BILL REQ. #:  H-1136.1 

Read first time 02/01/11.   Referred to Committee on State Government & Tribal Affairs.

     AN ACT Relating to enhancing small business participation in state purchasing; amending RCW 39.29.050, 43.19.1901, and 43.19.1905; adding new sections to chapter 43.19 RCW; creating new sections; 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 all state purchasing agencies, including educational institutions, operating under delegated authority granted under RCW 43.19.190 or 28B.10.029, must apply a bidding preference in the purchase of goods and services as follows:
     (a)(i) Apply a five percent bidding preference to the bids of in-state small businesses; and
     (ii) Apply a bidding preference that may be up to five percent, as determined under rules adopted by the state purchasing and material control director, to the bids of in-state businesses that are not small businesses but that provide for small business subcontractor participation in the contract;
     (b) Give assistance to small businesses by providing opportunities for the agency to answer vendor questions about the bid solicitation requirements in advance of the bid due date and, upon request after the contract award, for the agency to hold a debriefing to assist the vendor in understanding how to improve his or her responses for future competitive procurements.
     (2) The preferences provided for under subsection (1) of this section may not be awarded to a noncompliant bidder and may not be used to achieve any applicable minimum bidding requirements.
     (3) A purchasing agency that, in good faith, awards a procurement contract based on a bidding preference provided for in this section is not liable in any cause of action for damages arising out of the contract award. A purchasing agency prevailing on the good faith defense provided in this subsection is entitled to recover expenses and reasonable attorneys' fees incurred in establishing the defense. For the purposes of this subsection, the purchasing agency is entitled to rely on the certification made by a business under penalty of perjury as to its qualifications as a small business.
     (4)(a) This section applies to the state's purchase of goods and services to the maximum extent consistent with international trade agreement commitments and with applicable requirements of federal law. If the state purchasing and material control director determines that compliance with this section may conflict with international trade agreement commitments or with federal requirements that are a prescribed condition to the allocation of federal funds to the state or if such compliance would otherwise conflict with federal law, the purchasing agency shall not apply the bidding preference provided under this section only to the extent necessary to eliminate the conflict. A finding by the director with regard to one purchasing agency does not affect the application of this section to purchases by another purchasing agency or in another circumstance.
     (b) A purchasing agency may not use its authority under RCW 43.19.190(2) to avoid applying the bidding preference required under this section.
     (c) As authorized under rules adopted by the state purchasing and material control director, a purchasing agency may determine that the bidding preference provided for under this section is not applicable to purchases made through a multistate contracting consortium or under the interlocal cooperation act, but such action is prohibited if it is taken solely to avoid applying the bidding preference required under this section.
     (5)(a) A business that is given the preference provided for in this section based on false information provided or on material information withheld and, which by reason of the information or lack thereof, 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 submit bids or proposals for any new contracts with the state for a period of not less than six months and not more than three years, as determined under criteria adopted by the affected purchasing agency. This ineligibility shall apply to the principals of the business and any subsequent businesses formed by those principals. The affected purchasing agency may also without penalty or cost to the state terminate, prior to expiration, any existing contract with 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.
     (d) Civil penalties collected under (a)(ii) and (b) of this subsection must be deposited in the small business bidding preference account created in section 3 of this act.
     (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) "Percent bidding preference" means the percent by which an in-state business's responsive bid is allowed to exceed the lowest responsive bid submitted by a responsible bidder who is not an in-state business and have the in-state business be awarded the contract.
     (c) "Small business" means a business, including a sole proprietorship, corporation, partnership, or other legal entity, that: (i) Certifies, under penalty of perjury, that it is owned and operated independently from all other businesses and has either (A) fifty or fewer employees, or (B) a gross revenue of less than seven million dollars annually averaged over the previous three consecutive years as reported on its federal income tax returns or its returns filed with the Washington state department of revenue; or (ii) is certified under chapter 39.19 RCW.
     (7) Each December 1st, beginning with a preliminary report on December 1, 2011, the department of general administration shall report to the governor and the appropriate committees of the legislature on the bidding preference program under this section. Annual reports must include information about the program's progress in increasing the number of small businesses participating in state contracts, the number and dollar amounts of contracts awarded under which bidding preferences were given, and the basic demographic characteristics, including the number of employment positions in Washington, of businesses that bid or were awarded contracts under the bidding preference program.
     (8) State agencies and institutions of higher education affected by this section must adopt rules deemed necessary by the executive head of the agency or its board, as applicable, to implement this section.
     (9) This section applies to contracts awarded on or after November 1, 2011.

NEW SECTION.  Sec. 3   A new section is added to chapter 43.19 RCW to read as follows:
     The small business bidding preference account is created in the custody of the state treasurer. All receipts from civil penalties collected under section 2 of this act must be deposited into the account. Expenditures from the account may be used only toward defraying the costs of adjudications that occur under section 2 of this act. Only the director of the office of financial management or the director's designee may authorize expenditures from the account. The account is subject to allotment procedures under chapter 43.88 RCW, but an appropriation is not required for expenditures.

Sec. 4   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:
     (1) Section 2 of this act; and
     (2) On or after September 1, 1983, chapter 39.19 RCW.

Sec. 5   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 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.))

Sec. 6   RCW 43.19.1905 and 2009 c 486 s 10 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 procurement procedures and policies implementing the bidding preference program provided for in section 2 of this act, with model bidding application documents that include, at a minimum, basic demographic information about the business, including the number of employment positions in Washington.
     (w) Development of procurement policies and procedures, such as unbundled contracting and subcontracting, that encourage and facilitate the purchase of products and services by state agencies and institutions from Washington small businesses to the maximum extent practicable and consistent with international trade agreement commitments;
     (((w))) (x) 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
     (((x))) (y) 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) The department of general administration shall convene a working group including representatives of the office of financial management, the department of information services, and the state printer. The purpose of the working group is to work collaboratively to develop common policies and procedures that encourage and facilitate state government purchases from Washington small businesses, as required in subsection (1)(((v))) (w) of this section, and in RCW 39.29.065, 43.78.110, and 43.105.041(1)(j). By December 1, 2009, these central services agencies shall jointly provide a written progress report to the governor and legislature on actions taken and planned, barriers identified, and solutions recommended to reach this goal.
     (3) The definitions in this subsection apply throughout this section and RCW 43.19.1908.
     (a) "Common vendor registration and bid notification system" has the definition in RCW 39.29.006.
     (b) "Small business" has the definition in RCW 39.29.006.
     (c) "Washington grown" has the definition in RCW 15.64.060.

NEW SECTION.  Sec. 7   If any part of this act is found to be in conflict with federal requirements that are a prescribed condition to the allocation of federal funds to the state, the conflicting part of this act is inoperative solely to the extent of the conflict and with respect to the agencies directly affected, and this finding does not affect the operation of the remainder of this act in its application to the agencies concerned. Rules adopted under this act must meet federal requirements that are a necessary condition to the receipt of federal funds by the state.

NEW SECTION.  Sec. 8   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.