Report 2016-125.1 All Recommendation Responses

Report 2016-125.1: The University of California Office of the President: It Has Not Adequately Ensured Compliance With Its Employee Displacement and Services Contract Policies (Release Date: August 2017)

Recommendation for Legislative Action

To ensure that the university maximizes the use of competition, the Legislature should revise the Public Contract Code to specify the conditions under which the university may amend contracts without competition.

Description of Legislative Action

The Legislature did not take action in the 2021-2022 legislative session to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

The Legislature did not take action in the 2021-2022 legislative session to address this specific recommendation.

Description of Legislative Action

As of August 22, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

As of August 22, 2020, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

Legislation has not been introduced to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

SB 574 (Lara) would have prohibited an amendment, renewal, or extension of an existing contract unless specified conditions are met. This bill was vetoed by the Governor.

California State Auditor's Assessment of 60-Day Status: Legislation Vetoed

Recommendation for Legislative Action

To ensure that the university maximizes the use of competition, the Legislature should revise the Public Contract Code to narrowly define the professional and personal services that the university may exempt from competitive bidding.

Description of Legislative Action

The Legislature did not take action in the 2021-2022 legislative session to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

The Legislature did not take action in the 2021-2022 legislative session to address this specific recommendation.

Description of Legislative Action

As of August 22, 2021, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

As of August 22, 2020, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Description of Legislative Action

The Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

Legislation has not been introduced to address this specific recommendation. However, Assembly Bill 2361 (Weber) was introduced on February 13, 2018, and would require a contractor with the University of California (UC), in order to qualify as the lowest responsible bidder or best value awardee, or otherwise to perform any service work for the UC, to agree in writing, in advance, to provide the UC and the State Controller's Office (Controller) with specified information relating to the scope of the contract. The UC would be required to provide specified information regarding each employee of the contractor performing service work at a UC location or for the benefit of the UC who was not an employee of the UC to the Controller by January 31 of each year, and the Controller would be required to post this information on its website by March 31 of each year. If an employee of a contractor objects in writing to the publication of his or her name, the Controller may substitute a unique identifier in place of that individual's name and shall use the same unique identifier for that individual for all periods of time worked by that individual.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

SB 574 (Lara) would have provided that to qualify as a lowest responsible bidder or best value awardee on any contract for specified positions a bidder must certify in writing to the university that the bid includes, for all employees who work for more than 10 days at the university in any 12-month period under the contract, a total employee compensation package that is valued on a per-employee basis at a level sufficient that it does not undercut by more than 5 percent the average per-employee value of total compensation for employees of the University of California who perform comparable work at the relevant campus, medical center, or laboratory at which the bidder proposes to perform the work. This bill was vetoed by the Governor.

California State Auditor's Assessment of 60-Day Status: Legislation Vetoed

Recommendation #3 To: University of California

To ensure that university locations adequately justify the necessity of contracts that will displace university employees, the Office of the President should actively enforce compliance with the displacement guidelines by monitoring university locations for compliance, providing regular training on the displacement guidelines to university locations, and amending the displacement guidelines to state that the Office of the President's human resources department has the authority to approve or reject displacement decisions.

Annual Follow-Up Agency Response From October 2018

The University completed the consultative process and implemented a more thorough HR review process on December 11, 2017 which includes a preliminary financial review. The revised Guidelines and Template were issued December 11, 2017 to all locations and were posted on appropriate UCOP websites.

The revised Guidelines and Template were reviewed with Chief Human Resources Officers (CHROs) from all locations on the January 2018 monthly HR Leadership call. This review will be provided at least annually.

Either through Systemwide labor relations or local labor relations and/or new manager/supervisor training, training on the union contracts is held for managers that have operations to interact with the labor unions. Contracting out is a specific article in each of the University's union contracts that is covered in this training. This training is provided at least annually.

Systemwide HR Compliance will continue its current compliance efforts of requesting all locations provide any contracting out information related to new facilities; in addition, in October 2018 HR Compliance began requesting any contracting out for existing facilities to monitor compliance with the Contracting for Services Guidelines.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

The University shared its updated Guidelines and data collection sheets, which will help it better ensure that decisions to contract out are thoroughly reviewed and approved.

1-Year Agency Response

The University completed the consultative process and implemented a more thorough HR review process on December 11, 2017 which includes a preliminary financial review. The revised Guidelines and Template were issued December 11, 2017 to all locations and were posted on appropriate UCOP websites.

The revised Guidelines and Template were reviewed with Chief Human Resources Officers (CHROs) from all locations on the January 2018 monthly HR Leadership call. This review will be provided at least annually.

Either through Systemwide labor relations or local labor relations and/or new manager/supervisor training, training on the union contracts is held for managers that have operations to interact with the labor unions. Contracting out is a specific article in each of the University's union contracts that is covered in this training. This training is provided at least annually.

Systemwide HR Compliance will continue its current compliance efforts of requesting all locations provide any contracting out information related to new facilities; in addition, in the Fall of 2018 HR Compliance will also begin requesting any contracting out for existing facilities to monitor compliance with the Contracting for Services Guidelines.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

6-Month Agency Response

The University completed the consultative process and implemented a more thorough HR review process on December 11, 2017 which includes a preliminary financial review. The revised Guidelines and Template were issued December 11, 2017 to all locations and were posted on appropriate UCOP websites.

The revised Guidelines and Template were reviewed with Chief Human Resources Officers (CHROs) from all locations on the January 2018 monthly HR Leadership call. This review will be provided at least annually.

Either through Systemwide labor relations or local labor relations and/or new manager/supervisor training, training on the union contracts is held for managers that have operations to interact with the labor unions. Contracting out is a specific article in each of the University's union contracts that is covered in this training. This training is provided at least annually.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

We acknowledge that the university has made significant progress in addressing this recommendation. However, in a follow-up response to us, the university indicates that the systemwide human resources office will continue to monitor contracting for services at new facilities, but it will not begin to monitor contracting for services at existing facilities until fall 2018.

60-Day Agency Response

Systemwide HR is revising the existing displacement guidelines and creating a template to ensure consistency. It will also be implementing a more thorough HR review which will include a preliminary financial review before the approval process is completed. The revised guidelines and template will be distributed to the campus locations. Systemwide HR will also advise the campus locations to incorporate an overview of the revised displacement guidelines into existing trainings.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Recommendation #4 To: University of California

To ensure that university locations adequately justify the necessity of contracts that will displace university employees, the Office of the President should revise contracting policies to address situations in which university locations are contemplating entering into services contracts instead of hiring university employees to perform an activity. In these situations, the Office of the President should require university locations to perform an analysis that is similar to the one it requires when current university employees are displaced.

6-Month Agency Response

UC maintains Contracting for Services Guidelines (Guidelines), which were updated on December 6, 2017. This update included changes to address recommendations from the California State Auditor's audit of contracted employees and contracting practices. The Guidelines describe how to contract out for services where University staff would be displaced. The guidelines apply to decisions to contract for services at UC locations, medical centers, and the Office of the President. The guidelines also acknowledge the circumstances under which the University may need to contract for services and which may result in the displacement of University staff. Locations are required to complete a standard form, entitled "Formal Notice Pursuant to University Guidelines on Contracting for Services," as part of the review process. The University has processes to evaluate the need for contracting out for both the union and non-union work. Any changes to services falling under unionized work must be done through the collective bargaining process.

The University's contracting policy (BUS-43) has been revised to require that Procurement/Supply Chain Managers will require the requesting department to provide evidence of an HR approved displacement analysis worksheet (now called, "Formal Notice Pursuant to University Guidelines on Contracting for Services") before Procurement will take action to engage a Supplier.

Training for all Procurement systemwide and campus management and staff was conducted on November 29, 2017. An additional session for the Procurement Leadership Council was conducted on November 7, 2017.

The training educated Procurement leadership and staff about the need to comply with these displacement guidelines and practices so they can comply with these guidelines and practices as part of the contracting process.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

To achieve the objective of this recommendation UC Procurement will:

-Review contracting policy (BUS-43) and update as appropriate

-Provide training and/or job aids to ensure campus and local procurement leaders are aware of the displacement guidelines and practices so that they can confirm compliance with these guidelines and practices as part of the contracting process.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #5 To: University of California

To ensure that university locations adequately justify the necessity of contracts that will displace university employees, the Office of the President should ensure that staff with the necessary business and financial skills at the Office of the President review and approve the cost analyses that university locations submit.

6-Month Agency Response

The University revised the existing Guidelines and created a Template which includes review by the Office of the Chief Financial Officer. The revised Guidelines and Template were issued December 2017 to all locations and were posted on appropriate UCOP websites. The revised Guidelines and Template were reviewed with Chief Human Resources Officers (CHROs) from all locations on the January 2018 monthly HR Leadership call.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

Systemwide HR is revising the existing displacement guidelines and creating a template which includes review by the appropriate office to ensure that staff with the necessary business and financial skills review the cost analyses that university locations submit.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #6 To: University of California

To ensure that university locations adequately justify the necessity of contracts that will displace university employees, the Office of the President should revise the cost analysis requirements in the displacement guidelines to mitigate the risk of university locations incorrectly estimating savings by requiring a threshold level of savings as part of their business and financial necessity analyses and requiring that university locations periodically reevaluate the savings after the services contracts take effect to inform future contracting decisions.

1-Year Agency Response

The University will continue its current practice in assessing whether to contract out for services or to perform the work with UC employees, to take into account a number of considerations on an ongoing basis, including whether the work is within the scope and capabilities of current staff; whether contracting out for services would improve the methods or practices of service delivery or facilitate the development of internal expertise; and the immediacy of the need for the services as well as the expected duration of such need. Implementing a threshold level of savings would not be prudent as it would not take into account all of these important considerations.

The Guidelines were updated in August 2018 to indicate that the annual budget process will provide an avenue for periodic evaluation as actual contracting costs will be compared to budget.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Although the Office of the President did not implement a savings threshold, it has modified its Guidelines to include regularly reviewing displacement contracts to confirm that savings are still occurring. As part of its budget cycle, the university will compare actual contracting costs to budgeted costs. This change achieves the goal of periodically evaluating contracting decisions to ensure that they are achieving the anticipated results.

6-Month Agency Response

The University will continue its current practice in assessing whether to contract out for services or to perform the work with UC employees, to take into account a number of considerations on an ongoing basis, including whether the work is within the scope and capabilities of current staff; whether contracting out for services would improve the methods or practices of service delivery or facilitate the development of internal expertise; and the immediacy of the need for the services as well as the expected duration of such need. Implementing a threshold level of savings would not be prudent as it would not take into account all of these important considerations.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

We encourage the Office of the President to reevaluate implementing this recommendation. The recommendation's purpose is to ensure that contracts that displace university employees result in the cost benefits anticipated; if setting a threshold savings is not feasible, we encourage the Office of the President to explore other means to fulfill this recommendation. We believe it's a sound practice to periodically evaluate contracting decisions to ensure they are achieving the anticipated results. By being unwilling to do so, the Office of the President risks allowing poor contracting decisions to continue unabated.

60-Day Agency Response

In assessing whether to contract out for services or to perform the work with UC employees, locations take into account a number of considerations on an ongoing basis, including whether the work is within the scope and capabilities of current staff; whether contracting out for services would improve the methods or practices of service delivery or facilitate the development of internal expertise; and the immediacy of the need for the services as well as the expected duration of such need. UC manages its head count on an ongoing and periodic basis to accomplish existing or anticipated work. Systemwide HR will send a written communication to campus locations regarding the need to more carefully determine whether it is more economical and efficient to perform the work with UC employees or with service contracts, and will continue to work to strengthen and standardize procedures to facilitate these efforts.

California State Auditor's Assessment of 60-Day Status: Pending

Although the Office of the President has outlined a plan for addressing this recommendation, at this time it is not clear whether its plan will implement the recommendation as intended. The State Auditor's recommendation fills the gap in the university's policy that currently exists because the Office of the President does not require campuses to assess whether a displacement decision achieves the financial benefits intended. By requiring a threshold level of savings as justification for displacement and requiring the campuses to revisit those analysis, the Office of the President has better assurance that campuses' displacement decisions resulted in the expected economic benefits.

Recommendation #7 To: University of California

To ensure that the university achieves its goals of obtaining services at the lowest cost or best value and of providing vendors with fair access to contracting opportunities, the Office of the President should direct university locations, including its own local procurement office, to implement controls to ensure staff better comply with the university's contract manual's requirements for using standard terms and conditions, obtaining the proper contract approvals, and awarding of sole-source contracts.

6-Month Agency Response

To ensure staff better comply with the university's contract manual's requirements for using standard terms and conditions, obtaining the proper contract approvals, and awarding of sole-source contract, the Office of the President updated the university's contracting policy (BUS-43).

These changes were introduced and reinforced through:

-A letter from the UC Chief Procurement Officer to all Campus and the Office of the President procurement leaders to remind them that they are expected to use the templates on the Office of the President's website

-Training for all Procurement systemwide and campus management and staff was conducted on November 29, 2017. An additional session for the Procurement Leadership Council was conducted on November 7, 2017.

-Updated templates, job aids and FAQs published on the UCOP website

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

The Office of the President will update the university's contracting policy (BUS-43) as required and reinforce compliance through:

-A letter from the UC Chief Procurement Officer to all Campus and the Office of the President procurement leaders to remind them that they are expected to follow BUS-43 requirements regarding the use of templates available on the Office of the President's website.

-A webinar/training event for all procurement leaders and staff to introduce refreshed materials and reinforce compliance with contracting policies

-Updated templates, job aids and FAQs on the Office of the President's website.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #8 To: University of California

To ensure that the university achieves its goals of obtaining services at the lowest cost or best value and of providing vendors with fair access to contracting opportunities, the Office of the President should revise the university's contract manual to incorporate the best practices found in the State Contracting Manual for limiting the use of amendments to repeatedly extend existing contracts.

Annual Follow-Up Agency Response From October 2019

We strongly disagree with the State Auditor's contention that the State's three-year contract duration represents "best practices", and note no such evidence supporting that claim. In fact, there is no state law that limits the length of a contract as does UC's self-imposed 10-year term limitation. "Best practices" in our view is that policy and process that best supports case specific, value based strategic sourcing decisions, as determined by skilled category managers and procurement professionals; rather than adherence to generic, compliance driven regulatory standards best suited to repetitive purchasing transactions of commonplace supplies/services. The appropriate term of a contract is affected by numerous considerations which include in part, the specific commodity or service, the specific geographic delivery location or breadth of locations, the estimated supply base, projected market conditions, required supplier investment, etc. Longer contract durations often lock in pricing as a hedge against anticipated price increases, increase supplier familiarity with complex and variable campus service requirements and reduce the perpetual solicitation/contracting churn necessitated by three-year terms, freeing scarce staffing to deliver enhanced client service support and supplier relations management.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

We stand by the recommendation we made to the University to limit contract terms and that the State Contracting Manual can serve as best practice. The State Contracting Manual makes clear that a three-year contract term can be exceeded with written justification and approval. If the University were to conform to the practice in the State Contracting Manual, then the University would require a written justification and executive approval of contracts longer than three years, but it would not necessarily prohibit them.Thus, adopting a shorter, standard contract term does not preclude the University from achieving value based strategic source decisions as it notes.

1-Year Agency Response

We continue to agree with the recommendation to limit the use of amendments to repeatedly extend existing contacts, and believe that we have addressed this in the revision to BUS-43.

The University of California negotiates contracts to efficiently supply commonly purchased goods and services to the various campuses. Whereas the average contract length is 5 years, the strategic interests of the University may dictate entering into contracts of a longer term. Some examples of circumstances dictating longer contract terms are:

- Situations in which a longer duration is warranted to offset a significant upfront investment

- The good or service is needed systemwide and on a routine basis. Having a longer term contract in place would facilitate expedient purchasing by multiple departments.

- Revenue generating contracts where the interests of both parties are benefitted by a longer-term contract

We differ from the CSA recommendation in the assumption that "best practices" for service contracts is defined by the State's three year duration policy, although such may be the standard for public municipalities. Such, however, is not the standard for higher education as demonstrated by the attached survey responses of member institutions in the National Procurement Leadership Council. This council is comprised of the 35 CPO's of large research universities who have been recognized by their peers as strategic leaders in Procurement and Supply Chain Management in the higher education space. Their responses make it clear that our revised policy of a maximum ten year term is perfectly representative of "best practices" within higher education procurement.

California State Auditor's Assessment of 1-Year Status: Partially Implemented

We acknowledge that the university has made changes to its contract manual to limit the use of contract amendments. However, the university also revised the contract manual to allow a 10-year contract duration, which is contrary to the practice outlined in the State Contracting Manual, which suggests no more than a three-year term unless there is written justification and approval.

Based on a survey it conducted, the Office of the President claims that that the three-year-limit is not standard. Although it is true that most respondents do not have a hard rule, most range between 3 and 6 years. Therefore, although there is no industry standard for three years, 10 years is beyond the upper end of the range. Given this fact, the university should conform with best practice as outlined in the State Contracting Manual.

6-Month Agency Response

To limit the use of amendments to repeatedly extend existing contracts the Office of the President:

-Revised BUS-43 to limit the maximum term of any contract to 10 years inclusive of the initial term plus all amendments or renewals, and to require that any exception receive appropriate approval by the Policy Exception Authority.

-Removed the alternative to extend contracts indefinitely from all template agreements

-Training for all Procurement systemwide and campus management and staff was conducted on November 29, 2017. An additional session for the Procurement Leadership Council was conducted on November 7, 2017.

-Updated templates, job aids and FAQs published on the UCOP website

California State Auditor's Assessment of 6-Month Status: Partially Implemented

We acknowledge that the university has made changes to its contract manual that more closely restrict the use of contract amendments and that substantially address our recommendation. However, the university also revised the contract manual to allow a 10-year contract duration, which is contrary to the practice outlined in the State Contracting Manual. Specifically, section 7.80 of the State Contracting Manual indicates that "contracts for services should generally not exceed three years, absent a substantial written justification for a longer term, based on business reasons."

60-Day Agency Response

To achieve the objective of this recommendation UC Procurement will:

-Revise all template agreements to ensure that contract terms, including extensions, do not exceed 10 years.

-Address these items in a webinar/training event for all procurement leaders and staff

-Update job aids and FAQs on the Office of the President's website

-Evaluate how UC can leverage the procurement technology currently being implemented to provide visibility to current contract terms

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #9 To: University of California

To ensure that the university achieves its goals of obtaining services at the lowest cost or best value and of providing vendors with fair access to contracting opportunities, the Office of the President should revise the university's contract manual to narrow the exemption from competition to only selected professional services, similar to the State Contracting Manual.

Annual Follow-Up Agency Response From October 2019

As with all UC contracting, UC departments are strongly encouraged to engage in competitive procurement for the acquisition of professional services, unless another method of procurement is required for that particular type of service. If a UC department determines an exemption or exception applies, then the UC department is required to complete a UC "Source Selection & Price Reasonableness Justification Form" to substantiate the appropriateness of source selection and price reasonableness. Due to the extraordinarily large breadth and depth of professional services required to serve our mission, it would be overly tedious and burdensome, if in fact possible, for UC to narrowly define the professional services contracts that it considers exempt from competitive bidding.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

We stand by the recommendation we made for the university to more narrowly define which professional services are exempt from competition. At this time, the university's contract manual provides a broad definition of professional services that are exempt from competitive bidding and the revisions the university has made do not narrow the exemption from competition to selected professional services as we had recommended. The university's responses to this recommendation indicates that it does not plan to make further changes to its contracts manual to implement this recommendation.

Annual Follow-Up Agency Response From October 2018

We continue to agree with the recommendation to narrow the exemption from competition to only selected professional services, and believe that we have addressed this in the revision to BUS-43 which states:

"Professional Services: Highly specialized functions, typically of a technical nature, performed by a supplier that, with respect to the services to be rendered, most commonly a) has a professional license; b) is licensed by a regulatory body; and/or c) is able to obtain professional errors and omissions insurance. Professional services are of a nature that the University would consider the supplier's experience, qualifications and skills to be more important than comparative cost when selecting a supplier. Examples of professional services include medicine and related medical services, and legal, accounting, architectural, and engineering services."

Beyond the above reference in the "Definitions" section, Part 1, Purchasing Transactions, Sub-Paragraph D.1 has been modified to emphasize that although competitive bidding may not be required for Professional Services, competition is still strongly encouraged if possible.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Although the Office of the President made certain revisions to the university's contract manual to encourage competitive bidding for professional services, the revisions do not narrow the exemption from competition to selected professional services as we had recommended.

Furthermore, the language that the Office of the President quotes in its most recent response is from the Definitions section. The text regarding exemptions from competition continues to give procurement staff wide latitude to contract for professional services.

Specifically, the intent of our recommendation was that the university more narrowly define the professional services that it considers exempt from competitive bidding, but its contract manual still only provides a broad definition.

1-Year Agency Response

We continue to agree with the recommendation to narrow the exemption from competition to only selected professional services, and believe that we have addressed this in the revision to BUS-43 which states:

"Professional Services: Highly specialized functions, typically of a technical nature, performed by a supplier that, with respect to the services to be rendered, most commonly a) has a professional license; b) is licensed by a regulatory body; and/or c) is able to obtain professional errors and omissions insurance. Professional services are of a nature that the University would consider the supplier's experience, qualifications and skills to be more important than comparative cost when selecting a supplier. Examples of professional services include medicine and related medical services, and legal, accounting, architectural, and engineering services."

California State Auditor's Assessment of 1-Year Status: Partially Implemented

Although the Office of the President made certain revisions to the university's contract manual to encourage competitive bidding for professional services, the revisions do not narrow the exemption from competition to selected professional services as we had recommended.

Furthermore, the language that the Office of the President quotes in its most recent response is from the Definitions section. The text regarding exemptions from competition continues to give procurement staff wide latitude to contract for professional services.

Specifically, the intent of our recommendation was that the university more narrowly define the professional services that it considers exempt from competitive bidding, but its contract manual still only provides a broad definition.

6-Month Agency Response

To narrow the exemption from competition to only selected professional services, the Office of the President:

-Amended the definition of Professional and Personal Services in BUS-43 and encouraged competitive bidding even when a potential exemption exists

-Sent a letter from the UC Chief Procurement Officer to all Campus and the Office of the President procurement leaders to remind to reinforce UC's commitment to encourage competitive bidding even when a potential exemption exists

-Conducted training for all Procurement systemwide and campus management and staff on November 29, 2017. An additional session for the Procurement Leadership Council was conducted on November 7, 2017.

-Updated templates, job aids and FAQs published on the UCOP website

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Although the Office of the President made certain revisions to the university's contract manual to encourage competitive bidding for professional services, the revisions do not narrow the exemption from competition to selected professional services as we had recommended. Specifically, the intent of our recommendation was that the university more narrowly define the professional services that it considers exempt from competitive bidding, but its contract manual still only provides a broad definition.

60-Day Agency Response

To achieve the objective of this recommendation UC Procurement will:

-Revise its contracting policy (BUS-43) to:

-Amend the definitions of Professional Services and Personal Services

-Reinforce UC's commitment to encourage competitive bidding even when a potential exemption exists

-Address these items in a webinar/training event for all procurement leaders and staff

-Update templates, job aids and FAQs on the Office of the President's website

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #10 To: University of California

To ensure that the university achieves its goals of obtaining services at the lowest cost or best value and of providing vendors with fair access to contracting opportunities, the Office of the President should direct all university locations to implement controls in their online procurement systems to prevent staff from avoiding the requirement to competitively bid a contract when individual purchases of the same good or service accumulate to $100,000 or more within a fiscal year.

1-Year Agency Response

In April 2018, campuses and systemwide procurement began a quarterly review process for all suppliers that exceed $100K at each participating location. Locations assign each supplier a "status" by indicating if the payment was made through a competitively bid contract or other mechanism. Campuses may also indicate suppliers that will be subject to future competitive bids. Campuses provide a summary of the analysis to system-wide procurement each quarter. UCLA conducts its own independent process consistent with the guidance provided to all campuses and the resultant data is consistent with that provided by the other campuses.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The university's chief procurement office sent a memorandum in November 2017 directing campuses to perform quarterly review of purchases to ensure that repetitive purchases that exceed $100,000 annually are considered for competitive bid.

6-Month Agency Response

To prevent staff from avoiding the requirement to competitively bid a contract when individual purchases of the same good or service accumulate to $100,000 or more within a fiscal year:

-On 11/9/17, A formal notification from the UC Chief Procurement Officer to all Campus and Office of the President procurement leaders directed campuses to implement controls to ensure compliance with CSA recommendation, to document this review and to provide a quarterly report to UC Procurement Services at the Office of the President

-Each campus senior procurement officer shall ensure that a quarterly review of purchase transactions is conducted in order to identify opportunities to aggregate for competitive bidding repetitive purchases of the same goods or services.

-Activities are underway to implement a process for locations to use to ensure compliance with the CSA recommendation. The UCOP Procurement Analytics team is currently developing reports that will be distributed to the campuses for their review. Once they have had an opportunity to analyze and refine the data a process can begin that will allow the campuses to begin reporting as of July 1, 2018.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The Office of the President is planning a set of actions to address this recommendation. Because UC Procurement is in the midst of installing new technology the actions will include:

-A formal notification from the UC Chief Procurement Officer to all Campus and Office of the President procurement leaders to institute a quarterly review process by which each campus senior procurement officer shall ensure that a quarterly review of purchase transactions is conducted in order to identify opportunities to aggregate for competitive bidding (repetitive purchases of the same goods or services). Such review shall be documented, with one copy maintained at the campus and a second copy forwarded to the Director of Strategic Sourcing, UC Procurement Services at the Office of the President.

-Address these items in a webinar/training event for all procurement leaders and staff

-Update templates, job aids and FAQs on the Office of the President's website

-Address, in the new contracts database configuration, the functionality needed to support this solution.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #11 To: University of California

To help ensure that the university will implement its central contract database for tracking and monitoring all university contracts in a timely manner, the Office of the President should develop a detailed project implementation plan by October 2017 that outlines a schedule of the specific activities that will need to occur to complete this effort.

60-Day Agency Response

The implementation plan for the contracts database is completed. This plan will stand up the database, ready campus and system-wide users to start authoring new contracts using this system, and will address the conversion of existing system-wide contracts from the current platform into the new database. We have provided a copy of the implementation plan with this submission. Subsequent implementation waves scheduled for 2018 will migrate campus contracts to the system as well as, potentially, medical centers and labs.

California State Auditor's Assessment of 60-Day Status: Fully Implemented

Recommendation #12 To: University of California

To maximize benefits from the systemwide procurement initiative and to ensure that the university uses those benefits for its teaching, research, and public service missions, the Office of the President should direct all university locations to provide better documentation to substantiate actual benefits they claim related to their procurement decisions.

Annual Follow-Up Agency Response From October 2019

Full implementation of UC Health's new benefits (cost savings) tracking application was completed on July 1, 2019. From the information maintained in the application, dashboards by medical center and system wide opportunities are generated to show completed and/or rejected initiatives and identified and realized savings. The dashboards are shared with the UC Health supply chain teams and senior management.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

UC Procurement Services distributed communications to refresh all users across the UC system on reporting benefits in accordance with the instruction that "Total UC Benefit is defined as the total annual benefit generated by procurement actions". The communication also provided reminders about the process/documentation for benefit submissions, approvals and audits; and, referenced the website that provides additional job aids/documentation.

https://www.ucop.edu/procurement-services/procurement-systems/uc-benefit-training.html

UC Health continues its efforts as outlined in the 6 month update. A new tool has been identified to enhance UC Health's ability to evaluate the value and impact of each initiative for the system as well as for the local medical center and to identify loss opportunities for the failure to implement all saving recommendations. It is anticipated that the new tools will be in full operations by the fourth quarter of the 2018 calendar year.

California State Auditor's Assessment of 1-Year Status: Pending

The university's Procurement Services updated its training to emphasize the need to substantiate actual savings from procurement decisions.

The university's action regarding its locations that are health centers (Davis, Irvine, Los Angeles, San Diego, and San Francisco) is pending due to an outstanding implementation date (end of 2018).

6-Month Agency Response

The Office of the President oversees two systemwide procurement functions: UC Procurement Services and UC Health.

UC Procurement Services is currently generating communications to refresh all users across the UC system, including UC Health locations, on appropriate back-up documentation. These communications will be delivered by 3/31/2018.

UC Health currently maintains a master dashboard of contracting and saving initiatives. The information maintained in the dashboard includes but is not limited to initiative description, start and end dates, estimated and realized annual savings by system and individual medical center. This dashboard is used to monitor all contracting and saving initiatives for the system as well as work completed at the local level by each medical center. For system wide initiatives, savings per each medical center are noted for each initiative. A cost benefit analysis is completed for each saving initiative and clinical impact is discussed with the appropriate clinical teams. All information is documented and shared with the appropriate UC Health medical center departments and staff. UC Health is currently evaluating a new tool to replace the existing dashboard. In addition to the information currently collected, this new tool will allow UC Health to document the value of each of the initiatives as well as any loss opportunities for failure to implement all saving recommendations.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

UC Procurement will update Benefits Bank instructions to make it clearer that source documents and other documentation, while not available in Benefits Bank, are available. The Office of the President will provide Benefits Bank refresher training to ensure all users understand the process of recording and documenting benefits and are using it correctly.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #13 To: University of California

To maximize benefits from the systemwide procurement initiative and to ensure that the university uses those benefits for its teaching, research, and public service missions, the Office of the President should revise its guidance to ensure the benefits that university locations claim result from only procurement-related activities.

Annual Follow-Up Agency Response From October 2019

Full implementation of UC Health's new benefits (cost savings) tracking application was completed on July 1, 2019. The application is only use to collect procurement-related activities.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

UC Procurement Services distributed communications to refresh all users across the UC system on reporting benefits in accordance with the instruction that "Total UC Benefit is defined as the total annual benefit generated by procurement actions". The communication also provided reminders about the process/documentation for benefit submissions, approvals and audits; and, referenced the website that provides additional job aids/documentation.

https://www.ucop.edu/procurement-services/procurement-systems/uc-benefit-training.html

UC Health continues its efforts as outlined in the 6 month update. A new tool has been identified and will be fully implemented by the fourth quarter of calendar year 2018, which will enhance the ability to capture, monitor, report and validate procurement related contracting and saving initiatives. The tools will also provide the ability to evaluate the value and impact of each initiative for the system and the local medical centers and will identify loss opportunities for the failure to implement all saving recommendations.

California State Auditor's Assessment of 1-Year Status: Pending

The university's Procurement Services updated its training to emphasize the need to ensure that claims of benefits from procurement be tied only to procurement actions.

The university's action regarding its locations that are health centers (Davis, Irvine, Los Angeles, San Diego, and San Francisco) is pending due to an outstanding implementation date (end of 2018).

6-Month Agency Response

The Office of the President oversees two systemwide procurement functions: UC Procurement Services and UC Health.

UC Procurement Services is currently generating communications to refresh all users across the UC system on reporting benefits in accordance with the instruction that "Total UC Benefit is defined as the total annual benefit generated by procurement actions". These communications will be delivered by 3/31/2018.

As stated in the response to recommendation #12, UC Health has implemented processes to collect contracting and saving initiatives for system wide and local efforts. This dashboard only collects work performed by the system wide and local procurement teams. UC Health continues to work with the medical centers to standardize procurement processes and tracking and reporting of contracting and saving initiatives. As part of this effort, UC Health is implementing a new tool that will enhance their ability to capture, monitor, report and validate procurement related contracting and saving initiatives.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

UC Procurement will review its guidance to ensure it appropriately reflects the contribution of Procurement. UC Procurement will provide Benefits Bank refresher training to ensure all users understand the process of recording and documenting benefits and are using it correctly.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #14 To: University of California

To maximize benefits from the systemwide procurement initiative and to ensure that the university uses those benefits for its teaching, research, and public service missions, the Office of the President should implement a process to centrally direct these benefits to ensure that university locations use them to support the university's core missions.

6-Month Agency Response

The benefits created through UC Procurement's involvement are used by campuses to support the core mission of teaching, research and public service.

As stated in the University's initial response, implementing a process as described in this recommendation would not only place a significant administrative burden on campus units to track savings and document expenditures from those savings, but also create a dynamic that would limit the incentive for units to generate savings in the face of UC either prescribing the use of those funds or ultimately shifting them to another unit or campus altogether. In addition to the disincentives, it is not in the best interests of a campus to have the Office of the President direct how it spends these savings, as that determination is properly and best left to the campus.

Any benefits created through UC Health initiatives are used by the medical centers to support their core mission of teaching and patient care. Benefits realized from system wide procurement contracting or cost saving initiatives have a direct impact on expenses. Each system wide initiative identifies the projected savings per medical center and this information is shared with the supply chain teams and executives from each of the medical centers. Improved cost saving dashboard and analytics are currently under review that will provide more detailed information regarding the savings impact and any potential loss opportunities.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

Our audit found that the Office of the President has not developed a policy or provided direction to university locations on how to reallocate savings from its procurement decisions. Also, that the Office of the President lacked supporting information to substantiate nine of the 10 benefits we reviewed for fiscal year 2015-16. Lacking measures of accountability over the accuracy and uses of its procurement benefits, the Office of the President's assertions of savings are questionable along with those savings serving the university's core missions.

60-Day Agency Response

The benefits created through UC Procurement's involvement are used by campuses to support the core mission of teaching, research and public service. As stated in the University's initial response, implementing a process as described in this recommendation would not only place a significant administrative burden on campus units to track savings and document expenditures from those savings, but also create a dynamic that would limit the incentive for units to generate savings in the face of UC either prescribing the use of those funds or ultimately shifting them to another unit or campus altogether. In addition to the disincentives, it is not in the best interests of a campus to have the Office of the President direct how it spends these savings, as that determination is properly and best left to the campus.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

The State Auditor's recommendation would achieve a measure of accountability that the Office of the President currently lacks in its systemwide procurement initiative. Specifically, our recommendation would ensure that university locations are using the benefits from the systemwide procurement initiative to further the university's core missions. Absent measures of accountability over the university locations' use of these benefits and its unwillingness to adopt our recommendation, the Office of the President's assertion that university locations have redirected these benefits to the university's core missions lacks credibility.

Recommendation #15 To: University of California

To maximize benefits from the systemwide procurement initiative and to ensure that the university uses those benefits for its teaching, research, and public service missions, the Office of the President should study ways to measure actual procurement benefits—possibly focusing this effort on benefits from larger dollar amounts—and if such measurement is not possible, it should clearly disclose to the regents and the public that the amounts it reports are based on estimates.

Annual Follow-Up Agency Response From October 2022

As noted in previous updates, UC Procurement Services has designed and deployed new processes and functionality that enable us to delineate actual from estimated benefits. Users are trained and now using these approaches to report actuals and estimates.

UC Health continues to report actual systemwide benefits at a project level. Additionally, UC Health has implemented a new software solution to assist the sourcing team in tracking and reporting savings. This system continues to be implemented.

Additionally, UC Health has updated the value calculation framework to clearly distinguish across ongoing savings, one-time savings, and cost avoidance. Value is tracked for 12 months. This value calculation framework is being reviewed for potential implementation by Health System locations as well.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

UC demonstrated that this recommendation is fully implemented by providing relevant procedures and an example report from the processes it uses to measure or estimate procurement benefits.

Annual Follow-Up Agency Response From October 2021

As noted in previous updates, UC Procurement Services has designed and deployed new processes and functionality that enable us to delineate actual from estimated benefits. Users are trained and now using these approaches to report actuals and estimates.

UC Health continues to implement approaches to measure actual benefits. Analytic tools have been deployed to delineate actual benefits; however, these tools have not been fully implemented due to the priority emphasis on COVID-19 response. UC Health is continuing efforts to expand and improve tools for reporting actual benefits. UC Health currently provides regular report out on impacts through each fiscal year to both the Regents and UC Health senior management.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Annual Follow-Up Agency Response From October 2020

As noted last year, UC Procurement Services has designed and deployed new processes and functionality that enable us to delineate actual from estimated benefits. Users are trained and now using these approaches to report actuals and estimates.

UC Health has modified it reporting to provided estimated benefits by specific categories and by medical centers. Additionally, analytics are in place to delineate actuals from estimated benefits. Efforts have been completed to use utilization analytics to evaluate clinical value, which includes reduction in patient days, product usage reduction and improved patient outcomes. However, only a few categories have been implemented. Availability of clinical data and resources continue to be a challenge in order to complete full implementation of the utilization analytics.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Annual Follow-Up Agency Response From October 2019

UC Procurement Services has designed and deployed new processes and functionality that enables us to delineate actual from estimated benefits. Users are trained and now using these approaches to report actuals and estimates.

As part of the second phase of the benefits tracking application, UC Health continues its efforts to use the benefits tracking application to evaluate the clinical value including the reduction of patient days and improved outcomes of identified saving initiatives. Availability of clinical data and resources to work on this phase has limited the ability to complete this phase of the project.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

1-Year Agency Response

UC Procurement Services has begun to address the technical requirements to enable this process. Resource availability is a limiting factor and is expected to result in a target completion of Q2, 2019.

UC Health identified a new analytical tool that will perform a more in depth analysis of the financial and clinical value/impact and potential lost opportunities for failure to move forward or fully implement a procurement initiative. The tool will provide UC Health clinical teams the ability to evaluate the clinical impact, current and future saving opportunities, and potential lost opportunities. The tools will also benchmark our work against other non-UC Health medical centers and this information will hopefully drive more system wide standardization and savings. Data used for the analyses are collected from the UC Health medical centers' procurement and financial databases and therefore, UC Health can evaluate the benefits of any contracting and saving initiatives. Parts of the tool are being customized and implementation is planned towards the end of 2018 calendar year.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The Office of the President oversees two systemwide procurement functions: UC Procurement Services and UC Health.

UC Procurement Services is striving to develop a reporting process to more clearly identify the reported benefits emanating from definite quantity contracts (contacts governing set quantity purchases) and those benefits emanating from requirement contracts (contracts governing large numbers of future transactions with benefit attainment dependent on forecasted purchases, volumes and contract adoption.

Work on this project is anticipated to begin by June, 2018 with a target completion of December, 2018. The initial activity (identifying resources from IT, Campuses, and Systemwide Procurement to define the changes, develop definitions and processes, and make the needed software change) will lead to a project plan and a firmer completion date.

Using analytic tools currently available, UC Health evaluates the procurement and cost benefit for each initiative. UC Health is evaluating new analytical tools that will perform a more in depth analysis of the financial and clinical value/impact and potential lost opportunities for failure to move forward or fully implement a procurement initiative. These tools will allow provide UC Health clinical teams the ability to evaluate the clinical impact, current and future saving opportunities, and potential lost opportunities. The tools will also benchmark our work against other non-UC Health medical centers and this information will hopefully drive more system wide standardization and savings. Data used for the analyses are collected from the UC Health medical centers' procurement and financial databases and therefore, UC Health can evaluate the benefits of any contracting and saving initiatives.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The Office of the President will review its reporting process to more clearly identify the reported benefits emanating from definite quantity contracts (contacts governing set quantity purchases) and those benefits emanating from requirement contracts (contracts governing large numbers of future transactions with benefit attainment dependent on forecasted purchases, volumes and contract adoption).

California State Auditor's Assessment of 60-Day Status: No Action Taken

Although the Office of the President indicates it will implement our recommendation, it has yet to take any actions to do so.

Recommendation #16 To: University of California

To maximize benefits from the systemwide procurement initiative and to ensure that the university uses those benefits for its teaching, research, and public service missions, the Office of the President should, if actual benefits are measurable, implement a process to monitor and report annually to the regents the estimated and actual benefits.

Annual Follow-Up Agency Response From October 2022

As noted in previous updates, UC Procurement Services is now monitoring and reporting on total estimated benefit and total actualized benefits.

UC Health currently provides regular benefit impact reports to the Regents and UC Health senior management.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

UC demonstrated that this recommendation is fully implemented by providing relevant procedures, and an example report to the regents, from the processes it uses to measure or estimate procurement benefits.

Annual Follow-Up Agency Response From October 2021

As noted in previous updates, UC Procurement Services is now monitoring and reporting on total estimated benefit and total actualized benefits.

UC Health continues to implement approaches to measure actual benefits. Analytic tools have been deployed to delineate actual benefits; however, these tools have not been fully implemented due to the priority emphasis on COVID-19 response. UC Health is continuing efforts to expand and improve tools for reporting actual benefits. UC Health currently provides regular report out on impacts through each fiscal year to both the Regents and UC Health senior management.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Annual Follow-Up Agency Response From October 2020

UC Procurement Services is now monitoring and reporting on total estimated benefit and total actualized benefits. The report for Fiscal Year Ending June 30, 2020 is being published in November, 2020.

For UC Health, efforts have been completed to use utilization analytics to evaluate clinical value, which includes reduction in patient days, product usage reduction and improved patient outcomes. However, only a few categories have been implemented. Availability of clinical data and resources continue to be a challenge in order to complete full implementation of the utilization analytics.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Annual Follow-Up Agency Response From October 2019

UC Procurement Services is monitoring estimated and actual benefits and prepared to provide the UC Regents with a report for FY 19/20 and annually thereafter as required.

UC Health's benefits tracking application designed to demonstrate procurement-related cost benefit was fully implemented on July 1, 2019. The second phase, which will identify, track and record the clinical benefits is pending. Availability of clinical data and resources to work on this phase has limited the ability to complete this phase of the project.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

1-Year Agency Response

UC Procurement Services has begun to address the technical requirements to enable this process. Resource availability is a limiting factor and is expected to result in a target completion of Q2, 2019.

UC Health continues to evaluate procurement and cost benefit for each initiative. Two new analytical tools have been identified and full implementation should be completed during the fourth quarter of calendar year 2018. The tools will provide UC Health clinical teams the ability to evaluate the clinical impact, current and future saving opportunities, and potential lost opportunities. The tools will also benchmark our work against other non-UC Health medical centers and this information will hopefully drive more system wide standardization and savings. Data used for the analyses are collected from the UC Health medical centers' procurement and financial databases and therefore, UC Health can evaluate the benefits of any contracting and saving initiatives.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

The Office of the President oversees two systemwide procurement functions: UC Procurement Services and UC Health.

UC Procurement Services is striving to develop a reporting process to more clearly identify the reported benefits emanating from definite quantity contracts (contacts governing set quantity purchases) and those benefits emanating from requirement contracts (contracts governing large numbers of future transactions with benefit attainment dependent on forecasted purchases, volumes and contract adoption. This reporting process will include an annual report to the Regents.

Work on this project is anticipated to begin by June, 2018 with a target completion of December, 2018. The initial activity (identifying resources from IT, Campuses, and Systemwide Procurement to define the changes, develop definitions and processes, and make the needed software change) will lead to a project plan and a firmer completion date.

As stated in the responses herein, UC Health maintains a dashboard of its efforts and is currently looking at a new tool to improve its ability to monitor and report system wide and local initiatives. The new dashboard will provide the ability to track, measure, and report the benefits of each initiative. This dashboard will be used to share information with the executives and clinical teams of the UC Health medical centers and will be used as a report for the regents.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The Office of the President will review its reporting process to more clearly identify the reported benefits emanating from definite quantity contracts (contacts governing set quantity purchases) and those benefits emanating from requirement contracts(contracts governing large numbers of future transactions with benefit attainment dependent on forecasted purchases, volumes and contract adoption).

California State Auditor's Assessment of 60-Day Status: No Action Taken

Although the Office of the President indicates it will implement our recommendation, it has yet to take any actions to do so.

All Recommendations in 2016-125.1

Agency responses received are posted verbatim.