BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 297 (Roth) - Public Contracts: Disabled Veterans
Amended: As Introduced Policy Vote: GO 11-0
Urgency: No Mandate: No
Hearing Date: April 22, 2013 Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 297 would increase the annual statewide
participation goal for disabled veteran business enterprises
(DVBEs), applicable to specified state contacts, from three
percent to five percent.
Fiscal Impact: The Department of General Services (DGS)
indicates that administrative costs related to this bill are
minor and absorbable, consisting of updating materials related
to DVBE program publications, presentations and training
materials.
However, increasing the DVBE participation goal by two
percentage points could have unknown, potentially major costs
(General Fund and special funds) with respect to contract
spending. As discussed below, the most recent data available
indicate that DVBE participation is currently greater than three
percent, but below the bill's targeted goal of five percent. DGS
notes that if five percent of the value of specified state
contracts went to DVBEs as opposed to the actual current ratio,
all else equal, the incremental increase of spending would be
about $38 million. The extent to which this figure completely
represents new spending is indeterminable.
Background: Established in 1989, the Disabled Veteran Business
Enterprise (DVBE) program sets a goal for most awarding state
departments to expend a minimum of three percent of their
overall contract dollars on DVBEs certified by DGS. Departments
that award contracts may meet this goal by either contracting
directly with certified DVBE firms or requiring winning bidders
to use them as subcontractors. To be eligible to become a
certified DVBE, a business must be at least 51% owned by a
disabled veteran, have its daily operations managed and
controlled by a disabled veteran, and be located in the United
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States.
Since the three percent goal applies to an awarding department's
overall contract expenditures each year, the awarding department
has the discretion to decide whether or not the DVBE
requirements will apply on a contract-by-contract basis. It may
exempt some eligible contracts from the DVBE requirements while
establishing goals in excess of three percent on others.
Additionally, when these departments do establish DVBE
participation requirements on a contract, they may still award
the contract to a bidder who does not intend to use a DVBE.
Under state law, a bidder can satisfy a contract's DVBE
participation requirements by demonstrating a good-faith effort
to find and use a DVBE. Bidders submit documentation of their
good-faith effort to the awarding department, which in turn
ultimately decides in its sole discretion if a good-faith effort
was made. Bidders may provide listings of the DVBEs they
solicited and considered for participation on the contract,
along with the business reasons why a DVBE could not be used.
State regulations dictate that certain contracts cannot be
subject to DVBE requirements. These contracts include subvention
funding, local aid contracts, and agreements with other
government entities. Although the dollar value of these
contracts may be significant at certain awarding departments, it
does not have an impact on their ability to attain three percent
DVBE participation. This is the case since each awarding
department's performance is based on the value of the
DVBE-eligible contracts.
Proposed Law: This bill would increase the annual statewide
participation goal for disabled veteran business enterprises
(DVBEs), applicable to specified state contacts, from three
percent to five percent.
Related Legislation: SB 722 (Correa), would define "disabled
veteran" for purposes of the DVBE program, as a veteran of the
Armed Forces of the United States, as specified, who has a
service-connected disability, as documented by a letter from any
branch of the United States Armed Forces or the federal
Department of Veterans Affairs, and who is domiciled in the
State.
SB 733 (Block) would delete the provisions allowing the awarding
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department to accept submission of a DVBE utilization plan and
would instead specify that the statewide participation goal for
DVBEs may be met by the business utilization plan value of a
business utilization plan partner, as defined, established by
payments between the partner and a DVBE, as specified.
Staff Comments: DGS reports in its 2010-11 Statewide
Consolidated Annual Report that at the close of the fiscal year,
there were 1,211 certified DVBEs, 88 percent of whom were also
certified as small businesses, as defined. In 2010-11, state
agencies reported about $5.6 billion in contracts for
procurement of goods, services, construction, and information
technology (IT) goods and services, an increase of $490 million
over the prior year. More than $272 million was awarded to
DVBEs, an overall contracting rate of 4.82 percent. This is the
highest level of DVBE participation ever reported, and is the
second time in over a decade that the State met the current-law
goal of three percent. DVBE participation increased by 1.04
percentage points above the prior year's figure of 3.78 percent.
Staff notes that state departments' participation rate in
providing these data to DGS was 86 percent in 2010-11, down from
93 percent in 2008-09. Potential explanations for the decline in
participation among state agencies include the use of employee
furloughs, unfilled staff vacancies and the elimination of
vacant positions.