BILL ANALYSIS Ó SENATE COMMITTEE ON VETERANS AFFAIRS Senator Jim Nielsen, Chair 2015 - 2016 Regular Bill No: SB 159 Hearing Date: 5/12/15 ----------------------------------------------------------------- |Author: |Nielsen | |-----------+-----------------------------------------------------| |Version: |3/23/15 Amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |No | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Wade Cooper Teasdale | | | | ----------------------------------------------------------------- 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 SB 159 (Nielsen) Page 2 of ? 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)] SB 159 (Nielsen) Page 3 of ? 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" SB 159 (Nielsen) Page 4 of ? 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 SB 159 (Nielsen) Page 5 of ? 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. -- END --