AMENDED IN ASSEMBLY JULY 14, 2025

AMENDED IN SENATE MAY 1, 2025

AMENDED IN SENATE MARCH 26, 2025

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

96

Introduced by Senator Reyes

February 21, 2025

An act to amend Sections 12098.3 and 12100.63 of the Government Code, and to add Chapter 2.7 (commencing with Section 22060) to Part 3 of Division 2 of the Public Contract Code, relating to small business.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

Existing law establishes the Office of Small Business Advocate within the Governor’s Office of Business and Economic Development, led by the Small Business Advocate, and sets forth its powers and duties relating to advocacy on behalf of small business and providing small businesses with the information they need to survive in the marketplace. Existing law requires the advocate to, among other duties, collaborate with the Office of Small Business and Disabled Veteran Business Enterprise Services in their activities under the Small Business Procurement and Contract Act, including promoting small business certification.

This bill would require the advocate to also collaborate with local agencies on the development and implementation of local strategies to increase small business participation in local procurement opportunities, as specified. In this connection, the bill would authorize a local agency, as defined, to establish a Small Business Utilization Program (SBUP) to increase small businesses’ participation in local agency procurement opportunities.

This bill would require an SBUP, to facilitate the participation of small businesses in the provision of goods, information technology, and services to the local agency, to establish a small business certification process. As part of this process, the bill would require the SBUP, to the extent feasible, to include all of specified criteria, including, among other things, a minimum goal of 25% procurement participation for small businesses certification. The bill would authorize a local agency that establishes an SBUP to engage in specified activities to facilitate contract awards to small businesses.

This bill would authorize a local agency to submit information on its small business procurement participation to the Office of Small Business Advocate, including progress toward meeting utilization goals. The bill would require the Office of Small Business Advocate, subject to funding being available, and upon appropriation by the Legislature for these purposes, to issue its first data call to local agencies by November 15, 2027, and every year thereafter, as specified. The bill would require the Office of Small Business Advocate to prepare an annual report that may contain, among other things, information received from the data call and to post the report on its internet website within 6 months after each data call. The bill would include related legislative findings.

Existing law creates the California Small Business Technical Assistance Program within the California Office of the Small Business Advocate, under the direct authority of the Small Business Advocate. Existing law requires the office to administer the program to provide grants to expand the capacity of small business development technical assistance centers in California, California that are administered by and primarily funded by federal agencies and other nonprofit small business technical assistance centers, as specified. Existing law sets forth the criteria that an applicant must meet to be eligible to participate in the program. Existing law authorizes specified state funding provided pursuant to these provisions to be used for outreach efforts.

This bill would, for grants made in fiscal years 2025–26 through 2027–28, inclusive, establish specified exceptions and modifications to the eligibility criteria. would remove provisions that require an applicant to provide a plan of action and commitment to fully draw down all specified federal funds available to it, that authorize the office to require an applicant to provide details relating to the source and amount of nonstate funds, and that require an applicant to demonstrate the ability to fully draw down substantially all federal and private funds available to it in order to be eligible to participate in the program. The bill would authorize an applicant to utilize federal and private funding contracts, as specified. The bill would authorize up to 25% of specified state funding awarded pursuant to these provisions to be used for outreach and limit the awarded funds that may be used for direct program administration expenses to 15%.

The people of the State of California do enact as follows:

SECTION 1.

Section 12098.3 of the Government Code is amended to read:

12098.3.

(a) The Small Business Advocate shall be appointed by, and shall serve at the pleasure of, the Governor.

(b) The Governor shall appoint the employees who are needed to accomplish the purposes of this article.

(c) The duties and functions of the advocate shall include all of the following:

(1) Serve as the principal advocate in the state on behalf of small businesses, including, but not limited to, advisory participation in the consideration of all legislation and administrative regulations that affect small businesses, and advocacy on state policy and programs related to small businesses.

(2) Represent the views and interests of small businesses before other state agencies whose policies and activities may affect small business.

(3) Enlist the cooperation and assistance of public and private agencies, businesses, and other organizations in disseminating information about the programs and services provided by state government that are of benefit to small businesses, and information on how small businesses can participate in, or make use of, those programs and services.

(4) Consult with experts and authorities in the fields of small business investment, venture capital investment, and commercial banking and other comparable financial institutions involved in the financing of business, and with individuals with regulatory, legal, economic, or financial expertise, including members of the academic community, and individuals who generally represent the public interest.

(5) Seek the assistance and cooperation of all state agencies and departments providing services to, or affecting, small business, including the small business liaison designated pursuant to Section 11148.5, to ensure coordination of state efforts. The advocate shall fulfill this duty by, among other activities, maintaining, publicizing, and distributing an annual list of persons serving as small business liaisons throughout the state.

(6) Receive and respond to complaints from small businesses concerning the actions of state agencies and the operative effects of state laws and regulations adversely affecting those businesses.

(7) Counsel small businesses on how to resolve questions and problems concerning the relationship of small business to state government.

(8) Collaborate with the Office of Small Business and Disabled Veteran Business Enterprise Services in their activities under the Small Business Procurement and Contract Act (Chapter 6.5 (commencing with Section 14835) of Part 5.5), including, but not limited to, promoting small business certification and undertaking reasonable means to assist state agencies in improving small business participation. Among other activities, the advocate shall maintain, publicize, and distribute an annual list of persons serving as a small business advocate, designated pursuant to Section 14846, throughout state government.

(9) Collaborate with the California Disabled Veteran Enterprise Program Advocate, appointed pursuant to Section 999.11 of the Military and Veterans Code, regarding the implementation of the California Disabled Veteran Business Enterprise Program (Article 6 (commencing with Section 999) of Chapter 6 of Division 4 of the Military and Veterans Code), including, but not limited to, promoting disabled veteran business enterprise certification to veteran entrepreneurs and veteran-owned small businesses and undertaking reasonable means to assist state agencies in improving small business and disabled business enterprise procurement participation. The advocate shall fulfill this duty by, among other activities, publicizing the annual list of persons serving as a Disabled Veteran Business Enterprise Program Advocate, designated pursuant to Section 999.12 of the Military and Veterans Code, throughout the state.

(10) Collaborate with local agencies on the development and implementation of local strategies to increase small business participation in local procurement opportunities, including facilitating discussions and sharing examples, when known and available, of small business utilization strategies, technical assistance and outreach models, reciprocity agreements, and structures of preferences and other incentives.

SEC. 2.

Section 12100.63 of the Government Code, as amended by Section 26 of Chapter 20 of the Statutes of 2025, is amended to read:

12100.63.

(a) The California Small Business Technical Assistance Program is hereby created within the California Office of the Small Business Advocate.

(b) The program shall be under the direct authority of the Small Business Advocate.

(c) The purpose of the program is to assist small businesses through free or low-cost one-on-one consulting and low-cost training by entering into grant agreements with one or more small business technical assistance centers.

(d) In implementing the program, the office shall consult with local, regional, federal, and other state public and private entities that share a similar mission to support the needs of small businesses in California.

(e) An applicant pursuant to this article shall be a small business technical assistance center, including a regional or statewide network, operating as a group or as an individual center.

(1) A small business technical assistance center operating as a group consisting of centers organized under a coordinating administrative or fiscal entity shall apply by submitting a single consolidated application to the office.

(2) A small business technical assistance center operating as an individual center shall apply by submitting a single application for that center to the office.

(f) The office shall administer the program to provide grants to expand the capacity of small business development technical assistance centers in California, administered by and primarily funded by federal agencies, but shall also include other nonprofit small business technical assistance centers, that provide one-on-one confidential consulting and training to small businesses and entrepreneurs in this state. Except as modified by subdivision (l), an applicant shall be eligible to participate in the program if the office determines that the applicant meets all of the following criteria:

(1) At the time of applying for funds, the applicant has an active contract with a federal funding partner to administer a program in this state, or has received a letter of intent from a federal funding partner to administer a federal small business technical assistance center program in this state within the next fiscal year. Alternatively, if the applicant is not a federally contracted small business technical assistance center, the applicant shall document a private funding source with similar intent and meet the criteria defined in subdivision (s) of Section 12100.62.

(2) The requested funding amount does not exceed the total federal award specified in the contract with the federal funding partner contract, or the private funding sources specified, but in any event is no less than twenty-five thousand dollars ($25,000). An applicant may utilize up to two federal awards, two private funding contracts, or a combination of one federal award and one private funding contract.

(3) The applicant seeks funding for one or more years, but no more than five years in duration.

(4) The grant agreements authorized by this article are not subject to the model contract provisions developed pursuant to Chapter 14.27 (commencing with Section 67325) of Part 40 of Division 5 of Title 3 of the Education Code.

(5) The applicant has a fiscal agent that is able to receive nonfederal funds.

(g) The office shall issue a request for proposal for grants under the program, which may contain the following information:

(1) The eligibility requirements described in subdivision (e).

(2) The available funding range.

(3) Funding instruments.

(4) The local cash match requirement described in subdivision (f).

(5) Operational capacity.

(6) The duration of the program.

(7) The start date of the program.

(8) Narrative requirements.

(9) Reporting requirements.

(10) Required attachments.

(11) Submission requirements.

(12) Application evaluation criteria.

(13) An announcement of an awards timeline.

(h) (1) The office shall evaluate applications received based on the following factors:

(A) The proposed use of the requested funding, including the specificity, measurability, and ability of the applicant to document and achieve the goals and objectives identified in its application.

(B) The proposed management strategy of the applicant to achieve its goals and objectives identified in its application.

(C) The applicant’s ability to complement and leverage the work of other local, state, federal, nonprofit, or private business technical assistance resource providers.

(D) The applicant’s historical performance with federal funding partner contracts or private funding sources and the strength of its fiscal controls.

(2) The office shall prioritize funding for applications that best meet the factors listed in paragraph (1) and give preference to applications that propose new or enhanced services to underserved business groups, including women, minority, and veteran-owned businesses, and businesses in low-wealth, rural, and disaster-impacted communities included in a state or federal emergency declaration or proclamation.

(i) State funds provided pursuant to the program shall be used to provide or expand consulting and training services through existing and new centers, including satellite offices. State funds provided pursuant to the program shall not supplant nonstate local cash match dollars included in a federal small business technical assistance center’s plan described in subparagraph (A) of paragraph (2) of subdivision (f) or in any nonfederal small business technical assistance center’s plan. used by a small business technical assistance center’s plan to fully draw down the federal or private funds used to apply for the program.

(j) Subject to appropriation of necessary funds by the Legislature, a supplemental grant program designated as the California Dream Fund Program shall be established by the office to provide microgrants as described in this subdivision. The microgrants shall be disbursed through California Small Business Technical Assistance Program grantees. California Small Business Technical Assistance Program applicants, as prescribed by the office, may also request state funds designated as the California Dream Fund Program moneys to provide microgrants up to ten thousand dollars ($10,000) to seed entrepreneurship and small business creation in underserved small business groups that are facing capital and opportunity gaps. These microgrants shall be made available to startup clients participating in intensive startup training and consulting with the center networks.

(k) For purposes of implementing the California Dream Fund Program, a person or entity shall not seek information that is unnecessary to determine eligibility, including whether the individual is undocumented. Information that may be collected from individuals participating in the California Dream Fund Program shall not constitute a record subject to disclosure under Division 10 (commencing with Section 7920.000) of Title 1.

(l) (1) If an applicant’s federal contract was canceled, frozen, or rescinded in the 2024–25 fiscal year, then for grants made in fiscal years 2025–26 to 2027–28, inclusive, the requirements in subdivision (f) are modified, as follows:

(A) The applicant may use its 2023–24 federal fiscal year contract to meet the requirement described in paragraph (1) of subdivision (f) to have an active contract with a federal funding partner to administer a program in this state.

(B) The requirement described in paragraph (2) of subdivision (f) shall be waived if the applicant meets all of the following criteria:

(i) The applicant received an award pursuant to this chapter as a federal small business technical assistance center during the 2022–23, 2023–24, and 2024–25 funding rounds.

(ii) The office determines that the applicant successfully implemented their awarded contracts in 2023 and 2024.

(C) An applicant may use the total contract award amount in its 2023–24 federal fiscal year contract to meet the requirement described in paragraph (3) of subdivision (f) that the requested funding amount made in a grant pursuant to this chapter not exceed the total federal award specified in the contract with the federal funding partner contract.

(2) This subdivision shall not apply if the office determines that the contract was canceled, frozen, or rescinded based upon a finding and declaration of noncompliance.

(3) State funding adjustments authorized pursuant to this subdivision shall be temporary and limited.

(4) State funding provided pursuant to this subdivision may also be used for outreach efforts to ensure that small businesses, including those in underserved and rural communities, are aware of, and can access, technical assistance services. Up to 25 percent of the awarded funds may be used for outreach. No more than 15 percent of awarded funds shall be used for direct program administration expenses.

(5) The office shall review and confirm that the applicant continues to meet state performance standards and provides high-quality, equitable technical assistance services. The office shall report its findings and actions to the Legislature. A report to be submitted pursuant to this paragraph shall be submitted in compliance with Section 9795 of the Government Code.

(6) This subdivision shall remain operative until June 30, 2029.

SEC. 3.

Chapter 2.7 (commencing with Section 22060) is added to Part 3 of Division 2 of the Public Contract Code, to read:

Chapter 2.7. Small Business Utilization Program

Article 1. General

22060.

This chapter shall be known, and may be cited, as the Small Business Utilization Act.

22061.

The Legislature finds and declares all of the following:

(a) Small businesses play a crucial role in the state economy and contribute significantly to job creation and economic growth.

(b) Establishing a Small Business Utilization Program will promote the inclusion and participation of small businesses in government contracts, fostering economic development.

(c) It serves a public purpose and is of benefit to the state to promote and facilitate the fullest possible participation by all citizens.

(d) It serves the public interest to ensure fair and equal opportunities for small businesses to compete for and perform local contracts.

Article 2. Definitions

22062.

For the purposes of this chapter, the following terms have the following meanings:

(a) “Commercially useful function” means:

(1) A contractor is deemed to perform a commercially useful function if the contractor, including a subcontractor, does all of the following:

(A) Is responsible for the execution of a distinct element of the work of the contract.

(B) Carries out its obligation by actually performing, managing, or supervising the work involved.

(C) Performs work that is normal for its business services and functions.

(D) Is responsible, with respect to products, inventories, materials, and supplies required for the contract, for negotiating price, determining quality and quantity, ordering, installing, if applicable, and making payment.

(E) Is not further subcontracting a portion of the work that is greater than that expected to be subcontracted by normal industry practices.

(2) A contractor or subcontractor does not perform a commercially useful function if the contractor’s or subcontractor’s sole role is that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of a small business, a disabled veteran business, or a social enterprise.

(b) “Contract” or “procurement” means the procurement of goods, information technology, or delivery of services.

(c) “Local agency” means a city, county, or city and county, including charter cities and charter counties.

Article 3. Small Business Utilization Program

22063.

(a) A local agency may establish a Small Business Utilization Program (SBUP) to increase small businesses’ participation in local agency procurement opportunities.

(b) In order to facilitate the participation of small businesses, including microbusinesses, in the provision of goods, information technology, and services to the local agency, the SBUP shall, to the extent feasible, include all of the following:

(1) A small business certification process, including certification criteria, that shall, at minimum, include each small business certification identified in Section 14837 of the Government Code. In developing the process and certification criteria, the local agency shall consider reciprocity with the state and other local agencies. Nothing in this chapter prohibits a local agency from also adopting a local small business certification.

(2) A minimum goal of 25 percent procurement participation for small businesses, including microbusinesses, in local agency contracts.

(3) A small business preference and a nonsmall business preference for bidders that provide for small business and microbusiness subcontractor participation in the award of contracts for goods, information technology, and services. These small businesses are required to serve a commercially useful function in the completion of the contract.

(4) Policies and strategies related to training, technical assistance, and resources available to small businesses to enhance their ability to compete for local agency contracts.

(5) Policies and strategies that provide specific considerations to be taken in designing and issuing solicitations to increase small business and microbusiness procurement opportunities while also meeting local agency needs and available funding, including, but not limited to:

(A) Determining when appropriate and how to unbundle larger contracts to allow smaller ones.

(B) Reducing the minimum years of experience a business must have to submit a fully compliant bid.

(C) Reducing the level of inventory normally required.

(D) Streamlining the bidding process.

(6) Policies and strategies to assist departments that fail to meet the small business participation goal.

(7) Baseline data on local procurement activities and methods that will be used to monitor and report on the participation of small businesses in local agency contracts.

(8) A process for a nonsmall business prime that receives a preference pursuant to this chapter to verify all of the following:

(A) The small business subcontractors identified in the bid package have been notified that the prime has been awarded the contract.

(B) The small business subcontractors identified in the bid package have been paid in full.

(C) The amount paid, in the aggregate, to small business subcontractors meets or exceeds the amount committed to in the bid and as modified by the local agency contract.

(D) The small business subcontractors serve a commercially useful function.

(9) A process for a nonsmall business that receives a preference pursuant to the chapter to replace the small business subcontractor identified in the bid for another qualified small business subcontractor after the contract has been awarded. This shall include a requirement for approval by the local agency and the notification and payment of costs already incurred by the small business subcontractors named in the bid.

(10) To the extent feasible and consistent with state law, incentives to small businesses in the procurement process, including, but not limited to, set-asides, subcontracting opportunities, and mandatory small business participation in certain local agency contracts for qualified small businesses.

(11) Policies and strategies that support the local agency in continuously expanding the pool of small businesses and microbusinesses participating in the local agency contracts.

(12) A requirement for the local agency to review the Small Business Utilization Program and update it as needed, but not less than every four years.

(c) Notwithstanding any other provision, a local agency may engage in the activities to facilitate contract awards to small businesses described in Section 2002 if it establishes an SBUP. However, the value of any preference awarded pursuant to this chapter shall not exceed two hundred thousand dollars ($200,000) for any single bid.

Article 4. Reporting Requirements

22065.

(a) A local agency may submit information on their small business procurement participation to the Office of Small Business Advocate, including progress toward meeting utilization goals.

(b) Subject to funding being available, and upon appropriation by the Legislature for purposes of this chapter, the Office of Small Business Advocate shall issue its first data call to local agencies by November 15, 2027, and every year thereafter. The data call shall cover contracting activities during the prior fiscal year.

(c) Information from the data call shall include the total number and dollar amount of contracting activities entered into by the local agency during the prior fiscal year in dollars and percentages compared to the baseline year identified in the SBUP or set by the local agency through another means.

(d) (1) The Office of Small Business Advocate shall prepare an annual report that may include the following information:

(A) A review of the information received from the data call and an accurate display of the data in the form of a table, graph, chart, or other diagram.

(B) An outline of the best practices of local agencies for small business procurement participation.

(C) A summary of any substantive changes made to each local agency SBUP during the reporting year.

(2) The Office of Small Business Advocate shall post the annual report on its internet website within six months after each data call.

Article 5. Operative Date

22067.

This chapter shall become operative on January 1, 2026.