BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 67|
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THIRD READING
Bill No: SB 67
Author: Price (D)
Amended: As introduced
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMM : 11-1, 3/22/11
AYES: Wright, Berryhill, Calderon, Cannella, Corbett, De
Le�n, Evans, Padilla, Strickland, Wyland, Yee
NOES: Anderson
NO VOTE RECORDED: Hernandez
SENATE APPROPRIATIONS COMMITTEE : 7-1, 5/26/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Runner,
Steinberg
NOES: Walters
NO VOTE RECORDED: Emmerson
SUBJECT : Public contracts: small business participation
SOURCE : Author
DIGEST : This bill: 1) on and after July 1, 2012,
authorizes the Department of General Services (DGS) to
direct all state agencies, departments, boards, and
commissions to establish the goal to achieve 25 percent
small business participation in state procurements and
contracts annually, 2) requires DGS to ensure that the
state's procurement and contract processes are administered
in order to meet or exceed the goal, and to report to DGS
statistics regarding small business participation in DGS
CONTINUED
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procurements and contracts, 3) authorizes DGS to establish
policies and procedures to monitor the progress of the
agencies toward meeting the goal of 25 percent small
business participation and to provide this information to
the Office of Small Business Advocate, 4) authorizes DGS to
require a state agency, department, board, or commission
that has not achieved its fiscal year goal to submit an
implementation and corrective action plan and every year
thereafter as long as the agency fails to meet or exceed
the goal, and 5) authorizes DGS to establish criteria for
such a plan and to assist agencies in improving small
business participation in their contracting.
ANALYSIS : Existing law requires DGS and other state
agencies that award state contracts for goods, services,
information technology and for construction of state
facilities to establish goals for the extent of
participation of small businesses in the award of these
public contracts.
Existing law establishes a 25 percent small business
participation goal in all construction projects financed
with proceeds of the infrastructure bond acts of 2006.
Governor's Executive Order S-02-06, issued in March 2006,
requires all state agencies, departments, boards and
commissions to achieve a goal of 25 percent small business
participation in state procurements and contracts.
Under current law, a state agency may award a contract for
the acquisition of goods, services, or information
technology that has a value between $5000 and $250,000 to a
certified small business or to a disabled veteran business
enterprise (DVBE), as long as the agency obtains price
quotations from two or more certified small businesses, or
from two or more DVBEs. Contracts awarded pursuant to this
law are exempt from the advertising, bidding, and protest
provisions in the State Contract Act.
This bill authorizes DGS to direct all state agencies to
establish 25 percent participation goal for California
certified small businesses in state procurement and
contracts. If DGS elects to so direct state agencies, the
following apply:
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1.All state agencies that engage in state procurement and
contracting must implement procurement and contract
processes in order to meet the 25 percent small business
participation goal each fiscal year.
2.DGS may establish policies and procedures to monitor the
progress of state agencies toward meeting the 25 percent
goal, and may regularly share information with the Small
Business Advocate on each agency's progress toward
meeting the annual goal, including providing copies of
corrective action plans.
3.DGS may require a state agency that has not achieved its
fiscal year goal of 25 percent small business
participation goal to submit an implementation and
corrective action plan, and may continue to require
annual updates to the plan as long as the agency fails to
meet or exceed the goal. DGS may establish criteria for
these plans and publish them in the State Administrative
Manual (SAM).
4.DGS may reasonably assist state agencies in improving
small business participation in their contracting,
including entering into memoranda of understanding with
agencies that haven't met the goal.
This bill directs DGS to establish policies for state
agencies on how to use the existing Small Business
Procurement and Contract Act, and to incorporate the
policies in the SAM and the State Contracting Manual.
This bill requires DGS to actively promote small business
certification.
The provisions of this bill would become operative on July
1, 2012.
Background
Small Business Procurement and Contract Act: Enacted over
30 years ago, this law directs DGS and other state agencies
that award state contracts to establish small business
participation goals. In 1989, the Legislature added a
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disabled veteran business preference to state procurement
laws.
For purposes of the Act, a "small business" is defined as
an independently owned and operated business not dominant
in its field of operation, with its principal offices in
California, and which, together with affiliates, has 100 or
fewer employees, and average annual gross receipts of $14
million dollars or less over the previous three years, or
is a manufacturer with 100 or fewer employees.
Small businesses certified by DGS are entitled to a five
percent preference in bidding on state contracts for goods,
services, information technology and for state public
construction contracts. The state is also required to
award a five percent preference in contracts for goods to a
California-based company certifying that a certain amount
of labor required to perform the contract is performed at a
work site or work sites located in a distressed area or
within an enterprise zone.
Although the law doesn't specify a percentage small
business participation goal, there have been several
gubernatorial executive orders in recent years that have
set a 25 percent goal for small business and a three
percent DVBE participation in state procurement contracts.
State efforts to effectively achieve small business and
DVBE participation in state contracting have been
inconsistent over the years. The 25 percent small business
participation goal was first established by executive order
in 2001, but that participation goal has been reached only
three times in the last 11 years. Most recently, DGS
reports that in 2008-2009, the state reached its 25 percent
small business participation goal by awarding $2.5 billion
of the $8.92 billion in total state contracts to small
businesses.
Prior Legislation
AB 309 (Price), 2009-2010 Session, would have required
institution of a 25 percent small business participation
goal for all state entities and directed DGS to monitor the
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progress of state agencies in meeting this goal.
SB 1108 (Price), 2009-2010 Session, would have established
a 25 percent small business participation goal for all
state entities.
AB 761 (Coto), Chapter 611, Statutes of 2007, established a
25 percent small business participation goal for contracts
related to revenues expended from the 2006 infrastructure
bond measures.
SB 115 (Florez), Chapter 451, Statutes of 2005, created a
DVBE incentive program for state contracts.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
Statutory small business unknown,
multi-millions of dollars General/
in costs annually Various
Special
SUPPORT : (Verified 5/27/11)
California Small Business Association
Kern Minority Contractors Association
National Federation of Independent Business
Natoma Technologies
Sacramento Black Chamber of Commerce
Small Business California
OPPOSITION : (Verified 5/27/11)
Construction Employers' Association
ARGUMENTS IN SUPPORT : According to the author's office,
small business is a key economic driver of job growth and
economic development and continues to play a leading role
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in the state's economic recovery efforts. By codifying in
state law Executive Order S-02-06, this bill ensures that
the state continues to meet or exceed the 25 percent
overall annual certified business participation goal in the
awarding of state contracts.
The California Small Business Association believes that the
bill will provide a more level playing field for small
businesses to compete in the state procurement process.
They believe that this goal setting should be codified
rather than be issued as an Executive Order. The Kern
Minority Contractors Association believes this bill will
benefit all small business owners throughout California.
The National Federation of Independent Business supports
codification of the Executive Order that established the
goals to ensure that contracting officials have the tools
they need to promote robust small business in state
contracts. The Sacramento Black Chamber of Commerce
believes this bill increases the level of involvement of
small businesses in state contracting. Small Business
California notes that information tracking provisions in
the bill are important so that compliance by the various
state agencies can be identified.
ARGUMENTS IN OPPOSITION : The Construction Employers'
Association (CEA) states in opposition that, "This measure
would distort the long-standing lowest responsible bidder
process on public works construction projects and
simultaneously increase the liability of general building
contractors. CEA does not object to fostering small
business growth, however, in developing a uniform
goal/mandate, this measure fails to recognize the unique
nature of the construction industry. Construction is one
of the few industries which relies upon multiple tiers of
employers but provides that the general contractor has
joint and several liability for the entire job.
Additionally, contractors on public works projects are
required to obtain bonds in order to reimburse public
entities in the event they default or fail to perform.
However, small contractors rarely qualify for such bonds.
Given the lack of bonding capacity for small contractors,
this measure would likely lead to state agencies giving bid
preferences to general contractors who contract with small
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contractors, regardless of whether the small contractors
are qualified or financially capable of performing the
work. In effect, this measure provides that general
contractors won't get the work unless they risk contracting
with small contractors who are more likely to default. If
the policy of the state is foster small business growth,
let the state assume the liability if small businesses
can't perform as opposed to forcing onto general
contractors."
PQ:nl 5/27/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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