BILL ANALYSIS �
AB 150
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Date of Hearing: April 12, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AB 150 (Perea) - As Amended: April 4, 2011
SUBJECT : Statutory Goals for Small Business Participation in
Public Contracts
SUMMARY : Authorizes the Department of General Services (DGS) to
direct all state entities to establish the goal to achieve not
less than 25% small business participation and not less than 3%
disabled veteran business enterprise (DVBE) participation in
state procurement contracts, as specified. Specifically, this
bill :
1)Encourages small business and DVBE to participate in state
contracts by giving DGS the ability to direct all state
agencies, departments, boards and commissions to achieve no
less than the 25% small business procurement goal and not less
than 3% DVBE procurement goal.
2)Requires state entities to implement a procurement and
contract process to meet the stated procurement goals and to
report to DGS, on an annual basis, statistics regarding small
business and DVBE participation.
3)Authorizes DGS to establish policies and procedures to monitor
the progress of all state entities toward meeting these
procurement participation goals, as well as regularly sharing
information with the Office of the Small Business Advocate on
their progress.
4)Authorizes DGS to request an implementation and corrective
action plan from state entities that fail to meet fiscal year
goals.
5)Authorizes DGS to undertake reasonable means to assist
agencies in improving small business participation rates.
6)Requires DGS to establish policies within the State
Administrative Manual and the State Contracting Manual for all
state entities in using the small business preference.
7)Requires DGS to actively promote small business and DVBE state
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certification.
8)Specifies that the proposals in this bill become effective
July 1, 2012.
EXISTING LAW:
1)Designates DGS as the administrator the state Small Business
Procurement and Contract Act (Small Business Act), including,
but not limited to, a small business certification process, a
streamlined procurement process for state contracts from
$100,000 to $250,000, and a preference for bids made by
certified small business and microbusinesses.
2)Establishes a 25% procurement participation goal, through
Executive Order, for state agencies to contract with small
business.
3)Establishes a 25% small business participation goal for
contracts financed with the proceeds of the
infrastructure-related bond acts of 2006.
4)Establishes a 3% DVBE contract participation goal for state
entities when state moneys are used for construction, goods
and services.
5)Establishes a 5% preference for bids made by certified small
business and microbusinesses for the award of state
procurement contracts. A single bid preference is limited to
$50,000. Non-small business must subcontract at least 25% of
their contract with a small business to qualify for the small
business bidders' preference.
6)Requires DGS to establish a DVBE contract preference incentive
to be used by state agencies when awarding contracts.
7)Defines a small business as independently owned, not dominant
in its field of operation, domiciled in California, employing
100 or fewer employees, and earning $14 million or less in
average annual gross revenues for the three previous years.
8)Defines a DVBE as a business entity that is at least 51% owned
or controlled by one or more disabled veteran, as specified.
FISCAL EFFECT : Unknown
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COMMENTS :
1)Purpose of the bill : According to the author, "Historically,
small businesses have functioned as economic engines,
especially in challenging fiscal times. Small business is a
key economic driver of job growth and economic development and
continues to play a leading role in the state's economy. The
unemployment rate in California as a whole is 12.4%, however,
the statistics are much worse in a lot of areas throughout the
state. There are currently eight counties with unemployment
rates above 20%. Too many cities are in dire need and
currently struggle with close to 50% unemployment rate."
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 $1.9 trillion economy.
Businesses with less than 100 employees comprise nearly 98% of
all businesses, and they are responsible for employing more
than 37% of all workers in the state.
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 57,461 companies that
exported goods from California in 2008, 96% were small- and
medium-sized enterprises (SME) with fewer than 500 employees.
These SMEs generated nearly two-fifths (44%) of California's
exports in 2008. Nationally, SMEs represented only 31% of
total exports. These numbers include the export of only goods
and not services.
Small businesses function as economic engines, especially in
challenging economic times. During the nation's economic
downturn from 1999 to 2003, microenterprises (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. According to a
2010 report from the California Senate Office of Research, in
2008 microenterprises employed four million people or 19% of
the state's employment. Common types of microenterprises
include engineering, computer system design, housekeeping,
construction, landscaping, and personnel services.
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3)The Small Business Act : The Small Business Act (SBA),
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
disabled veteran owned business enterprise (DVBE) component
was added to state procurement practices.
Since 2001, there have been four Executive Orders (EOs)
specifying a 25% goal for small business and a 3% 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). Statutory advancements were also made to
strengthen the SBA including SB 115 (Florez), Chapter 451,
Statutes of 2005, which required DGS to establish a DVBE
incentive program for state contracts; and AB 761 (Coto),
Chapter 611, Statutes of 2007, which specifically codified the
25% small business participation goal for contracts related to
revenues expended from the 2006 infrastructure bonds.
Despite the longstanding existence of the SBA, statutory
upgrades, and EOs, the state's success in achieving small
business and DVBE participation goals in state procurement
contracts has been inconsistent.
For only the second time since the small business
participation target was established in 2001, DGS has reported
the state achieved its small business target by awarding
28.31%, or ($2.65 billion), of the value of all contracts to
small businesses in 2006-07. This represents a $1.3 billion
increase in contracts from 2005-06. The state did not achieve
its 3% DVBE participation goal in 2006-07 as only 2.8% of
contract dollars, ($186 million) was awarded in contracts
including DVBE participation. Although a consolidated report
is required to be produced every year, the 2006-07 is the most
current data.
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.
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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,
$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)Proposed amendments : Staff understands that the author will
propose amendments that do the following:
a) Include women and minority businesses as part of the 25%
small business contract participation goal;
b) Make technical non-substantive changes.
6)Related legislation : Below is a list of related legislation
from both previous and current legislative sessions:
a) AB 31 (Price) Public Contracts: Small Business
Procurement and Contract Act : This bill makes several key
changes to state procurement procedures including
increasing the maximum contract threshold amount for awards
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to a small business and DVBE, under a specific streamlined
procurement process, from $100,000 to $250,000. Further,
the bill required contractors that made contract
commitments to include small business or DVBE participation
to report the final percentage of the contract actually
paid to these entities. Status: This bill was signed by
the Governor, Chapter 212, Statutes of 2009.
b) AB 309 (Price) Public Contracts: Small Business
Participation : This bill would have 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: This bill was held under
submission by Assembly Appropriations Committee in 2009.
c) AB 761 (Coto) Small Business Procurement: State
Infrastructure Construction Goals : This bill requires 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: This bill was signed by the Governor,
Chapter 611, Statutes of 2007.
d) AB 2773 (Price) Public Contracts: Small Business
Procurement and Contract Act: This bill would have
increased the maximum contract threshold amount for awards
to small business, including microbusiness and DVBEs under
the streamlined procurement 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 the final
percentage of the contract actually paid to these entities.
Status: This bill was held under submission in Senate
Appropriations Committee in 2008.
e) SB 67 (Price) Public Contracts: Small Business
Participation: This bill requires the establishment of a
25% small business participation goal for all state
entities and directs the Department of General Services
(DGS) to monitor each agency's progress in meeting this
goal. Status: Pending in Senate Appropriations Committee,
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set for hearing April, 11, 2011.
f) SB 115 (Florez) California DVBE Program : This bill
makes various changes to the DVBE Program, including
requiring DGS to establish a state agency-wide mandatory
DVBE participation incentive. The bill also requires the
DGS Small Business Advocate to provide specified services
to small businesses and certified DVBEs. Additionally,
this bill requires DGS to adopt a streamlined reporting
procedure for state agencies to use in reporting their DVBE
participation to the Department of Veterans Affairs.
Status: The bill was signed by the Governor, Chapter 451,
Statutes of 2005.
g) SB 1108 (Price) Public Contracts: Small Business
Participation: This bill would have made 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. Status: This bill was
held under submission in Senate Appropriations Committee in
2010.
7)This bill is double referred to the Assembly Committee on
Business, Professions and Consumer Protection.
REGISTERED SUPPORT / OPPOSITION :
Support
California Hispanic Chambers of Commerce
Coalition of Small and Disabled Veteran Businesses
Greater Fresno Area Chamber of Commerce
National Federation of Independent Business
Natoma Technologies
Small Business California
Opposition
Construction Employers Association
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Analysis Prepared by : Toni Symonds/Mercedes Flores / J., E.D.
& E. / (916) 319-2090