History:

On Sept 30th 2003 AB669 was chaptered into California law by the Secretary of State, but wasn't implemented until the early part of 2005 and principally by CalTrans. It has had a devastating effect on the California DVBE community causing financial loss and in some cases bankruptcy.
This anti-DVBE legislation was designed by the Department of General Services that has a long history of being contentious towards the DVBE community. In effect it is a tricky reverse engineered legal approach to hurt the DVBE. Only a lawyer with insider knowledge at DGS could have engineered such deceptive wording. We have received over a hundred letters from DVBE's expressing their outrage.

Olivia Fonseca, Deputy Director, CalTrans Civil Rights Division decided to remove The DVBE RESOURCE CENTER from said agenda due to the fact that I Don Zweifel invited the legislative staffers for Senator Alan Lowenthal's and Assemblymember Betty Karnette's offices since they are on their respective transportation committees. She did not however adhere to the statutorily mandated 10-day advance notice as required in section 11122.5(b) of ÒThe Bagley Keene Open Meeting Act of 2004.Ó

We allege that at least one of her reasons being that, ÒWe've never had a visit from 'them' in the past, why start now,Ó so yours truly duly called them to cancel. After accomplishing this ostensibly unsavory task the night before, one would probably come to the conclusion that I would be placed back on the agenda again. Well it was a non-happeningÉ.

And now let's get back to the gist of this ÒWhite PaperÓ as it relates to the plight of the DVBE.

DGS and Caltrans have recently instituted a new interpretation of CUF. This decision to reinterpret a policy which has always worked so successfully and seamlessly in the past has now we contend adversely impacted many Disabled Veteran Business Enterprises or DVBE's.

One ostensibly good example would be the recent case involving ÒR.J. Noble Corp.Ó or ÓRJNÓ a prime contractor located in Orange County, and ÒPaving NetÓ or ÒPNÓ a C12/C32 DVBE paving contractor and CalTrans.

RJN was the apparent low bidder on a CalTrans state highway project and had listed PN to provide construction supply, i.e., hot asphalt to meet their 3% DVBE contract participation goal. As a matter of fact RJN has used Paving Net on several CalTrans projects for a number of years.

However their Contract Evaluation Unit or ÒCEUÓ decided that our firm wasn't performing a CUF because we weren't physically on the job-site or at the batch plant constantly overseeing every nuance or facet of contractual performance.xxx CalTrans it should be said sends all its apparent low bids to its CEU. So they ruled that PN was not performing a Commercially Useful Function by selling asphaltic concrete or ÒACÓ and disqualified RJN. RJN appealed and regrettably lost the appeal.

Paving Net was not allowed to appeal disallowing the CEU ruling as CalTrans stated they would only give information to the bidding prime which was RJN even though it also directly impacted our firm. Where's the due process here?

Further the CEU evidently has unlimited discretion to decide what constitutes the definition of an American free-enterprise system impacting said DVBE's. On the other hand, Paving Net is utilizing eCommerce tools blazing new trails to save prime contractors $ due to this advanced methodology of implementing contractual agreements.

May we now take a moment to iterate that as a C12/C32 paving contractor we have also been marketing hot AC for over 30 years. And we are suddenly being disallowed from participation?

Needless to say the RJN appeal was quite interesting. Once the date was set for the hearing Paving Net called to find out if it would be allowed to participate in the appeals process. Paving Net was informed that no allowance for it's participation would be countenanced unless RJN specifically requested it. The CEU refused to discuss the matter with PN & informed us that we were not part & parcel to any of the proceedingsÉ.

They also indicated that their appeals process in essence was not a Òformal legally constituted hearing,Ó but just an Òinformal meetingÓ where no due process would be extant. In other words no cross-examination of any of the potential witnesses. They also stated that since the appeals process was not statutorily mandated it was not incumbent upon them to hold any. The CEU only instituted the appeals process Òout of the kindness of their heartsÉÓ Well needless to say we at PN were stunned & bowled-over by these developments. However RJN invited Paving Net to the appeals hearing.

They brought an eminent local Sacramento attorney, Larry Kay, Esq. to assist them with their summation. Larry evidently has had a long & successful track record with on occasion locking horns with CalTrans. He stated that RJN could conceivably prevail after his perusal of all the applicable state statutes then available. Note Bene: Larry may not have realized that AB669 after being chaptered recently changed the playing field for all DVBE's in a singularly deleterious manner.

Unfortunately RJN did not succeed primarily due to the reasons previously mentioned. We did however speak with Olivia Fonseca, Olivia is also chair of the CalTrans Small Business Council & since we've been members for a number of years we unfortunately assumed that our firm could prevail upon her to show some leniency. Alas that was not to be as she stated unequivocally that Paving Net's physical presence was mandatory every step of the way or else PN would be disallowed again from any participation. AB669's provisions on the other hand didn't clearly delineate that the above had been indeed mandated per seÉ.xxxxx May we query as to where's the assumption that we're supposed to be physically disadvantaged due to our impairments? Where's the preferential treatment here? Where's the Òreasonable, sensible and logical accommodationÓ or the special dispensation we thought was statutorily stipulated? AB669 removed these stipulations which may be a violation of existing provisions protecting DVBE's in our humble opinion.

On an added note of potential interest, CalTrans is now demanding in their latest Request For Quote's or ÒRFQ'sÓ that if primes meet their 3% goal they must also do a Good Faith Effort or ÒGFE.Ó

Mightn't this perhaps be to cover-up their frustration for having to disqualify low-bidding primes which have no current way of knowing a priori or before the fact if their chosen DVBE meets a CUF or not?

Now no DVBE in California knows exactly where they stand until CEU rules on CUF on each and every RFQ on a case-by-case basis. My God, think of all the extra expenditures involved here to the tax-payerÉ. Therefore our company contends that this new interpretation is tantamount to throwing a monkey wrench into the entire DVBE works. Not to mention placing primes in the potentially untenable position that using a DVBE is not a good business decision as they have no possible way of knowing if the DVBE meets a Commercially Useful Function, if you'll forgive the reiteration. Then is it any wonder why they'll certainly tend to shy away from using a DVBE?

May we now state categorically that what this new strict interpretation of CUF does is to tilt the playing field away from DVBE's because we're not playing with a full team, oftentimes due to our frequently applicable physical impairments &/or war-wounds. In actuality it's our supposition that the innate disabilities themselves obviate or prevent equal participation with SBE's on CalTrans' playing field.

And now on to our second premise which is devoted to statutorily mandating and clearly delineating the CalTrans/DGS appeals process thus giving DVBE's the right or what one might call the obligation to participate since a fiduciary responsibility is rather evident here.

It is our allegation that CalTrans has initiated an appeals process that does not currently adhere to the principles of due process. As it stands now if a DVBE is disallowed from participating in a contractual arrangement with a prime on a state contract he/she is considered a non-participant & ergo not permitted to neither attend nor participate in an appeals hearing. Only the prime is required to attend if they have requested an appeals hearing. The DVBE however can request participation only if the prime acquiesces. However, no cross-examination of the witnesses is countenanced either as we stated earlier.

And now let's fast forward back to CUF. Our statutory goal is to improve and/or augment CalTrans' definition of a CUF which applies to DVBE's and we allege, certainly not to Small Business Enterprises or ÒSBE's.Ó

Several current state and federal definitions of CUF are located at and

Theoretically CUF is utilized to promote legitimate participation as it relates to the free market system.

Participation basically falls into two areas, supply and services. This recent interpretation by DGS and CalTrans if we may reiterate, is ruining many business opportunities for DVBE's that provide construction supply.

Basically the old anachronistic method of procurement has a vendor defined as if they had an actual warehouse or storefront. Essentially the current agency interpretation of CUF is utilizing this old pre-information age business model to disqualify DVBE participation when their business model has CUF using eCommerce.

A potentially superb example of what an information age solution should entail is "JITÓ or ÒJust-In-Time" inventorying which is now extant with many large & even small leading-edge businesses.

At the last DGS Small Business Advisory Council meeting in June, '05 one particular minority small business entrepreneur and DBE stood up to iterate that his business doesn't need a warehouse anymore because he utilizes "J-I-T." In other words he/she initially determines when they need to ship a product to a recipient then their company informs the supplier as to precisely when it has to be in their hands or he arranges to have the product drop-shipped directly to the customer thereby alleviating the necessity to handle it a second time. Does this turn him into nothing but a glorified broker? We think this expedites the delivery process of oftentimes time-critical materials. He's in actuality an expediter performing what we contend is another aspect of a Commercially Useful Function.

May we iterate that new entrepreneurs of procurement are currently readily available online. It's the new dynamic opportunity for our economy. For example one of our employees recently wanted to buy a Canon camcorder from Fry's Electronics, a reputable southern California retailer. They wanted almost $700. We went online, searched via ÒConsumer Reports.comÓ and found it for $300 less & thanked our lucky stars.

We therefore believe that the Ònew statutorily mandated CUFÓ should allow DVBE's to access this 21st century method of doing business. We therefore contend that DVBE's most assuredly deserve an reasonable accommodation. The CUF definition for DVBE's should not be similar to SBE's definition as we stated earlier.

Why? Because DVBE guys and gals are oftentimes fundamentally impaired or at least partially so. Due to these impairments, e.g., vision, hearing, other physical and/or psychological handicaps DVBE's should therefore have a more liberal definition of a CUF in our humble estimation, it's only fair & equitable.

They're the ones that put their lives on the line for our country & came back with debilitating wounds. Shouldn't this warrant some small consideration or as we've said a reasonable accommodation?

We recommend the following precepts for DVBE's

1. Encouraging eCommerce to lower costs and streamline business operations is the wave of the future and should of course by necessity, be of the present.

2. eCommerce should be a tool DVBE's can utilize to do business with primes bidding state contracts. We believe that DVBE's should not be held to doing business in the old anachronistic ÒsnailmailÓ age.

May we provide yet another very recent example

Cook Coatings, Inc., a California general contractor hired Paving Net to provide construction supplies that were to be purchased via Paving Net's account at Home Depot. Our firm provided a markedly improved accounting system to expedite Cook's paper work responsibilities.

Home Depot's invoices it should be noted are usually not delineated job-specific and therefore frequently cause Cook frustration due to this innate inefficiency. Paving Net remedied that problem via eCommerce and Cook was planning on enjoying Paving Net's improved procurement process saving Cook valuable time which translates into $

It may interest you to know that CalTrans disqualified Cook and said Cook should go directly to Home Depot or whomever, not usÉ. In essence saying, ÒDon't give them a leg-up.Ó An appeal is pending.

_ Further recommendations and facts of potential interest

Paving Net's business operations are now boilerplate and include the following elements:

1. Requirement in pre-bid negotiation to find the lowest possible price in the marketplace and other job-related advantages __and then marketing/selling to the prime/subcontractor.

2. We enter post-bid prime notice documents which are then faxed to the prime upon awarding of contract to assist his/her purchasing efforts.

3. Necessity to issue PO's to vendor when appropriate.

_4. Preliminary information doc's sent to prime and then returned to vendor.xxxxxx _5. Arranging invoicing during the procurement process.

6. Providing ÒConditionalÓ and ÒUnconditional ReleasesÓ as appropriate to our client contractor.

_ 7. Using Òfriendly persuasionÓ on primes to pay on time to maintain adequacy of Paving Net's numerous lines of credit.

_8. Paving Net always assumes liability for reimbursing its vendors. Our neck is always on the line here. If this isn't performing a Commercially Useful Function then what is it?

9. We file ÒStop-Notice'sÓ for it's vendors and proceed with legal collection efforts when necessary._ For example Paving Net recently had to file a Stop-Notice for $130,000.00 and succeeded in collecting the balance due in a timely manner. This certainly isn't providing a CUF is itÉ.

A Demonstrable Solution for DVBE's to prove ÒCUFÓ which should enable them to prevail with DGS/CalTrans

a. They shall have a city business license where their office is located.

b. They shall have a business checking account.

_c. They shall have a Dba

d. They shall have a resale certificate to provide supply from a vendor.xxxxxx e. They shall have a credit account with their vendors and be able to provide proof via signed documentation from the vendor.

f. _They shall proffer a competitive price quote prior to bid-opening date.xxxxx g. They shall directly invoice the prime &/or sub.

h. They shall automatically assume the transaction's financial liability when the prime does not pay in a timely mannerÉ.

i. Transaction payments shall be expedited to them from the prime &/or sub and they shall pay their vendors directly in a timely manner.

In summation may we reiterate that legislation is currently being proposed to protect and/or augment preferential treatment for DVBE's or if we don't take the bull by the horns soon we'll always continue to be on the short end of the stick.

Henry Sprague,III sole proprietor
for Paving Net Contractor & Supply Co. and
Compliance News Co.
Don Zweifel, registered lobbyist and
Exec. VP for ÒThe DBE/DVBE Resource Center.Ó