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Senate Bill 2756

Senate Bill sb2756

CODING: Words stricken are deletions; words underlined are additions.
    Florida Senate - 2004                                  SB 2756

    By Senator Lawson





    6-1793-04                                               See HB

  1                      A bill to be entitled

  2         An act relating to procurement of personal

  3         property and services; creating s. 287.019,

  4         F.S.; defining "privatization"; requiring the

  5         head of a state agency, prior to the purchase,

  6         lease, or acquisition of commodities or

  7         contractual services by privatization, to

  8         conduct a business case evaluation of the

  9         proposed privatization; providing elements and

10         components of the evaluation; requiring the

11         head of a state agency, subsequent to the

12         purchase, lease, or acquisition of commodities

13         or contractual services by privatization, to

14         conduct an evaluation of the privatization;

15         providing evaluation criteria; requiring the

16         State Council on Competitive Government to

17         conduct a quarterly review of completed agency

18         privatization evaluations; requiring state

19         agencies to establish a system for monitoring

20         the performance of a privatization contractor

21         and for monitoring the contractor's compliance

22         with the terms and conditions of the

23         privatization contract; requiring state

24         agencies to conduct annual evaluations of the

25         performance of privatization contractors and

26         report their findings to the Legislature, the

27         Office of Program Policy Analysis and

28         Government Accountability, and the Auditor

29         General; requiring the Office of Program Policy

30         Analysis and Government Accountability and the

31         Auditor General to periodically examine any

                                  1

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1         privatization in order to assist the

 2         Legislature in evaluating whether expected

 3         savings and outcomes have been achieved through

 4         privatization; providing that a vendor must be

 5         a domiciled state corporation or have a

 6         significant business presence in the state;

 7         providing an effective date.

 8  

 9         WHEREAS, a continuing issue in government reform is the

10  option of privatizing public services, and

11         WHEREAS, privatization is often proposed as a way to

12  improve public services, with proponents claiming that

13  privatization can cut government waste, increase employee

14  productivity, and save tax dollars, and

15         WHEREAS, however, concerns have been raised that

16  privatization can cost more than it saves, can lead to the

17  loss of public control over government services, and may

18  reduce service quality, and

19         WHEREAS, experience has shown that privatization can

20  work well in some cases, produces mixed results in others, and

21  can raise a variety of problems if the process is not well

22  managed, and

23         WHEREAS, privatization in Florida is occurring in a

24  host of public services, ranging from delivery of social

25  services to building roads, and

26         WHEREAS, Florida is also outsourcing government

27  programs and services through public-private partnerships, and

28         WHEREAS, in these partnerships, which are an

29  alternative to full privatization, the private sector and

30  government assume joint responsibility for the design and

31  delivery of public programs and services, and

                                  2

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1         WHEREAS, when assessing privatization potential, the

 2  best candidates are programs where there are clearly defined

 3  tasks to be performed, good unit cost data can be developed

 4  for comparison, good quality and quantity measures are

 5  available so that service delivery can be monitored, and

 6  private sector service providers already exist, and

 7         WHEREAS, it must also be recognized that it may be

 8  difficult to privatize many state functions, and

 9         WHEREAS, for example, programs that involve the state's

10  police power in which issues of fairness and equity are

11  critical are not good candidates for privatization, and

12         WHEREAS, it should be recognized that market

13  competition, rather than privatization itself, produces cost

14  savings, and

15         WHEREAS, private companies have incentives to reduce

16  their costs to increase profits and market share, whereas

17  government agencies commonly do not face such competition, and

18         WHEREAS, however, when agencies have been placed in a

19  competitive situation, they have frequently improved their

20  performance and were able to under-bid private vendors, and

21         WHEREAS, studies have shown that agencies need to

22  systematically plan privatization initiatives and evaluate the

23  expected costs and benefits before carrying out these efforts

24  in order to maximize the potential that privatization will be

25  successful, and

26         WHEREAS, it is in the public interest of the citizens

27  of the State of Florida that a diligent, comprehensive,

28  ongoing effort at providing realistic assessments and

29  evaluations of privatization efforts be undertaken, NOW,

30  THEREFORE,

31  

                                  3

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1  Be It Enacted by the Legislature of the State of Florida:

 2  

 3         Section 1.  Section 287.019, Florida Statutes, is

 4  created to read:

 5         287.019  Privatization evaluation and assessment.--

 6         (1)  For the purposes of this section, "privatization"

 7  means entering into a contract with one or more private

 8  entities for the purchase, lease, or acquisition of any

 9  commodity or contractual service required by an agency of the

10  state under this chapter when:

11         (a)  It is maintained by the department that such

12  commodity or contractual service can be provided in a more

13  efficient manner by a private entity; and

14         (b)  The expenditure by the contracting agency for the

15  purchase, lease, or acquisition of commodities or contractual

16  services meets or exceeds the threshold amount provided in s.

17  287.017 for CATEGORY FIVE:

18         1.  Twice in any 1-year period; or

19         2.  Four or more times during any 3-year period.

20         (2)  Prior to the purchase, lease, or acquisition of

21  any commodity or contractual service required by an agency of

22  the state under this chapter which meets the definition

23  provided in subsection (1), the head of the state agency shall

24  conduct a business case evaluation of the proposed

25  privatization which shall specifically address the potential

26  for the privatization to result in a verifiable cost savings.

27  A business case evaluation for a privatization proposal shall

28  contain the following elements:

29         (a)  Description and rationale.--The description and

30  rationale element shall contain the following components:

31  

                                  4

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1         1.  A description of the program or service to be

 2  privatized.

 3         2.  An analysis of the agency's current performance and

 4  associated needs or problems with respect to the program or

 5  service that is the subject of the privatization proposal, and

 6  proposed solutions.

 7         3.  The benefits, such as cost savings or program

 8  improvements, that are expected to result from privatization.

 9         (b)  Cost-benefit analysis.--The cost-benefit analysis

10  element shall contain the following components:

11         1.  An accounting of the current direct and indirect

12  expenditures for the program or services for which

13  privatization is proposed. Indirect costs, as determined by

14  the agency, include, but are not limited to, providing

15  executive direction, legal services, and administrative

16  support services such as personnel, finance, and budgeting;

17  program direction, monitoring, and other activities that are

18  essential to operating a program but are not directly

19  associated with providing a service; and the salaries,

20  benefits, and expenses of the individuals overseeing the

21  contractor for the privatization. Direct costs, as determined

22  by the agency, include, but are not limited to, salaries and

23  benefits of employees formerly providing the program or

24  service.

25         2.  An analysis demonstrating the potential savings or

26  increased costs that are expected to occur as a result of

27  privatization. The analysis shall include the identification

28  of crucial factors that could affect the potential savings

29  realized, the effect of changes in these factors on costs and

30  benefits of the proposal, and a list of state assets that

31  

                                  5

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1  would be transferred to the contractor if the privatization

 2  plan is implemented.

 3         3.  If the proposed privatization will occur under a

 4  share-in-savings contract, a description of the methodology

 5  that will be used to calculate savings and payments to a

 6  contractor under such contract. For purposes of this section,

 7  a "share-in-savings contract" is an agreement in which an

 8  agency pays a contractor based on the financial benefits

 9  derived from the contractor's performance and which contains

10  quantifiable baseline data that will be used to establish the

11  basis upon which the percentage of savings paid to a

12  contractor will be determined.

13         (c)  Contract monitoring and contingency plans.--The

14  contract monitoring and contingency plans element shall

15  contain the following components:

16         1.  The process the agency plans to use to monitor the

17  performance of the privatization contractor and the estimated

18  monitoring costs the agency will incur for this oversight

19  function.

20         2.  A contingency plan specifying actions that will be

21  taken to address potential problems such as vendor prices

22  exceeding anticipated levels, unexpected delays by the

23  contractor in performing services by required deadlines,

24  failure to meet performance expectations, or inability to meet

25  obligations or abandonment of the contract.

26         (d)  Public records access.--The public records access

27  element shall contain the following components:

28         1.  A list of public records issues pertinent to the

29  proposed privatization, including whether any confidential or

30  exempt records would be maintained by the contractor and the

31  procedures that would be used to ensure that the contractor

                                  6

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1  maintains security and privacy of confidential or exempt

 2  records.

 3         2.  Agency plans to require the contractor to make

 4  available for inspection and review any program-related

 5  records that it produces or collects to the same extent and in

 6  the same manner as such records would be available from a

 7  state agency.

 8         (3)  If the business case evaluation conducted pursuant

 9  to subsection (2) indicates that the proposed privatization

10  will result in a verifiable cost savings, the evaluation must

11  ascertain whether the cost savings will be directly

12  attributable to any of the following:

13         (a)  Lower labor costs than that of the state agency.

14         (b)  Reduced regulatory requirements.

15         (c)  Reduced overhead.

16         (d)  Increased flexibility with respect to the

17  motivation, reward, and termination of employees.

18         (e)  Access to better equipment than that available to

19  the state agency.

20         (f)  The ability to react more quickly to changing

21  conditions than the state agency. If so was this ability

22  attributable to:

23         1.  An ability to shift funds to pay unexpected

24  expenses without the encumbrance of budget transfer authority

25  under which the state agency must operate.

26         2.  An ability to expand operations more quickly than

27  the state agency.

28         (g)  Staffing flexibility, including the ability to

29  obtain specialized expertise by contract or through the hiring

30  of a consultant for one-time occasional projects.

31  

                                  7

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1         (h)  The avoidance of political factors, which may

 2  include the use of private-sector experts not aligned or

 3  associated with partisan political groups.

 4         (i)  The avoidance of prohibitive or excessive start-up

 5  costs needed to provide appropriate up-front funding for

 6  service infrastructure.

 7         (4)  One year after entering into a contract for the

 8  purchase, lease, or acquisition of any commodity or

 9  contractual service required by an agency of the state under

10  this chapter which meets the definition provided in subsection

11  (1), the head of the state agency shall conduct an evaluation

12  of the results of the privatization to determine whether the

13  privatization yielded or failed to yield the projected cost

14  savings based on the evaluation conducted pursuant to

15  subsections (2) and (3) prior to entering into the contract,

16  and an evaluation of the results of the privatization during

17  its first year which shall specifically address whether the

18  privatization resulted in a verifiable cost increase. If it is

19  determined that the privatization resulted in a verifiable

20  cost increase, the evaluation must ascertain whether the cost

21  increase was directly attributable to any of the following:

22         (a)  Reduced public accountability. If so, did the lack

23  of public accountability or reduced public accountability

24  manifest itself in increased costs resulting from:

25         1.  Lack of public access to service and financial

26  records maintained by the provider.

27         2.  Variations in the quality of services being

28  provided to citizens.

29         3.  Entering into a contract the term of which was too

30  lengthy, thus precluding the ability to adjust to a changing

31  condition or circumstance.

                                  8

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1         4.  A resultant inability to gauge or monitor poor

 2  performance. In an instance where such an inability and poor

 3  performance resulted in termination of a contract, was

 4  increased cost and or hardship incurred because:

 5         a.  The contractor was a sole-source provider of a

 6  service; or

 7         b.  The contractor was providing a service in which no

 8  service disruptions could be tolerated.

 9         (b)  Service quality problems which include, but are

10  not limited to:

11         1.  Providing service to only those who do not have

12  many needs, commonly known as "creaming."

13         2.  Identifiable cost-cutting measures that result in

14  cost increases including, but not limited to, frequent

15  replacement of poorly maintained equipment.

16         3.  Service quality problems that arise from contract

17  deficiencies which include, but are not limited to:

18         a.  Poorly defined responsibilities of the contractor;

19         b.  Lack of service quality performance measures;

20         c.  The absence of penalties for nonperformance;

21         d.  The absence of contingency plans.

22         (c)  Higher long-term costs. If so, did the higher

23  long-term costs result from:

24         1.  The submission by the contractor of a low initial

25  bid in order to obtain the contract followed by substantially

26  increasing costs in subsequent years when the agency

27  previously providing the service no longer has the staff or

28  authority to perform the service.

29         2.  The acceptance of a contract bid that appears low

30  but is in actuality higher than the in-house costs of the

31  agency due to the agency's inability to determine the actual

                                  9

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1  cost of providing services in-house because of agency

 2  accounting systems which do not allocate all direct and

 3  indirect costs to services.

 4         3.  Failure in the request for proposals that solicited

 5  the bid for the service to mandate that the contractor achieve

 6  a specified level of savings.

 7         4.  Failure of the contract to limit future price

 8  increases.

 9         (d)  Workforce issues including, but not limited to:

10         1.  Employee layoffs resulting in morale problems.

11         2.  Union challenges to privatization.

12         3.  Disruptions resulting from bumping rights when

13  affected employees assume jobs in other areas.

14         4.  Failure of an agency's ability to meet Equal

15  Employment Opportunity goals and subsequent discrimination

16  challenges resulting from inordinate numbers of minority

17  groups being removed from state payrolls.

18         5.  Failure in a contract to require the contractor to

19  guarantee jobs and wages for a limited time period.

20         Section 2.  (1)  No later than January 1, 2005, each

21  state agency shall establish a system for monitoring the

22  performance of a contractor with whom the state has entered

23  into a contract for the purchase, lease, or acquisition of

24  commodities or contractual services by privatization as

25  defined in section 287.019(1), Florida Statutes, and for

26  monitoring the contractor's compliance with the terms and

27  conditions of the privatization contract.

28         (2)  Beginning January 1, 2005, each state agency, in

29  coordination with the State Council on Competitive Government,

30  shall conduct an annual evaluation of the performance of any

31  contractor with whom the state has entered into a contract for

                                  10

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    Florida Senate - 2004                                  SB 2756
    6-1793-04                                               See HB




 1  the purchase, lease, or acquisition of commodities or

 2  contractual services by privatization as defined in section

 3  287.019(1), Florida Statutes, and report its findings to the

 4  Legislature, the Office of Program Policy Analysis and

 5  Government Accountability, and the Auditor General.

 6         (3)  Beginning January 1, 2005, the Office of Program

 7  Policy Analysis and Government Accountability and the Auditor

 8  General shall be required to periodically examine any

 9  privatization as defined in section 287.019(1), Florida

10  Statutes, in order to assist the Legislature in evaluating

11  whether expected savings and outcomes have been achieved

12  through privatization.

13         Section 3.  Any other provision of law to the contrary

14  notwithstanding, a contract for services, request for

15  proposals, or invitation to bid between an agency of the state

16  and a contract vendor succeeding to the operation of a program

17  or function of a state agency shall not be executed unless the

18  vendor is a domiciled corporation in this state or has a

19  significant business presence in the state for the duration of

20  the contract. For purposes of this section, the term

21  "significant business presence" means a retention of

22  substantially all of the filed positions previously assigned

23  to the state agency at substantially the same total cash

24  equivalent of salaries and benefits.

25         Section 4.  This act shall take effect upon becoming a

26  law.

27  

28  

29  

30  

31  

                                  11

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