BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Isadore Hall, III Chair 2015 - 2016 Regular Bill No: AB 1218 Hearing Date: 7/14/2015 ----------------------------------------------------------------- |Author: |Weber | |-----------+-----------------------------------------------------| |Version: |7/7/2015 Amended | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Arthur Terzakis | | | | ----------------------------------------------------------------- SUBJECT: Public contracts: disabled veteran business enterprise DIGEST: This bill makes substantive modifications to contracting performance goals and program participation reporting requirements pertaining to the Disabled Veteran Business Enterprise (DVBE) Program administered by the Department of General Services (DGS). ANALYSIS: Existing law: 1)Grants DGS the authority to govern state procurement activities, including acquisition of materials, supplies, and services. 2)Stipulates that contracts awarded by state entities for professional bond services, construction, and acquisition of materials, supplies, and services are required to have annual statewide participation goals of not less than 3% for DVBEs. 3)Provides that the 3% participation goal applies to the overall dollar amount expended each year by the awarding department, as defined. 4)Defines a DVBE as a business entity that is at least 51% owned or controlled by one or more disabled veterans, as specified. AB 1218 (Weber) Page 2 of ? 5)Requires DGS to make available a report on contracting activity containing specified information, including a statistical summary detailing each awarding department's goal achievement under the DVBE program and a statewide total of those goals. This bill: 1)Specifies that, in order to meet the 3% annual goal, an awarding department shall consider whether greater DVBE participation in excess of 3% should actually be required on contracts entered into for goods and services and for professional bond services. 2)Modifies the existing DVBE incentive program by establishing a greater participation incentive to the following: a) A prime contractor who owns a DVBE and who has not previously entered into any contracts with the state as a prime contractor, rather than to a prime contractor who commits to entering into subcontracts with DVBEs; b) A DVBE that employs a workforce that is more than 50% veterans; c) A DVBE that has not previously entered into any contracts with the state. 3)Requires the California Department of Veterans Affairs (CalVet) to maintain additional information relative to its promotional efforts of the DVBE program, as specified. Also, specifies that in order to track the effectiveness of the efforts to promote the DVBE program, CalVet must, at a minimum, include an annual comparison of the list of businesses participating in promotional efforts and those that become a prime contractor or subcontractor under the program so that the success of the promotional activities can be measured. 4) Provides that a contractor that is not a DVBE yet subcontracts with DVBEs shall, when submitting its certification of expenditures to the awarding department, comply with either of the following: (a) provide on the certification of expenditures to the awarding department, the AB 1218 (Weber) Page 3 of ? signature of any DVBE that performed work for the contractor acknowledging the authenticity of the expenditures or (b) provide the certification of expenditures to any DVBE that performed work for the contractor and proof of any amount of expenditures to that subcontractor. 5)Requires awarding departments to maintain records of the information provided by the prime contractor, including but not limited to, the name of the prime contractor and subcontractor and the amount awarded to and the amount paid to, each prime and subcontractor. Also, requires awarding departments to establish review procedures to ensure the accuracy and completeness of the award amounts and the paid amounts reported. 6)Makes other minor conforming changes and requires DGS to establish guidelines for reporting multiyear contracts. Background Historical Note: In 1989, SB 1517 - Dills (Chapter 1207) established a 3% participation goal for disabled veteran business enterprises (DVBEs), applicable to all contracts including those for professional bond services, to assist and encourage DVBE participation in state contracting opportunities. In 1990, SB 2398 - Dills (Chapter 516) extended the DVBE participation program to contracts of the University of California, the Department of Corrections and specified public utilities. In 1993, SCR 18 - Dills, encouraged local entities to enact ordinances and implement policies promoting the participation of DVBEs in construction and procurement contracts. Also, SJR 13 - Dills of 1993, requested that Congress establish and maintain DVBE programs. In 2001, Congress expressed support for service disabled and prisoner of war veterans by enacting a 3% participation goal for DVBEs that is modeled after California law. 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 States. The Problem: In February 2014, the State Auditor released a report on the DVBE program entitled, "Disabled Veteran Business AB 1218 (Weber) Page 4 of ? Enterprise Program: Meaningful Performance Standards and Better Guidance by the California Departments of General Services and Veterans Affairs Would Strengthen the Program." The Auditor found that: The State's current method of measuring the success of the DVBE program may distort an assessment of whether the program is meeting the legislative intent. The data in the State Contract and Procurement Registration System indicates that only a relatively small subset of DVBE firms enjoy the major part of the State's business - during fiscal year 2012-13, 83 percent of the DVBE contract award amounts went to only 30 DVBE firms. All five of the awarding departments we visited lacked adequate supporting documentation for their reported fiscal year 2012-13 DVBE contracting activity. The California Department of General Services (General Services) has not provided clear guidance as to what level of support and documentation is sufficient to support their reported DVBE performance data nor how to report DVBE participation on multiyear contracts. General Services currently lacks the ability to obtain a complete and accurate copy of the State's procurement data - as currently maintained in the eProcurement data system. The California Department of Veterans Affairs' management confirmed that it has not taken an active role in coordinating with awarding departments to promote DVBE contracting opportunities. The Auditor offered the following recommendations to the Legislature: To provide a more meaningful measure of how well disabled veteran-owned businesses benefit financially from the DVBE program, the Legislature should amend the DVBE reporting requirements in the Public Contract Code to require that all AB 1218 (Weber) Page 5 of ? awarding departments report DVBE participation annually based on amounts paid, and maintain accounting records and certifications from DVBE subcontractors, as applicable, that support the DVBE participation data reported. If the Legislature chooses not to amend the DVBE reporting requirements in the Public Contract Code - to require awarding departments to report DVBE participation based on amounts paid, not amounts awarded - the Legislature should amend the Public Contract Code to do the following: (1) Require awarding departments to maintain detailed support for their DVBE activity and to establish review procedures to ensure the accuracy and completeness of the amounts reported and (2) Include instructions to awarding departments on how they should report multiyear contracts, either at the time of the award or by an equal distribution of the award over the life of the contract. For the DVBE program to financially benefit a broad base of disabled veteran-owned businesses, the Legislature should enact legislation aimed at increasing the number of those DVBEs that contract with the State, including increasing the amount of the DVBE incentive that awarding departments can apply when considering bids on state contracts. Such an incentive could include additional preference points for certain bids when the bidder is a DVBE firm that the department has not previously used or when the firm is bidding as a prime contractor. Purpose of AB 1218. According to the author's office, this bill incorporates several of the Auditors recommendations referenced above. Specifically, "this bill makes a number of changes to improve access to the program and to improve program accountability including, preferences for both new DVBEs, those seeking to become prime contractors and those with a workforce comprised of more than 50% veterans; more accuracy in measuring performance toward 3% goals; and outcome-based measurements of DVBE recruitment efforts." Prior/Related Legislation SB 159 (Nielson, 2015) clarifies that an awarding department's DVBE program participation goal achievement is to be measured by the overall dollar amount expended each year by the awarding department. (Pending in Assembly policy committee) SB 839 (Correa, 2013), among other things, would have AB 1218 (Weber) Page 6 of ? established new requirements for the methodology state departments use to track DVBE participation in their contracts and to report the data to DGS. (Held in Senate Appropriations Committee) SB 719 (Correa, 2013) would have required awarding departments that used the Financial Information System for California (FI$Cal) to report statewide participation goals for the DVBE program in the amount expended to DVBEs. (Held in Assembly Appropriations Committee) SB 382 (Roth, 2013) would have required the Department of Veterans Affairs to create a California Veterans Leadership Program to connect returning veterans of military operations in Iraq and Afghanistan with employment, housing, and mental health resources. (Held in Senate Veterans Affairs Committee) SB 297 (Roth, 2013) would have increased the annual statewide participation goal for DVBEs, applicable to certain state contracts, from 3% to 5%. (Held in Assembly policy committee at author's request) SB 276 (Roth, 2013) would have modified the Small Business Procurement and Contract Act by increasing the upper limit (from $250,000 to $500,000) of the value of certain contracts that a state agency may award to a certified small business, including microbusiness, or to a DVBE without complying with specified competitive bidding requirements. (Died in Senate Appropriations Committee) SB 817 (Veterans Affairs Committee, 2011) would have allowed a vendor with state contracts to meet DVBE goals with dollars from other than state contracts. Also, would have modified 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. (Held in Senate Appropriations Committee) SB 115 (Florez, Chapter 451, Statutes of 2005) created a DVBE incentive program for state contracts. SB 1008 (Machado, Chapter 632, Statutes of 2003), among other things, strengthened the sanctions that can be levied against businesses that fraudulently misrepresent their eligibility for DVBE certification. AB 1218 (Weber) Page 7 of ? AB 669 (Cohn, Chapter 623, Statutes of 2003), among other things, required DVBEs and small businesses, as defined, to perform commercially useful functions, as defined, in relation to any contract those businesses are awarded under certain provisions of law. Also, imposed certain civil penalties for fraudulent misrepresentations regarding DVBE and small business state contracts. SB 1033 (Knight, 2002) would have established an additional 3% bid preference for a small business that is also certified as a DVBE. (Held in Assembly Appropriations Committee) FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No SUPPORT: American Federation of State, County and Municipal Employees, AFL-CIO American Legion-Department of California American Veterans-Department of California Military Officers Association of America, California Council Disabled Veterans Business Alliance State Council on Developmental Disabilities Vietnam Veterans of America-California State Council OPPOSITION: None received