BILL ANALYSIS Ó
SB 734
Page 1
Date of Hearing: June 20, 2011
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
SB 734 (Price) - As Amended: May 31, 2011
SENATE VOTE : 25-12
SUBJECT : High-Speed Rail: small business program
SUMMARY : Imposes requirements on the High-Speed Rail Authority
relative to small business participation in state contracts.
Specifically, this bill :
1)Makes findings and declarations regarding the need to ensure
that a fair proportion of high-speed rail system contracts are
awarded to microbusinesses.
2)Requires the High-Speed Rail Authority (the Authority) to
include in its 2012 business plan a strategy for ensuring the
participation of California-certified small businesses in
contracts awarded during all phases of the high-speed rail
project.
3)Requires the Authority, with assistance from the Department of
General Services (DGS), to prepare a small business,
microbusiness, and disabled veteran business enterprise
outreach and retention plan, by July 31, 2012, specifically to
ensure that the percentage of contracts awarded for
architectural, engineering, manufacturing, and construction
activities meets goals previously established by gubernatorial
executive order (i.e., 25%).
4)Directs the Authority, when developing the outreach and
retention plan, to consider examples of existing small
business programs used by other public agencies in California;
provides that, when preparing the plan, the Authority is to be
guided by provisions of the Small Business Procurement and
Contract Act.
5)Requires the Authority, prior to adopting the plan, to hold a
SB 734
Page 2
public hearing at least one month in advance of adopting the
plan.
6)Requires the draft plan and the adopted plan to be posted on
the Authority's Web site; also requires a summary of the plan
and a link to the plan Web site to be included in all
procurement documents.
7)Requires all bidders' conferences convened by the Authority to
include a presentation of the state's small business
participation goals; the Authority must request a
representative of DGS to attend the bidders' conference to
answer questions related to the state's small business
procurement laws.
8)Explicitly provides that the Authority is subject to the
provisions of the Small Business Procurement and Contract Act
and that all contracting preferences granted by the Authority
must be consistent with the act.
9)Adds a price preference of 2.5%, in addition to the already
established 5% preference for small businesses, to qualified
state-certified microbusinesses.
10)Defines "disabled veteran business enterprise" (DVBE),
"microbusiness," and "small businesses" by reference.
EXISTING LAW:
1)Defines "small business" to mean an independently owned and
operated business that is not dominant in its field of
operation, the principal office of which is located in
California, the officers of which are domiciled in California,
and which, together with affiliates, has 100 or fewer
employees, and has an average annual gross receipts of
$10,000,000 or less over the previous three years, or is a
manufacturer, with 100 or fewer employees.
2)Defines "microbusiness" to mean a small business that,
together with affiliates, has average annual gross receipts of
$2,500,000 or less over the previous three years, or is a
SB 734
Page 3
manufacturer, with 25 or fewer employees.
3)Defines "awarding department" to mean any state agency,
department, governmental entity, or other office or entity
that is empowered by law to enter into contracts on behalf of
the State of California.
4)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.
5)Requires DGS to report on the level of participation by small
businesses in state contracting.
6)Establishes the California Disabled Veteran Business
Enterprise Program to address the special needs of disabled
veterans seeking rehabilitation and training through
entrepreneurship and to recognize the sacrifices of
Californians disabled during military service.
7)Requires contracts awarded by any state agency, department,
officer, or other state governmental entity to have statewide
participation goals of not less than 3% for DVBEs. These
goals apply to the overall dollar amount expended each year by
the awarding department.
8)Provides that, to encourage competition for public contracts
and to aid public officials in the efficient administration of
public contracting, to the maximum extent possible,
California's public contract law should be uniform.
9)Sets forth unique requirements of state agencies with regard
to small business participation in contracts financed with the
proceeds of the infrastructure-related bond acts of 2006, as
defined.
FISCAL EFFECT : Unknown
SB 734
Page 4
COMMENTS : In March 2009, then-Governor Schwarzenegger issued
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
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)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 in contracts 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. In Fiscal Year
2009-10, the Authority reported small business participation at
SB 734
Page 5
27.72% and 7.07% for disabled veteran business enterprise
participation.
According to the author, however, microbusinesses (a subset of
small businesses) are not getting their fair share of state
public contracting. The author asserts that, of the $2.4
billion worth of contracts issued by state agencies in FY
2008-2009 to small businesses, only 37% of those contract
dollars were awarded in contracts with microbusinesses even
though microbusinesses make up 80% of small businesses.
In 2006, voters approved passage of nearly $20 billion in bonds
for infrastructure projects. Those projects offered a unique
opportunity for the state to foster small business participation
in state contracting. Accordingly, the Legislature passed AB
761 (Cotto) Chapter 611, Statutes of 2007, to ensure that small
and emerging contractors obtain a fair portion of state
infrastructure construction contracts by establishing 25%
participation goals and by requiring state agencies to provide
specific assistance to help small businesses successfully bid on
infrastructure contracts.
With passage of a subsequent bond act providing $9 billion for
high-speed rail (to be used to leverage even greater amounts of
federal and private money) California has another opportunity to
bolster small business development, as provided for in SB 734.
The author introduced this measure to: 1) provide assistance to
the Authority to develop contract and procurement strategies for
small contractors; and 2) raise the visibility and importance of
California microbusinesses and level the playing field for them
by granting additional 2.5% bidder preference when competing for
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
SB 734
Page 6
encourage competition for public contracts and to aid public
officials in the efficient administration of public
contracting.
SB 734 strays from this direction by setting forth requirements
unique to the Authority with regard to small business contract
participation in that this bill:
1)Requires the Authority to prepare a small business,
microbusiness, and disabled veteran business enterprise
outreach and retention plan, separate from responsibilities
and requirements generally established for state agencies to
encourage small business participation in contracts;
2)Increases the bid preference by 2.5% for microbusinesses; and,
3)Requires the Authority to focus its efforts on contracts for
architectural, engineering, manufacturing, and construction,
rather than all contracts program wide.
By creating unique requirements of the Authority, such as an
additional bidder preference, this bill creates confusion and
ambiguity. For example, existing procurement-related provisions
that apply to all state agencies cap the total amount of bid
preference that can be awarded to $50,000 for any one bid. This
bill, however, grants an additional 2.5% preference but includes
no cap. Does the $50,000 cap still apply or is the 2.5%
preference to be added notwithstanding the cap?
Suggested amendments : Amendments can be taken that would take
advantage of the high-speed rail project to bolster small
business development while at the same time avoid ambiguity and
confusion with regard to state contracting requirements. For
example:
1)This bill's provisions (except those related to the High-Speed
Rail Authority's business plan) should be moved to the
Government Code, consistent with provisions granting enhanced
opportunities for small businesses in association with the
2006 infrastructure bond acts. In this way, this bill would
SB 734
Page 7
preserve the integrity of a uniform set of procurement laws
and the benefits that uniformity is meant to provide.
2)This bill directs the Authority to focus on meeting or
exceeding small business participation goals in a specified
list of activities (such as architectural and engineering).
Instead, the Authority should be required to focus its efforts
on the full range opportunities to contract with small
businesses and microbusinesses, consistent with established
small business participation goals, and not just focus on
those related to architectural, engineering, manufacturing,
and construction activities.
3)This bill provides an additional 2.5% bidder preference for
microbusinesses, presumably only for contracts awarded by the
Authority. This bill needs to be amended to qualify that the
additional preference applies just to the Authority or there
could be confusion as to whether the additional preference
applies to microbusinesses for all state agencies.
Furthermore, this bill should specify that existing caps on
the dollar amount of the bidder preference still apply.
Related legislation : AB 365 (Galgiani) and AB 1206 (Galgiani)
would have enacted penalties and sanctions relative to the
certification of businesses as a small business enterprise,
microbusiness, or disabled veteran business enterprise. Both
bills were held on the suspense file in the Assembly
Appropriations Committee.
SB 733 (Price) would have required the Authority to develop a
strategy to ensure that at least 25% of the project workforce
used at each Authority worksite was from the local workforce.
That bill was held on the suspense file in the Senate
Appropriations Committee.
Double-referred : This bill is also referred to the Assembly
Jobs, Economic Development, and the Economy Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
SB 734
Page 8
The Wallace Group
James Transportation Group
Merriwether & Williams Insurance Services, Inc.,
Testing Services and Inspection
California Small Business Entrepreneurs
WAU & Company
Asian American Architects and Engineers Association
Hispanic Contractors & Suppliers Association
National Concilio of America
Axiom Corporation
STRUCTUS, Inc.
California Black Chamber of Commerce
SCI Pavement Services, LP
Asian Business Association
Latin Business Association
National Black Contractors Association
Sacramento Black Chamber of Commerce
California Small Business Association
Opposition
None on file.
Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093