BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1568 (Grove) - Public contracts: small businesses and
disabled veterans business enterprises.
Amended: May 23, 2014 Policy Vote: GO 10-0
Urgency: No Mandate: No
Hearing Date: August 11, 2014
Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1568 would require state agencies that opt to
acquire goods, services, or information technology through a
specified small business and disabled veteran business
enterprise (SB/DVBE) contracting option to solicit at least
three price quotes, and obtain at least two quotes before
awarding the contract.
Fiscal Impact: Unknown increased administrative costs to state
agencies, potentially in the millions annually, to solicit and
review more bids under the SB/DVBE preference program (General
Fund, various special funds). These costs could be partially
mitigated to the extent solicitation of additional bids results
in an overall reduction in contracting costs or a better
contract value due to increased competition. (see staff
comments)
Background: Under current law, state agencies are permitted to
award a contract for goods, services, or information technology
with a value of $5,000 to $250,000, to a certified small
business, including micro businesses, or a DVBE, without
complying with specified competitive bidding requirements. This
method allows the contracting agency to bypass the advertising,
bidding, and protest provisions in the State Contract Act, and
award the contract directly to a small business or DVBE at a
contract price that is established by obtaining two price
quotations, as applicable. Existing law also establishes a 5%
bid preference for certified small businesses and
microbusinesses on state procurement contracts.
Proposed Law: AB 1568 would require a state agency to solicit at
least three price quotations, and obtain at least two price
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quotations, from two or more certified small businesses or DVBEs
when the agency uses the SB/DVBE contracting option that allows
an agency to award a contract with a value of $5,000 to $250,000
without complying with competitive bidding requirements.
Related Legislation: AB 276 (Roth), which was held on this
Committee's Suspense File in 2013, would have increased the
upper limit on the value of contracts from $250,000 to $500,000
under the SB/DVBE contracting option.
Staff Comments: DGS estimates this bill could apply to 13,677
state procurement contracts for goods, services, and information
technology. Under current law, agencies using the SB/DVBE
option must obtain two price quotations before awarding the
contract. AB 1568 would require agencies to solicit three price
quotes, and obtain two bids before awarding the contract. In
essence, the bill requires agencies to solicit a third price
quote, but doesn't necessarily require that third business to
submit a bid before the agency awards the contract.
DGS estimates that each additional solicitation would add one
hour of staff time to a contract, resulting in additional costs
of approximately $903,000 per year. If the additional
solicitation results in a third bid, DGS estimates that it would
take one to eight hours of staff time to review the third bid,
resulting in additional costs ranging from $903,000 to $7.2
million annually if every contract receives a third bid. If one
accepts these assumptions of additional staff time, this bill
would result in a minimum of $903,000 annually to contact a
third business if no additional bids are received, and up to
$8.1 million annually to contact a third business and spend
eight hours reviewing a third bid on each of the estimated
13,677 contracts. Actual costs would be mitigated to the extent
solicitations of third businesses takes less than a full hour of
staff time, bid review times fall on the lower end of the one to
eight hour range, and a third bid is not received on every
contract. According to DGS estimates, this bill would add one
to nine hours of staff time to each contract at an estimated
cost of $66 to $594, which represents only a fraction of a
percent of each contract's value. Staff notes that the bill
could result in lower overall contract costs, to the extent a
third bid results in increased competition. As such, it is
possible that the potential for a lower bid price could offset
any increased administrative costs.
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