State law, regulations, and policy, as well as federal regulations, mandate that the Authority report on its contracting activity with small businesses, disabled veteran owned businesses, and disadvantaged businesses. In particular, executive orders require certain state agencies, including the Authority, to establish processes to meet a small business participation goal of 25 percent and a Disabled Veteran Business Enterprises (DVBE) participation goal of 3 percent. Additionally, as a condition of receiving federal financial assistance from the Federal Railroad Administration, the Authority must report on its actual use of Disadvantaged Business Enterprises (DBEs), with a goal of 10 percent utilization. The Authority has established its own small and disadvantaged business enterprise program (small business program) that, as the text box describes, includes small and microbusinesses, as well as DVBE and DBE firms. The Authority established an overall 30 percent participation goal for its small business program participants, inclusive of the 10 percent DBE goal and 3 percent DVBE goals. To determine the extent to which the Authority contracts with these types of businesses, we reviewed the small business utilization reports (utilization reports) that the Authority posts on its website and provides to the Federal Railroad Administration. These reports include the Authority's actual utilization rates for 37 of its professional services contracts as well as its three construction contracts, with a total contract value for all 40 contracts of just over $4 billion. When we reviewed 10 of these contracts, we found that the documentation the Authority had collected from contractors sufficiently supported the utilization that the contractors reported. The documentation also supported the utilization percentages that the Authority reported for the six of these contracts that were active at the time of our review. In its most recent report, which it issued in June 2018, the Authority reported a nearly 30 percent actual utilization rate-inclusive of small businesses, DVBE firms, DBE firms, and microbusinesses-for its professional service contracts and a utilization rate of almost 16 percent for its construction contracts. |
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Although both state and federal programs require reporting, neither of their reporting formats fully capture the extent of the Authority's contracting activities with relevant businesses. For example, in its role administering the State's small business and DVBE programs, the Department of General Services (DGS) instructs state departments to exclude contracts with federal and state entities, as well as contracts with any counties or cities. Furthermore, DGS requires reporting only on the dollar amounts awarded to small businesses and DVBE firms, rather than actual expenditures; thus, its reporting requirements do not provide the Authority's actual impact on these businesses. In contrast, the federal Department of Transportation and the Federal Railroad Administration instruct the Authority to report on commitments, awards, and payments to DBE firms for federally funded contracts. According to the Authority's contract compliance administrator, its quarterly utilization reports list active contracts that are at least partially paid for with federal funding and that are subject to small business utilization goals. However, the utilization report does not include federally funded contracts for highly specialized services, such as expert witness services, for which the Authority has asserted it cannot find small business contractors.
As of January 2018, two-thirds of the contracts that the Authority excluded in its utilization report were with public entities, which represent $627 million in contract value and $326 million in actual expenditures. | We reviewed the Authority's utilization report and found that it excluded $930 million of the Authority's contracts. As of January 2018, two-thirds of the contracts that the Authority excluded were with public entities, such as California cities and counties. These contracts represent $627 million in contract value and $326 million in actual expenditures. The utilization report also excludes $303 million of contract value for services from private entities. Given the limitations and exclusions inherent in each reporting format, the Authority does not currently release a report that includes its total small business program utilization out of its total contracting dollars. |
Because the Authority does not mention that it exempts contracts with public entities on its reports-including its quarterly utilization reports, business plans, and economic impact reports-we asked the Authority about its reasons for not reporting on these contracts. The Authority's recently appointed chief administrative officer explained that its contracts with public entities and utilities generally do not contain small business provisions primarily because they are not the result of a competitive bidding process. Instead, the Authority enters into contracts with these entities because of specific program needs that only the public entities or utilities can serve. An example is contracting with a city or a county for permitting activities in its jurisdiction. In such instances, the Authority has no bargaining power to compel the public entities to participate in its business utilization program. The chief administrative officer also stated that DGS specifically instructs state entities not to include these types of contracts in their small business and DVBE reporting, as we previously describe.
Nonetheless, we believe that the Authority could better account for its contracts with these public entities in its reporting. For example, Caltrans-with whom the Authority has a $290 million contract-participates in the Authority's small business program. However, the Authority does not include this contract on its utilization report. When we asked the Authority why it does not include the Caltrans contract on its utilization report, a contract compliance administrator stated that it had not received utilization reporting from Caltrans on a consistent enough basis to allow the Authority to confidently include the agency in its reporting. The contract compliance administrator asserted that as it receives more information from Caltrans, the Authority will incorporate Caltrans' small business utilization rates into its reports, as well as monitor Caltrans' small business utilization through to the contract's completion.
The Authority provided a different reason for not reporting on all of its contracts with private entities. Although it is required to include all of its contracts with private entities on its quarterly utilization reports, those reports have not included $303 million in such contracts. The chief administrative officer stated that the Authority exempts certain contracts because the scopes of the work are too specific for it to require the contractors to be small, DVBE, or DBE businesses or to subcontract with such businesses. For example, many of the contracts omitted from the report are for expert witness or legal services. The chief administrative officer also explained that partly due to our inquiries, she realized that the Authority has no written policy explaining these exemptions or the process by which it determines whether to include these provisions in its contracts. She stated that she intends to oversee the development of such a policy.
Although there are few consequences if the Authority or its contractors do not meet their utilization goals, the emphasis on reporting in both state and federal requirements suggests that transparency and accountability related to contracting practices are key principles of the business utilization programs. However, by limiting the contracts it includes in its public reporting, the Authority is not accurately reflecting the proportion of its total expenditures that go to these businesses. We believe that given the magnitude of the Authority's contracting, the public would be best served by a higher degree of transparency in its reporting. An important part of increasing that transparency would be for the Authority to disclose both the total value of its contracts as well as the extent to which it has exempted contracts from small business requirements. The Authority's reasons for making those exemptions-whether its own prospective policies or state guidelines-would be an important part of that disclosure. | We believe that given the magnitude of the Authority's contracting, the public would be best served by a higher degree of transparency in its reporting of its utilization of small, disabled veteran, and disadvantaged businesses. |