BILL ANALYSIS
SB 1108
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Date of Hearing: June 22, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
SB 1108 (Price) - As Amended: June 1, 2010
SENATE VOTE : 33-3
SUBJECT : Annual small business procurement goals
SUMMARY : Makes three enhancements to the Small Business
Procurement and Contract Act (Small Business Act) including
authorizing the implementation of a 25% small business
procurement goal, the development of specific administrative
procedures for implementing the small business preference and
requiring the state to take a more active role in promoting
certification of small businesses. Specifically, the bill :
1)Authorizes the Department of General Services (DGS) to
implement a statewide small business procurement participation
goal of 25%. Should DGS choose to make such a directive,
state entities will be required to report annual small
business participation rates. State agencies that fail to
meet their goals may be required to submit a corrective action
plan.
2)Requires DGS to develop and publish administrative management
policies in the State Administrative Manual (SAM) for
implementing the 5% procurement preference for bidders who are
certified small businesses or who commit to subcontracting a
portion of the contract to certified small businesses.
3)Requires DGS to actively promote certification of small
businesses.
4)Specifies that the proposals in this bill are effective July
1, 2011.
EXISTING LAW :
1)Designates the DGS to administer the state Small Business Act
and declares state policy that small businesses receive a fair
portion of the total purchases and contracts or subcontracts
for state goods, services, information technology, and
construction.
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2)Establishes, through Executive Order (EO), a 25% small
business procurement goal.
3)Establishes a 25% small business participation goal for all
contracts financed with the proceeds of the
infrastructure-related bond acts of 2006.
4)Defines a small business as an 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.
FISCAL EFFECT: According to the Assembly Appropriations
Committee analysis of a similar bill, implementation of this
bill could have an ongoing annual general fund cost of $300,000
for DGS and unknown GF costs, in excess of $500,000, for
workload associated with state agencies and departments
preparing annual reports. Further, to the extent that the 25%
small business procurement goal results in an increase in the
number of state contracts awarded to entities other than the
lowest bidder, state contracting costs will increase. However,
to the extent that this bill codifies an existing EO, these are
not additional costs to the GF.
COMMENTS :
1)Author's purpose : SB 1108 authorizes the Department of
General Services to direct state departments and agencies to
achieve the goal of 25% small business participation in
procurement and contracts and empowers DGS to assist agencies
in developing corrective action plans should departments and
agencies fail to meet the goal.
This bill codifies the Governor's EO S-02-06 and ensures that
some of the ground small businesses have gained in state
procurement and contracting within the last few years will
continue in the next administration, regardless of party.
Over the last two fiscal years, state agencies have met and/or
exceeded our state's 25% small business goal.
Codifying the Governor's EO will contribute to the continued
success of California small businesses in state procurement
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and contracting and support their role as a key driver of job
growth and economic development in the state's recovery
efforts.
2)California small business : California's dominance in many
economic areas is based, in part, on the significant role
small businesses play in the state's $1.8 trillion economy.
Businesses with fewer than 100 employees comprise nearly 98%
of all businesses, and are responsible for employing more than
37% of all workers in the state.
As an example, small- and medium-sized businesses are crucial
to the state's international competitiveness and are an
important means for dispersing the positive economic impacts
of trade within the California economy. Of the over 55,878
companies that exported goods from California in 2007, 95%
were small- and medium-sized enterprises (SMEs) with fewer
than 500 employees. These SMEs generated more than two-fifths
(44%) of California's exports in 2007. Nationally, SMEs
generated only 30% of total exports.
Historically, small businesses have functioned as economic
engines, especially in challenging economic times. During the
nation's economic downturn from 1999 to 2003, businesses with
less than five employees created 318,183 new jobs or 77% of
all employment growth, while larger businesses with more than
50 employees lost over 444,000 jobs. From 2000 to 2001,
microenterprises created 62,731 jobs in the state, accounting
for nearly 64% of all new employment growth.
Unfortunately during the current recession, small business in
California have been especially hard hit and have been unable
to play their previous roles in economic recovery. Equifax
Inc. reports that small business bankruptcies are up 81% for
the 12 months ending September 2009, as compared to the same
period in the previous year. Nationally, bankruptcy filings
were up 44%.
Because of their importance in the state economy, small
business issues have been a particular focus of the Assembly
Committee on Jobs, Economic Development and the Economy (JEDE)
for the past several years. In March 2009, JEDE produced a
state economic recovery strategy that included several key
recommendations on the needs of small business, including
helping small businesses meet their short-term capital needs,
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the need for regulatory reforms, and workforce development
programs that are linked to the needs of businesses.
3)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.
Since 2001, there have been two Executive Orders (EOs)
specifying a 25% goal for small business procurement
contracts, including EO D-37-01 (2001) and EO S-02-06 (2006).
The 25% procurement goal was also codified for contracts
related to the expenditure of moneys obtained through the sale
of the 2006 infrastructure bonds, AB 761 (Coto), Chapter 611,
Statutes of 2007.
Notwithstanding the longstanding existence of the SBA,
statutory upgrades, and EOs, the state's success in obtaining
small business participation goals in state procurement
contracts has been inconsistent.
For only the third time since the small business participation
target was established in 2001, DGS has reported that in
2008-09 the state achieved its small business target by
awarding $2.5 (26.88%) of the $8.92 billion in total state
contracts to small businesses. Since 2006-07 $8 billion in
state contracts has been awarded to small businesses.
4)Tools for achieving participation goals : In order to assist
state entities to reach the small business participation
goals, contracting entities are provided a number of specific
tools, including a streamlined procurement method, bid
preferences, and lead small business procurement contacts at
every agency.
Under the streamlined procurement process, the awarding state
entity is authorized to bypass the advertising, bidding, and
protest provisions in the State Contract Act. This allows a
contract to be awarded directly to a certified small business
at a contract price established by checking the proposed rate
with two other small businesses. Contracts offered under the
streamlined procurement process are currently limited to
contracts between $5,000 and $250,000. Of the $2.5 billion
of state contracts that were awarded to small businesses,
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$225.4 million (17,310 contracts) were awarded through the
streamlined procurement process. The actual number may be
higher as only 78 of 124 departments reported their small
business procurement activities to DGS.
Certified small business bidders and other bidders that commit
to using certified small businesses are also eligible for a 5%
bid preference where the solicitations are made either on the
basis of lowest responsible dollar bid, or on the basis of
highest score, considering factors in addition to price. A
single bid preference is limited to $50,000. SB 1108 proposes
that DGS develop administrative policies for better
implementing this preference.
Another important component of the state's effort to increase
small business participation in state contracts is through the
work of the Small Business Advocate and the network of small
business liaisons. Under existing law, every state agency is
also required to have a single point of contact for small
business state procurement opportunities.
5)State Administrative Manual : Initially developed by the
Department of Finance (DOF) in 1953, the SAM serves as a
reference source for statewide policies, procedures,
regulations and other information related to business
management functions and services. The SAM is periodically
updated as a means to improve statewide management practices.
In 1990, responsibility for maintaining the SAM was
transferred to DGS.
DGS also coordinates the updating of the State Contracting
Manual (SCM) which contains policies, procedures, and
guidelines for contracting services. While limited to service
contracts, the SCM currently includes references to the small
business contract report and the small business preference
request. The author may want to consider directing DGS to
also include and/or update small business preference policies
in the SCM, as well as the SAM.
6)Related legislation : Below is a list of related legislation.
a) AB 31 (Price) - Small Business Streamlined Contracting
Process: This bill increased the maximum contract
threshold amount for awards to small business, including
microbusiness and DVBEs under the streamlined procurement
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process, from $100,000 to $250,000, as specified. Further,
the bill required contractors that made contract
commitments to include small business or DVBE participation
to report those final percent of the contact actually paid
to these entities. Status: Signed by the Governor,
Chapter 212, Statutes of 2009.
b) AB 309 (Price) - 25% Small Business Goals for all State
Contracts : This bill required the establishment of a 25%
small business participation goal for all state entities
and directed the Department of General Services (DGS) to
monitor each agency's progress in meeting this goal.
Status: Held in Assembly Appropriations Committee in May
2009.
c) AB 761 (Coto) - 25% Small Business Goal for GO Bonds :
This bill required 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. Status: Signed by
the Governor, Chapter 611, Statutes of 2007.
d) AB 177 (Ruskin and V. Manuel P?rez) - Penalties under
the Small Business Act : This bill increases and conforms
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. Status: The
bill is pending in Senate Veterans Affairs.
7)Double Referral : The Assembly Committee on Rules has referred
this measure to both the Assembly Committee on Jobs, Economic
Development and the Economy and the Assembly Committee on
Business, Professions and Consumer Protection (BP&CP). Should
this measure pass JEDE, it will be referred BP&CP for further
policy consideration.
REGISTERED SUPPORT / OPPOSITION :
Support
California Small Business Association
Coalition of Small and Disabled Veteran Businesses
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Kern Minority Contractors Association
National Federation of Independent Business
Natoma Technologies of Sacramento
San Francisco Board of Supervisors
San Joaquin Valley Black Contractors Association
Small Manufacturers Association of California
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090