BILL ANALYSIS Ó
SENATE COMMITTEE ON VETERANS AFFAIRS
Senator Ben Hueso, Chair
BILL NO: SB 722 HEARING DATE: 4/9/13
AUTHOR: Correa
VERSION: As introduced
FISCAL: No
VOTE: 21
SUBJECT
California Disabled Veteran Business Enterprise Program
DESCRIPTION
Existing law:
Establishes the California Disabled Veteran Business
Enterprise (DVBE) Program.
For DVBE eligibility purposes, requires a "disabled veteran"
to have "at least a 10-percent service-connected disability."
This bill:
Strikes out the requirement to have "at least a 10-percent
service-connected disability."
Adds the requirement that the veteran have "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."
BACKGROUND
The Small Business Act, administered through the Department of
General Services (DGS), was implemented more than 30 years ago
to establish a small business preference within the state's
procurement process for the purpose of increasing the number of
contracts between the state and small businesses.
In 1989, a DVBE component was established within the Act 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. Under the provisions of the DVBE program,
each state agency is required, in awarding contracts throughout
the year, to honor California's disabled veterans by taking all
practical actions necessary to meet or exceed an annual 3% DVBE
participation goal.
Compliance
State agencies have a goal to award at least 3% of their annual
contract dollars to certified DVBEs. The agency decides whether
or not to include the DVBE participation requirements in a
particular solicitation and the percentage of the goal, if it is
included. The result is that some contracts may have a goal of
more than 3%, some may have a goal of less than 3%, and some
contracts may have no DVBE participation goal.
However, the overall 3% DVBE annual goal has rarely been reached
by any state agency. The primary problems are that (1) state law
contains no strong enforcement measure to ensure agency
compliance and (2) a supply shortfall - the lack of certified
DVBEs to meet aggregate agency demand.
DGS plays several important roles in the program, including
certifying veteran-owned businesses as eligible DVBEs and
monitoring the compliance of state agencies in meeting their 3%
goals.
According to DGS, the most recent data on DVBE compliance in
state contracting is contained its "Statewide Consolidated
Annual Report for Fiscal Year 2010-11":
This marks the second consecutive year that the State has
exceeded the established three (3) percent DVBE goal. (Page
1)
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In FY 2010-11, all mandatory reporting entities reported
over $5.643 billion in contracts for the procurement of
goods, services, construction, and information technology
(IT) goods and services. This is an increase of almost $490
million in contract spend from FY 2009-10. More than $272
million was awarded to DVBE firms for an overall
contracting participation rate of 4.82 percent. This is the
highest level of DVBE participation ever reported. This is
also the second time in over a decade that the State met
the three percent DVBE participation goal. It increased
participation by 1.04 percentage points above the 3.78
percentage points achieved in FY 2009-10. (Page 4)
DGS' Report for FY 2009-10 states:
All mandatory reporting State Entities reported over $5.153
billion in contracts for the procurement of goods,
services, construction, and information technology (IT)
goods and services. This is a decrease of $1.25 billion in
contract spend from FY 2008-09. More than $195 million was
awarded to DVBE firms for an overall contracting
participation rate of 3.78 percent. This is the highest
level of DVBE participation ever reported. This is also the
first time in over a decade that the State met the three
(3) percent DVBE participation goal. It increased
participation by 0.82 percentage points above the 2.96
percentage points achieved in FY 2008-09. (Page 5)
DVBE Participation Eligibility/Certification
To be certified as a DVBE, business must meet the following
requirements:
Be at least 51% owned by one or more disabled veterans;
Daily business operations must be managed and controlled
by one or more disabled veterans.
For certification purposes, the veteran owning the DVBE business
must be a "disabled veteran" defined as follows:
A veteran of the U.S. military, naval, or air service;
The veteran must have a federal VA or military
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service-connected disability of at least 10% or more; and
The veteran must reside in California.
VA Disability Ratings
The United States Department of Veterans Affairs (VA)
administers claims and provides compensation for injuries or
diseases that happened while on active duty, or were made worse
by active military service. The amount of basic benefit paid
varies depending on the severity of the condition. Additional
amounts may be paid if the veteran has: very severe disabilities
or loss of limb(s); a spouse, children, or dependent parents; or
seriously disabled spouse. The VA makes a determination about
the severity of a disability based on the evidence the veteran
submits as part of a claim, or that VA obtains from the
veteran's official military records.
The VA's evaluations are guided by 38 Code of Federal
Regulations (CFR) Book C, "Schedule for Rating Disabilities,"
which states:
The percentage ratings represent as far as can practicably be
determined the average impairment in earning capacity
resulting from such diseases and injuries and their residual
conditions in civil occupations. Generally, the degrees of
disability specified are considered adequate to compensate for
considerable loss of working time from exacerbations or
illnesses proportionate to the severity of the several grades
of disability. For the application of this schedule, accurate
and fully descriptive medical examinations are required, with
emphasis upon the limitation of activity imposed by the
disabling condition.
One major difference between Social Security disability (SSDI)
and veterans disability is that an individual need not be
totally disabled in order to be eligible for VA compensation.
The amount of basic VA benefit paid ranges along a continuum,
depending upon the level of disability determined. A disability
percentage also can be derived by analyzing the condition of an
individual veteran with multiple disabilities.
The VA rates disability from 0% to 100% in 10% increments. The
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10% rating is the lowest rating for which compensable income is
awarded. A veteran with a 100% rating will have one or more
disabilities that significantly interfere with normal life
functions. A veteran with a 0% rating may have a
service-connected condition, but it doesn't interfere with
normal life functions. The majority of disabled veterans rated
at 10%, 20%, or 30%.
In many cases, it makes sense to get a 0% rating even though it
is not compensable. The reason for this is that it means the
veteran will at least have proven a service-connected disability
-- which may deteriorate later into a more serious problem and
turn into a compensable condition. In addition, individuals with
a 0% VA rating may be eligible for federal and state veterans'
benefits other than monetary compensation.
Over many years, a veteran's disability claim may require
re-ratings. The re-ratings can be caused by changes in law,
advances in medical knowledge, or fluctuations in the veteran's
physical or mental condition. An individual's percentage rating
may go up or down.
Service-Disabled Veteran-Owned Small Business Concern (SDVOSBC)
Program
Some confuse this federal procurement program with California's
DVBE program. This program establishes for federal agencies an
annual government-wide goal of 3% of the total value of all
prime contract and subcontract awards for participation by small
business concerns owned and controlled by service-disabled
veterans. In order to be eligible for the SDVOSBC, you and your
business must meet the following criteria:
The Service Disabled Veteran (SDV) must have a
service-connected disability that has been determined by
the U.S. Department of Veterans Affairs or Department of
Defense.
The SDVOSBC must be small under the North American
Industry Classification System (NAICS) code assigned to the
procurement.
The SDV must unconditionally own 51% of the SDVOSBC.
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The SDVO must control the management and daily
operations of the SDVOSBC.
The SDV must hold the highest officer position in the
SDVOSBC.
The Government Accountability Office Report GAO-10-108 (October
23, 2009) stated that GAO found that the SDVOSBC program is
vulnerable to fraud and abuse, resulting in legitimate
service-disabled veterans' firms losing contracts to ineligible
firms. In examining just 10 case studies, GAO determined that
firms received approximately $100 million from SDVOSBC contracts
through fraud or abuse.
Awarding federal agencies lack processes to validate a firm's
program eligibility prior to bid submission. Contracting
agencies also currently do not have a database of individuals
that are service-disabled veterans, a key eligibility
requirement for the program.
The U.S. Small Business Association's bid-protest process is the
only government-wide control over the SDVOSBC program. However,
although ineligible firms have been identified through bid
protests, firms found ineligible do not face real consequences,
can be allowed to complete the contracts received, and are not
suspended or debarred.
COMMENT
1.Author comments :
"Current state law uses the United States Department of
Veterans Affairs (VA) threshold of 10% for Disabled Veteran
Business Enterprise (DVBE) certification, for eligibility to
participate in the DVBE Program.
"California state agencies are having difficulty achieving the
3% goal of awarding state contracts to the DVBE businesses, due
to a lack of access to participate in the DVBE Program.
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"A recent review of disabled veteran owned businesses, by the
DVB Alliance, found that as many as 200 California disabled
veteran owned businesses, with a service-connected disability
rating under 10% are ineligible for the DVBE program.
Therefore, this bill will expand the pool of eligible disabled
veteran businesses by allowing any VA-certified
service-connected disability rating to qualify for DVBE
eligibility."
2.Committee staff comments :
Some critics of this bill have mentioned the following points,
which were relayed to the author and sponsor for response.
Please see Sponsor comments below.
a. Existing law requires that a participating veteran must
have a federally determined service-connected disability of
at least 10% or more. Because the VA rates disability from
0% to 100% in 10% increments (e.g. 10%, 20%, 30% etc.), this
bill extends eligibility only to one class of veteran -
those with rated disabilities of 0%.
Critics may say that the purpose of the DVBE program is to
address the special needs of disabled veterans, who are
seeking rehabilitation and training through
entrepreneurship. A veteran with a 0% rating may have a
service-connected condition, but it doesn't interfere with
normal life functions.
Does this class of veteran, as defined, even have
the special needs that the DVBE program is intended to
address?
What is the percentage of disabled veterans in each
rating class?
a. The federal program has been rife with fraud
allegations. SB 722 could open the door to the same in
the DVBE Program.
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b. DGS reports that the reported compliance for state
agencies over the most recent data years available show two
consecutive years of compliance with new record highs.
2008/09 - 2.96%, 2009/10 - 3.78%, 2010/11 - 4.82%.
In light of that very robust upward trend, this
expansion of eligibility may not be needed for the
purposes of achieving compliance in aggregate.
Are there estimates as to how inclusion of 0% rated
veterans is likely affect the DVBE program in terms of
added participants? (Especially considering that
California can expect a surge of veterans of all types,
including 10% and higher-rated, as the military downsizes
over the next several years.)
1.Sponsor comments (paraphrased) :
a. Why should 0%-rated veterans be allowed to participate in
the DVBE program?
All disability ratings granted to a veteran are done when
clear evidence exists that the veteran has a service
connected disability. The % attached to the disability is
not an indicator of the severity of the disability but is
strictly the compensatory amount for disability benefits
established for the particular medical condition. In any
case the granting of any disability at any percentage puts
the disabled veteran in the VA Health Care system.
It is the intent of the DVBE program to give assistance to
all disabled veterans who choose to transition to civilian
life as entrepreneurs. Hence if the disabled veteran is in
the VA Health Care System then that disabled veteran should
be offered the opportunity to participate in the CA DVBE
program.
SB 722 does not displace disabled veterans with veterans
who have no disability.
b. Would this bill increase potential for fraud as seen in
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the federal program?
SB 722 only addresses the state's DVBE program; the
problems that the federal SDVOSB program has with fraud are
not relevant to California. Our state certification
procedures, managed by DGS in alliance with the agencies
that must determine if a DVBE provides a Commercially
Useful Function, have for years prevented any significant
abuse. California has the national gold standard program
for providing meaningful procurement participation goals to
veterans with service-connected disabilities via a strong
and effective certification process.
c. The state has been reaching 3% and beyond. Why is this
expansion desirable?
There are federally-designated Service Disabled Veteran
Owned Small Businesses in CA that are not DVBEs because
their owners have less than a 10% compensation rating.
Allowing these businesses to be certified as DVBEs is
important to the growth of the DVBE program, especially in
the areas of construction. This is particularly critical
because of the DVBE participation goal of 3% in California
High Speed Rail project over the next 20 years.
The state is now making its 3% goal annually but in the
next 5 years many Vietnam veterans that are DVBE will
retire or pass on, so the numbers of DVBEs will likely
decrease; we must ensure that every disabled vet business
owner has the opportunity to participate as a DVBE.
1.Related Legislation :
SB 276 (Roth, pending, 2013)
Existing law permits a state agency to award contracts for
goods, services, or information technology with values of
between $5,000 and $250,000 to certified small businesses,
including microbusinesses, or to disabled veteran business
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enterprises (DVBE), without complying with specified
competitive bidding requirements. This bill increases the upper
limit of the value of those contracts to $500,000.
SB 297 (Roth, pending, 2013)
Increases the DVBE program's annual statewide participation
goals for state agencies from 3% up to 5%.
SB 733 (Block, pending, 2013)
Existing law permits the use of business utilization plans
(BUP) to meet certain requirements in the DVBE program. This
bill repeals those provisions and establishes new criteria
using the "business utilization plan value" of a "business
utilization plan partner," as defined.
SB 817 (Committee on Vet Affs, held Senate Approps, 2011)
Allows a vendor with state contracts to meet DVBE goals with
dollars from other than state contracts. (2) Modifies the
requirement for a DVBE business utilization plan so that the
plan's required listing of products and services includes both
direct and indirect costs. (3) Codifies certain key definitions
into the Public Contract Code. Senate Veterans Affairs 8-0.
Senate B, P & ED 8-0.
AB 2627 (Nielsen, held Senate Approps, 2010)
Identical to SB 817 (2011). Senate Veterans Affairs: 4-0;
Assembly votes not relevant.
ABX4 21 (Evans, Ch. 19, Stats. 2009 4th Ex.S.)
Deleted the requirement (including all of the supporting
subdivisions) that the lowest responsible bidder make "a good
faith effort" to meet minority business enterprise, women
business enterprise, and disabled veteran business enterprise
participation goals on all state procurements. Senate Floor:
38-0; Assembly 76-2.
SB 115 (Florez, Ch. 451, Stats. 2005)
Moved the DVBE from the Department of Veterans Affairs to the
Department of General Services and modified the standards for
meeting the program's participation goals. Senate Floor: 36-0;
Assembly Floor: 79-0.
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POSTITIONS
Sponsor: California Disabled Veteran Business Alliance (DVB
Alliance).
Support: None received
Oppose: None received
Analysis by: Wade Cooper Teasdale
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