BILL ANALYSIS
AB 309
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Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P?rez, Chair
AB 309 (Price) - As Introduced: February 17, 2009
SUBJECT : Public Contracts and Small Business Participation
SUMMARY : Requires the establishment of a 25% small business
participation goal for all state entities and directs the
Department of General Services (DGS) to monitor each agencies
progress inmeeting this goal. Specifically, this bill :
1)Requires all state agencies, departments, boards, and
commissions to establish and report on their progress in
meeting or exceeding the 25% small business participation
goal. This goal is currently provided for in Executive Order
(EO) D-37-01 and EO S-02-06.
2)Requires state entities which fail to meet the small business
participation goal by December 31, 2010, to submit an annual
implementation and corrective action plan to DGS until the
entity is able to meet or exceed the goal.
3)Requires DGS to monitor the progress of all state entities
towards meeting the 25% small business participation goal,
including notifying state entities of their individual
progress in meeting the 25% participation goal.
4)Requires that the Office of the Small Business Advocate
receive the same progress report information as state
entities. Directs DGS and the Office of the Small Business
Advocate to work collaboratively to review each implementation
and corrective plan and explore ways to work with agencies
that have not met their performance goal.
5)Requires, whenever possible, that state entities to use the
streamlined procurement process for contracting with small
businesses for goods and services in contract amounts under
$100,000 and for any construction contract exceeding $120,000.
6)Requires DGS to actively promote small business certification,
help small businesses market their products, goods, and
services to the state, and promote the use of the Subscription
Outreach Service of the State Contracts Register.
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7)Requires state entities to work with DGS to help small
business market products, goods, and services to the state by
providing access to current bid information on their Internet
website.
8)Requires the Office of the Small Business Advocate to
collaborate with DGS on how to help small businesses secure
financing.
EXISTING LAW:
1)Designated the DGS to administer the state Small Business
Procurement and Contract Act (Small Business Act), including,
but not limited to, a small business certification process and
a streamlined procurement process for state contracts under
$100,000, which is exempt from advertising, bidding, and
protest provisions in the State Contract Act.
2)Declared state policy that small businesses and
microbusinesses receive a fair portion of the total purchases
and contracts or subcontracts for state goods, services,
information technology, and construction.
3)Established a 25% small business participation goal for all
contracts financed with the proceeds of the
infrastructure-related bond acts of 2006.
4)Established a preference for bids made by certified small
businesses and microbusinesses for the award of state
procurement contracts of 5% where solicitations are made
either on the basis of lowest responsible dollar bid, or on
the basis of highest score, considering factors in addition to
price. A single bid preference is limited to $50,000.
Non-small businesses that subcontract at least 25% of their
contracts with certified small businesses also qualify for the
small business bidders' preference.
5)Requires each state agency to consolidate its existing staff
functions that relate to contract opportunities for small
businesses into a single point of contract for small
businesses and designate a small business advocate as a
liaison to small business suppliers.
6)Defines a small business as independently owned, not dominant
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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.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the bill : According to the author, AB 309 seeks to
codify EO D-37-01 and EO S-02-06, establishing a small
business participation goal of 25%. While the state has
historically set a 25% goal for contracting with small
businesses, the state continues to struggle to meet the goal.
With substantial funding still available under the 2006
infrastructure bond acts the 2009 federal stimulus package, it
is more important than ever to meet this important goal.
In 2006, California voters approved over $40 billion in
general obligation infrastructure development bonds. The
funding provided by the bonds will be spent on improvements to
roads, highways, public transit, flood control, schools, and
affordable housing. Project funding is expected to occur over
the next 10 years, although the Governor and Legislature have
placed a priority on expediting project delivery.
In 2009, the federal government enacted a $787 billion
American Recovery and Reinvestment Act that includes over $3
billion in funding for California infrastructure projects.
These massive public works endeavors provide an opportunity
for the state to use these moneys to strengthen the core of
California's economy by expanding business opportunities for
small contractors.
2)California Small Business : California's dominance in many
economic areas is based, in part, on the significant role
small businesses play in the state's $1.8 trillion economy.
Businesses with less than 100 employees comprise more than
98.3% of all businesses, and are responsible for employing
more than 57.9% of all workers in the state.
Small- and medium-sized businesses are crucial to the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy. Of the over 52,000 companies that
exported goods from California in 2006, 95% were small- and
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medium-sized enterprises (SME) with fewer than 500 employees.
These SMEs generated nearly half (44%) of California's exports
in 2006. Nationally, SMEs represented only 29% of total
exports. Again, these numbers include the export of only
goods and not services.
Small businesses function as economic engines, especially in
challenging economic times. During the nation's economic
downturn from 1999 to 2003, microenterprises (businesses with
less than five employees) created 318,183 new jobs or 77% of
all employment growth, while larger businesses with more than
50 employees lost over 444,000 jobs. From 2000 to 2001,
microenterprises created 62,731 jobs in the state, accounting
for nearly 64% of all new employment growth. Common types of
microenterprises include engineering, computer system design,
housekeeping, construction, landscaping, and personnel
services.
3)The Small Business Act : The Small Business Act (SBA),
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. In 1989, a
disabled veteran owned business enterprise (DVBE) component
was added to state procurement practices.
Since 2001, there have been four Executive Orders (EOs)
specifying a 25% goal for small business and a 3% DVBE
participation in state procurement contracts, including EO
D-37-01 (2001), EO S-02-06 (2006), EO D-43-01(2001), and EO
S-11-06 (2006). Statutory advancements were also made to
strengthen the SBA including SB 115 (Florez), Chapter 451,
Statutes of 2005, which required DGS to establish a DVBE
incentive program for state contracts; and AB 761 (Coto),
Chapter 611, Statutes of 2007, which specifically codified the
25% small business participation goal for contracts related to
revenues expended from the 2006 infrastructure bonds.
Notwithstanding the longstanding existence of the SBA,
statutory upgrades, and EOs, the state's success in obtaining
small business and DVBE participation goals in state
procurement contracts has been inconsistent.
For only the second time since the small business
participation target was established in 2001, DGS has reported
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that in 2006-07 the state achieved its small business target
by awarding 28.31%, or $2.65 billion, of the value of all
contracts to small businesses. This represents a $1.3 billion
increase in contracts from 2005-06. The state did not achieve
its 3% DVBE participation goal, however, as only 2.8% of
contract dollars, $186 million, was awarded in contracts
including DVBE participation.
4)Streamlined procurement process : In order to assist agencies
in reaching state participation goals, contracting entities
are authorized to use a streamlined procurement method. This
method allows the process for awarding contracts to bypass the
advertising, bidding, and protest provisions in the State
Contract Act. Under the provisions of the Act, a contract may
be made directly with a certified small business or DVBE at a
contract price established by checking the proposed rate with
two other small businesses or DVBEs.
Contracts offered under the streamlined procurement process
are currently limited to contracts between $5,000 and
$100,000. AB 31 (Price), which passed this committee earlier
in the year, would increase this contract limit to $250,000
for contracts for goods, services, and information technology.
In 2006-07, 9,685 contracts were initiated using this
streamlined procurement process, which accounts for $211
million (7.43%) of the total DVBE and small business
contracts. The California State University System reported
using this process for 1,620 contracts totaling $37 million in
contracts.
5)Author's Amendments : Committee staff understand the author
will offer the following amendments:
a) Clarify that the 25% is an annual state contracting goal
and does not necessarily need to be met for each individual
contract.
b) Delete the requirement for DGS to notify state entities
that they are deficient in meeting the 25% participation
goal.
c) Clarify the "Statutory Informal Bidding Provisions"
refer to the current streamlined procurement provisions.
d) Modify the requirement on how DGS will collaborate with
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Office of the Small Business Advocate on how to help small
businesses secure financing.
e) Delete the requirement that state entities work with DGS
to help small businesses market their products, goods, and
services to the state by providing access to bidding
information on their website, as a similar requirement is
addressed in 11148.5 of the Government Code.
f) Specifically apply the requirements of this bill to any
state moneys received by the University of California,
California State University, and the California Community
College System
6)Related legislation : Below is a list of related legislation:
a) AB 31 (Price) : This bill makes several key changes to
state procurement procedures including increasing the
maximum contract threshold amount for awards to a small
business and DVBE, under a specific streamlined procurement
process, from $100,000 to $250,000. Further, the bill
required contractors that made contract commitments to
include small business or DVBE participation to report the
final percentage of the contract actually paid to these
entities. Status: Awaiting hearing in the Assembly
Appropriations Committee.
b) SB 356 (Wright): This bill requires an agency
considering the adoption of a regulation to consult with
those persons and businesses potentially affected and would
delete the condition that the agency only involve those
parties if the proposal is large or complex. Status: The
bill is scheduled to be heard in the Senate Committee on
Business, Professions and Economic Development on April 27,
2009.
a) AB 761 (Coto) : This bill required each state agency
awarding contracts that are financed with proceeds from the
infrastructure bonds approved by voters in November 2006 to
establish a 25% small business participation goal for state
infrastructure construction contracts and to provide
specified assistance to small businesses bidding on state
infrastructure bond-related contracts. Status: Signed by
the Governor, Chapter 611, Statutes of 2007.
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b) AB 2773 (Price): This bill would have increased the
maximum contract threshold amount for awards to small
business, including microbusiness and DVBEs under the
streamlined procurement process, from $100,000 to $250,000,
as specified. Further, the bill required contractors that
made contract commitments to include small business or DVBE
participation to report the final percentage of the
contract actually paid to these entities. Status: Held
under submission in Senate Appropriations Committee in
2008.
c) SB 115 (Florez) : This bill made various changes to the
DVBE Program, including requiring DGS to establish a state
agency-wide mandatory DVBE participation incentive. The
ill also requires the DGS Small Business Advocate to
provide specified services to small businesses and
certified DVBEs. Additionally, this bill requires DGS to
adopt a streamlined reporting procedure for state agencies
to use in reporting their DVBE participation to the
Department of Veterans Affairs. Status: Signed by the
Governor - Chapter 451, Statutes of 2005.
d) SB 642 (Denham) : This bill increases the maximum
contract threshold amount for awards to small business,
including microbusiness and DVBEs under the streamlined
procurement process, from $100,000 to $250,000, as
specified. Further, the bill required contractors that
made contract commitments to include small business or DVBE
participation to report the final percentage of the
contract actually paid to these entities. Status: Set for
hearing in Senate Governmental Organization Committee on
April 28, 2009.
7)Double Referral : Assembly Rules Committee referred this bill
to two policy committees. Should this measure pass the
Assembly Committee on Jobs, Economic Development and the
Economy, it will be referred to the Assembly Committee on
Business and Professions.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
AB 309
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Opposition
California Board of Accountancy
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090