BILL ANALYSIS
Bill No: SB
642
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 642 Author: Denham
As Introduced: February 27, 2009
Hearing Date: April 28, 2009
Consultant: Art Terzakis
SUBJECT
Small Business Procurement and Contract Act
DESCRIPTION
SB 642 makes the following substantive changes to existing
provisions of law relating to state procurement procedures
in order to increase small business and disabled
veteran-owned business enterprise (DVBE) participation in
state contracting. Specifically, this measure:
1. Increases the maximum contract threshold amount for
streamlined procurement for goods, services, or
information technology that may be awarded to certified
small businesses, including a microbusiness and DVBEs
without complying with specified competitive bidding
requirements, from $100,000 to $250,000.
2. Requires contractors, upon completion of a public
contract for which a commitment to achieve small business
or DVBE participation goals was made, to report the
actual percentage of small business or DVBE participation
that was achieved.
3. Establishes for the calendar year 2009 a cost threshold
of $250,000 for projects covered under the State Contract
Act (construction, erection, alteration, repair or
improvement of buildings and roads) that would be
adjusted every two years to reflect the percentage change
in the annual California Construction Index.
SB 642 (Denham) continued
Page 2
EXISTING LAW
Existing law designates the Department of General Services
(DGS) to administer the state Small Business Procurement
and Contract Act (Small Business Act) and declares state
policy that small business and microbusiness receive a fair
portion of the total purchases and contracts or
subcontracts for state goods, services, information
technology, and construction.
Existing law provides for a streamlined procurement process
which is exempt from advertising, bidding, and protest
provisions in the State Contract Act for the acquisition of
goods, services, or information technology, if: (a) the
contract is awarded to a small business, including a
microbusiness, or a DVBE; (b) the value of the contract is
between $5,000 and $100,000; and, (c) the agency has
obtained quotes from two or more certified small
businesses, including microbusinesses, or DVBEs.
Existing law defines a small business 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.
Existing law defines a microenterprise as a small business
that has average annual gross receipts of $250,000 or less
during the previous three years or is a manufacturer with
25 or fewer employees.
Existing law defines a DVBE as a business entity that is at
least 51% owned or controlled by one or more disabled
veterans, as specified.
Existing law establishes the State Contract Act for the
purpose of governing contract practices between state
agencies and private contractors, covering, among other
items, contracts for projects with a value of over
$100,000, adjusted biennially for changes in the California
Construction Index, as specified.
BACKGROUND
Purpose of the bill : The author's office points out that
SB 642 (Denham) continued
Page 3
in light of the fact that California voters approved over
$40 billion in general obligation infrastructure
development bonds in 2006 it is critical to update existing
contract thresholds to ensure that more small businesses
and DVBEs participate in the contract process. The funding
provided by the bonds is targeted for 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.
This massive public works endeavor is expected to place a
burden on the state's contracting industry to provide
enough qualified contractors to whom contracts can be
awarded and who can complete the work within reasonable
timeframes. Coupled with this challenge is an opportunity
for the state to use these moneys to strengthen the core of
California's economy by expanding business opportunities
for small contractors and DVBEs.
As noted above, current law provides for a streamlined
procurement process that permits state entities to award
contracts for goods, services, or information technology
with a value of between $5,000 and $100,000 to a small
business or DVBE without complying with competitive bidding
requirements. This measure would increase the maximum
contract award from $100,000 to $250,000. Additionally,
this measure would increase the minimum threshold for
projects covered under the State Contract Act from $100,000
to $250,000. The author's office emphasizes that the
changes incorporated in this measure are intended to
enhance small business and DVBE participation rates in
state procurement.
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. Certification of small businesses, including
microbusinesses, and DVBEs is generally undertaken by DGS.
The Small Business Act declares that it is the policy of
the State of California that the state aid the interests of
SB 642 (Denham) continued
Page 4
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.
Since 2001, there have been four Executive Orders (EO)
specifying goals for small business and 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). The first two EOs set 25% small business
participation goals, and the third set a 3% DVBE
participation goal for all state procurement contracts.
The fourth EO set a 25% participation goal for state
construction contracts, particularly those awarded by the
California Department of Transportation (Caltrans) when
implementing Proposition 1B.
These participation goals have also been codified in SB
115, Chapter 451, Statutes of 2005, which called for DGS to
set a statewide goal for DVBE contracts, and in AB 761,
Chapter 611, Statutes of 2007, which specifically codified
the 25% small business target for contracts related to
revenues expended from the 2005 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.
Technical Amendment: The author may wish to consider the
following technical amendment: On page 3, line 11, strike
"year 2009" and insert "year 2010"
PRIOR/RELATED LEGISLATION
AB 31 (Price) 2009-10 Session. Identical to AB 2733
(Price) of 2008 and SB 642 (Denham) of 2009. (Pending in
Assembly fiscal committee)
SB 755 (Negrete McLeod) 2009-10 Session. Would establish
a new participation goal program for persons with
developmental disabilities business enterprises (PDDBEs),
as defined, to assist and encourage participation of
developmentally disabled in state contracting
opportunities. (Pending in Senate Appropriations
Committee)
SB 642 (Denham) continued
Page 5
SB 643 (Denham) 2009-10 Session. Would add "disabled
veteran business enterprise" (DVBE) to the definition of
small business, found within the California Prompt Payment
Act so that certified DVBEs receive the same prompt payment
protections afforded other California small businesses.
(Pending in this Committee)
SB 467 (Dutton) 2009-10 Session. Would authorize agencies
and departments to award contracts of less than $25,000 for
goods or services by California certified small businesses,
microbusinesses, or DVBEs without seeking an exemption of
the Prison Industries Authority (PIA) mandate. (Pending in
Senate Appropriations)
AB 2733 (Price) 2007-08 Session. Identical to AB 31
(Price) of 2009 and SB 642 (Denham) of 2009. (Died in
Senate Appropriations Committee - suspense file)
AB 608 (De La Torre) 2007-08 Session. Would have increased
the procurement contract bid preference from 5% to 10% for
small businesses and microbusinesses, or non-small
businesses that utilize small businesses and
microbusinesses as subcontractors, when the contract award
is made on the basis of either determining the lowest
responsible bidder, or when the contract is made on the
basis of determining the highest scored bidder, based on
evaluation factors other than bid price. (Vetoed by the
Governor)
AB 761 (Coto) Chapter 611, Statutes of 2007. Requires 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.
AB 1189 (Assembly Committee on Veterans Affairs) 2007-08
Session. As heard in this committee, would have required
that awarding departments obtain copies of a contractor's
DVBE certification letter and reference number, issued by
DGS, and check the contractor's standing as a certified
DVBE on the DGS website, prior to awarding a contract based
SB 642 (Denham) continued
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on the contractor's DVBE status. [This measure was amended
(gutted) on the Senate floor - amendments enacted the
Prison Health Care Construction Program, including a 46.9
billion bond authorization and a $100 million General Fund
appropriation, as specified, and eventually died on the
Senate Floor]
AB 1695 (Bass) 2007-08 Session. Would have capitalized and
activated the Surety Bond Guarantee Account, administered
by the Small Business Loan Guarantee Program, for the
purpose of providing surety bond guarantees for small
businesses that provide services on state and federally
funded transportation projects. (Died in Assembly
Committee on Appropriations)
AB 2797 (De La Torre) 2007-08 Session. Would have
increased the procurement contract bid preference from 5%
to 10% for small businesses and microbusinesses, or
non-small businesses that utilize small businesses and
microbusinesses as subcontractors, when the contract award
is made on the basis of either determining the lowest
responsible bidder, or when the contract is made on the
basis of determining the highest scored bidder, based on
evaluation factors other than bid price. (Died in Assembly
Appropriations Committee)
SUPPORT: None on file as of April 24, 2009.
OPPOSE: None on file as of April 24, 2009.
FISCAL COMMITTEE: Senate Appropriations Committee
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