Competition for state contracts rises in tight times

State government might seem like a ready, deep-pocketed customer for California small businesses, but these days there is far less money available and much more competition to get it.

The purchasing of goods and services by the state shrunk 22% to $8.97 billion in fiscal 2009 from the year before, according to a recent report from the Department of General Services. At the same time, small businesses certified to go after state dollars jumped 16% as companies looked for new ways to make up for weak sales.

“The whole world is suddenly looking to the government” for business, said Pam Branner, president and chief executive of HB Distributors, a longtime state contractor and small business in Northridge that sells telecommunications equipment.

State agencies are required to spend one-fourth of their purchasing dollars with small businesses. Those firms received $2.41 billion in fiscal 2009, a 9% decline from the year before.

Charles Berthon, general manager of Long Beach BMW Motorcycles, is feeling the pinch as competition for state dollars heats up and state spending falls. The company’s three-year contract to supply BMW police motorcycles to the California Highway Patrol and other agencies expires in June. The dealership and others around the state have bid on the new contract.

Because the company’s contract is public information, he said, he had to lower his bid this time to stay ahead of the competition. He said he still hopes to turn a profit by leveraging the efficiencies his team has learned since winning the first contract.

The dealership has sold 600 motorcycles under the current contract, but hasn’t had an order in six months because the recession has crimped budgets, Berthon said. He’s had to cut his workforce because of slow sales and now employs about 20 people.

He is keen to win the new bid.

“By winning the state contract, it opens us up to a lot of other opportunities all throughout the state,” Berthon said.

Overall, small firms snagged 26.9% of state contracts in fiscal 2009, above the 25% minimum required, the report said. The year before it was 23.8%.

The state prison system was the biggest customer for small businesses. It awarded about one-third of its contract dollars to small firms for purchases such as bedsheets, jelly and flour.

The Department of Corrections and Rehabilitation, with prisons across California, spent $1.2 billion on 28,422 contracts. That accounted for half of all small-business spending by the state.

The other big small-business spenders were the state Business, Transportation and Housing Agency, which awarded 7,447 contracts worth a total of $403 million, and the Health and Human Services Agency, with 14,918 contracts worth $193 million.

The governor’s office awarded 23.3% of its $21 million in contracts to small businesses.

Officials at the Department of General Services spend a lot of time working with underperforming agencies to help them do a better job buying from small businesses.

To turn up the heat, the department, which oversees state procurement efforts, plans to launch a public score card giving each department a red, yellow or green rating, with red indicating the departments that spend the smallest share of their purchasing dollars with small firms.

The state defines a small business as one with 100 or fewer employees and an average of $12 million or less in annual revenue over the previous three years. Small manufacturers aren’t subject to the revenue limit.

The stakes in the battle for state dollars are high for a small company, especially in a tough economy.

“It’s nerve-racking,” said Berthon, who expects to soon hear about his bid. “Very, very nerve-racking.”