BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 497 (Rubio)
Hearing Date: 4/11/2011 Amended: 3/30/2011
Consultant: Bob Franzoia Policy Vote: G O 7-3
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BILL SUMMARY: SB 497 would require a state agency that accepts
bids or proposals for a contract for goods to provide a
preference of five percent to a California business meeting
specified criteria. This bill would also require the Department
of General Services (DGS) to establish a process to verify that
a business meets the criteria for the preference.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Bid preference Unknown, but significant annual state
costs, General/
potentially in the millions to tens of
millions Special
of dollars, to the extent state contracts
are
awarded to other than the lowest bidder
due
to the preference. Also, to the extent
the
residency requirement dissuades
contractors
from bidding on state contracts, costs
may
increase due to reduced competition.
Contract administrationUnknown, but significant costs to
determine General/
compliance with the residency
requirement. Special
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
PREFERENCES Preferences can currently be given for small
business in general, disabled veteran owned business enterprises
(DVBE), for small businesses in economically targeted areas, and
for businesses, regardless of size, located in economically
distressed areas. The maximum amount provided for each
qualifying bidding preference is $50,000 with a total bid
maximum of $100,000. Thus, a contractor with a bid of up to
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$100,000 higher than the lowest bid can be awarded the contract
if he or she qualifies for two bidding preferences. Below, are
three examples of how the preference would be applied:
(1) Three California businesses (as defined by this bill) bid:
Firm A Firm B
Firm C
Bid $1,000,000 Bid $1,050,000
Bid $1,025,000
Firm A would be awarded the contract as the low bidder; no
preference would be applied.
(2) Two California businesses and one non-California business
bid:
Firm A (non-California) Firm B
Firm C
Bid $1,000,000 Bid $1,050,000
Bid $1,025,000
No Preference Preference
$50,000 Preference $50,000
Total $1,000,000 Total $1,000,000
Total $975,000
Firm A is low bidder and a non-California business. The
preference is calculated on five percent of Firm A's bid. Firm
C, a California business would receive a preference and be
awarded the contract. The state would pay Firm C $1,025,000
(not $975,000), which is a 2.5 percent preference.
(3) Two California businesses and one non-California business
bid:
Firm A (non-California) Firm B
Firm C
Bid $1,030,000 Bid
$1,050,000 Bid $1,025,000
Total $1,030,000 Total
$1,050,000 Total $1,025,000
Firm C, a California business, is awarded the contract outright
without the preference. No preference is applied when a
California business is low bidder.
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APPLICATION This bill proposes to amend Chapter 2 of Part 2 of
Division 2 of the Public Contracts Code, which does not apply,
for example, to the University of California or the California
State University, which are governed by Chapter 2.1 and 2.5,
respectively. Preliminary information indicates the following
entities also are exempt from the provisions of this bill:
Bureau of State Audits
California Community Colleges
California Earthquake Authority
California Public Employees' Retirement System
California State Lottery Commission
California State Teachers' Retirement System
Judicial Council
Legislative Data Center
Prison Industry Authority
FISCAL IMPACTS For SB 967 (Correa) 2010, which proposed a
similar but more administratively involved program, DGS
estimated costs of up to $1.3 million annually as DGS would be
required to determine if a bidder is eligible for this
preference, enforce compliance with the preference once awarded,
and provide technical assistance. It was estimated that bill
would require up to ten staff analysis positions and two
supervisors equally distributed between technical assistance and
compliance. Much of the cost will depend on whether a
self-certification process (which uses penalties to discourage
misrepresentation) will
be used to determine if a bidder is a California business or
whether a process similar that used to determine if a bidder is
eligible for small business (Government Code 14837 (d) (1))
preferences or DVBE (Military and Veterans Code 999 (b) (6))
incentives. (Staff notes there does not appear to a state
statutory definition of "principal place of
business," which may increase administrative costs.) DGS would
charge other state agencies to recoup this expense. This bill
should have slightly lower administrative costs than SB 967
(Correa).
California residents currently provide a majority of the labor
for completing goods contracts and a substantial amount of the
labor required for completing services contracts,. Between
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2007-08 and 2009-10, the average amount of DGS contracting for
goods was $1.4 billion (services averaged $5.7 billion).
Depending how the provisions of this bill are implemented, the
state could incur costs of up to $70 million (five percent of
$1.4 billion) in excess charges from the residency preference.
Conversely, this figure could be substantially lower if the
maximum limits imposed by Government Code 4535.2 apply, that is,
the combined cost of preferences and incentives granted pursuant
by any provision of law may not exceed $100,000. Staff
recommends this bill be amended to require any contracts awarded
pursuant to Public Contract Code 10390 (as added by this bill)
to comply with the provisions of Government Code 4535.2.
Bids or proposals for a contract less than $1 million may have a
"Buy California" type preference already available through the
California small business preference. As the small business
preference is limited to $50,000, small businesses lose the
value of the preference after bids or proposals for a contract
exceed $1 million. In order to eliminate the conflict between
this bill and the existing small business preference, staff
recommends this bill be amended to apply to bid prices of $1
million or more.
SB 967 (Correa) 2010 was vetoed by Governor Schwarzenegger.