BILL ANALYSIS �
AB 2278
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Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2278 (Weber) - As Amended: May 6, 2014
Policy Committee: JEDE Vote:8-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill revises the maximum amount of a bid preference that
may be applied to the award of a state contract for certified
California small businesses and California businesses that
perform 50% of the work within a distressed area under the
Target Area Contract Preference Act (TACPA). Specifically, this
bill:
1)Increases the maximum amount of a bid preference for small
businesses and TACPA from $50,000 to $350,000, but also keeps
the maximum preference at 5% of the bid amount.
2)Increases the maximum financial value of all combined
preferences from $100,000 to $400,000 for any bid that
includes a small business preference, but also keeps the
maximum preference at 5% of the bid amount.
3)Modifies the calculation of the small business preference by
basing it on the bid of the lowest responsible non-small
business rather than just the lowest responsible bidder. A
responsible bidder is a bid that is fully compliant with all
contract requirements.
FISCAL EFFECT
It is unknown how many bidders would win a contract based on the
new $350,000 maximum small business/TACPA preference, or
$400,000 maximum for combined preferences, provided under this
bill, although each occurrence would result in a cost of up to
$300,000 (the difference between the $50,000 and $350,000).
Because the bill maintains the 5% bid preference, it appears the
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bill would only impact contracts over $1 million. For 2013-14,
year-to-date the state has awarded 164 goods, services, IT and
construction contracts above $1 million to small businesses.
For 2011 and 2012 (most recent data), 10 contracts have been
awarded to bidders that used the TACPA preference.
Costs from the General Fund and various special funds are
unknown, however given the significant expansion in bid
preference, could be in the hundreds of thousands of dollars
annually.
COMMENTS :
1)Purpose . Currently, California small businesses receive a 5%
preference when bidding on state contracts limited to $50,000.
According to the author, as the contracts increase, the value
of this preference loses its benefit. By increasing the
ceiling to $350,000, the author contends small businesses will
be able to better compete to win large contracts.
2)Small Business Bid Preference . Current law requires state
agencies, when awarding contracts using the lowest responsible
bidder method, to provide a 5% bid preference to certified
(and qualified) small businesses or to non-small businesses
that subcontract with small businesses. The 5% bid preference
that is used for evaluation purposes refers to the 5% of the
lowest responsible bidder meeting specifications. Below is an
example of how the preference would be applied for evaluation
purposes.
------------------------------------------------------------
|Bidder |Bid |5% Bid |Bid Amount |Actual |
| |Amount |Preference |for |Contract |
| | | |Evaluation |Award |
| | | |Purposes |(i.e., |
| | | | |Bid |
| | | | |Amount |
|---------+----------+---------------+-------------+---------|
|Bidder A |$1,035,000|$1,000,000 * |$1,000,000 - |$1,035,00|
| | |.05 = $50,000 |$50,000 = |0 |
|(small | | |$985,000 | |
|business)| | | | |
| | | | | |
|---------+----------+---------------+-------------+---------|
|Bidder B |$1,000,000|Ineligible for |$1,000,000 |Did not |
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| | |a small | |win |
|(non-smal| |business bid | | |
|l | |preference | | |
|business)| | | | |
| | | | | |
------------------------------------------------------------
Source: DGS
Note that the bid preference is only used to evaluate, or
"score" the bid, and does not affect the actual amount of
the contract award. Therefore, the small business is
awarded the contract at $1,035,000.
3)Target Area Contract Preference Act (TACPA) . TACPA provides a
5% bid preference on service and commodity contracts valued at
more than $100,000 if the business work site is located in a
distressed area. Companies qualifying for the 5% work site
preference may request an additional 1% to 4% workforce
preference by certifying to hire a specified percent of their
contract workforce labor hours from a targeted employment
area.
4)Disabled Veteran Business Enterprises (DVBE) . The state also
offers a DVBE business incentive. The DVBE has a maximum bid
preference of $50,000. This bill may or may not impact DVBEs
that are large businesses. While this bill increases the
maximum bid preference amount from $50,000 to $350,000 for
small businesses and TACPA-eligible businesses, the maximum
preference remains the same for DVBEs at $50,000. However,
most certified DVBEs are also certified small businesses;
currently, 1,326 out of 1,482 certified DVBEs, or 89% of
DVBEs, are small businesses that would be eligible for the
$350,000 preference under this bill, and for the $400,000
maximum for combined (SB and DVBE) preferences. The remaining
156 large DVBE firms, or 11% of certified DVBEs would be only
eligible for the maximum $50,000 DVBE bid preference (and
potentially a TACPA preference) and may affect the decision of
contract awards that have a spread of $350,000 or less.
Analysis Prepared by : Misty Feusahrens / APPR. / (916)
319-2081
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