BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON VETERANS AFFAIRS
                             Senator Jim Nielsen, Chair
                                2015 - 2016  Regular 

          Bill No:             SB 159         Hearing Date:    5/12/15
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          |Author:    |Nielsen                                              |
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          |Version:   |3/23/15    Amended                                   |
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          |Urgency:   |No                     |Fiscal:    |No               |
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          |Consultant:|Wade Cooper Teasdale                                 |
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              Subject:  California Disabled Veteran Business Enterprise  
                             Program: goal achievement.


                                      DESCRIPTION

          Summary:
           Clarifies existing law, which requires an awarding department's  
          goal achievement under the Disabled Veteran Business Enterprise  
          (DVBE) program to be reported by overall dollar amount expended  
          each year by the awarding department. 

           Existing law:
           1.Grants the Department of General Services (DGS) the authority  
            to govern state procurement activities, including  
            administration of the DVBE program.

          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  
            certified DVBEs.

          3.Provides that the 3% participation goal applies to the overall  
            dollar amount expended each year by the awarding department,  
            as defined.

          4.Requires DGS to make available an annual report on contracting  
            activity containing specified information, including a  
            statistical summary detailing each awarding department's goal  







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            achievement under the DVBE program and a statewide total of  
            those goals.

           
          This bill:
           1.Inserts references to two existing provisions of the Military  
            and Veterans Code (MVC) and the Public Contract Code (PCC)  
            that establish and define DVBE goals. (The references clarify  
            that reporting on DVBE participation 3% goal achievement is to  
            be in the same "dollars expended" metric that actually defines  
            the 3% goal.)

          2.Contains a legislative finding and declaration that this bill  
            is clarifying and declaratory of existing law.

           
                                     BACKGROUND
           
          In 1989, the Legislature enacted the DVBE program to address the  
          special needs of disabled military veterans seeking  
          rehabilitation and training through entrepreneurship.  
          Existing law:

                 Requires each state agency, in awarding contracts  
               throughout the year, to take all practical actions  
               necessary to meet or exceed an annual 3% DVBE participation  
               goal. [Military and Veterans (MVC) Code Sec. 999]

                 Explicitly defines the program goal as being measured as  
               a percentage of the overall dollar amount expended in its  
               contracting each year by the awarding department. [MVC Sec.  
               999.2(a); Public Contract Code (PCC) Sec. 10115(c)].

                 Assigns DGS to serve as administering agency for the  
               DVBE program. [MVC Sec. 999.5(a)]. 

                 Directs DGS to adopt regulations to implement the  
               program. [MVC Sec. 999.5(f)]

                 Requires DGS to report the goal achievement each fiscal  
               year, for individual awarding departments and in aggregate,  
               as one of the components of DGS' "Statewide Consolidated  
               Annual Report." [PCC Sec. 10111(d)]









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          Specifically, in laying out the reporting requirements,  
          subdivision (d) of Public Contract Code Section 10111 states:

               (d) The level of participation, by agency, of disabled  
               veteran business enterprises in statewide contracting and  
               shall include dollar values of contract award for the  
               following categories:

                    (1) Construction.
                    (2) Architectural, engineering, and other professional  
                    services.
                    (3) Procurement of materials, supplies, and equipment.
                    (4) Information technology procurements.

               Additionally, the report shall include a statistical  
               summary detailing each awarding department's goal  
               achievement and a statewide total of those goals.

          DGS claims that PCC Sec. 10111(d) is ambiguous as to the metric  
          that DVBE program reporting should use. In interpreting the  
          statute and promulgating its program guidelines, DGS opts for a  
          "dollars awarded" basis for reporting - rather than "dollars  
          expended" as DVBE program goals are defined in statute.

          "Dollars awarded" is the amount for which a contract is  
          authorized. It is a ceiling on how much prime contractors and  
          their subcontractors potentially may be paid under the contract.  
          But the actual utilization of services provided by the  
          contractors and subcontractors often is less than initially  
          anticipated, meaning that the actual payments (dollars expended)  
          to the contractors and subcontractors is lower, sometimes  
          substantially lower, than the authorized contract amount  
          (dollars awarded). "Dollars awarded" is an inaccurate measure of  
          actual program participation.

          The explicit requirement for a statistical summary detailing  
          goal achievement originated in MVC Sec. 999.7, closely proximate  
          to the DVBE goal defining sections, where it existed from  
          1999-2006. MCV Sec. 999.7 was repealed when the Legislature  
          moved the reporting requirement into the Public Contract Code as  
          the second element in the current PCC Sec. 10111(d).

          DGS claims that its reporting guideline (2 CCR § 1896.78)  
          requires awarding departments to report on a "dollars awarded"  








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          basis; however, in practice, DGS allows awarding departments to  
          choose whether to report based either on the "awarded" or  
          "expended" standard. The administrative result is that a major  
          proportion of California's approximately 180 state departments  
          report to DGS based on dollars expended, while the other major  
          proportion reports based on dollars awarded. DGS leaves the  
          decision to the awarding departments.

           
                                       COMMENT
           
          State Auditor's Report 2013-115 (Feb 2014) determined that (1)  
          the failure to report at the "dollars expended" metric and (2)  
          the mixing of "dollars awarded" and "dollars expended" has  
          created an informational morass that leaves analysts unable to  
          determine if the DVBE program is actually meeting the program  
          goals as intended by the Legislature. It also leaves analysts  
          unable to determine the causes for two key audit findings that  
          generate concern:

                 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.

                 The largest deficiency in program reporting concerns  
               DVBE that subcontract to non-DVBE firms. (According to  
               General Services' annual report for fiscal year 2011-12,  
               DVBE subcontractors accounted for nearly 41 percent - or  
               $151.5 million - of the State's total reported DVBE  
               participation of$373.9 million.)


                                       POSITIONS
           
          Sponsor:  Author.

          Support:  
          AMVETS, Department of California 
          American Legion, Department of California
          California Association of County Veterans Service Officers
          California State Commanders Veterans Council
          Disabled Veteran Business Alliance








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          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
          Numerous small DVBE firms

          Oppose:   None on file.



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