BILL ANALYSIS Ó
Bill No: SB
497
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
SB 497 Author: Rubio
As Introduced: February 17, 2011
Hearing Date: March 22, 2011
Consultant: Paul Donahue
SUBJECT
Public Contracts: Bid Preferences
DESCRIPTION
This bill would require a state agency that accepts bids or
proposals for a public contract for supplies, materials or
equipment to provide a 5% bid preference to a California
business. In particular, this bill provides:
1. Any state agency that accepts bids or proposals for a
contract for supplies, materials or equipment shall provide
a preference of 5% to a California business.
2. For solicitations to be awarded to the lowest
responsible bidder meeting bid specifications, the
preference is 5% of the bid price of the lowest responsible
bidder.
3. For solicitations to be awarded to the bidder receiving
the highest score based on factors in addition to price,
the preference is 5% of the total score of the highest
responsible bidder.
4. To be eligible for the 5% preference, a business must
submit all the information needed by the contracting agency
to determine eligibility.
5. A "California business" means any business association
or entity that: (a) has its principal place of business in
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California, (b) holds any required business license when
the bids for the contract were opened, (c) would directly
provide the supplies, materials or equipment for the
contract, and (d) certifies that at least 90 percent of its
employees performing work on the contract are residents of
California.
6. The Department of General Services (DGS) shall
establish a process to verify that a business meets the
criteria for the 5% preference.
EXISTING LAW
Chapter 2 of the State Contract Act governs acquisition by
state agencies of goods and services, including the
approval of contracts, competitive bidding and other
contracting procedures. (Public Contract Code § 10290 et
seq.)
Govt. Code § 4331 establishes a preference for the use in
public contracts of supplies grown, manufactured, or
produced in California. Next in order of preference are
supplies that are partially manufactured in the state.
Contract advertising materials shall give notice that these
preferences will be applied.
Govt. Code § 4304 provides that all contracts for
construction, alteration or repair of public works or for
purchase of materials shall contain provisions that
substantially all of the manufactured or unmanufactured
materials made in the USA are to be used in the performance
of the contract.
Govt. Code § 7118 establishes a preference in awarding
contracts to companies certifying that labor will be
performed in part within a Local Agency Military Base
Recovery Area (LAMBRA). This law also contains limits on
the amount of the preference, and small business bidders
take precedence.
The Target Area Contract Preference Act (Govt. Code § 4530
et seq.) provides a 5% preference to California-based
companies submitting bids or proposals for state contracts
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over $100,000 where at least 50% of the work to be
performed will be at worksites in distressed areas by
persons with a high risk of unemployment.
The Enterprise Zone Act (Govt. Code 4084 et seq.) gives a
5% preference to California-based companies that
demonstrate and certify that at least 50% of the total
labor hours required to manufacture the goods and perform
the contract shall be performed at a worksite located in an
enterprise zone.
The Small Business Procurement and Contract Act (Govt. Code
§14835 et seq.) establishes a 5% small business preference
in state contracts, and directs state agencies to establish
small business participation goals in the award of
contracts for goods, services, information technology and
services to the state.
BACKGROUND
In General : Some form of resident preference is exercised
by a substantial majority of states. Most states have also
enacted some form of "buy American" legislation. Resident
bidder preference laws differ considerably from state to
state. Some require either that a non-resident's bid amount
be reduced by a certain percentage, or that a resident's
bid be increased by a certain percentage if a non-resident
bidder also bids on the project. Other states require that
a resident bidder's amount be increased only to the same
percentage as allowed in a non-resident's state, if a
non-resident bids on the contract. Still other states have
no bidder preference laws at all.
The Commerce Clause : The United States Constitution<1>
limits states' ability to regulate commerce, but not to
participate in the market. Thus, a state employing its
sovereign power to affect interstate commerce is regulating
commerce, while a state employing its proprietary power is
participating in the market. Regulatory mechanisms that
suggest the use of sovereign power to regulate commerce
include the imposition of taxes, customs duties, and the
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<1> Under Article I, Section 8, Clause 3 of the
Constitution the United States Congress shall have power
"To regulate Commerce with foreign Nations, and among the
several States, and with the Indian Tribes."
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like. On the other hand, spending, contracting, and
subsidizing are examples of devices indicative of
proprietary authority. <2> Therefore, this bill would seem
to be immune to Commerce Clause challenge.
Purpose : The author states that California is currently
facing one of the most severe economic crises since the
Great Depression, with an average of six applicants for
every one position available. Additionally, in the past
decade, the manufacturing sector alone has lost 34 percent
of its overall jobs. This bill would create the incentive
for contractors who wish to bid on state contracts to hire
California workers and bring much needed job opportunities
to the state's workforce.
Reciprocity Statutes : Most states, not including
California, have enacted so-called reciprocity statutes,
which take into account the resident preference laws of
other states when considering bids from out-of-state
bidders. For example, if a nonresident bidder's home state
(California) grants a preference to its resident bidders,
an equal penalty is added to the nonresident bidder's
proposal when the company is bidding in the other state
(e.g., Texas). The preference becomes a penalty in the
other state, but the amount is equal in this instance.
Most reciprocity statutes operate in a manner similar to
this example.
Last year the Governor vetoed SB 967 (Correa), which
contained provisions similar to what is in this bill.
Among other things, the veto message stated that
"reciprocity statutes, enacted by at least 36 other states,
would add a percentage to bids submitted by California
businesses bidding on contracts with those states, making
it difficult for California businesses to contract with
other states."
The California Chamber of Commerce opposes this bill in
part because it would potentially result in retaliation
from our trade partners in other states and nations. The
Chamber believes that, to the extent that California limits
bidders, California companies could be penalized in trade
with other states and nations.
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<2> Reeves, Inc. v. Stake (1980) 447 U.S. 429, 436-37
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Goods vs. Supplies, Materials or Equipment : The provisions
of this bill specify that any state agency that accepts
bids or proposals for a contract for "supplies, materials
or equipment" shall provide a 5% preference to a California
business. However, Public Contract Code §10290 defines
"goods" to mean "all types of tangible personal property,
including materials, supplies, and equipment." <3>
As the bill is drafted, the resident preference would apply
only to state purchases of supplies, materials and
equipment. This might be construed to exclude several
items that the state typically purchases from private
vendors or contractors, such as lubricating oils, food,
produce, etc. In addition, the Public Contract Code
categorizes things for which the state contracts as (1)
goods, (2) services, or (3) information technology. These
are essentially terms of art in the state contract law.
Committee staff therefore recommends, in the absence of a
specific intention of the author to exclude specified items
from the California resident preferences, that the bill be
amended to replace "supplies, materials or equipment" with
"goods."
PRIOR/RELATED LEGISLATION
SB 555 (Hancock) 2011-2012 Session. This bill would
require a state agency that accepts bids or proposals for
specified contracts for goods or services above a specified
amount under specified conditions to provide a 5%
California resident preference to businesses. (Pending in
this Committee)
SB 967 (Correa) 2009-2010 Session. Would have required
that a 5% bid preference be provided on specified state
contracts for goods and services to contractors who
demonstrate that 90% of their employees performing work on
the contract are residents of California. (Vetoed)
SB 1249 (Ducheny) 2009-2010 Session. Would have
authorized DGS to use an additional criterion in the
contract bidding and procurement process that takes into
consideration the relative economic benefit to California
in considering bids for goods and/or services. (Held in the
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<3> In addition, Govt. Code § 4330 defines "supplies" to
include goods, wares, merchandise and produce.
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Assembly)
SUPPORT:
American Federation of State, County, and Municipal
Employees, AFL-CIO (AFSCME)
OPPOSE:
California Chamber of Commerce
Construction Employers' Association
FISCAL COMMITTEE: Senate Appropriations Committee
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