BILL ANALYSIS Ó
SB 159
Page 1
Date of Hearing: June 14, 2016
ASSEMBLY COMMITTEE ON VETERANS AFFAIRS
Jacqui Irwin, Chair
SB
159 (Nielsen) - As Amended June 24, 2015
SENATE VOTE: 38-0
SUBJECT: California Disabled Veteran Business Enterprise
Program: goal achievement
SUMMARY: Specifies that an awarding department's goal
achievement under the California Disabled Veteran Business
Enterprise Program (DVBE Program), and statewide total of those
goals, be measured as specified, and makes a legislative finding
that this bill is clarifying and declaratory of existing law.
EXISTING LAW:
1)Establishes the California DVBE Program, administered by DGS,
for the purpose of addressing the special needs of disabled
veterans seeking rehabilitation and training through
entrepreneurship, and to recognize the sacrifices California's
disabled veterans made during their military service.
Contracts for professional bond services are administered
through the State Treasurer's Office.
2)Applies the 3% DVBE participation goal on each awarding state
SB 159
Page 2
agency, department, officer, and any other state entity that
enters into a contract using state funds for construction,
professional services, materials, supplies, equipment,
alteration, repair, or improvement. Contracts with a DVBE for
equipment rentals do not count toward the goal.
3)Defines the following terms:
a) A DVBE contractor, subcontractor, or supplier is any
person or entity that has been certified by the
administering agency and that performs a commercially
useful function, as defined.
b) A disabled veteran is a veteran of the military, naval,
or air service of the U.S. who has a service-connected
disability of at least 10% and who is domiciled in the
state.
c) A DVBE is a business certified by the administering
agency as meeting all of the following requirements:
i) The legal structure of the business is a:
(1) Sole proprietorship with at least 51% owned by
one or more disabled veterans;
(2) Publicly owned business with at least 51% of
its stock unconditionally owned by one or more
disabled veterans;
(3) Subsidiary that is wholly owned by a parent
corporation, but only if at least 51% of the voting
stock of the parent corporation is unconditionally
owned by one or more disabled veterans; or
(4) Joint venture in which at least 51% of the
joint venture's management, control, and earnings are
held by one or more disabled veterans.
ii) The management and control of the daily business
operations are by one or more disabled veterans. The
disabled veterans who exercise management and control are
not required to be the same disabled veterans as the
SB 159
Page 3
owners of the business.
iii) It has a home office located in the United States,
which is not a branch or subsidiary of a foreign
corporation, foreign firm, or other foreign-based
business.
4)Requires DGS to collect information from awarding state
departments on the level of DVBE procurement participation by
contract value awarded and a statistical summary detailing
each awarding department and the state's progress in achieving
the 3% procurement participation goal for DVBEs.
5)Requires an awarding state department to require a prime
contractor who has committed to using a DVBE subcontractor to
certify upon completion of the contract:
a) The total amount the prime contractor received under the
contract.
b) The name and address of the DVBE that participated in
the performance of the contract.
c) The amount each DVBE subcontractor received from the
prime contractor.
d) That all required payments under the state contract have
been made to the DVBE subcontractor.
6)Provides that a person or entity that knowingly provides false
information on the DVBE subcontractor certification shall be
subject to a civil penalty for each violation in the minimum
amount of $2,500 and the maximum amount of $25,000.
FISCAL EFFECT: This bill is not keyed fiscal.
SB 159
Page 4
COMMENTS:
While it is mostly clear what the DVBE program does, it remains
persistently opaque as to what the purpose and goal of the
program is and why it was established.
Is the DVBE program intended to:
1. Help disabled veterans who want to start a business?
2. Support disabled veteran business owners who have an
existing business?
3. Employ veterans?
Was the program enacted to:
1. Recognize the service and sacrifice of disabled
veterans, in other words, a status based program?
SB 159
Page 5
2. Help disabled veterans whose degree of disability might
hinder them from employment?
Without a clear understanding of what the DVBE program is for
and why it was created the program will endure challenges. The
purpose and goal of the program should drive the structure of
the program. For example, if the DVBE program is to help
disabled veterans start a business, should there be a point at
which the veteran's business is successful enough that it no
longer needs support (such as the small business enterprise
program) allowing smaller DVBEs to receive more contracts?
There is tension in the structure of the program in that, as
noted by the State Auditor, there may be a small number of firms
which receive most of the DVBE contracts, there may be very
little incentive for state agencies to go with a smaller firm
not previously tried, and it may be very challenging for new
DVBEs to compete against established ones.
According to the analysis of this bill (paraphrased here) by the
Assembly Committee on Jobs, Employment Development, and the
Economy, the DVBE Program was established in 1989 for the
purpose of facilitating state contracting opportunities among
businesses owned by disabled veterans. A 3% DVBE procurement
participation goal is applied to the state agency or
department's overall contracting activities in the given fiscal
year and may be achieved by awarding state contracts to DVBEs as
prime contractors or when DVBEs are used as a subcontractor.
DGS has a range of responsibilities relating to the
implementation of the DVBE Program.
SB 159
Page 6
Since 2000, the overall 3% procurement participation goal has
been met only five times. State departments that fail to meet
their annual 3% goal can have their delegated contracting
authority removed, although DGS has never removed program
authority solely based on an agency or department's failure to
meet its DVBE contracting goal.
2014 Audit of the DVBE Program: Senators Hueso, and former
Senator Ron Calderon, requested a comprehensive review of the
DVBE program by the California State Auditor. The completed
audit was critical of the program in several respects, noting in
particular that,
?the data in the State Contract and Procurement Registration
System (SCPRS) maintained by General Services provide a strong
indicator that only a relatively small subset of DVBE firms
enjoy the major part of the State's business. Specifically, we
noted that during fiscal year 2012-13, 83 percent of the DVBE
contract award amounts went to only 30 DVBE firms?
?reporting methodologies differ by state agencies on DVBE
participation.
The Audit recommended that:
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?
To provide a more meaningful measure of how well disabled
veteran-owned businesses benefit financially from the DVBE
SB 159
Page 7
program, the Legislature should amend the DVBE reporting
requirements in the Public Contract Code to require that all
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.
Double Referral: This bill was heard in a previous version by
the Assembly Committee on Jobs, Economic Development and the
Economy where it passed 9-0.
REGISTERED SUPPORT / OPPOSITION:
Support
The American Legion
AMVETS, Department of California
California Association of County Veterans Service Offices
California State Commanders Veterans Council
Disabled Veteran Business Alliance
Military Officers Association of America-California Council
SB 159
Page 8
Veterans of Foreign Wars - Department of California
Vietnam Veterans of America - California State Council
Opposition
None on File.
Analysis Prepared by:John Spangler / V.A. / (916)
319-3550