1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 AUGUST 30, 2016 10 11 12 13 14 ITEM P 15 OTHER ADMINISTRATIVE MATTERS 16 ITEM P7 17 ADMINISTRATION DEPUTY DIRECTOR'S REPORT 18 1. CONTRACT OVER $1 MILLION - CROS PROJECT 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board of Equalization: Fiona Ma, CPA 4 Chairwoman 5 Diane L. Harkey Vice Chair 6 Jerome E. Horton 7 Member 8 Sen. George Runner (Ret.) Member 9 Betty T. Yee 10 State Controller 11 Joann Richmond Chief 12 Board Proceedings Division 13 14 For Board of Equalization Staff: Edna Murphy 15 Deputy Director Administration 16 David Gau 17 Executive Director 18 Brenda Fleming Chief Information Officer 19 Technology Services 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 30, 2016 4 ---oOo--- 5 MS. MA: Good afternoon, Members and 6 guests. We are back after our lunch break. The 7 meeting of the Board of Equalization is hereby 8 convened. 9 We are going to start with the Item P6, the 10 CROS Project, first since our Controller Betty Yee 11 is here. And then we will go back, after that, to 12 the last case on this morning's docket, and then 13 proceed back through the agenda. 14 So, Ms. Richmond, please call the next 15 item. 16 MS. RICHMOND: So our next item for the 17 afternoon session is Item P Other Administrative 18 Matters; Item P6 is the Administration Deputy 19 Director's Report; Item P6.1 is the Contract over a 20 Million Dollars for the CROS Project. 21 MS. MURPHY: Good afternoon, Members. I'm 22 Edna Murphy, Deputy Director of the Administration 23 Department. With me today is our Executive Director 24 Mr. Gau as I present my first item. 25 Before you today is a request for approval 26 of contracts over a million dollars. 27 MR. GAU: Good afternoon, Members. This is 28 a contract for the Centralized Revenue Opportunity 3 1 System, the CROS Project. 2 To offer a brief background, the project 3 was approved in September 2011 with our Request for 4 Proposal, or RFP, being released to the bidder 5 community in July of 2013. The RFP was to obtain 6 the services of a system integrator for the CROS 7 Project. 8 The project objectives are to replace our 9 legacy system with a modern integrated system. Now, 10 while our legacy system has served us well for 20 11 years, that is very old in technology years. 12 Now, we have even with your limited system, 13 the limitations of our aged system, I want to 14 compliment BOE staff has done a very good job of 15 maintaining and efficiently administering our tax 16 programs during that period of time to serve our 17 customers. 18 So presenting this contract today is 19 certainly a significant milestone for the project 20 and for the Board of Equalization. When 21 implemented, CROS will improve many of our 22 processes, resulting in increased efficiencies and 23 enhanced capabilities. 24 But, even more significantly, it's an 25 important step forward for our taxpayers and our 26 staff. The range and degree of improvements will 27 further our customer services priorities and our 28 commitment to staff. As an example, CROS will allow 4 1 BOE to enhance and broaden its online services which 2 will allow taxpayers to more easily interact with 3 the Board of Equalization. 4 It's important to note that the CROS 5 Project is consistent with the BOE's management 6 plan, strategic management plan and, specifically, 7 under two goals: First goal, increasing voluntary 8 compliance; and our second goal, to enhance our 9 operational efficiencies. 10 MS. MURPHY: That said, after a thorough 11 and rigorous evaluation process, completed by a team 12 of BOE subject matter experts and overseen by the 13 California Department of Technology, the project's 14 procurement team has released the evaluation and 15 selection report with a recommendation for the 16 bidder with the highest score. 17 Final selection was determined on the basis 18 of the best value proposal after preferences and the 19 responsiveness to the RFP requirements. Therefore, 20 based on the response of best and final offer and 21 successful Public Contract Code 6611 negotiations, 22 the evaluation and selection team recommends that 23 the contract for RFP 0860-094 be awarded to Fast 24 Enterprises. 25 This vendor achieved the highest total 26 score of the bids received, scoring 796.35 points 27 out of a thousand. The contract amount is 28 85.1 million, which is within the budget for the 5 1 primary vendor stated in the CROS Special Project 2 Report, SPR #3, approved in May of 2016. The new 3 system is estimated to increase benefits and revenue 4 by 40 to 190 million annually. 5 Members, we respectfully ask for your 6 approval of the CROS contract. 7 MS. MA: Okay. Members? 8 Ms. Yee. 9 MS. YEE: Thank you, Madam Chair. 10 First of all, it's great to be here. And 11 as many of you know, I don't get to come to a lot of 12 meetings anymore. But I just want to say, first of 13 all, we have reached a milestone with respect to the 14 CROS Project. And I think one of a few Members on 15 this Board that was here at its inception, I just 16 want to say that we're at a point of where I feel 17 very, very confident about the decision we're going 18 to make today with respect to having this project 19 move forward. 20 We've had extensive engagement with the 21 control agencies along this time to get to this 22 point. But more importantly, it's been a 23 stakeholder-informed process. And I can't say 24 enough about the BOE staff, both here at 25 headquarters and in the field, that have informed 26 the needs of -- that need to be responded to by the 27 new system. But more importantly, I also need to 28 thank and congratulate those who have been the 6 1 architects and have maintained our current legacy 2 system. 3 This is going to be a transition from that 4 system to the new system. And so I think the input 5 by certainly those of our current legacy system into 6 CROS has been very invaluable. 7 But the goal of voluntary compliance and 8 certainly increasing our operational efficiency and 9 excellence is -- has really been the hallmark of a 10 lot of the planning for the project. And I think 11 the fact that it's been so stakeholder-focused, both 12 internal and external, and the fact that we have 13 gained the confidence and approval of our control 14 agencies just speaks to the fact that I believe that 15 our action today is timely and very exciting in 16 terms of moving into this next phase. 17 So I'm very supportive and just want to say 18 thank you to all of the BOE staff and those who have 19 put a lot of their information and their knowledge 20 into this new CROS Project. And when the time is 21 appropriate, Madam Chair, I'm happy to make a motion 22 for approval of the contract. 23 MS. MA: Mr. Runner. 24 MR. RUNNER: Yeah. I think it was six 25 years ago or so, just pretty close to that, I 26 remember sitting in my office after being newly 27 elected and hearing about this new program that we 28 were going to have to figure out how to do. 7 1 And so I guess in one sense I'm always 2 amazed that things take as long as they do. Maybe, 3 maybe the -- maybe the outcome will show that that 4 was a good thing. But I also just know that as we 5 move forward and from the very beginning we saw the 6 necessity of this doing -- of this process and the 7 improving and the upgrading of our -- of our ability 8 to use technology as not only an advantage and -- 9 and help to the state, but also very much to the 10 taxpayer. 11 And so I think that's what's important 12 about this, and I know that, while this is an 13 important day, there are many challenging days ahead 14 of us as we seek to integrate the systems together 15 and to work together. So I know that this is a 16 milestone day, and it's good to be here for this 17 day, but we also know we have a lot of work ahead of 18 us. And so I thank, not only for the hard work 19 that's been done, but I know the continued hard work 20 now with a private partner who will be involved with 21 this process, too. So, good day. 22 MS. MA: Ms. Harkey. 23 MS. HARKEY: I'd just like to compliment 24 all of the staff members and management that have 25 worked on this. I want to particularly thank Brenda 26 Fleming for her leadership in guiding us through the 27 process, for helping to be sure that we were 28 accepted by the control agency, that we had 8 1 everything we needed. And I feel very pleased at 2 the way the contract's been negotiated. We have not 3 been part to it at all, but I think that it's -- you 4 know, my big concerns were always cost overruns and 5 I think that this is going to be kind of the perfect 6 marriage for us. 7 And I really -- the system we have now is 8 antiquated. It's not aged. And it really doesn't 9 serve well. I mean you have to -- you have to have 10 been with the BOE for 20 years to probably really 11 understand all of the ins and outs of it. And I 12 think for new people coming in its very, very 13 difficult to administer. 14 So I'm very, very pleased. And I want to 15 thank you all for your hard work, Mr. Gau, Ms. 16 Murphy, thank you very much. 17 MS. MA: So I have a couple questions. 18 Best value proposal, what does that mean? 19 MS. MURPHY: So -- and I may ask Miss 20 Brenda to come up and handle all the technical 21 questions for the evaluation process of it. 22 MS. FLEMING: Good afternoon, Madam Chair, 23 Members. 24 In terms of the best value, the evaluation 25 process -- and, again, it's done by these wonderful 26 people sitting behind me who have extraordinary 27 subject matter expertise. 28 The requirements allow us to have criteria 9 1 that says, "Here's our requirements that were 2 articulated in the Request for Proposal." And 3 categorically what we look for are those: How well 4 the vendor meets the management, functional and 5 technical requirements. And in those three 6 categories there's substantial detail beneath them. 7 Based upon that, there are scores that are 8 determined based upon just a range of things: How 9 well they were able to articulate what the specific 10 technical solution's going to be; there will be 11 components like the performance of it, to what 12 degree; how close does the solution that they're 13 proposing actually meet our requirements? And so 14 you're looking for how well they're going to the 15 perform and their functionality's going to perform 16 against those requirements. 17 As we go through that process, there are 18 some things that are scored that are mandatory, 19 which are basic things that we absolutely have to 20 have. And then there are some other things that 21 I'll say just are optional, so to speak, or 22 desirable. And so, depending on each one of those 23 individual requirements, a score is determined based 24 upon how well the response is in their proposal 25 meets that requirement. And so the ideal is to make 26 sure that they're as tightly coupled as possible. 27 There're also some things, like there's 28 some preferences that are there. So when you look 10 1 at how well their functionality meets our 2 requirements, we also then want to take a look at 3 what's the dollar value that's associated with it. 4 So it's, "Does it meet your requirements? Is it a 5 good price?" And then that's going to be the best 6 proposal on the value. 7 So oftentimes you'll get something where 8 you'll have a great solution, but if the price is 9 too high, that creates a problem. Sometimes, and 10 I'm sure you've heard of this before, when you get a 11 low price, but then you think it's the best price 12 but not necessarily the best value in terms of it 13 delivering the capability and functionality we're 14 looking for. 15 And in this case we were looking for a 16 balance in that portfolio that allowed us to get a 17 good price that's reasonable to the State of 18 California, within our budget, but also was going to 19 give us the functionality and the benefits that 20 we're looking for. 21 MS. MA: So what happens -- you know, Ms. 22 Harkey talked about cost overruns. What happens if 23 we run outside of the budget? How are we going to 24 be notified? Or what is the process moving forward 25 in terms of the process in this contract for the 26 next -- 27 And also I'd like to talk about the 28 timeline, too. 11 1 MS. FLEMING: Sure. 2 MS. MA: How long is it going to take? 3 MS. FLEMING: Sure. The timeline is from 4 implementation. So the contract, should it be 5 approved today and signed today, is the kickoff for 6 the contract period. 7 The implementation phase goes through 8 September of 2021. So we've got quite a ways. And 9 there will be options for warranty period and then 10 some options also for some -- some -- some what we 11 refer to as maintenance and operation periods beyond 12 that. 13 So theoretically, we could be -- if we were 14 to use all of those options, we would be going 15 through 2025, is the timeframe. 16 As relates to the cost overruns, the 17 contract is arranged in such a way that the bidder 18 really owns the cost of the project, the cost of the 19 hardware and the software and the staff. So they 20 are actually owning that for the duration of the -- 21 because it's a benefits-based, performance-based 22 benefits-funded contract. 23 So there isn't a cost -- we don't pay them 24 until they actually show us the benefits, deliver 25 the functionality, show the benefits, show the 26 revenue that is generated from that benefit. And 27 then based upon that, there's a setup criteria 28 through our compensation model that we would run 12 1 through that algorithm, if you will. We go through 2 that routine and that determines if the vendor is 3 then, for lack of a better way of saying it, has 4 earned the -- the benefit of having that payment 5 submitted to them. 6 So what's going to happen is that there 7 will be multiple releases of functionality over 8 those multiple years. As that functionality is set 9 up, we will -- BOE will take a look at that and make 10 sure that it meets all of our needs. There's a 11 checklist of all the requirements and a report card, 12 if you will, that articulates if it meets the needs 13 or not. And based upon that, again, the 14 compensation model has a full, pretty comprehensive 15 routine that determines how to pay the vendor. 16 Footnote, the State of California receives 17 their portions first. So we will get paid back, 18 reimbursed for our costs, and there's a formula that 19 determines to what -- to what degree the vendor gets 20 paid for their -- for their services. 21 MS. MA: Okay. And then how are -- is this 22 going to be on each month's agenda? Or how are we, 23 as a board, trying to keep track of the progress if 24 there's any issues that we should be addressing? 25 MS. FLEMING: Okay. And just one final 26 note on the previous. It is a fixed price contract. 27 I want to make sure that I don't overlook that. 28 It's a fixed price, so there isn't -- there's 13 1 opportunities to give some flexibility, but it is a 2 fixed price. So the budget is the budget. And so 3 it'll be our responsibility to make sure that we are 4 not allowing those cost overruns or any 5 opportunities for that. 6 In terms of reporting to you monthly, 7 absolutely, we are fully prepared to continue with 8 the transparency that we've had to date. We would 9 like to continue to share the information with you. 10 To date, of course, we've been reporting to 11 you on procurement, so the conversations have been 12 relative to that. As we move into implementation, 13 there absolutely will be a significant increase in 14 detail, both technical, business, policy issues, 15 etcetera. 16 So we are fully prepared to work with your 17 office and with all the Board Members to determine, 18 you know, what our reporting responsibilities will 19 be. I will note we still would like to continue to 20 report and keep everyone informed in terms of our 21 external stakeholders, including the Legislature. 22 MS. MA: Okay. And since we weren't 23 involved in the process, how many applicants did we 24 have? 25 MS. FLEMING: There were -- ooh, off the 26 top of my head in terms of the original, may I defer 27 to one of our -- where's Rob? 28 How many we originally got? We got down to 14 1 the last competitive process, to two. 2 MS. MA: To two. 3 MS. FLEMING: But I think in the initial 4 process we had eleven Letters of Intent in the 5 original process. 6 MS. MA: And then how many -- 7 MS. FLEMING: And that goes back to July of 8 2013. 9 MS. MA: And how many people sat on the 10 decision-making committee? 11 MS. FLEMING: On the evaluation team, off 12 the top of my head -- I apologize, I don't know. 13 But I'd say easily -- team -- 20 -- 23 people. 14 Thank you. 15 MS. MA: And everyone got to give their 16 input and do their own evaluation score card? 17 MS. FLEMING: Absolutely. 18 MS. MA: Okay. 19 MS. FLEMING: And they've actually, at the 20 end of the process, which was -- and I'd like to 21 applaud, if I may, give a shout-out to them because 22 they spent months locked into a room, reading 23 thousands of pages, very thoroughly. And at the end 24 of that process they generate a report and they 25 actually sign off on that report that they're 26 comfortable with what they've stood for. So they've 27 been extraordinary, so kudos to everyone on that 28 team. 15 1 (Applause.) 2 MS. MA: Okay. Any other folks? 3 MR. RUNNER: Betty, said you'd make a 4 motion? 5 MS. YEE: Mm-hmm. Yes. Madam Chair, I'll 6 move that the staff recommendation for the contract 7 be approved. 8 MR. RUNNER: Second. 9 MS. MA: Okay. Any opposition? 10 No opposition. 11 Okay. Seeing none, then the Board approves 12 this contract and we look forward to ongoing 13 progress and success in this endeavor. 14 Mr. Gau. 15 MR. GAU: Thank you very much. 16 Just a real quick couple seconds on some 17 thank-you's to some of the people that have 18 assisted, especially those that have been on the 19 project for some period of time. 20 First of all, I'd like to thank Marnell 21 Voss and Rob Trojan from the Department of 22 Technology on the procurement side. They really 23 assisted us along the way. 24 Chris Kahue, Trista Gonzalez, Valerie "Val" 25 Williams, Cleveland Turner, Joan Rabang, Jose 26 Gonzalez, Kim Brain, Karen Stone, Bob Bell, Dave 27 Rosenthal, Anna Fuentes-Martin, Rosie Escobar, Sean 28 Finnegan, Alice Oh, Suzan Bills, Steve Mercer. And, 16 1 again, as you complimented already, Ms. Brenda 2 Fleming. 3 And all the people in the room are 4 obviously -- are a whole host of others that have 5 been there for many years on this project and are 6 very excited, by their appearance here today, to 7 move on to the next phase of this project. So thank 8 you for your vote. 9 MS. YEE: Okay. Congratulations. 10 MS. FLEMING: Thank you, Members. 11 ---oOo--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on August 30, 2016 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 17 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: September 7, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 18