DVBE INCENTIVE AND COMPETITIVE SOLICITATIONS - 1202

Authority

Military and Veterans Code (M&VC), Section 999.5 et seq. authorized DGS to establish a DVBE incentive process to enhance the participation of DVBEs in state contracting.  Furthermore, the DVBE incentive regulations are located within the California Code of Regulations (CCR), Title 2, Division 2, Chapter 3, Subchapter 10.6, Sections 1896.99.100 and 1896.99.120.

Definition of DVBE Incentive

A DVBE incentive is a method that encourages participation of certified DVBEs in solicitations by providing an adjustment of price for awards based on low price or points for awards based on high score.  The DVBE incentive is applied during the evaluation process for bids proposing participation of California certified DVBEs.  The application of an incentive varies from that of a preference both in when it is incorporated into competitive solicitations and how incentive percentages are determined and calculated. Unlike preferences in which the inclusion is standardized in competitive solicitations and a standard percentage is stipulated, discretion is left to the departments to determine incentive percentages for a particular transaction based upon a business strategy to achieve their annual goal.

Opportunity

Departments must offer procurement opportunities to California (CA) certified SBs, MBs, or DVBEs, whenever possible.  This includes applying the DVBE incentive during the evaluation process of a competitive solicitation that includes the CA DVBE Program Requirements package and where there are bids that propose participation of CA certified DVBEs.

Applicability

The DVBE incentive applies to all competitive solicitations regardless of format (e.g., RFQ, IFB, RFP, or phone quotes), delivery method, or dollar threshold whenever the solicitation includes the DVBE Program Requirement.  If a solicitation includes the DVBE Program Requirements, buyers will use the DGS provided CA DVBE Program Requirements whenever conducting competitive solicitations under a department’s approved purchasing authority.

Incentive Percentages

Competitive solicitations that include the DVBE participation requirement, regardless of solicitation format (RFQ, IFB, or RFP) delivery method or dollar value must identify in the solicitation the allowable incentive percentage(s) and how evaluation will occur. For awards based on low price, the allowable incentive percentage(s) identified in the solicitation cannot exceed 5% or be less than 1%.  For awards based on high points, the incentive cannot exceed 5% or be less than 1% of total possible available points, not including points for socioeconomic incentives or preferences.

The following table pertains to awards based on low price. It is located in the DVBE Program Requirements packet and identifies the percentage(s) used to adjust the net bid price when calculating the DVBE incentive.

Confirmed DVBE Participation of:	DVBE Incentive:
5% or Over	5%
4% to 4.99% inclusive	4%
3% to 3.99% inclusive	3%

Should the circumstances of a particular acquisition dictate the need, the packet provides a provision to override the table with another table that either depicts:

• A different scale with varying percentages (within the acceptable range) or
• Single incentive percentage (within the acceptable range)

If the table will be superseded, elsewhere within the solicitation identify the new table and state that it overrides the table in the DVBE Program Requirements. Then:

• Ensure that the incentive amount does not exceed 5% and is no less than 1% for awards based on low price.
• Obtain managerial approval and document the rationale for the change in the procurement file.
• Ensure that the incentive amount does not exceed 5% or $100,000, whichever is less, of the #1 ranked net bid price.
• When used in combination with a preference adjustment, the cumulative adjustment amount cannot exceed $100,000.

Prior to a buyer including either of the above variances in the DVBE incentive requirements, the rationale for the change must be documented in the procurement file.  The procurement file must also include signed approval for the variance by the department’s Procurement and Contracting Officer (PCO) or a designee at a managerial level with sufficient knowledge of the day-to-day procurement activities of the department.  If DGS/PD is conducting the procurement for the department, a copy of the rationale for the change and the appropriate signed approval must be forwarded to PD with the department’s requisition.

Allowable Maximum for Low Price Awards

For each solicitation, the awarding departments’ highest ranking executive officer or his/her designee may elect to place a cap of not less than $100,000 on the incentive and/or cap of not less than $100,000 for all combined incentives and preferences. The department must document this approval in the procurement file.

Bidder Declaration

Written solicitations shall include the Bidder Declaration (GSPD 05-105) to allow bidders to identify if they are a DVBE and identify DVBE subcontractors, their proposed contract function and the corresponding percentage of participation.

• Bidder Declaration Narrative
• Bidder Declaration, GSPD 05-105 – Written Version

When conducting a verbal solicitation, the Bidder Declaration, GSPD 05-106 – Verbal Version and its respective instructions must be provided to the suppliers for completion and must be signed by the prime supplier.

• Bidder Declaration, GSPD 05-106 – Verbal Version

Use of the Bidder Declaration

The Bidder Declaration (GSPD-05-105 or GSPD-05-106, as applicable) will be included in the following procurement approaches:

• Non-competitive
• Competitive
• SB/DVBE Option
• LPA orders
• Government agreements, including Interagency Agreements, when the possibility of using subcontractors exists.
• Purchases exempt by statute and/or policy, when the possibility of using subcontractors exists.

Exceptions

The Bidder Declaration is not required for:

• Amendments that do not involve new or substitute subcontractors.
• Emergency purchases as defined by Public Contract Code (PCC), Section 1102 if it is ascertained that the bidder has not been listed as ineligible to transact business with the State, is not a California (CA) certified DVBE and is not using subcontractors.
• Purchases activities using Community Rehabilitation Programs or Prison Industry Authority.
• Verbal solicitations under $10,000 if it is ascertained that the bidder has not been listed as ineligible to transact business with the State, does not possess a CA DVBE certification and the bidder is not using subcontractors.

Documenting the Results

It is the responsibility of each department's PCO or his/her designee to establish the appropriate protocol within his/her organization to ensure that buyers document the application of the DVBE incentive for the individual department's reporting purposes.

When a department conducts an acquisition under its delegated purchasing authority, the Procurement Summary (GSPD-300) document or a similar document developed by the individual department will be used to document the application of the DVBE incentive.  When conducting a formal competitive solicitation (RFP or IFB), the Evaluation and Selection Report format or Procurement Summary (or a similar document developed by the individual department), where appropriate, will be used. When award is based upon value effective methodology (also referred to as high score), the methodology used to determine incentive points must be documented in the procurement file.

Click here for further information:

• Procurement Summary (GSPD 300)
• Participation Worksheet
• Participation Worksheet Instructions

If PD is conducting a procurement, it will indicate in the purchase order(s) sent to customer agencies and the application of the DVBE incentive resulted in an award, a statement to that effect will be included in a contract cover letter. Buyers who receive this information from PD will process the information according to the reporting protocol established by their department’s PCO.

When is the Incentive Calculated for Low Cost?

If included in the solicitation, the bidder must be compliant with the DVBE program requirements and responsive to all other requirements.   The incentive is only given to those who are responsive and propose DVBE participation in the resulting purchase document.  When an award is based on low price, incentives shall be applied in the following order:

• Small business preference
• Recycle preference
• The DVBE incentive
• All other preferences are subsequently applied.

However, for low-cost awards, application of the non-SB DVBE incentive cannot displace award to a #1 ranked small business.

The net bid price is the value of the bid excluding sales and use tax, finance charges, postage, and handling charges.  Shipping charges are also excluded from the net cost unless the shipping charge is included in the evaluation such as FOB Origin, Freight Collect or FOB Destination.  The net bid price includes any evaluation corrections and applicable discounts.

How is the Incentive Calculated? 

The following steps are taken to calculate the incentive.  Since the percentage of participation can vary between bidders, and thus the incentive percentage can vary, the “calculated incentive amount” will need to be determined for each incentive percentage.

Step	Calculation Action
1	Identify the bidder with the #1 ranked net bid price (the lowest responsive bid).
2	Based upon the evaluated DVBE participation percentage, determine the corresponding percentage of DVBE incentive for the bidder.
3	Multiply the #1 ranked net bid price by the DVBE incentive percentage to determine the “calculated incentive amount” for the bidder. Compare the “calculated incentive amount” to the incentive maximum (specified percentage or identified cap if any), and use the lower figure as the incentive amount.
4	Subtract the incentive amount from the net bid price of the bidder. If a preference calculation was performed, be sure that the allowable cumulative adjustment is not exceeded.
5	Repeat Steps (as needed) for each qualified bidder.

Low Price Awards

For purposes of the examples, bidders listed with a certified status are deemed eligible for the preference or incentive.

DVBE = bidder is eligible for the DVBE incentive;

SB = prime is a small business;

MB = prime is a micro business;

NVSA = prime is a certified nonprofit veteran service agency;

NS = non-small business prime claiming preference due to qualifying subcontractors.

BIDDER:	A	B	C	D
Responsive & responsible	Yes	Yes	Yes	No
Eligible preference	None	SB	MB	MB
Eligible DVBE incentive	None	3%	5%	None
Net bid price	$8100	$8150	$8300	$8000
Rank	1*	2	3	N/A
Preference amount		$405	$405	N/A
Subtotal		$7745	$7895
Rank	3	1	2	N/A
Incentive percentage		3%	5%
Incentive amount		$243	$405
Evaluated bid price	$8100	$7502	$7490
Final Rank	3	2	1	N/A

Results:

Following application of the SB preference the lowest responsive, responsible bidder is a certified small business (Bidder B).

However, both Bidder B and Bidder C are eligible to receive the DVBE incentive and since Bidder C is also a responsive and responsible SB, the incentive calculation is performed.

Incentive Calculation:

Step	Action
1	Identify the net bid price of the #1 ranked bidder (Bidder A at $8100).
2	Calculate the 5% SB preference for both Bidder B and Bidder C: $8100 X .05 = $405
3	Determine the corresponding percentage of DVBE incentive for the bidder; Bidder B has 3% DVBE participation so the incentive is 3%.
4	Determine the “calculated DVBE incentive amount” for Bidder B by multiplying the #1 ranked bid amount by the incentive amount. ($8100 X .03 = $243). Compare it to the DVBE incentive maximum, if applicable, and use the lower figure.
5	Subtract the SB preference amount and the DVBE incentive amount from the net bid price of Bidder B:$8150 - $405 - $243 = $7502.
6	Repeat steps for Bidder C. Determine the “calculated DVBE incentive amount by multiplying the #1 ranked bid amount by the incentive amount. ($8100 X .05 = 405). Subtract the SB preference amount and the DVBE incentive amount from the net bid of Bidder C: $8300 - $405 - $405 = $7490.

Award:  The award is to Bidder C.

High Point Awards

The use of the DVBE incentive in solicitations where the award is based on high points requires that:

• The department only awards points to those bidders who have been determined responsible and are responsive to all solicitation requirements (including the DVBE program requirements, if applicable) and propose DVBE participation in the resulting purchase document.
• The department provides a rationale that explains how incentive points were determined for the solicitation. The incentive cannot exceed 5% or be less than 1% of total possible available points, not including points for socioeconomic incentives or preferences.
• The department includes incentive points in the sum of non-cost points. The incentive points cannot be used to achieve any applicable minimum point requirements.
• The department must identify how awarded points are to be tallied per the evaluation methodology identified within the solicitation.

When using the information technology IFB/RFP model, possible incentive points should be identified.

The incentive percentage cannot exceed 5% or be less than 1% of total possible points. Departments may identify a scale with varying percentages (within the acceptable range) or a single incentive percentage (within the acceptable range) based on the business need of a particular transaction.

High Point Award Example

The example below is provided to show how to determine whether the designated DVBE incentive points fall with the acceptable percentage range. The following provides an example of how points MAY be assigned for a solicitation. It does not represent, nor should be considered, the only approach that a customer may use for an award based on high points.

A solicitation has assigned 300 points as the maximum amount for administrative requirements and technical requirements (excludes the incentive).  The cost points assigned total 300. The point designation reflects an evaluation methodology weight for cost of 50% where administrative and technical requirements (excluding any preferences and incentives) = 50% and cost = 50%.

The number of points established for the DVBE incentive correlated to participation is depicted using the scale below:

DVBE Incentive Points:

Confirmed DVBE Participation of:	DVBE Incentive:
5% or Over	30
4% to 4.99% inclusive	24
3% to 3.99% inclusive	18
2% to 2.99% inclusive	12
1% to 1.99% inclusive	6

Total possible points, excluding points for socioeconomic incentives or preferences, in this sample solicitation equal 600 with 5% representing 30 points, 1% representing 6.  The acceptable point range of the DVBE incentive must fall within the 1% to 5% range (6-30 points). The DVBE incentive points in this sample meet this criterion.