BILL ANALYSIS
AB 2627
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Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 2627 (Nielsen) - As Amended: April 8, 2010
SUBJECT : Disabled veteran business enterprises: contracts
SUMMARY : Provides that the calculation of the portion of state
funds that count toward the Disabled Veteran Business Enterprise
(DVBE) goal can only be the broker's commission fees, if the
funds were awarded through a broker, as specified.
Specifically, this bill :
1)Requires that for state funds expended through a broker or
equipment broker, only the broker's commission fees shall be
credited toward the participation goals established for DVBEs.
2)Specifies that a DVBE that rents equipment to an awarding
department or contractor shall be deemed to be an equipment
broker.
3)Requires a DVBE that rents equipment to an awarding department
or contractor shall, prior to performing the contract, shall
submit to the awarding department a declaration signed by each
disabled veteran owner and manager stating that the enterprise
obtained the contract by representing that the enterprise was
a DVBE, as specified.
4)Revises the definitions of a broker or agent, equipment, and
equipment broker to include contractor or subcontractor, as
specified.
EXISTING LAW
1)Requires all contracts awarded by any state agency,
department, officer, or other state government entity,
including school districts when they are expending state funds
for construction, professional services, materials supplies,
equipment, alteration, repair, or improvement, are required to
have statewide participation goals of not less than 3% for
DVBE contractor and subcontractor. These goals apply to the
overall dollar amount expended each year by the awarding
department.
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2)Defines for the California DVBE program the terms "Broker" or
"Agent", "Equipment", and "Equipment broker".
3)Requires DVBEs that rent equipment to an awarding department
to be deemed to be an equipment broker unless one or more
DVBEs have 51% ownership of the quantity and the value of each
piece of equipment. If the equipment is owned by one or more
disabled veterans, each disabled veteran owner, prior to
performance under any contract or subcontract, is required to
submit to the awarding department a declaration signed by the
disabled veteran owner stating that the owner is a disabled
veteran and providing specific identification information.
Each disabled veteran owner shall submit his/her federal
income tax returns to the administering agency as if he/she
were a DVBE. The DVBE who fails to submit his/her tax returns
will be deemed to be an equipment broker.
4)Requires a DVBE that rents equipment to an awarding department
or contractor to submit to the awarding department a
declaration signed by each disabled veteran owner and manager
stating that the enterprise obtained the contract by
representing itself as a DVBE, as specified.
5)Provides that state funds expended for equipment rented from
equipment brokers shall not be credited toward the 3% goal.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose: This bill currently makes a number of seemingly
technical changes to the DVBE procurement laws. The author
has been very forthcoming and open with the committee staff by
clearly indicating that the sponsor intends to make broader
amendments to the bill relating to the impact of the 2009
changes which removed the Good Faith Effort provisions.
It had been the intention of the sponsor to reach an agreement
on language prior to JEDE's deadline of April 13, 2010. The
sponsor, Associated General Contractors, were unable to reach
a consensus in a timely manner. Committee staff advised the
author's office and the sponsor of the importance of engaging
the full range of DVBE stakeholders when attempting to address
this issue. The sponsors indicated that fairly extensive
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amendments may be added to the bill at a later date. The
committee members may wish to discuss with the author and
sponsor, future plans when the bill is heard.
2)Demonstrating a good faith effort prior to August 2009: Prior
to the enactment of AB 21 (x4) (Evans), non-DVBE bidders on
state contracts could either subcontract with a DVBE,
demonstrate that they had made a good faith effort to
subcontract with a DVBE, or reference a DGS-approved DVBE
Business Utilization Plan. In demonstrating a good faith
effort, the contractor would submit information in the bid
package that demonstrated that the following actions were
taken:
a) The bidder contacted the awarding department to identify
a DVBE contractor who may be interested in subcontracting;
b) The bidder contacted other state and federal agencies
and local DVBE organizations to identify DVBE contractors
who may be interested in subcontracting;
c) The bidder sent invitations to bid on a project to
potential DVBE contractors and that responses to those
solicitations were properly considered; and
d) The bidder advertised in trade papers and papers
focusing on DVBEs. If the time limits imposed by the
awarding department were insufficient to reasonably
purchase advertisement, this requirement can be waived.
3)Where did AB 21 (x4) come from and how do we know it is
broken? It is the understanding of policy committee staff
that the language in AB 21 (x4) was drafted by the
Administration as a reform to the state's procurement
practices and then provided to the 2009-10 Budget Conference
Committee for inclusion in the final package of budget trailer
bills. The bill passed the Assembly (76-2) and the Senate
(33-0), almost unanimous votes.
AB 21 (x4) included an urgency clause making the bill
effective on July 28, 2009. In the ensuing months concerns
have been raised by some contractors that the current DVBE
requirements may be too difficult. However, no specific
information has been provided to the JEDE to document this
concern.
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Based on the complexity and time required to put out a state
procurement solicitation, it may be too soon to know whether
the requirements of AB 21 (x4) are too difficult and that the
state should, therefore, abandon a decision made less than one
year ago.
4)The Small Business Act : The Small Business 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. In 1989, a
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). These participation goals were codified in SB
115 (Florez), Chapter 451, Statues of 2005, which called for
DGS to establish a targeted DVBE incentive program to help
state agencies meet the 3% goal; and in AB 761 (Coto), Chapter
611, Statutes of 2007, which specifically codified the 25%
small business target for contracts related to revenues
expended from the 2006 infrastructure bonds.
Notwithstanding the longstanding existence of the Act and
these EOs, the state's success in obtaining small business and
DVBE participation goals in state procurement contracts has
been inconsistent.
Only twice since the small business participation target was
established in 2001 through EO has DGS reported that the state
achieved its 25% goal. In fiscal year 2007-08 the state did
not achieve its small business target, as it only awarded
23.84%, or $2.62 billion, of the value of all contracts to
small businesses. Although procurement contract awards were
down in 2007-08, there was an increase in the amount of
contract dollars awarded. The state also did not achieve its
3% DVBE participation goal in 2006-07; the most recent numbers
show a decrease from 2.8% to only 2.39% DVBE contracts awarded
in 2007-08 and the state, again, saw an increase in awarded
contract DVBE dollars to more than $194 million.
5)Related legislation : Below is a list of related legislation:
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a) AB 31 (Price) Small Business Procurement Contract Act:
This bill 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
those final percent of the contact actually paid to these
entities. Status: Chaptered by Secretary of State -
Chapter 212, Status of 2009.
b) AB 761 (Coto) - Codification of the Small Business
Procurement Goals : 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.
c) AB 1771 (Mendoza) - PIA Contracts: Provides that the
requirement to purchase Prison Industry Authority (PIA)
products shall not restrict state agencies from entering
into purchase orders of $25,000 or less with California
certified small businesses (CSB), microbusinesses, or
disabled veteran business enterprises (DVBEs) and that this
subdivision shall only apply to contracts for products
provided at a lower price than the price available from the
PIA. Status: Pending in Assembly Committee on Jobs,
Economic Development and the Economy.
d) AB 1918 (Davis) -PUC Procurement: Requires the Public
Utilities Commission (PUC) to require specified wireless
telecommunications service providers to annually report on
their progress in increasing contracting with women- and
minority-owned businesses and disabled veteran business
enterprises (DVBEs). Status: Pending in Assembly Committee
on Jobs, Economic Development and the Economy.
e) AB 2249 (Ruskin)- DVBE Procurement : Requires the
Department of General Services (DGS) to require a Disabled
Veteran Business Enterprise (DVBE) to file a completed form
4506-T from the federal Internal Revenue Service (IRS), if
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DGS has received a complaint regarding the DVBE; or is
being audited by DGS. Status: Pending in Assembly
Committee on Jobs, Economic Development and the Economy.
f) AB 2773 (Price) - Size of Small Business Procurement
Contracts: This bill 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 percent of the contact actually paid to
these entities. Status: Held under submission in Senate
Appropriations Committee in the 2007-08 legislative
session.
g) SB 115 (Florez) - Disabled Veterans Business Enterprise
Program : This bill made various changes to the DVBE
Program, including requiring DGS to establish a state
agency-wide mandatory DVBE incentive program. This bill
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.
h) SB 642 (Denham) Small Business Procurement : 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 percent
of the contact actually paid to these entities. Status:
Returned to the Secretary of the Senate pursuant to Joint
Rule 56.
i) AB 21 (X4) (Evans) - State Procurement Contracts:
Changes requirements on bidders and state departments when
considering contracts for procurement of goods and
services. Status: Signed by the Governor - Chapter 19,
Statutes of 2009.
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REGISTERED SUPPORT / OPPOSITION :
Support
Associated General Contractors, (sponsor)
Opposition
None Received
Analysis Prepared by : Toni Symonds and Mercedes Flores / J.,
E.D. & E. / (916) 319-2090