HBA-DMD H.B. 3 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3 By: Gallego State Affairs 4/20/1999 Introduced BACKGROUND AND PURPOSE This states expends approximately $20 billion annually on contracts for services and goods. Due to the changing environment of the federal government's approach to budgeting and allocation of resources, states may be faced with greater responsibility for determining how funds will be spent and for monitoring the appropriateness of such expenditures. An added factor is the growing trend at both the national and state levels to move away from the direct provision of services and goods by the public sector toward more private sector involvement. These trends will likely result in a significant increase in the percentage of state and federal dollars expended through contracts. H.B. 3 requires the comptroller to develop and adopt standards in order to govern state agency contract management activities in relation to procurements. This bill requires each state agency to comply with the applicable standards that the comptroller establishes. This bill also authorizes the comptroller to assess sanctions against a state agency provided that the comptroller finds that the agency has violated the comptroller's contract management rules. It requires the comptroller to publish a contract management handbook. H.B. 3 requires the comptroller to establish a central contract management database for the use of all state agencies. This bill requires the comptroller to establish standards and procedures under which a state agency is authorized to debar a contractor from contracting with the agency or subcontracting under an agency contract in relation to procurements. This bill authorizes the comptroller to establish a system of billings and charges that allows the comptroller to recover from affected state agencies the comptroller's costs in implementing this chapter. It requires the comptroller and the General Services Commission (commission) to adopt a memorandum of understanding under which the comptroller and the commission coordinate their respective duties related to procurement. This bill requires each state agency to assess its contractor selection procedures and to use competitive selection procedures to the greatest extent possible when selecting its contractors. In addition, this bill requires each state agency that makes procurements to design and implement procedures to detect and report double-billing by contractors and to evaluate the costs and benefits of implementing new technologies in fraud detection, with the assistance of the comptroller and the state auditor. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the comptroller of public accounts in SECTION 1 (Section 2259.051, Government Code) and to each state agency that makes procurements to which this chapter applies in SECTION 1 (Sections 2259.101 and 2259.307, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subtitle F, Title 10, Government Code, by adding Chapter 2259, as follows: CHAPTER 2259. STATE CONTRACTING STANDARDS AND OVERSIGHT SUBCHAPTER A. GENERAL PROVISIONS Sec. 2259.001. APPLICABILITY. (a) Sets forth that this chapter applies only to each procurement of goods or services made by a state agency that is neither made by the General Services Commission (commission) nor made under purchasing authority delegated to the agency by or under Sections 2155.131 (Delegation of Authority to State Agencies), 2155.132 (Purchase Less than Specified Monetary Amount), or 2155.133 (Delegation of Authority to Institution of Higher Education), Government Code. (b) Sets forth that this chapter applies to contracts and to contract management activities that are related to the procurements to which it applies. (c) Sets forth examples of procurements to which this chapter applies. (d) Provides that the identity of the contractor and the source of funds that an agency will use to make a procurement are not relevant in determining whether this chapter applies to a procurement and to activities related to the procurement. (e) Requires the commission on request to determine whether a procurement or type of procurement is made under purchasing authority delegated to an agency by or under Sections 2155.131, 2155.132, or 2155.133, Government Code, or is made under some other source of purchasing authority. Sec. 2259.002. DEFINITIONS. Defines "contract" and "state agency" in this chapter. Sec. 2259.003. OPEN MARKET PURCHASES. Sets forth that this chapter does not require a state agency to purchase a good or service under contract provided that the agency is authorized under other law to purchase the good or service on the open market. SUBCHAPTER B. DUTIES OF COMPTROLLER Sec. 2259.051. CONTRACT MANAGEMENT STANDARDS SET BY COMPTROLLER. (a) Requires the comptroller to develop in accordance with this chapter and adopt, by rule, standards to govern state agency contract management activities in relation to procurements to which this chapter applies, including standards to promote or establish efficient and effective contract monitoring, contractor selection processes, standard contract provisions for different types of contracts, subcontractor performance, contract management training for state agency personnel involved in procurement and for members of state agency governing bodies, and payment or reimbursement rates and methods. (b) Requires each state agency to comply with the applicable standards that the comptroller establishes, by rule, under this chapter. Specifies the required duties for the state auditor when auditing state agencies. (c) Authorizes the comptroller to assess sanctions against a state agency provided that the comptroller finds that the agency has violated the comptroller's contract management rules. Requires the severity of the sanction imposed to depend on the seriousness of the violation, the circumstances of the violation, and the number of violations. Specifies the sanctions that the comptroller is authorized to impose, after notifying the agency of the finding of a violation. Sec. 2259.052. CONTRACT MANAGEMENT HANDBOOK. Requires the comptroller to publish a contract management handbook. Specifies the provisions that must be included in the handbook. Sec. 2259.053. COORDINATION OF CONTRACT MONITORING. Requires the comptroller to coordinate contract monitoring activities within and among state agencies in relation to procurements to which this chapter applies. Sec. 2259.054. CONTRACT MANAGEMENT DATABASE. (a) Requires the comptroller to establish a central contract management database for the use of all state agencies. Requires the comptroller, to the extent possible, to make the database a part of the uniform statewide accounting system. (b) Requires a state agency to send to the comptroller, in the manner to be prescribed by the comptroller, the information that the agency possesses which the comptroller requires to be included in the database. Authorizes the comptroller to require information about procurements that are not otherwise subject to this chapter if the comptroller considers it advantageous to the state. (c) Specifies the information which the comptroller is required to include in the database. (d) Specifies the information that the comptroller is required to include in the database, for each contractor who has done business with the state and for each subcontractor who has worked under a state contract. (e) Specifies the purposes for which a state agency is required to use the database. Sec. 2259.055. DEBARMENT. (a) Requires the comptroller, as part of its contract management rules, to establish standards and procedures under which a state agency is authorized to debar a contractor from contracting with the agency or subcontracting under an agency contract in relation to procurements to which this chapter applies. (b) Provides that the comptroller's standards must clearly specify the types of conduct that may subject a contractor or subcontractor to debarment. Provides that the standards and procedures must provide for a range in terms of time for which and types of contracts from which a contractor or subcontractor may be debarred, based on the seriousness of the breach of contract or substandard contract performance and the extent to which the state's interests were damaged by the conduct. (c) Provides that all state agency proceedings to debar a contractor or subcontractor in relation to procurements to which this chapter applies, including procurements subject to Section 2155.144 (Procurements by Health and Human Services Agencies), Government Code, are governed by the comptroller's standards and procedures. (d) Sets forth that a proceeding to debar a contractor or subcontractor under this section is a contested case under Chapter 2001 (Administrative Procedure), Government Code. Entitles the contractor or subcontractor to a hearing on request. Requires an administrative law judge of the State Office of Administrative Hearings to preside over any hearing in the case. Requires the state agency seeking to debar a contractor or subcontractor from contracting directly or indirectly with the agency to make the final administrative determination in the case based on the administrative law judge's proposal for decision, if a hearing was conducted, and on the comptroller's rules. (e) Entitles a contractor or subcontractor who is the subject of a debarment proceeding under this section and who is aggrieved by the final administrative decision to judicial review of the decision. Sec. 2259.056. RECOVERY OF COMPTROLLER'S COSTS. Authorizes the comptroller, to the extent feasible, to establish a system of billings and charges that allows the comptroller to recover from affected state agencies the comptroller's costs in implementing this chapter. Provides that the Legislative Budget Board or the director of the board must approve the reasonableness of the comptroller's bill or charge before the state agency pays it. Sec. 2259.057. COORDINATION WITH GENERAL SERVICES COMMISSION. Requires the comptroller and the commission to adopt a memorandum of understanding under which the comptroller and the commission coordinate, to the extent feasible, their respective duties related to procurement. Sec. 2259.058. REPORT BY COMPTROLLER. Requires the comptroller to report the findings and activities of that office under this chapter semiannually to the Legislative Budget Board, the Legislative Audit Committee, the House Appropriations Committee, the Senate Finance Committee, the House General Investigating Committee, and the Senate General Investigating Committee. SUBCHAPTER C. GENERAL STATE AGENCY CONTRACT MANAGEMENT DUTIES Sec. 2259.101. AGENCY CONTRACT MANAGEMENT GUIDELINES. (a) Requires each state agency that makes procurements to which this chapter applies to establish and adopt, by rule, clearly stated and comprehensive written contract management guidelines. (b) Provides that the guidelines must be consistent with the comptroller's contract management handbook and must clearly reflect the state's expectations to state agency staff and to potential contractors with the agency. (c) Requires state agency management to comply with the guidelines and enforce the guidelines within and on behalf of the agency. (d) Specifies the provisions for the guidelines. Sec. 2259.102. CONTRACT MANAGEMENT TRAINING. Requires each member of the governing body of a state agency that makes procurements to which this chapter applies and each employee of the agency whose duties include contract management or other procurement responsibilities to obtain training in contract management. Provides that the training must include review of the comptroller's statewide contract management standards. Requires a state agency to ensure that the training required by this section is obtained. Requires the commission to coordinate training under this section. Sec. 2259.103. AGENCY PERFORMANCE MEASURES. Authorizes the Legislative Budget Board to develop performance measures relating to contract management functions and require information from state agencies that will allow the legislature to assess state agency progress in effective contract management. Sec. 2259.104. ANNUAL RISK ASSESSMENT. Requires each state agency to perform annually a risk assessment of its contracts and submit a report of its findings to the Legislative Audit Committee and the Legislative Budget Board no later than January 15. SUBCHAPTER D. CONTRACTOR SELECTION Sec. 2259.151. COMPETITIVE CONTRACTOR SELECTION PROCEDURES. Requires each state agency to assess its contractor selection procedures and to use competitive selection procedures to the greatest extent possible when selecting its contractors. Sec. 2259.152. DETERMINING THE LOWEST AND BEST BID OR PROPOSAL. Specifies the provisions that a state agency is required to consider when determining the lowest and best bid or proposal. Sets forth that this section does not apply to a procurement covered by Section 2155.144, Government Code. Sec. 2259.153. DISCLOSURE OF POTENTIAL CONTRACTOR AND SUBCONTRACTOR INFORMATION. (a) Specifies the requirements for a state agency making a procurement to which this chapter applies in order to aid in evaluating a potential contractor's past performance and probable performance in the future. (b) Requires a state agency to include in its requests for bids, proposals, or other applicable expression of interest a statement about the applicability of relevant criminal law, including Section 37.10 (Tampering with Governmental Record), Penal Code, to presenting information and documentation to the agency in connection with a bid, proposal, or other applicable expression of interest. Requires a state agency to refer to the appropriate authorities for investigation or prosecution any suspected violation of relevant criminal law, including Section 37.10, Penal Code, related to presenting information and documentation to the agency in connection with a bid, proposal, other applicable expression of interest, or contract. Sec. 2259.154. CLARITY IN REQUESTS FOR BIDS OR PROPOSALS. Requires a state agency, before soliciting bids or proposals for a new contract or a contract renewal, to make a formal assessment of the type of good or service to be solicited and to provide a clear definition of that good or service in the request for bids or proposals. SUBCHAPTER E. CONTRACT PROVISIONS Sec. 2259.201. PERFORMANCE MEASURES REQUIRED. Requires each state agency to incorporate performance measures in each of its contracts for goods or services that are subject to this chapter that will allow the agency and state oversight agencies to assess the quality of performance of contractors and subcontractors. Provides that the performance measures must include a schedule for performance measurement. Provides that performance must be measured more frequently under contracts that present more risks. Sec. 2259.202. CONTRACT OVERSIGHT PROVISIONS. (a) Requires each state agency to include contract oversight provisions in each of its contracts for goods or services that are subject to this chapter that reflect the amount of risk associated with the contract. (b) Provides that the contract oversight provisions must be designed to ensure at a minimum that the fiscal performance and compliance requirements of the contract are met. (c) Provides that the contract oversight provisions must include a provision that requires the contractor and subcontractors under the contract to allow the state agency and state oversight entities timely access to the records of the contractor or subcontractors that may be needed to assess fiscal and compliance performance under the contract. Provides that the contract provision must also provide that the agency may cancel the contract or suspend payments under the contract if the agency or a state oversight entity is not allowed timely access to the records. (d) Provides that the contract oversight provisions must include a provision that requires the contractor and subcontractors under the contract to promptly inform the state agency of certain information during the term of the contract. Sec. 2259.203. REMEDIES AND SANCTIONS SCHEDULES. Requires each state agency to create and incorporate in each of its contracts for goods or services that are subject to this chapter a remedies schedule, a graduated sanctions schedule, or both, for breach of the contract or substandard performance under the contract. Provides that the remedies and sanctions provisions must be consistent with the comptroller's statewide standards. Requires the comptroller and other state agencies to design fair and feasible standards that will hold contractors accountable for breach of contract or substandard performance under a contract without diminishing the number of able providers who are willing to contract with the state. Sec. 2259.204. CONTRACT PROVISIONS APPLICABLE TO SUBCONTRACTORS; INFORMATION ABOUT SUBCONTRACTORS; SUBSTITUTION OF SUBCONTRACTORS. (a) Requires each state agency to include provisions in each of its contracts for goods or services that are subject to this chapter that ensure that all contract provisions that are relevant to or affected by subcontractor performance are applied to subcontractors. Specifies the provisions that the agency is authorized to require in its contract with the contractor. (b) Requires each state agency to include provisions in each of its contracts for goods or services that are subject to this chapter that require the primary contractor to report relevant subcontractor information to the agency. (c) Authorizes each state agency to include a provision in its contracts for goods or services that are subject to this chapter that requires the primary contractor to obtain the prior permission of the agency before the primary contractor may substitute one subcontractor for another to perform work under the contract, and that specifies appropriate sanctions or remedies for a breach of this provision. Requires each state agency to include a provision in each of its contracts for goods or services that are subject to this chapter that requires the primary contractor to timely notify the agency of a subcontractor substitution, and that allows the agency to suspend payments under the contract for a breach of this provision. Sec. 2259.205. LIABILITY INSURANCE COVERAGE REQUIRED. Requires each state agency to, when feasible, include provisions in each of its contracts for goods or services that are subject to this chapter that require the contractor to carry director or officer liability insurance coverage in an amount not less than the value of the contract that is sufficient to protect the interests of the state in the event an actionable act or omission by a director or officer of the contractor damages the state's interests. SUBCHAPTER F. PAYMENT AND REIMBURSEMENT METHODS Sec. 2259.251. PAYMENT METHODS AND CONTRACTOR SELECTION. Requires the comptroller and other state agencies to consider the interaction of contractor selection methods and payment methods, when developing contract policies. Requires a state agency to compensate for the risks inherent in a lack of competition in the contractor selection process and in the use of certain payment or reimbursement methods by including appropriate provisions in the affected contracts and by appropriately increasing its contract monitoring activities for those contracts. Sec. 2259.252. REEVALUATION OF PAYMENT AND REIMBURSEMENT RATES. Requires each state agency that makes procurements to which this chapter applies, to ensure that its payment and reimbursement methods and rates are appropriate, to reevaluate at least biennially its payment and reimbursement methods and rates, especially methods and rates based on historical funding levels or on a formula established by agency rule rather than being based on reasonable and necessary actual costs incurred. Requires a state agency to submit formal rate reevaluation information to the Legislative Budget Board and the comptroller as part of the agency's legislative appropriations request. SUBCHAPTER G. CONTRACTOR OVERSIGHT Sec. 2259.301. ANNUAL ASSESSMENT OF RISK. Requires the management of each state agency that makes procurements to which this chapter applies, under the comptroller's direction, to assess annually the risk of fraud, abuse, or waste in its contractor selection process, contract provisions, and payment and reimbursement rates and methods and for the different types of goods and services for which it contracts that are subject to this chapter and submit a report of its findings to the Legislative Audit Committee and the Legislative Budget Board not later than January 15. Sec. 2259.302. COSTS MUST BE REASONABLE AND NECESSARY. Requires each state agency to ensure through contract management activities that all costs paid or reimbursed under a contract are reasonable and necessary. Sec. 2259.303. RESPONSIBILITY FOR MONITORING SUBCONTRACTORS. Requires each state agency to establish clear guidelines in its contracts that are subject to this chapter that establish the extent to which the agency and the extent to which the primary contractor is responsible for monitoring subcontractors. Specifies the conditions under which the state agency is required to monitor the subcontractor's performance. Sec. 2259.304. INFORMATION SHARING; COORDINATING OVERSIGHT. Requires each state agency to make use of information from other agencies in planning and executing fiscal and program monitoring of its contractors and subcontractors. Requires the divisions or agencies, if a contractor has a contract with more than one division of a state agency or more than one agency, to coordinate their contract monitoring activities and share the results of their contract monitoring activities. Requires the comptroller to coordinate and manage activities under this section. Sec. 2259.305. DOUBLE-BILLING. Requires each state agency that makes procurements to which this chapter applies to design and implement procedures to detect and report double-billing by contractors. Requires each state agency to send reports of each double-billing incident to the state auditor, the comptroller, the legislature, and to any other state agency that paid the contractor involved in the double-billing incident. Sec. 2259.306. FRAUD DETECTION TECHNOLOGIES. Requires each state agency that makes procurements to which this chapter applies to evaluate the costs and benefits of implementing new technologies in fraud detection, with the assistance of the comptroller and the state auditor. Sec. 2259.307. CONTRACT MONITORING RESPONSIBILITIES. Requires each state agency that makes procurements to which this chapter applies, as one of its contract management policies, to establish and adopt, by rule, a policy that clearly defines the contract monitoring roles and responsibilities, if any, of internal audit staff and other inspection, investigative, or audit staff. Sec. 2259.308. ADDRESSING DEFICIENCIES IN PERFORMANCE. Requires each state agency that makes procurements to which this chapter applies to establish specific schedules for addressing deficiencies in performance the agency identifies during its contract monitoring activities. Requires an agency to address identified deficiencies in accordance with its schedule. Requires the state auditor, as part of its regular auditing of state agency activities, to audit for compliance with this section and report a failure to comply to the Legislative Budget Board, the House Appropriations Committee, and the Senate Finance Committee. Sec. 2259.309. COMPARABLE COSTS. Requires each state agency that makes procurements to which this chapter applies to monitor performance under a contract to verify that comparable costs are being charged for comparable goods and services. Requires the state auditor on request to assist a state agency's monitoring efforts under this section. SECTION 2. Amends Section 321.013, Government Code, by adding Subsection (k), to require the Legislative Budget Board to inform the State Auditor when a state agency has received a large increase in appropriations, including a large increase in federal or other money passed through to the agency. Requires the State Auditor to consider this information in devising the audit plan. SECTION 3. Amends Chapter 555, Government Code, by adding Subchapter C, as follows: SUBCHAPTER C. LICENSE RECORDS REQUESTED BY ANOTHER AGENCY Sec. 555.051. DEFINITION. Defines "state agency" in this subchapter. Sec. 555.052. STATE AGENCY RIGHT OF ACCESS TO LICENSING INFORMATION. Requires a state agency on request to provide another state agency with all relevant information about the status of a license held or formerly held by one of its licensees, if the requesting state agency states that the information is needed to evaluate a bid or proposal or the status of a contract, notwithstanding other law. Authorizes the requesting state agency to request the information about its contractors or subcontractors or its potential contractors or subcontractors. Prohibits the requesting state agency from disclosing the information outside the agency if the information is confidential or excepted from required disclosure under other law. SECTION 4. Amends Section 555.003, Government Code, to provide that Subchapter B (Procedures Relating to License Records), rather than this chapter (State Agency Records Relating to License Holders), does not apply to files that relate to drivers of motor vehicles and that are maintained by the Department of Public Safety under Subchapter C (Department License Records), Chapter 521 (Driver's Licenses and Certificates), Transportation Code. SECTION 5. Requires the comptroller to conduct an in-depth study of the comparative costs and benefits of different standard payment methods, such as the cost reimbursement method and the unit rate method. Requires state agencies to cooperate with the comptroller in the study. Requires the comptroller to report the results of the study to the governor and to the presiding officer of each house of the legislature no later than December 15, 2000. SECTION 6.Effective date: September 1, 1999. SECTION 7.Emergency clause.