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.