BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Isadore Hall, III Chair 2015 - 2016 Regular Bill No: SB 159 Hearing Date: 4/28/2015 ----------------------------------------------------------------- |Author: |Nielsen | |-----------+-----------------------------------------------------| |Version: |3/23/2015 | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |No | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Arthur Terzakis | | | | ----------------------------------------------------------------- SUBJECT: California Disabled Veteran Business Enterprise Program: goal achievement DIGEST: This bill clarifies that an awarding department's Disabled Veteran Business Enterprise (DVBE) program participation goal achievement is to be measured by the overall dollar amount expended each year by the awarding department. ANALYSIS: Existing law: 1)Grants the Department of General Services (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. [Public Contract Code Section 10115] 3)Provides that the participation goal referenced in item #2 above applies to the overall dollar amount expended each year by the awarding department, as defined. [Public Contract Code Section 10115(c)] 4)Defines a DVBE as a business entity that is at least 51% owned SB 159 (Nielsen) Page 2 of ? or controlled by one or more disabled veterans, as specified. 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)Clarifies that a department's DVBE program participation goal achievement is to be reported by dollars actually expended as specified in existing sections of the Military and Veterans Code and the Public Contract Code. 2)Contains a legislative finding and declaration that this bill is clarifying and declaratory of existing law. 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 percent 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 SB 159 (Nielsen) Page 3 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. For instance, the program goals are required to be measured in "dollars expended," but DGS guidelines allow awarding departments to report using either "dollars awarded" or "dollars expended." The Auditor concluded that, until the program is standardized at one metric and that metric being "dollars expended," then there is no way to know how the program is actually working. Purpose of SB 159: According to the author's office, in devising program guidelines for reporting DVBE participation, DGS determined that statutory guidance is ambiguous as to whether awarding departments should report their DVBE participation based on "dollars awarded" or "dollars expended." Thus, DGS decided to grant awarding departments the discretion to choose which reporting metric to use. The result is that a large proportion of state departments report to DGS based on dollars awarded, while another major proportion reports based on dollars expended. Because the state measures the success of the DVBE program on the value of the contracts that departments award - not necessarily the amounts actually paid - this may distort how well the program is financially benefitting DVBE firms because awarding departments may pay less than the value stated on a particular contract. The author's office states that SB 159 is intended to add clarity to existing law and remedy this matter. Additionally, the author's office emphasizes that this bill is declaratory of existing law and will not impose any new responsibilities onto DGS or awarding departments. The author's office believes SB 159 will, however, eliminate DGS' concern over ambiguity and allow consistent DVBE reporting that meets existing statutory requirements. Staff Comments: Both the Public Contract Code and the Military and Veterans Code contain provisions regarding DVBE program contracting goals that are identical. Specifically, both establish statewide participation contracting goals of not less than 3% for DVBE firms based on the overall dollar amount expended each year by each awarding department. SB 159 (Nielsen) Page 4 of ? Under Public Contract Code Section 10115, 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 15% for minority-owned firms, not less than 5% for women-owned firms, and not less than 3% for DVBEs. Public Contract Code Section 10115(c) stipulates that these goals apply to the overall dollar amount "expended" each year by the awarding department, as defined. [These statutes have essentially been rendered inoperative as a result of the U.S. 9th Circuit Court of Appeals decision - Monterey Mechanical v. State of California. Unaffected by that court order are contracting preferences for DVBEs.] Under Military and Veterans Code Section 999.2(a), contracts awarded by any state agency, department, officer, or other state governmental entity, including school districts when they are expending state funds for construction, professional services, materials, supplies, equipment, alteration, repair, or improvement are required to have statewide participation goals of not less than 3 percent for DVBEs. These goals apply to the overall dollar amount "expended" each year by the awarding department. Prior/Related Legislation SB 839 (Correa), 2013-14 Session. Among other things, would have established new requirements for the methodology state departments use to track DVBE participation in their contracts and to report the data to DGS. Also, with respect to contracts with DVBE prime contractors, would have required that the contracting activity report concerning participation by DVBEs in state contracts include actual dollar amounts expended annually on contracts pursuant to the DVBE program. (Held in Senate Appropriations Committee) SB 719 (Correa), 2013-2014 Session. 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), 2013-14 Session. Would have required the Department of Veterans Affairs to create a California Veterans Leadership Program to connect returning veterans of military SB 159 (Nielsen) Page 5 of ? operations in Iraq and Afghanistan with employment, housing, and mental health resources. (Held in Senate Veterans Affairs Committee) SB 297 (Roth), 2013-14 Session. 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), 2013-14 Session. 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 a microbusiness, or to a DVBE without complying with specified competitive bidding requirements. (Died in Senate Appropriations Committee) SB 817 (Veterans Affairs Committee), 2011-2012 Session. 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 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), 2001-02 Session. Would have established an additional 3% bid preference for a small business that is also certified as a DVBE. (Held in Assembly Appropriations Committee) SB 159 (Nielsen) Page 6 of ? FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No SUPPORT: AMVETS, Department of California American Legion, Department of California California Association of County Veterans Service Officers California State Commanders Veterans Council Military Officers Association of America, California-Council Service Disabled Veteran-Owned Small Business Network Veterans of Foreign Wars, Department of California Vietnam Veterans of America, California State Council OPPOSITION: None received ARGUMENTS IN SUPPORT: Proponents claim that "over the years far too many state agencies have been reporting their compliance with the DVBE contract participation goal in the form of total dollars awarded, instead of total dollars expended, as required by the Military & Veterans Code. Such practice is unacceptable and has allowed the Department of General Services to inflate the actual DVBE goal attainment." Proponents believe that "SB 159 will clarify existing law so that only dollars that are actually spent with DVBE firms are reported for DVBE contracting goal compliance purposes." DUAL REFERRAL: Senate Veterans Affairs Committee