BILL ANALYSIS �
SB 67
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Date of Hearing: June 21, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
SB 67 (Price) - As Introduced: January 10, 2011
SENATE VOTE : 33-4
SUMMARY : Authorizes the Department of General Services (DGS) to
direct all state entities to establish the annual goal to
achieve not less than 25% small business participation in state
procurement contracts, as specified. Specifically, this bill :
1)Encourages small business participation in state contracts by
giving DGS the authority to direct all state agencies,
departments, boards and commissions (state entities) to adopt
the goal of achieving no less than the 25% small business
participation in state contracts each fiscal year.
2)Requires, should DGS give the specified direction, that state
entities implement a procurement and contract process to meet
the stated procurement goals and to report to DGS related
statistics regarding small business 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
each state entities' progress.
4)Authorizes DGS to require an implementation and corrective
action plan from state entities that fail to meet the 25%
participation goal and to assist agencies in improving their
small business procurement participation rates.
5)Requires DGS to establish policies within the State
Administrative Manual and the State Contracting Manual for
state entities when using the 5% small business and
microbusiness bid preference.
6)Requires DGS to actively promote small business state
certification.
7)Specifies that the proposals in this bill become effective
July 1, 2012.
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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
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 business must subcontract at least 25% of
their contract with a small business to qualify for the small
business bidders' 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
COMMENTS :
1)Purpose of the bill : According to the author, "Small business
is a key economic driver of job growth and economic
development and continues to play a leading role in the
state's economic recovery efforts. Maintaining a strong small
business participation requirement on state-funded contracts
promotes competition that helps control state costs and
ensures that state agencies receive a good deal on their state
contracts. SB 67 codifies two former Governors' Executive
Orders and ensures that some of the ground small business has
gained in state procurement and contracting within the last
few years will continue in the future, regardless of party."
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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 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- 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.
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 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.
During this current economic downturn, however, small business
owners have been especially hard hit. Equifax has reported to
have found 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.
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.
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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 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.
4)Tools for achieving participation goals : In order to assist
state entities 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 $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
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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 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 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)Small business and strategic sourcing : The Assembly Committee
on Accountability and Administrative Review held a hearing in
June 2011 to discuss how the state's use of bundling smaller
contracts into one or more large contracts impacts small
business. Bundling contracts is also called "strategic
sourcing". Several presenters stated that by displacing small
business from the state procurement portfolio there are not
only lost revenues to the state, but also the impact of
additional financial distress to existing California small
businesses and their workers. State costs associated with not
contracting through California small business may include, but
not be limited to, the following:
State unemployment benefits;
State tax revenue loss;
Economic loss in consumer spending and purchasing
power;
Social costs of worker displacement and retention;
Social safety net costs; and
Small business owners' bankruptcies, and home
mortgage foreclosures. (a significantly high number of
small businesses used home equity loans to capitalize
their businesses)
Of note were reports by the State Auditor, Elaine Howle and
Dr. Samuel Bornstein, Professor of Accounting and Taxation,
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Kean University School of Business, New Jersey. Ms. Howle
reported results of a limited audit of state bundled contracts
conducted in 2010 that found the state had saved $160 million
by bundling contracts through strategic sourcing policies.
However, other research by Dr. Bornstein stated that the net
savings was overstated and that the true net savings could be
as low as $65 million for the audit sample had not accounted
for the negative impacts to the overall state economy, noted
above.
Further questioning the use of procurement policies that
inhibit small business participation was the testimony from
Dr. Joseph M. Johnson, Chief Economist and Director of
Economic Research, Office of Advocacy, U.S. Small Business
Administration(SBA). Dr. Johnson presented SBA research that
found strategic sourcing at the federal level was shown to
significantly reduce the number of small business contractors
which had an effect on the long term competitiveness of
certain industries and reduced competition which ultimately
drove up federal contracting costs.
Beyond the issue of strategic sourcing this hearing provided a
forum to assess the fundamental policy of whether doing
business with small business has a positive or negative
economic effect to California. As testimony indicates, small
business plays a much broader role within the overall state
economy and failing to use small business could have the
effect of restricting state workforce growth and retention,
while also creating a less competitive business climate.
1)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
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.
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b) AB 150 (Perea) Public Contracts: Small Business
Participation: This bill requires the establishment of a
25% small business and a 3% DVBE participation goal for all
state entities and directs the Department of General
Services to monitor each agency's progress in meeting this
goal. Status: This will was held in Assembly
Appropriations Committee, May 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 to monitor each agency's progress in
meeting this goal. Status: This bill was held under
submission by Assembly Appropriations Committee in 2009.
d) 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.
e) 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.
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,
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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.
2)Double referral : This bill has been double referred by the
Assembly Committee on Rules to both the Assembly Committee on
Jobs, Economic Development and the Economy (JEDE) and to the
Assembly Committee on Business, Professions and Consumer
Protection (BP&CP). Should the bill pass JEDE, it will be
sent to BP&CP for further policy review.
REGISTERED SUPPORT / OPPOSITION :
Support
California Small Business Association
Coalition of Small and Disabled Veterans Business
Kern Minority Contractor Association
National Association of Women Business Owners of California
Natoma Technologies
National Federation of Independent Business
Sacramento Black Chamber of Commerce
Small Business California
Opposition
None received
Analysis Prepared by : Mercedes Flores / J., E.D. & E. / (916)
319-2090
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