BILL ANALYSIS
Bill No: SB
967
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 967 Author: Correa
As Introduced: February 5, 2010
Hearing Date: April 13, 2010
Consultant: Art Terzakis
SUBJECT
Public Contracts: bid preferences
DESCRIPTION
SB 967 requires that a 5% bid preference be provided on
state contracts for goods and services, including bids or
proposals for the distribution of funds pursuant to the
federal American Recovery and Reinvestment Act (ARRA) of
2009, to contractors who substantiate that 90% of their
employees performing work on the contract are residents of
California. Specifically, this measure:
1. Provides that, on or before January 1, 2011, any state
agency that accepts bids or proposals for a contract for
goods or services, or for the distribution of funds
pursuant to the federal Stimulus Act (ARRA), shall
provide a credit of 5% of the bid price or quotation to a
business that directly provides the goods or services and
certifies that at least 90% of the business' employees
that would work on the contract are California residents.
2. Stipulates that in order to be eligible for the 5%
credit, a business must submit all required
substantiating documentation and information needed by
the state agency to determine if the business is eligible
for the credit.
3. Requires, on or before January 1, 2011, and using
existing resources, that the Department of General
Services (DGS) establish a process to verify that a
business meets the criteria for the 5% credit.
SB 967 (Correa) continued
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4. Makes various legislative findings and declares that
the purpose of this Act is to revive local communities by
creating new jobs and stimulating the economy.
EXISTING LAW
Existing law governs the solicitation, review and award of
state contracts and establishes various programs and
preferences in public contract law designed to serve a
broad public purpose, such as preference for small
businesses, disabled veteran business enterprises (DVBEs)
and recycled products. Existing law designates the
Department of General Services (DGS) to administer the
Small Business Procurement and Contract Act, including, but
not limited to, small business, microbusinesses and DVBE
certification processes.
The Small Business Procurement and Contract Act requires
the Director of DGS and the heads of other state agencies
that enter into contracts for the provision of goods,
services,
and information technology and for the construction of
state facilities to establish goals for the participation
of small businesses in these contracts, to provide for
small business preference in the award of these contracts,
to give special consideration and special assistance to
small businesses, and, whenever possible, to make awards to
small businesses, as specified.
BACKGROUND
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 (SB 1517 - Dills, Chapter 1207 of 1989).
Certification of small businesses, including
microbusinesses, and DVBEs is generally undertaken by DGS.
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The Small Business Act declares 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.
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.
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.
Bidding Preferences: Under current law, there are certain
circumstances where contractors bidding on a state contract
can have the overall cost of their bid discounted by 5% in
order to make them more competitive as a low bidder.
Preferences can currently be given for small business in
general, disabled veteran-owned business enterprises, for
small businesses in economically target areas, and for
businesses, regardless of size, located in economically
distressed areas. The maximum amount provided for each
qualifying bidding preference is $50,000 with a
total bid maximum of $100,000. This means that contractors
with bids of up to $100,000 higher than the lowest bid can
be awarded the contract if they qualify for two bidding
preferences.
Currently, the State may give a 5% bid preference to
certified small businesses and may offer up to a 5%
incentive to DVBEs in the formal bid process. All state
agencies and departments may use a streamlined procurement
process known as the Small Business/DVBE Option by
contracting directly with a California-certified Small
Business or DVBE for goods, services, and information
SB 967 (Correa) continued
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technology goods and services valued from $5,000.01 to
$249,999.99 (or valued up to $250,000 for public works
contracts) after obtaining price quotes from at least two
Small Businesses or two DVBEs.
Purpose of SB 967: According to the author's office, the
purpose of this bill is to ensure that good paying jobs
stay in California and that tax dollars are recycled so as
to fuel and strengthen California's economy. The author's
office notes that many state governments do not know how
many of their contracts are performed out of state, or
offshore.
Arguments in Support: Writing in support of this measure,
the California Labor Federation (CLF), the sponsor of this
measure, notes that working people in California are facing
the bleakest economy since the Great Depression with well
over 1 million jobs having been lost since 2007. Over the
past decade California has lost 25% of all manufacturing
jobs, once the backbone of the State's middle class. In
fact, the unemployment rate is at a 30-year high, with six
job seekers for every one job available.
The CLF states that SB 967 will create a 5% bid preference
in state contracts for goods and services for companies
that agree to hire California workers. The CLF argues that
this measure does not discriminate against out-of-state
companies - it simply rewards companies that are willing to
make an investment in California's workforce.
The CLF also points out that the State spends $35 billion
on state contracts and consultants every year - the CLF
emphasizes that money should be spent responsibly on
companies that will create jobs in California. The CLF
claims that fourteen other states have some form of bid
preferences in state contracts for resident companies,
companies that use local goods, or companies that hire
local workers.
Furthermore, the CLF maintains that investing in California
jobs does a great deal more than just reduce unemployment.
Specifically, "for every good job created, there's a
multiplier effect, as another family is able to put money
back into the economy again." In addition, "there is a
general fund savings as fewer working families are forced
to rely on the safety net."
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Arguments in Opposition: Opponents share the author's
desire to spur job creation and drive job retention in
California but are of the opinion that this measure will
not create the desired outcome.
Writing in opposition, the California Chamber of Commerce
(Chamber) argues that this measure potentially harms
existing trade relationships and may result in job loss for
Californians with trade related jobs. The Chamber claims
that one quarter of California's economy is dependent on
international trade and points out that California is a
signatory to several international trade agreements
allowing foreign companies equal access to bidding on state
contracts. The Chamber alleges that another potential
result of this "protectionism" legislation is retaliation
from other states which would make it difficult for
businesses to offer their goods and services in states
other than California.
Also writing in opposition, TechAmerica and the California
Manufacturers & Technology Association, agree that it is a
good idea to advance policies and initiatives aimed at
stimulating California job growth however, as currently
drafted these trade associations believe this measure would
fail to ensure such growth and instead will very likely (1)
increase the direct cost of information technology (IT)
products and services to the State and its taxpayers; (2)
decrease the likelihood of robust competition from multiple
competitive bids; (3) decrease the array of IT technology
options available to the State; all without an economic
benefit that will justify the increased cost and reduced
choices.
Additionally, these trade associations claim that there is
no easy way for the State to verify that 90% of a company's
employees working on the contract directly are California
residents. Vendors will have to begin tracking and
assigning work not based on who is best for the job, but
rather who lives where.
Furthermore, these trade associations contend that key
terms in the bill will be subject to varied interpretation,
e.g., "employee" (part or full time, independent
SB 967 (Correa) continued
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contractor?); "performing work on the contract" (does that
mean any work or substantial work - what about one time
work or an hour of work?). These associations believe that
introducing difficult-to-specify terms could result in more
post-award legal challenges by losing bidders, thus
creating more delay and increasing total costs to the State
for the procurement.
TechAmerica has agreed to remove its opposition provided
the author of SB 967 amends the measure to exempt
procurements for IT products or services.
PRIOR/RELATED LEGISLATION
SB 1249 (Ducheny) 2009-10 Session. Would authorize DGS to
use an additional criterion in the contract bidding and
procurement process that takes into consideration the
relative economic benefit to California in considering bids
for goods and/or services. (Pending in this Committee)
SB 1108 (Price) 2009-10 Session. Would authorize DGS to
direct all state agencies, departments, boards and
commissions to establish and achieve a goal of 25% small
business participation in state procurements and contracts.
(Pending in this Committee)
AB 177 (Ruskin) 2009-10 Session. Would increase and
conform penalties for persons who falsely engage in
activities relating to the Small Business Procurement and
Contract Act, including small businesses, microbusinesses,
and disabled veteran-owned business enterprises. (Pending
in this Committee)
AB 31 (Price) Chapter 21, Statutes of 2009. Made several
key changes to state procurement procedures including
increasing the maximum contract threshold amount for awards
to a small business and disabled veteran business
enterprise, under a specific streamlined procurement
process, from $100,000 to $250,000.
AB 761 (Coto) Chapter 611, Statutes of 2007. Requires each
state agency awarding contracts financed with proceeds from
the infrastructure bonds approved by the voters in November
2006, to establish a 25% small business participation goal
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for state infrastructure construction contracts and to
provide specified assistance to small businesses bidding on
state infrastructure bond-related contracts.
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 348 (Arambula) Chapter 185, Statutes of 2005.
Authorized a small business to self certify, under penalty
of perjury, that the business is an eligible small business
to sell goods and provide services to state and local
governments.
AB 1654 (De La Torre) 2005-06 Session. Similar to SB 967
(Correa) of 2010. (Died in Assembly Appropriations
Committee)
SUPPORT: As of April 9, 2010:
California Labor Federation (sponsor)
American Federation of State, County and Municipal
Employees (AFSCME)
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Peace Officers' Association
California Police Chiefs Association
California State Employees Association
California Teamsters Public Affairs Council
Engineers and Scientists of California, IFPTE Local 20
International Longshore and Warehouse Union
Jockeys' Guild
Professional and Technical Engineers, IFPTE Local 21
United Food and Commercial Workers Region 8 States Council
UNITE-HERE
OPPOSE: As of April 9, 2010:
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California Chamber of Commerce
California Manufacturers & Technology Association
TechAmerica
FISCAL COMMITTEE: Senate Appropriations Committee
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