By Ellis S.B. No. 1638 76R3068 JRD-D A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to subcontracting with historically underutilized 1-3 businesses under prime contracts with state agencies; providing a 1-4 penalty. 1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-6 SECTION 1. Chapter 2161, Government Code, is amended by 1-7 adding Subchapter F to read as follows: 1-8 SUBCHAPTER F. SUBCONTRACTING 1-9 Sec. 2161.251. APPLICABILITY. (a) This subchapter applies 1-10 to all contracts entered into by a state agency with an expected 1-11 value of $100,000 or more, including: 1-12 (1) contracts for the acquisition of a good or 1-13 service; and 1-14 (2) contracts for or related to the construction of a 1-15 public building, road, or other public work. 1-16 (b) This subchapter applies to the contract without regard 1-17 to: 1-18 (1) whether the contract is otherwise subject to this 1-19 subtitle; or 1-20 (2) the source of funds for the contract, except that 1-21 to the extent federal funds are used to pay for the contract, this 1-22 subchapter does not apply if federal law prohibits the application 1-23 of this subchapter in relation to the expenditure of federal funds. 1-24 Sec. 2161.252. AGENCY DETERMINATION REGARDING SUBCONTRACTING 2-1 OPPORTUNITIES; BUSINESS SUBCONTRACTING PLAN. (a) Each state agency 2-2 that considers entering into a contract with an expected value of 2-3 $100,000 or more shall, before the agency solicits bids, proposals, 2-4 offers, or other applicable expressions of interest from 2-5 prospective contractors, determine whether it is probable that 2-6 there will be subcontracting opportunities under the contract. If 2-7 the state agency determines that there is that probability, the 2-8 agency in its request for bids, proposals, offers, or other 2-9 applicable expressions of interest regarding the contract shall 2-10 require that each bid, proposal, offer, or other applicable 2-11 expression of interest include a historically underutilized 2-12 business subcontracting plan. 2-13 (b) If the state agency determines that there is the 2-14 probability for subcontracting opportunities under the contract, 2-15 the agency also shall determine the extent to which historically 2-16 underutilized businesses will be available to enter into the 2-17 subcontracts. The state agency shall make this determination based 2-18 on the types of subcontracting opportunities available under the 2-19 contract together with the agency's knowledge of the relevant 2-20 market, any relevant disparity study conducted by or for a 2-21 governmental entity that contains information on the availability 2-22 of historically underutilized businesses to perform the types of 2-23 subcontracted work in the relevant locality, and other relevant 2-24 information the agency considers to be reliable. Given the 2-25 expected value of the subcontracting opportunities and its 2-26 determination regarding the availability of historically 2-27 underutilized businesses to perform the subcontracted work, the 3-1 state agency shall state the minimum historically underutilized 3-2 business subcontracting goals for the contract expressed as a 3-3 percentage of the expected dollar value of the contract. The state 3-4 agency shall include the minimum percentage goal in its request for 3-5 bids, proposals, offers, or other applicable expressions of 3-6 interest. 3-7 (c) When a state agency requires a historically 3-8 underutilized business subcontracting plan under Subsection (a), a 3-9 bid, proposal, offer, or other applicable expression of interest 3-10 from a prospective contractor must contain a plan that meets the 3-11 requirements of this section to be considered responsive. 3-12 (d) The historically underutilized business subcontracting 3-13 plan is considered to be part of the bid, proposal, offer, or other 3-14 applicable expression of interest. The plan must include: 3-15 (1) the historically underutilized business 3-16 subcontracting goal that the prospective contractor expects to 3-17 meet, expressed as a percentage of the expected dollar amount of 3-18 the contract; 3-19 (2) the name of each historically underutilized 3-20 business with which the prospective contractor expects to 3-21 subcontract; 3-22 (3) the part of the work that each of those expected 3-23 subcontractors would perform; 3-24 (4) the expected dollar value of each of those 3-25 subcontracts; and 3-26 (5) information about the methods used in the past and 3-27 currently used by the prospective contractor to identify, contact, 4-1 and evaluate available historically underutilized businesses with 4-2 which to subcontract. 4-3 (e) If the historically underutilized business 4-4 subcontracting goal stated in the prospective contractor's plan is 4-5 less than the state agency's stated minimum goal for the contract, 4-6 the plan must account for that fact. The plan must demonstrate the 4-7 reason, in the prospective contractor's opinion, that there is an 4-8 insufficient number of historically underutilized businesses 4-9 available in the locality at that time to allow the state agency's 4-10 stated minimum goal to be met. 4-11 Sec. 2161.253. AGENCY EVALUATION OF BUSINESS SUBCONTRACTING 4-12 PLAN. (a) A state agency that has required each bid, proposal, 4-13 offer, or other applicable expression of interest for the contract 4-14 to include a historically underutilized business subcontracting 4-15 plan may not award the contract to a prospective contractor who did 4-16 not include a plan that complies with Section 2161.252. 4-17 (b) In determining which bid, proposal, offer, or other 4-18 applicable expression of interest offers the best value to the 4-19 state or is the lowest and best responsible bid or proposal, the 4-20 state agency shall evaluate and consider the merits of each 4-21 prospective contractor's historically underutilized business 4-22 subcontracting plan. 4-23 Sec. 2161.254. REQUIRED CONTRACT CLAUSES. (a) A contract 4-24 awarded by a state agency that has required each bid, proposal, 4-25 offer, or other applicable expression of interest for the contract 4-26 to include a historically underutilized business subcontracting 4-27 plan must include the following contract clauses. 5-1 (b) The historically underutilized business subcontracting 5-2 plan submitted by the prospective contractor receiving the contract 5-3 is considered to be part of the contract. The historically 5-4 underutilized business subcontracting goal expressed in the plan as 5-5 a percentage of the expected dollar amount of the contract is 5-6 considered to be part of the contract, except that if negotiations 5-7 were allowed under other law and the prospective contractor and the 5-8 state agency agreed on a different percentage subcontracting goal 5-9 during negotiations before the contract was awarded, the negotiated 5-10 goal is considered to be part of the contract. 5-11 (c) The contract must require quarterly reports on the 5-12 progress the contractor is making in meeting the overall goals of 5-13 the historically underutilized business subcontracting plan. The 5-14 quarterly reports must generally describe, in the manner prescribed 5-15 by the state agency, the progress being made in meeting the goals. 5-16 The quarterly reports must also specifically report: 5-17 (1) whether the historically underutilized businesses 5-18 named in the subcontracting plan as businesses with which the 5-19 contractor expected to subcontract actually received the expected 5-20 subcontracts, and if not: 5-21 (A) the reasons for that fact; and 5-22 (B) the efforts that the contractor made to find 5-23 another historically underutilized business that was available and 5-24 would be interested in the subcontract; 5-25 (2) the cumulative dollar value of subcontracts 5-26 awarded to historically underutilized businesses under the contract 5-27 as of the end of the quarterly reporting period; and 6-1 (3) the percentage of the cumulative amount the 6-2 contractor has spent under the contract, as of the end of the 6-3 quarterly reporting period, as payments to historically 6-4 underutilized businesses who have received subcontracts under the 6-5 contract. 6-6 (d) The contract must include a clause that outlines and 6-7 describes the requirements of the state's historically 6-8 underutilized business subcontracting program. 6-9 (e) The contract must include a liquidated damages clause 6-10 that requires the contractor to pay liquidated damages to the state 6-11 after the contract is completed if: 6-12 (1) the value of subcontracts awarded under the 6-13 contract to historically underutilized businesses did not meet or 6-14 exceed the historically underutilized business subcontracting goal 6-15 that is part of the contract; and 6-16 (2) the goal was not met at least in part because the 6-17 contractor did not make a good faith effort to meet the goal. 6-18 (f) The amount of the liquidated damages is computed by 6-19 subtracting the value of subcontracts awarded under the contract to 6-20 historically underutilized businesses from the historically 6-21 underutilized business subcontracting goal that is part of the 6-22 contract. 6-23 Sec. 2161.255. DETERMINING WHETHER TO ASSESS LIQUIDATED 6-24 DAMAGES. (a) After the contract is completed, the purchasing 6-25 personnel of the state agency shall determine whether the value of 6-26 subcontracts awarded under the contract to historically 6-27 underutilized businesses met or exceeded the historically 7-1 underutilized business subcontracting goal that was part of the 7-2 contract. If it is determined that the contractor failed to meet or 7-3 exceed the goal, the state agency shall notify the contractor of 7-4 that determination. 7-5 (b) The state agency shall give the contractor ample 7-6 opportunity to submit documentation and to explain in discussions 7-7 with state agency purchasing personnel that the failure to meet or 7-8 exceed the goal is not attributable to a lack of good faith effort 7-9 on the part of the contractor to meet the goal. 7-10 (c) In determining the extent to which the contractor made a 7-11 good faith effort to meet the goal, the state agency's purchasing 7-12 personnel shall consider factors indicating good faith such as 7-13 whether the contractor: 7-14 (1) provided timely notice of a subcontracting 7-15 opportunity to historically underutilized businesses that have the 7-16 ability to perform the subcontract and that may be interested in 7-17 receiving the subcontract; 7-18 (2) advertised the subcontracting opportunity in 7-19 general circulation media, trade association media, and media that 7-20 focus on serving one or more kinds of historically underutilized 7-21 businesses; 7-22 (3) effectively used the services of minority, women, 7-23 and community organization contractor groups, local, state, and 7-24 federal business assistance offices, and other organizations that 7-25 provide assistance in identifying historically underutilized 7-26 businesses that have the ability to perform the subcontract; 7-27 (4) divided subcontract work or purchases into the 8-1 smallest reasonable units to enhance the possibility of 8-2 historically underutilized business participation in the 8-3 subcontracting opportunity; and 8-4 (5) awarded a subcontract to the historically 8-5 underutilized business that qualified as the lowest responsible 8-6 bidder or offeror, or for negotiated subcontracts, negotiated in 8-7 good faith with interested historically underutilized businesses. 8-8 (d) If, after considering the documentation and explanations 8-9 submitted by the contractor, the state agency's officer or employee 8-10 in charge of procurement determines that the failure to meet or 8-11 exceed the goal is to any significant degree attributable to a lack 8-12 of good faith effort on the part of the contractor to meet the 8-13 goal, that officer or employee shall assess the liquidated damages 8-14 on behalf of the agency. The contractor shall pay the amount of 8-15 the liquidated damages to the state agency, which shall send the 8-16 money to the comptroller for deposit in the unobligated and 8-17 undedicated portion of the general revenue fund. 8-18 SECTION 2. Section 2161.231, Government Code, is amended to 8-19 read as follows: 8-20 Sec. 2161.231. PENALTY. (a) A person commits an offense if 8-21 the person: 8-22 (1) intentionally applies as a historically 8-23 underutilized business for an award of a purchasing contract or 8-24 public works contract under this subtitle; and 8-25 (2) knows the person is not a historically 8-26 underutilized business. 8-27 (b) A person commits an offense if the person: 9-1 (1) intentionally applies as a historically 9-2 underutilized business for an award of a subcontract under a 9-3 purchasing contract or public works contract with a state agency 9-4 under this subtitle or other law; and 9-5 (2) knows the person is not a historically 9-6 underutilized business. 9-7 (c) An offense under this section is a third degree felony. 9-8 SECTION 3. This Act takes effect September 1, 1999, and 9-9 applies only to subcontracting under a contract entered into by a 9-10 state agency for which the request for bids, proposals, offers, or 9-11 other applicable expressions of interest is published or otherwise 9-12 disseminated on or after that date. 9-13 SECTION 4. The importance of this legislation and the 9-14 crowded condition of the calendars in both houses create an 9-15 emergency and an imperative public necessity that the 9-16 constitutional rule requiring bills to be read on three several 9-17 days in each house be suspended, and this rule is hereby suspended.