Small Business/Disabled Veteran Business Enterprise Option Streamlined Procurement Process

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1 2015 NASPO Cronin Award Nomination STATE OF CALIFORNIA Small Business/Disabled Veteran Business Enterprise Option Streamlined Procurement Process Submitted by Angel Carrera, Branch Chief Office of Small Business and Disabled Veteran Business Enterprise Services California Department of General Services, Procurement Division

2 Introduction and Executive Summary The state of California annually acquires between $8 billion and $9 billion worth of goods, information technology, construction, and professional services. By law, the Department of General Services (DGS), Procurement Division (PD) is tasked with overseeing much of this acquisition activity; DGS promulgates regulations and policies to administer its statutory authority. As the business manager of the state, DGS is looked upon by other agencies as the pioneer for many of the state s innovative procurement process improvements. Mandated by the Governor s Executive Order (EO) S and the Military and Veterans Code (MVC) 999, and EO D 43 01, DGS and other California state departments must meet contracting goals of at least 25 percent for certified Small Businesses (SBs) and 3 percent for Disabled Veteran Business Enterprises (DVBEs). DGS is a control agency that monitors departments performance and SB/DVBE contracting goal attainment, and provides training and consulting services to departments that do not meet one or both of their SB/DVBE contracting goals. In 2009, DGS sponsored Assembly Bill (AB) 31 (Price) which became effective January 1, AB 31 raised the dollar threshold of a streamlined procurement process known as the SB/DVBE Option from $100,000 to 250,000. Per Government Code Section (a) state departments may procure from either a SB or DVBE for goods, services, and information technology goods and services through competition free from advertising or protests within the dollar threshold of $5, to $249, and up to $281,000 for public works contracts by soliciting and receiving two bids from two certified SBs or two certified DVBEs. The SB/DVBE Option 1 is a streamlined procurement process notable for the following: Innovation It is a significant and laudable process that has expanded certified SBs and DVBEs opportunity to access and compete for nearly $9 billion in state contracting opportunities. Transferability It can be easily adopted by any state or public agency. Because it guarantees SB/DVBE participation on the contracts on which it is used, it has been adopted by many California state departments as an internal policy to help increase SB/DVBE contracting goals. 1 The Benefits of Using the SB/DVBE Option flier 1

3 Service Improvement Use of the SB/DVBE Option has provided a steady increase in contracting participation for certified SBs and DVBEs and has assisted many departments with increasing their contract participation goals. Cost Reduction The SB/DVBE Option is the fastest and least expensive competitive procurement process in comparison to other acquisition process. Innovation The implementation of AB 31 brought a renewed awareness to the already existing SB/DVBE Option and purchasing opportunities for SBs/DVBEs. State departments who were not previously meeting their mandated goals are now implementing the Option and meeting or significantly increasing their goals. Also, the Option gives departments the flexibility to seek SBs only or DVBEs only if their contracting participation numbers are low in one of the respective categories. One of the major barriers for California SB/DVBE businesses is penetrating the procurement veil of the state government procurement process. Use of the SB/DVBE Option assures and widens the opportunities for SBs and DVBEs to secure a contract with the state. The SB/DVBE Option procurement process is often compared to the federal government set aside program whose opportunities are geared only for minority, women and disadvantaged businesses. The flexibility of the Option makes it unique. Another unique aspect of this procurement process is that it is open to all certified SBs and DVBEs in California. California s economy is driven by small businesses as they represent 99.2% of all employers and employ 50.4% of the private sector labor force. Most [small business employers] (89%) have fewer than 20 employees. 2 In addition, 90% of certified DVBEs are also certified SBs. With over 3.6 million SBs in California, this is a huge opportunity for businesses to grow. Transferability The SB/DVBE Option can be easily adopted by any state and other public agencies looking to establish and/or increase contracting goals for the underserved small or disabled veteran business community. The Option has been implemented as an SB/DVBE First Policy within DGS and many other state departments. The DGS First Policy states that first consideration for all purchases under $250,000 must go to a certified SB or DVBE. Implementation of a SB/DVBE Option procurement process can be duplicated within any government program or organization by way of legislation, Executive Order or policy. Any organization can implement such a policy. This is accomplished by issuing a policy statement memorandum from the highest executive level of the organization affirming their commitment to the SB and/or DVBE Programs. This is vital because it communicates the organization s intention, from the highest level, to meet SB and DVBE program goals. The policy 2 U.S. Small Business Administration, Small Business Profile: California, (February 2013) 2

4 statement should be included in the organization s or department s administrative/acquisition manual and be made easily accessible through the department s internal website. Policy expresses the overall goals the department is committed to accomplishing. Service Improvement California continues to make positive changes to the SB and DVBE program with an eye towards increasing SB and DVBE contract participation by creating more user friendly processes for its business and government customers. The SB/DVBE Option has been formally adopted by at least 93 California state departments as an internal First Policy as previously stated. Backed by statute and support by the Governor, the collective consciousness of the State s massive procurement operations is focused on striking an effective balance between the sometimes conflicting missions of gaining the best price for what it buys, and growing California s economy by bringing its SB and DVBE firms into the contracting fold. It is an integrated effort that involves the collaboration of top management, SB/DVBE advocates, buyers and the businesses themselves. Steadily, since its inception the effort is producing measurable and significant results. (See Appendix A) Cost Reduction DGS/PD offers innovative procurement solutions to meet the purchasing needs of over 185 state departments in California. There are three types of competitive procurement processes: SB/DVBE Option, Informal competition and Formal competition. The SB/DVBE Option is the fastest and least expensive procurement process in comparison to the other two competitive processes. The cost reduction benefits at different stages of the contract process when using the SB/DVBE Option can amount to 90 days in time savings (when compared to a formal competition contract with a protest component), and at least $25,000 in cost reduction/avoidance, and could include: No advertising Time savings: minimum 10 days; it does not require solicitations to be advertised; by contrast, the informal process for bids over $50,000 and the formal process requires 10 days for advertising. Limited to two bids Time savings: up to 30 days; the SB/DVBE Option allows for a minimum of two bids, three times less bids to evaluate than typical non IT contracts, or even ten times less bids than many IT contracts; it eliminates the need to evaluate multiple bid packages, by having only two firms bidding; the informal/formal bidding process can include evaluations of an average of six bids for goods and services and up to 20 bids for information technology goods and services, and involves in average three staff; One day contract award Time savings and salary savings: minimum of 20 days and $6,000, respectively; when using the SB/DVBE Option the contract award can be done in a few hours by one staff in comparison with the other process which can take up to a 3

5 minimum of 20 days, and use in average three staff which work on two contracts simultaneously; No protest Time and salary savings: up to 60 days, and a minimum of $19,000 respectively; it avoids the costly bid protest process that usually involves considerable resources and time; the protest process can take days using up to six staff resources and the services of the Office of Legal Services, and hearing officers; 3,4 Flexible, convenient Time savings: it is streamlined and simplified and could be a phone call, written solicitation document, distributed by fax, electronic mail or regular mail, which makes it convenient. Over the years, the use of the SB/DVBE Option has resulted in thousands of person hours saved by state contracting staff and by the SB and DVBE firms seeking to do business with the state of California. This procurement process shortens a typical contracting process in average by 30 days, and a contracting process with a protest by 90 days. With California s 93 state departments with a cumulative annual average of over 17,000 contracts using the Option, the salary saving is quite significant and could potentially reach 400 million each year. While an indepth analysis would be needed to assess other direct cost savings as well as multipliers for this procurement process, it is safe to say that this streamlined procurement process has saved money and resources for California and its taxpayers, while helping to increase the SB and DVBE participation in state contracting. 3 Based on conservative assumptions of using six Associate Governmental Program Analysts for 60 days amounts to $75,500 in salary cost; assuming that one staff works on four protests simultaneously, the minimum cost avoidance is $19,000.) 4 The cost with legal and administrative hearing services is not included and is in addition to the conservatively estimated $19,000 salary cost for Associate Governmental Program Analysts. However, if more specialized staff is used, such as engineers, scientists, research specialist, even the cost of $19,000 could be considerably higher. 4