL Store as competitively bid 20 and awarded contracts. The ability to utilize the 21 request for proposal. What it was meant for, not a 22 request for product, but a request for proposal in 23 solving a specific problem. And then finally, to 24 give department heads within the state the authority 25 and the ability to do the job that you hold them 28 1 responsible for. Thank you very much. 2 MS. PORINI: Any questions from members? 3 Would you define what a leveraged contract is? 4 MR. KOSSICK: Leveraged contract, in our 5 opinion, is in your terminology would be those that 6 are put in place, like CMAS, where you established a 7 methodology for competitively bidding the contract 8 and you've set a standard list of folks that you 9 typically do business with. Some coming from the 10 outside that want to do business. There's a 11 criteria to do that. At HP, we have some different 12 standards for selecting the vendor than you do. 13 Because cost obviously on your side is paramount. 14 Technology and time to market on ours is a bit more 15 important. But it is a standard way to play, and it 16 allows for an inclusion of not only large companies 17 like mine, but also small firms. 18 MS. PORINI: Thank you. Our next speaker 19 is Jonna Ward. 20 MS. WARD: My name is Jonna Ward. Hi. 21 I'm the president and chief executive officer of 22 Visionary Integration Professionals, otherwise known 23 as VIP. I want to thank Chairperson Porini and the 24 panel for the opportunity to speak today on an 25 important matter for my small business and for 29 1 thousands of small and large businesses throughout 2 the State of California. VIP is a small, 3 woman-owned company that provides management 4 consulting and information technology consulting 5 services to federal, state and local government 6 agencies. We started in 1996, and now have four 7 offices nation wide, headquarters in Sacramento, two 8 offices in Virginia, and an office in Maryland. 9 Last year it was named as one of the top 100 fastest 10 growing companies in the United States, according to 11 INC Magazine. Two weeks ago the Sacramento Business 12 Journal named VIP the seventh largest woman-owned 13 business in the Sacramento Valley. 14 Over the last two months I have watched, 15 as you have, the unfortunate events unfold 16 surrounding the abuse of the procurement system. 17 While some have denounced these events as simply 18 more evidence of government and private sector 19 corruption,, I believe that these events offer us a 20 rare opportunity to improve, to strengthen, and to 21 reshape the procurement and contracting environment 22 in our great state. Today I would like to suggest 23 four improvements in the system that would benefit 24 all parties, small and large businesses, government 25 agencies, and regulatory authorities, in addition to 30 1 presenting today more detailed testimony for the 2 record. 3 First suggestion is for the state to mend, 4 as opposed to end the California Multiple Award 5 Schedule, CMAS. Since its inception, the schedule 6 has offered government and businesses many 7 advantages. It has significantly increased the 8 number of businesses providing services to the State 9 of California. It has aided small businesses by 10 allowing them to acquire the means to sell to the 11 government without having to compete with large 12 businesses for a schedule. It has relieved state 13 agencies of some of the red tape commonly associated 14 with small procurement processes. 15 Recent events have demonstrated, however, 16 how the good faith efforts of government generally 17 and CMAS specifically have been abused by a small 18 few. Those events are unfortunate and frankly are 19 wrong. Those events, however, do not justify ending 20 CMAS. Rather, the events illustrate the need for a 21 stronger accountability structure around CMAS to 22 prevent future abuses. The written testimony 23 provides and summarizes more detailed specific 24 recommendations for how you can increase this 25 accountability and still maintain the program and 31 1 all of the benefits it offers. 2 My second suggestion is to encourage the 3 availability and use of master service agreements 4 or, MSAs. A competitively procured MSA can be 5 awarded selectively in those companies that receive 6 the highest level of evaluation among all those who 7 propose. 8 My third suggestion is target, compete and 9 award MSAs for specific technology or service 10 areas. Each MSA would be awarded to companies with 11 the best technical skills, references and track 12 record in technology or service area. Written 13 testimony provided summarizes specific benefits and 14 recommendations for the two previous suggestions 15 that I just offered. 16 My final suggestion is to strengthen and 17 reshape the small business environment by adopting a 18 fair, realistic and uniform standard for defining 19 small businesses by industry and by employee base. 20 If you're asking why focus on small businesses? The 21 simple answer is that small businesses are the 22 engine of job creation and economic growth in 23 California. According to the U.S. Census, there 24 were over 650,000 registered firms in the State of 25 California last year. Of these, 97 percent have 32 1 fewer than 100 employees. Collectively they employ 2 40 percent of all private sector personnel. 3 How this panel shapes new state 4 procurement rules will greatly affect many of these 5 companies. Such a restructuring requires a 6 methodical approach that produces a nurturing and 7 dynamic environment for small businesses. Given the 8 current climate, you have the opportunity to 9 improve, strengthen and reshape the small business 10 environment in our great state with the dual aim of 11 creating and producing economic growth. 12 Right now, California state law defines a 13 small business as fewer than 100 employees or $10 14 million in average revenue over three years. This 15 approach to defining a small business, while a 16 valiant effort, is inadequate to account for the 17 multifaceted, complex and varied small businesses in 18 our state. All small businesses are not the same. 19 All industries -- 20 MS. PORINI: Could you wrap up, please? 21 MS. WARD: Yes. All industries are not 22 the same. All employees are not the same. All 23 markets are not the same. And in short, one size, 24 one definition, does not fit all. 25 With this recommendation, I suggest the 33 1 State of California adopt a Uniform Standard System 2 similar to the North American Industrial 3 Classification Standard. In so doing, the newly 4 defined California system would more accurately 5 resemble the economy we work in today. Further, the 6 system would offer consistency with the federal 7 government in many states, as well as Mexico and 8 Canada. 9 I hope the recent unfortunate abuses of 10 our procurement and contracting system allow us to 11 make positive changes that simultaneously serve 12 state departments and agencies, regulatory 13 authorities, small and larges businesses, and the 14 taxpayers of California. 15 MS. PORINI: All right. Questions from 16 members? 17 MR. ALLENBY: You're going to give us this 18 prepared statement? 19 MS. WARD: Yes. 20 MS. PORINI: Our next speaker is Terry 21 Joslin. 22 MR. JOSLIN: In the interest of time and 23 redundancy, I think we'll pass and submit ours in 24 written form. 25 MS. PORINI: Thank you very much. 34 1 Western Blue is your company. Okay. Thank you. 2 Our next speaker is Thomas Nelson. 3 MR. NELSON: I also want to pass on that. 4 MR. ALLENBY: Are you submitting testimony 5 though? 6 MR. NELSON: No, sir. Not at this time. 7 MS. PORINI: Next speaker is Sandrah 8 Peterson. 9 MS. PETERSON: I too pass. 10 MS. PORINI: Next speaker is Stan Van 11 Vleck. He also submitted written -- 12 MS. JONES: Yes. We have his. 13 MS. PORINI: We do have those on our -- we 14 have written comments on our desk. Next speaker is 15 Chris Nau, Standfield Systems. 16 MR. NAU: We'll reserve the option to 17 provide written commentary as well. 18 MS. PORINI: We must have said 19 something. 20 MR. JANSSEN: Why don't you want to talk? 21 This happened in Los Angeles as well. A number of 22 people signed up and then said they were declining 23 to speak at this time. Is there any particular 24 reason? 25 MR. NAU: I think the speakers have 35 1 covered the issues as well, and they would be 2 redundant. 3 MS. PORINI: Don't worry. We still have 4 two more pages. Andy Conn. 5 MR. CONN: Yes. I have a booming voice. 6 Can I speak here? 7 MS. PORINI: If you could come forward. 8 MR. CONN: My name is Andy Conn. I'm from 9 a company called Systems and Space, Incorporated 10 located in Pleasanton, California. I came today 11 with a question purely because I called Steve Lough 12 over at CMAS and he recommend that this be the forum 13 to ask a question. Obviously it doesn't appear to 14 be, so I'll turn my question into a comment. 15 I've been doing business with the State of 16 California for about 15 years. And we were 17 absolutely thrilled when the CMAS contract came 18 about, those of us that were doing business in the 19 state in the '80s and '90s when low bid was the key 20 to getting a state contract. Those of us also 21 remember in the early '90s when we put our systems 22 in and took out all the crap that was bought by the 23 State of California. Excuse the saying. 24 I called Steve Lough because it was 25 exasperating because the purchasing agents I'm 36 1 running up against have been mandated to get three 2 quotes. And in talking to the people at CMAS, they 3 assured me that three quotes didn't necessarily mean 4 low bid. But they had to get three quotes. 5 What I'm running up against is purchasing 6 agents that are scared to death right now and going 7 with the situation of low bid. Low bid does not 8 work for you guys, and it certainly doesn't work for 9 me, because I will never be low bid in what I do. 10 However, I do have 70 percent of the marketplace 11 here, so I must be doing something right. 12 My frustration right now is with the fear 13 that is seeming to come from purchasing right now 14 because they've been scared into a situation where 15 they are accepting low bids. And that's basically 16 what I wanted to say. Thank you very much. 17 MS. PORINI: All right. Thank you. 18 Questions or comments from the panel? 19 MR. ALLENBY: I think that is a ligitimate 20 point. And we're going to be very careful in our 21 deliberations in trying to deal with that. And one 22 of the things that we have is CMAS, and one of the 23 things that's in the executive order I think that is 24 it does not change the process that's in place right 25 now. So it's -- theoretically, although you may 37 1 have some nervous purchasing agents, if I were a 2 purchasing agent I'd be a little nervous myself. 3 But the system is not any different. And hopefully 4 whatever we do continues the good parts that are 5 there. 6 MS. PORINI: Any other comments? 7 MR. JANSSEN: I'm curious what the 8 question was. 9 MR. CONN: The question was what can we do 10 as contractors. We're on CMAS contract, but are 11 definitely not the lowest bidder. Because CMAS is 12 set up to get the best price and best value. What 13 can we do, those of us that are frustrated by having 14 fantastic products, but when they come to the bid 15 process, the purchasing agents go with low bid. 16 MR. JANSSEN: I think that's a very 17 relevant question. I agree with Cliff. 18 Absolutely. 19 MR. CONN: Thank you. 20 MS. PORINI: All right. Our next speaker 21 is Harris Miller. 22 MR. MILLER: Thank you, Madam Chair. My 23 name is Harris Miller, president of Information 24 Technology Association of America. I'm going to 25 catch a red-eye, so I can stay for awhile. 38 1 I appreciate the opportunity to be here. 2 Our association ITAA, which has been in existence 3 since 1961, represents over 500 IT companies 4 throughout the United States, including many 5 companies that are either headquartered in 6 California or have a major operation in California. 7 And we do have a western region office based in San 8 Mateo, California. Many of our companies are proud 9 to be vendors selling to the California state 10 government, which is one of the largest purchasers 11 of IT products and services in the world. 12 Part of what I'm going to say today will 13 be repetitive of what some of the other speakers 14 said. I don't think I can speak with as much 15 passion as Mr. Conn did. But certainly we do 16 believe the statement that Winston Churchill said 17 that a cat who steps on a hot stove will never step 18 on a hot stove again, but neither will it step on a 19 cold stove. 20 And the concern that we have is that the 21 officials here in California may be, understandably 22 because of the presentation of the IT process, 23 overreacting to some of the problems that have 24 occurred, including the interim guidelines. But we 25 do not want to get into a situation if we think back 39 1 to earlier days, procurement of $400 toilet seats, 2 back to the bad old days where every procurement 3 became an individual one after procurement and the 4 taxpayers lost the incredible leverage they have. 5 Long before the recent publicity over the 6 contractor process here in California surrounding 7 the Enterprise License Agreement, ITAA's member 8 companies have been working with California state 9 officials in ways to improve the existing CMAS 10 program. Because we believe the CMAS program has 11 provided many benefits to the taxpayers of 12 California, to the state agencies that use the 13 contract, and to the vendors who have the 14 opportunity to bid. There are still some provisions 15 in the CMAS program as it existed before the interim 16 guidelines were issued that made it difficult, for 17 example, for many companies to be added to the CMAS 18 schedule. In fact, it tended to discourage some 19 companies from doing that. Let me make some general 20 points. 21 First of all, the process that would try 22 to overcentralize decision-making in California in 23 terms of IT procurement would be wrong-headed. Any 24 attempt to centralize the system would be a 25 mistake. That may be again the tendency to 40 1 overreact. But the simple reality is that a state 2 as large as California with as many organizational 3 units, with as many buying units as you have would 4 not possibly operate through a centralized 5 purchasing process. You would end up with 6 procurement gridlock. 7 Secondly, we believe that many attacks on 8 the California multi-award schedule are, in fact, 9 unjustifiable, as many of the previous witnesses 10 have already testified. The CMAS has allowed 11 businesses large and small to produce great value 12 for the taxpayers of the State of California. 13 And it's also important to reemphasize a 14 point that should be obvious, it's not always, that 15 the CMAS is a competitive process. It's a 16 competitive process when bidders are offering the 17 best price and the best value to the state, because 18 of the tremendous buying power that you have in the 19 state. So any classification of CMAS as a no bid or 20 non-competitive system is simply a misstatement of 21 the facts. 22 The master service agreement, likewise 23 cuts red tape and should be promoted. Again, this 24 is a competitive process, not a no bid or 25 non-competitive process. And I hope that the panel 41 1 will continue to emphasize that as it moves 2 forward. 3 Keep in mind that the old RFP process, 4 aside from the flaws that the other previous 5 speakers identified, had one most fundamental flaw 6 as it applies to IT. And that is inevitably they 7 were always buying old technology. Why was that? 8 Because of the length of the RFP process. 9 Inevitably buying last generation or two generation 10 or three generation old technology, simply because 11 the process took so long. And again, what the CMAS 12 program and the master service agreement program 13 does is allows you to be confident that your 14 government purchasing officers are buying the most 15 current value at the best price and the best 16 value. 17 You've already heard how the interim 18 guidelines have intentionally or unintentionally, as 19 the case may be, frozen the system both in terms of 20 what's technically allowed, but more importantly in 21 terms of the attitude of fear among many agencies. 22 And I think the panel might be able to give 23 reassurance, and I thought Mr. Allenby gave 24 assurance, they should not feel constrained to the 25 elements out there. 42 1 Let me move on to specific suggestions 2 we've been making in terms of improving the CMAS 3 program. Number one, you need to get more vendors 4 on the program. The more vendors, the better. We 5 don't care whether it's large or small. The more 6 competitive it is, the best chance California 7 taxpayers have of getting the best value and 8 technology. 9 Secondly, the terms and conditions must be 10 relevant to the transaction complexity. 11 Unfortunately, California has no terms and 12 conditions issue to develop its technical issues. I 13 know some other witnesses will testify on it. But 14 the terms and conditions need to be flexible, just 15 as they are in the flat multiple awards schedule 16 system, recognizing again the buying power that the 17 state has. 18 Thirdly, we believe we need much better 19 training and education of the procurement 20 officials. This process is very important. And 21 we're not meaning to denegrate in any way the 22 quality of state employees. That's not the issue 23 here. The issue is that this is a very complex 24 process. At the federal level, for example, there's 25 actually an acquisitions university used by the 43 1 Department of Defense to train procurement 2 officials. They go to the equivalent of a Harvard 3 business-type program so that they understand the 4 technology of the business, the financial aspect, 5 the procurement process well, or better than the 6 vendors from which they're making these purchases. 7 A smart buyer is good for my members. A smart buyer 8 makes the right decisions. So we would encourage 9 you to do what you can to move the process along to 10 make sure that the officials have the best training 11 and best knowledge possible. 12 Let me move on to another issue which is a 13 piece of legislation which I know you mentioned 14 earlier, Madam Chair, regarding the conflict of 15 legislation. We have been talking to Senator 16 Bowen. But we believe that the principle behind the 17 legislation is fundamentally flawed. 18 If you were deciding whether or not to 19 have a heart surgery done, you would find the best 20 heart surgeon. And if that heart surgeon 21 recommended surgery, you still might use that 22 individual, even though he was the architect or the 23 stratigist, because he or she is the best heart 24 surgeon. 25 Similarly, you don't want to be in the 44 1 situation where you eliminate the best IT companies 2 from helping design and architect procurement and 3 come up with a flat prohibition against them bidding 4 to do the work because you eliminated some of the 5 best firms who might decide not to help with the 6 architecturing and want to wait for the 7 implementation. So we work with Senator Bowen, but 8 we think it is fundamentally a mistake that 9 architectural implementation should be separated. I 10 think I've run out of my four minutes at this point 11 in time. 12 The basic message is that California 13 stands at an important crossroad. We believe this 14 panel is focusing on the need to deal with the 15 system that continues to give the taxpayers the best 16 value and takes advantage of the brilliant IT 17 industry you have here in your state. Thank you 18 very much. 19 MS. PORINI: Before you leave, would you 20 be sure that you leave the rest of your comments 21 with us? I know you skipped several pages. Do we 22 have any questions from members? 23 MR. JANSSEN: I'm not sure what the term 24 for this is. But what is your association's 25 position on a department or a unit selecting a 45 1 vendor and then that becomes the vendor of choice, 2 and you don't go out -- so you pick, you know, NEC, 3 IBM, HP, whatever the industry is, and you don't, 4 every time you need new equipment, start all over 5 again. You've made that decision that's going to be 6 your vendor. 7 MR. MILLER: Again, the fact is, 8 Mr. Janssen, the technology changes. And the 9 reality is, again, the smart customer learned that 10 the old days of the IT industry in which you bought 11 one mainframe product, you were then locked into 12 that mainframe product and all the associated 13 software and services for the rest of your 14 foreseeable days as a government employee. Those 15 are long gone. Technologies are now inoperable. 16 So the reality is even if you choose one 17 particular technology or hardware or software or 18 service, you're going to be in a situation with 19 your -- in most cases, you still have a lot of 20 flexability. And the reason is because the IT 21 industry itself has changed the stovepipe world 22 where you got locked into one and you had to do that 23 the rest of your career in terms of the customer. 24 Those days are gone. I don't think -- you don't 25 want a prohibition the other way where you use a 46 1 hardware company as your hardware platform, 2 therefore eliminate them and say they cannot come in 3 and bid on servicing. That would be a mistake. 4 But I think procurement officials and 5 those who understand IT realize that the bad old 6 days, once you made a commitment to a particular 7 platform, committed you for 10 or 20 or 30 years. 8 Those days are gone. That's the beauty of the 9 internet. That's the beauty of inoperability. What 10 you're seeing right now, XML technology, what 11 agencies and departments and companies are finding 12 is that old databases that before they couldn't tie 13 together because they were built on separate 14 platforms with the XML actually share information. 15 A cross database. And you don't have to rip out the 16 roots and start all over again. And you can use 17 so-called legecy systems and use the web-based 18 technology to share information. And that brings 19 more flexibility to the customer marketplace. 20 MS. PORINI: Other questions? Okay. 21 Thank you very much. Next witness is Bob Sherry. 22 MR. SHERRY: Good afternoon. My name is 23 Bob Sherry. I'm a partner in the law firm of 24 Kirkpatrick and Lockhart in San Francisco. I 25 represent technology companies in their contractual 47 1 dealings with federal, state and local governments 2 from offices in both Washington and San Francisco. 3 For four years during the '90s I was responsible for 4 preparing comments on behalf of the American Bar 5 Association Public Contracts Section on reform and 6 technology contracts and dealings with the federal 7 government. 8 With that background, I want to talk 9 briefly today about one of the principal problems 10 that I see in the CMAS program today, which is the 11 standard terms and conditions the CMAS currently 12 use. My written remarks address it in a great more 13 detail. Currently the state imposes the same terms 14 and conditions on CMAS vendors regardless of the 15 nature of the transaction. Consequently, when a 16 vendor is trying to make a simple off-the-shelf 17 transaction to the government, these terms and 18 conditions are often onerous and very out of sync 19 with the standard commercial practice in the 20 industry. 21 I can tell you I'm personally aware of a 22 number of hardward and software vendors that won't 23 enter into CMAS contracts with the state or renew 24 existing contracts because the state no longer 25 exercises flexibility for off-the-shelf purchases. 48 1 The loser there is the state, which is deprived of 2 the opportunity to purchase IT products and services 3 from multiple vendors at better prices. 4 Over the last six months ITAA and DGS have 5 had some discussion, and ITAA submitted some 6 recommendations about potential improvements in 7 terms and conditions in the CMAS program. One 8 recommendation we've made is revise the terms and 9 conditions consistent with California procurement 10 law, and to take advantage of proven procurement 11 reforms in similar programs such as those in the 12 federal General Services Administration Multiple 13 Awards Schedule program. 14 I want to talk very briefly now about the 15 legal and policy support for that, as well as a 16 couple of recommendations. As you're likely aware, 17 the California Public Contract Code authorizes the 18 state to enter into multiple award contracts for IT 19 products and services. And in particular, that 20 public contract section said that DGS may contract 21 with suppliers who have multiple contracts on the 22 same terms, conditions and prices if the vendor is 23 willing to do so. 24 The current GSA contract policy emanated 25 from procurement reforms when it came down in 1994 49 1 and 1996, and in particular from a set of 2 regulations enacted in 1995. And those provide for 3 so-called commercial item contracts, including 4 off-the-shelf hardware and software is somewhat 5 revolutionary. What the regulations say is a 6 standard contract for technology products in the 7 federal government ought to be included in two 8 clauses. Those that are required by law, and those 9 consistent with standard commercial practice. 10 What the federal regulations do, the 11 schedule program creates a false set of terms and 12 conditions, but also provide that for many terms and 13 conditions, the contractor and the government may 14 negotiate in things such as a standard commercial 15 line, standard commercial warranties, standard 16 indemnities, standard property provision and the 17 like. So what you end up with is a contract that is 18 very commercial like, and it is one that the federal 19 government is going to find it works with great 20 success in that market. So what it means is you say 21 it was authorized to and regularly does permit 22 contractors to include their standard terms and 23 conditions of sale or license in their contract. 24 Despite the fact that the statutory 25 authority for the CMAS product is predicated upon 50 1 the pricing, terms and conditions of GSA MAS 2 contracts, the CMAS terms and conditions include 3 many clauses that go far beyond standard commercial 4 practice in the IT industry. To name just a few, 5 warranties, unlimited indemnity, and merchantable 6 property provision. And my written remarks go on 7 about that at some length. 8 The exhaustive nature of the terms and 9 conditions is a major obstacle in attacting vendors 10 to the CMAS program. I mentioned many vendors won't 11 enter into CMAS contracts in the state. Many will 12 only sell through resellers. The result is that the 13 state generally pays a higher price and has no 14 contractual remedies against the vendors themselves 15 in the event of a performance or other a contractual 16 problem. 17 What we have found in the federal arena 18 since GSA adopted this streamlined contracting 19 program in the '90s is eponential growth in the use 20 of multiple awards schedule contracts. Roughly 21 6,000 vendors, manufacturers and resellers currently 22 participate in the federal multiple awards program, 23 representing a 100-percent increase in the number of 24 IT vendors participating in the program since 1998. 25 We think as a result of the reform under 51 1 GSA schedule programs we've gone from $1.5 billion 2 in 1995 to over $10 billion in annual sales 3 currently. And this is a direct result of the 4 streamlined procurement vehicle GSA now uses. 5 I want to make one other brief point, and 6 then get on to a brief summary of the 7 recommendations. We recognize that the 8 one-size-fits-all approach is inappropriate for 9 California IT procurement. Complicated systems 10 integration efforts are likely not suitable 11 candidates for streamlined CMAS contracts, which is 12 the one I'm discussing today. And the state can and 13 should insist on greater contractual protection in 14 such efforts. Appropriate policies and procedures 15 can be implemented to segregate these types of 16 purchases from off-the-shelf purchases or licenses 17 of IT hardware, software and services. 18 Let me talk briefly about the three 19 recommendations. First and foremost, the state 20 should revise the current CMAS procurement policy to 21 coincide with the provisions governing similar 22 federal procurements, rather than utilize one 23 standard set of terms and conditions for all CMAS 24 contracts. The state should instead base a vendor 25 contract on the terms and conditions contained in 52 1 the vendor's schedule contract used for its CMAS 2 offer, plus any terms and conditions required by 3 California law. The state already is getting the 4 best price available, since vendors generally must 5 provide most favorable pricing to the federal 6 government in their GSA MAS contracts. 7 Second, where the state determines that a 8 vendor's default terms don't adequately protect the 9 state's interests, they could adopt default terms 10 like those contained in federal regulations. The 11 result would be a set of terms and conditions that 12 would be far less exhaustive than the terms and 13 conditions that currently make up CMAS contracts. 14 Rather, we have presented DGS on behalf of the ITAA 15 with a matrix that reflects the standard default 16 terms and conditions generally appearing in federal 17 GSA IT contracts. We would be happy to make that 18 available to the task force if you so choose. 19 Third and finally, where a vendor's 20 commercial terms and conditions are insufficient to 21 protect the state in complex transactions, such as 22 system integration efforts, there's nothing to 23 preclude the state from seeking transaction-specific 24 terms and conditions for complex negotiations. The 25 state is empowered to determine whether any 53 1 acquisition should fall under CMAS, or whether the 2 complexity of the procurement requires 3 transaction-specific terms and conditions. 4 In conclusion, the statutory authority for 5 the CMAS program contemplated that CMAS contracts 6 would be based on the GSA MAS program's streamlined 7 contract pricing, terms and conditions. The success 8 of the GSA MAS program over the last seven years 9 demonstrated the CMAS program would benefit from 10 revising its terms and conditions to be coextensive 11 with their federal counterparts. 12 That's the summary. And like I said, my 13 written testimony has some more detail. 14 MS. PORINI: Great. Please submit your 15 written testimony. Do I have questions from 16 members? 17 MR. JANSSEN: Is the department planning 18 to, or I assume you have looked at the federal GSA 19 standard conditions to determine whether or not 20 they're appropriate? I don't want to discuss that 21 now. I want to make sure at some point, Ralph, that 22 you guys take a look that the -- 23 MR. CHANDLER: The answer is yes. We have 24 and we are. 25 MS. PORINI: The answer is the Department 54 1 of General Services is looking at the federal GSA 2 standards? 3 MR. CHANDLER: Yes. 4 MS. PORINI: Thank you. Our next speaker 5 is Mike Murray. 6 (Break taken in proceedings.) 7 MS. PORINI: I've had a couple of 8 questions about where we are on our speaker list. 9 We have 17 speakers left. We will continue with all 10 the speakers. Mr. Janssen may have to leave, but we 11 will stay and listen to each of you. 12 MR. ALLENBY: Yes. 13 MS. PORINI: The next speaker up is Mike 14 Murray. Paul Pendergast. 15 MR. PENDERGAST: Hello. My name is Paul 16 Pendergast. I have a small business based in San 17 Francisco. I think I'm actually the first person to 18 speak who was not an IT person. So you get a 19 different perspective here. I will say that I'm 20 also a member of the DGS Small Business Council, as 21 well as the governor's small business task force. 22 But my business today is specifically my very own, 23 as well as my company, most comments I was going to 24 say, so I do want to underscore three specific 25 areas. 55 1 One is the desire to increase 2 participation on the part of small businesses and 3 businesses overall in the bidding and contracting 4 process. And I think it's very interesting to know 5 that in California there are 2.5 million small 6 businesses which are the technology commercial, but 7 of the 2.5, business certification only has 1,000 8 businesses certified to be a part of the bidding 9 process. So that means that less than 1 percent of 10 California small businesses are participating in the 11 process. 12 So I want to underscore we need to get 13 more people involved in the process. Because when 14 administered correctly, CMAS is an excellent 15 program. The master agreement is an excellent 16 program. So we need to get more people involved in 17 the process. And I'm very much interested in seeing 18 how the task force can make that happen. 19 I was exceptionally pleased to see in the 20 interim guidelines they mentioned with the three 21 bids, one of those bids must be from a small 22 business. That is excellent. That brings new 23 people into the process. That provides people with 24 a trust and a comfort level, being a small business 25 person. 56 1 Second thing is the terms and conditions 2 are onerous, and they're ugly, and they're a 3 significant barrier for small businesses to 4 participate in contracting processes. I'm the first 5 to admit that I'm don't have $400 an hour to spend 6 with an attorney to review the process. So I know a 7 lot of small businesses don't participate, because 8 of the terms and conditions. So please, please, 9 please, let's have some reform in that area. 10 Lastly, education. We strongly -- my 11 company urges you to provide more education for the 12 contracting participants and contract officials 13 within the State of California. DGS has a lot of 14 contracting officials. But in our experience 15 dealing with some of the contracting offices in 16 other parts of the state, those are small offices, 17 they, certainly during this period, are extremely 18 frightened by the process and the changes going on. 19 But I'm not sure we're really clear on the process 20 before this whole thing happened. So please 21 encourage more time, more energy, and more money to 22 the education process. Thank you. 23 MS. PORINI: Questions from any of our 24 members? I think we're hearing some themes across 25 the board here. 57 1 MR. ALLENBY: We sure are. 2 MS. PORINI: Okay. Next speaker is John 3 Broughton. 4 MR. BROUGHTON: Thank you for addressing 5 us here today. My name is John Broughton with 6 Electric Lightweight, Incorporated, representing the 7 telecommunications industry. I know there's a lot 8 of IT officials here today representing hardware and 9 software. We were actually asked by several of our 10 existing state agency customers to come in and speak 11 today and address the panel today a little bit about 12 some of their issues and concerns and the feeling 13 that their hands may be tied with their current 14 purchasing vehicles. 15 And we see the executive order as a great 16 opportunity for a company such as ourselves to 17 compete for services in the telecommunication 18 arena. So we applaud your efforts. Two points we 19 want to make. 20 Number one, we would like to see maybe a 21 reconsideration of the threshold of $100,000 22 possibly being lowered. Some of the reasons behind 23 that is currently the State of California has one 24 vendor telecommunications service. That's Pacific 25 Bell under the Cal Net 2 contract. A lot of our 58 1 agencies have day-to-day operation. They need 2 things such as redundancy issue with functionality 3 and cost. That contract was executed approximately 4 five years ago, and the pricing is reflective of 5 five year old pricing. A lot of products and 6 services out there today have lowered quite 7 significantly in the marketplace up to one-third of 8 the cost. So we'd like to see the threshold to be 9 something below $100,000. 10 And number two, even in a competitive bid 11 process, currently our MSA on file with DGS is not 12 going to be renewed next month. So it's my 13 understanding that for an agency to re-contract, 14 even if they go up to a bid process, they would have 15 to execute their own MSA independent of DGS. And a 16 lot of the agencies have expressed reluctancy to do 17 that, due to the fact there are not guidelines and 18 rules of engagement entering into MSA agreements 19 outside of DGS. 20 So we ask the panel to look at guidelines 21 how the MSAs would be distributed, or even managed 22 possibly through DGS. And that's it. 23 MS. PORINI: Okay. Questions? 24 MR. ALLENBY: Could you go into that MSA 25 more thoroughly? Because I'm not sure I followed 59 1 what the problem is. You indicated that you were 2 not going to renew your MSA? 3 MR. BROUGHTON: No. DGS has elected not 4 to renew our MSA. We've had an MSA on file with 5 General Services since 1996. It was renewed again 6 in the year 2000 for a two-year period. It expires 7 August 15th. And I've received a letter informing 8 us we were not going to be renewed, due to the fact 9 that a lot of products and services are covered 10 under the Cal Net contract. And there's a schedule 11 of mandatory products and services that all state 12 agencies must buy from Cal Net. And there's only 13 one vendor. So again, a lot of our agencies are 14 feeling that their hands are a little bit tied. 15 MS. PORINI: Any other questions? Thank 16 you. Backtrack. Mike Murray? Joey Tomko? 17 MR. TOMKO: My name is Joey Tomko with 18 GSA. I'm speaking on behalf of the small 19 businesses. Not to be redundant -- 20 MS. PORINI: GSA is? 21 MR. TOMKO: Government State Association. 22 MS. PORINI: Thank you. 23 MR. TOMKO: But a lot of people have asked 24 me to come up and speak, so I'm going to do that. 25 Just touch real quick on a few things. I don't 60 1 think we're going to resolve anything in four 2 minutes. The first thing, I know a lot of people in 3 this room. And no one in this room has done 4 anything wrong that created this issue. This whole 5 thing was brought about because people did not go 6 through procurement channels. And that's what 7 happened is we didn't follow the rules. Nobody in 8 the room is one of those people. We're hard working 9 people and follow the rules and trying to make a 10 living. 11 What has happened because of this 12 executive order is there is the fear of nobody is 13 giving business to anybody. And the low ball right 14 now, as we call it, there's no margin, which is our 15 profit. And I'm a small business. And with the 16 governor's order, 25 percent of small businesses, 17 when you play the low margin thing, what happens is 18 people are out there bidding it one point, two point 19 margin, which you can't stay in business. And you 20 either have a small business that's working out of a 21 garage, it will be gone tomorrow. Or you have big 22 guys that can afford to live on a two point margin 23 until all the small businesses are out of business, 24 because they can't survive. And that's what has 25 happened in the last two months with the fear 61 1 factor. 2 I personally have been working on some 3 projects for over two years. We're value added 4 resellers. There is no value added, because it 5 doesn't matter. I'm not going to put in two years 6 of hard work bringing in information, bringing in 7 manufacturer reps and whatnot to then just let some 8 guy walk off the street that's never walked in the 9 door of the agency. And one of the deals, at one 10 point you lose, I lose, the economy of California 11 loses, because of the 2,000 CMAS vendors, plus you 12 will be out of business, and we'll be back to the 13 old way where the big guys can dictate the pricing. 14 If there are people abusing the system, 15 let's go after the abusers. Don't go after the 16 system. If there are people -- a senator made a 17 flippant remark saying CMAS, we stand 500 on top of 18 500 on top of 500. If you want to look at it that 19 way, fine. If it's abuse, investigate it. Stop the 20 abuser. But the reason is the best value means this 21 person is the most competent. This person has come 22 through in the past. This is why I get up every 23 morning and I walk the streets and I go in and say 24 hi and talk to people. You've taken that away. You 25 haven't -- the governor has the $100,000 in our 62 1 industry. 2 I'm lucky on $100,000 to make a six point 3 margin. And now I have to bid 100, 100, 100, 100, 4 instead of stacking 500. You're encouraged signing 5 100, 100, 100, 100, you know. The technology now, 6 the margin is very thin, but the dollar amount is 7 high. 8 And that's why CMAS raised that dollar 9 amount years ago. Because you can't get anything 10 done for $100,000. Okay? And nobody's going to 11 spend a lot of time and investment to get a deal for 12 $100,000. They're going to make, you know, maybe 13 6,000 bucks if they're lucky. So we need to help 14 CMAS by giving CMAS more resources. I've been 15 working with them for years. 16 I worked with KARA, and I tried to get 17 feedback. There were things that left it wide open 18 to go directly to manufacturers and put the CMAS out 19 of business, and the tax dollars going out of state, 20 et cetera, et cetera. They need resources. They 21 need to become electronic. Right now it's all 22 papers. You bring in stacks and stacks of paper and 23 they get the bad name where you can't audit. Your 24 paperwork isn't there. It's because the government 25 has not given them the resources to get up to speed 63 1 to be able to do a job to where you can feel 2 comfortable that it's not being abused and catch the 3 abusers if there are some. 4 Because the paperwork of a GSA schedule 5 when it is printed is worthless. I will tell you 6 that. And anybody in here that says different is 7 lying to you. Because the pricing of the product, 8 by the time that thing is printed, is gone. The 9 pricing is dropped. The product has disappeared. 10 It's new. 11 The gentleman earlier said that the life 12 cycle, you're doing it the old way. Two years after 13 procurement, you're getting old product. Nowadays 14 if you wait 30 days, you're buying old product. 15 It's a different environment. CMAS lets me, as a 16 small business, compete for business at $100,000. 17 Now you're putting me out of business, and I'm a 18 small business. 19 The fear out there right now is they don't 20 care the two years I invested in this product. I 21 ended up getting $100,000 out of the deal. They're 22 giving it to whoever comes in at the lowest price, 23 because they're afraid right now. Even though they 24 know and you indicated to them you go in under 25 $100,000, you can still do it. Nobody wants to be 64 1 on the cover of the Bee. And John Hill did that 2 thing about CMAS and attacking CMAS. CMAS is the 3 best thing that's ever happened to this place. And 4 we're attacking CMAS for something that happened 5 outside of procurement. It's wrong. Make the 6 people that abuse it accountable. But don't throw 7 the thing out. You're going to throw out small 8 businesses. You're going to throw out the people 9 that work every day. Even the people here with the 10 deep pockets. 11 It can't be fixed here in four minutes. 12 But you're attacking the wrong avenue and the wrong 13 people. If there's abuse, go after the people, 14 don't go after the system. Because if this goes on 15 any longer, you're only going to have the big boys 16 left, and you're going to be back to where you were 17 seven years ago, longer than that, to where you get 18 the old product and you're paying more than you need 19 to. Thank you. 20 MS. PORINI: Questions from members? All 21 right. Our next speaker is Jim Francisco. 22 MR. FRANCISCO: I'll pass. 23 MS. PORINI: Okay. John Mufich. Garther. 24 MR. MUFICH: I'll pass. Thank you. 25 MS. PORINI: Bruce Wilson? Sara Daniels, 65 1 Beyond Boundaries? Okay. Jim Lites. 2 MR. LITES: Good afternoon. Jim Lites 3 with Cingular Wireless. I am the lobbyist for 4 Cingular. And as their lobbyist, I feel a little 5 bit compelled to point out that I was their lobbyist 6 only. I do not have a sales arrangement with the 7 company. They just asked me to deliver their 8 thoughts specifically about liability limitations to 9 you. 10 Through a series of conversations with 11 individuals at General Services, we've been told 12 that for wireless services products there are 13 several MSAs currently in place. These, by the way, 14 were put out to bid before Cingular was Cingular, so 15 they did not participate in the bidding at that 16 time. But we have been told that those MSAs 17 contained a limitation of liability of, I believe, 18 $200,000. 19 Earlier this year Cingular went through 20 the process of becoming a CMAS vendor and went up 21 until the point of signing the contract, and asked 22 that several modifications be made, including the 23 application of the liability limitations. All of 24 their requests were rejected, and the communication 25 from General Services didn't indicate why some of 66 1 those things were rejected. 2 And I won't go into the other ones. The 3 liability question was the biggest issue for them. 4 So they have chosen not to go ahead and become a 5 CMAS vendor up until this time as they attempt to 6 try and negotiate, if possible, a liability 7 limitation. And their biggest question is if a 8 liability limitation is adequate or appropriate or 9 however you might want to look at it for an MSA, 10 then why would it not be applicable for CMAS for, in 11 essence, the provision of the same product and 12 service? 13 And so we were encouraged to come and 14 participate in this process and make that comment. 15 And I think that whatever this task force does to 16 reform or modify the CMAS process, we would 17 encourage you to look at specific things that are 18 the same, and whether or not an MSA or CMAS contract 19 is the structure for like services and products. We 20 think there should be consistency between the two 21 different structures for these products. 22 And we think if that were achieved, the 23 state would really benefit. Because then you 24 have -- if you have consistency among the contract 25 structures, then you'll ultimately get better 67 1 pricing and service and greater competition from 2 those that would compete to either be a CMAS vendor 3 and an MSA vendor. That's it. Thank you. 4 MS. PORINI: Okay. Questions from 5 members? Russ or Ralph, would you get back to 6 Mr. Lites with regard to the question? Thank you. 7 You have to understand, we don't have the expertise 8 to answer all of your specific questions. 9 MR. ALLENBY: That's an understatement. 10 MS. PORINI: Paul Danner? Dauer. 11 Sorry. 12 MR. DAUER: As those of you know me know 13 I've never passed on the opportunity to speak. I 14 apologize. My name is Paul Dauer, and I am 15 appearing in a personal capacity. And although I'm 16 an attorney who's practiced in this field for 35 17 years, I want to emphasize my remarks are my own and 18 don't represent the interest of my clients past or 19 present, including the Department of General 20 Services, for whom I worked for an extended period 21 of time. 22 I want to say a couple of things. Many of 23 the problems that have been addressed by the 24 speakers before me, which could, in fact, be handled 25 within the scope of the existing system. I would 68 1 agree with the speaker who said that a big part of 2 the problem is the education of the procurement 3 professionals by the state. And I would submit to 4 you that it is in large part because they are not as 5 fully educated as they should be that they are 6 reluctant to consider solutions within the scope of 7 the existing system. 8 Let me just point out in the interest of 9 full disclosure, I represent the low bidder on the 10 Computer Store contract. Also, in the interest of 11 full disclosure, contrary to the representation that 12 was made to you that the contract is now final, the 13 judgment is still subject to appeal. Also, they 14 failed to mention to you that in that master 15 services procurement that the state is paying a 16 minimum premium of $50 million per year for computer 17 projects. That's $50 million over what the state 18 itself estimated the annual needs were. And this is 19 a four-year contract. So that's a $200 million 20 premium. That's the minimum at the high point of 21 the three contracts awarded. The state's paying 22 $100 million a year in premiums. So $400 million 23 over the course of four years. 24 What was the low price? Interestingly 25 enough it was $100 million. Was within $3 million 69 1 of what the state estimated. That's what you need 2 to know about the multiple schedule award contracts 3 that the state -- master contracts that the state 4 uses. 5 Well, I have the distinction of being one 6 of the few individuals that's involved in the 7 comprehensive reviews of the California state 8 contracting law, policy and procedures that was been 9 used in the last 40 years. Half of my career was 10 spent working on the state side, half of my career 11 working on the private side representing the many 12 public entities. 13 The principal problem with the state's 14 procurement process is a fundamental organizational 15 conflict of interest between acquisition policy and 16 goals and program responsibilities of agencies 17 resorting to the use of public contracts. That 18 problem is most clearly illustrated by the 19 Department of General Services itself, which not 20 only sets acquisition policy and enforces oversight, 21 but is directly involved in programs of contracting 22 for construction through the State Architect's 23 Office, its own services needs, for purchases of 24 goods and telecommunications and information 25 technology goods and services through the Division 70 1 of Procurement. 2 The Department of General Services is 3 vested with authority to decide service and 4 consulting service protests which often involve the 5 conduct of General Services' personnel. On 6 purchases and information technology and 7 telecommunications contracts, the venue for protest 8 oversight is the Board of Control. And those 9 protests inevitably involve the question did the 10 Department of General Services staff adequately and 11 properly perform their job. 12 I submit today that's a conflict of 13 interest that cannot be avoided. This mixing of 14 program and oversight authority blurs the actual and 15 apparent independence necessary to assure the 16 credibility and integrity of the state's procurement 17 expenditures. It also violates the provisions of 18 the World Trade Organization Treaty on Government 19 Procurement, which the state of California is 20 subject to, and dictates procurement controversies 21 must be decided by a wholly disinterested party. 22 Fundamental to remedying the defects in 23 the existing procurement system and improving it 24 consistent with best and most effecient modern 25 practices is bifurcation of the policy setting and 71 1 oversight functions from the procurement program 2 activities. The model for this is the Office of 3 Federal Procurement Policy, an organization within 4 the Office of the President. 5 A comparable but not identical office 6 within the Office of the Governor would eliminate 7 the organizational conflicts of interest noted 8 above. An Office of California Acquisition Policy 9 should be the sole authority for articulating and 10 implementing procurement policy, and should be 11 charged with developing standardized contract forms 12 and necessary implementing contract regulations. 13 The use of standardized regulatory procedures and 14 forms would minimuze the necessity for individual 15 transactional review and approval which is an 16 insitutional feature of the existing system, and one 17 which interjects the Department of General Services 18 unproductively into the procurement process of 19 program agencies. 20 There should be established within COAP a 21 division staffed with administrative judges and 22 experienced in procurement with authority to hear 23 all bid protests for any type of porcurement and any 24 contract performance disputes or claims by either 25 the contractor or a state agency. This unit should 72 1 be statutorily designated as the exclusive forum for 2 all disputes arising out of or relating to the 3 state's procurement process, even to the exclusion 4 of the judicial system, except to the extent that 5 any decision would be subject to judicial review on 6 the same limited basis that a trial court decision 7 would be. 8 It would be taken from the Contracting 9 Department and established in an independent 10 administrative agency and would do that to the 11 exclusion of any judicial remedy. One of the 12 problems with protests, there are multiple levels in 13 protest. Administratively protest, then to the 14 court. All that does, in fact, is take time. And 15 the agencies who object to the amount of time are 16 right. What's unfortunate, there's never been an 17 effective alternative proposed to take the judicial 18 system out of the process, except to review on a 19 very limited basis on a high level, like a trial 20 court decision review. There's no protest, or few 21 anyway, that should take more than 30 days to 22 resolve if it's properly structured. 23 The offer that I suggest would include 24 procurement inspector generals responsible for 25 investigating and prosecuting instances of fraud, 73 1 waste, abuse, and ethical transgressions. I'm 2 suggesting one specific to the procurement area 3 which is unique in its consideration, and I think it 4 justifies in those that the federal level should be 5 imposed. 6 In California, that specifically is 7 condoned, and what is prohibited is lobbying prior 8 to the commencement of the procurement. 9 Delegation of contract authority is an 10 area in which there's been a lot of controversy. 11 State agencies have repeatedly sought delegations 12 partly because they perceive, I think wrongly so in 13 many instances, that the Department of General 14 Services delays the procurement process. But the 15 result is to create a different kind of conflict. 16 Those program agencies who receive a delegation are 17 conflicted by two dominant policies. One is the 18 procurement policy. The other is the problematic 19 responsibility. And I suggest to you that their 20 success or failure before the legislature and the 21 public is measured not by their success at carrying 22 out the procurement, but the success is the carrying 23 out of the program. If there's a choice, it's 24 inevitable that the choice will fall in program 25 rather rather than procurement. Competitiveness and 74 1 selection process should be ensured through a wide 2 range of well-designed and understood 3 methodologies. I think that's a point that's been 4 made by those that have addressed the education. 5 But there's another part to it in the procurement 6 practice is the absence of adequate documentation. 7 And in many instances, there's a mentality which 8 impedes a meaningful review of the process. Too 9 often documentation does not exist, or is destroyed 10 in some instances with the concurrence or the advice 11 of the Department of General Services itself. If 12 the documentation exists, it is made available often 13 only through judicial discovery or enforcement of 14 the Public Records Act. 15 I submit to you that the procurement 16 process should be transparent. Should be available 17 for all vendors. Should be available for the public 18 and for any legislative or executive branch agency 19 that would like to view it. Over the years, what 20 has occurred is that the state's perspective of 21 procurement has evolved from one of stewardship and 22 accountability to an attitude of expediency. The 23 latter necessarily has sacrificed the safeguards 24 which have developed in legislative and judicial 25 development of procurement law. The state's 75 1 multiple award schedule process is one example of 2 where this process has gone awry in favor of 3 expedience. 4 One of the speakers noted that the 5 authority for California public awards contracting 6 requires that the state use the exact same terms and 7 conditions as the federal contract. And you also 8 heard them say that California has their own. How 9 can that be? General Services can't have a set of 10 terms and conditions that are California terms and 11 conditions. What they're doing is using the federal 12 approved multiple awards contracting because the 13 legislature has said the terms and conditions must 14 be those federal terms and conditions. 15 The speaker who was commenting about the 16 negotiations, the refusal of the state to honor the 17 federal terms and conditions is absolutely right. 18 To the extent there's flexibility of the terms and 19 conditions, they are available, and they should be 20 binding on the State of California. But the state 21 has not done that. 22 The multiple award schedule program is 23 more seriously flawed, as employed by California, 24 and has the adverse consequence of making the 25 procurement process far less visible and, in fact, 76 1 virtually invisible. The failure of ordering 2 agencies to publicize their intent to contract and 3 to afford all potential contractors equal access to 4 a particular procurement violates the fundamental 5 legislative findings and declarations on which the 6 Public Contract Code is based, as well as the 7 governor's express procurement policies. In 8 particular, in particular small businesses, and 9 minority, women-owned and disabled veteran 10 businesses suffer the most by the impediment to 11 their access to the procurement process which the 12 state has erected. 13 I suggest to you -- by the way. Some 14 comments. The small businesses, and many of those 15 are disabled veterans, there's a way to get them in 16 the mainstream. It's called the set aside program, 17 which you take contracts of appropriate size and set 18 them aside and limit the competition to small 19 businesses. That's the way to get them mainstream. 20 I know I'm running a little long, and I 21 beg your indulgence. I am not going through the 22 whole thing. I do want to say that there are a 23 number of problems I've identified, some of them in 24 my written remarks. I'll submit copies to you. 25 I would ask and would suggest that this 77 1 committee is not or should not be looking to deal 2 with the publicity with any flaws in the process 3 that have surfaced to date. What you ought to be 4 looking at is can you improve the state's 5 procurement system. You don't need to find a 6 problem in order to find that you could improve it. 7 I don't think that the three of you do have the 8 time. I do think you have the expertise, but I 9 don't think you have the time to explore this in the 10 depth that it should be explored in order to 11 comprehensively evaluate the system and make 12 informed recommendations for improving it in any 13 particular in which it should be improved. 14 And what I would urge you to do is 15 consider the possibility of a longer term project to 16 comprehensively review the state's laws, policies 17 and procedures with full input from all affected 18 parties, including the state agencies, as well as 19 the industry. 20 Before the Oracle debacle exploded, the 21 state had an RFP industry for that kind of study. 22 Unfortunately, it was flawed by many of the problems 23 that have been addressed today. But the money is 24 there. Certainly General Services recognizes the 25 need is there. And I would hope that you would 78 1 recommend to the governor that such a study be 2 undertaken in which you draw upon the expertise of 3 other levels of government, other states. 4 Procurement reform efforts like the model 5 Procurement Code, which was developed by the 6 American Bar Association, which has been enacted in 7 16 states, has been enacted in thousands of local 8 jurisdictions across the United States as a 9 modification of the procurement process. 10 One final comment. In terms of innovative 11 approaches to contracting, they are available. 12 Design bill is available to avoid the problem of a 13 design that excludes a follow-on contract. You can 14 combine design bill, you can combine design bill 15 operation, you can combine design bill operation 16 finance. Those comprehensive life cycle contracts 17 can address many of the problems of bringing the 18 best, brightest and most efficient to state agencies 19 and to the public. And those are the kinds of 20 things the Procurement Code has addressed. If you 21 explore with other states and with our procurement 22 professionals, you'll find that they provide 23 constructive input. Those are things that should be 24 written into our procurement law. 25 Electronic contracting such as electronic 79 1 bidding is an issue that ought to be addressed. It 2 is a way to open up to the wholeness of potential 3 contracting with the State of California. But there 4 are legal questions. And those kinds of 5 improvements may need legislative changes. Thank 6 you. You've indulged me far longer than you should 7 have. 8 MS. PORINI: Thank you. Are there any 9 questions from members? Please leave your written 10 testimony. 11 Our next speaker is Buddy Hubbert. And by 12 the way, we only have five more speakers. So if 13 there were people who passed who do feel like they 14 want to speak, I'll ask for you at the end. 15 MR. HUBBERT: My name is Buddy Hubbert 16 with Hubbert System Consulting. I just have about 17 three points that I want to make. I appreciate your 18 comments earlier. What we're looking for is what 19 works and what doesn't work. In my short time in 20 working with the State of California and what has 21 happened over the last couple of months, I've made 22 observations. And one is the levels that were 23 published in the management memo really for 24 practical purposes are too low for what we work on. 25 And I acknowledge there's probably places where they 80 1 do make sense. But to make some arbitrary number at 2 different levels doesn't make sense to me. I think 3 that the expense to go through a full-blown RFP for 4 something that's $100,000 doesn't pan out. 5 What I would suggest is that the 6 department managers, or whoever is responsible for 7 the project, have the ability to negotiate what the 8 levels should be with General Services and they make 9 different levels different for different projects 10 for different contracts. 11 The second point is that the guidelines 12 that managers were asked to use are not clear. You 13 may be able to look at the management memo and say 14 they're right there. Right here. The fact that I 15 saw the state government come to a screeching halt 16 indicates to me, and I saw decisions just being 17 avoided, is a clear indication that they're not 18 clear, and they're not comfortable making 19 decisions. They have not been given authority. And 20 what I see is that not only do they not have clear 21 guidelines, but they don't have a resource to go to 22 to get clearance or get clarification. And I 23 acknowledge there's a resource limitation at General 24 Services, and I think that has hampered the process 25 also. 81 1 And my suggestion there is that the 2 guidelines be published. I mean, I'm sure that's 3 going through. But also that resources are 4 available to seek clarification, and that they get 5 modified and clarified as an ongoing process. 6 And then the final thing is there's 7 really -- the screeching halt has come because 8 there's a chasm between responsibility or managers 9 responsible for running projects of several million 10 dollars. But they're not given the authority to go 11 procure the resources necessary. When the 12 responsibility is here, and the authority is up 13 here, nothing happens. Whatever guidelines you 14 publish and whatever solution you come up with, 15 there has to be a matching of authority and 16 responsibility with the accompanying accountability 17 for those decisions also. 18 And those are my comments. Accountability 19 and responsibility and authority, the guidelines and 20 resource interpretation for those guidelines, as 21 well as negotiations of the setting of the levels 22 between the Department of General Services. Thanks 23 for the time. 24 MS. PORINI: Thank you. Questions from 25 members? All right. Our next speaker is Doug 82 1 Drakeley. 2 MR. DRAKELEY: Madam Chair and members. 3 I'm Doug Drakeley. I work for a company called 4 InfoPros. We also are a certified California small 5 business and a woman-owned enterprise. We're on 6 this CMAS schedule and a number of MSAs. And an 7 effort that we took to get on those lists and 8 benefits for the last three years as our bids grew, 9 we were able to take advantage of those lists and do 10 business with state agencies. And many people have 11 talked about this so far. 12 But it does seem that the last two months, 13 there's been a significant decrease, and people 14 wanting to make decisions with purchasing. The 15 level of $100,000 has prevented people from making 16 decisions that should be higher than that. So our 17 business with the state has, or at least the 18 pipeline of business with the state, has decreased 19 significantly. And for us, what that means 20 potentially is where the state used to be a larger 21 customer of ours, we would then turn to commercial 22 market for opportunities. And just so happens the 23 commercial market at this time is tremendously 24 growing. 25 So in the resolution of this, what I ask 83 1 is that whatever you do, make it quick, and it be 2 clear to people how we can get back on track and get 3 things moving again. Just as an example of this, a 4 couple of times we were present at a conference 5 where small businesses could be present. That was 6 hosted by the DMV yesterday. And it was basically 7 for small business advocates from different state 8 agencies to attend. They would learn about small 9 business and the services and products they could 10 offer. I've been to events in the past, and 11 typically there's been 20 to 30 state folks 12 represented there. Yesterday there were two. So 13 you know, folks are not -- things are stopping. 14 The other thing is, just as an example, 15 Cal Trans used to host a vendor conference every 16 other week. That used to be very beneficial for us 17 to understand what projects and things we could work 18 on on productive bidding. And so it was a pretty 19 useful tool for them too. So who out there would be 20 interested. And pretty useful tool for us to 21 determine whether or not we wanted to pursue that 22 business. Because of the new guidelines, they've 23 ended those. 24 So you know, I don't have any 25 recommendations for you. I simply point out the 84 1 impact that has had on us. And something else that 2 SAC and HP and some of the other larger companies 3 too made me wonder. They were very supportive of 4 small businesses and very supportive of trying to 5 get the program set up so small businesses could be 6 successful. And that's counter intuitive to me 7 until I started thinking about it. 8 HP is another one of our large customers. 9 And if we're not able to provide them services and 10 cost effective prices for the things that we 11 specialize in, the services that we do, that impacts 12 their business ability to deliver services to you, 13 and it's a snowball effect. So our larger 14 commercial customers, Intel, HP, other large 15 customers out there providing services to you. 16 Also, the documentation surveys we do, those all end 17 up in products that the state uses. So just some 18 points. 19 MS. PORINI: From my perspective at the 20 Department of Finance, I'd just like to include, I 21 think perhaps not only as you pointed out, the 22 interim guidelines may have slowed down 23 departments. But we're dealing with an 24 unprecedented size of deficiency in state revenue. 25 So I think you need to factor the fact that there 85 1 may not be money for departments to make major 2 purchases. 3 MR. DRAKELEY: And I understand that. I'm 4 not sure, you know. It seems like after I'm -- 5 everything that's happened after July 1st, because 6 the budget right now is still under review, and that 7 money isn't delegated yet. But even the two months 8 before that, there was definitely a change. And 9 people mentioned fear and concern. And I just think 10 some of that outreach that was there before 11 stopped. 12 MS. PORINI: Questions from members? 13 Thank you. Our next speaker is Berhanu Bitew. I'm 14 sorry if I destroyed the name. Okay. Next speaker 15 is Mari Escarcega. 16 MS. ESCARCEGA: We're going to provide a 17 written statement. 18 MS. PORINI: There is time to speak if you 19 wish. We only have two more speakers. 20 MS. ESCARCEGA: That's okay. 21 MS. PORINI: We'll accept your written 22 statement. Our last speaker on the list is Barry 23 Johnson. All right. Several folks waived speaking, 24 perhaps because you thought we would run out of 25 time. If you waived your desire to speak and you 86 1 want to come forward now, please do. Okay. 2 Questions from members? Department of General 3 Services, any final comments? 4 MR. CHANDLER: I think it might be 5 appropriate, as you did in Los Angeles, provide the 6 audience as a brief summary how you might be 7 proceeding here. I'm sure you had that in mind and 8 were planning on doing that. But I think as we wrap 9 up here, I want to say it was -- first of all, on 10 behalf of the staff, we appreciate the tremendous 11 amount of support. It will be summarized and a 12 transcript will be made available on our website. 13 And I think we've discussed the schedule here on 14 out. And I will leave that to you in summary. 15 Thank you. 16 MS. PORINI: I want to thank everyone for 17 attending today and providing your comments to us 18 and providing your written testimony to us. We are 19 planning on having two more hearings. The next 20 hearing we hope to be able to provide a draft report 21 from the task force. We don't have a date yet for 22 that hearing. We're looking at August 9th. But I 23 would ask each of you, if you would check the 24 website, call the Department of General Services, or 25 call the Department of Finance for those dates. 87 1 And then once we have distributed a draft task force 2 recommendation, we'll have a final hearing for input 3 and signoff by our members before our report is 4 submitted to the governor's office. 5 Any closing comments from members? All 6 right. 7 MR. JANSSEN: I thought it was very 8 helpful. 9 MR. ALLENBY: Yeah, it was. 10 MS. PORINI: Thank you all for 11 attending. 12 (The proceedings ended at 3:09 p.m.) 13 --o0o-- 14 15 16 17 18 19 20 21 22 23 24 25 88 1 REPORTER'S CERTIFICATE 2 STATE OF CALIFORNIA ) ) ss. 3 COUNTY OF SACRAMENTO ) 4 I, JAMIE LYNNE OELRICHS, a Certified 5 Shorthand Reporter, licensed by the state of 6 California and empowered to administer oaths and 7 affirmations pursuant to Section 2093 (b) of the 8 Code of Civil Procedure, do hereby certify: 9 That the said proceedings were recorded 10 stenographically by me and were thereafter 11 transcribed under my direction via computer-assisted 12 transcription. 13 That the foregoing transcript is a true 14 record of the proceedings which then and there took 15 place. 16 That I am a disinterested person to said 17 action. 18 IN WITNESS WHEREOF, I have subscribed my 19 name on July 15, 2002. 20 ____________________________________ 21 Jamie Lynne Oelrichs Certified Shorthand Reporter No. 8086 22 23 24 25 89