BILL ANALYSIS
SB 967
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Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 967 (Correa) - As Amended: June 1, 2010
SENATE VOTE : 23-13
SUBJECT : Public contracts: bid preferences.
SUMMARY : Requires a 5% bid preference be provided on state
contracts for goods and services, including contracts funded by
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 California
residents, by July 1, 2011. Specifically, this bill :
1)Requires, by July 1, 2011, any state agency that accepts bids
or proposals for goods or services, including ARRA-funded
contracts, shall provide a 5% credit of the bid price or
quotation to a business that directly provides the goods or
services and certifies that at least 90% of their employees
performing work on the contract are California residents. The
preference shall be provided as follows:
a) For contracts awarded to the lowest responsible bidder,
the bid preference shall be 5% of the lowest responsible
bidder, and:
b) For contracts awarded to the highest scored bidder, the
bid preference shall be 5% of the total score of the
highest responsible bidder.
2)Requires a business to submit all the necessary substantiating
documentation and information to the appropriate state agency
in order to be eligible for the 5% credit.
3)Requires the Department of General Services (DGS), by July 1,
2011, to establish a process to verify that a business meets
the criteria for the 5% credit.
4)Makes legislative findings and declarations.
EXISTING LAW :
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1)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 DGS to administer the Small Business
Procurement and Contract Act (Small Business Act), including,
but not limited to, small business, microbusinesses and DVBE
certification processes.
2)Requires the DGS and state agencies entering into contracts
for goods, services, information technology, and construction,
to establish small business participation goals, provide for
small business bid preferences, and provide assistance to
small businesses, under the Small Business Act.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "With
record unemployment, California must do everything in its power
to spur job creation - an even bigger challenge when facing a
budget deficit. With so many Californians out of work, taxpayer
money should not be spent on contracts that simply create jobs
in other states or countries. Bid preferences are a way to use
state dollars to incentive certain behavior. In this case, we
want to spur the creation of California jobs.
"Nearly every state has bid preferences for state contracts.
[There are] 14 states [that] have local bid preferences for
resident companies in goods, services, or public works
contracts: Alaska, Arkansas, California (limited to military
bases), Colorado, Delaware, Louisiana, Montana, New Mexico,
Nevada, Pennsylvania, South Carolina, Virginia, West Virginia,
and Wyoming. Other states have preferences for
state-manufactured goods and hiring state residents (i.e.,
Alaska, Idaho, Montana, and West Virginia).
"Legislation would grant a 5% bid preference to a company that
can certify that 90% of workers performing work on that contract
would be California residents. This bill does not discriminate
against out-of-state businesses and focuses only on the workers
hired to perform the specific contract. This bill would not
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apply to public works contracts."
Background . Current law provides 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 businesses in general, in economically target areas,
in economically distressed areas, and that are DVBEs. The
maximum amount provided for each qualifying bid preference is
$50,000 with a total bid preference maximum of $100,000. This
means that contractors with bids of up to $100,000 more 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 and directly contracting
with a California small business or DVBE for goods, services,
and information technology valued more than $5,000 or less than
$250,000 after obtaining price quotes from at least two small
businesses or two DVBEs.
In response to the national economic crisis, the ARRA of 2009,
has three immediate goals: to create new jobs and save existing
ones, to spur economic activity and invest in long-term growth,
and to foster unprecedented levels of accountability and
transparency in government spending. From February 2009 to
March 2010, 2,689 contracts worth $2.3 billion were awarded in
California using ARRA funds, with approximately 3,653 jobs
created.
The author's office contends that providing a bid preference to
contractors that employ California residents will benefit the
state because personal income and sales taxes resulting from
those employees will increase revenue for the state and reduce
the number of unemployed individuals relying on government
assistance programs.
Support . According to the sponsor, the California Labor
Federation, "Working people in California face the bleakest
economy since the Great Depression. We have lost 1 million jobs
since 2007. Over the past decade, we have lost 25% of all
manufacturing jobs, once the backbone of California's middle
class. The unemployment rate is at a 30-year high, with six job
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seekers for each job available. This economy has wrecked havoc
on the state budget and public services have been slashed, while
public employees have seen widespread layoffs, furloughs, and
pay cuts. Mounting job losses come on the heels of the mortgage
meltdown, putting families at greater risk of their homes. Even
the new jobs created last month couldn't outweigh continued job
losses, and the unemployment rate inched even higher to 12.5%.
"At a time of budget shortfall, there is little the state can do
directly to create jobs. One important tool we have is the use
of public dollars. Taxpayer funds can either go to corporations
that pay substandard wages in other states or countries or they
can go to create good jobs here in California. This bill will
create a 5% bid preference in state contracts for goods and
services for companies that agree to hire California workers.
It does not discriminate against out of state companies; it
simply rewards companies who are willing to make an investment
in California's workforce."
Opposition . According to the California Chamber of Commerce,
"Providing bid preferences for bidders with the commitment that
90% of the work will be performed by California employees will
not create the desired outcome. Instead, by limiting the
bidders, competition is reduced, which results in less choice
and higher prices. Another potential result of protectionism
legislation is retaliation from our trade partners - other
states and international trade partners. To the extent that
California limits bidders, California companies could be
penalized in trade with other states and other nations. This
practice creates a patchwork of reciprocity and retaliation that
makes it difficult for businesses to offer their goods and
services in states other than California.
"Implementing the proposed statute will be difficult and likely
subject to litigation as there is no bright line test to
determine which employees or independent contractors 'perform
work on the contract'? Is an employee that performs an internal
audit on the contract an employee that is working on the
contract? Such ambiguity is open to interpretation and
therefore subject to litigation that may negate the economic
benefits to the contractor."
REGISTERED SUPPORT / OPPOSITION :
Support
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California Labor Federation (sponsor)
American Federation of State, County and Municipal Employees
California Peace Officers' Association
California Police Chiefs Association
California Professional Firefighters
California State Employees Association
Sacramento Black Chamber of Commerce
Opposition
California Chamber of Commerce
California Manufacturers & Technology Association
Long Beach Area Chamber of Commerce
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301