MEMORANDUM

	DATE:		January 22, 2020

TO:	All State Agency Directors, Contracts Managers, Employee Organizations, and Members of the Governor’s Cabinet 

			/s/ SUZANNE M. AMBROSE 
FROM:		SUZANNE M. AMBROSE
			Executive Officer 
				
SUBJECT:	JUSTIFICATION FOR COST-SAVINGS BASED CONTRACTS 

This memorandum provides state agencies with the annual update of the California Consumer Price Index (CPI) information required by California Code of Regulations, title 2, section 547.73.  The adjusted figure may be required in justifying cost-savings based contracts under Government Code section 19130, subdivision (a).

California Code of Regulations, title 2, section 547.73 provides that savings generated through cost-savings based personal services contracting must justify the size and duration of the contracting agreement.  To do so, these contracts are required to meet one of the following criteria:

1. 	Achieve a savings of ten percent or more compared to the cost of performing the same function within the civil service over the duration of the contract; or

2. 	Achieve a savings of at least $50,000, in terms of 1988 dollars, per year compared to the costs of performing the same function within the civil service over the duration of the contract, provided the savings equals at least five percent of the comparable service cost.

These savings need not be attained during each year of a multi-year contract.  The savings requirements may be met on an overall rather than a year-by-year basis.  Based on changes in the California CPI as reported by the Department of Industrial Relations, the adjusted figure for savings per year in 1988 dollars is at least $116,448.32.

Questions regarding this memorandum may be directed to Chian He, Senior Attorney, at (916) 653-1403.