• Justification for Support Services with Private Contractors is Now a Requirement for Public Agencies Under Senate Bill 1419
  • July 16, 2003
  • Law Firm: Atkinson, Andelson, Loya, Ruud & Romo, A Professional Corporation - Cerritos Office
  • Overview and Critique

    Senate Bill 1419 now requires school and community college districts to adhere to the same criteria adhered to by the state - to justify why they need to contract for support services with private contractors. It is legislation that limits the ability of school districts and community colleges to contract for personal services such as food, health, and maintenance services as well as bookstores, security, and transportation.

    Proponents argue that it provides greater protections against districts' wholesale contracting out of classified jobs. They argue that currently there are no service contract standards in place for school districts and community college districts and the districts often contract out school employee jobs in the name of cost savings.

    Opponents argue that it imposes time consuming steps and requirements on district operations, will increase costs for local districts, and encroaches on district's ability to meet workload and specialized services needs. It will make it virtually impossible for a private contractor to compete with district employees. A contractor, for example, may be required to pay employees prevailing wages and the same benefits that union workers receive.

    The Bill

    The bill adds sections 45103.1 (school districts) and 88003.1 (community college districts) to the Education Code, establishing standards for the use of personal services contracts in school and community college districts with or without a merit system. Under these provisions, contracting out work "customarily performed" or "currently done" by classified employees is permissible only when all the following conditions are met:

    1. The governing board or contracting agency "clearly demonstrates" the proposed contract will result in "actual overall cost savings" and satisfies the cost comparison criteria [as outlined in 45103.1(A) - (C)];

    2. Contracting out proposals must not be approved "solely" on the basis of savings from lower contractor pay rates and benefits. Only proposals that include industry level contractor wages and that do not undercut district pay rates may be approved.

    3. The contract may not displace district employees. "Displacement" includes layoff, demotion, involuntary transfer to a new classification, involuntary transfer to a new location requiring change of residence, and time base reductions. It does not include shift or day off changes, reassignment within the same classification and general location, or employment with the contractor, as long as wages and benefits are comparable to those paid by the district.

    4. Savings must be large enough to ensure that the classified employee will not be eliminated by private sector and district cost fluctuations normally expected during the contracting period.

    5. The amount of savings justifies the size and duration of the contracting agreement.

    6. The contract is awarded through a publicized, competitive bid process.

    7. The contract includes specific staff qualification provisions and assurances that the contractor's hiring practices satisfy nondiscrimination standards.

    8. The district's potential future economic risk from contractor rate increases is minimal.

    9. The contract is with a "firm": corporation, LLC, partnership, nonprofit, or sole proprietorship.

    10. The potential economic advantage of contracting out is not outweighed by the public's interest in having a particular function performed directly by the district.

    In addition to the above, contracting out is permissible when any of the following conditions are met:

    1. The Legislature has mandated or authorized the use of an independent contractor for a contract covering new school district functions.

    2. Contracted services are not available in the district, cannot be done satisfactorily by district employees, or are so specialized that the expertise is not available in the district.

    3. The services are incidental to a contract for the purchase or lease of real or personal property as defined.

    4. A district's policy, administrative, or legal goals and purposes cannot be accomplished through the regular or ordinary hiring process. Such contracts may protect against a conflict of interest to ensure independent and unbiased findings, especially when there is a need for an outside opinion.

    5. The work meets the criteria for "emergency appointment" as described.

    6. Equipment, materials, facilities, or support services are provided by the contractor that could not feasibly be provided by the district.

    7. Services are of an urgent, temporary, or occasional nature.

    The bill applies to personal services contracts entered into after January 1, 2003. It does not apply to contracts renewed after January 1, 2003, where the contract was entered into before January 1, 2003, regardless of whether the contract was renewed or rebid with an existing or new contractor. (Stats. 2002, ch. 894, effective January 1, 2003.)

    Recommendation

    Because the requirements of the bill are so complex and numerous, we are recommending that the district place personal service contracts on board agenda after a formal evaluation and review process, to make a finding that each of the factors are met. The potential outcome of failure to comply with these provisions may be a writ of mandate filed by those groups who have traditionally performed these functions as independent contractors for districts in the past.