BILL ANALYSIS AB 309 Page 1 Date of Hearing: April 28, 2009 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Mary Hayashi, Chair AB 309 (Price) - As Amended: April 23, 2009 SUBJECT : Public contracts: small business participation. SUMMARY : Requires a 25% small business participation goal for state contracts and requires the Department of General Services (DGS) to monitor progress in meeting this goal. Specifically, this bill : 1)Requires all state agencies, departments, boards, and commissions to establish and report on their progress in meeting or exceeding the 25% small business participation goal established by Executive Order (EO) D-37-01 and EO S-02-06. 2)Requires state entities that fail to meet the small business participation goal to submit an annual implementation and corrective action plan to DGS until the goal is met. 3)Includes the University of California (UC), California State University (CSU), and the California Community Colleges (CCC) in the 25% small business participation goals when state money is used. 4)Requires DGS to monitor the progress of meeting the 25% small business participation goal. 5)Requires that the Office of the Small Business Advocate (OSBA) receive the same progress report information as state entities. Directs DGS and the OSBA to collaboratively work to review each implementation and corrective plan and explore ways to work with agencies that have not met their performance goal. 6)Requires, whenever possible, that state entities to use the streamlined procurement process for contracting with small businesses for goods and services in contract amounts under $100,000 and for any construction contract exceeding $120,000. 7)Requires DGS to actively promote small business certification and help small businesses market their products, goods, and services to the state. AB 309 Page 2 8)Requires DGS to work with OSBA to help small businesses secure financing. EXISTING LAW : 1)Requires DGS to administer the state Small Business Procurement and Contract Act (Small Business Act), including a small business certification process and a streamlined procurement process for state contracts under $100,000 that is exempt from advertising, bidding, and protest provisions in the State Contract Act. 2)Declares that small businesses and microbusinesses receive a fair portion of the total purchases and contracts or subcontracts for state goods, services, information technology, and construction. 3)Establishes a 25% small business participation goal for all contracts financed with the proceeds of the infrastructure-related bond acts of 2006. 4)Establishes bid preferences for certified small businesses and microbusinesses for the award of state procurement contracts of at least 5% of solicitations made either on the basis of lowest responsible dollar bid or on the basis of highest score, with a single bid preference limit of $50,000. Non-small businesses that subcontract at least 25% of their contracts with certified small businesses also qualify for the small business bidders' preference. 5)Requires each state agency to consolidate its existing staff functions that relate to contract opportunities for small businesses into a single point of contract for small businesses and designate a small business advocate as a liaison to small business suppliers. 6)Defines a small business as independently owned, not dominant in its field of operation, domiciled in California, employing 100 or fewer employees, and earning $10 million or less in average annual gross revenues for the previous three years. FISCAL EFFECT : Unknown COMMENTS : AB 309 Page 3 Purpose of the bill . According to the author's office, "This bill seeks to codify Executive Order S-02-06, which establishes participatory goals for state certified small businesses. The State consistently struggles to achieve the 25% small business and 3% Disabled Veteran Business Enterprise (DVBE) goals. As the state continues to award contracts funded through the 2006 infrastructure bonds and prepare for projects to be funded from the recently enacted American Recovery and Reinvestment Act, it is important to ensure that contracting officials have the tools they need to promote robust small business and DVBE participation on those projects." Background . The Small Business Act, administered through DGS, was established 30 years ago to grant a small business preference within the state's procurement process. In 1989, a DVBE component was added to state procurement practices. Current law requires DGS to report the participation levels of DVBEs and businesses that include the owner's race, ethnicity, and gender information in statewide contracts. EO S-02-06 requires all state agencies, departments, boards and commissions to achieve a goal of 25% small business participation in state procurements and contracts reaffirms the Administration's commitment to meet or exceed this goal through the coordinated efforts of all levels of State government. Since 2001, the Governor has issued several EOs specifying a 25% participation goal for small businesses and a 3% DVBE participation in state procurement contracts, including EO D-37-01 (2001), EO S-02-06 (2006), EO D-43-01(2001), and EO S-11-06 (2006). Statutory advancements were also made to strengthen the SBA including SB 115 (Florez), Chapter 451, Statutes of 2005, which required DGS to establish a DVBE incentive program for state contracts, and AB 761 (Coto), Chapter 611, Statutes of 2007, which specifically codified the 25% small business participation goal for contracts related to revenues expended from the 2006 infrastructure bonds. Notwithstanding the longstanding existence of the SBA, statutory upgrades, and EOs, the state's success in obtaining small business and DVBE participation goals in state procurement contracts has been inconsistent. Since small business participation targets were established in 2001, DGS has achieved the 25% participation goal only twice. AB 309 Page 4 In 2009, the federal government enacted a $787 billion American Recovery and Reinvestment Act that includes over $3 billion in funding for California infrastructure projects. These massive public works endeavors provide an opportunity for the state to use these moneys to strengthen the core of California's economy by expanding business opportunities for small contractors. In 2006, California voters approved over $40 billion in general obligation infrastructure development bonds. The funding provided by the bonds will be spent on improvements to roads, highways, public transit, flood control, schools, and affordable housing. Project funding is expected to occur over the next 10 years, although the Governor and Legislature have placed a priority on expediting project delivery. Support . According to the sponsor, this bill "increases contracting opportunities for certified California small businesses. AB 309 mandates that state agencies achieve a goal of 25% small business participation in procurement and contracts, and requires agencies that do not meet that threshold to develop a corrective action plan for submission to the Governor's Office of the Small Business Advocate. "Under Governor Arnold Schwarzenegger's Executive Order S-02-06, state agencies have been required to meet this 25% goal. In response, state agencies achieved a small and DVBE participation rate of 28.3% in 2007. Maintaining a strong small business participation requirement promotes competition that helps control costs and ensures state agencies receive a good deal on state contracts. AB 309 ensures that progress on small business participation does not end with changes in administrations." Related Legislation . AB 31 (Price) makes several key changes to state procurement procedures, including increasing the maximum contract threshold amount for awards to small business and DVBE, from $100,000 to $250,000. This bill also requires contractors to include small business or DVBE participation in reporting requirements. This bill is pending in the Assembly Appropriations Committee. AB 926 (Ruskin) requires state contracting opportunities to state that using a "loss leader" is prohibited. This bill is pending in the Assembly Business and Professions Committee. SB 356 (Wright) requires an agency to consult with affected AB 309 Page 5 persons and businesses when considering regulations if the proposal is large or complex. This bill is pending in the Senate Business, Professions and Economic Development Committee. SB 642 (Denham) increases the maximum contract threshold amount for awards to small business, including microbusiness and DVBEs under the streamlined procurement process, from $100,000 to $250,000. This bill also requires contractors to include small business or DVBE participation in reporting requirements. This bill is pending in the Senate Governmental Organization Committee. Prior Legislation . AB 1942 (Ruskin) of 2008 would have increased penalties for persons engaging in fraudulent activities relating to the Small Business Act, including DVBEs. The Governor vetoed a substantial number of bills that year with the same message that, due to the delay in passing the 2008-09 State Budget, he would only sign bills that were "the highest priority for California. AB 1942 was vetoed for this reason. AB 2773 (Price) of 2008 would have increased the maximum contract threshold amount for awards to small business, including microbusiness and DVBEs under the streamlined procurement process, from $100,000 to $250,000. Further, the bill also would have required contractors to include small business or DVBE participation in reporting requirements. This bill was held in the Senate Appropriations Committee. AB 761 (Coto), Chapter 611, Statutes of 2007, required each state agency awarding contracts that are financed with proceeds from the infrastructure bonds approved by voters in November 2006 to establish a 25% small business participation goal for state infrastructure construction contracts and to provide specified assistance to small businesses bidding on state infrastructure bond-related contracts. SB 115 (Florez), Chapter 451, Statutes of 2005, made various changes to the DVBE Program, and required DGS to establish a state agency-wide mandatory DVBE participation incentive. This bill required the DGS Small Business Advocate to provide specified services to small businesses and certified DVBEs. This bill also required DGS to adopt a streamlined reporting procedure for state agencies to use in reporting their DVBE participation to the Department of Veterans Affairs. AB 309 Page 6 REGISTERED SUPPORT / OPPOSITION : Support National Federation of Independent Business California (NFIB California) (sponsor) Opposition None on file. Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301