TO: COMMUNITY & ECONOMIC FROM: Matt Loesch
DEVELOPMENT COMMITTEE Rick Bruneau
SUBJECT: SEE BELOW DATE: October 10, 2023
Approved Date
SUBJECT: CONTRACTING WITH LOCAL AND SMALL BUSINESSES IN FISCAL YEAR 2022-2023
RECOMMENDATION
Accept the annual report on City contracting with local and small businesses for Fiscal Year 2022-2023.
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 & Risk Management Division is responsible for the procurement of goods, supplies, materials, equipment, and services in accordance with Chapter
4.12 of the San José Municipal Code. The procurement of consulting professional services contracts is 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 its principal business office or a satellite office with at least one full-time employee located in the County of Santa Clara. A small business is defined as a local business having 35 or fewer total employees.
CED AGENDA: 10/23/23
FILE: CC 23-237
ITEM: (d)3
10/13/23
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
October 10, 2023
Subject: Contracting with Local and Small Businesses in Fiscal Year 2022-23
This preference is applied in two different ways:
• For price-determinative solicitations, 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 22-23 was $740,000. Public works contracts 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 and/or small business preference(s) to be provided on minor public works contracts. The preference is 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, and other Activities
As outlined in Table 1 below, in FY 22-23, the estimated total dollars awarded by the Finance Department Purchasing & Risk Management Division including multi-year awards beginning in the FY 22-23 period was $313.9 million.
Based on available reports, the estimated local business market share for total dollars awarded was $101.6 million, while estimated awards to small businesses were $18.0 million. For competitively awarded purchase orders and contracts, the local and small business data was based on whether the business applied for the preference during the procurement. For all other contract actions, including exercised options, sole source, and cooperative agreements, the determination of local business was based on the vendor’s business address. Many of the local
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
October 10, 2023
Subject: Contracting with Local and Small Businesses in Fiscal Year 2022-23
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 are the Procurement Card (P-Card) program statistics. The PCard program was established to streamline small dollar purchases and reduce the acquisition period for products and services where a competitive process is not required. In FY 22-23, there were 52,270 P-Card transactions with a total spend of $17.3 million.
Table 1: Finance/Purchasing Contracts and Purchase Orders FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23
Awards ($) $ (in M) % $ (in M) % $ (in M) % $ (in M) % $ (in M) % All $259.3
100
% $309.6
100
% $320.3
100
% $302.2
100
% $313.9
100
%
Local
Businesses $85.7 33% $76.2 25% $98.7 31% $64.5 21% $101.6 32% Small
Businesses $18.3 7% $21.0 7% $21.7 7% $20.3 7% $18.0 6% Awards (#) # % # % # % # % # %
All 2,091
100
% 2,013
100
% 2,197
100
% 1,775
100
% 1631
100
%
Local
Businesses 579 28% 542 27% 403 18% 197 11% 300 18%
Small
Businesses 193 9% 196 10% 87 4% 63 4% 69 4%
Efforts to Increase Small/Local Participation in Purchasing Contracts In FY 22-23, 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.
The presentation is posted and available on the City website for direction and guidance.
The Finance Department will partner with the Public Works Department in their “Meet the Primes” outreach event (noted below) on February 29, 2024. This event is programmed to connect local and small businesses with some of the City’s prime contractors. Staff will continue to research and pursue opportunities to participate in virtual and in-person business outreach events as made available and appropriate.
Disparity Study and Future Local and Small Business Reporting The Finance Department engaged a Consultant, MGT Consulting to conduct a disparity study of the City’s procurement and contracting practices. One objective of the study is to evaluate whether those practices adversely affect participation by diverse businesses. While the Disparity
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
October 10, 2023
Subject: Contracting with Local and Small Businesses in Fiscal Year 2022-23
Study is not specifically focused on local and small businesses, it may provide insight and recommendations that affect the way the City tracks and reports on procurement and contracting outcomes. As such, future reporting efforts may look different.
The final draft report of the Citywide Disparity Study is scheduled to be submitted to the City by the end of October 2023. MGT has provided initial draft chapters of the report for preliminary review by the City. The Finance Department will share any insights and recommendations from the Disparity Study once completed to this Committee.
Public Works (Construction) Contract Data1
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. Before FY 19-20, Public Works only tracked local and small business statistics for major public works contracts.
However, since the introduction of local/small business preferences 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.
The Department of 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 (above the FY 22-23 threshold of $740,000), through the address on the bid documents and the number of employees listed in the City’s Business Tax System. The data may underreport 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 22-23, the City awarded 58 major public works contracts with a total value of $247 million. 19 of those contracts (worth $92 million) were awarded to local businesses; of those 19 contracts, 11 projects (worth $45.7 million) were awarded to small businesses.
Table 2 below shows major public works contract activity for FY 22-23, 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. 1 The Public Works (construction) contract data includes one terminated contract and five on-call contracts that have been excluded from the project-specific data contained in the Citywide Capital Improvement Program Status Report.
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
October 10, 2023
Subject: Contracting with Local and Small Businesses in Fiscal Year 2022-23
Table 2: Five-Year Comparison of Major Public Works Dollars and Number of Awards Compared to the previous fiscal year, the share of major public works contract dollars that went to local businesses decreased slightly from 43% to 37% year-over-year; however, the share of major public works contract dollars that went to small businesses increased from 2% to 19%, as did the number of contracts that went to both local businesses and small businesses, 23% to 33% and 3% to 19%, respectively.
Looking closely at the types of major public works contracts awarded during the fiscal year:
• The year’s highest value contract – a new Airport facilities building valued at $27.7 million – was awarded to a local business. Five additional Airport projects, including a $9.8 million taxiway project, were also awarded to local businesses. • Sewer projects, stormwater projects, and Regional Wastewater Facility projects accounted for approximately 34% of the number of major public works contracts awarded and approximately 26% of the value of the major public works contracts awarded. The City continues to find that these types of projects have the lowest percentage of contract awards to local and small businesses. The low number of contract awards could be due to a limited number of local and small businesses that can perform this kind of specialty work.
• Approximately 40% of the year’s major public works contracts involving pavement maintenance were awarded to small businesses, at a value of $24.6 million. This type of work consistently accounts for local and small business contract awards.
It is important to note many of the City’s construction contracts are large-scale and suited for larger and well-resourced firms. However, staff will continue to seek opportunities to provide smaller project offerings directly to local and small construction firms using the minor public works procurement process and by facilitating their ability to serve as subcontractors on projects.
FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23
Awards ($) $ (M) % $ (M) % $ (M) % $ (M) % $ (M) %
All $191.2 100% $190.5 100% $120.9 100% $101.9 100% $247.0 100% Local
Businesses $52.2 27% $53.0 28% $19.0 16% $44.0 43% $92.0 37% Small
Businesses $10.8 6% $12.0 6% $10.0 8% $1.7 2% $45.7 19% Awards (#) # % # % # % # % # %
All 57 100% 63 100% 39 100% 39 100% 58 100%
Local
businesses 13 23% 20 32% 11 28% 9 23% 19 33%
Small
Businesses 5 9% 13 21% 6 15% 1 3% 11 19%
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
October 10, 2023
Subject: Contracting with Local and Small Businesses in Fiscal Year 2022-23
Minor Public Works (Construction) Contracts
As previously mentioned, the Department of Public Works started tracking minor public works contracts in FY 19-20 and, as such, only has data for the last four fiscal years. During FY 22-23, the City awarded 37 minor public works contracts with a total value of $17.4 million. 25 of those contracts (worth $13.5 million) were awarded to local businesses; of those 25, 10 contracts (worth $6.3 million) were awarded to small businesses.
Table 3 below shows minor public works contract activity for FY 22-23, as well as the prior three fiscal years for comparison.
Table 3: Four-Year Comparison of Minor Public Works Dollars and Awards FY 19-20 FY 20-21 FY 21-22 FY 22-23
Awards ($) $ (M) % $ (M) % $ (M) % $ (M) %
All $5.2 100% $12.5 100% $9.9 100% $17.4 100%
Local Businesses $2.2 42% $4.6 37% $4.9 49% $13.5 78%
Small Businesses $1.4 27% $2.6 21% $3.5 35% $6.3 36%
Awards (#) # % # % # % # %
All 17 100% 32 100% 20 100% 37 100%
Local Businesses 8 47% 12 38% 13 65% 25 68%
Small Businesses 5 29% 5 16% 9 45% 10 27%
The dollar value of minor public works contracts awarded to local businesses increased by $7.5 million, and the percentage of dollars awarded to local businesses increased 29% year-over-year.
Meanwhile, the percentage of dollars awarded to small businesses remained stable. A look at the types of minor public works contracts awarded during the fiscal year shows that more than half of the contracts involved pavement-related projects such as ADA wheelchair ramps and trail development. Historically, the City has seen that there exists a robust pool of local and small businesses that perform this type of work.
Efforts to Increase Small/Local Participation in Public Works Contracts With a five-year Capital Improvement Program valued at $3.2 billion, the City is committed to proactively providing opportunities for our small and local businesses. On October 8, 2019, the City 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 learned and adapting its strategy to maximize results.
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
October 10, 2023
Subject: Contracting with Local and Small Businesses in Fiscal Year 2022-23
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) which attracted 70 registrants, 15 of whom completed the entire series. 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. 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. The videos are available on the Public Works website for on-demand viewing by contractors interested in learning about the City’s construction process.
• Meet the Primes Event
On September 22, 2022, Public Works co-hosted 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, providing networking opportunities for small and local contractors to meet with larger general (“prime”) contractors in San Jose, learn about requirements for doing business with prime firms and with the City, and find out about upcoming contracting opportunities. 31 prime contractors registered to host 37 tables and 186 participants attended the event. A second Meet the Primes event is tentatively set for late February 2024 and will be co-hosted by Public Works and the City’s other CIP departments.
• Local and Small Business Preference
In late FY 21-22, the preference applied to minor public works bids increased from 2.5% for local businesses and 2.5% for small businesses (for a total maximum preference of 5%) to 5% for local businesses and 5% for small business (for a total maximum preference of 10%). The increased preference had the following impact on contract awards:
o The Director of Transportation awarded 21 minor public works contracts, five of which were impacted by the application of local and small business preference; o The Director of Public Works awarded 12 minor public works contracts, one of which was impacted by the application of local and small business preferences; and
o The Director of Environmental Services awarded four minor public works contracts, none of which were impacted by the application of local and small business preference.
Based on an evaluation of one year’s worth of data, further increasing the preference would not have a significant impact on the number of contracts awarded to local or small businesses, because, more often than not: 1) a local business was already the low bidder, 2) there were no local bidders, or 3) all of the bidders were local.
COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE
October 10, 2023
Subject: Contracting with Local and Small Businesses in Fiscal Year 2022-23
Future Contracting with Local and Small Businesses Reporting Currently, information regarding public works (construction) contracting is duplicated between this report and the Annual Citywide Capital Improvement Program Status Report. Future reporting efforts by Public Works will continue to be included in the Annual Citywide Capital Improvement Program Status Report or will be circulated to City Council via an information memorandum.
COORDINATION
This memorandum was coordinated with City Attorney’s Office. /s/ /s/
MATT LOESCH RICK BRUNEAU
Director of Public Works Director of Finance
For questions, please contact J. Guevara, Deputy Director, Public Works at [email protected] or Albie Udom, Deputy Director, Finance – Purchasing & Risk Management at [email protected].