BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 967|
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THIRD READING
Bill No: SB 967
Author: Correa (D) and DeSaulnier (D), et al
Amended: 6/1/10
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE : 7-0, 4/13/10
AYES: Wright, Calderon, Florez, Negrete McLeod, Oropeza,
Price, Yee
NO VOTE RECORDED: Harman, Denham, Padilla, Wyland
SENATE APPROPRIATIONS COMMITTEE : 7-3, 5/27/10
AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
NOES: Denham, Walters, Wyland
NO VOTE RECORDED: Cox
SUBJECT : Public contracts: bid preferences
SOURCE : California Labor Federation, AFL-CIO
DIGEST : This bill requires, on or before July 1, 2011,
that a five percent 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 of 2009, to
contractors who substantiate that 90 percent of their
employees performing work on the contract are residents of
California.
ANALYSIS : Existing law governs the solicitation, review
and award of state contracts and establishes various
CONTINUED
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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.
This bill:
1. Provides that, on or before July 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 (American Recovery
and Reinvestment Act of 2009 [ARRA]), shall provide a
credit of five percent of the bid price or quotation to
a business that directly provides the goods or services
and certifies that at least 90 percent of the business'
employees that would work on the contract are California
residents.
2. Stipulates that in order to be eligible for the five
percent 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 July 1, 2011, that DGS establish
a process to verify that a business meets the criteria
for the five percent credit.
4. Makes various legislative findings and declares that the
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purpose of this Act is to revive local communities by
creating new jobs and stimulating the economy.
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, Statutes of
1989). 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
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 percent small business
participation goals, and the third set a three percent DVBE
participation goal for all state procurement contracts.
The fourth EO set a 25 percent participation goal for state
construction contracts, particularly those awarded by the
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 five
percent in order to make them more competitive as a low
bidder. Preferences can currently be given for small
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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 five percent bid preference
to certified small businesses and may offer up to a five
percent 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
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Bid preference Unknown, but significant annual state
costs, General/
potentially in the millions to tens of
millions Special/
of dollars, to the extent state
contracts are Federal*
awarded to other than the lowest bidder
due
to the preference; also, to the extent
the
residency requirement dissuades
contractors
from bidding on state contracts, costs
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may
increase due to reduced competition
Contract administration Unknown, but significantcosts
to General/
determine compliance with the
residencySpecial/
requirement
Federal
* ARRA funds
SUPPORT : (Verified 6/1/10)
California Labor Federation, AFL-CIO (source)
American Federation of State, County and Municipal
Employees
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Peace Officers' Association
California Police Chiefs Association
California Small Business 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
Sacramento Black Chamber of Commerce
United Food and Commercial Workers Region 8 States Council
UNITE-HERE
OPPOSITION : (Verified 6/1/10)
California Chamber of Commerce
California Manufacturers and Technology Association
TechAmerica
ARGUMENTS IN SUPPORT : The California Labor Federation
(CLF), the bill's sponsor, notes that working people in
California are facing the bleakest economy since the Great
Depression with well over one million jobs having been lost
since 2007. Over the past decade, California has lost 25
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percent 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 this bill will create a
five percent 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 14 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."
ARGUMENTS IN OPPOSITION : Writing in opposition, the
California Chamber of Commerce argues that this bill
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 and Technology Association agree that it is a
good idea to advance policies and initiatives aimed at
stimulating California job growth however, as currently
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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, and (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 percent 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
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.
TSM:mw 6/1/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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