BILL ANALYSIS �
AB 1783
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Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AB 1783 (Perea) - As Amended: April 10, 2012
SUBJECT : Public contracts: small business preferences
SUMMARY : Requires the Department of General Services (DGS) to
publish on the department's website, and make available to local
agencies, a list of small businesses and microbusinesses that
have been certified as such by DGS.
EXISTING LAW:
1)Designates DGS as the administrator of the state Small
Business Procurement and Contract Act (Small Business Act),
including, but not limited to, a small business certification
process, a procurement process for state contracts of up to
$250,000, and a preference for bids made by certified small
business and microbusinesses.
2)Establishes a 25% annual procurement participation goal,
through Executive Order, for specific state entities 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 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 businesses must subcontract at least 25%
of their contracts with small business to qualify for the
small business bidder's preference.
5)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.
FISCAL EFFECT : Unknown
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COMMENTS :
1)Author's purpose: According to the author, "AB 1783 will save
time and money for our state and local government agencies as
well as the small business community. Allowing a small
business to become certified to contract with any agency in
California by filling out just one form would provide a more
business friendly process and help increase the number of
California Certified Small Businesses.
Currently, in order to take advantage of business
opportunities, such as government contracts, businesses may
need to obtain specific and repetitive certifications. The
process can be time consuming, burdensome, disruptive and
costly.
The state already has a process to determine if a small
business meets the requirement to be a certified small
business. The bill would alleviate staff workload at local
agencies by not requiring a small business to go through a
repetitive certification process."
2)Federal Small Business Preference Program : The federal Small
Business Act directs all federal agencies to have the maximum
practicable opportunity for small businesses to participate in
providing goods and services to the government. In practice,
the Small Business Administration negotiates annual small
business procurement preference goals with each federal agency
and reviews each agency's results.
3)State Small Business Certification : DGS is responsible for the
certification of small businesses for purposes of the state's
small business preference. To become certified, DGS requires
small businesses and microbusinesses to submit a single
application, and supporting documentation, certifying that
they:
a) Are independently owned and operated;
b) Not dominant in their field of operation;
c) Have their principal office in California;
d) Have owners (officers, if a corporation) domiciled in
California; and
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e) Meet threshold employee head count and annual revenues.
At the local level, individual jurisdictions manage the
certification of small businesses and microbusinesses for
purposes of local preferences. While some jurisdictions have
signed memorandums of understanding with DGS agreeing to
consider certified for purposes of local preferences any small
business or microbusiness that has been certified at the state
level, only a few jurisdictions participate. As a result,
many jurisdictions require small and microbusinesses to repeat
the certification process at the local level in a process that
is often duplicative of state certification.
While AB 1783 does not require that local jurisdictions use
the list of certified small businesses and microbusinesses
produced by DGS, it does provide local jurisdictions with the
option of using it as a reference for certifying small
businesses for local preferences.
1)Overview of the national and California economy:
Post-recession analysis traditionally divides the economic
cycle into two stages: recovery and expansion. Recovery
describes the period of GDP growth occurring after the economy
hits bottom, or the "trough," and gives way to expansion when
GDP growth surpasses its previous peak. Given this
definition, the national economy entered the expansion phase
of the economic cycle during the third quarter of 2011, when
annualized GDP reached $13.38 trillion, surpassing the
previous GDP peak of $13.36 trillion in the fourth quarter of
2007. At a more practical level, the U.S. economy added an
average 152,000 net new jobs a month in 2011. In December
2011 and January 2012, however, the economy added 203,000 and
243,000 net new jobs respectively, pushing national
unemployment down to 8.3%.
At the state level, the California economy has also been
improving at a steady pace. Between 2010 and 2011,
unemployment fell from a high of 12.4% to 11.8% in 2011. In
January 2012 the unemployment rate fell even further to 10.9%,
its lowest rate in three years. In terms of nonfarm jobs
gains from 2010 to 2011, the state outperformed the national
labor market with 1.4% growth compared to 1.2% nationally. In
fact, the state registered job growth across most industries
with the largest percentage gains coming from Information,
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Education, and Administrative Support Services. Only Real
Estate and Leasing, Government, Management of Enterprises and
Other Services saw continued job losses in 2011 but on a
smaller scale than previous years.
In terms of international trade, the state continued to see
sustained growth with the value of two-way trade increasing
11.9% from 2010 (based on year-to date data from January
through November 2011). The rate was slower than the increase
registered in 2010 when the value of two-way trade surged
21.6% over 2009. In 2011, however, the value of imports grew
by 11% while the value of exports through the state's custom
districts rose by 13.8%. It should be noted that while
exports only accounted for a third of the value of two-way
trade, they suffered a smaller decline through the recession
and have come back more strongly than imports as demand from
Asian trading partners continues to be strong.
According to the March 2012 UCLA Anderson Forecast, state
unemployment should improve to an average of 9.8% in 2013.
Overall, the Forecast calls for a steady decrease in the
California unemployment rate over the next two years,
following a slow trajectory towards single-digit unemployment
by the end of 2013 and reaching 7.7% by the end of 2014. In
addition, according to Chapman University's A. Gary Anderson
Center for Economic Research, the California Composite Index,
a measure of overall manufacturing activity, increased to 60.3
in the second quarter of 2012, up from 56.6 during the first
quarter. Historically, readings above 50 indicate expansion
in the manufacturing sector. This is significant because,
according to an analysis by the Milken Institute, for every
job created in manufacturing, 2.5 jobs are created in other
sectors. At the upper bound, electronic computer
manufacturing has a multiplier effect of 16 jobs.
2)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
1-99 employees comprise nearly 98% of all businesses, and they
are responsible for employing more than 37% of all workers in
the state.
Small 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
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economy. California small businesses comprise 96% of the
state's 60,000 exporters in 2009, which accounted for over 44%
of total exports in the state. Nationally, small businesses
represented only 31.9% of total exports. These numbers
include the export of only goods and not services.
Historically, small businesses have functioned as economic
engines, especially in challenging economic times. During the
nation's economic downturn from 1999 to 2003, microenterprises
(businesses with fewer 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.
In fact, according to the Small Business Administration's
Small Business Economy 2011, small businesses nationally
outperformed large firms in net job creation nearly three out
of four times from 1992 through 2010 when private-sector
employment rose.
During this current economic downturn, however, small business
owners have been especially hard hit. Equifax has reported
that bankruptcies in California rose by 81% in 2009, as
compared to 44% nationally. This trend continued in 2010
where the Equifax report stated that while in general
bankruptcies were down across the nation including some
regions in the west, small business bankruptcies in California
accounted for almost 20% of all small business bankruptcies in
the nation.
Moreover, according to an analysis by the Small Business and
Entrepreneurship Council, of the 34,166 businesses that failed
in California between 2007 and 2009, over 94%, or 32,160
businesses, were small businesses with less than 100
employees.
3)State procurement and small businesses: 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.
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Since 2001, there have been four Executive Orders (EOs)
specifying a 25% goal for small business and 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 third time since the small business participation
target was established in 2001, DGS has reported the state
achieved its small business target by awarding 26.88% ($2.40
billion), of the value of all contracts to small businesses in
2008-09. This represents a $2.0 billion increase in contracts
from 2007-08. The state did not achieve its 3% DVBE
participation goal in 2008-09. DVBE contract awards, however,
did increase to 2.96% (190 million) in 2008-09, up from 2.39%
in 2007-08. California awarded $182 million in small business
and DVBE contracts in 2008-09.
In order to assist state entities in reaching 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 $100,000. Of the $2.5 billion of state contracts
that were awarded to small businesses in 2008-09, $225.4
million (17,310 contracts) were awarded through the
streamlined procurement process. The actual number may be
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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 and the combined
costs of preferences shall not exceed $100,000.
Another important component of the state's effort to increase
small business participation in state contracts is 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.
4)Related legislation : Below is a list of bills related to this
measure from the current and prior sessions.
a) SB 67 (Price) Small Business Participation in Public
Contracts : This bill would have authorized the Department
of General Services to direct all state entities to
establish an annual goal of achieving not less than 25%
small business participation in state procurement
contracts, as specified. Status: The bill was held on the
Suspense File of the Assembly Committee on Appropriations
2011.
b) SB 733 (Price) High-Speed Rail: Small Business Bidding
Preference : This bill would have required the High-Speed
Rail Authority to include within its business plan a
strategy ensuring the participation of California small
businesses in contracts awarded during all phases of the
project, as specified. Status: The bill was held in the
Senate Committee on Appropriations 2011.
c) 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. It also would have required that the
Office of the Small Business Advocate receive the same
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progress report information as state entities and directed
DGS and the Office of the Small Business Advocate to work
collaboratively to assist state entities in meeting their
participation goal. This goal is currently provided for in
Executive Order (EO) D-37-01 and EO S-02-06. Status: The
bill was held under submission in the Assembly Committee on
Appropriations, May 2010.
d) AB 2287 (Bass) California Business Investment Service :
This bill would have established the Governor's Office of
Economic Development and set a statutory 25% annual
procurement goal for state contracts with small businesses.
Status: The bill was held in the Assembly Committee on
Appropriations, May 2010.
e) AB 655 (Swanson) Contract Limitations on Small Business
Preference : This bill would have required state departments
that award contracts pursuant to the Bond Acts of 2006 to
consider and grant bid preferences to contractors on the
basis of their status as small businesses, the type of
community they are located in, and the number of employees
they hire from their community. Status: The bill died
pursuant to Art. IV, Sec. 10(c) of the Constitution.
f) AB 761 (Coto) Codification of the Small Business
Procurement Goal : This bill would have 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: The bill was signed by the Governor,
Chapter 611, Statutes of 2007.
g) AB 1400 (Richardson) State Contracting and the Small
Business Preference : This bill would have required the
Regents of the University of California and the Trustees of
the California State University to each submit a report to
the Department of General Services on the number of
consulting, disabled veteran-owned business enterprise, and
small business contracts each organization awarded for each
fiscal year, on a campus-by-campus basis, and according to
a specified format. Status: JEDE-related content removed.
The bill failed passage on the Senate Floor 2007.
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REGISTERED SUPPORT / OPPOSITION :
Support
Coalition of Small and Disabled Veteran Businesses
Small Business California
California Small Business Association
California Asian Pacific Chamber of Commerce
City of Selma
El Dorado Irrigation District
City of Reedley
Opposition
None Received
Analysis Prepared by : Oracio Gonzalez / J., E.D. & E. / (916)
319-2090