White Paper

White Paper

Transparency in Small Business Contracting
with California Utility Corporations

Developed by:

Dean L. Jones, C.P.M.
Southland Partnership Corporation
P.O. Box 4967, Compton, CA 90224
(310) 637-7248, or dean@bizpartnership.biz

Summary

For nearly twenty-five years, the California Public Utilities Code Sections 8281-8286 have included requirements for the California Public Utilities Commission (CPUC) to; establish a procedure for gas, electric, [water] and telephone utilities with gross annual revenues exceeding $25,000,000.  Together with their CPUC regulated subsidiaries and affiliates each now submit annual detailed and verifiable plans for increasing contracts with women, minority and disabled veteran business enterprises’ (WMDVBE) for all procurement categories.

Significant portions of these codes require the CPUC to verify the WMDVBE application of contracting with utilities to offer open contracting and engagement processes.  In view of that, the making of the CPUC recommendations to achieve maximum results with implementing legislative policy made from the reporting results of the utility programs has consistently shown a disparity in small business supplier utilization.  There exist considerable ranges of improvement to transparency in contracting of utility processes and small business capacities.

Overall, 29 utilities file annual reports with the CPUC, and a major portion of the aforementioned UC code requirements have been satisfied, however, considerable economic development remains critical for prospective black-owned business suppliers to reach reasonable parity in contracting to their white-owned utility engaged suppliers.  In 2009, theCaliforniapublic investor-owned gas, electric, and telecommunication utilities’ collective annual spend was $29.777 billion in new procurement contracts.  Utilities reported an annual spend of $3.470 billion, or 13.19% with WMDVBE for the same period.  Of that WMDVBE reported spend, utilities average less than 2% contracting results with black-owned suppliers.  In some cases, utilities have even reported spending less than 2% in all procurement-contracting categories with black suppliers.

The reasons for this underutilization may be a combination of factors, and with employing a transparency in contracting study a significant disclosure explaining the rationale for this gap results from a closer review to make long, intermediate and short-term changes.  Without question, there is a lack of openness in the collective utility supplier contracting procedures.  A more transparent process will enhance and improve competition, build greater trust in CPUC policies and programs, establish integrity in socioeconomic development, and ensure that prospective small business enterprises are permitted to be responsible in performing on contracts in the best interest of ratepayers.

Generally, there are three main issues to focus on when considering transparency in utility contracting;

  1. Available contractors have access to a comprehensive and accurate picture of utility forecasted contract spending areas.
  2. Assurance that the California utilities’ active supplier bidding approach is not too selective thereby creating, organizing, and maintaining procurement contract data resources that unnecessarily limit competitive participation from small business enterprises.
  3. Making adequate public notice ofCaliforniautility procurement processes so as not to impose impediments that withhold contracting data from public view thereby hindering transparency in contracting. An analysis of buy and sell processes can achieve highlighted needed changes, and provide recommendations that can build more open utility contract spending methods.

Another element of transparency in contracting with Californiautilities concerns the certification of minority business enterprises (MBE).  In California, 915,514 active MBE comprised the 112,815 black-owned business enterprises.  The CPUC online database for certified WMBE totals 3,862 firms as of May 26, 2010.  The number of black-owned certified firms (men and women) reflects 323 concerns, or 8.4% of the certified WMBE population.  A glaring negative component of this tally is that the California utilities’ certified black business enterprises represents only .3% (far less than one percent) of the total number of black-owned business doing business in the State, as reported by the U.S. Census in 2007.

A part of this proposed statewide utility analysis is to sample few black firms as case studies that have, are, or wish to do business with theCaliforniautilities as conventional suppliers.  The transparency in contracting will explore if these firms have the perceived or actual capacity to work as an outside services provider with major utilities.  In essence, revealing how do utilities perform with outsourcing for assuming complete operational responsibility, including human resources, transaction processing, application management and so forth.

Following the life of a utility contracting opportunity and award is difficult, but by employing professional audit and review analysis processes, an outcome-based report can be compiled for discussion over a two-year period that employs periodic updates for short term evaluations.  Two years provides the time needed to review long-term cyclical purchases that are not up for bid in less than three years.  Nonetheless, the objective of the study is reducing the probability of adding another three more decades of a spinning wheel and incomplete CPUC socioeconomic development focused on supplier diversity.

Sample Transparency in Contracting Disclosure

Despite the many technology programs utilities are enjoying at the ratepayers’ expense, the system for disclosing contract information does not exist.  There is no system of electronic contracting outreach employed by any of the utilities, except Metropolitan Water District).  The $30 billion for goods and services expended each year by these major public investor corporations can have a greater impact on spreading their operational requirement investments with using broader disclosure of competitive opportunities.  A free enterprise system calls for it and it is required for comprehensive socioeconomic development factors.

Advanced technology is an efficiency measure if open access addresses bid solicitation notices, post contract awards, solicitation amendments and modifications, responsibility and performance information, and other source selection materials that provide a more complete picture of utility contract spending.  A more vigorous CPUC focus on California utilities’ public policy and communication efforts directs assurance that ratepayer services would be more accurate and timely through a broader competitive process.

Major contacting for operational products and services, including, construction material and labor, outside plant equipment, office supplies and machines, fleet, photographic supplies, HVAC, Ironwork, hazardous waste disposal, printing and graphic services, advertising, interior design, legal, messenger service, public relations, security, fiber optic, insurance, switching and transmission, land and buildings maintenance, and much more is considerably shy of black business participation.  There must be rational reason, other than racial profiling, to explain the gap in contract engagement for these firms.