BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 276 (Roth) - Small and disabled veteran business contracts.
Amended: As Introduced Policy Vote: GO 9-0
Urgency: No Mandate: No
Hearing Date: May 23, 2013 Consultant: Mark McKenzie
SUSPENSE FILE.
Bill Summary: SB 276 would increase the maximum amount of a
contract for goods, services, or information technology from
$250,000 to $500,000 under which the contract may be awarded by
a state agency to a certified small business (CSB) or disabled
veteran business enterprise (DVBE) without complying with
specified competitive bidding requirements.
Fiscal Impact:
Unknown, potentially significant increase in contract costs
to various state agencies (General Fund, Special Fund). For
example, if 10% of the $270 million in contracts from
2011-12 to which this increased threshold would apply were
awarded to CSBs or DVBEs using this optional process, and if
the less competitive nature of this process resulted in a 5%
higher price, contract costs would have increased by $1.35
million.
Partial offsetting administrative cost savings related to
reduced bid advertising and avoidance of more complex
bidding procedures (General Fund, Special Fund).
Background: Under current law, state agencies are permitted to
award a contract for goods, services, or information technology
with a value of $5,000 to $250,000, to a CSB, including micro
businesses, or a DVBE, without complying with specified
competitive bidding requirements. This method allows contracts
to bypass the advertising, bidding, and protest provisions in
the State Contract Act, allowing the agency to contract directly
with a CSB or DVBE at a contract price that is established by
obtaining price quotations from two CSBs or DVBEs, as
applicable. Existing law also establishes a 5% bid preference
for CSBs and microbusinesses on state procurement contracts.
SB 276 (Roth)
Page 1
Proposed Law: SB 276 would increase the maximum amount of a
contract for goods, services, or information technology to a
certified small business (CSB) or disabled veteran business
enterprise (DVBE) from $250,000 to $500,000 without complying
with specified competitive bidding requirements.
Related Legislation: AB 31 (Price), Chap 212/2009, increased the
maximum amount of a contract for goods, services, or information
technology from $100,000 to $250,000 that a state agency may
award to a CSB or DVBE without complying with specified
competitive bidding requirements.
Staff Comments: Costs for these optional contracts likely will
be higher, as the competitive pressure would be reduced if an
awarding department informally solicited only two CSBs or two
DVBEs, rather than allowing all potential vendors, including
non-CSB low bidders, to formally bid on the contracts through
the competitive procedures specified in the State Contract Act.
Because this option is faster and administratively simpler,
increased costs may be partially offset by an unknown amount
from a reduction in administrative workload associated with
reduced advertising and avoiding more complex bidding
procedures. This is unlikely to reduce state workforce among
numerous agencies, but may free up time for other productive
activities.
The Department of General Services (DGS) indicates that in
2011-12, there were 773 contracts for goods, services, and
information technology with a value of $250,000 to $500,000.
The combined value of those contracts was approximately $270
million. The percentage of these contracts that would have been
awarded under this optional process that is not subject to
competitive bidding procedures is unknown. If ten percent of
these contracts were awarded to a CSB or DVBE using this option
(with a value of $27 million), rather than potentially lower
bidders, and to the extent that contract costs are 5% higher due
to the less competitive nature of this option, contract costs
would have increased by approximately $1.35 million as a result
of the increase in the maximum contract amount from $250,000 to
$500,000. As noted above, there would be some reduction in
administrative workload due to reduced bid advertising and
avoidance of complex bidding procedures. It is unlikely that
administrative savings would fully offset potential increased
contracting costs.
SB 276 (Roth)
Page 2
Whether the increase in the bid threshold will increase CSB
participation because potential non-CSB low bidders will be
excluded, will depend greatly on whether state agencies perform
their due diligence of market research to determine if this
option is in the state's best interest. If there are numerous
non-CSBs providing a product or service, state agencies should
include them in the bid. Presumably, if an agency uses this
option and the bids appear high, that agency could switch to a
formal bid procedure, adding an estimated one week to the
process, but allowing participation by all businesses.
Staff notes that the maximum threshold for these types of
contracts was increased from $100,000 to $250,000 as of January
1, 2010. As of that time, the number of contracts, awarded to
CSBs and DVBEs using the optional informal process has increased
dramatically.