By: Zaffirini, Garcia	S.B. No. 543
	(In the Senate - Filed February 11, 2015; February 18, 2015,
	read first time and referred to Committee on Business and Commerce;
	April 1, 2015, reported adversely, with favorable Committee
	Substitute by the following vote:  Yeas 7, Nays 0; April 1, 2015,
	sent to printer.)
Click here to see the committee vote
	COMMITTEE SUBSTITUTE FOR S.B. No. 543	By:  Eltife

	A BILL TO BE ENTITLED
	AN ACT
	relating to certain requirements applicable to contracts entered
	into by, and the contract management process of, state agencies.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1.  Section 2102.005, Government Code, is amended to
	read as follows:
	Sec. 2102.005.  INTERNAL AUDITING REQUIRED. A state agency
	shall conduct a program of internal auditing that includes:
	(1)  an annual audit plan that is prepared using risk
	assessment techniques and that identifies the individual audits to
	be conducted during the year, including an annual audit of the
	agency's contracts; and
	(2)  periodic audits of the agency's major systems and
	controls, including:
	(A)  accounting systems and controls;
	(B)  administrative systems and controls; and
	(C)  electronic data processing systems and
	controls.
	SECTION 2.  Section 2113.102(a), Government Code, is amended
	to read as follows:
	(a)  A state agency may not use appropriated money to
	contract with a person to audit [the financial records or accounts
	of] the agency except:
	(1)  as provided by[:
	[(1)] Subsections (b), (c), and (d); and
	(2)  in accordance with Section 321.020 [Chapter 466,
	pertaining to the state lottery;
	[(3)     Chapter 2306, pertaining to the Texas Department
	of Housing and Community Affairs; and
	[(4)     Chapter 361, Transportation Code, pertaining to
	the Texas Turnpike Authority division of the Texas Department of
	Transportation].
	SECTION 3.  Section 2162.103(a), Government Code, is amended
	to read as follows:
	(a)  In comparing the cost of providing a service, the
	council shall consider the:
	(1)  cost of supervising the work of a private
	contractor; [and]
	(2)  cost of a state agency's performance of the
	service, including:
	(A)  the costs of the comptroller, attorney
	general, and other support agencies; and
	(B)  other indirect costs related to the agency's
	performance of the service;
	(3)  installation costs and any other initial costs
	associated with a contract with a private contractor;
	(4)  other costs associated with the transition to
	using a private contractor's goods or services; and
	(5)  cost savings to the state if a private contractor
	were awarded the contract.
	SECTION 4.  Section 2261.002, Government Code, is amended
	read as follows:
	Sec. 2261.002.  DEFINITIONS. In this chapter:
	(1)  "Contract" includes an agreement or other written
	expression of terms of agreement, including an amendment, a
	modification, a renewal, or an extension, for the purchase or sale
	of goods or services that is entered into or paid for, wholly or
	partly, by a state agency during a fiscal year and a grant, other
	than a grant made to a school district or a grant made for other
	academic purposes, under which the recipient of the grant is
	required to perform a specific act or service, supply a specific
	type of product, or both.
	(2)  "Contract deliverable" means a unit or increment
	of work required by a contract, including goods, services, reports,
	or documents.
	(3)  "Contract manager" means a person who:
	(A)  is employed by a state agency; and
	(B)  has significant contract management duties
	for the state agency.
	(4)  "Executive director" means the administrative
	head of a state agency.
	(5)  "General counsel" means the general counsel of a
	state agency.
	(6)  "Major contract" means a contract, including a
	renewal of a contract, that has a value of at least $1 million. The
	term includes a service contract.
	(7)  "State agency" has the meaning assigned by Section
	2151.002.
	SECTION 5.  Subchapter A, Chapter 2261, Government Code, is
	amended by adding Sections 2261.004, 2261.005, 2261.006, and
	2261.007 to read as follows:
	Sec. 2261.004.  STATE AGENCY REPOSITORY AND RECORDS.
	(a)  Each state agency shall maintain in a central location all
	contracts for that agency.
	(b)  Each state agency shall maintain a comprehensive list of
	all contracts for that agency.
	(c)  In this subsection, "contract" includes a sole-source
	contract.  Each state agency shall maintain accurate records of all
	essential information relating to agency contracts, including
	information on:
	(1)  a contract delay or changes to a contract in which
	total expenditures under the contract increase by more than 35
	percent from the original contract amount; and
	(2)  cost overruns, including a written explanation of
	why expenditures have increased under a contract.
	(d)  Notwithstanding Section 441.185, contracts and other
	related information required to be maintained under this section by
	a state agency must be retained for the duration of the contract.
	Sec. 2261.005.  CONTRACT REPORTING.  (a)  In this section,
	"contract" includes a construction contract.
	(b)  The following sections prescribe reporting requirements
	for certain contracts:
	(1)  Section 322.020;
	(2)  Section 2054.008;
	(3)  Section 2166.2551;
	(4)  Section 2254.006; and
	(5)  Section 2254.0301.
	Sec. 2261.006.  PROFESSIONAL SERVICES.  A state agency shall
	procure professional services in accordance with Subchapter A,
	Chapter 2254.
	Sec. 2261.007.  CONTRACT GUIDELINES AND PROCEDURES.  Each
	state agency shall establish formal guidelines and procedures for
	all employees involved in the contracting process:
	(1)  regarding who may approve a contract for the
	agency;
	(2)  for contract planning and solicitation;
	(3)  for contract negotiations;
	(4)  for contract management; and
	(5)  for contract oversight.
	SECTION 6.  Subchapter B, Chapter 2261, Government Code, is
	amended by adding Section 2261.054 to read as follows:
	Sec. 2261.054.  BEST VALUE STANDARD FOR CONTRACTING FOR
	GOODS AND SERVICES.  In determining the best value for the state,
	the purchase price and whether the goods or services meet
	specifications are the most important considerations.  A state
	agency may consider, subject to Sections 2155.074(c) and 2155.075,
	other relevant factors, including:
	(1)  installation costs;
	(2)  life cycle costs;
	(3)  the quality and reliability of the goods and
	services;
	(4)  the delivery terms;
	(5)  indicators of probable vendor performance under
	the contract such as past vendor performance, the vendor's
	financial resources and ability to perform, the vendor's experience
	or demonstrated capability and responsibility, and the vendor's
	ability to provide reliable maintenance agreements and support;
	(6)  the cost of any employee training associated with
	a purchase;
	(7)  the effect of a purchase on agency productivity;
	(8)  the vendor's anticipated economic impact on the
	state or a subdivision of the state, including potential tax
	revenue and employment; and
	(9)  other factors relevant to determining the best
	value for the state in the context of a particular purchase.
	SECTION 7.  The heading to Subchapter C, Chapter 2261,
	Government Code, is amended to read as follows:
	SUBCHAPTER C.  CONTRACT FORMATION AND PROVISIONS
	SECTION 8.  Subchapter C, Chapter 2261, Government Code, is
	amended by adding Sections 2261.103, 2261.104, 2261.105, 2261.106,
	and 2261.107 to read as follows:
	Sec. 2261.103.  USE OF UNIFORM FORMS.  A state agency may use
	any forms developed by the comptroller as templates, guides, or
	samples for contracts entered into by the agency.
	Sec. 2261.104.  ESSENTIAL CONTRACT PROVISIONS.  The
	following are required provisions in each contract to which the
	provisions are applicable, other than a grant:
	(1)  legal authority;
	(2)  statement of work;
	(3)  indemnification or damage claims;
	(4)  consideration;
	(5)  specifications;
	(6)  funding out clause;
	(7)  antitrust;
	(8)  payment;
	(9)  dispute resolution;
	(10)  term of contract;
	(11)  confidential information;
	(12)  abandonment or default;
	(13)  right to audit;
	(14)  force majeure;
	(15)  independent contractor; and
	(16)  termination.
	Sec. 2261.105.  CONTRACT PROVISIONS REQUIRED BY STATE LAW.
	In any contract for the acquisition of goods or services to which a
	state agency is a party, a provision required by applicable law to
	be included in the contract is considered to be a part of the
	executed contract without regard to whether:
	(1)  the provision appears on the face of the contract;
	or
	(2)  the contract includes any provision to the
	contrary.
	Sec. 2261.106.  CONTRACT RENEWAL.  A state agency shall
	establish a standardized process for renewing all contracts of the
	agency.
	Sec. 2261.107.  CONTRACT DURATION. (a)  A state agency:
	(1)  must establish a reasonable term for a contract
	before solicitation of the contract; and
	(2)  shall make an effort to keep the maximum length of
	a contract to four years without reissuing a competitive
	solicitation, including any contract renewals or extensions.
	(b)  A contract term established under Subsection (a)(1)
	must be included in a solicitation document.
	(c)  A state agency may not enter into a contract that has an
	indefinite term.
	SECTION 9.  Subchapter D, Chapter 2261, Government Code, is
	amended by adding Section 2261.152 to read as follows:
	Sec. 2261.152.  CONTRACT PAYMENT.  (a)  For each contract
	for goods or services that is subject to this chapter, a state
	agency shall require that payment under the contract be linked to
	clear and measurable achievements, such as length of time of work or
	contract deliverables.
	(b)  A state agency may not make a final payment on a contract
	for goods or services that is subject to this chapter unless the
	agency verifies that all contract deliverables have been received.
	SECTION 10.  The heading to Subchapter E, Chapter 2261,
	Government Code, is amended to read as follows:
	SUBCHAPTER E.  CONTRACT MONITORING AND [CONTRACTOR] OVERSIGHT
	SECTION 11.  Section 2261.202, Government Code, is amended
	to read as follows:
	Sec. 2261.202.  CONTRACT MONITORING RESPONSIBILITIES.
	(a)  As one of its contract management policies, each state agency
	that makes procurements to which this chapter applies shall
	establish and adopt by rule a policy that clearly defines the
	contract monitoring roles and responsibilities, if any, of agency
	staff, including internal audit staff and other inspection,
	investigative, or audit staff.
	(b)  The policy must establish clear lines of
	accountability, staff roles and responsibilities, and
	decision-making authority for program staff, contract management
	staff, and executive management staff.
	SECTION 12.  Subchapter E, Chapter 2261, Government Code, is
	amended by adding Sections 2261.204, 2261.205, 2261.206, 2261.207,
	2261.208, 2261.209, 2261.210, 2261.211, 2261.212, 2261.213, and
	2261.214 to read as follows:
	Sec. 2261.204.  INFORMATION ON CONTRACTOR PERFORMANCE.
	(a)  After a contract is completed or otherwise terminated, each
	state agency shall review the contractor's performance under the
	contract.
	(b)  Using forms made available to the state agency, a state
	agency shall report to the comptroller on the results of the review
	regarding a contractor's performance under a major contract.
	(c)  A state agency may use any vendor performance tracking
	system available to state agencies to determine whether to award a
	contract to a person reviewed in the database.
	Sec. 2261.205.  EXCLUDING CONTRACTOR FROM SOLICITATION
	PROCESS.  Based on its own contractor performance reviews and on
	information in any vendor performance tracking system available to
	state agencies, a state agency may exclude a contractor from the
	solicitation process for a contract if the agency determines the
	contractor has performed poorly on a previous state contract
	without regard to whether the contractor has been barred under
	Section 2155.077.
	Sec. 2261.206.  CONTRACTING STAFF.  (a)  Each state agency
	that enters into contracts other than interagency contracts shall
	establish a career ladder program for contract management in the
	agency.
	(b)  An employee hired as a contract manager may participate
	in procurement planning, contract solicitation, contract
	formation, price establishment, and other contract activities.
	(c)  Each state agency shall determine, in consultation with
	the state auditor, the amount and significance of contract
	management duties sufficient for an employee to be considered a
	contract manager, program staff, or a contract specialist.
	Sec. 2261.207.  APPROVAL OF CONTRACTS.  (a)  Each state
	agency shall adopt a policy to establish a monetary threshold above
	which agency contracts and amendments to or extensions of agency
	contracts require written authorization by the agency executive
	director.
	(b)  For state agency contracts valued in excess of $1
	million, the agency executive director must authorize a contract
	amendment in writing.
	(c)  Each state agency shall annually report to the
	comptroller a list of persons authorized to approve contracts at
	the agency.  The list must include each person's name, position, and
	supervisory responsibility, if any.
	Sec. 2261.208.  NEGOTIATION OF MAJOR CONTRACT BY SINGLE
	EMPLOYEE PROHIBITED. A state agency may not negotiate a major
	contract with only one employee engaging in the negotiation.
	Sec. 2261.209.  CONTRACT REVIEW; REPORTING.  (a)  A
	contractor's performance must be periodically reviewed throughout
	the term of a contract.
	(b)  A state agency shall ensure ongoing communication
	between executive management staff, contract management staff, and
	program staff of the results of the reviews performed under
	Subsection (a) with specific attention to contracts that are:
	(1)  anticipated to be completed later than originally
	estimated; or
	(2)  expected to cost more than the amount that was
	originally budgeted.
	(c)  To implement this section, a state agency shall create a
	system for agency-wide reporting on the status of, activity on, and
	contractor performance for each contract.
	Sec. 2261.210.  CONTRACT ADMINISTRATION TEAM.  (a)  This
	section applies to a state agency that has a contract with a value
	of $5 million or more.
	(b)  A state agency to which this section applies shall
	create a contract administration team to:
	(1)  ensure and verify the performance of agency
	contracts with a value of $5 million or more; and
	(2)  maintain within the agency contract oversight
	expertise to effectively manage contractors.
	Sec. 2261.211.  CONTRACT MONITORING PROCESS.  A state agency
	shall establish and implement a monitoring process for agency
	contracts that includes:
	(1)  identifying the appropriate criteria for use in
	measuring contract performance;
	(2)  creating a schedule for monitoring contract
	performance;
	(3)  comparing work accomplished to work planned to be
	accomplished;
	(4)  analyzing contract performance variances; and
	(5)  addressing contracting performance problems with
	corrective action.
	Sec. 2261.212.  RISK MANAGEMENT PROCESS.  (a)  A state
	agency shall establish and implement a:
	(1)  process for evaluating the potential risk to the
	state, such as product risk, process risk, financial risk, and
	schedule risk, if contract implementation or performance problems
	occur, including a process for:
	(A)  risk identification or identifying items
	that may prevent the agency from achieving contracting goals or
	objectives;
	(B)  risk analysis or assessing the impact and
	likelihood of a risk;
	(C)  risk evaluation or developing strategies or
	approaches to address risks that have been identified and analyzed;
	(D)  risk treatment or the managerial approach to
	risk;
	(E)  risk reduction or planning and performing
	actions to mitigate risk due to a managerial decision to reduce
	risk;
	(F)  contingency planning or developing plans for
	corrective action to be taken if a potential risk occurs; and
	(G)  risk monitoring or tracking the
	implementation of a risk reduction plan until the risk is
	sufficiently mitigated; and
	(2)  procedure for corrective action to be used when
	contract implementation or performance problems occur.
	(b)  In creating the process required by Subsection (a)(1),
	the state agency shall consider:
	(1)  the complexity and subject matter of agency
	contracts;
	(2)  the dollar value of agency contracts, including
	contract extensions and amendments, and whether the procurement
	will result in a major contract;
	(3)  the anticipated payment methodology;
	(4)  the experience of agency staff with the type of
	procurement;
	(5)  whether the results of the procurement will impact
	the public or only impact the agency;
	(6)  time constraints or the expected duration of the
	procurement; and
	(7)  the type, availability, and experience of staff
	resources required to implement the objectives of the procurement.
	(c)  Based on the assessed risk of a state agency contract,
	the agency shall, for each contract:
	(1)  determine the appropriate frequency and method of
	contract monitoring;
	(2)  allocate contract monitoring resources; and
	(3)  develop a contract auditing plan.
	Sec. 2261.213.  CONTRACT COMMUNICATION.  (a)  A state agency
	shall maintain effective communication procedures regarding
	contract performance.
	(b)  The chief financial officer of a state agency, or an
	individual designated by the executive director with similar duties
	and skills as a chief financial officer, shall report at least
	monthly to the executive director on the status of agency
	contracts.  The report must include a clear indication of:
	(1)  any contract cost overruns or contracts that are
	performing poorly; and
	(2)  contracts that may cause the state to delay or
	default on service delivery.
	Sec. 2261.214.  REPORT ON CERTAIN PURCHASES.  (a)  Not later
	than August 1 of each year, the comptroller shall publish a report
	on the number and dollar value of sole source and emergency
	purchases made in the previous calendar year.  The report must
	compare the total dollar value of all sole source and emergency
	purchases made with the total dollar value of all competitively
	awarded contracts.
	(b)  Each state agency shall timely provide to the
	comptroller the information the comptroller requires for the
	purpose of creating the report under Subsection (a).
	(c)  The comptroller shall establish requirements for the
	provision of information under Subsection (b) in consultation with
	the Contract Advisory Team created under Subchapter C, Chapter
	2262, the Health and Human Services Commission, and the Texas
	Department of Transportation.
	(d)  The comptroller may not require a state agency to
	provide information under Subsection (b) on a contract related to
	health and human services if:
	(1)  the value of the contract cannot be determined at
	the time of execution of the contract; and
	(2)  any qualified vendor is eligible for the contract.
	SECTION 13.  Chapter 2261, Government Code, is amended by
	adding Subchapters F, G, H, and I to read as follows:
	SUBCHAPTER F.  CHANGES TO CONTRACTS
	Sec. 2261.251.  CONTRACT AMENDMENTS, EXTENSIONS, AND CHANGE
	ORDERS.  (a)  An extension of or amendment to a state agency
	contract, including a change order, is subject to the same agency
	approval processes as the original contract.
	(b)  A state agency may not extend or amend a contract unless
	the agency complies with the same agency approval processes for the
	extension or amendment as required for the original contract and
	the agency states in writing why the extension or amendment is
	necessary or advantageous to the state.
	(c)  This section does not affect whether a state agency is
	required to undertake a new solicitation process in the manner
	required for a new contract in order to extend or amend a contract.
	Sec. 2261.252.  LARGE CHANGE IN CONTRACT VALUE; COST
	OVERRUNS.  (a)  If a proposed contract amendment or extension
	changes the monetary value of a major contract by at least 35
	percent or $1 million, the state agency must submit the amendment or
	extension for review to the agency's executive director before the
	agency amends or extends the contract.
	(b)  Subsection (a) does not apply to a proposed contract
	amendment required by a state or federal statute.
	(c)  The executive director shall be timely notified of any
	unanticipated contract cost overrun.
	Sec. 2261.253.  CERTAIN CONTRACT EXTENSIONS.  This
	subchapter does not apply to contract extensions that are
	specifically established as a component of the original
	procurement.
	SUBCHAPTER G.  TRAINING
	Sec. 2261.301.  TRAINING FOR CONTRACT MANAGERS.  (a)  A
	state agency shall require a contract manager to complete the
	training program for contract managers developed and administered
	by the comptroller.
	(b)  A state agency shall maintain a list of contract
	managers who have completed the training program for contract
	managers.
	(c)  A state agency may develop qualified contract manager
	training to supplement the training required under this section.
	Sec. 2261.302.  TRAINING FOR GOVERNING BODIES.  All members
	of the governing body of a state agency shall complete at least one
	abbreviated course of the training program for contract managers
	developed and administered by the comptroller.  This section does
	not apply to a state agency that does not enter into any contracts.
	SUBCHAPTER H.  CONTRACT PLANNING AND SOLICITATION
	Sec. 2261.351.  CONTRACT PLANNING.  Before a state agency
	solicits a contract, the agency must:
	(1)  identify, justify, and document the need for the
	good or service;
	(2)  identify general contracting objectives,
	assumptions, and constraints;
	(3)  consider alternatives to soliciting the contract;
	and
	(4)  determine the preferred method of delivery for the
	good or service.
	Sec. 2261.352.  SOLICITATION OF CONTRACT.  (a)  A
	solicitation for a contract must include the following:
	(1)  a description of the work;
	(2)  a specific and measurable standard of performance;
	(3)  a list of the test conditions, method, or
	procedure for verifying that the contract deliverable meets the
	standard;
	(4)  a method or process to monitor and ensure quality
	in the contract deliverable;
	(5)  an acceptance process for each contract
	deliverable that is expected to be delivered;
	(6)  a compensation structure that is consistent with
	the type and value of work performed; and
	(7)  a remedy, if appropriate, for failure to meet
	contract deliverables.
	(b)  In preparing a contract solicitation, a state agency
	must include in the requirements for the contract deliverables:
	(1)  the quality level of the good or service;
	(2)  the amount of completion that is required;
	(3)  the suitability of the good or service for the work
	to be done for the agency; and
	(4)  a defined and documented method of evaluation to
	be used in making the award and in determining the best value bid
	for the procurement.
	SUBCHAPTER I.  CONTRACT CLOSING
	Sec. 2261.401.  CLOSING PROCEDURE.  A state agency shall
	create and follow a procedure for contract closing that includes
	procedures for:
	(1)  verification that all:
	(A)  required goods or services have been
	delivered or performed, inspected, and accepted; and
	(B)  existing options have been exercised or have
	expired;
	(2)  issuance of a contract completion notice by one
	of the parties;
	(3)  acquisition of all required forms, reports, and
	clearances;
	(4)  verification that other applicable terms have been
	met;
	(5)  verification that there are no outstanding claims
	or disputes; and
	(6)  final payment.
	SECTION 14.  Sections 2262.051(c) and (d), Government Code,
	are amended to read as follows:
	(c)  The guide must provide required and recommended
	contracting processes and procedures and information regarding the
	primary duties of [a] contract management [manager], including how
	to:
	(1)  develop and negotiate a contract;
	(2)  fairly and objectively select a contractor; [and]
	(3)  monitor contractor and subcontractor performance
	under a contract and ensure compliance with provisions in a
	contract that hold the contractor accountable for performance
	results;
	(4)  develop an accurate and comprehensive statement of
	work and conform contract documents to the statement of work;
	(5)  evaluate and ensure compliance with contract
	deliverables and performance metrics and any associated remedies
	and incentives;
	(6)  maintain required documentation for contracting
	decisions, contract changes, and problems with a contract;
	(7)  communicate any serious issue or risk that is
	identified with a contract in a timely manner to the agency's
	governing body or the single state officer who governs the agency;
	(8)  create a risk management process under Section
	2261.212;
	(9)  build and maintain a working relationship with the
	contractor, including instruction on communication and timely
	management of problems;
	(10)  create a procedure for selecting and applying a
	preferred dispute resolution method;
	(11)  implement an escalation process to address
	contract disagreements;
	(12)  evaluate and approve requests for payments that
	are consistent with the contract; and
	(13)  develop a process for contract closure and
	performance evaluation of a contractor under a contract.
	(d)  The guide must include model provisions for state agency
	contracts.  The guide must:
	(1)  distinguish between essential provisions that a
	state agency must include in a contract to protect the interests of
	this state and recommended provisions that a state agency may
	include in a contract;
	(2)  recognize the unique contracting needs of an
	individual state agency or program and provide procedures for
	documenting agency decisions that do not follow required
	contracting processes and procedures but are [sufficient
	flexibility to accommodate those needs,] consistent with
	protecting the interests of this state;
	(3)  include maximum contract periods under which a new
	competitive solicitation is not necessary; and
	(4)  include the model contract management process
	developed under Section 2262.104 and recommendations on the
	appropriate use of the model.
	SECTION 15.  Sections 2261.104, 2261.105, 2261.107,
	2261.208, 2261.351, and 2261.352, Government Code, as added by this
	Act, apply only to a contract for which a state agency first
	advertises or otherwise solicits bids, proposals, offers, or
	qualifications on or after the effective date of this Act.
	SECTION 16.  A contract manager is not required to complete
	the training required under Section 2261.301, Government Code, as
	added by this Act, until September 1, 2017.
	SECTION 17.  A member of a governing body of a state agency
	is not required to complete the training required under Section
	2261.302, Government Code, as added by this Act, until September 1,
	2017.
	SECTION 18.  A state agency is not required to comply with
	Section 2261.202, Government Code, as amended by this Act, and
	Section 2261.004 and Sections 2261.204 through 2261.213,
	Government Code, as added by this Act, until September 1, 2017.
	SECTION 19.  This Act takes effect November 1, 2015.
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