Small Business and DVBE Procurement

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.

To assist state agencies in reaching these targeted procurement participation goals, state law authorizes a procurement preference for bids using a certified small business or DVBE as a prime or subcontractor and a streamlined alternative procurement process for smaller size contracts (between $5,000 and $250,000) whereby an awarding department can contract directly with a certified small business or DVBE after comparing the bid against two other similar businesses. 

The state also administers a DVBE incentive that allows an awarding department to set an incentive percentage for a particular transaction based upon the department’s business strategy to achieve their annual 3% DVBE procurement participation goal.  Awarding departments are also required to recognize a 5% preference in cases where a bid includes a certified small business.

In the state’s experience, a majority of DVBEs are smaller size firms, with 75.4% having dual certifications as a DVBE and microbusiness and 9.6% having dual certifications as a DVBE and small business.  The remaining 15% of DVBEs operate with only a single DVBE certification. 

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 13 and 14) display small business and DVBE procurement participation for the most recent four fiscal years for which data is available.

Chart 13 – Small Business and Microbusiness Contracting Activity of
Mandated Reporters (dollars in millions)
Fiscal Year
Total Contract Dollars
Total Small Business and Microbusiness  Contract Dollars
Total Percent
Total Number of Contracts
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 14  – DVBE Five-Year Contracting Activity of Mandated Reporters (dollars in millions)
Fiscal Year
Total Contract Dollars
Total DVBE Dollars
Total DVBE Percent
Total DVBE Contracts
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, the state appears to have consistently met its 25% small business (except in 2018-19) and 3% DVBE procurement participation goals.  This is, however, only part of a program assessment and these numbers may be misleading.  Although DGS works diligently to gather and aggregate this information, the data is not consistently reported by state agencies, nor do all of the agencies report annually.  As an example, in 2012-13, only 79% of the mandatory reporting entities reported their contracting activity to DGS.

The data is further compromised by the lack of follow-up by awarding departments to ensure that small business and DVBE procurement participation commitments have been kept or that these subcontractors were paid.  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.

Procurement Opportunities During COVID-19

Procurement reporting for the period of COVID-19 pandemic is difficult to track.  Being under a state of emergency, allows the state to use alternative contracting protocols.  Many small business groups have expressed concern over the lack of access to new procurement opportunities. 

There is good evidence that small business and DVBE participation in 2019-20 and 2020-21 will not meet the 25% and possibly the 3% goal.  DGS reported in its most recent report that the “primary reason departments gave for not meeting the SB or DVBE participation goals was the large number of emergency contracts related to the wildfires, such as the Camp Fire.”

Small businesses and DVBE have tried to address this challenge and have made recommendations to the DGS Small Business and DVBE Advisory Committee.  One of the ad hoc working groups that formed developed a set of 3 recommendations, which were later shared with the Assembly Jobs Committee.  These recommendations include the following:  

  • Recommendation # 1– Increase pre-bid prime engagement with new SB and DVBE partners.  BART currently mandates online speed dating as part of their procurement process.

  • Recommendation # 2 – Expand state outreach activities to include industry-specific events.

  • Recommendation # 3 – Host online meet and greets between state agencies and groups of small business vendors.  Establish a State Mentor/Protégé program, similar to the Feds.

During the hearing, Members will have an opportunity to hear from Tracy Stanhoff who runs a Procurement technical Assistance Center (PTAC).  PTACs provide free training to entrepreneurs who want to contract with federal, state, and/or local governments, as well as investor-owned utilities regulated by the California Public Utilities Commission.

Appendix C in the Hearing Background Report includes more general information on small businesses in California.

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