Small Business Preference Policy

The following information is provided from the  Office of Small Business and DVBE Certification  of the Department of General Services. Additional information may be found on their website.

Small Business Bidding Preference Policy

The State of California grants a 5 percent bidding preference to certified small businesses on contracts. Small businesses must be certified by the Office of Small Business and DVBE Certification (OSDC) to claim the preference.

How the 5 Percent Preference Works

A preference of 5 percent of the lowest responsible bid is granted if the low bid has been submitted by a non-certified bidder.

The following example demonstrates the method used to determine the successful bidder using the 5 percent preference.

  • Bidder A - $19,879 (claims small business - certified small business)
  • Bidder B - $19,250 (claims small business - not certified)
  • Bidder C - $18,975 (not small business)

In this example, the preference allows 5 percent of the low bid, computed as follows:

  • $18,975 x .05 = $948.75

The certified bid is reduced by $948.75, which equals $18,930.25.

The 5 percent preference is merely used as a calculation for determining the lowest bidder and does not affect the actual price of the bid. Bidder A would be awarded the contract for $19,879 (the bid amount).

The preference may not exceed $50,000.


To qualify, you must submit a completed Small Business and/or Disabled Veteran Business Enterprise Certification Application (STD-812), along with the relevant signed federal tax returns to the OSDC. The certification process includes a review of three year's average annual receipts and relevant business information.

Small Business Criteria

  • An independently owned and operated business.
  • Not dominant in its field.
  • The principal office in California.
  • The officers domiciled in California.

Together with affiliates is either:

  • A service, construction, or non-manufacturer with 100 or fewer employees, and an average annual gross receipts of $10 million dollars ($10,000,000) or less over the previous three years.
  • A manufacturer with 100 or fewer employees.

Manufacturer means a business that is both:

  • Primarily engaged in the chemical or mechanical transformation of raw materials or processed substances into new products.
  • Classified between Codes 2000 and 3999, inclusive, of the Standard Industrial Classification (SIC) Manual published by the United States Office of Management and Budget, 1987 edition.

Small Business Certification Benefits

  • A 5 percent preference when bidding on State contracts.
  • Interest penalties for late, undisputed invoice payments under the Prompt Payment Act.
  • Business networking opportunities.

The OSDC's certified list is available on the Internet in a report query form.

Dated: 03-16-2006