BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1176|
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UNFINISHED BUSINESS
Bill No: SB 1176
Author: Galgiani (D) and Hueso (D), et al.
Amended: 8/19/16
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE: 12-0, 4/12/16
AYES: Hall, Berryhill, Block, Gaines, Galgiani, Glazer,
Hernandez, Hill, Hueso, Lara, McGuire, Vidak
NO VOTE RECORDED: Runner
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SENATE FLOOR: 38-0, 5/31/16
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block,
Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,
Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,
Lara, Leno, Leyva, Liu, McGuire, Mendoza, Monning, Moorlach,
Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone, Vidak,
Wieckowski, Wolk
NO VOTE RECORDED: Mitchell, Runner
ASSEMBLY FLOOR: 73-0, 8/19/16 - See last page for vote
SUBJECT: Small Business Procurement and Contract Act:
business size
SOURCE: Author
DIGEST: This bill revises the definition of small business and
microbusiness for purposes of the Small Business Procurement and
Contract Act (Act) by increasing the dollar amount threshold for
a small business to $15 million and for a microbusiness to $5
SB 1176
Page 2
million and requires those dollar amounts to be adjusted to
reflect changes in the California Consumer Price Index (CPI)
biennially. In addition, this bill revises the definition of
small business by specifying that, for the purposes of public
works contracts, a small business means a business with 200 or
fewer employees and average annual gross receipts of $25 million
or less over the previous three years.
Assembly Amendments (1) add Assembly Member Gonzalez as
coauthor, and (2) add language which incorporates amendments
should this bill and SB 1219 (Hancock, 2016) both be enacted.
ANALYSIS:
Existing law:
1)Grants, through the Act, preference for small businesses and
microbusiness in the award of a contract for goods, services,
or information technology to the state and in the construction
of state facilities.
2)Permits a state agency and the California State University to
award specified types of contracts with a value of between
$5,000 and $250,000 to a certified small business, including a
microbusiness and a disabled veteran business enterprise,
without complying with certain competitive bidding
requirements, provided the agency obtains price quotations
from at least 2 small businesses, including microbusinesses,
or 2 disabled veteran business enterprises.
3)Establishes the Office of Small Business and Disabled Veteran
Business Enterprise Services and prescribes duties for the
office, which include maintaining a bidders list of small
businesses and disabled veteran businesses and identifying
which small businesses also qualify as microbusinesses.
4)Prescribes penalties for small businesses or microbusinesses
that provide incorrect information or withhold information
that leads to its incorrect classification as such an entity
and is awarded a contract because of the classification.
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Page 3
Penalties include the repayment of the amount of the bid
preference, in addition to a penalty up to 10% of the contract
amount, reimbursement of the costs of investigating the fraud,
prohibiting the business to participate in state contracts for
between 3-10 years, and, if the fraud is found to be willful
and knowing, the business is subject to a civil penalty of
between $10,000-$30,000 for the first offense, and
$30,000-$50,000 for subsequent offenses.
5)Defines a "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 100 or fewer
employees, and average annual gross receipts of $10 million or
less over the previous three years, or is a manufacturer, as
defined, and has 100 or fewer employees.
6)Defines a "microbusiness" as a small business which, together
with affiliates, has average annual gross receipts of $2.5
million or less over the previous three years, or is a
manufacturer, as defined, with 25 or fewer employees.
7)Defines a "disabled veteran business enterprise " (DVBE) to
mean an enterprise that is at least 51% owned by one or more
disabled veterans and the daily business operations are
managed and controlled by one or more disabled veterans. For
certification purposes a "disabled veteran" is a veteran of
the U.S. military, naval, or air service who resides in
California and has a service-connected disability of at least
10% or more.
8)Requires the Director of General Services (DGS) to conduct a
biennial review of the average annual gross receipt levels and
authorizes the Director to adjust the average annual gross
receipts threshold to reflect changes in the California CPI
index for all items.
9)Requires a contractor requesting a small business or
microbusiness preference to do so under penalty of perjury.
This bill:
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1)Revises the definition of "small business" and "microbusiness"
for purposes of the Act by increasing the dollar amount
threshold for a small business to $15 million and for a
microbusiness to $5 million and requires those dollar amounts
to be adjusted to reflect changes in the CPI.
2)Revises the definition of "small business" by specifying that,
for the purposes of public works contracts, a small business
means a business with 200 or fewer employees and average
annual gross receipts of $25 million or less over the previous
three years.
3)Defines "public works contracts" to mean contracts awarded
through competitive bids or otherwise for the erection,
construction, alteration, repairs, or improvement of any kind
upon real property.
4)Allows DGS and other state agencies to count contractors that
would be considered a small business or microbusiness under
the changes made by this bill for the year in which this
subdivision takes effect if the directors are unable to meet
the small business participation goals under existing laws.
5)Allows more contractors to qualify as a small business or
microbusiness, thus expanding the group of contractors
authorized to request a preference filed under penalty of
perjury.
6)Includes language which incorporates amendments should this
bill and SB 1219 (Hancock, 2016) both be enacted.
7)Makes various findings and declarations pertaining to the
importance of small businesses in the State of California.
Background
Purpose of the bill. According to the author, "the proposed
adjustment takes into consideration inflation, the benefits of
increased competition as more small businesses become eligible
SB 1176
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for state contracting preferences and the recognition that the
state, with $29.5 billion in unissued general obligation bonds
for infrastructure projects, is currently inconsistently meeting
its 25% small business participation goal. And, with the state
engaging in massive, costly and lengthy construction projects,
the current revenue limits may disqualify many relatively small
businesses after they receive their first substantial
subcontracts."
Current Thresholds. Current law defines a small business as,
among other things, an independently owned and operated business
with average annual gross receipts of $10 million or less over
the previous three years. It defines a microbusiness as, among
other things, a small business with average annual gross
receipts of $2.5 million or less over the previous three years.
However because current law allows the Director of DGS to
adjust the average annual gross receipts threshold to reflect
changes in the CPI the current threshold for a small business is
$14 million and $3.5 million for microbusinesses. As of
December 2015, there were 26,404 businesses in California which
DGS had certified as small businesses for purposes of the Act.
It is unclear how many more businesses would qualify as small
businesses with a $25 million threshold for public works
contracts. However, it should be expected that businesses which
currently qualify as small businesses would face competition
from businesses that would now qualify under the provisions of
this bill.
Participation Goals. On March 29, 2006, Executive Order S-02-06
by Governor Schwarzenegger established a minimum participation
goal of 25% for small businesses/microbusinesses and directed
DGS to monitor the progress of all agencies, departments, boards
and commissions towards meeting the 25% small business
participation goal. It should be noted that there is currently
no microbusiness participation goal; rather the 25%
participation goal for small businesses is a combination of
small businesses and microbusinesses. Also, though DGS
implements various strategies to aid departments' achievement of
their participation goals, there is no statutory penalty for not
meeting the goal.
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Every year, DGS releases a Consolidated Annual Report (CAR) on
contracting dollars that state departments award to small
businesses. There are 154 mandatory reporting departments,
those that are under DGS' statutory purchasing authority, that
are required to report and another 31 state departments that
report voluntarily, departments that are not under DGSs
statutory purchasing authority.
According to the 2014-15 CAR, mandatory reporting departments
exceeded the statewide goal; reporting 25.61% participation by
small businesses/ microbusinesses. It should be noted that the
report does not give a detailed breakdown of small
businesses/microbusinesses, but rather the 25.61% is a
combination of both small businesses/microbusinesses for
mandatory reporting departments. Over the last five years, the
average for all mandatory state departments has been 24.78% with
a high of 28.35% in fiscal year 2013-14 and a low of 22.12% in
fiscal year 2010-2011.
Related/Prior 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 Act
for the purpose of allowing them to participate in state
contracting bid preferences provided to certified small business
enterprises. (Pending on the Senate Floor)
AB 1218 (Weber, 2015) makes significant adjustments to
contracting performance goals and program participation
reporting associated with the DVBE Program. (Held on the Senate
Suspense File)
AB 1568 (Grove, 2014) would have required state agencies that
opt to acquire goods, services, or information technology
through a specified small business /DVBE contracting option to
solicit at least three quotes, and obtain at least two quotes
before awarding the contracts. (Held on the Senate Suspense
File)
SB 297 (Roth, 2014) would have increased the annual statewide
SB 1176
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participation goal for DVBE state contracts from 3% to 5%.
(Held in Assembly Jobs, Economic Development and the Economy
Committee)
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Assembly Appropriations Committee, one-time
General Fund costs, in the range of $5.5 million to $7.5
million, to make programming changes to FI$Cal to modify system
functionality to the new category of small business in the
processing of procurements. As a point of comparison, developing
the certification systems for the small business and disabled
veteran business enterprise programs cost roughly $8 million.
In addition, ongoing administrative costs to DGS of
approximately $270,000 (special funds) to support two positions
to handle additional workload associated with the new
subcategory of contractors on public works projects.
Finally, DGS indicates the costs of raising the threshold for
small businesses and microbusinesses are minor and absorbable.
SUPPORT: (Verified8/24/16)
California Hispanic Chamber of Commerce
Coalition of Small and Disabled Veteran Businesses
Greater Los Angeles African American Chamber of Commerce
Los Angeles County Business Federation
Los Angeles Latino Chamber of Commerce
OPPOSITION: (Verified8/24/16)
None received
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Page 8
ARGUMENTS IN SUPPORT: According to the Los Angeles County
Business Federation, "California State Departments already have
trouble meeting their small business goals due to the lack of
small business firms available for large infrastructure
projects. With billions more in infrastructure projects in
development, it will take more than 500-600 qualified small
businesses to be certified under the current standards to be
able to complete for planned mega-projects. The departments
responsible for these projects will not be able to meet their
small business goals with the current pool of small businesses."
ASSEMBLY FLOOR: 73-0, 8/19/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos,
Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh,
Dahle, Daly, Eggman, Frazier, Beth Gaines, Gallagher, Eduardo
Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove,
Hadley, Harper, Roger Hernández, Irwin, Jones, Jones-Sawyer,
Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes,
McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen,
Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Rendon
NO VOTE RECORDED: Bigelow, Dodd, Cristina Garcia, Holden, Kim,
Mathis, Obernolte
Prepared by:Felipe Lopez / G.O. / (916) 651-1530
8/25/16 17:45:10
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