BILL ANALYSIS Ó
AB 351
Page 1
Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 351
(Jones-Sawyer) - As Introduced February 17, 2015
SUBJECT: Public contracts: small business participation
SUMMARY: Requires each state agency to establish and achieve a 25%
small business participation goal. Specifically, this bill:
1)Establishes a 25% small business participation goal for contracting
activities by state agencies, boards, departments, and commissions.
2)Assigns the responsibility for achieving this goal to the heads of
the contracting departments and requires them to annually report his
or her agency's progress in meeting the goal.
3)Requires agencies that fail to meet their annual small business
procurement participation goal to submit a corrective plan to the
Department of General Services (DGS) within 45 days of the close of
any fiscal year.
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4)Requires DGS to regularly monitor the progress agencies are making
in meeting the 25% goal and to regularly share related information
with the Office of the Small Business Advocate (OSBA) including
providing a copy of the corrective action plans. DGS and the OSBA
are directed to assist agencies, to the extent feasible, in
implementing their corrective action plans.
5)Requires all state agencies to use the streamlined small business
procurement process for contracts under $100,000 and construction
contracts under $120,000.
6)Requires DGS to actively outreach and promote the small business
preference programs and in doing so collaborate with the OSBA.
7)Specifies that the small business provisions of this act apply to
the University of California, the California State University, and
the California Community Colleges when contracting with state funds.
EXISTING LAW:
1)Designates the DGS as the administer of the state Small Business
Procurement and Contract Act (Small Business Procurement Act), which
includes certifying and implementing targeted preference programs
for certified small businesses, microbusinesses, and disabled
veteran owned business enterprises (DVBE).
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2)Authorizes a 5% preference for state contract bidders that are
either a certified small or microbusiness or commit to using a
certified small or microbusiness in effecting the contract.
3)Authorizes a streamlined small business procurement process for
state contracts over $50,000 and under $250,000. Under this
process, the contract is not put out to public bid, instead the
contracting agency is allowed to award the contract to a certified
small business or DVBE after obtaining a two price quotes from two
certified small businesses and/or DVBEs.
4)Defines a small business as independently owned, not dominant in its
field of operation, domiciled in California, employing 100 or fewer
employees, and earning $10 million or less in average annual gross
revenues for the three previous years.
5)Defines a microbusiness as a small business (refer to definition
above) that has an average annual gross receipt of $3.5 million or
less during the previous three years or is a manufacturer with 25 or
fewer employees.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAME:
Small businesses play an essential role within the California economy,
contributing the most net new jobs, offering an alternative to un- and
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underemployment, and helping to disburse the financial advantages of
the state's globally connected economy. State procurement
opportunities represent an important economic tool to support small
business development. In the last 15 report periods, the state has
met the 25% small business procurement participation goal only five
times including 2013-14.
This bill proposes to codify the 25% small business procurement
participation goal, assign specific responsibility for meeting the
goal, mandate corrective action plans, and provide support for state
agencies in taking remedial actions to meet the goal. The Comment
section of the analysis includes additional information on the state's
Small Business Act, historic compliance issues, and current and prior
legislation.
COMMENTS:
1)Author's Purpose: According to the author, "Codifying this
executive order, not only places the policy in statute, only to be
removed by the Legislature, but also sends a strong message to
potential investors that the State of California supports small
businesses".
2)The Role of Small Businesses within the California Economy:
California's dominance in many economic areas is based, in part, on
the significant role small businesses play in the state's $2.2
trillion economy. Two separate studies, one by the U.S. Census
Bureau and another by the Kaufman Foundation, found that net job
growth was strongest among businesses with less than 20 employees.
Among other advantages, small businesses are crucial in the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy.
Nonemployer firms make up the single largest component of businesses
in California, 2.9 million out of an estimated 3.6 million firms in
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2012, representing over $149 billion in revenues with highest number
of businesses in the professional, scientific, and technical
services industry sector. As these non-employer businesses grow,
they continue to serve as an important component of California's
dynamic economy. Excluding nonemployer firms, businesses with less
than 20 employees comprise nearly 90% of all businesses and employ
approximately 18% of all workers. These non-employer and small
employer firms create jobs, generate taxes, and revitalize
communities.
In hard economic times, smaller size businesses often function as
economic engines. In this most recent recession the trend
continued, with the number of nonemployer firms increasing from 2.6
million firms ($137 billion in revenues) for 2008 to 2.8 million
firms ($138 billion in revenues) for 2010. In the post-recession
economy, small businesses are expected to become increasingly
important due to their ability to be more flexible and better suited
to meet niche market needs. Their small size, however, results in
certain challenges in meeting regulatory requirements, accessing
capital, and marketing their goods and services. California's
network of technical assistance providers assist businesses with a
range of services, including access to quality education, one-on-one
counseling, mentoring, marketing data, and other business
development resources.
3)Small Business Procurement Act: The Small Business Procurement Act,
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. A DBVE component was added in 1989.
Today, approximately 90% of DVBEs have dual certification as a small
business or microbusiness.
The Small Business Procurement Act states that it is the policy of
the State of California that the state aid the interests of small
businesses in order to preserve free competitive enterprise and to
ensure that a fair portion of the total purchases and contracts of
the state be placed with these enterprises. The statute further
states that DVBE participation is strongly encouraged to address the
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special needs of disabled veterans seeking rehabilitation and
training through entrepreneurship, and to recognize the sacrifices
of California's disabled military veterans. Statute sets an annual
3% DVBE participation goal, and a 2010 executive order sets a 25%
goal for small businesses and microbusinesses.
The charts below show small business and microbusiness aggregate
procurement participation rates for fiscal years 2011-12, 2012-13,
and 2013-14 for mandatory reporting agencies and total reporting
agencies.
---------------------------------------------------------------
| Small Business and Microbusiness Contracting Activity - |
| Mandated Reporters |
---------------------------------------------------------------
|------------+------------+------------+------------+------------|
|Fiscal year | Total |Total Small | Total | Total |
| | Contract | Business | Percent | Number of |
| | Dollars | and | | Contracts |
| | |Micobusiness| | |
| | | Contract | | |
| | | Dollars | | |
|------------+------------+------------+------------+------------|
|2013-14 |$7,101,433,4|$2,013,377,7| 28.35% | 90,784 |
| | 33| 92| | |
|------------+------------+------------+------------+------------|
|2012-13 |$7,616,142,0|$1,801,695,5| 23.66% | 105,617 |
| | 71| 47| | |
|------------+------------+------------+------------+------------|
|2011-12 |$7,399,022,4|$1,796,451,7| 24.28% | 165,523 |
| | 25| 22| | |
|------------+------------+------------+------------+------------|
|Average |$7,372,199,3|$1,870,508,3| 25.43% | 120,641 |
| | 10| 54| | |
----------------------------------------------------------------
---------------------------------------------------------------
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| 2013-14 DGS Statewide Consolidated Annual Report|
---------------------------------------------------------------
---------------------------------------------------------------
| Small Business and Microbusiness Contracting Activity - Total |
| Reporting |
---------------------------------------------------------------
|------------+------------+------------+------------+------------|
|Fiscal year | Total |Total Small | Total | Total |
| | Contract | Business | Percent | Number of |
| | Dollars | and | | Contracts |
| | |Micobusiness| | |
| | | Contract | | |
| | | Dollars | | |
|------------+------------+------------+------------+------------|
|2013-14 |$8,768,140,1|$2,262,238,8| 25.8% | 102,480 |
| | 14| 22| | |
|------------+------------+------------+------------+------------|
|2012-13 |$9,038,383,6|$2,011,723,1| 22.26% | 123,668 |
| | 81| 30| | |
|------------+------------+------------+------------+------------|
|2011-12 |$8,733,905,6|$2,021,984,9| 23.15% | 179,471 |
| | 92| 56| | |
|------------+------------+------------+------------+------------|
|Average |$8,846,809,8|$2,098,648,9| 23.74% | 135,206 |
| | 29| 69| | |
----------------------------------------------------------------
---------------------------------------------------------------
| 2013-14 DGS Statewide Consolidated Annual Report|
| |
| |
| |
---------------------------------------------------------------
Unfortunately, participation rates have not been as high as desired,
with state agencies meeting the 25% small business goal in only five
out of the last 15 report years. Further, in comparing year to year
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numbers, it is important to note that not all of the mandatory
reporting agencies provide annual data to DGS for inclusion in the
report. As an example, only 80% of the mandatory reporters provided
data for 2013-14.
4)Increasing Small Business and DVBE Procurement Participation: Every
year, Members of the Legislature introduce a range of bills to
improve outreach and increase targeted preferences to increase small
business participation in state contracting. Over the years, direct
and innovative approaches have been added including mandating small
business and DVBE liaisons at every agency, establishing official
state-level Small Business and DVBE Advocates, and requiring the
state join a national on-line contracting platform (BidSync), which
is soon to be transferred back to a state-only web platform
(F$SCAL).
Among other challenges, is the high concentration of contracting
within a few departments including several which bid contracts for
specialized services. According to the 2013-14 Statewide
Consolidated Annual Report by DGS, the top 10 contracting agencies
awarded more than 83% of contract dollars in 2013-14. The data
suggests that having department specific strategies to increase
small business participation will be required to consistently meet
the 25% goal.
In 2013-14, 61% of all state contracts were awarded by the
Department of Corrections (SDCR), the Department of Transportation,
and the Department of Health Care Services (DHCS). This means that
regardless of the efforts of the California School Finance Authority
(88.04% of the $99.677 contracts awarded) and California
Transportation Commission (89.44% of the $14,291 in contracts
awarded), the state's largest contracting entities must do a better
job in contracting with small businesses and microbusiness if the
state is going to consistently meet its mission of offering small
businesses meaningful procurement opportunities. The chart below
shows information on the contracting activities of the top 10
contracting departments for 2013-14.
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------------------------------------------------------------------
| Top 10 Contracting Agencies in 2013-14 |
------------------------------------------------------------------
------------------------------------------------------------------
|Departments | Total | Percentage | Small | DVBE |
| | Contact | of | Business and | Participatio|
| | Dollars | Statewide | Microbusiness| n |
| | | Spending | | Percentage |
| | | | Participation| |
| | | | Percentage | |
------------------------------------------------------------------
|------------+----------+-------------+--------------+-------------|
| All |$7,372,199| 100% | 28.35% | 3.67% |
| Mandatory | ,310| | | |
| Reporters | | | | |
|------------+----------+-------------+--------------+-------------|
|Corrections |$2,196,722| 30.93% | 36.03% | 3.60% |
| and | ,703| | | |
|Rehabilitati| | | | |
| on | | | | |
|------------+----------+-------------+--------------+-------------|
|Transportati|$1,0174,83| 15.14% | 28.24% | 3.70% |
| on | 3,768| | | |
|------------+----------+-------------+--------------+-------------|
|Health Care |$1,069,021| 15.05% | 2.36% | 0.45% |
| Services | ,018| | | |
| (DHCS) | | | | |
|------------+----------+-------------+--------------+-------------|
| State | $553,519,| 7.79% | 49.17% | 2.12% |
| Hospitals | 167| | | |
|------------+----------+-------------+--------------+-------------|
| Water | $351,102,| 4.94% | 19.79% | 2.62% |
| Resources | 439| | | |
|------------+----------+-------------+--------------+-------------|
| Highway | $234,348,| 3.30 | 12.28 | 1.72 |
| Patrol | 394| | | |
|------------+----------+-------------+--------------+-------------|
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| General | 135,233,| 1.90% | 42.23% | 10.49% |
| Services | 255| | | |
|------------+----------+-------------+--------------+-------------|
| Parks and | 123,503,| 1.74% | 31.49% | 6.76% |
| Recreation | 810| | | |
|------------+----------+-------------+--------------+-------------|
| Motor | 111,305,| 1.57% | 25.09% | 6.55% |
| Vehicles | 071| | | |
------------------------------------------------------------------
| Public | $99,350,| 1.40 | 12.34 | 3.34 |
| Utilities | 011| | | |
| Commission | | | | |
|------------+----------+-------------+--------------+-------------|
| Top 10 |$5,975,205| 83.77% | 27.35% | 3.02% |
| Total | ,480| | | |
------------------------------------------------------------------
------------------------------------------------------------------
| Source: 2013-14 Statewide Consolidated Annual Report prepared |
|by DGS |
| |
| |
| |
------------------------------------------------------------------
According to DGS, the state's inability to reach its small business
procurement goal in 2011-12 was directly attributable to DHCS' poor
performance. In 2011, DHCS issued a multiyear contract for Medi-Cal
Dental Services worth $300 million per year without any small
business or DVBE participation. Had DHCS met their small business
goals on this one contract, DHCS would have had a 21% small business
participation rate, instead of the reported 5%. DGS suggested that
DHCS focus on certifying the individual dentists that will be
subcontracting under the master Delta Dental contract, otherwise
this single contract will continue to hold down the state's overall
participation rates for years to come.
In 2013-14, as shown above, DHCS contracted with small business for
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only 2.36% of its contracting activities. In fact, the Health and
Human Services Agency had the lowest overall small business and
microbusiness participation rates (20.285) among all other agencies
in the state.
5)Related Legislation: Below is a list of related measures including
those from the current session and prior sessions.
a) Bills introduced in the 2015-16 Legislative Session:
i) AB 1125 (Weber) Small Business Procurement Incentives:
Increases the maximum financial value of an individual small
business bid preference and the aggregate value that may be
applied to a bid package that includes more than one
preference. The bill also modifies the base of that calculation
from being the lowest responsible bidder to the lowest
responsible non-small business bidder. Status: Scheduled to
be heard in the Assembly Committee on Jobs, Economic
Development, and the Economy on April 21, 2015.
ii) AB 1445 (Brown) Small Business Procurement Incentive:
This bill increased the maximum contract threshold amount for
awards to small business, including microbusiness, and DVBEs
under the states streamlined procurement process, from $250,000
to $500,000, as specified. Status: Pending in the Assembly
Committee on Accountability and Administrative Review.
b) Bills introduced in a prior legislative sessions:
i) AB 31 (Price) Public Contracts: Small Business Procurement
and Contract Act: This bill increased the maximum contract
threshold amount for awards to small business (SME), including
microbusiness, and DVBEs under the states streamlined
procurement process, from $100,000 to $250,000, as specified.
This bill requires contractors to report the contract amount
allocated to SMEs and DVBE's with which they made contract
commitments. Status: The bill was signed by the Governor,
Chapter 212, Statutes of 2009.
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ii) AB 172 (Weber) State Agency Contracts and Microbusiness
Preference: This bill would have created the microbusiness
procurement preference from 5% to 7% for state contracts to
purchase goods, services, information technology, and
construction of state facilities. The preference may be
awarded to either a microbusiness bidder or a non-microbusiness
bidder that uses a microbusiness subcontractor. Status: Held
on the Suspense File of the Assembly Committee on
Appropriations, 2013.
iii) AB 177 (Ruskin and V. Manuel Pérez) Enforcement of Small
Business Act: This bill increases and conforms penalties for
persons who falsely engage in activities relating to the Small
Business Procurement and Contract Act, including small
businesses, microbusinesses, and disabled veteran-owned
business enterprises. Status: The bill was signed by the
Governor, Chapter 342, Statutes of 2010.
iv) 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 directs DGS to monitor each agency's progress in
meeting this goal. The bill would have required that the
Office of the Small Business Advocate receive the same progress
report information as state entities and directs DGS and the
Office of the Small Business Advocate to work collaboratively
to assist state entities in meeting their goal. This goal is
currently provided for in Executive Order (EO) D-37-01 and EO
S-02-06. Status: Held in the Assembly Committee on
Appropriations in May 2010.
v) AB 550 (Brown) Office of Small Business and Disabled
Veteran Business Enterprise Services: This bill would have
codified the 25% small business participation goal in state
procurement, which was initially set through Executive Order
(EO) D-37-01 and EO S-02-06. The bill also would have made key
changes to state procurement procedures for the purpose of
increasing small business, including microbusiness, and
disabled veteran-owned business enterprise participation rates.
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Status: Held on the Suspense File of the Assembly Committee
on Appropriations, 2013.
vi) AB 1568 (Grove) Quotes for Public Contracts: This bill
would have required state agencies that opt to acquire goods,
services, or information technology through a specified small
business and disabled veteran business enterprise contracting
option to solicit at least three price quotes, and obtain at
least two quotes before awarding the contract. Status: Held
on the Suspense File in the Senate Committee on Appropriations,
2014.
vii) AB 1734 (Jones-Sawyer) Public contracts: Small Business
Participation: Disabled Veterans: This bill would have
required each state agency to establish and achieve a 25% small
business participation goal and increased the annual
procurement participation goal for disabled veteran business
enterprise from 3% to 5% of the value of state contracts.
Status: Held on the Suspense File in the Assembly Committee on
Appropriations, 2014.
viii) AB 2278 (Weber) Small Business Procurement Incentive:
This bill would have increased the maximum financial value of
an individual small business bid preference and the aggregate
value that may be applied to a bid package that includes more
than one preference. The bill also modifies the base of that
calculation from being the lowest responsible bidder to the
lowest responsible non-small business bidder. Status: Held on
the Suspense File of the Assembly Committee on Appropriations,
2014.
ix) AB 2682 (Wagner) Responsible Small Business and DVBE
Contractors: This bill would have required a state agency that
solicits offers, awards a contract, or consents to
subcontracts, under the Small Business Procurement and Contract
Act, to do so only with responsible and reliable parties.
Prohibits a state agency from allowing a party to participate
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in any procurement activity if the party has been suspended,
debarred, or otherwise excluded from participation in a state
contract. Status: Died in the Assembly Committee on
Accountability and Administrative Review, 2014.
x) SB 67 (Price) Small Business Participation in Public
Contracts: This bill would have authorized DGS to direct all
state entities to establish an annual goal of achieving no less
than 25% small business participation in state procurement
contracts, as specified. Status: Held in the Assembly
Committee on Appropriations in 2011.
xi) SB 733 (Price) High Speed Rail: 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 would have
required the HSRA to have a strategy for working with the
Employment Development Department to ensure that at least 25%
of the project workforce at each worksite is from the local
workforce. Status: Held in Senate Committee on Appropriations
in 2011.
6)Double Referral: The Assembly Rules Committee has referred this
measure to the Assembly Committee on Jobs, Economic Development and
the Economy (JEDE) and to the Assembly Committee on Accountability
Administrative Review (AAR). Should this measure pass the
committee, it will be referred to AAR for further policy discussion.
REGISTERED SUPPORT / OPPOSITION:
Support
California Asian Pacific Chamber of Commerce
Opposition
None received
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Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090