CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM
STATEMENT OF INVESTMENT POLICY FOR RESPONSIBLE CONTRACTOR PROGRAM
July 1, 2015
This Policy is effective July 1, 2015 and supersedes all previous Responsible Contractor policies for parties subject to this Policy.
Purpose
This document sets forth the investment policy (“the Policy") of the Responsible Contractor Program (the “Program” or “RCP”). The design of this Policy is intended to ensure that contractors, investors, managers, consultants, or other participants selected by the California Public Employees’ Retirement System (“CalPERS”) take prudent and careful action while managing the Program. Additionally, use of this Policy provides assurance that there is sufficient flexibility in controlling investment risks and returns while using contractors.
This Policy, as of July 1, 2015, is consistent with CalPERS Statement of Investment Beliefs, as adopted October 14, 2013. CalPERS Statement of Investment Beliefs provides context for CalPERS actions, reflects CalPERS values, and acknowledges CalPERS responsibility to sustain its ability to pay benefits for generations. The Investment Beliefs can be found at https://www.calpers.ca.gov/docs/forms-publications/calpers-beliefs.pdf.
Introduction
CalPERS has a deep interest in the condition of workers employed by CalPERS and its Managers and Delegates (as defined in the next section). CalPERS, through the Policy set forth in this document, supports and encourages fair wages and benefits for workers employed by its contractors and subcontractors, subject to fiduciary principles concerning duties of loyalty and prudence, both of which further require competitive returns on CalPERS real estate and infrastructure investments.
CalPERS endorses small business development, market competition, and control of operating costs. CalPERS supports many of the ideals espoused by labor unions and encourages participation by labor unions and their signatory contractors in the development and management of CalPERS real estate and infrastructure investments. CalPERS believes that an adequately compensated and trained worker delivers a higher quality product and service. The Policy includes provisions for transition, monitoring, and enforcement.
Definitions
Capitalized terms used in this Policy have the following meanings for purposes of this Policy:
Board – The CalPERS Board of Administration or the committee thereof to which the Board has delegated the function in question.
CalPERS – The California Public Employees’ Retirement System.
Delegate – A person or entity that a Manager or other Delegate retains (other than pursuant to an Exempt Contract) to provide services with respect to an RCP Investment, such as general contractors, contractors, and subcontractors. When a Delegate hires another Delegate, the latter is the former’s “Sub-Delegate” (see Definition M, below). For example, the general partner of a partnership that owns an office building that is an RCP Investment normally would be the Manager. The Property Manager that the Manager hires to manage the building would be a Delegate. In turn, if that Delegate hires another firm, e.g., a janitorial services company, to provide services with respect to the property, the janitorial services company would be the Property Manager’s Sub-Delegate (see definition of Sub-Delegate below). Delegates and Sub-Delegates are collectively referred to as “Delegates” in this Policy unless the context indicates otherwise. Any person or entity in such a delegation chain that performs services pursuant to an Exempt Contract would not be a Delegate or Sub-Delegate with respect to those services, nor would any person or entity it retains or subcontracts with to provide those services.
Exempt Contract – An RCP Investment-related construction or property services contract (1) for professional services (e.g., architect, legal, or engineering services) or (2) for less than $100,000. This threshold amount is applied both at the contract level and the subcontract level. For example, a $1 million maintenance contract normally would not be an Exempt Contract, but a $40,000 subcontract under it would be an Exempt Contract. Incremental contract amounts shall not be used to circumvent the threshold amount to create an Exempt Contract or subcontract under this Policy. Any contract in effect when a property first becomes an RCP Investment also shall be an Exempt Contract, but this exemption shall lapse at the end of the contract’s term (including any extensions the contract permitted before the investment became an RCP Investment).
Fiduciary Duty Requirement – The duty of the CalPERS Board, Staff, and Managers to be loyal and prudent, and achieve a competitive return, as set forth in Section IV.A.-C. To the extent a Delegate has been delegated the discretion to make business decisions affecting RCP Investments, CalPERS expects the Delegate or Sub-Delegate to make prudent business decisions.
Manager – A person or entity that directly contracts with CalPERS to manage or otherwise control an RCP Investment, such as an investment manager or the general partner of a partnership in which CalPERS directly invests.
Policy – The policy set forth in this document, as amended from time to time. Except to the extent that the Staff determines otherwise, an amendment to this Policy made after a person or entity becomes a Manager shall apply to the Manager.
Property Manager – A person or entity that manages the day-to-day operations of a building, including such things as leasing, tenant improvements, guard and janitorial services, or performs similar functions.
RCP Contract – An RCP Investment-related contract (other than an Exempt Contract) for (a) building or construction-related services (including tenant improvements unless paid for by the tenant), and (b) property-related services (such as cleaning maintenance, security, food and beverage service, and other services provided within the property that are specific to the nature of that asset, e.g., senior living operations, hotel operations, transportation assets, hospitals, etc.).
RCP Investment – An investment Section VI.A. designates as an RCP Investment, generally real estate and infrastructure investments more than 50% owned by CalPERS. Determination of an RCP Investment designation only will be made when CalPERS first contracts with the person or entity who would be the Manager, or when CalPERS subsequently enters into a new contract with the person or entity. For example, if CalPERS, at the time of the first contract, will not own more than 50% of a real estate or infrastructure investment, subsequent CalPERS investments in that real estate or infrastructure investment that cause it to be more than 50% CalPERS-owned will not make it an RCP Investment, nor cause the person or entity managing it to become a Manager.
If it is intended or reasonably foreseeable that an initial investment less than 50% CalPERS-owned will grow to a greater percentage, CalPERS and Manager will determine at the inception whether designating the investment as an RCP Investment is appropriate under the circumstances. Incremental increases in percentages of CalPERS ownership shall not be used to circumvent an RCP Investment designation.
Responsible Contractor – A business that pays workers a fair wage and a fair benefit (see Section VI.G.), as evidenced by payroll and employee records.
Staff – The CalPERS Investment Office staff.
Sub-Delegate – A person or entity retained by a Delegate or another Sub-Delegate (other than pursuant to an Exempt Contract) to provide services with respect to an RCP Investment. If a Sub-Delegate, in turn, subcontracts with another firm, the subcontractor would be the Sub-Delegate of the initial Sub-Delegate, and so on.
Principal Requirements of the Responsible Contractor Program Policy
Duty of Loyalty – Notwithstanding any other considerations, assets shall be managed for the exclusive benefit of CalPERS participants and beneficiaries. CalPERS and its Managers’ duty to the participants and their beneficiaries shall take precedence over any other duty.
Prudence – CalPERS and its Managers are charged with the fiduciary duty of exercising the care, skill, prudence, and diligence appropriate to the task.
Competitive Return – To comply with duties of loyalty and prudence, all investments and services must be made and managed in a manner that produces a competitive risk-adjusted return.
Competitive Bidding – Managers and Delegates shall select contractors and their subcontractors for RCP Contracts through a competitive bidding and selection process. The purpose of this provision is to encourage fair competition and to seek bids actively from all qualified sources within an area, particularly those identified as Responsible Contractors. See Section VI.F. and I. for more information on the competitive bidding requirements.
Local, State, and National Laws – All Managers, Delegates and the contractors and subcontractors they hire, while performing services with respect to RCP Investments, shall observe all local, state, and national laws (including, by way of illustration, those pertaining to applicable licensing and permitting, insurance, withholding taxes, minimum wage, and health and occupational safety).
Delegation Requirement – Managers must require their Delegates to comply with this Policy, and Delegates must require their Sub-Delegates to comply with this Policy. CalPERS will hold Managers responsible for Delegate noncompliance to the extent a Manager permits or causes a Delegate to violate this Policy or fails to take appropriate remedial action after learning of a violation. In a like manner, each Delegate is responsible for its Sub-Delegate’s noncompliance with this Policy to the greatest extent reasonable and prudent in light of all circumstances and factors at that time.