BILL ANALYSIS Ó
SB 1219
Page 1
Date of Hearing: June 21, 2016
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
SB
1219 (Hancock) - As Amended May 31, 2016
SENATE VOTE: 38-0
SUBJECT: Small Business Procurement and Contract Act: employment
social enterprises
SUMMARY: Establishes a new procurement preference for employment
social enterprises under the Small Business Procurement and Contract
Act, as specified. In implementing this new preference, this bill:
1)Defines an employment social enterprise to mean a for-profit
business or nonprofit business that earns a majority of its
enterprise revenue from the production of goods and services and
that demonstrates evidence in its articles of incorporation, bylaws,
or both, of its mission to provide employment with on-the-job and
life skills training to a direct labor force that is comprised of a
majority of individuals who face significant barriers to employment.
2)Defines "individuals who face significant barriers to employment" as
one or more of the following:
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a) Individuals who have recently been released from a federal,
state, or local correctional facility, or a person who, while not
recently incarcerated, has a criminal record or history.
b) Individuals who are, or have been, homeless, as defined by the
U.S. Department of Health and Human Services as of January 1,
2016.
c) Youth and young adults between 16 and 24 years of age,
inclusive, who lack a high school diploma, are not enrolled in
school, and are unemployed.
3)Expands the duties of state agencies to include the setting of
procurement goals to employment social enterprises. In addition,
state agencies are required to give the same special consideration
for employment social enterprises as currently provided to small and
microbusinesses by reducing the experience required and the level of
inventory normally required for state contracting, among other
potential adjustments.
4)Authorizes a 5% employment social enterprise preference for bid
packages applying for a state contract, including a contract with
the California State University. This is an identical provision to
the small business and microbusiness preference: a single preference
which may not exceed $50,000 or when added to other preferences, the
total value cannot exceed $100,000.
5)Authorizes a state agency to use the streamlined contracting process
for directly contracting with an employment social enterprise for
contracts between $5,000 and $250,000, as specified. This is the
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same process as used for small businesses and microbusinesses.
6)Provides that the employment social enterprise preference is
eligible to apply to contracts for goods, information technology,
services, and construction, as specified.
7)Provides that a bid including an employment social enterprises have
precedence over bids that do not include at least a small business,
microbusiness, or employment social enterprise. In other words,
when there are two bids of equal ranking, the bid will be awarded to
the bidder that includes at least one of the procurement preference
entities authorized under the Small Business Procurement and
Contract Act.
8)Expands the duties of the Office of the Small Business and Disabled
Veteran Business Enterprise Services to include support to
employment social enterprises, including, but not limited to,
compiling and maintaining a comprehensive bidders list of qualified
employment social enterprises; assisting employment social
enterprises comply with bidding procedures; and making an effort to
develop certification application that can be adopted by cities,
counties, and special districts.
9)Applies the same certification, investigation, and penalty process
as those for the small business and microbusiness preference under
the Small Business Procurement and Contract Act.
10)Provides that the Department of General Services (DGS) is solely
responsible for certifying and determining eligibly of employment
social enterprises, in the same way that they are solely responsible
for small businesses and microbusinesses.
11)Makes related changes to legislative intent and findings and
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declarations.
12)Specifies that the changes to the state procurement process made by
this bill become operative on July 1, 2017.
EXISTING LAW:
1)Designates the DGS as the administrator of the state Small Business
Procurement and Contract Act, which includes certifying and
implementing targeted preference programs for certified small
businesses, microbusinesses, and disabled veteran owned business
enterprises (DVBEs).
2)Authorizes a 5% preference for state contract bidders that are
either a certified small business, microbusiness, or a larger
business that commits to using a certified small business or
microbusiness in undertaking the contract. This 5% is calculated
based on the bid of the lowest responsible bidder, which may be a
small or non-small business.
3)Authorizes a 5% Target Area Contract Preference (TACPA) for a state
contract bidder that agrees to perform the contract work in a
designated "distressed area" and 1% to 4% workforce bid preference
in specified state service and commodity contracts valued in excess
of $100,000.
4)Authorizes contracting departments to offer a DVBE incentive. The
application of an incentive varies from that of the small business
and TACPA both in terms of when it is applied to the bid review
process and how the incentive percentages are determined and
calculated. Unlike preferences where there is a 5% standardized
value included in competitive solicitations, discretion is left to
departments to determine incentive percentages for a particular
transaction based upon a business strategy to achieve their annual
3% DVBE procurement participation goal.
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5)Defines a small business, for the purpose of being eligible for
state small business procurement contract bid preferences, as
independently owned, not dominant in its field of operation,
domiciled in California, employing 100 or fewer employees, and
earning $10 million or less in average annual gross revenues for the
three previous years.
6)Defines an "individual with employment barriers," under the state
Workforce and Innovation Opportunity Act (WIOA), to mean an
individual with any characteristic that substantially limits an
individual's ability to obtain employment, including indicators of
poor work history, lack of work experience, or access to employment
in nontraditional occupations, long-term unemployment, lack of
educational or occupational skills attainment, dislocation from
high-wage and high-benefit employment, low levels of literacy or
English proficiency, disability status, or welfare dependency,
including members of all of the following groups:
a) Displaced homemakers;
b) Low-income individuals;
c) Indians, Alaska Natives, and Native Hawaiians, as specified;
d) Individuals with disabilities;
e) Older individuals;
f) Ex-offenders;
g) Homeless individuals, as defined in Section 14043e-2(6) of
Title 42 of the United States Code, or homeless children and
youths, as defined in Section 11434a(2) of Title 42 of the United
States Code;
h) Youth who are in, or have aged out of, the foster care system;
i) Individuals who are English language learners;
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j) Eligible migrant and seasonal farmworkers, as defined;
aa) Individuals within two years of exhausting lifetime
eligibility under Part A of Title IV of the Social Security Act
(42 U.S.C. Sec. 601 et seq.);
bb) Single parents, including single, pregnant women;
cc) Long-term unemployed individuals;
dd) Any other groups, as determined by the Governor.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAME
SB 1219 would establish a new category of procurement preference for
employment social enterprises. While a worthy public policy, the bill
models the new preference after the state small business procurement
program. This design creates certain implementation issues around
oversight and ensuring that the entities meet the outcomes anticipated
when the contract was awarded. An additional challenge is that
California already has an employment-based incentive for contracts
undertaken in low-income distressed communities.
These issues, however, are implementation considerations and do not
necessarily distract from the importance of using state resources to
address California's growing income inequality. The analysis includes
background on the need to create a more inclusive economy, the Small
Business Procurement and Contract Act, the Target Area Procurement
Preference, and research on social enterprises. Amendments are
discussed in Comment #12.
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COMMENTS:
1)Author Purpose: According to the author, "State and local
governments are facing formidable challenges in supporting economic
stability and security among some of its most vulnerable
populations. Employment social enterprises are mission-driven
businesses focused on hiring and assisting people who face the
greatest barriers, including people who have been incarcerated,
homeless, youth disconnected from school or work, and individuals
with disabilities. SB 1219 will help employment social enterprises
compete for government contracts under the small business preference
and create more jobs for people who might otherwise not have the
opportunity and provide those employed with a supportive work
environment where they build their skills and abilities.
Right now many non-profit or for-profit employment social
enterprises do not meet the current small business certification
criteria because:
They have more than 100 employees with jobs and employment
training annually;
Their gross receipts can exceed the limit if they are part of
a larger non-profit corporation.
If they are a non-profit social enterprise, there is not a
private owner or shareholder board."
1)The Role of Small Businesses within the California Economy:
California's dominance in many economic areas is based, in part, on
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the significant role small businesses play in the state's $2.4
trillion economy. Two separate studies, one by the U.S. Census
Bureau and another by the Kaufman Foundation, found that net job
growth was strongest among businesses with less than 20 employees.
Among other advantages, small businesses are crucial in the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy.
Nonemployer firms make up the single largest component of businesses
in California, 2.9 million out of an estimated 3.8 million firms in
2013, with the highest number of businesses (515,814) in the
professional, scientific, and technical services industry sector.
As these non-employer businesses grow, they continue to serve as an
important component of California's dynamic economy. Excluding
nonemployer firms, businesses with less than 20 employees comprise
nearly 90% of all businesses and employ over 18% of all workers.
These non-employer and small employer firms create jobs, generate
taxes, and revitalize communities.
In hard economic times, smaller size businesses often function as
economic engines. In this most recent recession the trend
continued, with the number of nonemployer firms increasing from 2.6
million firms ($137 billion in revenues) for 2008 to 3.1 million
firms ($162.4 billion in revenues) for 2014. In the post-recession
economy, small businesses are expected to become increasingly
important due to their ability to be more flexible and better suited
to meet niche market needs. Their small size, however, results in
certain challenges in meeting regulatory requirements, accessing
capital, competing for large-size contracts and marketing their
goods and services.
SB 1219 would establish a new category of procurement preference for
employment social enterprises. The bill models the new preference
after the state small business procurement program. This design
creates certain implementation issues around oversight and how to
ensure that the entities meet the social and economic outcomes
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anticipated when the contract is awarded. In the case of a small
business, the public policy is to support California companies with
revenues within certain limits. These requirements can be factually
demonstrated by income tax returns, among other documentation. In
the case of an employment social enterprise, the public policy is
about who the company hires and the types of activities that will be
provided for the benefit of those individuals. While documents like
the articles of incorporation can state that this is the mission of
the business, in order to achieve the anticipated public policy goal
more needs to be known about the business' current and future
activities.
2)Growing Income Inequality: California's overall economic growth and
increase in jobs has outpaced the U.S. in general, often ranking the
state within the top five states in terms of its economic condition.
Most recently, the Department of Finance has announced that
California has the sixth largest economy in the world. This
success, however, has not been consistent throughout the state with
many regions and certain population groups still experiencing
recession-related poor economic conditions.
According to the U.S. Census Bureau, California's poverty rate is
16.4% as compared to a national rate of 15.6%. It is estimated that
nearly a quarter of California's children (22.7%) are living in
households with annual incomes below the federal poverty line. A
significant contributing factor to these poverty rates are the
education and basic skill deficit of many Californians from rural
and inner city areas, historically underserved population groups,
and those who are more recently encountering employment challenges,
including returning veterans.
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A review of the February 2016 unemployment numbers illustrates this
expanding pattern of economic disparity between regions and
population groups in California.
------------------------------------------------------------------
| Unemployment February 2016 (not seasonally adjusted) |
| |
| |
------------------------------------------------------------------
|--------------+---------------+-+----------------+----------------|
| | Unemployment | | | Unemployment |
| | Rate | | | Rate |
| | | | | |
| | | | | |
|--------------+---------------+-+----------------+----------------|
|California | 5.7% | |California | 5.7% |
| | | | | |
| | | | | |
|--------------+---------------+-+----------------+----------------|
|Colusa County | 21.6% | |Blacks | 10.8% |
| | | | | |
| | | | | |
|--------------+---------------+-+----------------+----------------|
|Imperial | 18.6% | |Hispanics | 7.4% |
|County | | | | |
| | | | | |
| | | | | |
|--------------+---------------+-+----------------+----------------|
|Los Angeles | 5.5% | |Whites | 5.8% |
|County | | | | |
| | | | | |
| | | | | |
|--------------+---------------+-+----------------+----------------|
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|Orange County | 4.0% | |16 to 19 year | 20.5% |
| | | |olds | |
| | | | | |
| | | | | |
|--------------+---------------+-+----------------+----------------|
|Riverside | 5.9% | |20 to 24 year | 10.9% |
|County | | |olds | |
| | | | | |
| | | | | |
|--------------+---------------+-+----------------+----------------|
|San | 5.6% | |25 to 34 year | 6.2% |
|Bernardino | | |olds | |
|County | | | | |
| | | | | |
| | | | | |
------------------------------------------------------------------
-------------------------------------------------------------------
|San Mateo | 3.0% | | |
|County | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | |Source: California Employment |
| | | |Development Department |
| | | | |
| | | | |
-------------------------------------------------------------------
|Tulare County | 12.1% | | |
| | | | |
| | | | |
|--------------+---------------+-+----------------------------------|
|Ventura | 5.1% | | |
|County | | | |
| | | | |
| | | | |
-------------------------------------------------------------------
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While the state's unemployment rate for February 2016 (not
seasonally adjusted) was 5.7%, some areas of the state had lower
rates, while others were considerably higher. San Mateo County
recorded the lowest at 3.0% and Colusa County experienced the
highest unemployment rate at 21.6% and Imperial County the second
highest at 19.8%. Under the provisions of the federal Workforce
Innovation and Opportunity Act, high unemployment is considered any
rate above 6.5%.
Looking more specifically at different population groups, the data
also shows the great discrepancies between the statewide rate and
key subgroups, including unemployment among Blacks and Hispanics
being 10.8% and 7.4% respectively. For the youngest members of the
workforce obtaining quality jobs remains a significant issue, with
unemployment among 16 to 24 years being well above the state
average, ranging from 20.5% to 10.9%. According to February's
figures, one-in-five of California's next generation of workers is
unemployed.
3)Workforce Disparities: Approximately 18.9 million of the 39 million
people in California are considered to be within the state's
workforce. Unrelenting unemployment and deepening poverty are a
reality for many Californians and without comprehensive, thoughtful,
and strategic intervention, the economic disparity within the state
will only increase.
a) Out-of-School Youth: Approximately 27% of California's
workforce is between the ages of 16-24. In 2014, 7.3% of all
California teens age 16-19 were not attending school and not
working. For 18 to 24 year olds, 15% were not attending school,
not working, and had no degree beyond high school . Since 2000,
the number of school age youth in California who are neither
working nor taking a class has increased by 35%.
b) English as not a Primary Language: Among California's
population over the age of 5, 43.8% (15.5 million people) speak a
language other than English at home. Of these people, 43.7%
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speak English less than "very well." In the 2014-15 school
year, English learners comprised 28.4% of California drop-outs.
c) Formerly Incarcerated: Roughly 8 million or 27.8% of
Californians over the age of 18 had a criminal record on file
with the state in 2012.
d) Veterans: California has the largest veteran population in
the U.S., with an estimated 2.2 million veterans in 2010. More
recent data shows that 5.5% of the state's population over the
age of 18 is a veteran and that 7.4% veterans live on incomes
below the federal poverty line. Approximately 16.3% of veterans
report a service-related disability and 26.3% of veterans have
some level of a disability. In January 2016, unemployment among
veterans was 6.1% as compared to 5.7% in California and 4.9%
nationally.
e) Farmworkers: Migrant workers comprise only 33% of California
farmworkers, meaning a majority of farmworkers live and work in
the same community. However, 61% of Farmworkers in 2003-2004
reported they worked in their current employment on a seasonable
basis.
f) Individuals with Disabilities: Just over 10% of California's
population is reported to the U.S. Census as disabled. The
unemployment rate among individuals with a disability in July
2015 was more than twice the statewide average, 13.1% v. 6.2%.
The Whitehouse Council on Economic Advisors reported that between
2010 and 2012, people with disabilities were underrepresented in
16 of the 20 fastest-growing occupations and overrepresented in
the 17 of the 20 fastest-declining occupations.
g) Homeless: There are an estimated 117,524 homeless in
California in 2016; an increase of 1.6% from the 2015
Point-in-Time Counts done by the National Alliance to End
Homeless. There were 259,000 homeless children enrolled in
public schools in California in the 2012-13 term. Only 36%
tested as proficient in English and 41% in Math in 8th grade.
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h) Unskilled and under-skilled: The highest level of education
for nearly half (47.1%) of the California's long-term unemployed
was a high school diploma or less. 29.1% of the long-term
unemployed had a high school diploma and no college experience;
and 18.0% of the state's long-term unemployed had less than a
high school diploma. According to a PPIC report "there are a
variety of reasons for failure to find employment, including
insufficient training and a lack of jobs." PPIC estimates suggest
that members of minority groups (blacks, Asians, and Latinos) are
twice as likely as whites to be discouraged workers. Similarly,
less-educated workers are twice as likely as college graduates to
be discouraged workers, and young workers (25 and under) are much
more likely than older workers (above age 45) to be discouraged.
SB 1219 proposes to utilize an employment social enterprise model to
address California's growing workforce disparities. As currently
drafted, SB 1219 would only provide a procurement incentive to
businesses whose mission it is to hire individuals who face certain
barriers to employment, but not others. Those individuals include
formerly incarcerated individuals, homeless and the formerly
homeless, and individuals between the age of 16 and 24 who have no
high school diploma.
Clearly these individuals face significant barriers to employment.
It is unclear, however, why similar benefits shouldn't be extended
to business entities that hire other individuals who face barriers
to employment. Under the state's WIOA, there are 13 groups of
individuals (listed under Existing Law) who face barriers to
employment. In general, the WIOA list is inclusive of the SB 1219
groups of targeted individuals, but also include veterans,
farmworkers, and the long-term unemployed. The Governor also has
the authority to add to the categories of individuals to the WIOA
list, based on state conditions. Perhaps it would be appropriate to
aligning the new employment training preference with state workforce
policy.
4)California's Existing Employment Preference: SB 1219 proposes to
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establish of a new category of procurement preferences for entities
that provide quality training opportunities to historically hard to
serve populations. This new preference is similar, but not
identical to the existing TACPA preference.
The TACPA provides a 5% procurement preferences for bidders and
subcontractors who commit to completing at least 50% of the contract
at a worksite(s) located in a distressed area. A distressed area is
defined as a geographic location that falls in the top quartile of
census tracts for having the highest unemployment and poverty. The
Department of Finance annually designates these census tracts. An
additional 1% to 4% preference can be applied if the bidder commits
to hire workers who are at high risk of unemployment. The
percentage of the preference increases as the percentage of the
hours worked by the individuals with high risk of unemployment go
up.
Bidders interested in applying the TACPA preference must be a
California based business or corporation. There is no limit under
TACPA on the number of employees or gross revenues of the
businesses. State preferences and incentives (DVBE incentive) are
often combined, meaning a single bid may include preferences for a
small business being a participant, as well as having the contract
work being completed in a distressed community by individuals who
are at high risk of unemployment. The TACPA workplace and workforce
preferences provide a 9% preference, which can be very helpful when
bidding for state contracts. A more in-depth explanation of this
process is included the following Comment.
As noted above, SB 1219 proposes to establish of a new category of
procurement preferences which is both similar and different than the
TACPA. Below is a comparison of the current and proposed
preference.
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---------------------------------------------------------------------
| Comparison of the Workforce Procurement Preference in SB 1219 with |
| Existing Workforce Preference |
| |
| |
---------------------------------------------------------------------
|------------------------------------------+----------+---------------|
| | TACPA | SB 1219 - |
| | | Employment |
| | | Social |
| | | Enterprise |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Is limited to California-based entities | Yes | No |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Has no limits on the number of employees | Yes | Yes |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Preference available to For-profit | Yes | Yes |
|businesses | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Preference available to nonprofit | No | Yes |
|businesses | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Applies to state contracts for goods and | Yes | Yes |
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|services | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Applies to state contracts for | No | Yes |
|information technology and construction | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Requires work to be completed in an | Yes | No |
|Economically Distressed Community | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Requires labor for state contracts to | Yes | Yes |
|include individuals who face barriers to | | |
|employment | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Target Population: Individuals eligible | Yes | Some covered |
|for federal Workforce Credit, including | | |
|economically disadvantaged youth, | | |
|economically disadvantaged Vietnam-era | | |
|veterans, economically disadvantaged | | |
|ex-convicts, vocational rehabilitation | | |
|referrals, youth participating in a | | |
|qualified cooperative education program, | | |
|recipients of supplemental security | | |
|income benefits under Title XVI of the | | |
|Social Security Act, general assistance | | |
|recipients, and individuals eligible for | | |
|CalWORKS. | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Target Population: Veterans | Some | No |
| | Covered | |
| | | |
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| | | |
|------------------------------------------+----------+---------------|
|Target Population: Formerly Incarcerated | Yes | Yes |
| | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Target Population: Homeless and Formerly | Yes | Yes |
|Homeless | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Target Population: Individuals receiving | Yes | No |
|Supplemental Nutrition Assistance Program | | |
| | | |
| | | |
|------------------------------------------+----------+---------------|
|Target Population: At-Risk Youth | Yes | Yes |
| | | |
| | | |
| | | |
| | | |
| | | |
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5)How State Procurement Preferences Work: In order to assist agencies
in reaching state participation goals, bidders for state contracts
may include procurement preferences. The value of any single 5%
preference is limited to $50,000 and the combined value of two or
more preferences cannot exceed 15% or $100,000, whichever is lower.
The state currently recognizes two preferences based on the type of
business and one preference based on the location of the business
and employees who undertake contract work. Business type
preferences include a 5% preference for bids that include a small
business or microbusiness as either a prime or subcontractor. The
geographically-based TACPA provides a 5% preference for completing
the contract in an economically distressed area and up to an
additional 4% for hiring economically disadvantaged workers.
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The state also offers a DVBE business incentive, which is similar to
a preference, but the exact percentage value is determined by the
contracting entity on a per bid basis and applied at a different
point in the bid review process than the 5% procurement preference
process. It is not uncommon for a bidder to apply a combination of
preferences, as well as the DVBE incentive in his or her bid
package.
When a small business preference is claimed, it is calculated as 5%
of the net bid price of the lowest responsible bidder. As an
example, Bidder A is the lowest responsible bidder with a $5 million
bid and does not qualify for the small business preference. The
contracting agency would multiply $5 million by 0.05 = $250,000 to
establish the maximum value of the preference. Because of the
financial cap, the total value of the preference would be limited to
$50,000.
Bidder B is a certified small business and submits a $5.1 million
bid. In evaluating Bidder B's bid price, the contracting department
would subtract the preference adjustment from the net bid price
($5.1 million - $50,000 = $5.05 million). In this example, under
existing law, the nonsmall business bidder, Bidder A, would be
awarded the contract because the value of the incentive is
insufficient to compete with the lowest bid.
If, however, Bidder B also committed to complete the contract in an
economically distressed area, an additional $50,000 preference would
be added to calculation of the adjusted bid price. This second
preference would be sufficient to meet the value of the lowest
responsible bidder. More specifically, Bidder B's adjusted bid
would be $5 million, which is the same as Bidder A. All things
being equal, the bid goes to the lowest responsible bid after
applying preferences which is lower than Bidder A's $5 million bid
($5.1 million - $100,000).
While utilizing two 5% preferences was sufficient to have the small
business be awarded the contract in this example, sometimes the
differences between bids are larger. The $50,000 individual cap and
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the $100,000 combined cap are generally out of scale when competing
for the larger state contracts. Please note the preference and
incentive do not change the actual bid price, the calculations are
performed in order to compare and rank bids.
6)Small Business Procurement Act: The Small Business Procurement Act,
administered through DGS, was implemented more than 30 years ago to
establish a small business preference within the state's procurement
process that would increase the number of contracts between the
state and small businesses. A DBVE component was added in 1989.
Today, approximately 80% of DVBEs have dual certification as a small
business or microbusiness.
The Small Business Procurement Act states that it is the policy of
the State of California that the state aid the interests of small
businesses in order to preserve free competitive enterprise and to
ensure that a fair portion of the total purchases and contracts of
the state be placed with these enterprises. The statute further
states that DVBE participation is strongly encouraged to address the
special needs of disabled veterans seeking rehabilitation and
training through entrepreneurship, and to recognize the sacrifices
of California's disabled military veterans. Statute sets an annual
3% DVBE participation goal, and a 2010 executive order sets a 25%
goal for small businesses and microbusinesses.
The charts below show small business and microbusiness aggregate
procurement participation rates for fiscal years 2011-12, 2012-13,
and 2013-14 for mandatory reporting agencies (including Caltrans).
-------------------------------------------------------------------
| Small Business and Microbusiness Contracting Activity - Mandated |
| Reporters |
-------------------------------------------------------------------
|-------------+-------------+-------------+-------------+-------------|
| Fiscal year | Total | Total Small | Total |Total Number |
| | Contract |Business and | Percent |of Contracts |
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| | Dollars |Micobusiness | | |
| | | Contract | | |
| | | Dollars | | |
|-------------+-------------+-------------+-------------+-------------|
|2013-14 |$7,101,433,43|$2,013,377,79| 28.35% | 90,784 |
| | 3| 2| | |
|-------------+-------------+-------------+-------------+-------------|
|2012-13 |$7,616,142,07|$1,801,695,54| 23.66% | 105,617 |
| | 1| 7| | |
|-------------+-------------+-------------+-------------+-------------|
|2011-12 |$7,399,022,42|$1,796,451,72| 24.28% | 165,523 |
| | 5| 2| | |
|-------------+-------------+-------------+-------------+-------------|
|Average |$7,372,199,31|$1,870,508,35| 25.43% | 120,641 |
| | 0| 4| | |
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| 2013-14 DGS Statewide Consolidated Annual Report|
| |
| |
| |
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Unfortunately, participation rates have not been as high as desired,
with state agencies meeting the 25% small business goal in only five
out of the last 15 report years. Further, in comparing year to year
numbers, it is important to note that not all of the mandatory
reporting agencies provide annual data to DGS for inclusion in the
report. As an example, only 80% of the mandatory reporters provided
data for 2013-14.
7)Increasing Small Business and DVBE Procurement Participation: Every
year, Members of the Legislature introduce a range of bills to
improve outreach and increase targeted preferences to increase small
business participation in state contracting. Over the years, direct
and innovative approaches have been added including mandating small
business and DVBE liaisons at every agency, establishing official
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state-level Small Business and DVBE Advocates, and continually
trying to update the state automated procurement platform (F$SCAL).
Among other challenges is the high concentration of contracting
within a few departments including several which bid contracts for
specialized services. According to the 2013-14 Statewide
Consolidated Annual Report, by DGS, the top 10 contracting agencies
awarded more than 83% of contract dollars in 2013-14. The data
suggests that having department specific strategies to increase
small business participation will be required to consistently meet
the 25% goal.
In 2013-14, 61% of all state contracts were awarded by the
Department of Corrections (SDCR), the Department of Transportation,
and the Department of Health Care Services (DHCS). This means that
regardless of the efforts of the California School Finance Authority
(88.04% of the $99.677 contracts awarded) and California
Transportation Commission (89.44% of the $14,291 in contracts
awarded), the state's largest contracting entities must do a better
job of contracting with small businesses and microbusiness if the
state is going to consistently meet its mission of offering small
businesses meaningful procurement opportunities. The chart below
shows information on the contracting activities of the top 10
contracting departments for 2013-14.
-------------------------------------------------------------------
| Top 10 Contracting Agencies in 2013-14 |
-------------------------------------------------------------------
|-------------+----------+-----------+----------------+-------------|
| Departments | Total | Percentage| Small Business | DVBE |
| | Contact | of | and | Participatio|
| | Dollars | Statewide | Microbusiness | n |
| | | Spending | Participation | Percentage |
| | | | Percentage | |
|-------------+----------+-----------+----------------+-------------|
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| All |$7,372,199| 100% | 28.35% | 3.67% |
| Mandatory | ,310| | | |
| Reporters | | | | |
|-------------+----------+-----------+----------------+-------------|
| Corrections |$2,196,722| 30.93% | 36.03% | 3.60% |
| and | ,703| | | |
|Rehabilitatio| | | | |
| n | | | | |
|-------------+----------+-----------+----------------+-------------|
|Transportatio|$1,0174,83| 15.14% | 28.24% | 3.70% |
| n | 3,768| | | |
|-------------+----------+-----------+----------------+-------------|
| Health Care |$1,069,021| 15.05% | 2.36% | 0.45% |
| Services | ,018| | | |
| (DHCS) | | | | |
|-------------+----------+-----------+----------------+-------------|
| State | $553,519,| 7.79% | 49.17% | 2.12% |
| Hospitals | 167| | | |
|-------------+----------+-----------+----------------+-------------|
| Water | $351,102,| 4.94% | 19.79% | 2.62% |
| Resources | 439| | | |
|-------------+----------+-----------+----------------+-------------|
| Highway | $234,348,| 3.30 | 12.28 | 1.72 |
| Patrol | 394| | | |
|-------------+----------+-----------+----------------+-------------|
| General | 135,233,| 1.90% | 42.23% | 10.49% |
| Services | 255| | | |
|-------------+----------+-----------+----------------+-------------|
| Parks and | 123,503,| 1.74% | 31.49% | 6.76% |
| Recreation | 810| | | |
|-------------+----------+-----------+----------------+-------------|
| Motor | 111,305,| 1.57% | 25.09% | 6.55% |
| Vehicles | 071| | | |
|-------------+----------+-----------+----------------+-------------|
| Public | $99,350,| 1.40 | 12.34 |3.34 |
| Utilities | 011| | | |
| Commission | | | | |
|-------------+----------+-----------+----------------+-------------|
| Top 10 |$5,975,205| 83.77% | 27.35% | 3.02% |
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| Total | ,480| | | |
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| Source: 2013-14 Statewide Consolidated Annual Report prepared |
|by DGS |
| |
| |
| |
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In 2013-14, as shown above, DHCS contracted with small business for
only 2.36% of its contracting activities. In fact, the Health and
Human Services Agency had the lowest overall small business and
microbusiness participation rates among all other agencies in the
state. If California is going to meet and exceed its small business
and DVBE goals, high contract volume agencies like Department of
Transportation will need to substantially exceed the 25% and 3%
targets.
SB 1219 proposes a new category of procurement preference.
Currently there are no aggregate-level reporting requirements
associated with this preference as there are for small businesses.
Microbusiness, and DVBEs.
8)Background on Social Enterprises: The social enterprise model
combines entrepreneurial activity with a social purpose. Because
they prioritize social impact over the need to maximize profit for
owners or shareholders, a growing number of public entities are
looking into how the model could be used in their community to
tackle what had previously been considered intractable problems.
To date, much of the work has been at the pilot level, but outcomes
seem to be promising. One study by Mathematica, a U.S. based
research firm, looked at the outcomes from seven social enterprise
programs assisting 282 workers. As part of the same study,
Mathematica also undertook a comparative analysis of workforce
outcomes for 154 social enterprise workers and 37 eligible workers
who were not hired at a social enterprise. According to the report,
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the results suggest that "social enterprises may help workers gain
employment and move toward economic self-sufficiency and life
stability; however, the impact-study results are inconclusive, in
part because of the small samples."
Another recent study by Social Ventures in Australia, found that
social enterprises have demonstrated that they can create jobs for
people excluded from the mainstream workforce, particularly the
long-term unemployed, and showed that this equity outcome is also
efficient, as government investment in the creation of businesses is
returned via taxation revenue, and savings in social security
expenditure. These findings are similar to the Mathematica study,
which also found that the percentage of total income from government
transfers decreased from 71 to 24% and that total monthly income for
the workers increased by 91%.
The European Union regularly measures the economic impact of this
evolving area of businesses development and reports that the "social
economy" employs over 11 million people in the EU, accounting for 6%
of total employment.
A short review of the social enterprise literature shows that access
to finance and traditional businesses services is a key policy
challenge. In 2012, California established a Benefit Corporation
and approved funding for social innovation financing models to be
used to address homelessness and workforce training for the formerly
incarcerated. SB 1219 offers another opportunity for the state to
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expand its understanding of how social enterprises can be used to
address the state's growing income divide.
9)Fraudulent Behavior: Enforcement of the Small Business Procurement
and Contract Act has been limited by tight budgets and the number if
staff specifically assigned to undertake regular auditing
activities. The JEDE Committee has repeatedly heard testimony that
there are insufficient statutory and regulatory protections to keep
unreliable businesses who fail to adequately perform on state
contracts from contracting with the state over and over. While
statutory changes have been made to help increase enforcement, such
requiring contractors to provide tax returns and allowing state
agencies to retain fines to cover investigation costs, concerns
remain among small business and DVBE contracting community.
SB 1219 proposes a new category of procurement preference which will
require a different set of enforcement rules. The current bill
provides no specific direction as to how to ascertain high
performing employment social enterprises verses a business who
claims to be offering life skills training, but is only providing
minimum wages without meaningful instruction and follow-up services.
Given that this will be a new procurement preference program and
DGS has no experience in workforce training, some level of
additional guidance seems appropriate.
10)Suggested Amendments: The Committee members may wish to consider
the following amendments:
a) Align the employment social enterprise preference to the
workforce preference under TACPA.
b) Conform the definition of "individuals with significant
barriers to employment" with the state workforce policy under
WIOA.
c) Clarify that the employment social enterprise is a separate
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preference from the small business preference.
d) Require an employment social enterprise who receives a
preference be a California-based entity or at least have a
significant California preference.
e) Require employment social enterprises be organized as a
Benefit Corporation, Social Purpose Corporation, or a nonprofit
organization.
f) Require verification of workforce eligibility and commitments
through third-party verification including, but not limited to
workforce development boards, or other state, local, regional, or
government entities.
g) Authorize DGS to assign portions of the certification process,
oversight, and auditing to another public entity.
h) Set a framework for DGS to follow when investigating
potentially fraudulent behavior by a mission driven organization
that purports to help individuals who face barriers to employment
receive training and work skills.
i) Add reporting requirements for employment social enterprise,
including workforce outcomes.
11)Related Legislation: Below is a list of the related bills.
a) AB 285 (Brown) Scope of Practice for the California Workforce
Investment Board: This bill would have required the California
Workforce Investment Board to make recommendations and provide
technical assistance on entrepreneurial training opportunities
that could be made available through local workforce investment
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boards. The bill would have also deleted certain required duties
of the California Workforce Investment Board and made changes to
the definition of microenterprise. Status: Vetoed by the
Governor, 2013. "This bill, like SB 118, deals with the
California Workforce Investment Board and various aspects of job
training. Unlike SB 118, it is overly prescriptive in the way it
directs the Board to provide technical assistance for
entrepreneurial training and to make recommendations. I believe
this unduly infringes on the Board's authority and discretion."
b) AB 172 (Weber) State Contracting Microbusiness: This bill
would have increased the microbusiness procurement preference
from 5% to 7% for state contracts to purchase goods, services,
information technology, and construction of state facilities, and
allowed the preference to be awarded to either a microbusiness
bidder or a non-microbusiness bidder that uses a microbusiness
subcontractor. Status: Held on the Suspense File of the
Assembly Committee on Appropriations, 2013.
c) AB 1198 (Jones-Sawyer) Public Contract Prohibition based on
Employment Practices: This bill would have prohibited the state
from accepting a bid for a contract from an entity that asks an
applicant for employment to disclose his or her conviction
history unless the employer has determined the applicant meets
the minimum qualifications for the position. Status: Died in
the Assembly Committee on Accountability and Administrative
Review, 2014.
d) AB 1837 (Atkins) Social Innovation Financing to Address
Recidivism: This bill establishes the Social Innovation
Financing Program, administered by the Board of State and
Community Corrections, which provided grants to three counties
for the purpose of utilizing pay-for-success contracts to reduce
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recidivism. Status: Signed by the Governor, Chapter 802,
Statutes of 2014.
e) AB 2022 (Medina) Target Area Contract Preference Act: This
bill changes the Target Area Contract Preference Act by
redefining what qualifies as an economically distressed area.
Specifically, a "distressed area" is in the top quartile of
census tracts for having the highest unemployment and poverty in
the state as determined by the Department of Finance. Status:
Signed by the Governor, Chapter 780, Statutes of 2014.
f) AB 2060 (V. Manuel Pérez) Supervised Population Workforce
Training Grant Program: This bill establishes the Supervised
Population Workforce Training Grant Program (Program). The
Program is comprised of two distinct funding streams: one stream
for post-secondary training that may lead to certifications, and
placement on a middle-skill career ladder and a second stream for
individuals that are starting with low educational attainment and
need help with basic academic skills. Status: Signed by the
Governor, Chapter 383, Statutes of 2014.
g) AB 2593 (Bradford) Diversity Reporting: This bill would have
required businesses with gross annual revenues exceeding $25
million that participate in programs administered by the Air
Resources Board (ARB) that receive funding from the Greenhouse
Gas Reduction Fund to report to ARB on efforts to increase
procurement from women, minority, and disabled veteran business
enterprises. Status: Vetoed by the Governor, 2014. The veto
message reads: "This bill would require a business enterprise
with gross annual revenue exceeding $25 million, participating in
a program administered by the Air Resources Board that is funded
from the Greenhouse Gas Reduction Fund, to report annually to the
Air Board regarding supplier diversity procurement. Without
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question, I support the general goal, but this bill establishes a
burdensome and expensive requirement for businesses with no clear
way to ensure that supplier diversity would actually increase.
Furthermore, State agencies are already taking action to report
on diversity procurement and currently report to both the State
and Federal governments on supplier diversity procurement
contracts."
h) SB 9 (Price) Office of Social Innovation and Entrepreneurship
Development: This bill would have established the Office of
Social Innovation and Entrepreneurship Development within the
Office of the Governor to establish partnerships with government
agencies, private investors, nonprofit organizations, and
for-profit service providers to facilitate the use of social
impact bonds, as defined, to address social service needs.
Status: Died in Senate Committee on Governance and Finance,
2013.
i) SB 593 (Lieu) Social Impact Partnerships Pilot Program: This
bill would have established the Social Impact Partnership pilot
program and authorizes the Governor to solicit applications for
the establishment of new social impact partnerships with private
entities in order to address significant social issues including,
but not limited to, child abuse, job preparedness for youth, and
high recidivism rates among the state's prison population. These
partnerships are to be formalized through a pay-for-success
contract, which sets the evaluation metrics, quality standards,
and timelines. If the conditions of the pay-for-success contract
are not met, the state pays nothing. Status: Vetoed by the
Governor, 2014. The veto message reads: "This bill allows local
governments to establish a Community Revitalization and
Investment Authority to use tax increment revenues to invest in
disadvantaged communities. I applaud the author's efforts to
create an economic development program, with voter approval, that
focuses on disadvantaged communities and communities with high
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unemployment. The bill, however, unnecessarily vests this new
program in redevelopment law. I look forward to working with the
author to craft an appropriate legislative solution."
REGISTERED SUPPORT / OPPOSITION:
Support
Alliance for Boys and Men of Color
California Association of Local Conservation Corps
Center for Employment Opportunities
Chrysalis
Civicorps
Coalition for Responsible Community Development
Community Housing Partnership
Con1Ou2Farm L3C
Conservation Corps North Bay
Conservation Corps of Long Beach
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County of Los Angeles
Fresno Economic Opportunities Commission
Goodwill of San Francisco, San Mateo, and Marin Counties
Goodwill of Southern California
Homeboy Industries
Inisght Center for Community Economic Development
Isidore Electronics Recycling
Jewish Vocational Services
Jewish Vocational Services
Juma Ventures
Kingdom Causes Bellflower (D.B.A. Good Soil Industries)
Legal Services for Prisoners with Children
LittleFootprint Lighting, Inc.
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Los Angeles Area Chamber of Commerce
Los Angeles Conservation Corps
Los Angeles County Department of Consumer and Business Affairs
Department
Neighborhood Industries
New Door Ventures
Roberts Enterprise Development Fund
Rubicon Programs
San Jose Conservation Corps & Charter School
The Bread Project
Third Sector Capital Partners
Urban Corps of San Diego County
Weingart Center Association
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Opposition
None Received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916)
319-2090