BILL ANALYSIS                                                                                                                                                                                                    Ó



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          SENATE THIRD READING


          SB  
          159 (Nielsen)


          As Amended  June 24, 2015


          2/3 vote.  Urgency


          SENATE VOTE:  38-0


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Veterans        |8-0  |Irwin, Chávez,        |                    |
          |Affairs         |     |Achadjian, Alejo,     |                    |
          |                |     |Brown, Daly, Frazier, |                    |
          |                |     |Salas                 |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Jobs            |9-0  |Eduardo Garcia, Kim,  |                    |
          |                |     |Brough, Brown, Chau,  |                    |
          |                |     |Chu, Gipson, Irwin,   |                    |
          |                |     |Mathis                |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 


          SUMMARY:  Clarifies the metrics to be used when calculating the  
          3% procurement participation goal for disabled veteran business  








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          enterprises (DVBEs).  The bill includes legislative findings  
          that these changes are declaratory of existing law.  The bill is  
          also an urgency measure.


          EXISTING LAW:   


          1)Establishes the California Disabled Veteran Business  
            Enterprise Program (DVBE Program), administered by Department  
            of General Services (DGS), for the purpose of addressing the  
            special needs of disabled veterans seeking rehabilitation and  
            training through entrepreneurship, and to recognize the  
            sacrifices California's disabled veterans made during their  
            military service.  Contracts for professional bond services  
            are administered through the State Treasurer's Office.
          2)Applies the 3% DVBE participation goal on each awarding state  
            agency, department, officer, and any other state entity that  
            enters into a contract using state funds for construction,  
            professional services, materials, supplies, equipment,  
            alteration, repair, or improvement.  Contracts with a DVBE for  
            equipment rentals do not count toward the goal.


          3)Defines the following terms:


             a)   A DVBE contractor, subcontractor, or supplier is any  
               person or entity that has been certified by the  
               administering agency and that performs a commercially  
               useful function, as defined.
             b)   A disabled veteran is a veteran of the military, naval,  
               or air service of the United States who has a  
               service-connected disability of at least 10% and who is  
               domiciled in the state.


             c)   A DVBE is a business certified by the administering  
               agency as meeting all of the following requirements:








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               i)     The legal structure of the business is a:
                  (1)       Sole proprietorship with at least 51% owned by  
                    one or more disabled veterans;
                  (2)       Publicly owned business with at least 51% of  
                    its stock unconditionally owned by one or more  
                    disabled veterans; 


                  (3)       Subsidiary that is wholly owned by a parent  
                    corporation, but only if at least 51% of the voting  
                    stock of the parent corporation is unconditionally  
                    owned by one or more disabled veterans; or


                  (4)       Joint venture in which at least 51% of the  
                    joint venture's management, control, and earnings are  
                    held by one or more disabled veterans.


               ii)    The management and control of the daily business  
                 operations are by one or more disabled veterans.  The  
                 disabled veterans who exercise management and control are  
                 not required to be the same disabled veterans as the  
                 owners of the business.
               iii)   It has a home office located in the United States,  
                 which is not a branch or subsidiary of a foreign  
                 corporation, foreign firm, or other foreign-based  
                 business.


          4)Requires DGS to collect information from awarding state  
            departments on the level of DVBE procurement participation by  
            contract value awarded and a statistical summary detailing  
            each awarding department and the state's progress in achieving  
            the 3% procurement participation goal for DVBEs.   
          FISCAL EFFECT:  None 









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          COMMENTS:  The DVBE Program was established in 1989 for the  
          purpose of facilitating state contracting opportunities among  
          businesses owned by disabled veterans.  Since 2000, the 3%  
          procurement participation goal has been met only five times.   
          All five of those years have been during the most recent report  
          periods.  While this should be an indication of more effective  
          program implementation, there have also been growing concerns  
          over the accuracy of state agency reporting.  Most recently, the  
          California State Auditor issued a report which found significant  
          reporting and management deficiencies in the manner state  
          agencies were implementing the DVBE Program.  Among other  
          issues, was the inconsistent manner in which state agencies  
          calculated and reported DVBE participation data to DGS for  
          inclusion in the state consolidated report on procurement.  


          This bill clarifies that the 3% goal is to be based on the total  
          amount of dollars actually expended by each agency and received  
          by the DVBE during the fiscal year.   


          The policy committee analysis includes additional background on  
          the Small Business Procurement and Contract Act, current DVBE  
          Program activity, previous legislative efforts to improve  
          program accountability, recommendations from the 2014 State  
          Audit, and related legislation.  


          The DVBE Program:  The 3% DVBE procurement participation goal is  
          applied to the state agency or department's overall contracting  
          activities in the given fiscal year and may be achieved by  
          awarding state contracts to DVBEs as prime contractors or when  
          DVBEs are used as a subcontractor.  


          Awarding departments have an option of including DVBE  
          participation in every contract or making alternative  
          arrangements, as long as the 3% objective is met at the end of  








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          the fiscal year.  Each agency and department is required to  
          designate a small business and DVBE contracting liaison to  
          facilitate it in meeting the 3% DVBE goal and the 25% small  
          business and microbusiness goal.  Approximately 90% of DVBEs  
          also hold a small business or microbusiness certification.


          Departments also have the option of offering a 1% to 5% DVBE  
          contracting incentive to assist bidders in helping to meet the  
          state DVBE goal.  Although not currently being utilized, bidders  
          that are unable or unwilling to include a DVBE in a contract  
          also have the option of submitting a DGS approved utilization  
          plan that commits the businesses to using DVBEs in the future.   
          DGS is authorized to audit businesses that submit utilization  
          plans to ensure compliance.


          State departments that fail to meet the annual 3% goal can have  
          their delegated contracting authority removed, although DGS has  
          never removed program authority solely based on an agency or  
          department's failure to meet its DVBE contracting goal.  


          DGS has a range of responsibilities relating to the  
          implementation of the DVBE Program including:


          1)Certification of DVBEs (1,537 DVBEs certified in 2013-14).
          2)Certification of small businesses and microbusinesses (1,289  
            small businesses and microbusinesses certified in 2013-14).


          3)Outreach to the potential bidders and the veteran community  
            (150 events in Fiscal Year (FY) 2013-14).


          4)Marketing of the DVBE program to state agencies.










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          5)Consulting with the California Procurement Contracting Academy  
            on the DVBE training of state contracting staff.


          6)Preparation of an annual consolidated report on DVBE, small  
            business, and microbusiness participation within state  
            contracting activities.


          7)Program oversight to identify abuses by bidders and failures  
            to preform by state agencies.


          Below are charts displaying three years of DVBE participation  
          rates.  The charts include information on mandatory reporting  
          entities and all reporting entities.  Under both reporting  
          metrics, it appears that the state consistently met its DVBE  
          procurement participation goals for the report years. 




















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          |DVBE Three-Year Contracting Activity - Mandated Agencies       |
          |                                                               |
          |                                                               |
           --------------------------------------------------------------- 
          |------------+------------+------------+------------+------------|
          |Fiscal Year |   Total    | Total DVBE | Total DVBE | Total DVBE |
          |            |  Contract  |  Dollars   |  Percent   | Contracts  |
          |            |  Dollars   |            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
          |------------+------------+------------+------------+------------|
          |2013-14     |$6,566,406,9|$241,002,566|   3.67%    |   12,777   |
          |            |          79|            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
          |------------+------------+------------+------------+------------|
          |2012-13     |$7,151,257,0|$216,903,765|   3.03%    |   14,907   |
          |            |          13|            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
          |------------+------------+------------+------------+------------|
          |2011-12     |$7,173,594,3|$340,156,464|   4.74%    |   16,246   |
          |            |          29|            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
          |------------+------------+------------+------------+------------|
          |Average     |$6,963,752,7|$266,020,932|   3.82%    |   14,643   |
          |            |          74|            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
           ---------------------------------------------------------------- 
           --------------------------------------------------------------- 
          |2013-14 DGS Consolidated                                       |
          |Report                                                         |
          |                                                               |
          |                                                               |
          |                                                               |
          |                                                               |
          |                                                               |








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           --------------------------------------------------------------- 



           --------------------------------------------------------------- 
          | DVBE Three-Year Contracting Activity - All Reporting Agencies |
          |                                                               |
          |                                                               |
           --------------------------------------------------------------- 
          |------------+------------+------------+------------+------------|
          |Fiscal Year |   Total    | Total DVBE | Total DVBE | Total DVBE |
          |            |  Contract  |  Dollars   |  Percent   | Contracts  |
          |            |  Dollars   |            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
          |------------+------------+------------+------------+------------|
          |2013-14     |$8,233,113,6|$299,683,794|   3.64%    |   14,305   |
          |            |          60|            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
          |------------+------------+------------+------------+------------|
          |2012-13     |$8,573,498,6|$267,285,324|   3.12%    |   16,776   |
          |            |          23|            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
          |------------+------------+------------+------------+------------|
          |2011-12     |$8,508,477,5|$373,936,941|   4.39%    |   17,835   |
          |            |          96|            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
          |------------+------------+------------+------------+------------|
          |Average     |$8,438,363,2|$313,635,353|    3.7%    |   16,305   |
          |            |          93|            |            |            |
          |            |            |            |            |            |
          |            |            |            |            |            |
           ---------------------------------------------------------------- 
           --------------------------------------------------------------- 
          |2013-14 DGS Consolidated                                       |
          |Report                                                         |








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          While the year-to-year percentages are useful to review, it is  
          also important to note that consistency among which agencies  
          report varies.  As an example, in 2011-12, 86% of the mandatory  
          reporting entities reported their contracting activity to DGS.   
          In 2012-13, 79% reported their contracting activity and in  
          2013-14, 80% reported.


          Further challenges were identified in a 2014 State Audit  
          [2013-115], which reported significant inconsistencies in the  
          reporting protocols among different state agencies.  Some  
          agencies reported only contracts where the DVBE served as the  
          prime contractor and other departments reported both DVBE prime  
          and subcontracts.  Some awarding departments only reported DVBE  
          participation based on the initial contract bid, while others  
          more accurately reported the actual amount paid to the DVBE.  


          This bill clarifies one of the central issues of the 2014 State  
          Audit by cross-referencing the 3% goal provisions with the  
          reporting requirements.




          Analysis Prepared by:                                             
                          Toni Symonds / J., E.D., & E. / (916) 319-2090    
                                                                    FN:  
          0003463









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