BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 1341
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: price
VERSION: 2/19/10
Analysis by: Art Bauer FISCAL: No
Hearing date: May 4, 2010
SUBJECT:
Los Angeles County Metropolitan Transportation Authority (METRO)
contracting practices
DESCRIPTION:
This bill relates to preferences in contracting for small
business enterprises at METRO.
ANALYSIS:
In 1996, California voters approved Proposition 209, which
amended the California Constitution to preclude granting
preferences on the basis of race, sex, color, ethnicity, or
national origin in the operation of public employment, public
education, or public contracting. The provision does not apply
to federal contracting requirements. In response to Proposition
209, METRO adopted a local ordinance that provides a preference
to small businesses and is not inconsistent with the provisions
of Proposition 209. This bill endeavors to codify the small
business preference requirements.
Existing law governing METRO procurement:
1) Requires that construction contracts in excess of
$25,000 be awarded to the lowest responsible bidder.
2) Requires that contracts involving the purchase of
supplies, equipment, and materials in excess of $100,000 be
awarded to the lowest responsible bidder or to the bidder
that provides "best value" to METRO. To award contracts on
the basis of best value METRO must include in the
solicitation for a bid the evaluation criteria that will be
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used to determine best value.
3) Defines value as the "overall combination of quality,
price, and other elements of a proposal that, when
considered together, provide the greatest overall benefit
in response to requirements described in the solicitation
documents."
This bill :
1) Adds to existing law the requirement that successful
bids for construction contracts and bids for supplies,
equipment, and materials must be "responsive" to the terms
of the bid solicitation documents as well as low cost. This
condition is also added to best value procurements.
2) Authorizes METRO to grant a small business preference on
contracts with a value in excess of $100,000 for
design-build services, the procurement of goods, or the
delivery of services a five percent bidding preference to
the lowest responsive and responsible bidder or best value
proposer, if the firm is a small businesses and a prime
contractor.
3) Establishes for the lowest responsive and responsible
bidder or best value proposer a subcontracting
participation goal for small businesses of five percent on
contracts with a value in excess of $100,000 and financed
with nonfederal funds.
4) Requires bidders and proposers to make a good faith
effort to secure the services of small business enterprises
and establishes procedures to demonstrate a good faith
effort, including requiring attendance at pre-bid
conferences, identification of services and skills
available to small business subcontractors, advertising for
services and in trade publications, assisting potential
subcontractors in obtaining bonds and insurance, and other
related conditions.
5) Defines a small business enterprise as meeting the
definitions of the Small Business Administration
appropriate to the type of work.
6) Authorizes METRO to deny small business enterprise
eligibility to any concern that has average annual gross
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receipts greater than $22 million over the previous three
fiscal years, or to an individual with a net worth,
excluding their residence, that exceeds $1 million. METRO
is authorized to adjust these amounts to inflation.
COMMENTS:
1) Purpose . The purpose of this bill is to create a process
to establish a small business participation goal of five
percent for construction projects, services, and the
acquisition of supplies funded with local, state, or other
nonfederal sources of revenue. Under the terms of the
California Constitution business participation goals
associated with public contracting cannot be race or gender
based. This bill meets that test.
2) Architectural and Engineering (A&E) services are not
covered by this bill . A&E firms are not covered by this
bill. The procurement of A&E are governed by Proposition
35-Public Works Projects and the Use of Private Contractors
for Architectural and Engineering Services which amended
the California Constitution to permit all public agencies
in the state to contract with qualified architectural and
engineering firms for professional services on all public
works projects. Proposition 35 defined in statue
architectural and engineering services to include
architectural, landscape architectural, environmental,
engineering, land surveying, and construction management
services.
In this regard, the bill includes among the category of
services subject to the five percent preference
design-build services. Design-build is a procurement
process that involves the selection of a team based on a
combination of best value and cost that consists of A&E
firms and construction firms. For purposes of
clarification, the committee may wish to amend the bill on
page 3, line 35 to strike "design-build" and insert "for
the construction component of a design-build team." This
would ensure that there would be no confusion about the
role of A&E firms when forming a design-build team.
3) Application of the preference . The manner for applying
the preference is that METRO would reduce by five percent
bids for construction or supplies and the cost proposal for
services. It is conceivable that a small business pursuing
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a contract as a prime contractor could receive a ten
percent preference if the firm used other small businesses
as subcontractors.
4) Definition of small business enterprise may include
inconsistencies . The bill provides that a small business
designation shall be denied to any business that has
average annual gross receipts greater than $22 million over
the previous three fiscal years. In addition, the bill
cites the Small Business Administration (SBA) rules
governing the definition of a small business enterprise.
The SBA designation is not based on a fixed dollar amount.
The SBA summarizes its methodology for determining whether
a business may be classified as small as follows:
A size standard is the largest that a concern can
be and still qualify as a small business for the
Federal Government programs. For the most part,
size standards are the average annual receipts or
the average employment of a firm.<1>
The SBA does not rely upon a fix dollar amount to determine
whether a business is classified as small . Under the SBA
guidelines, a graphic design firm with more than $7 million
of gross receipts is not considered a small business. Under
this bill a graphic design firm making up to $22 million is
a small business. Another example of how this bill appears
to exclude an enterprise defined by the SBA as a small
business is found in the construction industry. The SBA
guidelines define a firm that constructs highways, streets,
and bridges with gross receipts of less than $33.5 million
as a small business. Because of the $22 million cap on the
gross receipts of a firm to be considered this type of firm
would not be considered small.
In a conversation with METRO staff, they were unable to
explain the inconsistency between using SBA guidelines to
classify a business as small and the $22 million cap. The
committee may wish to consider resolving this
inconsistency.
POSITIONS: (Communicated to the Committee before noon on
---------------------------
<1> U. S. Small Business Administration Table of Small Business
Size Standards Marched to the North American Industry
Classification System Codes , August 22, 2008.
SB 1341 (PRICE) PageE
Wednesday,
April 28, 2010)
SUPPORT: Los Angeles County Chapter of the American
Council of Engineering Companies of California
ACE Fence Company
AGS Architects
Aviva Spectrum
CK Management
Integrated Engineering Management
Langford and Carmichael
Lenax Construction Services
PJS&P Associates
R-T Welding and Fabrication
Selbert Perkins Design
Ultra Systems
Wincal Technology
Several additional letters were received.
OPPOSED: None received.