HB 1211

1	A bill to be entitled
2	An act relating to procurement of personal property and
3	services; creating s. 287.019, F.S.; defining
4	"privatization"; requiring the head of a state agency,
5	prior to the purchase, lease, or acquisition of
6	commodities or contractual services by privatization, to
7	conduct a business case evaluation of the proposed
8	privatization; providing elements and components of the
9	evaluation; requiring the head of a state agency,
10	subsequent to the purchase, lease, or acquisition of
11	commodities or contractual services by privatization, to
12	conduct an evaluation of the privatization; providing
13	evaluation criteria; requiring the State Council on
14	Competitive Government to conduct a quarterly review of
15	completed agency privatization evaluations; requiring
16	state agencies to establish a system for monitoring the
17	performance of a privatization contractor and for
18	monitoring the contractor's compliance with the terms and
19	conditions of the privatization contract; requiring state
20	agencies to conduct annual evaluations of the performance
21	of privatization contractors and report their findings to
22	the Legislature, the Office of Program Policy Analysis and
23	Government Accountability, and the Auditor General;
24	requiring the Office of Program Policy Analysis and
25	Government Accountability and the Auditor General to
26	periodically examine any privatization in order to assist
27	the Legislature in evaluating whether expected savings and
28	outcomes have been achieved through privatization;
29	providing that a vendor must be a domiciled state
30	corporation or have a significant business presence in the
31	state; providing an effective date.
32
33	WHEREAS, a continuing issue in government reform is the
34	option of privatizing public services, and
35	WHEREAS, privatization is often proposed as a way to
36	improve public services, with proponents claiming that
37	privatization can cut government waste, increase employee
38	productivity, and save tax dollars, and
39	WHEREAS, however, concerns have been raised that
40	privatization can cost more than it saves, can lead to the loss
41	of public control over government services, and may reduce
42	service quality, and
43	WHEREAS, experience has shown that privatization can work
44	well in some cases, produces mixed results in others, and can
45	raise a variety of problems if the process is not well managed,
46	and
47	WHEREAS, privatization in Florida is occurring in a host of
48	public services, ranging from delivery of social services to
49	building roads, and
50	WHEREAS, Florida is also outsourcing government programs
51	and services through public-private partnerships, and
52	WHEREAS, in these partnerships, which are an alternative to
53	full privatization, the private sector and government assume
54	joint responsibility for the design and delivery of public
55	programs and services, and
56	WHEREAS, when assessing privatization potential, the best
57	candidates are programs where there are clearly defined tasks to
58	be performed, good unit cost data can be developed for
59	comparison, good quality and quantity measures are available so
60	that service delivery can be monitored, and private sector
61	service providers already exist, and
62	WHEREAS, it must also be recognized that it may be
63	difficult to privatize many state functions, and
64	WHEREAS, for example, programs that involve the state's
65	police power in which issues of fairness and equity are critical
66	are not good candidates for privatization, and
67	WHEREAS, it should be recognized that market competition,
68	rather than privatization itself, produces cost savings, and
69	WHEREAS, private companies have incentives to reduce their
70	costs to increase profits and market share, whereas government
71	agencies commonly do not face such competition, and
72	WHEREAS, however, when agencies have been placed in a
73	competitive situation, they have frequently improved their
74	performance and were able to under-bid private vendors, and
75	WHEREAS, studies have shown that agencies need to
76	systematically plan privatization initiatives and evaluate the
77	expected costs and benefits before carrying out these efforts in
78	order to maximize the potential that privatization will be
79	successful, and
80	WHEREAS, it is in the public interest of the citizens of
81	the State of Florida that a diligent, comprehensive, ongoing
82	effort at providing realistic assessments and evaluations of
83	privatization efforts be undertaken, NOW, THEREFORE,
84
85	Be It Enacted by the Legislature of the State of Florida:
86
87	Section 1.  Section 287.019, Florida Statutes, is created
88	to read:
89	287.019  Privatization evaluation and assessment.--
90	(1)  For the purposes of this section, "privatization"
91	means entering into a contract with one or more private entities
92	for the purchase, lease, or acquisition of any commodity or
93	contractual service required by an agency of the state under
94	this chapter when:
95	(a)  It is maintained by the department that such commodity
96	or contractual service can be provided in a more efficient
97	manner by a private entity; and
98	(b)  The expenditure by the contracting agency for the
99	purchase, lease, or acquisition of commodities or contractual
100	services meets or exceeds the threshold amount provided in s.
101	287.017 for CATEGORY FIVE:
102	1.  Twice in any 1-year period; or
103	2.  Four or more times during any 3-year period.
104	(2)  Prior to the purchase, lease, or acquisition of any
105	commodity or contractual service required by an agency of the
106	state under this chapter which meets the definition provided in
107	subsection (1), the head of the state agency shall conduct a
108	business case evaluation of the proposed privatization which
109	shall specifically address the potential for the privatization
110	to result in a verifiable cost savings. A business case
111	evaluation for a privatization proposal shall contain the
112	following elements:
113	(a)  Description and rationale.--The description and
114	rationale element shall contain the following components:
115	1.  A description of the program or service to be
116	privatized.
117	2.  An analysis of the agency's current performance and
118	associated needs or problems with respect to the program or
119	service that is the subject of the privatization proposal, and
120	proposed solutions.
121	3.  The benefits, such as cost savings or program
122	improvements, that are expected to result from privatization.
123	(b)  Cost-benefit analysis.--The cost-benefit analysis
124	element shall contain the following components:
125	1.  An accounting of the current direct and indirect
126	expenditures for the program or services for which privatization
127	is proposed. Indirect costs, as determined by the agency,
128	include, but are not limited to, providing executive direction,
129	legal services, and administrative support services such as
130	personnel, finance, and budgeting; program direction,
131	monitoring, and other activities that are essential to operating
132	a program but are not directly associated with providing a
133	service; and the salaries, benefits, and expenses of the
134	individuals overseeing the contractor for the privatization.
135	Direct costs, as determined by the agency, include, but are not
136	limited to, salaries and benefits of employees formerly
137	providing the program or service.
138	2.  An analysis demonstrating the potential savings or
139	increased costs that are expected to occur as a result of
140	privatization. The analysis shall include the identification of
141	crucial factors that could affect the potential savings
142	realized, the effect of changes in these factors on costs and
143	benefits of the proposal, and a list of state assets that would
144	be transferred to the contractor if the privatization plan is
145	implemented.
146	3.  If the proposed privatization will occur under a share-
147	in-savings contract, a description of the methodology that will
148	be used to calculate savings and payments to a contractor under
149	such contract. For purposes of this section, a "share-in-savings
150	contract" is an agreement in which an agency pays a contractor
151	based on the financial benefits derived from the contractor's
152	performance and which contains quantifiable baseline data that
153	will be used to establish the basis upon which the percentage of
154	savings paid to a contractor will be determined.
155	(c)  Contract monitoring and contingency plans.--The
156	contract monitoring and contingency plans element shall contain
157	the following components:
158	1.  The process the agency plans to use to monitor the
159	performance of the privatization contractor and the estimated
160	monitoring costs the agency will incur for this oversight
161	function.
162	2.  A contingency plan specifying actions that will be
163	taken to address potential problems such as vendor prices
164	exceeding anticipated levels, unexpected delays by the
165	contractor in performing services by required deadlines, failure
166	to meet performance expectations, or inability to meet
167	obligations or abandonment of the contract.
168	(d)  Public records access.--The public records access
169	element shall contain the following components:
170	1.  A list of public records issues pertinent to the
171	proposed privatization, including whether any confidential or
172	exempt records would be maintained by the contractor and the
173	procedures that would be used to ensure that the contractor
174	maintains security and privacy of confidential or exempt
175	records.
176	2.  Agency plans to require the contractor to make
177	available for inspection and review any program-related records
178	that it produces or collects to the same extent and in the same
179	manner as such records would be available from a state agency.
180	(3)  If the business case evaluation conducted pursuant to
181	subsection (2) indicates that the proposed privatization will
182	result in a verifiable cost savings, the evaluation must
183	ascertain whether the cost savings will be directly attributable
184	to any of the following:
185	(a)  Lower labor costs than that of the state agency.
186	(b)  Reduced regulatory requirements.
187	(c)  Reduced overhead.
188	(d)  Increased flexibility with respect to the motivation,
189	reward, and termination of employees.
190	(e)  Access to better equipment than that available to the
191	state agency.
192	(f)  The ability to react more quickly to changing
193	conditions than the state agency. If so was this ability
194	attributable to:
195	1.  An ability to shift funds to pay unexpected expenses
196	without the encumbrance of budget transfer authority under which
197	the state agency must operate.
198	2.  An ability to expand operations more quickly than the
199	state agency.
200	(g)  Staffing flexibility, including the ability to obtain
201	specialized expertise by contract or through the hiring of a
202	consultant for one-time occasional projects.
203	(h)  The avoidance of political factors, which may include
204	the use of private-sector experts not aligned or associated with
205	partisan political groups.
206	(i)  The avoidance of prohibitive or excessive start-up
207	costs needed to provide appropriate up-front funding for service
208	infrastructure.
209	(4)  One year after entering into a contract for the
210	purchase, lease, or acquisition of any commodity or contractual
211	service required by an agency of the state under this chapter
212	which meets the definition provided in subsection (1), the head
213	of the state agency shall conduct an evaluation of the results
214	of the privatization to determine whether the privatization
215	yielded or failed to yield the projected cost savings based on
216	the evaluation conducted pursuant to subsections (2) and (3)
217	prior to entering into the contract, and an evaluation of the
218	results of the privatization during its first year which shall
219	specifically address whether the privatization resulted in a
220	verifiable cost increase. If it is determined that the
221	privatization resulted in a verifiable cost increase, the
222	evaluation must ascertain whether the cost increase was directly
223	attributable to any of the following:
224	(a)  Reduced public accountability. If so, did the lack of
225	public accountability or reduced public accountability manifest
226	itself in increased costs resulting from:
227	1.  Lack of public access to service and financial records
228	maintained by the provider.
229	2.  Variations in the quality of services being provided to
230	citizens.
231	3.  Entering into a contract the term of which was too
232	lengthy, thus precluding the ability to adjust to a changing
233	condition or circumstance.
234	4.  A resultant inability to gauge or monitor poor
235	performance. In an instance where such an inability and poor
236	performance resulted in termination of a contract, was increased
237	cost and or hardship incurred because:
238	a.  The contractor was a sole-source provider of a service;
239	or
240	b.  The contractor was providing a service in which no
241	service disruptions could be tolerated.
242	(b)  Service quality problems which include, but are not
243	limited to:
244	1.  Providing service to only those who do not have many
245	needs, commonly known as "creaming."
246	2.  Identifiable cost-cutting measures that result in cost
247	increases including, but not limited to, frequent replacement of
248	poorly maintained equipment.
249	3.  Service quality problems that arise from contract
250	deficiencies which include, but are not limited to:
251	a.  Poorly defined responsibilities of the contractor;
252	b.  Lack of service quality performance measures;
253	c.  The absence of penalties for nonperformance;
254	d.  The absence of contingency plans.
255	(c)  Higher long-term costs. If so, did the higher long-
256	term costs result from:
257	1.  The submission by the contractor of a low initial bid
258	in order to obtain the contract followed by substantially
259	increasing costs in subsequent years when the agency previously
260	providing the service no longer has the staff or authority to
261	perform the service.
262	2.  The acceptance of a contract bid that appears low but
263	is in actuality higher than the in-house costs of the agency due
264	to the agency's inability to determine the actual cost of
265	providing services in-house because of agency accounting systems
266	which do not allocate all direct and indirect costs to services.
267	3.  Failure in the request for proposals that solicited the
268	bid for the service to mandate that the contractor achieve a
269	specified level of savings.
270	4.  Failure of the contract to limit future price
271	increases.
272	(d)  Workforce issues including, but not limited to:
273	1.  Employee layoffs resulting in morale problems.
274	2.  Union challenges to privatization.
275	3.  Disruptions resulting from bumping rights when affected
276	employees assume jobs in other areas.
277	4.  Failure of an agency's ability to meet Equal Employment
278	Opportunity goals and subsequent discrimination challenges
279	resulting from inordinate numbers of minority groups being
280	removed from state payrolls.
281	5.  Failure in a contract to require the contractor to
282	guarantee jobs and wages for a limited time period.
283	Section 2.  (1)  No later than January 1, 2005, each state
284	agency shall establish a system for monitoring the performance
285	of a contractor with whom the state has entered into a contract
286	for the purchase, lease, or acquisition of commodities or
287	contractual services by privatization as defined in s.
288	287.019(1), Florida Statutes, and for monitoring the
289	contractor's compliance with the terms and conditions of the
290	privatization contract.
291	(2)  Beginning January 1, 2005, each state agency, in
292	coordination with the State Council on Competitive Government,
293	shall conduct an annual evaluation of the performance of any
294	contractor with whom the state has entered into a contract for
295	the purchase, lease, or acquisition of commodities or
296	contractual services by privatization as defined in s.
297	287.019(1), Florida Statutes, and report its findings to the
298	Legislature, the Office of Program Policy Analysis and
299	Government Accountability, and the Auditor General.
300	(3)  Beginning January 1, 2005, the Office of Program
301	Policy Analysis and Government Accountability and the Auditor
302	General shall be required to periodically examine any
303	privatization as defined in s. 287.019(1), Florida Statutes, in
304	order to assist the Legislature in evaluating whether expected
305	savings and outcomes have been achieved through privatization.
306	Section 3.  Any other provision of law to the contrary
307	notwithstanding, a contract for services, request for proposals,
308	or invitation to bid between an agency of the state and a
309	contract vendor succeeding to the operation of a program or
310	function of a state agency shall not be executed unless the
311	vendor is a domiciled corporation in this state or has a
312	significant business presence in the state for the duration of
313	the contract. For purposes of this section, the term
314	"significant business presence" means a retention of
315	substantially all of the filed positions previously assigned to
316	the state agency at substantially the same total cash equivalent
317	of salaries and benefits.
318	Section 4.  This act shall take effect upon becoming a law.

CODING: Words stricken are deletions; words underlined are additions.