BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1176 (Galgiani) - Small Business Procurement and Contract
Act: business size
-----------------------------------------------------------------
| |
| |
| |
-----------------------------------------------------------------
|--------------------------------+--------------------------------|
| | |
|Version: April 21, 2016 |Policy Vote: G.O. 12 - 0 |
| | |
|--------------------------------+--------------------------------|
| | |
|Urgency: No |Mandate: Yes |
| | |
|--------------------------------+--------------------------------|
| | |
|Hearing Date: May 2, 2016 |Consultant: Robert Ingenito |
| | |
-----------------------------------------------------------------
This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1176 would revise the definition of "small business"
and "microbusiness" for purposes of the Small Business
Procurement and Contract Act by (1) increasing the dollar amount
threshold for a small business and microbusiness to $30 million
and $5 million respectively, and (2) requiring those dollar
amounts to be adjusted to reflect changes in the California
Consumer Price Index (CPI), as specified.
Fiscal
Impact: The Department of General Services (DGS) would incur
unknown, likely major, costs to implement the provisions of the
bill. These costs include (1) one-time FI$Cal programming costs
SB 1176 (Galgiani) Page 1 of
?
associated with modifying the IT system's small business
certification system; (2) one-time workload associated with
updating regulations, the State Contracting Manual, and various
training materials and templates; and (3) ongoing workload
associated with processing additional certification applications
from the newly eligible firms.
Background: Under current law, a "small business" (SB) is defined as an
independently owned and operated business that meets the
following criteria: (1) it is not dominant in its field of
operation, (2) its principal office is located in California,
the officers of which are domiciled in California, and which,
together with affiliates, has 100 or fewer employees, and (3)
has average annual gross receipts of $14 million or less over
the previous three years, or is a manufacturer, as defined, and
has 100 or fewer employees. Current law defines a
"microbusiness" (MB) as a small business which, together with
affiliates, has average annual gross receipts of $3.5 million or
less over the previous three years, or is a manufacturer, as
defined, with 25 or fewer employees. Current law allows DGS to
raise the dollar threshold through administrative action to
reflect inflation, and DGS has an active rulemaking proceeding
to, among other things, raise the threshold to $15 million.
Once certified as a small business, a firm qualifies as a small
business regardless of the type of contract it is bidding on or
participating in. Small businesses receive a 5 percent bid
preference, increased interest on late payments, and eligibility
to participate in solicitations under the "Small Business/DVBE
Option."
The Small Business/Disabled Veterans Business Enterprise (DVBE)
Option is an optional contracting method under which departments
can award contracts up to specified dollar limits after
obtaining responsive, timely quotes from two small businesses or
two disabled veteran business enterprises. The dollar limits
are $250,000 for goods, services, and information technology and
$291,000 for construction.
Proposed Law:
SB 1176 (Galgiani) Page 2 of
?
This bill would, among other things, do all of the following:
Revise the definition of SB and MB by increasing the
dollar amount threshold for a SB to $30 million and for a
MB to $5 million. The bill would require those dollar
amounts to be adjusted biennially to reflect changes in the
CPI.
For the purposes of public works contracts, contracts
awarded through competitive bids or otherwise for the
erection, construction, alteration, repair, or improvement
of any kind upon real property, define "small business" to
mean an independently owned and operated business that is
not dominant in its field of operation, the principal
office of which is located in California, the officers of
which are domiciled in California, and which, together with
affiliates, has 200 or fewer employees, and average annual
gross receipts of twenty-five million dollars ($25,000,000)
or less over the previous three years.
Related
Legislation: SB 1219 (Hancock, 2016) includes "employment social
enterprise," which are businesses that provide jobs for
individuals who have experienced significant barriers to
employment, within the Small Business Procurement and Contract
Act (Act) for the purpose of allowing them to participate in
state contracting bid preferences provided to certified small
business enterprises. The bill is currently pending in this
Committee.
Staff
Comments: As of December 2015, there were 26,404 businesses in
California which DGS had certified as small businesses. That
number would increase under the bill, the extent of which is
unknown. Since 2012, overall small business participation has
ranged between 22 and 28 percent.
This bill would create a split system of small business
certification. Firms with less than 100 employees and $15
million in revenue would continue to qualify as small businesses
for all contracts. Other firms (with 101-200 employees and/or
SB 1176 (Galgiani) Page 3 of
?
$15-25 million in revenue) would qualify as small businesses
only for the purposes of public works contracts. DGS would
ultimately need to establish a separate certification for firms
with 101-200 employee and/or $15-25 million in revenue. This
would lead to increased programming costs for Fi$Cal, the extent
of which is unknown but likely to range in the hundreds of
thousands of dollars minimally.
All else equal, making more firms eligible for the small
business preference (at least for public works contracts) is
likely to result in more bidders qualifying for the preference.
The fiscal impact of this is difficult to estimate, in part
because DGS does not have data on the number of firms that would
qualify for "public works contract" certification under the
bill.
Any local government costs resulting from the mandate in this
measure are not state-reimbursable because the mandate only
involves the definition of a crime or the penalty for conviction
of a crime.
-- END --