BILL ANALYSIS �
Bill No: AB
1568
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Lou Correa, Chair
2013-2014 Regular Session
Staff Analysis
AB 1568 Author: Grove
As Amended: May 23, 2014
Hearing Date: June 24, 2014
Consultant: Paul Donahue
SUBJECT
Public contracts: Direct price quotes
DESCRIPTION
Requires state agencies to solicit price quotes from at
least three certified small businesses or disabled veteran
business enterprises (DVBEs) when awarding state contracts
under $250,000. Specifically, this bill :
1)Permits a state agency to award a contract under $250,000
to a certified small business or DVBE as long as the
agency solicits at least three price quotes from, and
obtains at least two price quotes from, two or more
certified firms.
2)Encourages an agency to solicit quotes from businesses
that have not previously contracted with the agency in
the prior 12 months.
3)Makes various findings and declarations relating to a
February 2014 report from the California State Auditor
that evaluated the state's DVBE program.
EXISTING LAW
1)Designates the Department of General Services (DGS) as
the lead purchasing and procurement agency for the State
of California.
AB 1568 (Grove) continued
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2)Authorizes a state agency to award a contract for goods,
services, or information technology with a value of
between $5,000 and $250,000 to a certified small
business, including a microenterprise,<1> or to a DVBE,
without complying with specified competitive bidding
requirements.
BACKGROUND
Purpose of the bill : The author notes that a State Auditor
report released on February 18, 2014 found that in the
2012-13 fiscal year, 83% of contract award amounts awarded
to DVBEs went to only 30 DVBE firms. This represents just 2
percent of the state's DVBEs. According to the report, one
DVBE firm entered into 922 contracts with six different
awarding departments, while 81% of DVBEs did not receive a
single contract.
The author wants to address the following recommendation by
the Auditor to the Legislature: "For the DVBE program to
benefit a broad base of disabled veteran-owned businesses
financially, the Legislature should enact legislation aimed
at increasing the number of DVBEs that contract with the
State." The author believes that, by expanding the number
of required bids sought for state agencies from two to
three, AB 1568 will be providing greater competition and
greater opportunity for small businesses and DVBEs to
contract with the state of California.
Streamlined procurement process : AB 1568 does not amend
the small business or DVBE bidding preference laws. Rather,
it deals with a separate provision of law, under which
contracting entities are authorized to use a streamlined,
expedited procurement method. This method allows contracts
to bypass the advertising, bidding, and protest provisions
in the State Contract Act, allowing the agency to contract
directly with a certified small business or DVBE at a
contract price that is established by checking with two
small businesses or DVBEs to obtain "price quotations"
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<1> A microenterprise is a small business with average
annual gross receipts of $250,000 or less during the
previous three years, or a manufacturer with 25 or fewer
employees. [Govt. Code � 14837]
AB 1568 (Grove) continued
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before awarding the contract.<2>
Over-reliance on small business / DVBE subcontracting to
meet participation goals : Beginning in 2005, DGS began what
it termed, a "major strategic sourcing initiative," which
was designed to make government purchases more cost
effective, while ensuring that the state taxpayers get the
best value. One drawback to this initiative is that it
makes it effectively impossible for most of the state's
small businesses and DVBEs to submit proposals or bids on
these contracts due to their multi-million dollar size.
This trend toward huge state contracts has increased
concerns about whether a DVBE is in fact performing a
"commercially useful function" (CUF), which is required in
all contracts where DVBE or small business bidding
preferences are applied. The CUF standard is designed to
reduce instances in which contracts are awarded to firms
that have misrepresented the status of contractors or
subcontractors, or the actual work to be performed by the
DVBE or certified small business on the contract. In these
instances, the certified small business or DVBE is used as
a "pass-through," whereby the DVBE involvement in
performing work under the contract is essentially
non-existent - the large vendor simply lists the DVBE as
its subcontractor in order to gain the corresponding
bidding preference under state law.
Opposition : The Service Disabled Veteran-Owned Small
Business Network acknowledges that AB 1568 makes reference
to the inequities in the DVBE program that were identified
in the Auditor's report, but believes the bill nevertheless
makes no substantial changes that would result in
increasing state contracting with DVBEs. It notes that the
law amended by AB 1568 does not require any agency to set
aside any portion of the expenditures for a DVBE. Rather,
it continues to allow state agencies to contract with a few
favored businesses without any oversight - which was what
the Auditor raised in the report as a key criticism of the
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<2> See Govt. Code � 14838.5, which also provides that if
the estimated cost to the state is less than $5000, or a
greater amount as established by the director of DGS, a
state agency must get at least 2 price quotations from
responsible suppliers whenever there is reason to believe a
response from a single source is not a fair and reasonable
price.
AB 1568 (Grove) continued
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program.
PRIOR/RELATED LEGISLATION
SB 276 (Roth), 2013-2014 Session. Would have increased the
upper limit on the value of contracts from $250,000 to
$500,000 that state agencies may let to certified small
businesses, including a microbusiness, or to a DVBE,
without complying with various competitive bidding
requirements. (Held in Senate Appropriations Committee)
SB 297 (Roth), 2013-2014 Session. Proposes to raise the
DVBE state contracting participation goal from three
percent of all contracts to five percent. (Pending in
Assembly)
SB 719 (Correa), 2013-2014 Session. Would require contract
awarding agencies that utilize DVBEs three percent
contracting goal, and which utilize the Financial
Information System for California (FISCal) to report the
DVBE dollar amounts expended each year to DGS. (Held in
Assembly Appropriations Committee)
SB 733 (Block), 2013-2014 Session. Recasts the provisions
of the DVBE state contracting participation goal program to
allow for a primary contracting partner to use business
utilization plans as a means of helping meet the three
percentparticipation goal. (Pending in Assembly)
SB 967 (Correa), 2009-2010 Session. Sought to create a five
percent bid preference on state contracts to provide goods
and services with a value of $1 million or more for vendors
that can certify that 90 percent of its employees slated to
work on the government contract will be California
residents. (Vetoed)
SUPPORT:
None on file
OPPOSE:
Service Disabled Veteran-Owned Small Business Network
FISCAL COMMITTEE: Senate Appropriations Committee
AB 1568 (Grove) continued
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