BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 839 (Correa) - Disabled Veteran Business Enterprise Program:
State Contracts
Amended: March 12, 2014 Policy Vote: GO 9-0
Urgency: No Mandate: No
Hearing Date: May 5, 2014 Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 839 would modify reporting requirements for
state departments with respect to disabled veteran business
enterprises (DVBEs).
Fiscal Impact: The costs to implement the provisions of this
bill are currently unknown, but aggregated across all state
departments could reach the low millions of dollars annually
(General Fund and special funds: See Staff Comments).
Background: The DVBE program sets a goal for most awarding state
departments to expend a minimum of three percent 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. To be eligible to become a
certified DVBE, a business must be at least 51 percent owned by
a disabled veteran, have its daily operations managed and
controlled by a disabled veteran, and be located in the United
States.
Under current law, DGS must prepare an annual report on various
issues related to state contracting, including DVBE
participation. Toward this end, DGS obtains statistical reports
from state agencies regarding their contracts. DGS subsequently
sums the information into a single, consolidated report.
Current law is ambiguous as to whether departments' DVBE
participation should be tracked and reported to DGS based on
contract awards (the estimated value of a contract when it is
awarded) or expenditures (the amount paid to the contractor).
DGS has historically allowed state departments to use either
approach, which gives departments flexibility to choose the most
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feasible option.
About 35-40 percent of DVBE participation, measured by dollar
volume, is in the form of subcontracts (a DVBE subcontractor
working with a non-DVBE prime contractor). Because the state's
own payments/expenditures are issued to the prime contractor,
and the prime contractor pays its subcontractors, an
expenditure-based reporting approach must include a method for
reporting subcontractor participation.
Proposed Law: Effective 2015-16, this bill would create new
requirements for the methodology state departments use (1) to
track DVBE participation in their contracts and (2) to report
the data to DGS. For contracts with DVBE prime contractors, the
bill would require departments to report the amount paid to
DVBEs each fiscal year. For contracts with non-DVBE prime
contractors that have one or more DVBE subcontractors, the bill
would require state departments to report based on a signed
joint certification by the prime contractor and the DVBE
subcontractor attesting to the amount paid to the DVBE. DGS and
the Department of Veterans Affairs would jointly develop the
joint certification form.
Additionally, the bill would require each state department to
develop policies and procedures for the preparation of the
reports to ensure the reports are accurate, complete, and
verifiable against the awarding department's accounting records
and subcontractor certifications.
Finally, the bill would require each department to maintain
records for verification and audit of the reported amounts. For
contracts with DVBE prime contractors, this would involve
accounting records and other supporting documentation sufficient
for verification; for contracts involving DVBE subcontractors,
this would consist of the signed certification forms.
Related Legislation: SB 719 (Correa, 2013-2014) would have
required awarding departments that used the Financial
Information System for California (FI$Cal) to report statewide
participation goals for the DVBE program in the amount expended
to DVBEs. This bill was held in the Assembly Appropriations
Committee.
SB 817 (Senate Veterans Affairs Committee, 2011-12) would have
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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. This bill was held in the Senate
Appropriations Committee.
Staff Comments: Statewide, the bill could result in unknown, but
potentially major costs (reaching the low millions of dollars
annually) to departments to use the reporting method prescribed
by the bill. Approximately 180 state departments are currently
required to report DVBE participation to DGS. As noted above,
current administrative practice is to allow departments to
report DVBE participation to DGS in a manner that is most
feasible for them. In many cases, participation is reported
based on the estimated value of the contract award and the level
of participation to which the prime contractor committed, rather
than based on the state's actual expenditures to the prime
contractor or, in cases where the DVBE is a subcontractor, on
the prime contractor's report of its expenditures to the DVBE
subcontractor. Standardizing the manner in which state agencies
report DVBE participation by requiring them all to report using
the same methodology will likely increase costs across all
reporting departments because they will no longer be permitted
to select the least labor-intensive method. Additionally, the
bill would result in one-time unknown costs to DGS and the
Department of Veterans Affairs to jointly develop the
certification form.
Finally, requiring state departments 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 the current-law goal of
three percent DVBE participation.