The Legislature established the Disabled Veteran Business Enterprise (DVBE) program to provide disabled veterans opportunities for entrepreneurship and to recognize the sacrifices of Californians disabled during military service. The Legislature intended for state governmental entities that award contracts for goods or services (awarding departments) to take all practical actions necessary to meet or exceed the goal of awarding at least 3 percent of the total value of their contracts during a fiscal year to firms certified by the Department of General Services (General Services) as meeting the DVBE criteria (DVBE firms), referred to as the 3 percent goal. For example, a department that awards contracts valued at a total of $100,000 for goods or services during the year must strive to award at least $3,000 of that total to DVBE firms. According to the State Contracting Manual, if an awarding department does not meet the 3 percent goal, it must develop a plan for improvement. Although state law establishes the 3 percent goal as the minimum level of expected performance, some awarding departments, such as the California Department of Veterans Affairs (CalVet) and the California Department of Transportation (Caltrans), have established their own higher goals. Both departments explained that their rationale for setting a higher goal is to ensure that their departments exceed the state goal.
Examples of State Contracts Exempt from the
DVBE Program’s 3 Percent Goal
Contracts between awarding departments and the following entities, among others, are exempt from the 3 percent goal:
- Federal, state, and local government agencies
- Public colleges and universities
- Joint power authorities
Source: State regulations and the State Contracting Manual.
Awarding departments may meet the 3 percent goal by contracting directly with certified DVBE firms as prime contractors—those contractors who contract directly with the awarding department—or by contracting with non‑DVBE firms who use DVBE firms as subcontractors for a portion of the contract work. According to General Services’ annual reports on state contracting activity, overall the State achieved the 3 percent goal each year from fiscal years 2014–15 through 2016–17. Further, according to its fiscal year 2016–17 annual report, DVBE subcontractors accounted for 32 percent—or $105 million—of the State’s total reported DVBE participation of $327 million.
Although the 3 percent goal applies to awarding departments’ overall awards for the year, some contracts are exempt from DVBE participation requirements. Departments also have the discretion to waive the requirements for an individual contract under certain circumstances. The text box shows examples of contracts that are exempt from the 3 percent goal.
General Services Is Responsible for Administering the DVBE Program
Key State Disabled Veteran Business Enterprise Certification and Eligibility Requirements
State law generally defines a disabled veteran business enterprise as a business which General Services has certified as meeting all of the following requirements:
- At least 51 percent of the business is owned by one or more disabled veterans.
- The daily business operations are managed and controlled by one or more disabled veterans.
- The business is not a subsidiary of a foreign corporation.
The term disabled veteran is defined in state law as a veteran who meets all of the following:
- Is a veteran of the U.S. military, naval, or air service.
- Has a military, naval, or air service‑connected disability of at least 10 percent.
- Permanently resides in California.
Source: Military and Veterans Code.
State law establishes General Services as the administering agency for the DVBE program, and in this capacity it is responsible for performing several functions. One such function is assessing applicant firms’ eligibility to become DVBEs and certifying those firms that meet the requirements. According to General Services’ records, as of December 2018, 1,671 firms were certified as DVBEs. General Services’ Office of Small Business and Disabled Veteran Business Enterprise Services (DVBE office) evaluates applications for certification. The text box summarizes the key state DVBE eligibility requirements. As part of its review of applications for certification, the DVBE office requires new applicants to supply proof from the U.S. Department of Veterans Affairs or the U.S. Department of Defense that the business owner has a service‑connected disability of at least 10 percent. Furthermore, state law requires the disabled veteran business owner to submit tax returns so that the DVBE office can substantiate that one or more disabled veterans actually own the business. As of January 2019, a certified DVBE must reapply every two years to maintain its certification status.
In addition to requiring that General Services certify DVBE firms, state law requires that it prepare an annual public report indicating whether each awarding department has met the 3 percent goal. State law further requires General Services to categorize this information by type of contract, such as contracts for construction, professional services, supplies, and information technology procurements. To enable it to develop this report, the DVBE office requires awarding departments, by August 1 each year, to use a standardized reporting form (DVBE activity report) to report information on the value of all contracts they awarded during the previous fiscal year and the value of contracts they awarded to certified DVBE firms as either prime contractors or subcontractors. To increase the likelihood that the DVBE participation data can be substantiated and are reported properly, General Services requires awarding departments to maintain supporting documentation for their DVBE activity reports. The DVBE office provides training opportunities to awarding departments on how to properly report their DVBE contracting activity.
General Services also has an Office of Audit Services (Audit Services), which, among other functions, reviews awarding departments’ business and management practices, including reviewing their DVBE reporting. This review entails determining whether a department has maintained support for its reported DVBE participation data and whether it counted only contracts awarded to certified DVBE firms. Audit Services’ 2018 audit plan identified a selection of 40 state departments and agencies that it intends to audit within three years.
Further, state law requires General Services to provide centralized state purchasing and acquisition services. General Services uses the Financial Information System for California (FI$Cal) to help it meet these responsibilities. FI$Cal is an integrated financial management system that combines accounting, budgeting, cash management, and procurement operations; and it is used by most state entities. In 2016 General Services transitioned to FI$Cal as its statewide contracts database.
General Services also has a role in promoting the DVBE program within state government, and it facilitates periodic meetings to which it invites each of the awarding departments’ DVBE advocates. State law requires each awarding department to appoint its own DVBE advocate, who in turn is required to assist DVBE firms participating in the contracting process as well as to assist the awarding department in seeking DVBE participation in its contract activities. The periodic meetings General Services hosts address DVBE policies and related matters, such as questions from the advocates themselves and updates related to the DVBE program. The DVBE office has seven staff members who perform outreach activities by attending events to promote the DVBE program. According to General Services, in fiscal year 2017–18, DVBE office staff attended nearly 200 events held at chambers of commerce, state departments, and other organizations for promotional purposes.
Moreover, General Services is responsible for overseeing complaints related to potential abuse of the DVBE program. State law requires awarding departments to report allegations of program abuse to General Services, which must monitor the status of the resolution of these potential violations. State regulations require the awarding departments to investigate each allegation and provide a written report, including recommended actions to take against the program abuser, to General Services within 60 days of the notification or discovery of the alleged violation. General Services is responsible for reviewing the recommendations and for taking further action, if necessary.
Under the DVBE Program
CalVet’s responsibilities include:
- Promoting the Disabled Veteran Business Enterprise (DVBE) program to the fullest extent possible and maintaining complete records of its promotional efforts.
- Establishing a system to track the effectiveness of its promotional efforts.
- Establishing a method of monitoring adherence to the participation goals.
- Appointing a statewide DVBE advocate to:
– Oversee, promote, and coordinate efforts to implement the program.
– Coordinate with administering agencies to achieve the participation goal.
– Coordinate with awarding departments and their respective DVBE advocates.
Source: Military and Veterans Code.
CalVet Is Responsible for Outreach and for Assisting Awarding Departments
State law generally establishes two key responsibilities for CalVet with respect to the DVBE program. First, state law requires CalVet to monitor awarding departments’ performance toward meeting the 3 percent goal. Second, state law makes CalVet responsible for promoting the DVBE program. The text box lists these and other CalVet program responsibilities identified in the Military and Veterans Code. CalVet received nearly $270,000 in funding from General Services in fiscal year 2017–18 through an interagency agreement to support its outreach efforts in increasing the pool of certified DVBEs. However, as of fiscal year 2018–19, that interagency agreement is no longer in effect.
State Law Encourages the Awarding of Contracts to DVBE Firms
State procurement rules encourage awarding departments to contract with DVBE firms by simplifying the competitive bidding process through a provision referred to as the DVBE option. Under state law, the DVBE option provides a streamlined contracting process in which an awarding department can award a contract greater than $5,000 and less than $250,000 to a DVBE firm outside of the State’s competitive bidding process, as long as it obtains bids from at least two certified DVBE firms. The State Contracting Manual explains that when using the DVBE option, an awarding department does not need to advertise the contract opportunity in the California State Contracts Register, does not need to secure at least three competitive bids, and does not need to select the DVBE firm with the lowest quote so long as it documents its business reasons for selecting the chosen vendor. Because the DVBE option does not require them to satisfy these requirements, awarding departments may view it as a streamlined and relatively easy approach to contracting while also working toward meeting the State’s 3 percent goal.
State procurement rules also encourage DVBE firms to bid on state contracting opportunities by providing them with an advantage, referred to as the DVBE incentive, when awarding departments evaluate their bids. According to state regulations, awarding departments have two options when applying the DVBE incentive. If contracts are to be awarded to the lowest bid, awarding departments can reduce a DVBE’s proposed price by up to 5 percent when determining the lowest bid. Similarly, if contracts are awarded on a scoring system in which the bid with the highest score wins the contract, DVBE vendors can receive up to 5 percent in additional points to make their proposals more likely to be selected. The preferential treatment called for under the DVBE incentive applies only during an awarding department’s evaluation of bids and does not reduce the value of the contract awarded to the DVBE firm if it is selected. However, during our review period an awarding department could waive the DVBE incentive from its competitive solicitations if it met or exceeded the 3 percent goal in two of the three previous years as published in General Services’ most current annual reports.2
Our Prior Review of the DVBE Program Found Significant Issues
In 2014 our office issued a report on the DVBE program noting that General Services and CalVet, as oversight departments, needed to establish meaningful performance standards and provide better guidance to strengthen the program and ensure that it meets the legislative intent of providing financial benefit to DVBE firms.3 Specifically, the report noted that 30 DVBE firms received more than 80 percent of the contract dollars awarded to DVBE prime contractors in fiscal year 2012–13. Moreover, the report identified weaknesses in the process meant to verify that DVBE subcontractors listed in the contract bid actually performed and were paid for the work. The report highlighted awarding departments’ inability to support the DVBE participation data they reported and the lack of accurate contract data maintained by General Services. We present a summary of recommendations included in the 2014 report and the current status of their implementation in Appendix B.
2 Effective January 1, 2019, state regulations eliminate the need for a department to have met or exceeded the 3 percent goal in two of the three previous years in order to waive the DVBE incentive. State regulations now provide that the highest ranking official may waive the DVBE incentive with a full and complete written justification as long as such exemption does not prevent achievement of a department’s DVBE participation goal. Go back to text
3 The Disabled Veteran Business Enterprise Program: Meaningful Performance Standards and Guidance by the California Departments of General Services and Veterans Affairs Would Strengthen the Program, Report 2013‑115. Go back to text