BILL ANALYSIS �
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|Hearing Date:April 25, 2011 |Bill No:SB |
| |817 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: SB 817Author:Committee on Veterans Affairs
As Introduced: February 18, 2011 Fiscal: Yes
SUBJECT: State contracts: participation goals.
SUMMARY: Expands the Business Utilization Plan (BUP) to allow general
contractors an alternative means of receiving Disabled Veteran
Business Enterprise (DVBE) participation credit on their state
contract solicitations. Allows the use of the DVBE bidding incentive
to those general contractors that have a Department of General
Services (DGS) BUP. Revises the requirements imposed on DVBE firms to
require a disabled veteran to have at least a 10% service-connected
disability. Requires a DVBE to submit income tax information to the
Office of Small Business and Disabled Veteran Business Enterprise
Services.
NOTE : This bill was heard in Senate Committee on Veterans Affairs on
April 12, 2011, and passed out of that Committee by a vote of 8-0.
Existing law, the Government Code (GC):
1)Establishes The Small Business Procurement and Contract Act (Act)
and designates the Department of General Services (DGS) to
administer the Act, including, but not limited to, small business,
microbusiness and DVBE certification processes and the establishment
of a DVBE contract preference incentive to be used by state agencies
when awarding contracts to meet the state's three percent 3% DVBE
contract participation goal.
2)Sets forth the following definitions: (GC � 14837)
a) "Small business" as independently owned, not dominant in its
field of operation, domiciled in California, employing 100 or
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fewer employees, and earning $10 million or less in average
annual gross revenues for the three previous years.
b) "Microbusiness" as a small business earning $2,500,000 or less
in average annual gross revenues for the previous three years, or
is a manufacturer with 25 or fewer employees.
c) "Disabled Veteran Business Enterprise" (DVBE) as an enterprise
owned by a veteran of the military, naval, or air service of the
United States who has at least a 10 percent service-connected
disability domiciled in the state, that is either: a sole
proprietorship at least 51 percent owned by one or more disabled
veterans that is not a limited liability corporation (LLC); a
subsidiary that is wholly owned by a parent corporation, but only
if at least 51 percent of the voting stock of the parent
corporation is unconditionally owned by one or more disabled
veterans; a joint venture in which at least 51 percent of the
joint venture's management, control, and earnings are held by one
or more disabled veterans; the management and control of the
daily business operations are by one or more disabled veterans;
or a sole proprietorship, corporation, or partnership with its
home office located in the United States, which is not a branch
or subsidiary of a foreign corporation, foreign firm, or other
foreign-based business.
3)Establishes a 25% small business participation goal for all
contracts financed with the proceeds of the infrastructure-related
bond acts of 2006. (GC �14838.1)
4)Establishes the Office of Small Business and Disabled Veteran
Business Enterprise Services. (GC � 14839)
5)Requires a contractor, upon completion of a public contract for
which a commitment to achieve small business or DVBE participation
goals was made, to report the actual percentage of small business
and DVBE participation that was achieved. (GC � 14841)
Existing Law, the Public Contract Code (PC): Authorizes an awarding
department to accept a minority, women or DVBE "utilization plan,"
approved by DGS, submitted by a bidder for contracts of materials,
supplies, or equipment, including electronic data processing goods and
services, that meets certain criteria. Specifies that the decision of
whether to establish a minority, women, and DVBE utilization plan
shall be at the option of the vendor. Clarifies that if a bidder cites
an approved utilization plan in response to the minority, women, and
DVBE participation goals, that utilization plan shall be considered
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responsive to the specified participation goals.
(PC � 10115.15)
Existing law, through Executive Order: Establishes a 25% procurement
participation goal for state agencies to contract with small
businesses.
This bill:
1) Defines "disabled veteran" in the PC, for purposes of state
contracting, as a veteran of the U.S. military, naval or air
service who has a service-connected disability of at least 10
percent or more and who is domiciled in this state.
2) Conforms PC to the definition of DVBE in the Act, as outlined
above, and adds additional criteria to be considered a DVBE
including a requirement that the following income tax information
has been provided by the DVBE to the Office of Small Business and
DVBE Services:
a) Complete copies of the DVBE's federal income tax
returns for the previous year after initial approval as DVBE
by DGS. Specifies that if the DVBE has been in operation
for less than three years, the business shall submit federal
income tax returns for each year of operation.
b) Federal income tax returns for each disabled veteran
owner of a business or firm that is not a sole
proprietorship and rents equipment to the state; clarifies
that without this information a firm shall be deemed an
equipment broker.
1) Conforms PC to the Act by renaming the "Office of Small and
Minority Business" the "Office of Small Business and DVBE
Services."
2) Expands the lists of contracts for which a utilization plan must be
accepted to include contracts for commodities, property, goods,
professional services, construction work, or equipment including
information technology goods and services.
3) Allows a bidder to submit an amendment to a utilization plan
outlining increased percentages of specified goals, if higher goals
than outlined in the original utilization plan are specified in a
solicitation for contract.
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4) Makes changes to the elements required in a utilization plan
including allowing a vendor to meet DVBE goals with dollars from
other sources than only state contracts and allowing direct and
indirect costs, as defined, incurred by a vendor to be calculated
in meeting participation goals.
5) Adds the term "business" to utilization plans (BUP) when referring
to all plans submitted to DGS, including those created by a vendor
to outline efforts to meet minority, women and DVBE participation
goals.
FISCAL EFFECT: Unknown. Legislative Counsel has keyed this bill
"fiscal."
COMMENTS:
1. Purpose. This bill is sponsored by the Senate Committee on
Veterans Affairs in an effort to make the DVBE program more user
friendly by providing additional flexibility to contractors
engaging these businesses. According to the Author, the intent of
the program has always been to help California's disabled veterans
to return home and be successful, which allows the veteran to once
again lead as normal a life as possible while also helping the
state establish businesses that pay taxes here.
Certain instances of fraudulent DVBE reporting, as well as
legislative efforts to strengthen the Small Business Act and
general issues in administering the program, have made this
worthwhile program difficult for contractors to navigate, which in
turn hinders the robust participation of these important businesses
in state contracting. Additionally, some areas of state
contracting do not have enough DVBEs in that particular line of
work.
According to the Author, one option that is not often used to
describe and incorporate DVBE participation in contracting is the
Business Utilization Plan (BUP). A BUP allows a business to
demonstrate to DGS its relationship with certain types of entities,
like a DVBE, on a regular basis rather than demonstrating in each
bid for each state contract the use of a DVBE.
This bill seeks to give flexibility to contractors in order to
encourage these entities to work more regularly with DVBEs while
eliminating the often difficult to meet 3% DVBE participation on
each individual contract.
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2. DVBE Program. The Small Business Act, administered through DGS, was
implemented more than 30 years ago to establish a small business
preference within the state's procurement process for the purpose
of increasing the number of contracts between the state and small
businesses.
In 1989, a DVBE component was established within the Act to address
the special needs of disabled veterans seeking rehabilitation and
training through entrepreneurship, and to recognize the sacrifices
of Californians disabled during military service. Under the
provisions of the DVBE program, each state agency is required, in
awarding contracts throughout the year, to honor California's
disabled veterans by taking all practical actions necessary to meet
or exceed an annual 3% DVBE participation goal.
However, the 3% DVBE goal has rarely been reached by any department
and fraudulent claims of DVBE participation have been problematic.
Some examples of fraud over the past number of years and efforts to
strengthen the program and eliminate those instances are:
The issue of pass through companies that neither
manufactured nor competed in the marketplace was addressed
through AB 669 (Cohn, Chapter 623, Statutes of 2003), which
codified the requirement for a DVBE to perform a "commercially
useful function."
The prevalence of LLCs previously owned by disabled
veterans being used for bid preferences even after those
individuals were no longer owners, as well as the disguise of
equipment brokering, were both addressed in SB 1008 (Machado,
Chapter 632, Statutes of 2003). That bill eliminated LLCs as
an eligible DVBE unless the company was entirely owned by
disabled veterans. The bill also eliminated the option of
considering brokered equipment as a means of meeting the DVBE
goal.
Contractors fraudulently filing Good Faith Efforts
(GFE), which were used as substitutes for actual DVBE
participation until they were eliminated in the 2009 Budget.
Bidders could report that a "good faith effort" had been made
to engage DVBEs as subcontractors, allowing this to substitute
for actual DVBE participation, when in reality, many companies
claiming those efforts were not actually contacting DVBEs or
were in some instances listing DVBEs doing a completely
different type of business unrelated to that of a contract.
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According to the Author, the intent of the BUP is to encourage
prime contractors to use DVBEs in routine day-to-day operations
that may not be associated with a specific state contract. The
changes set forth in this bill seek to allow those contractors to
still get preference credit for using a DVBE on a regular basis,
even though the work of a DVBE may not be specifically outlined on
a particular contract.
1. Related Legislation. AB 150 (Perea) requires all state agencies and
departments to establish and achieve a 25% small business and DVBE
participation rate for state contracts and required DGS to monitor
progress in meeting this rate. The bill is pending hearing in the
Assembly Committee on Business, Professions and Consumer
Protection.
AB 172 (Eng) requires a state agency to provide a link on its
Website to a list of the personal services and consulting services
contracts entered into by the agency. The bill also requires a
summary of a contract to be initially posted within 15 working days
of being signed by all parties, as specified. The bill is pending
hearing in the Assembly Committee on Appropriations.
SB 67 (Price) requires all state agencies and departments to
establish and achieve a 25% small business participation rate for
state contracts and required DGS to monitor progress in meeting
this rate. This bill is pending in the Senate Committee on
Appropriations.
AB 2627 (Nielsen, 2010) was virtually identical to this bill but was
held under submission by the Senate Committee on Appropriations.
AB 1918 (Davis, Chapter 456, Statutes of 2010) extends the
minority, women-, and DVBE procurement requirements of the Public
Utilities Commission to wireless telecommunications service
providers with gross annual revenues of more than $25,000,000.
SB 1484 (Wright, 2010) prohibited DGS and other state agencies from
entering into bundled contracts that exclude certified small
businesses, microbusinesses or Disabled Veteran Business
Enterprises. The bill was held in the Assembly Appropriations
Committee on Suspense.
AB 31 (Price, Chapter 202, Statutes of 2009) makes several key
changes to state procurement procedures, including increasing the
maximum contract threshold amount for awards to a small business or
DVBE, under a specific streamlined procurement process, from
$100,000 to $250,000. Requires contractors that made contract
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commitments to include small business or DVBE participation to
report the final percentage of the contract actually paid to these
entities.
AB 309 (Price, 2009) would have required all state agencies and
departments to establish and achieve a 25 percent small business
participation rate for state contracts and required DGS to monitor
progress in meeting this rate. The bill was held in the Assembly
Appropriations Committee on Suspense.
AB 864 (Price, 2009) would have required at least 10 percent of the
total amount of all state contracts for infrastructure improvements
at any racetrack grounds in the state be let to small businesses or
disabled veteran business enterprises. The bill was held in the
Assembly Appropriations Committee on Suspense.
SB 548 (Huff, Chapter 595, Statutes of 2009) requires prime
contractors who have stipulated that they would use a DVBE as a
subcontractor, to certify at the conclusion of the contract that
all previously represented payments to the DVBE have been made.
AB 2773 (Price, 2008) was virtually identical to AB 31 (Price) of
2009 but was held under submission by the Senate Appropriations
Committee in 2008.
SB 642 (Denham, 2008) was virtually identical to AB 2773 (Price) of
2008 and AB 31 (Price) of 2009 but was held under submission by the
Senate Appropriations Committee.
AB 761 (Coto, Chapter 611, Statutes of 2007) 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.
SB 115 (Florez, Chapter 451, Statutes of 2005) makes various
changes to the DVBE procurement program, including requiring DGS to
establish a state agency-wide mandatory DVBE participation
incentive. Requires the DGS Small Business Advocate to provide
specified services to small businesses and certified DVBEs.
Requires DGS to adopt a streamlined reporting procedure for the
state to use in reporting their DVBE participation to the
Department of Veterans Affairs.
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SUPPORT AND OPPOSITION:
Support: None on file as of April 20, 2011
Opposition: None on file as of April 20, 2011
Consultant: Sarah Mason