BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 734 (Price) Hearing Date: 05/26/2011 Amended: 04/26/2011 Consultant: Mark McKenzie Policy Vote: T&H 6-3 _________________________________________________________________ ____ BILL SUMMARY: SB 734 would require the High Speed Rail Authority (HSRA) to prepare a small business, microbusiness, and disabled veteran business enterprise outreach and retention plan with the Department of General Services (DGS) to ensure high speed rail projects achieve the specified 25 percent small business participation goal. The bill would require HSRA to form a nine-member small business advisory committee to initiate the small business outreach and retention planning process, adopt the plan by July 31, 2012, include the plan in all procurement documents and on its website, and implement the outreach strategy. HSRA would also include a presentation of the plan at all bidders' conferences and request that a DGS representative attend all conferences and answer all questions regarding small business procurement laws. The bill would also require the HSRA to grant all contracting preferences specified in the Small Business Procurement and Contract Act and grant an additional bid preference of 2.5 percent for microbusinesses. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund HSRA small business outreach $50 $100 $100Bond* plan, and ongoing admin. Small business strategy$25-$50 Bond* DGS administrative assistance minor costs to assist HSRA prepare General outreach and retention plan, minor costs to attend bidders' conferences Microbusiness bid preference unknown, potentially significant increased Bond*/ costs to the extent that contracts are award- Federal ____________ ed to other than lowest bidder due to preference SB 734 (Price) Page 1 * High-Speed Passenger Train Bond Fund _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Existing law establishes the High-Speed Rail Authority to plan, design, construct, operate, and maintain a high-speed train system in California. The voters have authorized the issuance of $9 billion in general obligation bonds to partially fund the development and construction of the project (Proposition 1A, 2008), and the federal government has allocated an additional $3 billion to the state for the costs of construction. The remaining funding for project, the total costs of which are expected to exceed $43 billion, are anticipated to come from the federal and local governments, as well as the private sector. The HSRA recently approved plans to begin construction in 2012 on a portion of the system between Fresno and Bakersfield. The total procurement costs of this segment are expected to be $5.5 billion through 2017. Existing law, the Small Business Procurement and Contract Act, provides for certification of small businesses, microbusinesses, and disabled veteran business enterprises (DVBEs) by the Department of General Services (DGS). A small business is defined as an independently owned and operated California-based business with 100 or fewer employees and average annual gross receipts of $14 million or less over the last three years. A microbusiness is defined as a small business with 25 or fewer employees and average gross receipts of $3.5 million or less. The Small Business Act also establishes a small business preference within the state's procurement process designed to increase small business participation in state contracts. One key incentive is the provision for a 5 percent bid preference for small businesses or for contractors that commit 25 percent of the bid price to eligible small business subcontractors. Executive Order (EO) S-02-06 establishes a goal of 25 percent small business participation goal for all state contracts. SB 734 would require the HSRA to form a small business advisory committee and prepare a small business, microbusiness, and DVBE outreach and retention plan with the assistance of DGS to ensure that the percentage of contracts awarded for all aspects of the high-speed rail project meets the 25 percent participation goals established in EO S-02-06. While it appears that formation of the advisory committee is intended to ensure a voice for small SB 734 (Price) Page 2 business in the planning process, the bill provides no clear direction for inclusion of the advisory committee in the process, or in the ongoing implementation of the strategy. Staff recommends that the bill be amended to delete this provision, or to specify the role of the advisory committee more clearly. DGS indicates that the department is currently working with the HSRA on the development of a small business outreach plan, but there is currently no provision for ongoing administration of such a plan to ensure that participation goals are met. Since the HSRA and DGS are currently working towards a strategy to include small business participation, costs to adopt an outreach and retention plan by July 1, 2012 would be relatively minor, probably less than $50,000 in 2011-12. For ongoing administration of small business participation efforts, most state departments have a dedicated Small Business/DVBE advocate on staff, but the HSRA currently has a very small staff that does not include such a position. It is likely that this bill would require HSRA to add staff, or fund a contract for outside resources or an interagency agreement to handle the implementation and ongoing administration of an outreach strategy. Staff estimates the cost for this position would be approximately $100,000 annually, beginning in 2012-13. SB 734 also provides an enhanced bid preference of 2.5 percent for microbusinesses, on top of the existing price preference or score of five percent that is granted to small businesses under current law. As such, microbusinesses would receive a total bid preference of 7.5 percent if the lowest bidder is not a small business. Depending on how this preference is implemented, this additional preference could increase HSRA contracting costs by up to several million dollars annually (assuming $5.5 billion in total contract costs through 2017, 25 percent overall small business participation, 40 percent of which is microbusiness, and a 2.5 percent preference). Proposed committee amendments would delete provisions creating a small business advisory committee and add a requirement that a small business participation strategy be included in the HSRA business plan. SB 734 (Price) Page 3