Report Title:

Managed Competition

Description:

Establishes a process for managed competition pursuant to section 6 of Act 230, Session Laws of Hawaii 1998, to allow the State and counties to contract with private sector vendors for the provision of government services, or to allow those service to be performed in-house, as appropriate.

 

THE SENATE

S.B. NO.

1065

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO MANAGED COMPETITION.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The purpose of this Act is to establish a process for managed competition to enhance government's ability to provide services it needs or is required to perform more efficiently and economically. It is a response to both the Hawaii supreme court's decision in Konno v. County of Hawaii, 85 Haw. 61 (1997), and the legislature's enactment of Act 230, Session Laws of Hawaii 1998.

In Konno, the Hawaii supreme court invalidated a contract between the county of Hawaii and a private landfill developer and operator after concluding that under the State's civil service laws, only civil servants could perform the services and fill the positions historically and customarily provided or filled by civil servants. Consequently, state and county agencies, in some instances, were precluded from entering into service contracts with private providers to obtain the services they needed, reduce direct labor, material, and equipment costs, and take advantage of indirect savings through contractual provisions for insurance and indemnification against third-party and regulatory liability claims.

Act 230, Session Laws of Hawaii 1998, established a committee to develop a managed process allowing state and county agencies to contract with the private sector for the provision of government services, and make government more efficient and cost-effective. The process ensures that when government decides to seek services from the private sector, it relies on accurate assessments of government's financial condition and informed and responsible cost comparisons, and makes every effort to minimize the impact of decisions on public employees. This process for managed competition is set forth in section 2 of this Act.

Other than to preserve the exceptions from the civil service and collective bargaining laws that the legislature has already established, the managed process in this Act rejects categorical inclusions and exclusions and opts instead for individualized evaluations of whether government or the private sector can provide needed services more efficiently and economically. The process recognizes that line-level agencies are most familiar with both the nature of the services needed and what it takes to provide them, and allows them to determine whether public agencies or contractors should provide needed services. Agency contracts formed pursuant to the process are valid as a matter of law; they cannot be challenged as violative of the civil service or collective bargaining laws. In addition, all collective bargaining agreements entered into after the effective date of this Act by public employers and the exclusive collective bargaining representatives of public employees are required to be consistent with the process for managed competition established by this Act.

This Act mandates that a single, uniform process for managed competition be established for the State and for each of the counties. The directors of finance of the State and of each county are responsible for establishing a uniform system for identifying and quantifying the costs of providing the government services in-house. They must also specify direct and indirect costs common to agencies within the state and each county, and standards of performance and other objective accountability measures for evaluating whether efficiencies and economies have been achieved.

The Act also authorizes decentralized mechanisms to support the process which require agencies to at least annually evaluate in-house versus private alternatives for providing services, and formulate objective performance specifications and criteria for selecting a service provider. Decentralized mechanisms to minimize the impact of decisions on employees include mechanisms for management and employee collaboration; employee reorganization, training, retraining, and reassignment; and voluntary severance and other benefit programs and procedures.

The process neither requires nor prohibits public employee layoffs. It recognizes that efficiencies and economies may require the release of public employees but leaves it to each jurisdiction to determine whether public employees will be laid off.

It is understood that structures and organization to support the process need to be developed and that it may be necessary to make technical revisions to procurement and other laws to assure that existing laws do not contradict or undermine the process or the provisions of this Act.

Finally, the provisions of this Act are effective upon approval. However, to avoid impairment of contract challenges under the federal constitution during the term of any collective bargaining agreement in effect at the time the Act is approved, state and county agencies may use the process for managed competition only if its use is consistent with the provisions of applicable collective bargaining agreements entered into prior to the effective date of this Act.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

PROCESS FOR MANAGED COMPETITION

§   -1 Purpose. (a) The purpose of this chapter is to make government operations more efficient and economical by establishing a managed competition process which in the first instance encourages government agencies to maximize the efficiency and economy of their operations, but also permits them to acquire services from contractors without violating civil service and collective bargaining laws when additional economies and efficiencies can be achieved by contracting with the private sector.

The process is premised on the assumption that efficiencies and economies are more likely to be realized when:

(1) Public agencies are permitted to choose between securing the services they need or are required to perform from the public or private sector; and

(2) The public and private sectors are given the opportunity to compete against each other to provide or deliver those services.

To achieve efficiencies and economies, agencies must be permitted to determine on an individualized basis whether services they need are best performed in- or out-of-house.

(b) The process for managed competition is intended to further the following interests:

(1) Agency self-assessment to improve efficiencies and economies, and reduce the cost of government;

(2) Competition between public employees and the private sector to secure the services government needs or is required to provide or perform;

(3) Reasoned decision making; and

(4) Public-private partnerships.

§   -2 Establishment of process for managed competition; exceptions. (a) There is established a process for managed competition that state and county agencies shall use to obtain the services they need or are required to provide. The process for managed competition shall consist of:

(1) Agency determinations made at least annually that consider recommendations of agency employees, to identify whether services an agency needs or is required to provide are performed more efficiently and economically in-house by public employees or out-of-house by contractors;

(2) Agency formulation of objective performance specifications and evaluation criteria for selecting a service provider competitively; and

(3) Selection of a service provider from among public agency and private sector participants, using the specifications and criteria developed pursuant to subsection (a)(2), and the procurement procedures of chapter 103D or 103F.

(b) To maximize the effectiveness of the process for managed competition and to allow state and county agencies to realize the efficiencies and economies the process is designed to help them achieve:

(1) The directors of finance of the State and each of the counties shall:

(A) Establish a single, uniform system that all agencies within their respective jurisdictions shall use to identify, analyze, assign, and quantify relevant costs attendant to using public employees to perform the services an agency needs or is required to provide;

(B) Specify the amounts of those direct and indirect costs that are common to all agencies within their respective jurisdictions that the agencies shall use to measure efficiencies and economies under subsection (a)(1) and (3); and

(C) Prescribe performance standards and quality measures and procedures to monitor the effectiveness of agency determinations to use agency employees or private contractors to perform the services an agency needs;

(2) The State and each of the counties may use the layoff provisions of the civil service laws and the respective collective bargaining contracts to release employees displaced from their positions by the process for managed competition. Prior to implementing any layoff provision of the civil service laws or a collective bargaining contract, the State and each of the counties shall use their resources for placing, retraining, and providing voluntary severance incentives for displaced employees. Methods that may be used to minimize or avoid the adverse effects of an agency's decision to secure needed services from contractors may include:

(A) Coordination with the private service provider awarded the contract under subsection (a)(3) to continue a displaced employee's employment as an employee of the contractor;

(B) Reassignment to another position the employee is qualified to fill;

(C) Retraining to qualify the employee for reassignment; and

(D) Severance incentives;

(3) Agencies, employees, and exclusive collective bargaining representatives may propose alternatives for performing or providing services an agency needs or is required to perform more efficiently and economically. Proposals shall be made in writing. Agency and employee proposals shall be submitted to all affected exclusive collective bargaining representatives, and proposals from exclusive collective bargaining representatives shall be submitted to all affected agencies. Agencies, employees, and the employees' exclusive collective bargaining representatives shall be available to discuss proposals. All discussions shall be completed in forty-five working days after receipt of a written proposal by the agency or the exclusive collective bargaining representative, unless the time limit is mutually extended. Upon completion of these discussions, alternatives proposed and discussed and the costs associated with each shall be considered by the agency in determining whether needed services will be provided in- or out-of-house; and

(4) On an on-going basis, agencies are encouraged to:

(A) Regularly identify and monitor costs;

(B) Establish performance and quality standards to measure efficiencies and economies; and

(C) Make reasonable efforts, including competitiveness collaboration and training, job skills retraining, reorganizing the workforce, and revising procedures,

to enhance the ability of employees to compete, enhance in-house effectiveness and efficiency, and generally modernize agency operations.

(c) The process for managed competition established by this section need not be used to obtain a service an agency needs or is required to provide, if a statute, county charter or ordinance, or administrative rule authorizes the service to be performed or provided by non-civil servants including contractors, or by persons holding positions exempt from the civil service.

§   -3 Managed competition determinations. (a) Each state and county agency shall have exclusive and sole discretion to determine whether a service it needs or is required to provide will be performed by its employees, or obtained from other public agencies or private contractors. In making this determination, the agency shall consider:

(1) The nature of the service the agency needs, including whether:

(A) The service is self-contained or part of a larger service delivery system;

(B) The service is geographically dispersed;

(C) The service is a core or ancillary government service and if in-house resources are available or needed;

(D) Government control is necessary;

(E) Government accountability can be shared; and

(F) Governmental authority will be diluted;

(2) The potential for achieving cost savings, including:

(A) The need to abandon or repurchase capital improvements or equipment that are not fully depreciated;

(B) The extent to which the service is available in the private sector marketplace; and

(C) The extent to which federal or state restrictions may reduce private sector interest in providing or performing the needed or required service;

(3) Impact upon existing employees;

(4) The extent to which the services that are needed or required, and the criteria to select a service provider competitively can be described in objective specifications; and

(5) The risk of:

(A) Contract breaches, default, or cost overruns; and

(B) Complications attendant to transferring and resuming operations at the start and end of a contract.

(b) Agency employees may develop and make recommendations to improve the way they perform the services an agency needs or is required to provide. These recommendations shall be considered by the agency in identifying and determining which services are more efficiently and economically performed in-house or out-of-house under section    -2. Agencies shall also use the costs assigned by the director of finance of their respective jurisdictions to make the determinations described in this section and section    -2. In addition, agencies shall use their resources for placing, retraining, and providing incentives for voluntary severance before any layoff provision of the civil service law or a collective bargaining contract is applied.

(c) An agency's determination shall be final and no suit may be brought under any law, including the laws relating to civil service, collective bargaining, public contracts, or procurement, to challenge an agency's determination once a determination is made."

SECTION 3. Section 46-33, Hawaii Revised Statutes, is amended to read as follows:

"§46-33 Exemption of certain county positions. In any county with a population of 500,000 or more, the civil service to which this section refers is [comprised] composed of all positions in the public service of [such] that county, now existing or hereafter established, and embraces all personal services performed for such county, except the following:

(1) Positions of officers elected by public vote; positions of heads of departments; position of the clerk; position of the manager of the board of water supply and position of the chief of police[.];

(2) Positions in the office of mayor, but such positions, except those of the heads of the offices of information and complaint and budget director, shall be included in the position classification plan. Employees of the municipal library and of the offices of information and complaint and budget director, other than the heads of such offices, however, shall not be exempted from civil service[.];

(3) Positions of deputies of the corporation counsel, deputies of the prosecuting attorney, and law clerks[.];

(4) Positions of members of any board, commission, or equivalent body[.];

(5) Positions filled by inmates, patients, or students in city institutions or in the schools[.];

(6) Positions of district magistrates, jurors, and witnesses[.];

(7) Personal services obtained by contract where the director of civil service has certified that the service is special or unique, is essential to the public interest and that, because of circumstances surrounding its fulfillment, personnel to perform such service cannot be obtained through normal civil service recruitment procedures. Any such contract may be for any period not exceeding one year[.];

(8) Personal services of a temporary nature needed in the public interest where the need for the same does not exceed ninety days, but before any person may be employed to render such temporary service the director of civil service shall certify that the service is of a temporary nature and that recruitment through normal civil service recruitment procedures is not practicable. The employment of any person for service of a temporary nature may be extended for good cause for an additional period not to exceed ninety days upon similar certification by the director subject to approval of the civil service commission[.];

(9) Personal services performed on a fee, contract or piecework basis by persons who may lawfully perform their duties concurrently with their private business or profession or other private employment, if any, and whose duties require only a portion of their time, where it is impracticable to ascertain or anticipate the portion of time devoted to the service of the city and such fact is certified to by the director of civil service[.];

(10) Positions of temporary election clerks in the office of the clerk employed during the election periods, but the positions filled by such employees shall be included in the position classification plan[.];

(11) Positions of one first deputy and private secretaries to heads of departments and their first deputies, but private secretarial positions shall be included in the position classification plan. The first deputy in the department of civil service, however, shall not be exempt from civil service[.]; and

(12) Services provided pursuant to contracts for the construction of capital improvement projects authorized by the capital budget and program enactments of the county legislative body.

The director of civil service shall determine the applicability of this section to specific positions."

SECTION 4. Section 46-36, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) As used in this section, "managed competition" or "managed process of public-private competition" means the process established in [this] section    -2 by which the county and a private contractor compete to provide government services."

SECTION 5. Section 76-16, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The civil service to which this chapter applies shall comprise all positions in the State now existing or hereafter established and embrace all personal services performed for the State, except the following:

(1) Commissioned and enlisted personnel of the Hawaii national guard as such, and positions in the Hawaii national guard that are required by state or federal laws or regulations or orders of the national guard to be filled from those commissioned or enlisted personnel;

(2) Positions filled by persons employed by contract where the director of human resources development has certified that the service is special or unique or is essential to the public interest and that, because of circumstances surrounding its fulfillment, personnel to perform the service cannot be obtained through normal civil service recruitment procedures. Any such contract may be for any period not exceeding one year;

(3) Positions that must be filled without delay to comply with a court order or decree if the director determines that recruitment through normal recruitment civil service procedures would result in delay or noncompliance, such as the Felix-Cayetano consent decree;

(4) Positions filled by the legislature or by either house or any committee thereof;

(5) Employees in the office of the governor and office of the lieutenant governor, and household employees at Washington Place;

(6) Positions filled by popular vote;

(7) Department heads, officers, and members of any board, commission, or other state agency whose appointments are made by the governor or are required by law to be confirmed by the senate;

(8) Judges, referees, receivers, masters, jurors, notaries public, land court examiners, court commissioners, and attorneys appointed by a state court for a special temporary service;

(9) One bailiff for the chief justice of the supreme court who shall have the powers and duties of a court officer and bailiff under section 606-14; one secretary or clerk for each justice of the supreme court, each judge of the intermediate appellate court, and each judge of the circuit court; one secretary for the judicial council; one deputy administrative director of the courts; three law clerks for the chief justice of the supreme court, two law clerks for each associate justice of the supreme court and each judge of the intermediate appellate court, one law clerk for each judge of the circuit court, two additional law clerks for the civil administrative judge of the circuit court of the first circuit, two additional law clerks for the criminal administrative judge of the circuit court of the first circuit, one additional law clerk for the senior judge of the family court of the first circuit, two additional law clerks for the civil motions judge of the circuit court of the first circuit, two additional law clerks for the criminal motions judge of the circuit court of the first circuit, and two law clerks for the administrative judge of the district court of the first circuit; and one private secretary for the administrative director of the courts, the deputy administrative director of the courts, each department head, each deputy or first assistant, and each additional deputy, or assistant deputy, or assistant defined in paragraph (16);

(10) First deputy and deputy attorneys general, the administrative services manager of the department of the attorney general, one secretary for the administrative services manager, an administrator and any support staff for the criminal and juvenile justice resources coordination functions, and law clerks;

(11) (A) Teachers, principals, vice-principals, district superintendents, chief deputy superintendents, other certificated personnel, not more than twenty noncertificated administrative, professional, and technical personnel not engaged in instructional work;

(B) Effective July 1, 2003, teaching assistants, educational assistants, bilingual/bicultural school-home assistants, school psychologists, psychological examiners, speech pathologists, athletic health care trainers, alternative school work study assistants, alternative school educational/supportive services specialists, alternative school project coordinators, and communications aides in the department of education;

(C) The special assistant to the state librarian and one secretary for the special assistant to the state librarian; and

(D) Members of the faculty of the University of Hawaii, including research workers, extension agents, personnel engaged in instructional work, and administrative, professional, and technical personnel of the university;

(12) Employees engaged in special, research, or demonstration projects approved by the governor;

(13) Positions filled by inmates, kokuas, patients of state institutions, persons with severe physical or mental handicaps participating in the work experience training programs, and students and positions filled through federally funded programs that provide temporary public service employment such as the federal Comprehensive Employment and Training Act of 1973;

(14) A custodian or guide at Iolani Palace, the Royal Mausoleum, and Hulihee Palace;

(15) Positions filled by persons employed on a fee, contract, or piecework basis, who may lawfully perform their duties concurrently with their private business or profession or other private employment and whose duties require only a portion of their time, if it is impracticable to ascertain or anticipate the portion of time to be devoted to the service of the State;

(16) Positions of first deputies or first assistants of each department head appointed under or in the manner provided in section 6, Article V, of the State Constitution; three additional deputies or assistants either in charge of the highways, harbors, and airports divisions or other functions within the department of transportation as may be assigned by the director of transportation, with the approval of the governor; four additional deputies in the department of health, each in charge of one of the following: behavioral health, environmental health, hospitals, and health resources administration, including other functions within the department as may be assigned by the director of health, with the approval of the governor; an administrative assistant to the state librarian; and an administrative assistant to the superintendent of education;

(17) Positions specifically exempted from this part by any other law; provided that all of the positions defined by paragraph (9) shall be included in the position classification plan;

(18) Positions in the state foster grandparent program and positions for temporary employment of senior citizens in occupations in which there is a severe personnel shortage or in special projects;

(19) Household employees at the official residence of the president of the University of Hawaii;

(20) Employees in the department of education engaged in the supervision of students during meal periods in the distribution, collection, and counting of meal tickets, and in the cleaning of classrooms after school hours on a less than half-time basis;

(21) Employees hired under the tenant hire program of the housing and community development corporation of Hawaii; provided that not more than twenty-six per cent of the corporation's work force in any housing project maintained or operated by the corporation shall be hired under the tenant hire program;

(22) Positions of the federally funded expanded food and nutrition program of the University of Hawaii that require the hiring of nutrition program assistants who live in the areas they serve;

(23) Positions filled by severely handicapped persons who are certified by the state vocational rehabilitation office that they are able to perform safely the duties of the positions;

(24) One public high school student to be selected by the Hawaii state student council as a nonvoting member on the board of education as authorized by the State Constitution;

(25) Sheriff, first deputy sheriff, and second deputy sheriff;

(26) A gender and other fairness coordinator hired by the judiciary; [and]

(27) Positions in the Hawaii national guard youth challenge academy[.]; and

(28) Services provided pursuant to contracts for the construction of capital improvement projects authorized by the legislature.

The director shall determine the applicability of this section to specific positions.

Nothing in this section shall be deemed to affect the civil service status of any incumbent as it existed on July 1, 1955."

SECTION 6. Section 76-77, Hawaii Revised Statutes, is amended to read as follows:

"§76-77 Civil service and exemptions. The civil service to which this part applies comprises all positions in the public service of each county, now existing or hereafter established, and embraces all personal services performed for each county, except the following:

(1) Positions in the office of the mayor; provided that the positions shall be included in the classification systems;

(2) Positions of officers elected by public vote, positions of heads of departments, and positions of one first deputy or first assistant of heads of departments;

(3) Positions of deputy county attorneys, deputy corporation counsel, deputy prosecuting attorneys, and law clerks;

(4) Positions of members of any board, commission, or agency;

(5) Positions filled by students; positions filled through federally funded programs which provide temporary public service employment such as the federal Comprehensive Employment and Training Act of 1973; and employees engaged in special research or demonstration projects approved by the mayor, for which projects federal funds are available;

(6) Positions of district judges, jurors, and witnesses;

(7) Positions filled by persons employed by contract where the personnel director has certified that the service is special or unique, is essential to the public interest, and that because of the circumstances surrounding its fulfillment, personnel to perform the service cannot be recruited through normal civil service procedures; provided that no contract pursuant to this paragraph shall be for any period exceeding one year;

(8) Positions of a temporary nature needed in the public interest where the need does not exceed ninety days; provided that before any person may be employed to render temporary service pursuant to this paragraph, the director shall certify that the service is of a temporary nature and that recruitment through normal civil service recruitment procedures is not practicable; and provided further that the employment of any person pursuant to this paragraph may be extended for good cause for an additional period not to exceed ninety days upon similar certification by the director;

(9) Positions of temporary election clerks in the office of the county clerk employed during election periods;

(10) Positions specifically exempted from this part by any other state statutes;

(11) Positions of one private secretary for each department head; provided that the positions shall be included in the classification systems;

(12) Positions filled by persons employed on a fee, contract, or piecework basis who may lawfully perform their duties concurrently with their private business or profession or other private employment, if any, and whose duties require only a portion of their time, where it is impracticable to ascertain or anticipate the portion of time devoted to the service of the county and that fact is certified by the director;

(13) Positions filled by persons with a severe disability who are certified by the state vocational rehabilitation office as able to safely perform the duties of the positions;

(14) Positions of the housing and community development office or department of each county; provided that this exemption shall not preclude each county from establishing these positions as civil service positions; [and]

(15) The following positions in the office of the prosecuting attorney: private secretary to the prosecuting attorney, secretary to the first deputy prosecuting attorney, and administrative or executive assistants to the prosecuting attorney; provided that the positions shall be included in the classification systems[.]; and

(16) Services provided pursuant to contracts for the construction of capital improvement projects authorized by the capital budget and program enactments of the county legislative body.

The director shall determine the applicability of this section to specific positions and shall determine whether or not positions exempted by paragraphs (7) and (8) shall be included in the classification systems.

Nothing in this section shall be deemed to affect the civil service status of any incumbent private secretary of a department head who held that position on May 7, 1977."

SECTION 7. Section 89-19, Hawaii Revised Statutes, is amended to read as follows:

"§89-19 Chapter takes precedence, when. [This] (a) Except as provided in subsection (b), this chapter shall take precedence over all conflicting statutes concerning this subject matter and shall preempt all contrary local ordinances, executive orders, legislation, or rules adopted by the State, a county, or any department or agency thereof, including the departments of human resources development or of personnel services or the civil service commission.

(b) All provisions of all collective bargaining agreements entered into pursuant to this chapter after the effective date of Act , Session Laws of Hawaii 2003, shall be consistent with the process for managed competition established in section    -2."

SECTION 8. Section 89A-1, Hawaii Revised Statutes, is amended by amending subsection (f) to read as follows:

"(f) As used in this section, "managed competition" or "managed process of public-private competition" means the process established in [this] section    -2 by which the State and a private contractor compete to provide government services."

SECTION 9. The State and the several counties shall develop the cost system, performance and quality standards, employee collaboration, competitiveness training, employee reassignment and retraining, incentive programs, and procedures necessary to support the process for managed competition established by this Act.

SECTION 10. Until all collective bargaining agreements in effect when the governor approves this measure expire by their own terms, state and county agency determinations made pursuant to the chapter added to the Hawaii Revised Statutes by section 2 of this Act may be made only if they are consistent with the provisions of all applicable collective bargaining agreements.

SECTION 11. There is appropriated out of the general revenues of the State of Hawaii the following sums, or so much thereof as may be necessary for fiscal year 2003-2004, to assist the counties in implementing this Act:

City and county of Honolulu $

County of Kauai $

County of Maui $

County of Hawaii $

_______________

Total $

SECTION 12. The sums appropriated shall constitute the State's share of the cost of mandated programs under article VIII, section 5, of the state constitution.

SECTION 13. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 14. This Act shall take effect on July 1, 2003.

INTRODUCED BY:

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