BILL ANALYSIS                                                                                                                                                                                                    






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: SB 1341
          SENATOR ALAN LOWENTHAL, CHAIRMAN               AUTHOR:  price
                                                         VERSION: 2/19/10
          Analysis by: Art Bauer                         FISCAL:  No
          Hearing date: May 4, 2010







          SUBJECT:

          Los Angeles County Metropolitan Transportation Authority (METRO)  
          contracting practices

          DESCRIPTION:

          This bill relates to preferences in contracting for small  
          business enterprises at METRO. 

          ANALYSIS:

          In 1996, California voters approved Proposition 209, which  
          amended the California Constitution to preclude granting  
          preferences on the basis of race, sex, color, ethnicity, or  
          national origin in the operation of public employment, public  
          education, or public contracting.  The provision does not apply  
          to federal contracting requirements. In response to Proposition  
          209, METRO adopted a local ordinance that provides a preference  
          to small businesses and is not inconsistent with the provisions  
          of Proposition 209. This bill endeavors to codify the small  
          business preference requirements.

          Existing law governing METRO procurement:

             1)   Requires that construction contracts in excess of  
               $25,000 be awarded to the lowest responsible bidder.

             2)   Requires that contracts involving the purchase of  
               supplies, equipment, and materials in excess of $100,000 be  
               awarded to the lowest responsible bidder or to the bidder  
               that provides "best value" to METRO. To award contracts on  
               the basis of best value METRO must include in the  
               solicitation for a bid the evaluation criteria that will be  





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               used to determine best value. 

             3)   Defines value as the "overall combination of quality,  
               price, and other elements of a proposal that, when  
               considered together, provide the greatest overall benefit  
               in response to requirements described in the solicitation  
               documents." 

           This bill  :

             1)   Adds to existing law the requirement that successful  
               bids for construction contracts and bids for supplies,  
               equipment, and materials must be "responsive" to the terms  
               of the bid solicitation documents as well as low cost. This  
               condition is also added to best value procurements.

             2)   Authorizes METRO to grant a small business preference on  
               contracts with a value in excess of $100,000 for  
               design-build services, the procurement of goods, or the  
               delivery of services a five percent bidding preference to  
               the lowest responsive and responsible bidder or best value  
               proposer, if the firm is a small businesses and a prime  
               contractor. 

             3)   Establishes for the lowest responsive and responsible  
               bidder or best value proposer a subcontracting  
               participation goal for small businesses of five percent on  
               contracts with a value in excess of $100,000 and financed  
               with nonfederal funds.

             4)   Requires bidders and proposers to make a good faith  
               effort to secure the services of small business enterprises  
               and establishes procedures to demonstrate a good faith  
               effort, including requiring attendance at pre-bid  
               conferences, identification of services and skills  
               available to small business subcontractors, advertising for  
               services and in trade publications, assisting potential  
               subcontractors in obtaining bonds and insurance, and other  
               related conditions. 

             5)   Defines a small business enterprise as meeting the  
               definitions of the Small Business Administration  
               appropriate to the type of work.

             6)   Authorizes METRO to deny small business enterprise  
               eligibility to any concern that has average annual gross  





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               receipts greater than $22 million over the previous three  
               fiscal years, or to an individual with a net worth,  
               excluding their residence, that exceeds $1 million. METRO  
               is authorized to adjust these amounts to inflation.
          
          COMMENTS:

              1)   Purpose  . The purpose of this bill is to create a process  
               to establish a small business participation goal of five  
               percent for construction projects, services, and the  
               acquisition of supplies funded with local, state, or other  
               nonfederal sources of revenue. Under the terms of the  
               California Constitution business participation goals  
               associated with public contracting cannot be race or gender  
               based. This bill meets that test. 

              2)   Architectural and Engineering (A&E) services are not  
               covered by this bill  . A&E firms are not covered by this  
               bill. The procurement of A&E  are governed by Proposition  
               35-Public Works Projects and the Use of Private Contractors  
               for Architectural and Engineering Services which amended  
               the  California Constitution to permit all public agencies  
               in the state to contract with qualified architectural and  
               engineering firms for professional services on all public  
               works projects. Proposition 35 defined in statue  
               architectural and engineering services to include  
               architectural, landscape architectural, environmental,  
               engineering, land surveying, and construction management  
               services. 

               In this regard, the bill includes among the category of  
               services subject to the five percent preference  
               design-build services. Design-build is a procurement  
               process that involves the selection of a team based on a  
               combination of best value and cost that consists of A&E  
               firms and construction firms. For purposes of  
               clarification, the committee may wish to amend the bill on  
               page 3, line 35 to strike "design-build" and insert "for  
               the construction component of a design-build team."  This  
               would ensure that there would be no confusion about the  
               role of A&E firms when forming a design-build team. 

              3)   Application of the preference  . The manner for applying  
               the preference is that METRO would reduce by five percent  
               bids for construction or supplies and the cost proposal for  
               services. It is conceivable that a small business pursuing  





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               a contract as a prime contractor could receive a ten  
               percent preference if the firm used other small businesses  
               as subcontractors. 

              4)   Definition of small business enterprise may include  
               inconsistencies  . The bill provides that a small business  
               designation shall be denied to any business that has  
               average annual gross receipts greater than $22 million over  
               the previous three fiscal years. In addition, the bill  
               cites the Small Business Administration (SBA) rules  
               governing the definition of a small business enterprise.  
               The SBA designation is not based on a fixed dollar amount.  
               The SBA summarizes its methodology for determining whether  
               a business may be classified as small as follows:

                    A size standard is the largest that a concern can  
                    be and still qualify as a small business for the  
                    Federal Government programs. For the most part,  
                    size standards are the average annual receipts or  
                    the average employment of a firm.<1>  

                The SBA does not rely upon a fix dollar amount to determine  
               whether a business  is  classified as small  . Under the SBA  
               guidelines, a graphic design firm with more than $7 million  
               of gross receipts is not considered a small business. Under  
               this bill a graphic design firm making up to $22 million is  
               a small business. Another example of how this bill appears  
               to exclude an enterprise defined by the SBA as a small  
               business is found in the construction industry. The SBA  
               guidelines define a firm that constructs highways, streets,  
               and bridges with gross receipts of less than $33.5 million  
               as a small business. Because of the $22 million cap on the  
               gross receipts of a firm to be considered this type of firm  
               would not be considered small. 

               In a conversation with METRO staff, they were unable to  
               explain the inconsistency between using SBA guidelines to  
               classify a business as small and the $22 million cap. The  
               committee may wish to consider resolving this  
               inconsistency. 
          

          POSITIONS:  (Communicated to the Committee before noon on  
          ---------------------------
          <1>  U. S. Small Business Administration Table of Small Business  
          Size Standards Marched to the North American Industry  
          Classification System Codes  , August 22, 2008.




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          Wednesday, 
                     April 28, 2010)

               SUPPORT:  Los Angeles County Chapter of the American  
                         Council of Engineering Companies of California
                         ACE Fence Company
                         AGS Architects
                         Aviva Spectrum
                         CK Management
                         Integrated Engineering Management
                         Langford and Carmichael
                         Lenax Construction Services
                         PJS&P Associates
                         R-T Welding and Fabrication
                         Selbert Perkins Design
                         Ultra Systems
                         Wincal Technology
                         Several additional letters were received.    
                         
               OPPOSED:  None received.