Newly Approved Law Gives More California Small Businesses a Chance to Compete for State Contracts

October 12, 2017

A greater number of California small businesses will be eligible to participate in the state’s small business contracting program under a new law authored by State Senator Cathleen Galgiani.  Approved yesterday by Governor Jerry Brown, Senate Bill 605 increases the annual income limit from $10 million dollars to a much higher $36 million dollars for small businesses bidding on public works projects.  For all other state contracts for goods and services, the revenue limit was statutorily increased from $10 million to $15 million dollars for small businesses and from $2.5 million to $5 million dollars for micro-businesses.

At its heart, the new law will have the greatest impact on large public works projects.  Given the type and complexity of projects the state is currently building, or will build in the near future – dams, water systems, rail, roads, highways, bridges - the technical expertise many construction businesses must maintain has increased, requiring companies to invest in greater amounts of human and technical capital, thus limiting relatively small businesses in the construction industry from being considered a “small business” for state contracting purposes. 

The change in California law is in line with federal contracting limits. In the case of heavy construction, the U.S. Small Business Administration’s small business standard is $36.5 million in revenue.

“Making more small businesses competitive in bidding for state contracts ensures that behemoth construction companies do not necessarily dominate state contracting.  The majority of construction employment in California is by small businesses,” noted Senator Galgiani.  “We need to make sure state dollars flow into our small business community and the greater communities they support.”

“Full participation in the state’s economy rests on ensuring that small businesses have an equal opportunity for economic equality.  Increasing the revenue limit will help small business owners to amass the capital and expertise necessary to compete for state procurement of goods and services.  This expansion of the number of small businesses bidding on state contracts also helps the state and taxpayers by encouraging competition among suppliers and promoting economic efficiency in the process,” Galgiani explained.

In order to accommodate the roll-out of the state’s FISCAL computer system, the provisions of the new law will go into effect in 2019.  This gives the state plenty of time to plan and implement a new certification process for companies bidding on public works projects. 

Small and micro businesses have a few common standards that must be met for certification.  This includes: be independently owned and operated; not dominate in a field of operation; have a principal office located in California; and its owners must be domiciled in California. 

Certified small and micro businesses are entitled to: a 5% preference for sole bids and team bids if the small/micro business portion of the team contract makes up 25% of the net bid price; eligibility for the state’s small business participation program that sets a 25% goal for the use of small/micro business in the state’s overall contract dollars; higher interest penalties for late payment by the state; and a streamlined process for direct purchasing from the state for goods, services, information technology and public works projects.