AB 915 (Chiu and Holden) — Assembly Committee on Jobs, Economic Development, and the Economy (April 27, 2021)
Summary
Analysis of AB 915 (Chiu and Holden) for the April 27, 2021 hearing of the Assembly Committee on Jobs, Economic Development, and the Economy, Sabrina Cervantes, Chair. The subject is small and disadvantaged business enterprises. It states that the bill codifies a 25% small business goal for state procurement and proposes actions to enhance the ability and commitment of state agencies to include small businesses, disadvantaged business enterprises (DBEs), and disabled veteran business enterprises (DVBEs) in state contracting. Registered support lists organizations such as the California Retailers Association, Small Business Majority and the San Francisco Chamber of Commerce; opposition is None on File.
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Date of Hearing: April 27, 2021
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Sabrina Cervantes, Chair
AB 915 (Chiu and Holden) – As Introduced February 17, 2021
SUBJECT: Small and disadvantaged business enterprises
POLICY ISSUE FRAME: According to the authors, “The state of California has enormous purchasing
power, which can be used to assist small and diverse businesses that have been hit hard during COVID.
This bill is an important step towards ensuring small businesses receive a fair share of state contracts
In 2006, Governor Schwarzenegger signed an executive order establishing a goal for all state agencies to
ensure 25% of their contracts go to small and veteran owned businesses. Since then, agencies have
largely ignored that order - of the 231 state agencies, departments, and commissions, only 12 have
adopted a small/veteran business enterprise policy.
AB 915 codifies this 25% state procurement goal for small businesses, and takes steps to make state
contracting more accessible to our entrepreneurs. Importantly, this bill also looks at small business
revival through an equity lens by creating an “Economic Equity First” policy that is inclusive of small
businesses, disabled veteran business enterprises, and diverse small businesses. Lastly, this bill eases the
burden on small business owners to apply for highly advantageous small and diverse business
certifications by creating a central point of contact with DGS. By establishing a clear process to ensure
the state meets its 25% goal of small business contracting, and that disadvantaged businesses are
included in this contracting goal, AB 915 will facilitate economic equity in state contracting.”
The analysis includes information on the Small Business Procurement Act, challenges in meeting the 25%
small business procurement goal, the impact of COVID-19 on state procurement, Proposition 209, the
role of small businesses in the California economy. There is no known opposition to this bill. Suggested
amendments are included in Comment 9.
SUMMARY: AB 915 codifies a 25% small business goal for state procurement and proposes a number
of actions to enhance the ability and commitment of state agencies to include small businesses,
disadvantaged business enterprises (DBEs), and disabled veteran business enterprises (DVBEs) in state
contracting. Specifically, this bill:
1) Legislative Findings: Makes legislative finds and declarations:
a) The positive fiscal impact of small businesses and minority-owned businesses to the overall
economic health and stability of California, the fifth largest economy in the world, cannot be
underestimated or overlooked – where in fact the entire California economy is predicated on the
continual success and growth of all small businesses.
b) Given that the size of the California budget the largest of all states in the entire country, the
California budget contributes one-seventh of the country’s gross domestic product (GDP), and
that, pre-COVID-19, small businesses totaled 3.9 million, or 99.8% of all California businesses,
and 1.6 million were minority owned.
c) Small businesses not only contribute significantly to the tax base of the State of California but also
account for approximately 7 million employees, or 48.8% of all employment in the state.
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d) It is therefore incumbent upon the State of California to ensure that a fair share of procurement
spending be directed and dedicated to small and minority-owned small businesses.
e) The State of California must carefully consider and provide guidance to all state departments,
agencies, bureaus, and other state entities as to reflect small and minority-owned businesses as a
priority when determining procurement decisions.
f) As the economy pivots to recover and rebound post the COVID-19 economic collapse, it is
imperative for the state to assert that procurement goals not only include small businesses (“SBs”),
but also minority-owned businesses, also known as “disadvantaged business enterprises”
(“DBEs”), as is referenced in federal procurement policies.
g) A means of economic recovery for the financial base of California would include codifying the
previously expressed intent of the executive and legislative branches, respectively, of the state
achieving a goal of procurement spending of 25 percent to SBs and DBEs.
h) It is the intent of the Legislature that California SBs and DBEs are prioritized and uplifted by
means of economic equity as it pertains to a percentage of state procurement dollars going to these
entities.
2) Economic Equity First Action Plan: Expands the duties of the small business liaison, who is tasked
with working with small businesses on regulatory compliance to develop an “economic equity first”
action plan and policy for their respective agency.
a) Specifies that the “economic equity first” action plan and policy are intended to provide, among
other things, direction, recommendations, and strategies as to how best ensure that disadvantaged
business enterprises are effectively involved in, and benefiting from, the procurement process of
the agency.
b) Specifies that the “economic equity first” action play may include, but is not limited to, education
and outreach, disadvantaged business enterprise stakeholder engagement, and intentional
expansion of disadvantaged business enterprise suppliers for the agency.
c) Requires the economic equity first action plan and policy be submitted to the agency secretary,
department director, or executive officer by January 1, 2023.
d) Requires the “economic equity first” action plan to be adopted by January 1, 2024.
3) Annual Report of the Small Business Advocate: Expands the content of the Small Business
Advocate’s annual report to include details regarding the 25% procurement goal for small businesses,
microbusinesses, disadvantaged business enterprises, and disabled veteran business enterprise
participation, as well as compliance and implementation of relative “economic equity first” action
plans and policies, as specified, by state agency liaisons and advocates.
4) Content on the GO-Biz Homepage: Requires information on how to receive assistance in certifying
as a small business and identifying and participating in state procurement opportunities to be easily
accessible from the homepage of the GO-Biz internet website. Existing law allows the information to
be posted anywhere on either the GO-Biz website or website of the Office of the Small Business
Advocate.
5) Illustrating Small Business Ownership: Declares that the Legislature recognizes women-owned,
LGBTQ+, and “socially and economically disadvantaged individuals”, as specified, to be among the
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groups of small business owners who the state should be assisting in fully participating in the free
enterprise system.
6) 25% Small Business Goal: Declares that it is the policy of the Legislature that at least 25% of state
purchases and contracts, including subcontracts, be placed with small businesses, which include, but
are not limited to women-owned, LGBTQ+, and socially disadvantaged individuals.
7) Maximum Gross Receipt Limit for Small Businesses: Requires the Department of General
Services (DGS) to communicate and coordinate with the Small Business Advocate on the biennial
review and possible adjustment of the average annual gross receipt levels. This review impacts
eligibility of a small business and a microbusiness to participate in state contracting.
8) New Definition: Defines a “socially and economically disadvantaged individuals” under the Small
Business Procurement Act to mean a “disadvantaged business enterprise,” as described in Section
26.67 of Title 49 of the Code of Federal Regulations and by Section 8(a) of the Small Business Act of
1953.
9) Codified and Expanded Small Business Goal: Requires contracting departments and agencies to
establish a minimum small business procurement participation goal of 25% that includes small
businesses, disadvantaged business enterprises, and DVBE. Further, the bill states the exact
percentage to be set as is reasonable per scope of procurement need relative to free market availability
to deliver the product, goods, or service by a small, disadvantaged, or disabled veteran business
enterprise.
10) 25% Compliance Report: Requires each agency, by January 1, 2027, to provide a compliance
report, relative to the 25% small, disadvantaged, or disabled veteran business enterprise goal, to DGS.
The report is required to include the percentage of small, disadvantaged, or DVBEs that participated
per legislative district.
11) Legislative Briefing: Requires DGS to testify before the Legislature by December 31, 2027, on the
effectiveness and outcomes of the statewide compliance of the minimum 25% goal of small,
disadvantaged, or disabled veteran business enterprise procurement participation.
a) Requires DGS, following the initial testimony, to annually provide a written report to the
Legislature on compliance with the 25% minimum goal of small, disadvantaged, or DVBE
procurement participation.
b) Authorizes the Legislature to hold a hearing on the content of the report.
c) Sunsets the reporting requirement on January 1, 2032, as specified. pursuant to Section 10231.5.
12) Audit on Noncompliant Agencies: Requires DGS to conduct an audit and prescribed report to the
Legislature of any agency that fails to meet the minimum goal of 25% by January 1, 2027.
a) Requires the report’s submission to the Legislature no later than January 1, 2028.
b) Specifies that the purpose of the audit is to review the reasons and the agency’s justifications for
not meeting the goal.
c) Requires the report to the Legislature to, at minimum, include a written report, complete with
DGS audit findings. The Legislature may hold a hearing related to this matter.
13) New 5% Preference for Disadvantaged Businesses: Authorizes preference for contracts that
include a disadvantaged business enterprise of 5% of the highest responsible bidder’s total score.
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14) Special Consideration for Disadvantaged Businesses: Requires department and agencies give
special consideration to disadvantaged business enterprises by both reducing the experience required
and reduction of the level of inventory normally required.
15) Small Business/DVBE Option: Authorizes the use of the Small Business/DVBE Option to a
disadvantaged business enterprise. The Small Business/DVBE Option allows a contracting
department to by-pass the competitive bid process for contracts between $5,000 and $250,000, and,
instead, award a contract for the acquisition of goods, services, or information technology to a
certified small business or DVBE, as long as the agency obtains price quotations from two or more
certified small businesses, or from two or more disabled veterans business enterprises.
16) Office of Small Business and DVBE Services: Expands the duties of the Office of Small Business
and Disabled Veteran Business Enterprise Services at DGS to include making recommendations to
DGS and other state agencies for simplification of specifications and terms in order to increase the
procurement opportunities for disadvantaged business enterprises.
17) True and Correct Information from Disadvantaged Business Enterprises: Requires DGS, in the
process of certifying and determining the eligibility of a disadvantaged business enterprise, to require
the applicant or certified firm to submit a written declaration, under penalty of perjury, that the
information submitted to the department, as specified, is true and correct. If DGS determines that just
cause exists, it may require the owner of a disadvantaged business enterprise to complete and submit a
federal Form 4506-T from the IRS requesting a transcript of a tax return.
18) Federal Documentation for State Certification: Authorizes DGS to apply relevant federal
certifications for documentation for state certification of a small business, DVBE, or disadvantaged
business enterprise, including certifications from the federal Small Business Administration and
federal Department of Transportation, as specified.
19) Update Legislative Findings: Deletes old and provides more current legislative findings, including
both of the following:
a) The onset of COVID-19 and the subsequent economic downturn and recession has laid bare
considerable social and economic inequities, and overall, nearly one-half of all small businesses
face permanent closure, with disadvantaged business enterprises facing even higher foreclosure
thresholds.
b) The current economic recession due to COVID-19 is causing an economic crisis in California,
hitting our minority and disadvantaged communities the hardest.
20) Includes a crimes and infractions disclaimer.
EXISTING FEDERAL LAW
1) Defines “socially and economically disadvantaged individuals,” as described in Section 26.67 of Title
49 of the Code of Federal Regulations and by Section 8(a) of the Small Business Act of 1953.
a) The disadvantaged individual must be a US citizen (or resident alien) and be a member of a
socially and economically disadvantaged group. Presumptive groups include women, Black
Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Subcontinent
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Asian-Americans, or any individual found to be socially and economically disadvantaged on a
case-by-case basis.
b) The disadvantaged individual applying must have a personal net worth (PNW) of less than
$1,320,000. Items excluded from personal net worth calculation include an individual's ownership
interest in the applicant firm and his or her equity in their primary. Also, if an individual
demonstrates that he/she is able to accumulate substantial wealth, the individual's claim of
economic disadvantage may be denied, even though the individual's PNW is less than $1.32
million.
c) A firm (including affiliates) must be a small business as defined by the US Small Business
Administration. Depending on the primary business activity, a firm (including its affiliates) must
not have average annual gross receipts over the firm's previous three fiscal years in excess of
$26,290,000 ($56,420,000 for airport concessionaires in general with some exceptions). Lower
size standards may apply depending on business activity determination.
d) The firm must be a for-profit small business where socially and economically disadvantaged DBE
owner(s) own at least a 51% interest and have managerial and operational control of the business
operations; the firm must not be tied to another firm in such a way as to compromise its
independence and control.
e) The socially and economically DBE owner(s) must possess the power to direct or cause the
direction to the management and policies of the firm and to make day-to-day, as well as long-term
decisions on matters of management, policy and operations.
f) If state or local law requires the individual to have a particular license or other credential in order
to own and/or control a certain type of firm, then the socially and economically disadvantaged
individual who own and control a potential DBE firm of that type must possess the required
license or credential.
2) Defines a “socially and economically disadvantaged individual” as the following:
a) Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice
or cultural bias within American society because of their identities as members of groups and
without regard to their individual qualities. The social disadvantage must stem from circumstances
beyond their control.
b) There is a rebuttable presumption that the following individuals are socially disadvantaged: Black
Americans; Hispanic Americans; Native Americans (Alaska Natives, Native Hawaiians, or
enrolled members of a Federally or State recognized Indian Tribe); Asian Pacific Americans; and
members of other groups designated from time to time by SBA, as specified. Being born in a
country does not, by itself, suffice to make the birth country an individual's country of origin for
purposes of being included within a designated group.
c) An individual who is not a member of one of the groups presumed to be socially disadvantaged in
paragraph (b) must establish individual social disadvantage by a preponderance of the evidence.
Evidence of individual social disadvantage must include the following elements:
i) At least one objective distinguishing feature that has contributed to social disadvantage, such
as race, ethnic origin, gender, physical handicap, long-term residence in an environment
isolated from the mainstream of American society, or other similar causes not common to
individuals who are not socially disadvantaged;
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ii) The individual's social disadvantage must be rooted in treatment which he or she has
experienced in American society, not in other countries;
iii) The individual's social disadvantage must be chronic and substantial, not fleeting or
insignificant; and
iv) The individual's social disadvantage must have negatively impacted on his or her entry into or
advancement in the business world. Relevant evidence in assessing this element may include
experiences relating to education and employment and business history.
3) Requires certain federal agencies with US Department of Transportation-assisted contracts to have a
DBE program, including the US Highway Administration, Federal Transportation Administration, and
Federal Aviation Administration.
EXISTING STATE LAW:
4) Designates DGS as the administrator of the state Small Business Procurement and Contract Act,
which includes certifying and implementing targeted preference programs for certified small
businesses, microbusinesses, and DVBEs.
5) Applies the 3% DVBE participation goal on each awarding state agency, department, and officer that
enters into a contract for materials, supplies, equipment, alteration, repair, or improvement. This
requirement can be waived on a specific contract with the approval of the department director or
another designated person.
6) Authorizes a streamlined small business procurement option (Small Business/DVBE Option) for state
contracts over $50,000 and under $250,000. Under this process, the contract is not put out to public
bid, instead the contracting agency is allowed to award the contract to a certified small business after
obtaining two price quotes from two certified small businesses. Similar provisions may be used for
contracting with a DVBE and obtaining two price quotes from DVBEs.
7) Authorizes a 5% preference to the lowest responsible bidder or highest scoring responsible meeting
specifications who provides for certified small business or microbusiness subcontractor participation;
this applies to state contracts for goods, information technology, services, and construction, as
specified.
8) Authorizes contracting departments to offer a DVBE incentive. The application of an incentive varies
from that of the small business and Target Area Contract Preference Act (TACPA) both in when it is
incorporated into competitive solicitations and in how the incentive percentages are determined and
calculated. Unlike a preference in which there is a 5% standardized value included in determining
competitive solicitations, discretion is left to a department to determine incentive percentages
(between 1% and 5%) for a particular transaction based upon a business strategy to achieve that
department’s annual 3% DVBE procurement participation goal.
9) Defines a “DVBE” as a business certified as being a sole proprietorship, corporation, or partnership
with its home office located in the U.S. which is not a branch or subsidiary of a foreign corporation,
foreign firm, or other foreign-based business. In addition, a DVBE meets all of the following:
a) The disabled veteran is a veteran of the military, naval, or air service of the US, including, but not
limited to, the Philippine Commonwealth Army, Regular Scouts, “Old Scouts,” Special Philippine
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Scouts, “New Scouts,” and those who have at least a 10% service-connected disability and are
domiciled in the state.
b) 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.
c) The DVBE’s ownership of the business meets the following criteria:
i) If the DVBE is a sole proprietorship, it is at least 51% owned by one or more disabled
veterans.
ii) If the DVBE is a publicly owned business, at least 51% of its stock is unconditionally owned
by one or more disabled veterans.
iii) If the DVBE is a subsidiary, it 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.
iv) If the DVBE is a joint venture, it is an entity in which at least 51% of the joint venture’s
management, control, and earnings are held by one or more disabled veterans.
10) Defines a “small business” as an independently owned and operated business that is not dominant in
its field of operation; in addition, the principal office of which is located in California, the officers of
which are domiciled in California, and which, together with affiliates, has 100 or fewer employees,
with an average annual gross receipt of $10 million or less over the previous three years.
a) For a small business in the manufacturing sector, the limitation on an annual gross receipt is $15
million.
b) For a small business bidding on a public works contract, as defined, the maximum number of jobs
200 or fewer employees, and the limitation on the average annual gross receipt is $36 million.
c) A “microbusiness” is a small business with an average annual gross receipt limitation of $5
million or is a manufacturer with 25 or fewer employees.
FISCAL EFFECT: Unknown
COMMENTS & CONTEXT:
1) Small Business Procurement and Contract Act: California has a 40-year history of utilizing state
contracting to support business development within targeted business populations. Statute sets an
annual 3% DVBE procurement participation goal, and a 2006 executive order sets a 25% small
businesses and microbusinesses participation goal for state agencies, departments, boards, and
commissions.
While encouraging small business participation furthers the state’s interest in having a robust small
business sector, the Small Business Procurement and Contract Act also establishes the policy
foundation for DVBE contract participation. The DVBE procurement program is intended to both
recognize the sacrifices of California’s disabled military veterans, as well as address the specific needs
of disabled veterans seeking rehabilitation and training through entrepreneurship.
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To assist state agencies in reaching these targeted procurement participation goals, state law
authorizes:
A procurement preference of 5% for bids using a certified small business as a prime or
subcontractor.
A streamlined alternative procurement process for smaller size contracts (between $5,000 and
$250,000), known as the Small Business/DVBE Option, whereby an awarding department can
contract directly with a certified small business or DVBE after comparison of the bid against two
other similar businesses.
A DVBE incentive that allows an awarding department to set an incentive percentage between 1%
and 5% for a particular transaction.
In the state’s experience, a majority of DVBEs are smaller size firms, with 86% having dual
certifications, including 56.5% of all DVBE’s also holding microbusiness certificates, 25.6% having a
small business certification, and 0.6% having a small business public works certification. The
remaining 14% of DVBEs operate with only a single DVBE certification.
DGS has a range of responsibilities relating to the implementation of the Small Business and DVBE
program, including:
Certification of DVBEs (866 new and renewed DVBEs certified in 2019-20 which brings the total
of certified DVBEs in 2019-20 to 1,795);
Certification of small businesses and microbusinesses (8,278 new and renewed certifications
bringing the total number of certified small businesses and microbusinesses in 2019-20 to 17,374);
Outreach to the potential small business and DVBE bidders (142 events, including 114 events to
the veteran community in 2019-20);
Marketing of the DVBE program to state agencies;
Partnering with CalVet on meetings with departments that are not meeting participation goals;
Consulting with the California Procurement Contracting Academy on the DVBE training of state
contracting staff;
Preparation of an annual consolidated report on DVBEs, small businesses, and microbusinesses
participation within state contracting activities; and
Program oversight to identify abuses by bidders and failures to perform by state departments and
agencies.
2) Tracking Small Business and DVBE Procurement: Given the importance of small businesses to
California's economy, these procurement preferences play a key role in distributing state expenditures
throughout the state and among a variety of business types. The charts below (Charts 1 and 2)
display small business and DVBE procurement participation for the most recent four fiscal years for
which data is available.
Chart 1– Small Business and Microbusiness Contracting Activity of
Mandated Reporters (dollars in millions)
Total Contract Total Small
Fiscal Year Total Percent Total Number of Contracts
Dollars Business and
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Microbusiness
Contract Dollars
2018-19 $10,531 $2,168 20.58% 96,345
2017-18 $8,361 $2,720 32.50% 110,864
2016-17 $6,329 $1,683 26.60% 117,624
2015-16 $5,855 $2,112 36.08% 116,169
2014-15 $8,117 $2,079 25.61% 482,707
2013-14 $7,101 $2,013 28.35% 90,784
2012-13 $7,616 $1,801 23.66% 105,617
2011-12 $7,399 $1,796 24.28% 165,523
Source: DGS Statewide Consolidated Annual Reports for the contracting periods
Chart 2 – DVBE Five-Year Contracting Activity of Mandated Reporters (dollars in millions)
Total Contract Total DVBE Total DVBE
Fiscal Year Total DVBE Contracts
Dollars Dollars Percent
2018-19 $10,531 $340 3.23% 23,782
2017-18 $8,314 $387 4.7% 19,174
2016-17 $6,329 $259 4.1% 19,823
2015-16 $5,855 $274 4.6% 18,638
2014-15 $8,105 $314 3.8% 16,192
2013-14 $6,566 $241 3.6% 12,777
2012-13 $7,151 $216 3.0% 14,907
2011-12 $7,173 $340 4.7% 16,246
Source: DGS Statewide Consolidated Annual Reports for the contracting periods
Based on the data displayed above, aside from 2018-19, the state appeared to generally meet its 25%
small business target and 3% DVBE procurement participation goals. These official numbers are,
however, only part of the program assessment. DGS prepares an extensive annual report on state
procurement activities, the California Consolidated Report. In addition to reporting the amount of
contracts with small businesses and DVBEs, these reports also provide information on outreach
activities and other information to provide a framework for understanding the state’s targeted
procurement activities.
Although DGS works diligently to gather and aggregate this information, the California Consolidated
Report also highlights potential data irregularities, including the inconsistent reporting by state
agencies and the failure of some state agencies to even make a report. As an example, in 2012-13,
only 79% of the mandatory reporting entities reported their contracting activity to DGS.
The data also provides only a partial look at contracting activities, as it reflects the amount contracted
for and not the amounts actually received by a small business or DVBE. A state audit of the DVBE
Program, released in 2019, suggests that very few state agencies have implemented practices to
monitor and report DVBE procurement participation violations for follow-up by DGS.
3) COVID-19 Procurement Opportunities: Procurement reporting for the period of COVID-19
pandemic is difficult to track. With the state government operating under a state of emergency, state
agencies are authorized to use alternative contracting protocols. Many small business groups have
expressed concern to the Assembly Jobs Committee over the lack of access to new procurement
opportunities since April of 2020.
There is good evidence that small business and DVBE participation in 2019-20 and 2020-21
procurement periods, the official data for which has yet to be released, will not meet the 25% and
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possibly the 3% goal. In its most recent California Consolidated Report (2018-19), DGS states that
the “primary reason departments gave for not meeting the Small Business or DVBE participation
goals was the large number of emergency contracts related to the 2018 wildfires, such as the Camp
Fire.”
To combat this trend, DGS reports that it’s Office of Small Business and DVBE Services has taken a
number of steps to address the impact of large emergency/disaster related contracts on small
businesses and DVBEs. A few highlights from their 2018-19 California Consolidated Report are
provided below:
New Register of Certified Firms for Emergency-related Contracts: Working with departments
that make large disaster-related contracts, DGS identified approximately 32 activity/supplies
categories for which small businesses and DVBEs will be able to register. Categories include but
are not limited to: debris removal, energy generators, equipment rentals, rescue supplies, medical
supplies, respiratory products, sanitation, food and fuel.
Leveraged Procurement Agreements for Emergency Purchases: DGS finalized and expanded
the Master Service Agreement (MSA) and California Multiple Award Schedule contracting
opportunities for emergency procurement. This included the debris removal MSA related to
recovery efforts from the fires.
Targeted Outreach for Emergency Purchases: DGS is encouraging, and in some cases requiring,
departments to reach out to DGS when conducting emergency procurements. DGS has committed
to assisting awarding departments with identifying certified small businesses and DVBEs to meet
their needs.
DGS believes that these changes will begin to show improvements in the 2021-22 contract activities.
Implementation of AB 915 would enhance these activities by directing the California Small Business
Advocate and the CalVet DVBE Program Advocate in working with awarding departments on
certification of DVBEs and targeted DVBE outreach for upcoming disaster-related contracts.
4) Small Business Public Works: DGS recently implemented a new small business certification
category - Small Business Certification for the Purpose of Public Works [SB 605, Chapter 673,
Statute of 2017]. This new certification includes small businesses in the public works arena with
three-year annual average gross receipts not exceeding $36 million and fewer than 200 employees.
At the end of 2018-19, (six months after the bill took effect) 422 firms had applied and received the
small business-public works certification. Of those 422, 292 were exclusively SB-PWs, while 130
others included it among multiple certifications. SB 605 also increased and codified the certification
eligibility threshold for firms based on their three-year average of gross annual receipts.
Microbusiness designation went up to $5 million, and small business certifications were included to
$15 million. Chart 3 displays data on the number of California certified small businesses and DVBEs
for 2018-19.
Percent
Chart 3 - Small Business and Micro Firms by Certification Type Firm Count
of Total
Small Business 3,836 23.05%
Dual Certifies Small Business and DVBE 416 2.50%
Dual Certified Small Business and Small Business-Public Works 185 1.11%
Small Business Micro 10,762 64.66%
Dual Certified Small Business Micro and Small Business–Public Works 329 1.98%
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Dual Certified Small Business Micro and DVBE 917 5.51%
Small Business–Public Works 139 0.84%
Dual Certified Small Business–Public Works and DVBE 10 0.06%
Triple Certified Small Business, DVBE, and Small Business–Public Works 20 0.12%
Triple Certified Small Business (Micro), Small Business–Public Works and DVBE 30 0.18%
Total 16,644 100%
AB 915 adds another new reporting category for businesses that are certified as a DBE, currently used
in contracts involving federal transportation funding. The bill, as proposed to be amended, would
require DGS to establish a fast-track small business certification for businesses that already have a
DBE certification. Nothing in this bill sets a goal or requires a state agency to contract with a DBE.
5) Equal Protection Clause and Prop 209: In March of 1998, the Ninth Circuit Court of Appeals
determined in Monterey Mechanical Co. v. Wilson, that the provisions of Public Contract Code
Section 10115 et seq., which held that statutory requirements to achieve minority and women business
enterprise procurement participation goals or related good faith efforts were unconstitutional and
violate the Equal Protection Clause of the Fourteenth Amendment of the US Constitution.
Article 1 of the Fourteenth Amendment states, “All persons born or naturalized in the United States,
and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they
reside. No state shall make or enforce any law which shall abridge the privileges or immunities of
citizens of the United States; nor shall any state deprive any person of life, liberty, or property,
without due process of law; nor deny to any person within its jurisdiction the equal protection of the
laws.”
The central issues being evaluated were whether the mandate to classify certain contractors differently
according to their ethnicity and sex violated the equal protection clause or had the state constructed “a
narrowly tailored remedy to account for past discrimination. The Monterey Mechanical case, the
court stated, upon reviewing the legislative intent of the women and minority business contracting
statute, that California had “made no attempt to justify the ethnic and sex discrimination it imposed”.
Prior to the Monterey Mechanical decision (1996), California voters had passed Proposition 209 (Prop
209), which more comprehensively blocked the state’s ability to operate women and minority
procurement programs. Under Prop 209, which added Section 31 to Article 1 of the California
Constitution, the “state is prohibited from discriminating against, or granting preferential treatment to,
any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of
public employment, public education or public contracting”.
As a result of these two cases, Governor Wilson issued Executive Order W-172-98, which stated, in
part, that every state department was to cease any enforcement of the minority and women business
enterprise participation goals or any related good faith effort requirements associated with Public
Contract Code Section 10115 et seq. with respect to any non-federally funded state contracts or
amendments on or after March 10, 1998.
In implementing the executive order, the California Department of Transportation (Caltrans) issued
instructions that DBE would only be required in projects that were funded in part or in whole by
federal Department of Transportation dollars and would be optional for projects funded by local or
private entities. The Local Assistance Program Guidelines issued by Caltrans in April 1998
specifically retained the “DBE program requirements must be included if Caltrans awards and
administers the construction contract.”
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The Monterey Mechanical decision did not address, and therefore it is generally recognized that it
does not apply to the DVBE provisions in state law. Further, Prop 209 specifically excludes the use of
DBEs in contracts where their inclusion is necessary to draw-down federal funds. Subdivision (e) of
Section 31 of Article 1 of the California Constitution states, “Nothing in this section shall be
interpreted as prohibiting action which must be taken to establish or maintain eligibility for any
federal program, where ineligibility would result in a loss of federal funds to the state.”
As introduced, AB 915 authorized a range of activities that involve small businesses, DBEs, and
DVBEs. The proposed amendments, which the author has told the committee he will be accepting,
realign many of these provisions to preserve the hegemony of the small business classification. In
addition, the Author’s office has stated that no cover letter was issued by the Office of the Legislative
Counsel’s Office.
6) Disadvantaged Business Enterprises: Caltrans and nine other government agencies in California
participate in the DBE certification program under the California Unified Certification Program,
including Los Angeles County Metropolitan Transit Authority, San Diego County Regional Airport
Authority, San Francisco Bay Area Rapid Transit District, San Francisco International Airport, San
Francisco Municipal Transportation Agency, San Mateo County Transit District, Santa Clara Valley
Transportation Authority, City of Los Angeles, and the City of Fresno.
As noted previously the federal government uses the DBE program to ensure that federally assisted
contracts for highway, transit and aviation projects are made available for small business concerns
owned and controlled by socially and economically disadvantaged individuals. In general, DBEs are
larger than state certified Small Businesses, but smaller than state certified Small Business-Public
Works. The DBE employment and revenue standards are based on business’ industry sector and are
set through regulation by the federal Small Business Administration.
Chart 4 - Comparison of the State and Federal Designations
Located in
CA Certified Employee Limits Revenue Limits
California
CA Microbusiness X Yes 25 or fewer $5 million
Small Business X Yes 100 or fewer $10 million
Small Manufacturers X Yes 100 or fewer $15 million
Small Business - Public Works X Yes 200 or fewer $36 million
DBE CalTrans+ No Various by industry $26.2 million
DVBE X Yes None None
While certified by Caltrans and local agencies, the DBE program is a national program and there is no
requirement that the business is headquartered in California. Caltrans provides a fairly robust set of
resources, including a searchable database for vendors looking for DBE subcontractors, as well as free
training. DBEs are also included in the Caltrans SB 1 Small Business Outreach Plan and
Implementation Report, which is applied to the state’s $54 billion transportation infrastructure
investment plan.
7) Engagement Works: In addition to the activities discussed in Comment 3, DGS also requires
departments that do not meet their 25% and 3% targeted procurement goals to complete Improvement
Plans. According to DGS, the Improvement Plan provides the department with an opportunity to
explain the challenges it is experiencing in meeting the minimum small business and/or DVBE
contracting participation goals and to propose specific strategies to improve their performance.
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The DGS Office of Small Business and DVBE Services uses the Improvement Plans to help DGS
address department-specific needs and recommend additional strategies to help the department meet
their targeted procurement goals. In 2018-19, seven underperforming departments were selected for
one-on-one counseling, based on their 2017-18 contract activity. The underperforming departments
were provided with the best practices and identification of resources and tools geared to the specific
issues they raised during those discussions. Chart 3 tracks the impact of these targeted interventions
by the DGS Office of Small Business and DVBE Services and the seven departments.
Chart 3 - Tracking Impact of Targeted Engagement by DGS
2017-18 2017-18 2018-19 2018-19
Department
SB/Micro DVBE SB/Micro DVBE
California Arts Council 1.05% 0.61% 52.62% 7.26%
California Department of Human Resources 7.43% 5.07% 12.82% 3.56%
California Horse Racing Board 10.37% 0.30% 1.94% 0.60%
Secure Choice Retirement Savings Investment Board 4.19% 0.36% 86.76% 2.07%
California Tax Credit Allocation Committee 18.51% 0.09% 73.42% 5.96%
Resources Recycling and Recovery (CalRecycle) 8.71% 0.87% 0.17% 0.08%
Environmental Protection Agency 4.41% 0.77% 9.45% 2.13%
Source: The DGS Consolidated Report for 2019-20
8) The Role of Small Businesses within the California Economy: California’s dominance in many
economic areas is based, in part, on the significant role small businesses play in the state’s $3.1
trillion economy. Two separate studies, one by the US Census Bureau and another by the Kaufman
Foundation, found that net job growth was strongest among businesses with less than 20 employees.
Among other advantages, small businesses are crucial in the state’s international competitiveness, and
they are an important means for dispersing the economic positive impacts of trade within the
California economy.
In 2018 (most recent full set of data), of the 4.4 million firms in California, there were 3.4 million
nonemployer firms as compared to 954,632 employer firms.
Total revenues for nonemployer sole proprietorships, across all industry sectors, were $189 billion
in receipts in 2018.
Businesses with less than five employees are classified as microenterprises. In 2017, there were
473,641 microenterprises which had one or more employees. Microenterprises, including both
nonemployer and up-to-5-employee businesses, comprise the single largest segment of the California
business community, and they represent 89.1% (3.9 million) of all businesses in the state.
Microenterprises have many unique features and provide important benefits to local communities,
according to a recent study from the Microenterprise Fund for Innovation, Effectiveness, Learning,
and Dissemination (FIELD) at the Aspen Institute. These benefits include:
Providing products and services tailored to meet local and neighborhood needs.
Stimulating an inflow of revenues to and within local communities.
Serving as catalysts for neighborhood reengagement.
Revitalizing neighborhoods that may otherwise have vacant storefronts.
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Providing role models and support for future entrepreneurs.
Excluding sole proprietorships, businesses with less than 20 employees comprise over 88.6% of all
businesses and employ approximately 17.4% of all workers. Businesses with less than 100 employees
represent 97.3% of all businesses and employ 34.5% of the workforce.
The chart above displays 2017 data (most recent full set of data) on California employer businesses,
including payrolls, employment, and number of firms, which may comprise of one or more
establishments.
These non-employer and small employer firms create jobs, generate taxes, support important industry
sectors, and revitalize communities. While their small size allows them to be more flexible in meeting
niche foreign and domestic market needs, it also results in certain market challenges. These
challenges include having difficulty in meeting the procedural requirements of the state’s complex
regulatory structure and the traditional credit and collateral requirements of mainstream financial
institutions. Specialized technical assistance, access to credit enhancements, and targeting of state
procurement activities help many small businesses overcome or at least minimize these difficulties.
9) Proposed Amendments: Below is a list of amendments the committee members may wish to review
when considering the bill.
a) Revise legislative intent to clarify the linkage between certified small businesses and the
disadvantaged business enterprises (DBEs).
b) Modify the Economic Equity First provision to only apply to DBEs that could also qualify as a
certified small business.
c) Exclude Caltrans from preparing an Economic Equity First plan, because they already prepare,
pursuant to federal funding restrictions, a more comprehensive targeted procurement outreach plan
that includes certified small businesses, certified DVBE, as well as certified DBEs
d) Remove DBEs and DVBEs from within the calculation of the 25% small business set aside.
e) Remove the requirement to prepare a specified procurement participation report, audit, and
possible Legislative hearing.
f) Limit the 5% procurement preference for DBEs to public works contracts.
g) Delete the potentially new DBE certification process to, instead, require DGS to establish a “fast
track” small business certification process for businesses that are already certified as a DBE.
h) Delete the special consideration provisions relating to DBE but retain the small business and
microbusiness provision.
i) Delete the DBE Option for goods, services, and IT contracts and add a DBE Option for
construction contract.
j) Require state agencies to begin reporting on duel certified small business and DBE contact
activity.
k) Make other technical and conforming changes.
10) Related Legislation: Below is a list of bills from the current and prior sessions.
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a) AB 31 (Price) Public Contracts: Small Business Procurement and Contract Act: This bill
increases the maximum contract threshold amount for awards to small businesses (SME),
including microbusinesses, and DVBEs under the state’s streamlined procurement process, from
$100,000 to $250,000, as specified. This bill requires contractors to report the contract amount
allocated to SMEs and DVBEs with which they made contract commitments. Status: Signed by
the Governor, Chapter 212, Statutes of 2009.
a) AB 230 (Brough) DVBE Program Accountability: This bill makes a number of changes to the
DVBE procurement program, including, but not limited to, requiring a prime contractor to provide
proof of DVBE payments, requiring the awarding agency to review DVBE procurement
documents for completeness and accuracy, and requiring DVBE procurement participation
commitments be identified in each state contract. Status: Signed by the Governor, Chapter 676,
Statutes of 2019.
b) AB 309 (Price) Public Contracts: Small Business Participation: This bill would have required
the establishment of a 25% small business participation goal for all state entities and directed DGS
to monitor each agency’s progress in meeting this goal. The bill would have required that the
Office of the Small Business Advocate receive the same progress report information as state
entities and directed DGS and the Office of the Small Business Advocate to work collaboratively
to assist state entities in meeting their goals. This goal is currently provided for in Executive
Order (EO) D-37-01 and EO S-02-06. Status: Held on the Suspense File of the Assembly
Committee on Appropriations, 2010.
c) AB 550 (Brown) State Procurement Procedures for Small Businesses: This bill would have
required the establishment of a 25% small business participation goal for all state entities and
directed DGS to monitor each agency’s progress in meeting this goal. The bill would have
required that the Office of the Small Business Advocate receive the same progress report
information as state entities and directed DGS and the Office of the Small Business Advocate to
work collaboratively to assist state entities in meeting their goal. This goal is currently provided
for in Executive Order (EO) D-37-01 and EO S-02-06. Status: Held on the Suspense File of the
Assembly Committee on Appropriations, 2013.
d) AB 657 (Cunningham) State Government Small Business Liaisons: This bill requires certain
state agencies to prominently display the name and contact information of the small business
liaison on the agencies’ websites and to notify the Governor’s Office of Business and Economic
Development and the Department of General Services of liaison position vacancies, as specified.
Status: Signed by the Governor, Chapter 81, Statutes of 2017.
e) AB 1365 (Quirk-Silva and Reyes) Small Business Procurement Goal: This bill would have
expressed the Legislature’s intent that all California government agencies should have a 25% goal
for small business participation in state procurement and contracting activities. Status: Held on
the Suspense File of the Assembly Committee on Appropriations, 2018.
f) AB 1734 (Jones-Sawyer) Public Contracts: Small Business Participation: Disabled Veterans:
This bill would have required each state agency to establish and achieve a 25% small business
participation goal and increased the annual procurement participation goal for disabled veteran
business enterprise from 3% to 5% of the value of state contracts. In addition, the bill required
greater reporting and accountability of DVBE program information. Status: Held on the Suspense
File in the Assembly Committee on Appropriations, 2014.
b) AB 1554 (Reyes and Quirk-Silva) Reporting of Small Business and DVBE Procurement
Participation: As passed by this committee, the bill would have required a state department to
AB 915
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annually report small business and DVBE participation based on prime and subprime contracts
beginning with the 2018-19 contract period. Status: Amended and used for a different policy
purpose. Signed by the Governor, Chapter 380, Statutes of 2018.
c) AB 1635 (Quirk-Silva) Public Contracts and Small Business Participation: This bill would have
required specified state agencies to establish and achieve a 25% small business participation goal
within their annual state contracting and permitting activities. The bill would have also required
DGS and the state Small Business Advocate to take reasonable steps to assist state agencies in
meeting this goal. The Assembly Committee on Jobs, Economic Development, and the Economy
was the sponsor of this bill. Status: Died in the Assembly Committee on Appropriations, 2017.
d) AB 1809 (Cervantes) DVBE Accountability: This bill would have modified the role of the
Department of Veterans Affairs Small Business Advocate, by enhancing enforcement of
commercially useful function violations, and tightens the existing monitoring and accountability
requirements for state procurement activities related to the DVBE targeted procurement program.
Status: Held in the Senate Committee on Appropriations, 2020.
e) AB 2249 (Ruskin) DVBE Documentation: This bill requires applicants for small business or
DVBE certification to submit a written declaration, under penalty of perjury, that the information
submitted to DGS is true and correct. The bill also authorizes DGS, if it determines that just cause
exists, to require the owner of a DVBE or small business to submit the Internal Revenue Service
Form 4506-T which would allow DGS to obtain a copy of their tax return. Finally, the bill
requires that at least 51% of the stock or voting stock of a disabled veteran business enterprise be
unconditionally owned by disabled veterans. Status: Signed by the Governor, Chapter 383,
Statutes of 2010.
f) AB 2682 (Wagner) Responsible Small Business and DVBE Contractors: This bill would have
required a state agency that solicits offers, awards a contract, or consents to subcontracts, under
the Small Business Procurement and Contract Act, to do so only with responsible and reliable
parties. This bill would have prohibited a state agency from allowing a party to participate in any
procurement activity if the party had been suspended, debarred, or otherwise excluded from
participation in a state contract. Status: Died in the Assembly Committee on Accountability and
Administrative Review, 2014.
g) AB 2905 (Assembly Jobs Committee) Small Business Procurement Goal: This bill would have
expressed the Legislature’s intent that all California government agencies should have a 25% goal
for small business participation in state procurement and contracting activities. To assist in
furthering the state goal, the bill would have required each state department to disclose its small
business participation goal when making its annual procurement report. Status: Held on the
Suspense File of the Assembly Committee on Appropriations, 2016.
h) SB 67 (Price) Small Business Participation in Public Contracts: This bill would have authorized
DGS to direct all state entities to establish an annual goal of achieving no less than 25% small
business participation in state procurement contracts, as specified. This goal is currently provided
for in Executive Order (EO) D-37-01 and EO S-02-06. Status: Held on the Suspense File of the
Assembly Committee on Appropriations, 2011.
g) SB 159 (Nielsen) Measuring Procurement Activity with Disabled Veteran Business Enterprises:
This bill would have clarified the metrics used when calculating the 3% procurement participation
goal for disabled veteran business enterprises. The bill included legislative findings that these
changes were declaratory of existing law. Status: Moved to the Assembly Inactive File without
further action, 2016.
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h) SB 839 (Correa) Reporting on Procurement Activities with DVBEs: This bill would have
modified reporting requirements for state departments with respect to DVBEs, including contracts
where the DVBE acted as the prime and as a subcontractor. Status: Held on the Suspense File of
the Senate Committee on Appropriations, 2014.
i) SB 941 (Florez) DVBE Contracting Advocates: This bill requires the Department of Veterans
Affairs and awarding departments to appoint DVBE advocates to assist in meeting DVBE
procurement participation goals. Status: Signed by the Governor, Chapter 666, Statutes of 2002.
j) SB 1179 (Newman) Suspension from Contracting: This bill would have required a contracting
agency to give a prime contractor that fails to certify that all DVBE subcontractors have been paid,
as specified, a reasonable opportunity to comply. If the prime failed to comply, DGS would have
been required to suspend the prime from participating in a state contract for five years for a first
violation and permanently upon a second violation. Status: Died without further action in the
Assembly Committee on Jobs, Economic Development, and the Economy, 2018.
k) SB 1180 (Newman) DVBE Records: This bill would have required an awarding state department
to maintain all records of the information provided by the prime contractor relative to the payment
of the DVBE that participated in the performance of the contract. The bill would have also
required the awarding department to establish review procedures for those records to ensure the
accuracy and completeness of the award amounts and paid amounts reported, including
maintaining records in a manner that facilitates access and review by external auditors for a
minimum of six years after collection. Status: Died without further action in the Assembly
Committee on Jobs, Economic Development, and the Economy, 2018.
REGISTERED SUPPORT / OPPOSITION:
Support
Asian Business Association of Los Angeles
Asian Business Association of San Diego
Asian Pacific Islander American Public Affairs Association (APAPA)
Association of Financial Development Corporations (FDCS); the
California African American Chamber of Commerce
California Asian Pacific Chamber of Commerce (CAPCC)
California Forward Action Fund
California Hispanic Chambers of Commerce
California Retailers Association
California State Treasurer
Cameo - California Association for Micro Enterprise Opportunity
City of San Diego
Coalition for Small and Disabled Veteran Businesses
Golden Gate Business Association
Greater Los Angeles African American Chamber of Commerce
Greater Sacramento Economic Council
National Association of Women Business Owners - California
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Sacramento Area Council of Governments
Sacramento Asian Pacific Chamber of Commerce
Sacramento Metropolitan Chamber of Commerce
San Francisco Chamber of Commerce
Small Business California
Small Business Majority
Valley Vision
Opposition
None on File
Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090
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