BILL REQ. #:  H-0518.1 

Prefiled 01/08/09. Read first time 01/12/09.   Referred to Committee on Community & Economic Development & Trade.

     AN ACT Relating to enhancing small business participation in state purchasing; amending RCW 43.19.1905, 28B.10.029, 39.29.050, and 43.19.1901; adding a new section to chapter 43.19 RCW; creating a new section; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature finds that it is in the state's economic interest and serves a public purpose to promote and facilitate the fullest possible participation by Washington businesses of all sizes in the process by which goods and services are purchased by the state. The legislature further finds that large businesses have the resources to participate fully and effectively in the state's purchasing system, and because of many factors, including economies of scale, the purchasing system tends to create a preference in favor of large businesses and to disadvantage small businesses. The legislature intends, therefore, to assist, to the maximum extent possible, small businesses to participate in order to enhance and preserve competitive enterprise and to ensure that small businesses have a fair opportunity to be awarded contracts or subcontracts for goods and services purchased by the state.

NEW SECTION.  Sec. 2   A new section is added to chapter 43.19 RCW to read as follows:
     (1) To facilitate the participation of small business in the provision of goods and services to the state, including purchases under chapters 39.29 and 43.105 RCW, the state purchasing and material control director, under the powers granted by RCW 43.19.190 through 43.19.1939, and the agencies, including educational institutions, operating under delegated authority granted under RCW 43.19.190 or 28B.10.029, must:
     (a) Apply a preference in the award of contracts for goods and services as follows:
     (i) A preference to small business bidders that is seven percent of the lowest responsible bidder meeting specifications; and
     (ii) A preference to in-state business bidders that are not small businesses but who provide for small business subcontractor participation in the contract that may be up to seven percent of the lowest responsible bidder meeting specifications, determined according to rules adopted by the department of general administration;
     (b) Give assistance to small businesses by:
     (i) Providing technical assistance that would be reasonably expected to mitigate barriers that result from experience requirements related to the contract;
     (ii) Allowing for alternative methods for meeting any inventory level requirements related to the contract; and
     (iii) Assisting small businesses with the qualification application required under RCW 43.19.1908.
     (2) Small business bidders qualified under this chapter shall have precedence over other business bidders so that the application of any bidder preference for which another business bidder may be eligible by law does not result in the denial of the contract award to a small business bidder. This subsection applies if the small business bidder is the lowest responsible bidder, as well as if the small business is eligible for the contract award as the result of the small business bidder preference applied under this section.
     (3) The preferences under subsection (1)(a) of this section may not be awarded to a noncompliant bidder and may not be used to achieve any applicable minimum bidding requirements. The preferences may be used only in evaluating bids or proposals for awards. In no instance may the increase be paid to a bidder whose bid is accepted.
     (4) This section applies to the state's purchases of goods and services to the maximum extent consistent with international trade agreement commitments.
     (5)(a) A business that is given the preference provided for in this section based on false information, whether that information was provided or withheld, and which by reason of the information has been awarded a contract to which it would not otherwise have been entitled:
     (i) Must pay the state an assessment equal to the difference between the contract amount and what the state's cost would have been if the contract had been properly awarded;
     (ii) In addition to the amount specified in this subsection (5)(a) and except as provided in (b) of this subsection, must pay a civil penalty of ten percent of the amount of the contract involved or one thousand dollars, whichever is less; and
     (iii) Is ineligible to directly or indirectly transact any business with the state for a period of not less than six months and not more than three years, as determined by the director of general administration. This ineligibility shall apply to the principals of the business and any subsequent businesses formed by those principals.
     (b) In addition to being subject to the penalties under (a)(i) and (iii) of this subsection, a business that knowingly and with intent to defraud makes a false statement or fails to provide or conceals, or attempts to conceal, material information for the purpose of obtaining, or aiding another in obtaining, a preference under this section is subject to a civil penalty of ten percent of the amount of the contract involved or ten thousand dollars, whichever is greater.
     (c)(i) A business subject to sanction under this subsection may request, within thirty days of the date of issuance of the notice of sanction, a hearing conducted pursuant to chapter 34.05 RCW.
     (ii) If a business fails to pay an assessment or civil penalty after it has become final and not subject to further appeal, or after the court has entered final judgment in favor of the state, the attorney general may recover the assessment or penalty by action in the appropriate superior court. In such action, the validity and appropriateness of the final order imposing the assessment or penalty shall not be subject to review.
     (6) As used in this section:
     (a) "In-state business" means a business that has its principal office located in Washington and its officers domiciled in Washington.
     (b)(i) "Small business" means an in-state business that:
     (A) Is an independently owned and operated business performing a commercial useful function that is not dominant in its field of operation; and
     (B) Together with affiliates, has fifty or fewer employees and average annual gross receipts of ten million dollars or less over the previous three consecutive years.
     (ii)(A) A small business is deemed to perform a commercially useful function if the business does all of the following:
     (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; and
     (IV) 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 participation.
     (7) The department of general administration shall adopt rules necessary to implement this section.

Sec. 3   RCW 43.19.1905 and 2008 c 215 s 4 are each amended to read as follows:
     (1) The director of general administration shall establish overall state policy for compliance by all state agencies, including educational institutions, regarding the following purchasing and material control functions:
     (a) Development of a state commodity coding system, including common stock numbers for items maintained in stores for reissue;
     (b) Determination where consolidations, closures, or additions of stores operated by state agencies and educational institutions should be initiated;
     (c) Institution of standard criteria for determination of when and where an item in the state supply system should be stocked;
     (d) Establishment of stock levels to be maintained in state stores, and formulation of standards for replenishment of stock;
     (e) Formulation of an overall distribution and redistribution system for stock items which establishes sources of supply support for all agencies, including interagency supply support;
     (f) Determination of what function data processing equipment, including remote terminals, shall perform in statewide purchasing and material control for improvement of service and promotion of economy;
     (g) Standardization of records and forms used statewide for supply system activities involving purchasing, receiving, inspecting, storing, requisitioning, and issuing functions, including a standard notification form for state agencies to report cost-effective direct purchases, which shall at least identify the price of the goods as available through the division of purchasing, the price of the goods as available from the alternative source, the total savings, and the signature of the notifying agency's director or the director's designee;
     (h) Screening of supplies, material, and equipment excess to the requirements of one agency for overall state need before sale as surplus;
     (i) Establishment of warehouse operation and storage standards to achieve uniform, effective, and economical stores operations;
     (j) Establishment of time limit standards for the issuing of material in store and for processing requisitions requiring purchase;
     (k) Formulation of criteria for determining when centralized rather than decentralized purchasing shall be used to obtain maximum benefit of volume buying of identical or similar items, including procurement from federal supply sources;
     (l) Development of criteria for use of leased, rather than state owned, warehouse space based on relative cost and accessibility;
     (m) Institution of standard criteria for purchase and placement of state furnished materials, carpeting, furniture, fixtures, and nonfixed equipment, in newly constructed or renovated state buildings;
     (n) Determination of how transportation costs incurred by the state for materials, supplies, services, and equipment can be reduced by improved freight and traffic coordination and control;
     (o) Establishment of a formal certification program for state employees who are authorized to perform purchasing functions as agents for the state under the provisions of chapter 43.19 RCW;
     (p) Development of performance measures for the reduction of total overall expense for material, supplies, equipment, and services used each biennium by the state;
     (q) Establishment of a standard system for all state organizations to record and report dollar savings and cost avoidance which are attributable to the establishment and implementation of improved purchasing and material control procedures;
     (r) Development of procedures for mutual and voluntary cooperation between state agencies, including educational institutions, and political subdivisions for exchange of purchasing and material control services;
     (s) Resolution of all other purchasing and material matters which require the establishment of overall statewide policy for effective and economical supply management;
     (t) Development of guidelines and criteria for the purchase of vehicles, high gas mileage vehicles, alternate vehicle fuels and systems, equipment, and materials that reduce overall energy-related costs and energy use by the state, including investigations into all opportunities to aggregate the purchasing of clean technologies by state and local governments, and including the requirement that new passenger vehicles purchased by the state meet the minimum standards for passenger automobile fuel economy established by the United States secretary of transportation pursuant to the energy policy and conservation act (15 U.S.C. Sec. 2002);
     (u) Development of goals for state use of recycled or environmentally preferable products through specifications for products and services, processes for requests for proposals and requests for qualifications, contractor selection, and contract negotiations;
     (v) Development of procedures and policies implementing the small business participation in state purchasing provided in section 2 of this act;
     (w) Development of food procurement procedures and materials that encourage and facilitate the purchase of Washington grown food by state agencies and institutions to the maximum extent practicable and consistent with international trade agreement commitments; and
     (((w))) (x) Development of policies requiring all food contracts to include a plan to maximize to the extent practicable and consistent with international trade agreement commitments the availability of Washington grown food purchased through the contract.
     (2) As used in this section, "Washington grown" has the definition in RCW 15.64.060.

Sec. 4   RCW 28B.10.029 and 2004 c 167 s 10 are each amended to read as follows:
     (1) An institution of higher education may exercise independently those powers otherwise granted to the director of general administration in chapter 43.19 RCW in connection with the purchase and disposition of all material, supplies, services, and equipment needed for the support, maintenance, and use of the respective institution of higher education. Property disposition policies followed by institutions of higher education shall be consistent with policies followed by the department of general administration. Purchasing policies and procedures followed by institutions of higher education shall be in compliance with chapters 39.19, 39.29, and 43.03 RCW, and RCW 43.19.1901, 43.19.1906, 43.19.1911, section 2 of this act, 43.19.1917, 43.19.1937, 43.19.534, 43.19.685, 43.19.700 through 43.19.704, and 43.19.560 through 43.19.637. The community and technical colleges shall comply with RCW 43.19.450. Except for the University of Washington, institutions of higher education shall comply with RCW 43.41.310, 43.41.290, and 43.41.350. If an institution of higher education can satisfactorily demonstrate to the director of the office of financial management that the cost of compliance is greater than the value of benefits from any of the following statutes, then it shall be exempt from them: RCW 43.19.685; 43.19.534; and 43.19.637. Any institution of higher education that chooses to exercise independent purchasing authority for a commodity or group of commodities shall notify the director of general administration. Thereafter the director of general administration shall not be required to provide those services for that institution for the duration of the general administration contract term for that commodity or group of commodities.
     (2) The council of presidents and the state board for community and technical colleges shall convene its correctional industries business development advisory committee, and work collaboratively with correctional industries, to:
     (a) Reaffirm purchasing criteria and ensure that quality, service, and timely delivery result in the best value for expenditure of state dollars;
     (b) Update the approved list of correctional industries products from which higher education shall purchase; and
     (c) Develop recommendations on ways to continue to build correctional industries' business with institutions of higher education.
     (3) Higher education and correctional industries shall develop a plan to build higher education business with correctional industries to increase higher education purchases of correctional industries products, based upon the criteria established in subsection (2) of this section. The plan shall include the correctional industries' production and sales goals for higher education and an approved list of products from which higher education institutions shall purchase, based on the criteria established in subsection (2) of this section. Higher education and correctional industries shall report to the legislature regarding the plan and its implementation no later than January 30, 2005.
     (4) Institutions of higher education shall set as a target to contract, beginning not later than June 30, 2006, to purchase one percent of the total goods and services required by the institutions each year produced or provided in whole or in part from class II inmate work programs operated by the department of corrections. Institutions of higher education shall set as a target to contract, beginning not later than June 30, 2008, to purchase two percent of the total goods and services required by the institutions each year produced or provided in whole or in part from class II inmate work programs operated by the department of corrections.
     (5) An institution of higher education may exercise independently those powers otherwise granted to the public printer in chapter 43.78 RCW in connection with the production or purchase of any printing and binding needed by the respective institution of higher education. Purchasing policies and procedures followed by institutions of higher education shall be in compliance with chapter 39.19 RCW. Any institution of higher education that chooses to exercise independent printing production or purchasing authority shall notify the public printer. Thereafter the public printer shall not be required to provide those services for that institution.

Sec. 5   RCW 39.29.050 and 1983 c 120 s 12 are each amended to read as follows:
     All contracts entered into under this chapter ((on or after September 1, 1983,)) are subject to the requirements established under RCW 43.19.1905(1)(v) and section 2 of this act, and, on or after September 1, 1983, under chapter 39.19 RCW.

Sec. 6   RCW 43.19.1901 and 1987 c 434 s 23 are each amended to read as follows:
     The term "purchase" as used in RCW 43.19.190 through 43.19.200, and as they may hereafter be amended, shall include leasing or renting((: PROVIDED, That)). However, the purchasing, leasing, or renting of electronic data processing equipment shall not be included in the term "purchasing" if and when such transactions are otherwise expressly provided for by law, except that such purchasing, leasing, or renting is subject to RCW 43.19.1905(1)(v) and section 2 of this act.
     ((The acquisition of job services and all other services for the family independence program under chapter 74.21 RCW shall not be included in the term "purchasing" under this chapter.))