BILL ANALYSIS �
AB 1206
Page 1
Date of Hearing: April 11, 2011
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
AB 1206 (Galgiani) - As Amended: March 30, 2011
SUBJECT : High-Speed Rail Authority: small business enterprise
participation: reporting
SUMMARY : Directs the High-Speed Rail Authority (Authority) to
adopt a small business enterprise program (to include small
business enterprises, microbusinesses, and disabled veteran
business enterprises), including an oversight and accountability
component, and to report annually on the level of small business
enterprise participation. Specifically, this bill :
1)Sets forth legislative declarations and findings regarding the
Authority and the benefits of ensuring that a fair proportion
of purchases made and contracts awarded by Authority be placed
with small business enterprises.
2)Requires the Authority to identify essential components of,
and adopt, a small business enterprise program for contracts
to be awarded by the Authority relative to the construction of
the high-speed rail system.
3)Requires the small business enterprise program to include
proper oversight of expenditures of state and federal funds,
contractor compliance monitoring and enforcement efforts,
tracking and reporting mechanisms, and prompt payment,
reporting, and project closeout provisions.
4)Directs the State Auditor to review the expenditures
associated with the Authority's small business enterprise
program.
5)Requires the Authority to identify essential components of,
and adopt, an oversight and accountability program relative to
the small business enterprise program.
6)Requires the Authority to submit an annual report to the
Legislature and to the Department of General Services (DGS) on
the level of small business participation; requires, to the
extent feasible, the report to draw upon information and
material already developed, including pre-appropriation and
AB 1206
Page 2
pre-expenditure reviews, as required.
7)Requires the Authority to post its report on its internet web
site.
8)For these provisions, defines "microbusiness" and "small
business enterprise" and defines "disabled veteran business
enterprise" by reference.
EXISTING LAW :
1)Defines key terms such as "small business," "microbusiness,"
and "disabled veteran business enterprise."
2)Provides that contracts awarded by any state agency,
department, officer, or other state governmental entity have
statewide participation goals of not less than 3% for disabled
veteran business enterprises; these goals apply to the overall
dollar amount expended each year by the awarding department.
3)Requires state agencies to set goals for small business
(including microbusiness) participation in contracting for the
provisions of goods, information technology, services, and
construction; also requires state agencies to provide for
small business bid preferences and other considerations in
awarding contracts.
4)Requires state agencies to identify and implement innovative
acquisition operating processes, including payment processes,
and strategies for small business participation. To maximize
the benefits, state agencies shall actively share information
about these innovative processes with other state agencies.
5)Requires DGS to reports on the level of participation by small
businesses in state contracting.
FISCAL EFFECT : Unknown
COMMENTS : In March 2009, then-Governor Schwarzenegger issued
an Executive Order S-02-06 relative to small business
participation in state procurement and contracts. That
executive order mandated, among other things, the following:
1)Each agency secretary, department director, and executive
officer must ensure that the state's procurement and
AB 1206
Page 3
contracting processes are administered in order to meet or
exceed the 25% small business participation goal;
2)Each state agency must identify a Small Business Advocate at
the agency, department, board, or commission level, to develop
and share innovative procurement and contracting practices
from the public and private sectors to increase opportunities
for small businesses.
3)The Department of General Services (DGS) must monitor the
progress of all agencies, departments, board and commissions
towards meeting the 25% small business participation goal.
4)Each state agency, department, board and commission that has
not achieved the small business participation goal must submit
an Implementation and Corrective Action Plan to DGS which
will, in turn, share these plans with the California Small
Business Advocate and together they will explore ways to work
with departments to improve performance.
According to DGS's 2010 report on the Fiscal Year 2008-2009
contracting activities, small business and microbusiness
received a total of $2.4 billion, or 26.8% of the total dollars
awarded during the year.
In February 2011, the Authority published its draft policy
encouraging participation in project contracts by small
businesses and disabled veteran business enterprises. As it
currently reads, the policy calls for minimum contracting goals
of 25% for small businesses, and 3% for disabled veteran-owned
businesses, consistent with statewide goals for all other state
agencies. According to the Authority, the policy reflects
current practices it has already implemented. To demonstrate,
in Fiscal Year 2009-10, the Authority reported small business
participation at 27.72% and 7.07% for disabled veteran business
enterprise participation.
According to the author, "A massive public works project like
the High-Speed Rail provides an unprecedented opportunity for
the state to strengthen the core of California's economy by
expanding business opportunities for small contractors.
California's dominance in many economic areas is based, in part,
on the significant role small businesses play in the state's
$1.8 trillion economy. Businesses with less than 100 employees
comprise more than 98.3% of all businesses, and are responsible
AB 1206
Page 4
for employing more than 57.9% of all workers in the
state?However, California's smaller businesses, which have been
known to bring real diversity to local economies and the state,
are concerned that they will not get their fair share of these
�high-speed rail] contracts."
Committee concerns: Existing law related to public contracting
provides legislative findings and declarations admonishing that:
1) all public contract law should be placed in one code to make
the law clearer and easier to find; and, 2) California's public
contract law should be uniform to encourage competition for
public contracts and to aid public officials in the efficient
administration of public contracting.
This bill establishes reporting requirements that conflict with
these policies by: 1) placing the small business program for the
Authority in statutes unique to the Authority rather than in
public contract law statutes; and, 2) setting up unique
requirements for the Authority as it relates to the Authority's
small business enterprise program and reporting requirements.
The committee is concerned that this bill will create confusion
and ambiguity as to what is required of the Authority with
regards to its small business enterprise program. For example,
under existing law, the Authority is to comply with provisions
related to small business enterprise in procurement activities,
as is required of other state agencies. Are the provisions of
this bill meant to be in addition to other requirements or in
lieu of other requirements?
This type of ambiguity is likely to persist as long as the
Authority is directed to follow public contract laws that are
unique to it and that stray from the Legislature's previous
direction that state procurement laws should be uniform.
Technical amendments: Aside from policy concerns, there are
several technical concerns that should be addressed as this bill
moves forward:
1)Other state agencies must seek small business participation in
virtually all of their purchases and contracts while AB 1206
focuses strictly on the "construction" of the high-speed rail
system. The committee suggests amending the bill so that its
provisions reflect the same, arguably higher, requirements to
which other state agencies are required to adhere.
AB 1206
Page 5
2)The bill defines "disabled veteran business enterprise" by
reference to its existing definition in the Military Code but
restates definitions of "small business enterprise" and
"microbusiness," found elsewhere in the Government Code. The
committee suggests that the bill be amended to likewise define
"small business enterprise" and "microbusiness" by reference
to the existing definitions of these terms found in Section
14837 of the Government Code to encourage uniformity in the
state's procurement laws.
3)AB 1206 requires the Authority's small business enterprise
program to include proper oversight of expenditures of state
and federal funds, contractor compliance monitoring and
enforcement efforts, tracking and reporting mechanisms, and
prompt payment, reporting, and project closeout provisions.
These provisions should be amended to apply to the Authority's
activities as they relate to its small business enterprise
program specifically otherwise the small business enterprise
program will be required effectively to act as an auditor for
the Authority generally.
4)The bill would direct the State Auditor to review the
expenditures associated with the Authority's small business
enterprise program. Presumably the intent of this provision
is to provide for an audit of the Authority's activities
related to small business participation and not, as the bill
would suggest, to audit expenditures incurred in running the
small business enterprise program itself. This should be
clarified.
Related legislation: AB 365 (Galgiani) enacts penalties and
sanctions relative to the certification of businesses as a small
business enterprise, microbusiness, or disabled veteran business
enterprise. AB 365 is set for a hearing in Assembly
Transportation on April 11, 2011.
Double-referred : This bill is also referred to the Assembly
Business, Professions and Consumer Protection Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
AB 1206
Page 6
Opposition
None on file
Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093