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








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          * High-Speed Passenger Train Bond Fund
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          ____

          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 








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          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.












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