SECTIONS 14835-14843 - California Statutes

GOVERNMENT CODE

SECTION 14835-14843

14835. This chapter shall be known and may be cited as the Small
Business Procurement and Contract Act.

14836. (a) The Legislature hereby declares that it serves a public
purpose, and it is of benefit to the state, to promote and facilitate
the fullest possible participation by all citizens in the affairs of
the State of California in every possible way. It is also essential
that opportunity is provided for full participation in our free
enterprise system by small business enterprises.
(b) Further, it is the declared policy of the Legislature that the
state should aid, counsel, assist, and protect, to the maximum
extent possible, the interests of small business concerns, including
microbusinesses, in order to preserve free competitive enterprise and
to ensure that a fair proportion of the total purchases and
contracts or subcontracts for property and services for the state be
placed with these enterprises.

14837. As used in this chapter:
(a) "Department" means the Department of General Services.
(b) "Director" means the Director of General Services.
(c) "Manufacturer" means a business that meets both of the
following requirements:
(1) It is primarily engaged in the chemical or mechanical
transformation of raw materials or processed substances into new
products.
(2) It is classified between Codes 31 to 33, inclusive, of the
North American Industry Classification System.
(d) (1) "Small business" means an independently owned and operated
business that is not dominant in its field of operation, 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, and average annual gross
receipts of ten million dollars ($10,000,000) or less over the
previous three years, or is a manufacturer, as defined in subdivision
(c), with 100 or fewer employees.
(2) "Microbusiness" is a small business which, together with
affiliates, has average annual gross receipts of two million five
hundred thousand dollars ($2,500,000) or less over the previous three
years, or is a manufacturer, as defined in subdivision (c), with 25
or fewer employees.
(3) The director shall conduct a biennial review of the average
annual gross receipt levels specified in this subdivision and may
adjust that level to reflect changes in the California Consumer Price
Index for all items. To reflect unique variations or characteristics
of different industries, the director may establish, to the extent
necessary, either higher or lower qualifying standards than those
specified in this subdivision, or alternative standards based on
other applicable criteria.
(4) Standards applied under this subdivision shall be established
by regulation, in accordance with Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2, and shall preclude
the qualification of businesses that are dominant in their industry.
In addition, the standards shall provide that the certified small
business or microbusiness shall provide goods or services that
contribute to the fulfillment of the contract requirements by
performing a commercially useful function, as defined below:
(A) A certified small business or microbusiness is deemed to
perform a commercially useful function if the business does all of
the following:
(i) (I) Is responsible for the execution of a distinct element of
the work of the contract.
(II) Carries out its obligation by actually performing, managing,
or supervising the work involved.
(III) Performs work that is normal for its business services and
functions.
(ii) Is not further subcontracting a portion of the work that is
greater than that expected to be subcontracted by normal industry
practices.
(B) A contractor, subcontractor, or supplier will not be
considered to perform a commercially useful function if the
contractor's, subcontractor's, or supplier's role is limited to that
of an extra participant in a transaction, contract, or project
through which funds are passed in order to obtain the appearance of
small business or microbusiness participation.
(e) "Disabled veteran business enterprise" means an enterprise
that has been certified as meeting the qualifications established by
subdivision (g) of Section 999 of the Military and Veterans Code.

14838. In order to facilitate the participation of small business,
including microbusiness, in the provision of goods, information
technology, and services to the state, and in the construction
(including alteration, demolition, repair, or improvement) of state
facilities, the directors of the department and other state agencies
that enter those contracts, each within their respective areas of
responsibility, shall do all of the following:
(a) Establish goals, consistent with those established by the
Office of Small Business Certification and Resources, for the extent
of participation of small businesses, including microbusinesses, in
the provision of goods, information technology, and services to the
state, and in the construction of state facilities.
(b) Provide for small business preference, or nonsmall business
preference for bidders that provide for small business and
microbusiness subcontractor participation, in the award of contracts
for goods, information technology, services, and construction, as
follows:
(1) In solicitations where an award is to be made to the lowest
responsible bidder meeting specifications, the preference to small
business and microbusiness shall be 5 percent of the lowest
responsible bidder meeting specifications. The preference to nonsmall
business bidders that provide for small business or microbusiness
subcontractor participation shall be, up to a maximum of 5 percent of
the lowest responsible bidder meeting specifications, determined
according to rules and regulations established by the Department of
General Services.
(2) In solicitations where an award is to be made to the highest
scored bidder based on evaluation factors in addition to price, the
preference to small business or microbusiness shall be 5 percent of
the highest responsible bidder's total score. The preference to
nonsmall business bidders that provide for small business or
microbusiness subcontractor participation shall be up to a maximum 5
percent of the highest responsible bidder's total score, determined
according to rules and regulations established by the Department of
General Services.
(3) The preferences under paragraphs (1) and (2) shall not be
awarded to a noncompliant bidder and shall not be used to achieve any
applicable minimum requirements.
(4) The preference under paragraph (1) shall not exceed fifty
thousand dollars ($50,000) for any bid, and the combined cost of
preferences granted pursuant to paragraph (1) and any other provision
of law shall not exceed one hundred thousand dollars ($100,000). In
bids in which the state has reserved the right to make multiple
awards, this fifty thousand dollar ($50,000) maximum preference cost
shall be applied, to the extent possible, so as to maximize the
dollar participation of small businesses, including microbusinesses,
in the contract award.
(c) Give special consideration to small businesses and
microbusinesses by both:
(1) Reducing the experience required.
(2) Reducing the level of inventory normally required.
(d) Give special assistance to small businesses and
microbusinesses in the preparation and submission of the information
requested in Section 14310.
(e) Under the authorization granted in Section 10163 of the Public
Contract Code, make awards, whenever feasible, to small business and
microbusiness bidders for each project bid upon within their
prequalification rating. This may be accomplished by dividing major
projects into subprojects so as to allow a small business or
microbusiness contractor to qualify to bid on these subprojects.
(f) Small business and microbusiness bidders qualified in
accordance with this chapter shall have precedence over nonsmall
business bidders in that the application of a bidder preference for
which nonsmall business bidders may be eligible under this section or
any other provision of law shall not result in the denial of the
award to a small business or microbusiness bidder. In the event of a
precise tie between the low responsible bid of a bidder meeting
specifications of a small business or microbusiness, and the low
responsible bid of a bidder meeting the specifications of a disabled
veteran-owned small business or microbusiness, the contract shall be
awarded to the disabled veteran-owned small business or
microbusiness. This provision applies if the small business or
microbusiness bidder is the lowest responsible bidder, as well as if
the small business or microbusiness bidder is eligible for award as
the result of application of the small business and microbusiness
bidder preference granted by subdivision (b).

14838.1. (a) In order to encourage the participation of small
businesses in the construction, alteration, demolition, repair, or
improvement, of the state's infrastructure, as provided in the
infrastructure-related bond acts of 2006, each state agency awarding
contracts financed with the proceeds of these bonds shall do all of
the following:
(1) Establish a 25 percent small business participation goal in
all contracts it financed with the proceeds of the
infrastructure-related bond acts of 2006.
(2) Advertise all upcoming opportunities to bid on contracts for
projects funded by the infrastructure-related bond acts of 2006,
described in subdivision (c), in the California State Contracts
Register and include in the advertisement an Internet link to
information for prospective bidders, including, but not limited to,
general bidding procedures and how to properly prepare a bid for
those contracts.
(3) Provide information to California small businesses regarding
training and technical assistance that is available to assist these
small businesses in understanding and bidding on contracts for
projects funded by the infrastructure-related bond acts of 2006,
described in subdivision (c).
(b) For purposes of this section, "small business" has the same
meaning as set forth in subdivision (d) in Section 14837.
(c) For purposes of this section, all of the following measures
are deemed to be the infrastructure-related bond acts of 2006:
(1) The Highway Safety, Traffic Reduction, Air Quality, and Port
Security Bond Act of 2006 (Chapter 12.49 (commencing with Section
8879.20) of Division 1 of the Government Code).
(2) The Housing and Emergency Shelter Trust Fund Act of 2006 (Part
12 (commencing with Section 53540) of Division 31 of the Health and
Safety Code).
(3) The Kindergarten-University Public Education Facilities Bond
Act of 2006 (Part 69 (commencing with Section 101000) of the
Education Code).
(4) The Disaster Preparedness and Flood Prevention Bond Act of
2006 (Chapter 1.699 (commencing with Section 5096.800) of Division 5
of the Public Resources Code).
(5) The Safe Drinking Water, Water Quality and Supply, Flood
Control, River and Coastal Protection Bond Act of 2006 (Division 43
(commencing with Section 75001) of the Public Resources Code).
(d) For the purposes of this section, "state agency" includes each
agency provided for in Section 12800 and each state entity included
in Section 10335.7 of the Public Contract Code in which the head of
the agency is appointed by the Governor.
(e) This section does not require the expenditure of the proceeds
of the sale of the bonds described in this section, except as
permitted by the measure authorizing the issuance of the bond.
(f) On or before August 1, 2009, and annually thereafter, each
state agency that has awarded any contract financed with the proceeds
of the infrastructure-related bond acts of 2006 in the previous
fiscal year shall report to the Director of General Services
statistics comparing the small business and microbusiness
participation dollars for contracts funded by these bonds to the
total contract dollars for contracts funded by these bonds. If an
agency did not meet its participation goal, then the agency shall
include in its report a plan of action to meet its participation goal
during the current fiscal year.

14838.2. The Legislature finds and declares all of the following:
(a) Market demand is a driving factor in determining profitability
of California companies and the ability of those companies to invest
in business growth.
(b) Recent unemployment figures indicate that California's
employment has declined by more than 420,000 jobs since the middle of
1990, with up to 133,000 of those jobs in the manufacturing sector.
(c) The current economic recession, coupled with losses of federal
contracts by our defense and aerospace industries, is causing an
economic crisis in California.
(d) California companies are often at a competitive disadvantage
when responding to public contract proposals from government agencies
because of factors associated with higher taxes, wages, rents, labor
benefits, and insurance rates.
(e) The competitiveness of California companies is also impacted
as a result of in-state business preference policies that exist in
other states.

14838.4. No small business preference shall be allowed if allowing
the small business preference would result in a computed bid of the
preference recipient which would exceed the amount of funds
appropriated by the Legislature for the construction project, plus
any augmentation that may be made by the State Public Works Board
pursuant to authority granted in the annual Budget Act.

14838.5. (a) Notwithstanding the advertising, bidding, and protest
provisions of Chapter 6 (commencing with Section 14825) of this part
and Chapter 2 (commencing with Section 10290) and Chapter 3
(commencing with Section 12100) of Part 2 of Division 2 of the Public
Contract Code, a state agency may award a contract for the
acquisition of goods, services, or information technology that has an
estimated value of greater than five thousand dollars ($5,000), but
less than two hundred fifty thousand dollars ($250,000), to a
certified small business, including a microbusiness, or to a disabled
veteran business enterprise, as long as the agency obtains price
quotations from two or more certified small businesses, including
microbusinesses, or from two or more disabled veterans business
enterprises.
(b) In carrying out subdivision (a), a state agency shall consider
a responsive offer timely received from a responsible certified
small business, including a microbusiness, or from a disabled veteran
business enterprise.
(c) If the estimated cost to the state is less than five thousand
dollars ($5,000) for the acquisition of goods, services, or
information technology, or a greater amount as administratively
established by the director, a state agency shall obtain at least two
price quotations from responsible suppliers whenever there is reason
to believe a response from a single source is not a fair and
reasonable price.

14838.7. (a) Notwithstanding the advertising and bidding provisions
of Chapter 6 (commencing with Section 14825) of this code and
Chapter 1 (commencing with Section 10100) of Part 2 of Division 2 of
the Public Contract Code, a state agency may award a contract for
construction, including the erection, construction, alteration,
repair, or improvement of any state structure, building, road, or
other state improvement of any kind that has an estimated value of
greater than five thousand dollars ($5,000) but less than the cost
limit, as specified in subdivision (b) of Section 10105 of the Public
Contract Code, to a certified small business, including a
microbusiness, or to a disabled veteran business enterprise, as long
as the agency obtains written bid submittals from two or more
certified small businesses, including microbusinesses, or from two or
more disabled veteran business enterprises.
(b) In implementing subdivision (a), state agencies shall consider
a responsive offer timely received from a responsible certified
small business, including a microbusiness, or from a disabled veteran
business enterprise.
(c) If the estimated cost to the state is less than five thousand
dollars ($5,000) for the public work construction project, a state
agency shall obtain at least two written bid submittals from
responsible contractors whenever there is reason to believe a
response from a single source is not a fair and reasonable price.

14839. There is hereby established within the department the Office
of Small Business and Disabled Veteran Business Enterprise Services.
The duties of the office shall include:
(a) Compiling and maintaining a comprehensive bidders list of
qualified small businesses and disabled veteran business enterprises,
and noting which small businesses also qualify as microbusinesses.
(b) Coordinating with the Federal Small Business Administration,
the Minority Business Development Agency, and the Office of Small
Business Development of the Department of Economic and Business
Development.
(c) Providing technical and managerial aids to small businesses,
microbusinesses, and disabled veteran business enterprises, by
conducting workshops on matters in connection with government
procurement and contracting.
(d) Assisting small businesses, microbusinesses, and disabled
veteran business enterprises, in complying with the procedures for
bidding on state contracts.
(e) Working with appropriate state, federal, local, and private
organizations and business enterprises in disseminating information
on bidding procedures and opportunities available to small
businesses, microbusinesses, and disabled veteran business
enterprises.
(f) Making recommendations to the department and other state
agencies for simplification of specifications and terms in order to
increase the opportunities for small business, microbusiness, and
disabled veteran business enterprise participation.
(g) Developing, by regulation, other programs and practices that
are reasonably necessary to aid and protect the interest of small
businesses, microbusinesses, and disabled veteran business
enterprises in contracting with the state.
(h) Making efforts to develop, in cooperation with associations
representing counties, cities, and special districts, a core
statewide small business certification application that may be
adopted by all participating entities, with any supplemental
provisions to be added as necessary by the respective entities.
(i) The information furnished by each contractor requesting a
small business or microbusiness preference shall be under penalty of
perjury.

14839.1. (a) Except as provided in subdivision (b), the department
shall have sole responsibility for certifying and determining the
eligibility of small businesses and microbusinesses under this
chapter.
(b) Notwithstanding subdivision (a), a business that has been
certified by, or on behalf of, another governmental entity may be
eligible for certification as a small business if the certifying
entity uses substantially the same or more stringent definitions as
those set forth in Section 14837 and substantially the same or a more
stringent certification analysis than that used by the department
pursuant to this chapter.

14840. (a) In the process of certifying and determining the
eligibility of a disabled veteran business enterprise or a small
business enterprise, including a microbusiness, the department shall
require the applicant or certified firm to submit a written
declaration, under penalty of perjury, that the information submitted
to the department pursuant to this chapter, and in the case of a
disabled veteran enterprise all information submitted to the
department pursuant to Section 999.2 of the Military and Veterans
Code, is true and correct.
(b) (1) If the department determines that just cause exists, it
may require the owner of the disabled veteran business enterprise,
microbusiness, or small business, the applicant, or the certified
firm to complete and submit to the department a federal Form 4506-T
from the Internal Revenue Service, United States Department of the
Treasury, requesting a transcript of a tax return.
(2) For the purposes of this subdivision, "just cause" means
either of the following circumstances exists:
(A) The department receives a complaint regarding the certified
firm.
(B) The department determines, based on its findings during the
course of any certification eligibility review of the applicant or
certified firm, that the action described in paragraph (1) is
necessary.

14841. Upon completion of a public contract for which a commitment
to achieve small business or disabled veteran business enterprise
participation goals was made, the contractor shall report to the
awarding department the actual percentage of small business and
disabled veteran business enterprise participation that was achieved.

14842. (a) A business that has obtained classification as a small
business or microbusiness by reason of having furnished incorrect
supporting information or by reason of having withheld information,
and that knew, or should have known, the information furnished was
incorrect or the information withheld was relevant to its request for
classification, and that by reason of that classification has been
awarded a contract to which it would not otherwise have been
entitled, shall do all of the following:
(1) Pay to the state any difference between the contract amount
and what the state's costs would have been if the contract had been
properly awarded.
(2) Pay to the awarding state agency and the department an amount
that is equal to the costs incurred for investigating the small
business or microbusiness certification that led to the finding that
the contract had been improperly awarded. Costs incurred shall
include, but are not limited to, costs and attorney's fees paid by
the awarding state agency or the department related to hearings and
court appearances.
(3) In addition to the amounts described in paragraphs (1) and
(2), be assessed a penalty in an amount of not more than 10 percent
of the amount of the contract involved.
(b) The department shall suspend any person who violates
subdivision (a) from transacting any business with the state either
directly as a prime contractor or indirectly as a subcontractor, for
a period of not less than three years and not more than 10 years.
State agencies may reject the bid of a supplier offering goods,
information technology, or services manufactured or provided by a
subcontractor if that subcontractor has been declared ineligible to
transact any business with the state under this chapter, even though
the bidder is a business in good standing.
(c) All payments to the state pursuant to paragraphs (1) and (2)
of subdivision (a) shall be deposited in the fund or funds out of
which payments on the contract involved were made, except payments to
the department made pursuant to paragraph (2) of subdivision (a)
shall be deposited in the Service Revolving Fund.
(d) All payments to the state pursuant to paragraph (3) of
subdivision (a) shall be deposited in the state General Fund.
(e) The small business certification, and the disabled veteran
business enterprise certification if the business has both
certifications, of a business found to have violated subdivision (a)
shall be revoked by the department for a period of not less than five
years. For an additional or subsequent violation, the period of
certification revocation or suspension shall be extended for a period
of up to 10 years. The certification revocation shall apply to the
principals of the business and any subsequent businesses formed by
one or more of those principals.
(f) Prior to the imposition of any sanctions under this article, a
business shall be entitled to a public hearing and to at least five
working days' notice of the time and place thereof. The notice shall
state the reasons for the hearing.
(g) Any business or person that fails to satisfy any of the
amounts specified in paragraphs (1) to (3), inclusive, of subdivision
(a) shall be prohibited from further contracting with the state
until all amounts are satisfied.
(h) For purposes of this section, "awarding state agency" means a
state agency or other state governmental entity that awarded the
contract, if it was not awarded by the department.

14842.5. (a) It shall be unlawful for a person to do any of the
following:
(1) Knowingly and with intent to defraud, fraudulently obtain,
retain, attempt to obtain or retain, or aid another in fraudulently
obtaining or retaining or attempting to obtain or retain,
certification as a small business or microbusiness enterprise for the
purposes of this chapter.
(2) Willfully and knowingly make a false statement with the intent
to defraud, whether by affidavit, report, or other representation,
to a state official or employee for the purpose of influencing the
certification or denial of certification of any entity as a small
business or microbusiness enterprise.
(3) Willfully and knowingly obstruct, impede, or attempt to
obstruct or impede, any state official or employee who is
investigating the qualifications of a business entity that has
requested certification as a small business or microbusiness
enterprise.
(4) Knowingly and with intent to defraud, fraudulently obtain,
attempt to obtain, or aid another person in fraudulently obtaining or
attempting to obtain, public moneys, contracts, or funds expended
under a contract, that are awarded by any state agency, department,
officer, or other state governmental agency, to which the person is
not entitled under this chapter.
(5) Knowingly and with intent to defraud, fraudulently represent
certified small business or microbusiness participation in order to
obtain or retain a bid preference or a state contract.
(6) Knowingly and with intent to defraud, fraudulently represent
that a commercially useful function is being performed by a certified
small business or microbusiness in order to obtain or retain a bid
preference or a state contract.
(7) Willfully and knowingly make or subscribe to any statement,
declaration, or other document that is fraudulent or false as to any
material matter, whether or not that falsity or fraud is committed
with the knowledge or consent of the person authorized or required to
present the declaration, statement, or document.
(8) Willfully and knowingly aid or assist in, or procure, counsel,
or advise, the preparation or presentation of a declaration,
statement, or other document that is fraudulent or false as to any
material matter, regardless of whether that falsity or fraud is
committed with the knowledge or consent of the person authorized or
required to present the declaration, statement, or document.
(9) Establish, or knowingly aid in the establishment of, or
exercise control over, a firm found to have violated any provision of
paragraphs (1) to (8), inclusive.
(b) (1) Any person who is found by the department to have violated
any of the provisions of subdivision (a) is subject to a civil
penalty of not less than ten thousand dollars ($10,000) nor more than
thirty thousand dollars ($30,000) for the first violation, and a
civil penalty of not less than thirty thousand dollars ($30,000) nor
more than fifty thousand dollars ($50,000) for each additional or
subsequent violation.
(2) A person who violates any of the provisions of subdivision (a)
shall pay all costs incurred by the awarding department and the
Department of General Services for any investigations that led to the
finding of the violation. Costs incurred shall include, but are not
limited to, costs and attorney's fees paid by the awarding state
agency or the department related to hearings and court appearances.
All payments to the state pursuant to this paragraph shall be
deposited in the fund or funds out of which payments on the contract
involved were made, except payments to the department shall be
deposited in the Service Revolving Fund.
(c) The department shall revoke the small business or
microbusiness certification, and the disabled veteran business
enterprise certification if the business has both certifications, of
any person that violates subdivision (a) for a period of not less
than five years, and shall, in addition to the penalties provided for
in subdivision (b), suspend the person from bidding on, or
participating as a contractor, a subcontractor, or a supplier in, any
state contract or project for a period of not less than three years
nor more than 10 years. However, for an additional or subsequent
violation, the period of certification revocation or suspension shall
be extended for a period of up to three years. The certification
revocation shall apply to the principals of the business and any
subsequent businesses formed by one or more of those principals. Any
business or person who fails to satisfy any of the penalties imposed
pursuant to paragraphs (1) and (2) of subdivision (b) shall be
prohibited from further contracting with the state until the
penalties are satisfied.
(d) If a contractor, subcontractor, supplier, subsidiary, or
affiliate thereof, has been found by the department to have violated
subdivision (a) and that violation occurred within three years of
another violation of subdivision (a) found by the department, the
department shall prohibit that contractor, subcontractor, supplier,
subsidiary, or affiliate thereof, from entering into a state project
or state contract and from further bidding to a state entity, and
from being a subcontractor to a contractor for a state entity, and
from being a supplier to a state entity.
(e) (1) In addition to the penalties imposed by this section, if a
contractor is found to be in violation of paragraph (6) of
subdivision (a), any existing contract between that contractor and
any awarding department may be terminated at the discretion of the
awarding state agency, and, where payment to the contractor is made
directly by the state agency, the agency shall set off penalties and
costs due to the state against any payments due to that contractor.
In the event that the contracting state agency has forwarded the
contract and invoices to the Controller for payment, the state agency
shall reduce the amount due to the contractor as reflected in the
claim schedule submitted to the Controller by the amount of the
penalties and costs due the state. In addition, with regard to any
penalties and costs due to the state that the state agency has not
accounted for by either a set off against payments due to the
contractor or a reduction reflected in the claim schedule submitted
to the Controller, to the extent that the Controller is making
payments to the contractor on behalf of any state agency, the
Controller shall set off penalties and costs due against any invoices
due to the contractor from any other contract awarded to the
contractor.
(2) For purposes of this section:
(A) "Awarding state agency" means any state agency, department,
governmental entity, or other officer or entity empowered by law to
enter into contracts on behalf of the State of California.
(B) "Contractor" means any person or persons, firm, partnership,
corporation, or combination thereof who submits a bid and enters into
a contract with a representative of a state agency, department,
governmental entity, or other officer empowered by law to enter into
contracts on behalf of the State of California.

14843. The department may make all rules and regulations consistent
with the law for the purpose of carrying into effect the provisions
of this chapter. Rules and regulations shall be adopted, amended, or
repealed in accordance with the provisions of Chapter 3.5 (commencing
with Section 11340) of Part 1.