BILL ANALYSIS Ó
SB 734
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Date of Hearing: July 6, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Pérez, Chair
SB 734 (Price) - As Amended: May 31, 2011
SENATE VOTE : 25-12
SUBJECT : High-Speed Rail: Small Business Bidding Preference
SUMMARY : Requires the High-Speed Rail Authority (HSRA) to
include within its business plan a strategy ensuring the
participation of California small businesses in contracts
awarded during all phases of the project, as specified.
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 a strategy to ensure the participation of
California-certified small businesses in contracts awarded by
HSRA during all phases of the project to be included into the
business plan scheduled to be submitted on January 1, 2012 or
as an addendum to be submitted no later than March 1, 2012.
3)Requires the HSRA to work with the Department of General
Services (DGS) to prepare a small business, microbusiness, and
disabled veteran business enterprise outreach and retention
plan (SB plan) to ensure that the percentage of contracts
awarded for architectural, engineering, manufacturing, and
construction activities meets the state's existing annual 25%
small business participation procurement goal.
4)Directs HSRA, when developing the SB plan, to consider
examples of existing small business programs used by other
public agencies in California, and be guided by provisions of
the Small Business Procurement and Contract Act (Small
Business Act).
5)Requires HSRA to adopt the SB plan no later than July 31,
2012.
6)Requires HSRA, prior to the adoption of the SB plan, to do the
following:
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a) Hold a board meeting on the draft SB plan at least one
month prior to the board meeting at which HSRA intends to
vote on the final SB plan;
b) Post both draft and adopted SB plans on the HSRA
Internet web-site homepage; and
c) Include a summary of the SB plan in all procurement
documents, as well as a web-link to the full SB plan.
7)Requires all bidders' conferences convened by the HSRA to
include a presentation of the SB plan and the state's 25%
small business contract participation goals. HSRA must
request a DGS representative to attend all bidders'
conferences to answer questions regarding the Small Business
Act.
8)Provides that the HSRA is subject to the provisions of the
Small Business Act, the 5% bid preference for small business,
microbusiness and DVBEs including large businesses that
subcontract with a small business, microbusiness or DVBEs.
9)Requires an additional 2.5% price preference or score of the
bid amount to be granted to qualified state-certified
microbusinesses.
10)Defines the following terms: disabled veteran business
enterprise, microbusiness and small business, used in this
section of law.
EXISTING LAW:
1)Establishes the High Speed Rail Act including Legislative
findings and declarations and definitions relative to
high-speed rail.
2)Designates the HSRA to prepare, publish, and adopt a business
plan that shall be submitted to the Legislature no later than
January 1, 2012 and every two years thereafter, as specified.
3)Designates DGS as the administrator the state Small Business
Act, including, but not limited to, a small business
certification process, a procurement process for state
contracts of up to $250,000, and a preference for bids made by
certified small businesses and microbusinesses.
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4)Establishes a 25% annual procurement participation goal,
through Executive Order S-02-06, for specific state entities
to contract with small business.
5)Establishes a 25% small business participation goal for
contracts financed with the proceeds of the
infrastructure-related bond acts of 2006.
6)Establishes a 5% preference for bids made by certified small
business and microbusinesses for the award of state
procurement contracts. A single bid preference is limited to
$50,000 and the combined cost of preferences shall not exceed
$100,000. A large business must subcontract at least 25% of
the contract with a certified small business to qualify for
the small business bidders' preference.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the bill : According to the author, "SB 734 ensures
that small businesses get a slice of the multi-billion dollar
High Speed Rail Economic pie. The bill requires the High Speed
Rail Authority (Authority), in developing its business plan,
to include a strategy to ensure participation of California
certified small businesses in contracts awarded by the
Authority. The bill also requires the Authority, in
conjunction with the Department of General Services, to
prepare an outreach and retention plan to ensure that State
contracting agencies meet participation goals for small
businesses, microbusinesses and Disabled Veteran Business
Enterprises (DVBEs). In addition, SB 734 addresses the
importance and challenges of California microbusinesses and
grants them an additional contract preference of 2.5 percent.
Although these smaller businesses comprise over 80 percent of
California's certified small businesses, they are
disadvantaged when competing against their larger
small-business counterparts.
Given the depressed economy, high unemployment rates and the
positive impact the High Speed Rail project will have
throughout the state, it is important that we ensure that the
Authority operates with a clearly defined program that will
provide opportunities for California small businesses,
including its microbusinesses. SB 734 accomplishes these
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objectives."
2)High-Speed Rail Authority : SB 1420 (Kopp) Chapter 246,
Statutes of 1996, created the HSRA with a nine-member
governing board. The make-up of the board called for five
members to be appointed by the Governor, two members by the
Senate Rules Committee, and two members by the Speaker of the
Assembly.
The HSRA was tasked with preparing a plan and design for the
construction of an economically viable high-speed train line
linking major metropolitan areas that would help sustain the
state's long-term mobility and economic growth. In 2002, SB
1856 (Costa) Chapter 697, Statutes of 2002, authorized a $9.95
billion bond to finance the new system. As part of the state
budget process, the bond submission was delayed by several
years.
In 2008, AB 3034 (Galgiani) Chapter 267, Statutes of 2008,
revised Senator Costa's SB 1856 of 2002, authorizing the Safe,
Reliable High-Speed Train Bond Act for the 21st Century
(Proposition 1A). This later bill allowed the HSRA to develop
a high-speed rail system in phases. Phase I connects Los
Angeles through the Central Valley to San Francisco by 2020,
and phase II would extend the system north to Sacramento and
south to San Diego by 2026.
Proposition lA authorized $9.95 billion in general obligation
bonds to support the project and required the HSRA to prepare
a draft business plan, as well as authorized the HSRA to enter
into contracts with private public entities for the design,
construction and the operation of high-speed trains. In
November 2008, the people of California approved Proposition
1A with a 52.7% vote.
In May 2011, it was announced that California, Illinois and 12
other states, along with Amtrak, will share $2 billion in
federal grants aimed at developing high-speed rail service.
These moneys had been rejected by Florida and are in addition
to the $3 billion already awarded to California through the
efforts of U.S. Congressman Jim Costa and other members of the
California Congressional delegation.
3)California Small Business : California's dominance in many
economic areas is based, in part, on the significant role
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small businesses play in the state's $1.9 trillion economy.
Businesses with 1-99 employees comprise nearly 98% of all
businesses, and they are responsible for employing more than
37% of all workers in the state.
Small- and medium-sized businesses are crucial to the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy. Of the over 57,461 companies that
exported goods from California in 2008, 96% were small- and
medium-sized enterprises (SME) with fewer than 500 employees.
These SMEs generated nearly two-fifths (44%) of California's
exports in 2008. Nationally, SMEs represented only 31% of
total exports. These numbers include the export of only goods
and not services.
Historically, small businesses have functioned as economic
engines, especially in challenging economic times. During the
nation's economic downturn from 1999 to 2003, microenterprises
(businesses with less than five employees) created 318,183 new
jobs or 77% of all employment growth, while larger businesses
with more than 50 employees lost over 444,000 jobs. From 2000
to 2001, microenterprises created 62,731 jobs in the state,
accounting for nearly 64% of all new employment growth.
During this current economic downturn, however, small business
owners have been especially hard hit. Equifax has reported
that bankruptcies in California rose by 81% in 2009, as
compared to 44% nationally. This trend continued in 2010,
with Equifax reporting that while in general bankruptcies were
down across the nation including some regions in the west,
small business bankruptcies in California accounted for almost
20% of all small business bankruptcies in the nation.
4)The Small Business Act : The Small Business Act (SBA),
administered through DGS, was implemented more than 30 years
ago to establish a small business preference within the
state's procurement process that would increase the number of
contracts between the state and small businesses. In 1989, a
DVBE component was added to state procurement practices.
Since 2001, there have been four Executive Orders (EOs)
specifying a 25% goal for small business and a 3% DVBE
participation in state procurement contracts, including EO
D-37-01 (2001), EO S-02-06 (2006), EO D-43-01(2001), and EO
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S-11-06 (2006). Statutory advancements were also made to
strengthen the SBA including SB 115 (Florez), Chapter 451,
Statutes of 2005, which required DGS to establish a DVBE
incentive program for state contracts; and AB 761 (Coto),
Chapter 611, Statutes of 2007, which specifically codified the
25% small business participation goal for contracts related to
revenues expended from the 2006 infrastructure bonds.
Despite the longstanding existence of the SBA, statutory
upgrades, and EOs, the state's success in achieving small
business and DVBE participation goals in state procurement
contracts has been inconsistent.
For only the third time since the small business participation
target was established in 2001, DGS has reported the state
achieved its small business target by awarding 26.88% ($2.40
billion), of the value of all contracts to small businesses in
2008-09. This represents a $2.0 billion increase in contracts
from 2007-08. The state did not achieve its 3% DVBE
participation goal in 2008-09. DVBE contract awards, however,
did increase to 2.96% (190 million) in 2008-09, up from 2.39%
in 2007-08.
5)Tools for achieving participation goals : In order to assist
state entities reach the small business participation goals,
contracting entities are provided a number of specific tools,
including a streamlined procurement method, bid preferences,
and lead small business procurement contacts at every agency.
Under the streamlined procurement process, the awarding state
entity is authorized to bypass the advertising, bidding, and
protest provisions in the State Contract Act. This allows a
contract to be awarded directly to a certified small business
at a contract price established by checking the proposed rate
with two other small businesses. Contracts offered under the
streamlined procurement process are currently limited to
contracts between $5,000 and $100,000. Of the $2.5 billion of
state contracts that were awarded to small businesses in
2008-09, $225.4 million (17,310 contracts) were awarded
through the streamlined procurement process. The actual
number may be higher as only 78 of 124 departments reported
their small business procurement activities to DGS.
Certified small business bidders (including microbusinesses)
and other bidders that commit to using certified small
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businesses (including microbusinesses) are also eligible for a
5% bid preference where the solicitations are made either on
the basis of lowest responsible dollar bid, or on the basis of
highest score, considering factors in addition to price. A
single bid preference is limited to $50,000 and the combined
costs of preferences shall not exceed $100,000. SB 734 would
allow for an additional 2.5% bid preference for
microenterprise businesses that contract directly with the
HSRA. This additional preference is not open to large
contracts that subcontract with a microenterprise business.
Another important component of the state's effort to increase
small business participation in state contracts is through the
work of the Small Business Advocate and the network of small
business liaisons. Under existing law, every state agency is
also required to have a single point of contact for small
business state procurement opportunities.
6)Related legislation : Below is a list of related legislation
from both previous and current legislative sessions:
a) AB 150 (Perea) Public Contracts: Small Business
Participation: This bill would have required the
establishment of a 25% small business and a 3% DVBE
participation goal for all state entities and directs the
Department of General Services to monitor each agency's
progress in meeting this goal. Status: This bill was held
in Assembly Appropriations Committee in May 2011.
b) AB 309 (Price) Public Contracts: Small Business
Participation : This bill would have required the
establishment of a 25% small business participation goal
for all state entities and directed the Department of
General Services to monitor each agency's progress in
meeting this goal. Status: This bill was held under
submission by Assembly Appropriations Committee in May
2009.
c) AB 365 (Galgiani) High-speed Rail Authority: Small
Business Certification: Penalties : This bill would have
enacted penalties and sanctions relative to the
certification of businesses as a small emerging business
enterprise, microbusiness, or disabled veteran business
enterprise (DVBE), as specified. This bill was held under
submission by Assembly Appropriations Committee in May
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2011.
d) AB 761 (Coto) Small Business Procurement: State
Infrastructure Construction Goals : This bill requires each
state agency awarding contracts that are financed with
proceeds from the infrastructure bonds approved by voters
in November 2006 to establish a 25% small business
participation goal for state infrastructure construction
contracts and to provide specified assistance to small
businesses bidding on state infrastructure bond-related
contracts. Status: This bill was signed by the Governor,
Chapter 611, Statutes of 2007.
e) AB 1206 (Galgiani) High-speed Rail Authority: small
business certification: penalties : This bill would have
directed the High-Speed Rail 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. This bill was held
under submission by Assembly Appropriations Committee in
May 2011.
f) SB 115 (Florez) California DVBE Program : This bill
makes various changes to the DVBE program, including
requiring DGS to establish a state agency-wide mandatory
DVBE participation incentive. The bill also requires the
DGS Small Business Advocate to provide specified services
to small businesses and certified DVBEs. Additionally,
this bill requires DGS to adopt a streamlined reporting
procedure for state agencies to use in reporting their DVBE
participation to the Department of Veterans Affairs.
Status: The bill was signed by the Governor, Chapter 451,
Statutes of 2005.
g) SB 733 (Price) High-Speed Rail: Small Business
Participation: This bill would have required the
California High-Speed Rail Authority (HSRA) to include in
its January 1, 2012 business plan a strategy for ensuring
California-certified small business participation in
contracts awarded with state and federal funds during all
phases of the high-speed rail project. It also requires
the HSRA to have a strategy for working with the Employment
Development Department to ensure that at least 25% of the
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project workforce at each worksite is from the local
workforce. This bill was held under submission in Senate
Appropriations Committee in May 2011.
h) SB 1108 (Price) Public Contracts: Small Business
Participation: This bill would have made three
enhancements to the Small Business Procurement and Contract
Act (Small Business Act) including authorizing the
implementation of a 25% small business procurement goal,
the development of specific administrative procedures for
implementing the small business preference and requiring
the state to take a more active role in promoting
certification of small businesses. Status: This bill was
held under submission in Senate Appropriations Committee in
May 2010.
REGISTERED SUPPORT / OPPOSITION :
Support
Asian American Architects and Engineers Association
Asian Business Association
Axiom Corporation
California Black Chamber of Commerce
California Small Business Association
California Small Business Entrepreneurs
Distec Supply Co., Inc.
James Transportation Group
Latin Business Association
Merriwether I Williams Insurance Services
National Black Contractors Association
National Concilio of America
Sacramento Black Chamber of Commerce
Structus Inc.
Testing Services and Inspection Inc.
The Wallace Group
WAU & Company
Opposition
None on file
Analysis Prepared by : Mercedes Flores / J., E.D. & E. / (916)
319-2090
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