BILL ANALYSIS �
Bill No: SB
839
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Lou Correa, Chair
2013-2014 Regular Session
Staff Analysis
SB 839 Author: Correa
As Amended: March 12, 2014
Hearing Date: April 22, 2014
Consultant: Paul Donahue
SUBJECT
State contracts: Disabled Veteran Business Enterprise
program
DESCRIPTION
Requires the contracting activity report concerning
participation by disabled veteran business enterprises
(DVBE) in state contracts to include actual dollar amounts
expended annually on contracts pursuant to the DVBE
program. Specifically, this bill :
1)Commencing with the 2015-16 fiscal year, requires a state
government department that awards state contracts to
report its annual expenditures on DVBEs to the Department
of General Services (DGS).
2)Requires the annual expenditure report to include the
dollar amounts expended annually on contracts awarded
pursuant to the DVBE program.
3)Requires the awarding department, for each DVBE with
which it contracts directly as a prime contractor, to
report expenditures based on the amounts paid during the
fiscal year, and to maintain accounting records and other
supporting documentation sufficient for the verification
and audit of the reported payments.
4)Requires the awarding department, for each DVBE that
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works as a subcontractor to a prime contractor, to report
expenditures based on a joint certification from both the
prime contractor and the DVBE subcontractor, attesting to
the amounts paid to the DVBE under each contract, and to
maintain signed certifications for the verification and
audit of the reported payments.
5)Specifies that an awarding department shall develop
policies and procedures for the preparation of
expenditure reports to ensure that the expenditure
amounts reported to DGS are accurate, complete, and
verifiable against the awarding department's accounting
records and subcontractor certifications.
EXISTING LAW
1)Requires state departments to implement a goal that at
least 3% of their annual contract dollars will be awarded
to DVBEs.
2)Designates DGS as the administering agency for the DVBE
program, except in the case of contracts for professional
bond services.
3)Requires DGS to make available a report on contracting
activity containing specified information, including the
level of participation, by agency, of DVBEs in statewide
contracting, including the dollar values of contract
award in specified categories.
4)Provides that an awarding state department shall require
the prime contractor, upon completion of a contract that
includes DVBE subcontracting, to certify to DGS the
following information:
a) The total amount the prime contractor received
under the contract.
b) The name and address of the DVBE that participated
in the contract.
c) The amount each DVBE received from the prime
contractor.
d) That all payments to the DVBE have been made under
the contract.
BACKGROUND
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1)Author's purpose : The author's office states that state
agencies currently report the contract amounts awarded to
DVBEs, rather than the amount of funds actually paid to
DVBEs in a given year. Because of this, there is no
accurate assessment of the true level of DVBE
participation in state contracts. Furthermore, neither
DGS nor the departments awarding contracts maintain
detailed supporting documents concerning DVBE
contracting, the result of which is inaccurate and
potentially distorted statistics concerning the DVBE
participation goals.
By requiring awarding departments to report to DGS based
on the amount paid directly to DVBE prime contractors and
indirectly to subcontractors, and by directing state
agencies to report expenditures to DVBE subcontractors
based on a joint certification from both the prime
contractor and the DVBE subcontractor, the author expects
to see more accurate reporting on DVBE participation in
state contracting.
2)The state DVBE program : To be eligible for the program, a
DVBE must be at least 51% owned by disabled veterans,
whether the enterprise is a sole proprietorship or other
business association. Unlike the state program for
certified small businesses, there is no 5% bid preference
for DVBEs unless the DVBE is also a certified small
business.<1>
Each state department that awards contracts for goods and
services and construction has a statewide participation
goal of not less than 3% for DVBEs. These goals apply to
the overall dollar amount expended each year by the
awarding department, but the awarding department reports
annual DVBE participation according to the dollar values
of contracts awarded .
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<1> DVBEs of any size may participate in an alternative
no-bid contracting program, which allows a state agency to
award a contract for the acquisition of goods, services, or
information technology that has an
estimated value of greater than $5,000 but less than
$250,000, as long as the agency gets price quotations from
2 or more certified small businesses or from 2 or more
DVBEs. (Govt. Code � 14838.5)
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3)State Auditor report on DVBE program : On February 28,
2014, the State Auditor released a report on the DVBE
program.<2> A key finding in the report is that, because
the state measures the success of the DVBE program on the
value of the contracts that departments award - not
necessarily the amounts actually paid - this may distort
how well the program is financially benefitting DVBE
firms because awarding departments may pay less than the
value stated on a particular contract.
The Auditor specifically noted that, based on the
performance reporting requirements specified in the
Public Contract Code, the state currently measures the
success of the DVBE program by the value of the contracts
that state departments have awarded - not paid. SB 839
specifically remedies this by requiring the annual DVBE
report to include the dollar values expended annually.
Further, SB 839 requires an awarding department to
maintain accounting records and other supporting
documentation sufficient for the verification and audit
of the reported payments.
The provisions of SB 839 track closely the
recommendations of the State Auditor, including the
recommendation that the Legislature should include
specific requirements that awarding departments "maintain
detailed support for their DVBE activity and establish
review procedures to ensure the accuracy and completeness
of the award amounts reported."
In the wake of the Auditor's report, and the
corresponding introduction of SB 839, some contract
awarding departments and control agencies might have
concerns that forcing them to keep verifiable records
that match departmental accounting records and
subcontractor certifications concerning amounts actually
awarded to DVBE firms might cause the state to fall below
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<2> Disabled Veteran Business Program. Meaningful
Performance Standards and Better Guidance by the California
Departments of General Services and Veterans Affairs Would
Strengthen the Program, Report 2013-115, February 18, 2014,
California State Auditor
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the 3% DVBE participation goal.<3>
PRIOR/RELATED LEGISLATION
SB 719 (Correa), 2013-2014 Session. Would have required
awarding departments that used the Financial Information
System for California (FISCal) to report statewide
participation goals for the DVBE program in the amount
expended to DVBEs. (Held in Assembly Appropriations
Committee)
SB 817 (Senate Veterans Affairs Committee), 2011-2012
Session. Would have allowed a vendor with state contracts
to meet DVBE goals with dollars from other than state
contracts, modified the requirement for a DVBE business
utilization plan so that the plan's required listing of
products and services includes both direct and indirect
costs. (Held in Senate Appropriations Committee)
AB21 X4 (Evans), Chapter 19, Statutes of 2009. Eliminated a
requirement that the lowest responsible bidder make "a good
faith effort" to meet minority business enterprise, women
business enterprise, and disabled veteran business
enterprise participation goals on all state procurements.
SB 115 (Florez), Chapter 451, Statues of 2005. Reassigned
regulatory oversight of the DVBE program from the
Department of Veterans Affairs to DGS, and modified the
standards for meeting the program's participation goals.
SUPPORT:
American Legion, Department of California
AMVETS, Department of California
California Association of County Veterans Service Officers
Disabled Veterans Department of California
Military Officers Association of America, California
Council of Chapters
Service Disabled Veteran-Owned Small Business Network
Veterans of Foreign Wars, Department of California
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<3> For example, the state reached 3.78% DVBE participation
in FY 2009-2010, and 4.82% in FY 2010-2011.
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Vietnam Veterans of America, California State Council
OPPOSE:
None on File
FISCAL COMMITTEE: Senate Appropriations Committee
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