HBA-EVB, DMD C.S.H.B. 3032 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3032 By: Oliveira, Dukes State Affairs 4/28/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE The Historically Underutilized Business (HUB) program was instituted in 1991 in order to increase the opportunities available to companies owned by minorities and women. These companies experience low levels of participation in state procurement opportunities. Of the six legislated HUB contracting goals, no state agency has met all six goals and only some state agencies have met or exceeded one or two of the goals. The State Auditor's Report of March 1998 found that prime contractors do not suffer a loss or penalty for low HUB participation, and some contracts close before prime contractors are required to show good faith in subcontracting with HUBs. Under current law, there is a broad definition for HUBs, leaving an opportunity for fraud. Furthermore, there is no program to educate and aid new or recertified HUBs about state contracting opportunities and procedures. C.S.H.B. 3032 requires the General Services Commission (commission) to include information for each state agency to reflect whether the agency substantially failed to meet the applicable HUB contracting goals during the preceding fiscal year. C.S.H.B. 3032 requires the commission to enter into agreements with local governments to maximize the number of HUBs. This bill requires a state agency that has an annual budget that exceeds $5 million during a state fiscal year to designate a staff member to serve as the HUB coordinator. C.S.H.B. 3032 also requires each state agency that considers entering into a contract with an expected value of $100,000 or more to determine whether subcontracting services will be needed and if so, require that each bid, proposal, and offer include a HUB subcontracting plan. C.S.H.B. 3032 prohibits a state agency from awarding a contract to a company that did not include a HUB subcontracting plan. This bill requires quarterly reports to be made on the progress that the contractor is making in meeting the goals of the HUB subcontracting plan. C.S.H.B. 3032 requires the purchasing personnel of the state agency to determine whether the value of subcontracts awarded have met or exceeded the HUB subcontracting goal. In addition, this bill sets forth a penalty assessment process if the contractor has failed to meet the HUB subcontracting participation level that was part of the contract, and that failure is attributable to a lack of good faith effort on the part of the contractor. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 2155.074(g), Government Code, as follows: (g) Requires a state agency to post in the business daily either the entire bid or proposal solicitation package or a notice that includes all information necessary to make a successful bid, proposal, or other applicable expression of interest for the procurement contract including a clear and complete, rather than brief, description of the goods or services to be procured and any applicable state product or service codes for the goods and services; and the name, business mailing address, and business telephone number of the state agency employee a person may contact to inquire about, rather than obtain, all necessary information related to making such a bid, proposal, or other applicable expression of interest, for each procurement that the state agency will make that is estimated to exceed $25,000 in value. SECTION 2. Amends Subchapter A, Chapter 2161, Government Code, by adding Section 2161.0015 as follows: Sec. 2161.0015. DETERMINING SIZE STANDARDS FOR HISTORICALLY UNDERUTILIZED BUSINESSES. Authorizes the General Services Commission (commission) to establish size standards that a business is prohibited from exceeding if it is to be considered a historically underutilized business under this chapter. Requires the commission, in determining the size standards, to determine the size at which a business should be considered sufficiently large that the business probably does not significantly suffer from the effects of past discriminatory practices. SECTION 3. Amends Subchapter A, Chapter 2161, Government Code, by adding Section 2161.003, as follows: Sec. 2161.003. REVOCATION OR TRANSFER OF PURCHASING AUTHORITY. Requires the General Services Commission (commission), when preparing the consolidated yearly report under Section 2161.121 regarding the historically underutilized business (HUB) program to include information for each state agency to reflect whether each state agency substantially failed to meet during the preceding fiscal year the applicable HUB contracting goals established by this chapter and by rules of the commission during the preceding state fiscal year. Requires the legislature to consider this information in determining whether to revoke by law any purchasing authority that the commission has delegated to a state agency or to appropriate to another agency the funds used for an agency's purchases. SECTION 4. Amends Sections 2161.061(b) and (c), Government Code, as follows: (b) Authorizes the commission as one, rather than part, of its certification procedures, to approve the, rather than another, certification program of one or more local governments in this state that certify, rather than certifies, HUBs, minority business enterprises, women's business enterprises, or disadvantaged business enterprises under substantially the same definition, to the extent applicable, used by Section 2161.001, and to certify a business certified under the local government program as a HUB under this chapter. (c) Requires the commission, in order to maximize the number of certified HUBs, to enter into agreements with local governments in this state that conduct certification programs described under Subsection (b). Provides that the agreements must take effect immediately and allow for automatic certification of businesses certified under the local government program; provide for the efficient updating of the commission database containing information about HUBs and potential HUBs; and provide for a method by which the commission is authorized to efficiently communicate with businesses certified under the local government program and provide those businesses with information about the state HUB program. Deletes the authorization of a municipality to adopt the certification program of the commission, of the federal Small Business Administration, or of another political subdivision or other governmental entity. SECTION 5. Amends Section 2161.062, Government Code, by adding Subsections (d) and (e), as follows: (d) Requires the commission to send HUBs an orientation package on certification or recertification. Specifies the requirements for the package. (e) Requires a state agency with a budget that exceeds $5 million during a state fiscal year to designate a staff member to serve as the HUB coordinator for the agency during the fiscal year. Authorizes the procurement director to serve as the coordinator. Provides that in agencies that currently employ a HUB coordinator, the position of coordinator, within the agency's structure, must be at least equal to the position of procurement director. Specifies the requirements for the coordinator. SECTION 6. Amends Section 2161.063(b), Government Code, to require the commission to assist the Texas Department of Economic Development, rather than the Texas Department of Commerce, in performing the department's duties under Section 481.0068 (Office of Small Business Assistance), rather than 481.103 (Repealed), Government Code. SECTION 7. Amends Section 2161.064(b), Government Code, to require the commission at least semiannually to update the directory and provide access to the directory electronically or in another form, rather than provide a copy of the directory, to each state agency. SECTION 8. Amends Sections 2161.121(a) and (e), Government Code, to require the commission to prepare a consolidated report that tracks, by vendor identification number and, to the extent allowed by federal law, by social security number, the graduation rates for HUBs that grew to exceed the size standards determined by the commission. Deletes the members of the legislature from those that are required to receive a report on the preceding fiscal year by the commission. Makes a conforming change. SECTION 9. Amends Subchapter B, Chapter 2161, Government Code, by adding Sections 2161.065 and 2161.066, as follows: Sec. 2161.065. MENTOR-PROT_G_ PROGRAM. (a) Requires the commission to design a mentor-prot_g_ program to foster long-term relationships between prime contractors and HUBs and to increase the ability of HUBs to contract with the state or to receive subcontracts under a state contract. Requires each agency to implement the program designed by the commission. (b) Provides that the program must be designed so that each state agency is directed to offer appropriate points or other incentives to its contractors in connection with any agency contract that offers subcontracting opportunities if the contractor agrees to and is successful in subcontracting with a HUB in performing the contract, and providing business and developmental assistance to the HUB subcontractor that is designed to increase the HUB's technical and business capabilities to perform complex work. (c) Provides that participation in the program must be voluntary for both the contractor and the HUB subcontractor. Sec. 2161.066. HISTORICALLY UNDERUTILIZED BUSINESS FORUMS. (a) Requires the commission to design a program of forums in which HUBs are invited by state agencies to deliver technical and business presentations that demonstrate their capability to work with the agency to certain senior managers and procurement personnel, and certain contractors with the state. (b) Requires the forums to be held at state agency offices. (c) Requires each state agency to participate in the program by sending senior managers and procurement personnel to attend relevant presentations and by informing the agency's contractors about presentations that may be relevant to anticipated subcontracting opportunities. (d) Requires each state agency that has a HUB coordinator to design its own program and model the program to the extent appropriate on the program developed by the commission under this section, and sponsor presentations by HUBs at the agency. (e) Requires the commission to sponsor presentations given at locations that can easily be attended by representatives of and contractors with state agencies that do not have a HUB coordinator. (f) Requires the commission and each state agency that has a HUB coordinator to aggressively identify and notify individual HUBs regarding opportunities to make a presentation regarding the types of goods and services supplied by the HUB and requires advertising in appropriate trade publications that target HUBs regarding opportunities to make a presentation. SECTION 10. Amends Section 2161.122(c), Government Code, to delete a citation. SECTION 11. Amends Subchapter C, Chapter 2161, Government Code, by deleting the citation from a requirement of a group purchasing program in Section 2161.122(c), and by adding Sections 2161.126 and 2161.127, as follows: Sec. 2161.126. EDUCATION AND OUTREACH BY COMMISSION. Requires the commission, before September 1 of each year, to report to the governor, the lieutenant governor, and the speaker of the house of representatives on the education and training efforts that the commission has made toward HUBs. Specifies the provisions of the report related to HUBs included in the report. Sec. 2161.127. LEGISLATIVE APPROPRIATIONS REQUESTS. Provides that each state agency must include as part of its legislative appropriations request a detailed report for consideration by the budget committees of the legislature that shows the extent to which the agency met the applicable HUB contracting goals established by this chapter and by rules of the commission during the two calendar years preceding the calendar year in which the request is submitted. Provides that if a state agency did not meet an applicable goal, the report must demonstrate the reasons for that fact. Provides that the extent to which a state agency meets applicable goals is considered a performance measure for purposes of the appropriations process. SECTION 12. Amends Chapter 2161, Government Code, by adding Subchapter F, as follows: SUBCHAPTER F. SUBCONTRACTING Sec. 2161.251. APPLICABILITY. Sets forth that this subchapter applies to all contracts entered into by a state agency with an expected value of $100,000 or more, including contracts for the acquisition of a good or service, and contracts for or related to the construction of a public building, road, or other public work. Provides that this subchapter applies to the contract without regard to whether the contract is otherwise subject to this subtitle, or the source of funds for the contract, except that to the extent federal funds are used to pay for the contract, this subchapter does not apply if federal law prohibits the application of this subchapter in relation to the expenditure of federal funds. Sec. 2161.252. AGENCY DETERMINATION REGARDING SUBCONTRACTING OPPORTUNITIES; BUSINESS SUBCONTRACTING PLAN. (a) Requires each state agency considering entering into a contract with an expected value of $100,000 or more, before the agency solicits bids, proposals, offers, or other applicable expressions of interest from prospective contractors, to determine whether it is probable that there will be subcontracting opportunities under the contract. Requires the state agency upon determining that there is that probability, to require that each bid, proposal, offer, or other applicable expression of interest include a HUB subcontracting plan. (b) Requires the state agency, upon determining that there is the probability for subcontracting opportunities under the contract, to determine the extent to which HUBs will be available to enter into the subcontracts. Requires the state agency to make this determination based on the types of subcontracting opportunities available under the contract together with the agency's knowledge of the relevant market, any relevant disparity study conducted by or for a governmental entity that contains information on the availability of HUBs to perform the types of subcontracted work in the relevant locality, and other relevant information the agency considers to be reliable. Requires the state agency, given the expected value of the subcontracting opportunities and its determination regarding the availability of HUBs to perform the subcontracted work, to state the HUBs subcontracting participation level for the contract expressed as a percentage of the expected dollar value of the contract. Requires the state agency to include participation level in its request for bids, proposals, offers, or other applicable expressions of interest. (c) Provides that when a state agency requires a HUB subcontracting plan under Subsection (a), a bid, proposal, offer, or other applicable expression of interest from a prospective contractor must contain a plan that meets the requirements of this section to be considered responsive. (d) Sets forth that the HUB subcontracting plan is considered to be part of the bid, proposal, offer, or other applicable expression of interest. Specifies the provisions for the plan. (e) Provides that if the HUB subcontracting goal stated in the prospective contractor's plan is less than the state agency's stated minimum goal for the contract, the plan must account for that fact. Provides that the plan must demonstrate the reason, in the prospective contractor's opinion, that there is an insufficient number of HUBs available in the locality at that time to allow the state agency's stated minimum goal to be met. Sec. 2161.253. AGENCY EVALUATION OF BUSINESS SUBCONTRACTING PLAN. (a) Prohibits a state agency that has required each bid, proposal, offer, or other applicable expression of interest for the contract to include a HUB subcontracting plan from awarding the contract to a prospective contractor who did not include a plan that complies with Section 2161.252. (b) Requires the state agency, when determining which bid, proposal, offer, or other applicable expression of interest offers the best value to the state or is the lowest and best responsible bid or proposal, to evaluate and consider the merits of each prospective contractor's HUB subcontracting plan. Sec. 2161.254. REQUIRED CONTRACT CLAUSES. (a) Provides that a contract awarded by a state agency that has required each bid, proposal, offer, or other applicable expression of interest for the contract to include a HUB subcontracting plan must include the contract clauses described by this section. (b) Sets forth that the HUB subcontracting plan submitted by the prospective contractor receiving the contract is considered to be part of the contract. Provides that the HUB subcontracting participation level expressed in the plan as a percentage of the expected dollar amount of the contract is considered to be part of the contract, except that if negotiations were allowed under other law and the prospective contractor and the state agency agreed on a different percentage subcontracting participation level during negotiations before the contract was awarded, the negotiated participation level is considered to be part of the contract. (c) Provides that the contract must require quarterly reports on the progress the contractor is making in meeting the overall participation level of the HUB subcontracting plan. Provides that the quarterly reports must generally describe, in the manner prescribed by the state agency, the progress being made in meeting the participation level. Specifies the provisions for the quarterly reports. (d) Provides that the contract must include a clause outlining and describing the requirements of the state's HUB subcontracting program. (e) Provides that the contract must include a penalties clause that requires the contractor to pay penalties to the state after the contract is completed if the value of subcontracts awarded under the contract to HUBs did not meet or exceed the HUB subcontracting participation level that is part of the contract, and the participation level was not met at least in part because the contractor did not make a good faith effort to meet the participation level. (f) Provides that the amount of the penalties is computed by subtracting the value of subcontracts awarded under the contract to HUBs from the HUB subcontracting participation level that is part of the contract. Sec. 2161.255. DETERMINING WHETHER TO ASSESS PENALTIES. (a) Requires the purchasing personnel of the state agency, after the contract is completed, to determine whether the value of subcontracts awarded under the contract to HUBs met or exceeded the HUB subcontracting participation level that was part of the contract. Requires the state agency, if it is determined that the contractor failed to meet or exceed the participation level, to notify the contractor of that determination. (b) Requires the state agency to give the contractor ample opportunity to submit documentation and to explain in discussions with state agency purchasing personnel that the failure to meet or exceed the participation level is not attributable to a lack of good faith effort on the part of the contractor to meet the participation level. (c) Specifies the factors that the state agency's purchasing personnel are required to consider when determining the extent to which the contractor made a good faith effort to meet the participation level. (d) Requires the state agency's officer or employee in charge of procurement, if, after considering the documentation and explanations submitted by the contractor, the procurement officer finds that the contractor did not meet the participation level because of a lack of good faith effort on the part of the contractor, to report that finding to the administrative head of the agency. Authorizes the administrative head to then initiate a contested case proceeding to assess the penalty under Chapter 2001 (Administrative Procedure), Government Code. (e) Authorizes the enforcement of the penalty to be stayed during the time the order is under judicial review if the person pays the penalty to the clerk of the court or files a supersedeas bond with the court in the amount of the penalty. Authorizes a person who cannot afford to pay the penalty or file the bond to stay the enforcement by filing an affidavit in the manner required by the Texas Rules of Civil Procedure for a party who cannot afford to file security for costs, subject to the right of the agency to contest the affidavit as provided by those rules. (f) Provides that penalties under this section are payable to the state agency, which is required to send the money to the comptroller for deposit in the unobligated and undedicated portion of the general revenue fund. SECTION 13. Amends Section 2161.231, Government Code, to set forth that a person commits a third degree felony if the person intentionally applies as a HUB for an award of a subcontract under a purchasing contract or public works contract with a state agency under this subtitle or other law and knows the person is not a HUB. Redesignates Subsection (b) to Subsection (c). SECTION 14.Effective date: September 1, 1999, except that Section 2161.003, Government Code, as added by this Act, takes effect September 1, 2000. Makes application of Subchapter F, Chapter 2161, Government Code, as added by this Act, prospective to subcontracting under a contract entered into by a state agency for which the request for bids, proposals, offers, or other applicable expressions of interest is published or otherwise disseminated on or after that date. SECTION 15.Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 3032 differs from the original bill by removing proposed SECTION 1, which amended Sections 2161.001(2) and (3), Government Code, to define "historically underutilized businesses" (HUBs) and "socially disadvantaged person." The substitute adds a new SECTION 1, amending Section 2155.074(g), Government Code. Please see the Section-by-Section Analysis in this document with respect to new SECTION 1. The substitute differs from the original by adding a new SECTION 2, which relates to the determination of size standards for HUBs. The substitute differs from the original bill by redesignating SECTION 2 of the original to SECTION 3 of the substitute. In SECTION 3, the substitute modifies the original as follows: The substitute removes the proposed definition of "health and human services agency." The substitute differs from the original by requiring the General Services Commission (commission), when preparing the consolidated yearly report under Section 2161.121 regarding the historically underutilized business (HUB) program to include information for each state agency to reflect, rather than determine for each state agency, whether the agency substantially failed to meet during the preceding fiscal year the applicable HUB contracting goals. The substitute differs from the original bill by requiring the legislature to consider certain information when determining whether to revoke a state agency's purchasing authority for the remainder of the fiscal year, rather than simply requiring the revocation. The substitute differs from the original bill by removing proposed Section 2161.003(c), Government Code, which required the commission to report each health and human services agency that substantially failed to meet certain goals to the Health and Human Services Commission; and required the Health and Human Services Commission to transfer certain procurement functions of each of those agencies to another appropriate state agency. The substitute differs from the original bill by removing proposed Section 2161.003(d), Government Code, which authorized the comptroller, if the commission revokes a state agency's delegated purchasing authority or the Health and Human Services Commission transfers a health and human services agency's purchasing functions, to consider that fact in the event a transfer of an agency's appropriated funds is needed to cover the costs of assuming the agency's purchasing functions; and required the amount transferred from the agency's funds to be an amount determined by the Legislative Budget Board. SECTION 4 of the substitute is redesignated from SECTION 3 of the original, and differs from the original by changing the certification procedures of the commission, in Sections 2161.061(b) and (c), Government Code, as follows: (b) Authorizes the commission as one of its certification procedures, to approve the certification program of one or more local governments in this state that certify, rather than a municipal program that certifies, HUBs, minority business enterprises, women's business enterprises, or disadvantaged business enterprises under substantially the same definition, to the extent possible, used by Section 2161.001, Government Code, rather than HUBs under substantially the same definition used by Section 2161.001, Government Code; and to certify a business certified under the local government program, rather than municipal program, as a HUB under this chapter. (c) Requires the commission, in order to maximize the number of certified HUBs, to enter into agreements with other local governments, rather than certification programs, in the state which must take effect immediately and allow for automatic certification of businesses certified under the local government program, rather than address automatic certification and regular electronic updates of the state database for members of minority business enterprise or women business enterprise programs; provide for the efficient updating of the commission database containing information about HUBs and potential HUBs; and provide for a method by which the commission is authorized to efficiently communicate with businesses certified under the local government program and provide those businesses with information about the state historically underutilized business program. Removes proposed Subdivision (2), which related to the training and education by the commission of those minority business enterprise or women business enterprise members. SECTION 5 of the substitute is redesignated from SECTION 4 of the original, and differs from the original in proposed Section 2161.062(d), Government Code, by requiring that a certificate issued in the HUBs name, rather than the vendor's name, be included in an orientation package on certification or recertification that the commission is required to send to HUBs. SECTION 5 of the substitute differs from SECTION 4 of the original in proposed Section 2161.062(e), Government Code, by requiring a state agency with a budget that exceeds, rather than greater than, $5 million during a state fiscal year, rather than per fiscal year, to designate a staff member to serve as the HUB coordinator for the agency during the fiscal year. SECTIONS 6 through 8 of the substitute are redesignated from SECTIONS 5 through 7 of the original bill. SECTION 8 of the substitute differs from SECTION 7 of the original bill, in Section 2161.121(a), Government Code, by requiring the commission to prepare a consolidated report that tracks, by vendor identification number and, to the extent allowed by federal law, by social security number, graduation rates, rather than tracks gradation rates, for HUBs that grew to exceed the size standards determined by the commission, rather than as determined by the commission by vendor identification number and social security number. SECTION 9, as added by the substitute, relates to the development of a mentor-prot_g_ program and HUB forums to be designed by the commission. For more analysis of this new SECTION, please see the Section-by-Section Analysis in this document. SECTION 10 of the substitute is redesignated from SECTION 8 of the original. SECTION 11 of the substitute is redesignated from SECTION 9 of the original. SECTION 11 of the substitute differs from SECTION 9 of the original in proposed Section 2161.126, Government Code, by requiring the commission, before September 1 of each year, to report to the governor, the lieutenant governor, and the speaker of the house of representatives on the education and training efforts that the commission has made, rather than being made, toward HUBs. Specifies the provisions related to HUBs that must be included in the report. Makes conforming changes. C.S.H.B. 3032 does not address SECTION 10 of the original bill, which amends Section 2161.182(a), Government Code, to require a state agency that contracts for a construction project under Section 2166.003 (Exceptions), rather than a construction project including a project under Section 2166.003, to make a good faith effort to assist HUBs receive no less than 30 percent of the total value of each construction contract award that the agency expects to make during a fiscal year. SECTION 12 of the substitute is redesignated from SECTION 11 of the original bill. The substitute differs from the original in SECTION 12 (proposed Section 2161.252(b), Government Code) by requiring the state agency to state the HUB subcontracting participation level, rather than minimum HUB subcontracting goals. Sections 2161.252(d) and (e) make conforming changes. The substitute differs from the original in SECTION 12 (proposed Section 2161.254, Government Code) by requiring a contract awarded by a state agency to include the contract clauses described by, rather than in this, section. The substitute also provides that quarterly reports must specifically report the percentage of the cumulative dollar value of subcontracts awarded to HUBs under contract to date, rather than as of the end of the quarterly reporting period into date, and the percentage of the cumulative amount the contractor has spent under the contract as payments to HUB subcontractors under the contract, rather than HUBs who have received subcontracts under the contract. The substitute differs from the original by requiring the contract to include a penalties, rather than a liquidated damages, clause that requires the contractor to pay penalties, rather than liquidated damages, to the state after the contract is completed. Makes conforming changes. The substitute differs from the original in SECTION 12 (proposed Section 2161.255, Government Code) by changing the title from "Determining Whether to Assess Liquidated Damages" to "Determining Whether to Assess Liquidated Penalties" to make a conforming change. The substitute also requires the contractor to advertise the subcontracting opportunity in all media, rather than general circulation media, trade association media, and media, that focus on serving one or more kinds of HUBs. The substitute also differs from the original in SECTION 12 (proposed Section 2161.255(d), Government Code) by requiring the state agency's officer or employee in charge of procurement (procurement officer), if, after considering the documentation and explanations submitted by the contractor, the procurement officer finds that the contractor did not meet the participation level because of, rather than determines that the failure to meet or exceed the goal is to any significant degree attributable to, a lack of good faith effort on the part of the contractor, to report that finding to the administrative head of the agency, rather than assess the liquidated damages on behalf of the agency. Removes a proposed requirement that the contractor pay the amount of the liquidated damages to the state agency, which is required to send the money to the comptroller for deposit in the unobligated and undedicated portion of the general revenue fund. The substitute, in proposed Section 2161.355(d), also authorizes the administrative head to then initiate a contested case proceeding to assess the penalty under Chapter 2001 (Administrative Procedure), Government Code. The substitute differs from the original by adding new Section 2161.255(e), which authorizes the enforcement of the penalty to be stayed during the time the order is under judicial review if the person pays the penalty to the clerk of the court or files a supersedeas bond with the court in the amount of the penalty; and authorizes a person who cannot afford to pay the penalty or file the bond to stay the enforcement by filing an affidavit in the manner required by the Texas Rules of Civil Procedure for a party who cannot afford to file security for costs, subject to the right of the agency to contest the affidavit as provided by those rules. The substitute differs from the original by adding new Section 2161.255(f), which provides that penalties under this section are payable to the state agency, which is required to send the money to the comptroller for deposit in the unobligated and undedicated portion of the general revenue fund. SECTIONS 13 through 15 of the substitute are redesignated from SECTIONS 12 through 14 of the original bill.