BILL ANALYSIS Ó
SB 1510
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SENATE THIRD READING
SB 1510 (Wright)
As Amended August 20, 2012
Majority vote
SENATE VOTE :37-0
ECONOMIC DEVELOPMENT 6-0
APPROPRIATIONS 17-0
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|Ayes:|V. Manuel Pérez, Grove, |Ayes:|Gatto, Harkey, |
| |Beall, Block, Hueso, | |Blumenfield, Bradford, |
| |Morrell | |Charles Calderon, Campos, |
| | | |Davis, Donnelly, Fuentes, |
| | | |Hall, Hill, Cedillo, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
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SUMMARY : Tightens the bidder requirements for demonstrating
that a small business, microbusiness or disabled veteran owned
business (DVBE) will serve a commercially useful function (CUF)
in carrying out a state contract. By meeting the CUF
requirements, a bidder may claim a bid preference on competitive
state contract awards.
Specifically, this bill expands the CUF requirements to include
demonstrating that the small business, microbusiness or DVBE has
responsibility for negotiating price, determining quality and
quantity, ordering, installing, if applicable, and making
payment for the products, inventories, materials, and supplies
required for the contract.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, the Department of General Services (DGS) will incur
minor and absorbable costs. The most recent fiscal analysis
also notes that "potentially significant savings could result if
fewer businesses qualify for the small-businesses preference
when competing for state contracts which could result in more
awards going to the true lowest bidder."
COMMENTS : The Small Business Act, administered through DGS, was
implemented more than 30 years ago to increase the participation
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of small business within the state's procurement process. In
1989, DVBE component and a 3% annual procurement participation
goal was added to SBA. While existing law has no annual small
business goal, since 2001 there have been four Executive Orders
(EOs) specifying a 25% annual goal for small business
participation in state procurement.
In order to assist state government entities in reaching the
small business and DVBE participation goals, contracting
entities are provided a number of specific tools, including bid
preferences, a streamlined procurement method, and designation
of small business procurement liaisons at every agency. This
bill proposes to tighten the requirements for claiming the small
business and microbusiness bid preference.
Certified small business and microbusiness bidders and other
bidders that commit to using certified small business and
microbusiness subcontractors are 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. DVBE bidder
and firms that commit to using DVBEs may also receive a bid
preference of between 1% and 5%. There are programmatic limits
to the overall value of these preferences with a single bid
preference limited to $50,000 and the combination of all
preferences not exceeding $100,000 (many DVBEs are also
certified small businesses allowing for two preferences).
The purpose of these preferences is to help targeted businesses
successfully compete with larger size firms and national chains
for state contracts. In applying these preferences to a state
contract, a bidder is required to demonstrate that the small
business, microbusinesses or DVBE will perform a CUF in
executing the contract. The CUF requirement is designed to
prevent a bidder from using a business as a "pass through" or
"front" for another business that would otherwise not qualify
for the small business, microbusiness or DVBE bid preference.
The CUF requirement applies to all state purchasing activities,
including contracts for goods, services, informational
technology and public works.
Current law requires a business to: 1) be responsible for a
distinct element of the contract; 2) actually perform, manage,
or supervise contract related work; and, 3) perform a task that
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is normal for its business, in order to be considered as serving
a CUF.
A contractor or subcontractor is not considered performing a CUF
if the contractor's or subcontractor's role is limited to that
of an extra participant in a contract, through which funds are
passed to other businesses, which actually perform the contract
work. The contracting entity has the challenging task of making
a CUF determination prior to awarding the contract, as the bid
preference is likely to be a determining factor in a business
obtaining the bid. Small business and DVBE advocacy groups,
like those sponsoring this bill, believe that the CUF rules are
being exploited in practice, resulting in state contacts being
awarded to inappropriate bidders based on the use of small
businesses that are simply "fronts" for other businesses.
This bill adds to the CUF requirements by having the bidder also
demonstrate that the small business and microbusiness is
financially and administratively independent of the prime
contractor, suppliers or wholesaler.
Historical small business procurement participation : Since
2001, when the first EO set the 25% small business participation
target, the state has met its goal only four times. In the most
recent report on procurement, 2010-11, DGS reported that $1.26
billion (22.12%) out of a total of $5.72 billion of all state
contracts to small businesses. The state has three times
achieved its 3% DVBE participation goal, that being in 2007-08,
2009-10, and 2010-11. In 2010-11, $272 million out of a total
of $5.64 billion (4.82%) was awarded to DVBEs. The base amounts
used to calculate the small business and DVBE goals are because
purchasing categories associated with inmates, such as inmate
day labor and medical expenses, as reported by the Department of
Corrections and Rehabilitation, are statutorily exempted from
DVBE participation.
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090
FN: 0005032
SB 1510
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