TO: COMMUNITY & ECONOMIC FROM: Matt Loesch
DEVELOPMENT COMMITTEE Julia H. Cooper
SUBJECT: SEE BELOW DATE: March 14, 2023
Approved Date
SUBJECT: CONTRACTING WITH LOCAL AND SMALL BUSINESSES IN FISCAL YEAR 2021-2022
RECOMMENDATION
Accept the annual report on City contracting with local and small businesses for FY 2021-22.
BACKGROUND
Contracting with local and small businesses is an important goal of the City’s procurement programs. Contracting with local businesses helps promote the hiring of local workers and has a positive impact on the Santa Clara County economy.
Procurement of Goods, Supplies, Materials, Equipment, and Services The Finance Department Purchasing Division is responsible for the procurement of goods, supplies, materials, equipment, and services by Chapter 4.12 of the San José Municipal Code.
The procurement of consulting professional services contracts are delegated to City departments to procure under the City Manager’s contract authority and is not included in this report.
Section 4.12.320 of the Municipal Code provides a preference for local businesses and for small businesses. A local business is defined as a business having either the principal business office or a satellite office with at least one full-time employee located in Santa Clara County. A small business is defined as a local business having 35 or fewer total employees. This preference is applied in two different ways:
CED AGENDA: 4/24/23
FILE: CC 23-092
ITEM: (d)1
3/16/23
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
March 14, 2023
Subject: Contracting with Local and Small Businesses in FY2021-22
• For price-determinative solicitations (i.e., low-bid procurements), the preference is applied as a 2.5% credit to the bid for local businesses and another 2.5% credit to the bid for local businesses that are also small businesses.
• For qualifications-based solicitations (i.e., department-led professional services procurements, where points are awarded for experience, expertise, and project approach), a preference of 5% of the total number of points is given to local businesses and an additional preference of 5% of the total number of points is given to local businesses who are also small businesses.
Procurement of Public Works (Construction) Contracts
The Department of Public Works is responsible for procuring the City’s major public works contracts, defined by Section 1217 of the City Charter and Title 27 of the San Jose Municipal Code as one exceeding $600,000 and subject to an annual Construction Cost Index adjustment.
The major public works threshold for FY 21-22 was $650,000. Public works contract that fall below that threshold are referred to as minor public works and may be procured by the Department of Public Works, Environmental Services Department, or Department of Transportation. The Department of Public Works tracks those minor public works contracts procured by the other departments, and they are included in this report.
Section 27.06.050(g) of the San José Municipal Code allows for a local/small business preference to be provided on minor public works contracts. From July 1, 2021, until June 9, 2022, the preference for minor public works contracts is applied as a 2.5% credit to the bid for local businesses and another 2.5% credit to the bid for small businesses. On June 10, 2022, a City Council-approved ordinance increasing the local/small business preference for minor public works contracts took effect, and the preference for minor public works contracts is now applied as a 5% credit to the bid for local businesses and another 5% credit to the bid for small businesses.
ANALYSIS
The analysis in this report is divided into Finance Department Purchasing & Risk Management Division procurements and public works (construction) procurements.
Finance Department Purchasing & Risk Management Division Purchase Order and Contract Data
As outlined in Table 1 below, in FY 2021-22, the estimated total dollars awarded by the Finance Department Purchasing & Risk Management Division including multi-year awards beginning in the FY2021-22 period was $302.2M.
Based on available reports, the estimated local business market share for total dollars awarded was $64.5M, while the estimated awards to small businesses that are local businesses were
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
March 14, 2023
Subject: Contracting with Local and Small Businesses in FY2021-22
$20.3M. For purchase orders and contracts, the local and small business data was based on whether the business applied for the preference during the procurement. Many of the local business awards are for maintenance and repair services that typically necessitate a local presence to meet the service delivery requirements of the City.
Not represented in Table 1 figures below are the Procurement Card (P-Card) program statistics.
The P-Card program is established to streamline small dollar purchases and reduce the acquisition period for products and services where a competitive process is not required. In FY 2021-22, there were 40,285 P-Card transactions with a total spend of $13,543,301. Finance estimates the impact of the P-Card program on local businesses in FY 2021-22 was approximately 33% in spending, totaling roughly $4.5M.
Table 1: Finance/Purchasing Contracts and Purchase Orders FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22
Awards ($) $ (in M) % $ (in M) % $ (in M) % $ (in M) % $ (in M) % All Businesses $210.7 100% $259.3 100% $309.6 100% $320.3 100% $302.2 100% Local
Businesses $39.7 19% $85.7 33% $76.2 25% $98.7 31% $64.5 21% Local & Small
Businesses $18.1 9% $18.3 7% $21.0 7% $21.7 7% $20.3 7% Awards (#) # % # % # % # % # %
All Businesses 1,967 100% 2,091 100% 2,013 100% 2,197 100% 1,775 100% Local
Businesses 251 15% 579 28% 542 27% 403 18% 197 11%
Local & Small
Businesses 139 7% 193 9% 196 10% 87 4% 63 4%
Efforts to Increase Small/Local Participation in Purchasing Contracts In July 2022, the Finance Department Purchasing & Risk Management Division worked with the Office of Economic Development to develop and present a webinar for the public on “Doing Business with the City of San José.” The webinar provided information to the public addressed procurement-related questions and described the City procurement process and requirements.
Staff will continue to research and pursue opportunities to participate in virtual and in-person business outreach events as made available and appropriate. In addition, the City Vendor Guide on “Doing Business with the City of San José” is available on the City website for direction and guidance.
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
March 14, 2023
Subject: Contracting with Local and Small Businesses in FY2021-22
Public Works (Construction) Contract Data
The Department of Public Works tracks its contract awards to local and small businesses throughout the year for both major and minor public works contracts. Prior to FY 2019-20, Public Works only tracked local and small business statistics for major public works contracts.
However, since the introduction of local/small business preference on minor public works contracts in late 2019, the Department has captured local and small business statistics for both major and minor public works projects.
Public Works uses two methods for determining whether a contractor is local or small: 1) for minor public works procurements, contractors requesting a local or small business preference are required to submit a Request for Local and Small Business Enterprise Preference form, which is verified by staff before the preference is applied; or 2) for major public works procurements, through the address on the bid documents. It is possible that the data underreports firms with a local presence if they do not request the preference or list a headquarters office on their bid documents instead of a local satellite office.
Major Public Works (Construction) Contracts
During FY 2021-22 the City awarded 39 major public works contracts with a total value of $101.9M. Nine of those projects (worth $44M) were awarded to local contractors; of those nine projects, one project (worth $1.7M) was awarded to a small business.
Table 2 below shows major public works contract activity for FY 2021-22, as well as the prior four fiscal years for comparison. It should be noted that the data does not capture portions of the contracts that were subcontracted out and were completed by local or small subcontractors.
Public Works continues to look into how to best capture such data for future evaluation.
Table 2: 5-Year Comparison of Major Public Works Dollars and Awards FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22
Awards ($) $ (M) % $ (M) % $ (M) % $ (M) % $ (M) %
All $290.3 100% $191.2 100% $190.5 100% $120.9 100% $101.9 100% Local Businesses $158.4 55% $52.2 27% $53.0 28% $19.0 16% $44 43% Local & Small
Businesses $8.2 3% $10.8 6% $12.0 6% $10.0 8% $1.7 2%
Awards (#) # % # % # % # % # %
All 50 100% 57 100% 63 100% 39 100% 39 100%
Local businesses 16 32% 13 23% 20 32% 11 28% 9 23%
Local & Small
Businesses 11 22% 5 9% 13 21% 6 15% 1 3%
Overall, the results are mixed. The City saw a slight decrease in the percentage of major public works contracts awarded to local and small businesses compared to the previous fiscal year. The
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
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Subject: Contracting with Local and Small Businesses in FY2021-22
percentage was also below the five-year average. Looking closely at the types of major public works contracts awarded during the fiscal year, the City continues to find that sewer projects – which make up a significant portion of each year’s work – have the lowest percentage of local and small contract awards. The low number of contract awards could be due to a limited number of local and small businesses that can perform the specialty work.
On the other hand, the overall value of the contracts awarded to local and small businesses increased and the value awarded to local businesses was above the five-year average (but below average for small businesses). This may be due to the fact that two of the year’s highest-value contracts – paving projects valued at $17.8M and $12M respectively – were awarded to local businesses. A $5.5M accessibility project and a $3M park project were also among those awarded to local businesses.
It is important to note many of the City’s construction contracts are large-scale and suited for larger and well-resourced firms. However, staff will continue to seek opportunities to provide smaller project offerings directly to local and small construction firms using the minor public works procurement process and by facilitating their ability to serve as subcontractors on projects.
Minor Public Works (Construction) Contracts
As mentioned above, the Department of Public Works started tracking minor public works contracts in FY 2019-20 and, as such, only has data for the last three fiscal years. During FY 2021-22, the City awarded 20 minor public works contracts with a total value of $9.9M.
Thirteen of those projects (worth $4.9M) were awarded to local businesses; of those thirteen, nine projects (worth $3.5M) were awarded to small businesses.
Table 3 below shows minor public works contract activity for FY 2021-22, as well as the prior two fiscal years for comparison.
Table 3: 3-Year Comparison of Minor Public Works Dollars and Awards FY 19-20 FY 20-21 FY 21-22
Awards ($) $ (M) % $ (M) % $ (M) %
All $5.2 100% $12.5 100% $9.9 100%
Local Businesses $2.2 42% $4.6 37% $4.9 49%
Local & Small Businesses $1.4 27% $2.6 21% $3.5 35%
Awards (#) # % # % # %
All 17 100% 32 100% 20 100%
Local Businesses 8 47% 12 38% 13 65%
Local & Small Businesses 5 29% 5 16% 9 45%
Both the percentage of minor public works contracts awarded to local and small contractors as well as the overall value of those contracts increased compared to the previous fiscal year. The percentages were also above the three-year average. A look at the types of minor public works
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
March 14, 2023
Subject: Contracting with Local and Small Businesses in FY2021-22
contracts awarded during the fiscal year shows that pavement-related projects – specifically those involving ADA wheelchair ramps – have a high percentage of local and small contract awards. The relatively high number of contract awards could be due to the fact that several of the City’s regular pavement contractors opened local satellite offices over the past couple of years, thereby becoming local businesses.
Efforts to Increase Small/Local Participation in Public Works Contracts With a five-year Capital Improvement Program valued at $3.8 billion, the City is committed to proactively providing opportunities for our small and local businesses. On October 8, 2019, Council approved staff’s work plan for the phased implementation of the Public Works Contracting Program (PWCP). This phased implementation is meant to address the challenges local and small construction firms face in being able to financially participate in the City’s construction projects. These challenges are addressed through a combination of education, outreach, and policy changes. The Department continues to evaluate its efforts, utilizing lessons learn and adapting its strategy to maximize results. Public Works will also continue to involve the Small Business Advisory Task Force in its planning and outreach efforts.
Public Works Contracting Program
• CON Academy Digital Experience
In February 2022, staff rolled out the first digital version of the free Construction Contracting Seminar Series (“CON Academy”). The series involves six pre-recorded training sessions – accessible on-demand at contractors’ convenience – demonstrating how to navigate through a public works construction project from bidding to close-out.
Roughly 70 registrants and 15 graduates learned about bonding requirements, prevailing wage, creating a project schedule, and more from department leaders. Staff is currently evaluating the effectiveness of this and other outreach programs and will continue to pursue different ways of engaging with the contracting community.
• Meet the Primes Event
On September 22, 2022 (which falls outside of this reporting period), Public Works cohosted a free in-person “Meet the Primes” event at City Hall’s Rotunda, with Santa Clara Valley Transportation Authority and Santa Clara Valley Water District with the purpose of bringing small and local contractors together with larger construction contractors for potential future partnerships. The event focused on providing networking opportunities for small and local contractors to meet with general (“prime”) contractors in San Jose, learn about requirements for doing business with prime firms, learn upcoming contracting opportunities, and how to prepare. 31 prime contractors registered to host 37 tables and 186 participants attended the event. Post-survey feedback gathered from 10% of the participants captured a 4.7/5 favorability rating and noted that potential partnerships, for future projects, are beginning to develop between prime contractors and small and local contractors who were able to meet at the event.
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
March 14, 2023
Subject: Contracting with Local and Small Businesses in FY2021-22
• Local and Small Business Preference
As previously mentioned, late in the fiscal year, the preference applied to minor public works bids increased to 5% for local businesses and an additional 5% for small businesses. Public Works will monitor the effect the increased preference has had on contract awards and report on the findings in next year’s report.
Disparity Study and Future Local and Small Business Reporting The Finance Department is taking the lead on developing a disparity study of the City’s procurement and contracting practices to evaluate whether or not those practices adversely impact participation by disadvantaged and minority-owned businesses. While the disparity study is not specifically focused on local and small businesses, it will provide insight and recommendations that may affect the way in which the City tracks and reports on procurement and contracting outcomes. As such, future reporting efforts may look different.
The Citywide Disparity Study is ongoing; a status report is available at https://sanjose.legistar.com/View.ashx?M=F&ID=11680828&GUID=A9910F63-FC4A-4057- 8B7B-CC873A18CDEF as part of the Finance Department Second Quarter Financial Reports for Fiscal Year 2022-2023.
COORDINATION
This memorandum was coordinated with City Attorney’s Office. /s/ /s/
MATT LOESCH JULIA H. COOPER
Acting Director of Public Works Director of Finance
For questions, please contact J. Guevara, Deputy Director, Public Works at [email protected] or Luz Cofresí-Howe, Assistant Director of Finance at Luz.Cofresi[email protected].