BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 967|
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UNFINISHED BUSINESS
Bill No: SB 967
Author: Correa (D) and DeSaulnier (D), et al
Amended: 8/16/10
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
SENATE FLOOR : 23-13, 6/2/10
AYES: Alquist, Calderon, Cedillo, Corbett, Correa,
DeSaulnier, Ducheny, Florez, Hancock, Kehoe, Leno, Liu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price,
Romero, Simitian, Steinberg, Wolk, Wright, Yee
NOES: Aanestad, Ashburn, Cogdill, Cox, Denham, Dutton,
Harman, Hollingsworth, Huff, Runner, Strickland, Walters,
Wyland
NO VOTE RECORDED: Oropeza, Wiggins, Vacancy, Vacancy
ASSEMBLY FLOOR : 51-26, 8/30/10 - See last page for vote
SUBJECT : Public contracts: bid preferences
SOURCE : California Labor Federation, AFL-CIO
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DIGEST : This bill requires, on or before July 1, 2011,
that a five percent bid preference be provided on state
contracts for goods or services exceeding $1 million,
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.
Assembly Amendments apply the bill's provisions to
contracts exceeding $1 million, and specify that these
bidding preferences do not apply to contracts that are
subject to the State Contract Act and contracts for
specified professional services.
ANALYSIS : 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.
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 exceeding $1 million, or for the
distribution of funds pursuant to the federal Stimulus
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Act (American Recovery and Reinvestment Act of 2009
[ARRA]), shall provide a preference of five percent of
the bid price or total score 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 preference, a business must submit all required
substantiating documentation and information needed by
the state agency to determine if the business is
eligible for the preference.
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 preference.
4. Specifies that these bidding preferences are not
applicable to contracts that are subject to the State
Contract Act and contracts for specified professional
services.
5. 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Assembly Appropriations Committee, unknown
but significant annual state costs (General Fund and
special funds), potentially in the millions of dollars, to
the extent state contracts are awarded to other than the
lowest bidder due to the preference. In 2008-09, 110
contracts exceeded $1 million. The total cost of these
contracts was $402 million. Also, to the extent the bill
dissuades some businesses from bidding on state contracts,
costs could increase due to reduced competition.
Similarly, to the extent the ARRA funds were awarded to
other than the lowest bidder, fewer projects would be
funded within the state allotment of ARRA dollars. To the
extent application of the bid preference results in more
employment of California residents, the increased state
costs would be offset to some extent by increased income
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and sales tax revenues. Significant administrative costs
for state contracting agencies to verify compliance with
the 90 percent residency requirement for successful bidders
that receive the bid preference. DGS will incur one-time
costs of approximately $150,000 and ongoing costs of at
least $250,000 for this work, including auditing
compliance. State agencies with significant contracting
workload would also incur some administrative costs.
Comments
According to the author, "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.
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 apply to public
works contracts."
Current law provides 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 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 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 and directly contracting with a
California small business or DVBE for goods, services, and
information technology valued more than $5,000 or less than
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$250,000 after obtaining price quotes from at least two
small businesses or two DVBEs.
SUPPORT : (Verified 8/26/10)
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 8/26/10)
California Chamber of Commerce
California Manufacturers and Technology Association
Long beach Area Chamber of Commerce
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
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
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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
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
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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.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Charles
Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De
Leon, Eng, Evans, Feuer, Fong, Fuentes, Furutani,
Galgiani, Gatto, Hall, Hayashi, Hernandez, Hill, Huber,
Huffman, Jones, Lieu, Bonnie Lowenthal, Ma, Mendoza,
Monning, Nava, V. Manuel Perez, Portantino, Ruskin,
Salas, Saldana, Skinner, Solorio, Swanson, Torlakson,
Torres, Torrico, Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Conway, Cook, DeVore, Fletcher, Fuller, Gaines, Garrick,
Gilmore, Harkey, Jeffries, Knight, Logue, Miller,
Nestande, Niello, Nielsen, Norby, Silva, Smyth, Audra
Strickland, Tran, Villines
NO VOTE RECORDED: Hagman, Vacancy, Vacancy
TSM:mw 8/31/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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