Preference for Bidders Using California Workers Is Weighed

Companies using California workers would get a 5 percent preference when bidding on state contracts under legislation awaiting action by Gov. Arnold Schwarzenegger.

The measure is a classic business versus labor face-off with unions backing the bill – California Labor Federation is the sponsor – and businesses, led by the state Chamber of Commerce, opposing it.

“With record unemployment, California must do everything in its power to spur job creation – an even bigger challenge when facing a budget deficit,” said Sen. Lou Correa, a Santa Ana Democrat, in defense of his bill.

“With so many Californians out of work, taxpayer money should not be spent on contracts that simply create jobs in other states or countries.”

Businesses opposing the bill counter that it could harm trade agreements California has signed allowing foreign companies equal access to bidding on state contracts. Other states, in retaliation, might erect barriers to California companies bidding on their contracts, the chamber also says.

The bill also might foster less competition for contracts, the chamber contends.

“By limiting the bidders, competition is reduced which results in less choice and higher prices,” wrote Marti Fisher in an August 26 memo urging the Assembly to reject the bill.

Branding it an impediment to “economic development,” the chamber placed Correa’s bill on its 2010 list of 39 “job killer” bills.

Generally, Schwarzenegger sides with the chamber on such measures.

Under the bill, SB 967, contractors who prove that 90 percent of their employees who will work on a state contract are California residents will get a 5 percent bid preference on state contracts over $1 million.

Bids on projects using federal economic recovery funds would also be subject to the preference.

The state gives 5 percent preferences already but on a much more limited basis to small businesses and businesses run by disabled veterans.

On those preferences, however, there is a maximum of $100,000 so bidders that are more than $100,000 above the lowest bid would not receive any preference.

A cost analysis by the Assembly Appropriations Committee concluded Correa’s bill could cost the state millions of dollars annually if the preference prevents contracts from being awarded to the lowest bidder.

Also, the committee noted that fewer projects paid for with federal economic recovery dollars would be completed if the lowest bidder did not prevail.

Costs would also be incurred by the state agencies required to verify if 90 percent of a bidder’s employees are Californians.

Opponents also complain that the language of the bill is vague in establishing what constitutes an employee working on the contract.

“(The bill) proposes to award companies a preference if 90 percent of the employees that “perform work on the contract” are California residents,” Fisher wrote in her memo.

“What is considered “work on the contract”? Is an employee that performs an internal audit on the contract an employee that is working on the contract? Such ambiguity is open to interpretation and therefore subject to litigation that may negate the economic benefits to the contractor.”

During the fiscal year ending June 30, 2009 the state let 110 contracts of $1 million or more totaling $402 million, the committee found.

Correa, who represents an Orange County distinct that has traditionally been a battleground between Republicans and Democrats, seeks re-election to a second four-year term this year.

The top issue on his campaign website is “Jobs.” Beneath it is written:

“We can’t spend or cut our way out of this recession. We need to create and attract new jobs in Orange County and in California. Let’s help business by eliminating unnecessary red tape and over regulation, and creating a tax structure that keeps jobs in California.”

Whether signed into law or not, the subject of Correa’s measure dovetails with his top campaign theme.

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