BILL ANALYSIS �
AB 1734
Page 1
Date of Hearing: May 21, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1734 (Jones-Sawyer) - As Amended: April 23, 2014
Policy Committee: JEDE Vote:6-0
A.&A.R. 11-2
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill requires each state agency to establish and achieve a
goal of 25 % small business (SB) participation and an annual
phased-in goal of 5 % disabled veteran business enterprises
(DVBE) participation in state contracting. Specifically, this
bill:
1)Requires the head of each agency responsible for meeting the
25 % (SB) annual goal to report to the Department of General
Services (DGS) on their agency's progress. Agencies that fail
to meet the 25 % goal are required to submit a corrective
action plan to DGS within 45 days of the close of any fiscal
year. DGS and the OSBA are required to assist agencies in
implementing their corrective action plans to the extent
feasible.
2)Requires DGS to regularly monitor agencies' progress in
meeting the 25 % (SB) annual goal and regularly share related
information with the Office of the Small Business Advocate
(OSBA), including corrective action plans.
3)Requires DGS to collaborate with the OSBA to provide outreach
and actively promote SB certification.
4)Clarifies that the SB provisions of this bill apply to the
University of California, the California State University, and
the California Community Colleges when contracting with state
funds.
5)Increases the state's annual DVBE procurement participation
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goal to 5 % over a four year period as follows: 3.5 % in
Fiscal Year (FY) 2014-15, 4 % in FY 2015-16, 4.5% in FY
2016-17, and 5 % in FY 2017-18 and thereafter.
6)Requires DGS to modify the existing DVBE incentive program to
provide for a higher incentive when the bid comes from a DVBE
than from a non-DVBE prime contractor that commits to using a
DVBE subcontractor.
7)Requires the California Department of Veterans Affairs
(CalVet) to establish a system for tracking the effectiveness
of its efforts to promote the DVBE program and maintain
complete records of its promotional events, as specified.
Requires agency-level DVBE liaisons to track the impact of
their promotional events.
8)Increases the advocacy and reporting responsibilities of the
California DVBE Program Advocate, a position appointed by the
Secretary of CalVet to oversee promotion of the DVBE program.
9)Requires all state agencies to apply the existing SB/DVBE
contracting option to contracts under $100,000 and
construction contracts under $120,000. Requires DGS, for
contracts over $100 million, to certify, prior to the issuance
of the bid request, that the awarding agency has met their
DVBE participation goals in two of the last three years and
will likely meet their DVBE goal in the current year.
FISCAL EFFECT
1)General Fund administrative costs to the Department of Veteran
Affairs of $110,000 to $170,000 to survey newly certified
DVBEs and analyze data to determine whether program
participation is based on promotional efforts.
2)General Fund administrative costs to DGS, likely in the tens
of thousands of dollars to update DVBE regulations, update the
State Contracting Manual, and produce training templates and
other documents. DGS would also incur IT costs to track DVBE
outcomes, likely in the range of $2 million.
3)Unknown GF and SF costs, in excess of $500,000, for the
workload associated with departments, including the California
State University system, the University of California system,
and community colleges, to prepare annual reports that include
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statistics regarding small business participation and
preparing the required corrective action and implementation
plans.
4)To the extent the 25% small business requirement increases the
number of state contracts awarded to other than the low
bidder, state contracting costs will increase. Given the
thousands of state contracts, the cost impact of the bill
could be in the tens of millions of dollars each year.
COMMENTS
1)Purpose . Governors Arnold Schwarzenegger and Gray Davis issued
executive orders calling for all state agencies to pursue an
annual 25% small business participation level in state
contracting. According to the author, the state has rarely
achieved this goal in state procurement contracts since the
first executive order was issued in 2001. According to the
author, codifying the executive order reinforces the state's
support in small businesses. Further, a February 2014
California State Auditor (CSA) report recommended DGS and
CalVet focus on better and more consistent reporting,
increasing the number of DVBEs that participate in state
contracting, and heightening CalVet's role in performing
outreach. This bill aims to address these findings, in part,
by increasing the DVBE participation goal from 3 % to 5 %.
2)Background . The Small Business Act, administered by 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 1998, a DVBE component was added to
state procurement practices. To be eligible to become a
certified DVBE, a business must be at least 51 % owned by a
disabled veteran, have its daily operations managed and
controlled by a disabled veteran, and be located in the United
States.
The Small Business Act states that it is the policy of the
State of California that the state aid the interests of small
businesses in order to preserve free competitive enterprise
and to ensure that a fair portion of the total purchases and
contracts of the state be placed with these enterprises. The
statute further states that DVBE participation is strongly
encouraged to address the special needs of disabled veterans
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seeking rehabilitation and training through entrepreneurship
and to recognize the sacrifices of Californians disabled
during military service.
The DVBE program sets a goal for departments to expend a
minimum of 3 % of their overall contract dollars on DVBEs
certified by DGS. Departments that award contracts may meet
this goal by either contracting directly with certified DVBE
firms or requiring winning bidders to use them as
subcontractors.
According to an April 2014 DGS report, for the 2012-13 fiscal
year, the state awarded $9 billion in total contracts. Of this
amount, $2 billion (22.26 %) was awarded to small businesses
and $267 million (3.12 %) to DVBEs.
3)Prior legislation. AB 550 (Brown) of 2013, similar to this
bill, codified the executive order establishing the 25% small
business participation goal. The bill also made changes to
state procurement procedures for small business, including
microbusiness and DVBE participation rates. This bill was
held on Suspense in this committee.
Analysis Prepared by : Misty Feusahrens / APPR. / (916)
319-2081