BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 413 (Chávez) - California Disabled Veteran Business
Enterprise Program.
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|Version: June 30, 2015 |Policy Vote: V.A. 5 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: July 13, 2015 |Consultant: Robert Ingenito |
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This bill may meet the criteria for referral to the Suspense
File.
Bill
Summary: AB 413, upon the death or permanent disability of an
owner of a certified disabled veteran-owned business enterprise
(DVBE), would authorize a spouse or child to enter into
additional state contracts during the three years currently
permitted for the continued operation of a DVBE.
Fiscal
Impact:
The aggregate impact of this bill on state contracts is
unknown, and would reflect various factors. Some of these
factors would potentially increase state costs, while
AB 413 (Chávez) Page 1 of
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others would likely lead to a reduction in state costs.
(See Staff Comments).
The Department of General Services (DGS) would incur
minor and absorbable costs related to rulemaking.
Background: Established in 1989, the 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 (1) contracting directly with certified DVBE firms, or
(2) requiring winning bidders to use them as subcontractors. To
be eligible to become a certified DVBE, a business must be at
least 51 percent owned by a disabled veteran, have its daily
operations managed and controlled by a disabled veteran, and be
located in the United States.
Current law provides that, if the disabled veteran majority
owner dies or incurs a permanent medical disability, an
inheriting spouse and/or child may retain the firm's
certification and continue to operate as a DVBE for three years,
for the sole purpose of fulfilling the terms of any contract
entered into prior to the disabled veteran's death or permanent
disability. However, the inheriting spouse/child may not enter
into any new contracts during the three-year period.
State agencies frequently offer a DVBE incentive (in the form of
a bid preference), to bidders that include specified levels of
DVBE participation in their bids. The incentive can be up to
five percent of the bid amount. Generally, the bid preference is
offered on a sliding scale reflecting the level of DVBE
participation in the bid.
For most agencies, offering the DVBE incentive is optional; it
is one of several tools they can use to achieve their annual
goal of three percent DVBE participation in their contracts.
However, in instances where the agency has failed to achieve the
goal in two of the last three fiscal years, DGS regulations
require the agency to offer the DVBE incentive.
AB 413 (Chávez) Page 2 of
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Proposed Law:
This bill would authorize, following the death or permanent
disability of the disabled veteran majority owner of a certified
DVBE, a surviving spouse or child to enter into additional state
contracts during the three-year period following the death or
disability, provided that the contracts can be completed within
the three-year period.
Related
Legislation: AB 409 (Dickerson, Chapter 767, Statutes of 1999)
requires (1) that certification of a DVBE be continued for up to
three years after the death or certification of permanent
medical disability of the disabled veteran owning the
enterprise; and (2) that the Department of Veterans Affairs
appoint an advocate, who would be responsible for overseeing
implementation of this bill and general DVBE participation goals
in state contracting.
Staff
Comments: The fiscal impact of this bill would be determined by
several factors, including (1) the number of deaths of
qualifying disabled veterans, and (2) the extent to which
affected DVBEs under ownership control of a spouse or child
elect to bid on new contracts during the three-year period. DGS
assumes that the bill would likely result in an unknown, but
larger number of firms capable of claiming DVBE status for the
purpose of bidding for new contracts.
To the extent that there are more DVBEs available for purposes
of contract awards, this may result in more bidders qualifying
for the DVBE incentive and/or some bidders qualifying for
greater DVBE incentives than would otherwise be the case.
Consequently, the DVBE incentive could result in a higher bid
displacing a lower bid, the result of which would be increased
contract costs beyond what would have happened on the natural.
Conversely, non-DVBE bidders on competitively bid contracts are
generally required to subcontract three percent of the contract
dollar value to DVBEs, unless this requirement is waived in
advance by the awarding state department. A non-DVBE bidder
must indicate, in its bid, which DVBE(s) it will use, which
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element(s) of the work the DVBE(s) will perform, and what
percentage of the contracted dollar value is being subcontracted
to each one. Otherwise, the bid is found nonresponsive and is
rejected. To the extent that there are more DVBEs available for
purposes of serving as subcontractors, this may make it easier
for non-DVBE bidders to find a DVBE capable of participating as
a subcontractor, and thus may result in reduced costs due to
greater competition for state contracts.
The extent to which one of these effects overwhelms the other
would determine the bill's impact on contract costs relative to
current law.
DGS data indicate that in 2013-14, state departments spent over
$8 billion dollars in contracts, $299 million of which went to
DVBEs. DVBEs participated in 14,305 contracts.
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