feedback that was too high. what we have done in the most recent version is we have reduced the bid discount from 8% to 4% i want to thank the budget analyst. we have incorporated many of the comments and suggestions they had and what we propose is the h r c and controller provide an evaluation every six months for the first two years followed by an annual evaluation. we also require a benefit corporation needs to have been a benefit corporation for at least six months before they bid for a contract. we have had feedback on to other issues. depending on feedback from the committee today, i'm prepared to suggest we make them.

one is that potentially requiring that the corporations to submit proof of a third- party benefit and second, an amendment we are prepared to make the committee sees fit is to deal with the possibility that a non-local benefit corporation could beat out a san francisco business that is not an lbe. with that, colleagues, i would love to have a conversation about this as well as hear from members of the public. i would like to invite up teresa sparks to say a few words from the vantage point of her position. we have heard from stakeholder''

about the initial draft of our legislation. i hope and think it's a better place today, but i would like to give an opportunity to say whatever you would like to say. >> with regards to the amendments before us, it sounds like it would not substitute for the amendment. >> i have been told that because these amendments narrow the scope of who provided the preference that they are not substantive. with regards to the amendments we have not included -- these have arisen at the last few days at that they are not substantive. the city attorney is looking into how they should be drafted. we should make the concept of these amendments today and not sent it to the full board for two weeks and that would give us time to tighten up the language

to make sure it to file for public review. supervisor chu: thank you for that. i think there is a benefit to making sure we understand what is out there. >> thank you for the opportunity to respond to this. the commission formed a separate working group aside from the standing advisor committee to approve this and recommended changes to the supervisor at full commission. the local standing advisory committee has met twice about this and had a special meeting that lasted late into the evening to talk about this. the result has been we believe it is a piece of legislation that it functional and beneficial and doesn't harm local business enterprise program as it is administered today.

the commission did not take a formal position but the advisory committee did in fact indorse of the recommendations and the changes that supervisor chiu has offered today. we also appreciate the budget analyst report on this and we agree with nearly all the other recommendations. we did have an issue with the cost of the program in that we calculated a little differently the potential costs, but even the cost the budget analyst use was less than half the total cost and we don't believe it is substantive as far as the cost to the city. we did have a couple of small recommendations last night that i wanted to offer. one was that the benefit go back to san francisco.

second, the contract awarded authority has the ability to penalize a corporation even after they received the bid. half the human rights -- the human rights commission endorsed the changes and supports this legislation. >> could you speak again to the legislation? >> one of the questions is if they became a be corporation to receive the preference and if a multi-year contract they decided not to continue their the corporation status that there be some type of penalty. possibly related to the amount of benefit they got from receiving the contract. being able to penalize the apparent fraud -- the way the

legislation is written is that when the benefit is doled out by the corporation, it can go to any place in california. what we are suggesting is if the benefit is given by the city of san francisco to allow a company to receive a bid that the benefit from the corporation should accrue to san francisco as well. those are minor changes but we support the legislation as written. >> you had said earlier you did not think it was financially substantive? >> the budget analysts came up with a figure of around $855,000 as far as the cost.

this was based on statistical analysis of construction contracts over the last year. they calculated it based on a 10% cost and we believe if it was calculated on the 4% cost that the amount would be reduced and that would reduce the impact on the city. even at the $855,000, the total contract amount for these contracts was $466 million. the total impact was less than 1% of what the cost to the city would be. >> that is assuming our current level of the certified businesses, correct?

>> we took the total construction contracts under $10 billion for last year and applied a 4% discount to see which ones would actually get the contract if they were be corporations. we took all the contracts and made some assumptions to determine which ones might impact. impacted very few solely calculated predicate about that. >> i'm not sure who to ask this question to, but in the budget report, i know the potential costs of applying these discounts was approximately $984,000. but this was just for construction contracts.

i'm curious to know how we could calculate how much these have affected the other discounts in the city. i know there was another question about centralizing our bid process so that we have a way to track the data more efficiently. i'm curious if there has been any headway on that. >> i can make one comment. when we did the analysis, the major contract in organizations last year, what we found was under $10 billion, 94% were awarded to local businesses. so i think this program is working very well and having a substantive impact on our business is being able to do work for san francisco. our concern was this program did not trust that.

the legislation would not affect lbe's from continuing to get contracts. >> in the current contracting process, the equipment or supplies or uniforms, how are we able to contract how much the cost or city -- >> we track it quarterly and send it to be enterprise committee and send it to supervisor chiu's office quarterly and make reports to the board and to the mayor. we do that quarterly and that is based on a piece of legislation offered 18 months ago to make sure we're tracking are local

businesses and that's how we are able to say a large percentage -- we think these have made it much more attractive for local businesses to work here. >> how much does the discount help? are they effectively competitive? >> that's an excellent question. we were surprised that they were very competitive even without the discount. they are winning many contracts without the discount. we are not suggesting we should change the discount, but we are seeing they are very efficient in the way they did these construction contracts. we did not look at professional services. >> i am excited to hear that. i support the discounts even if they are competitively bidding for the contracts. i'm curious to see what

percentages -- come as the discounts are you lies in what the cost is to the city. it is a cost i support. >> we could do that very quickly and get that to you. supervisor chu: thank you. we will cut the budget analyst report. have some questions about the construction. i asked whether this would just apply to construction contracts and if we are just saying it is hard to estimate what the impact would be -- i don't know that we have the full picture of what it could be. if the program is successful and we have more or start to be certified as a the corporation, you might have more competition. i'm not sure i understand what the full impact is.

>> on page 5 of our report, at this time, it is uncertain how many companies will seek corporation status and of those, which will seek contract with the city. we cannot quantify the actual fiscal impact at this time. we asked the department for data to try to put the cost in context. what we have is not the estimated cost of it's going to happen with this particular legislation, but simply to put some context with other preferences and when we asked the department to submit the data, the only submit the construction data. that's why we have the example of our report and when we look at that, we estimated the

construction costs was $822,000. i want to emphasize we are not representing this is the estimated cost of this legislation. it simply to give an example to the board of what is happening with other preferences. the only other thing i would add is our recommendation on page 6. we recommend you emblem of day process for city discounts -- that you amend the ordinance and amend the legislation to centralize the bid discount program to measure an outcome

that we consider this as amended to the board of supervisors. >> if i could just address how we specifically dealt with the issues recommended by the director and by mr. rose. we think it might make sense to include amendment to require oversight over this and they keep an up-to-date list of approved -- approved benefit corporation that they not only have to submit paperwork under the state of california but provide additional third-party verification of exactly what that public benefit is. there are a number of third- party verify errors that are out there and we would leave that up to them to decide which standards would be appropriate as a way of addressing whether or not it is meeting the

corporate benefit objective. we have incorporated with monitoring every six months for the first two years and an annual monitoring after that. the third recommendation addressed in the language are referred to oversight and monitoring and then director sparks pointed up the issue of wanting to make sure there were benefits accrued to san francisco and it essentially says if you are a benefit corp., you should not get a bid preference to beat out a san francisco business. but if there is no nonprofit or san francisco business in the pool, what makes sense is for a non-san francisco but if a corporation to receive a slight preference over non-san

francisco cos. hopefully that addresses the concern. this is an area i have been working on for months now. i want to make sure the committee is comfortable with what we are proposing. >> as we have worked on the legislation, it's difficult to get your hat around it and understand where it might make sense. no matter what we do, we can't easily have loosely say let's give a preference that it will translate to business for san francisco, but a big consideration for me as we try to tighten how we are spending our scarce dollars. with regards to the type of contracts it would cover, it sounds like it covers professional services and construction contracts. what happens where it is the purchase of commodities?

>> i believe it would apply to that, but there are -- i am not aware of any benefit corporations in that world right now. but we can certainly look into that. >> as we had conversations around that -- what could potentially happen is a gaming system where what you are encouraging is to have companies serve as middlemen to another vendor and they get to benefit of the margin of being the middleman because there is a bid preference. that is an area i would like to tighten the language around because of of going to buy pan from office depot and another corporation gets a bit preference because they are a community benefit and purchasing the same pen at office depot, why would we want to pay them

the extra margin? it makes no sense. that's an area i would like us to explore a more and with regard to the community benefits in terms of the recommendation to have a third party verification, that is something that is interesting and i would be interested to see that amendment go through. i'm not as familiar with the term about what does it mean to be a b corp. and is this something that gets applied internationally or san francisco local area al qaeda you are trying to get around that and say to prevent a non- san francisco business, it would not be able to displace eddie san francisco business but if we're really going to say that we want to provide -- rale man -- i just need to understand the definition better about the third party definition and how

that relates back to benefiting the san francisco communities? supervisor kim: i just want to follow up on my previous question. we had the about the the actual cost to the city for our construction contracts but it would be great to get that for all of our contracts to get a better sense of what the budgetary impact of these discounts are. i was also hoping to get more information on the third party verification. california is the only state that has established -- >> that is not true.

california is the sixth state and there are a total of 15 states that have either passed are the process of passing legislation. >> i thought i had read that california is the only state that does not have a third party verification. >> that is true. >> to other states have a model that it -- what would be the process to establish that? we do it before we give discounts? >> there might be one are two of them here. benefit corporations are required under state law to provide an annual accounting and auditing of their benefits to the committee. but these third party standards are separate auditor's that look at it to make sure folks are in compliance with benefit

corporations. an amendment i have suggested is to provide oversight of the third-party their fires and they would be required to have proof they are verified under the third party to show they are actually contract -- it would be up to them to do that. >> would weasel out prior to the discount taking effect or would we start utilizing the discount and have worrier to come up with a third party verification? >> one of the amendments we of made requires a benefit corporation actually be a benefit corp. for six months a little lead times a week to get ahead of it. >> thank you.

it's important when a company is competing with other companies outside the city that we are able to give a discount if they are providing low income communities or providing opportunities beyond the creation of jobs and i think this ordinance is an important step but i'm curious about some of the other things we will do to implement that. supervisor chu: thank you. just in terms of the definition, just understand that you have got corporations that might be benefit communities and different ways. but is there or -- is there a certain percentage of the profit that goes to benefit communities or is it just 1% would suffice that -- i don't understand the definition. >> there are a number of folks from the benefit corporation world war here and i would like if in your public comment you

might be able to address this. different corporations provide different benefits in different ways. some have benefits like green collar jobs or hire individuals that have been traditionally challenged. others have sustainability practices and the metrics are very different. the thing that is common to all of them is that there are measurable community benefits documented in annual reports and the case that will be on this legislation and verified by third parties that the standards are not meaningless. >> thank you. supervisor avalos: this is interesting legislation. i remember last year, i was very intrigued by it and there have been some great opportunities to give business models here in san francisco. i don't know how long it's going

to take -- my question is along the lines -- what really makes -- can wells fargo be called a b corporation for providing certain benefits to people in the bay area? is that something they can benefit from? i'm trying to get a sense of how and corporation happens and what are the thresholds for that to happen. you could have a subsidiary of your major corporation. i don't necessarily think those benefits are as strong as they could be. chevron has extracted oil and places that are very

politically challenged -- because they're doing good work somewhere else -- these are questions i have. >> these are all very valid questions. the thing that is important to remember is that for a corporation to reclassify themselves as a benefit corporation, they need to change their bylaws to state their bottom line is just not about profit. for a typical corporation, the type of examples you gave like bank of america and wells fargo, those companies, their directors and shareholders would not allow that change within the corporate bylaws to permit the expenditure of revenues for things that don't go directly to profits.

we are encouraging companies to have a commitment to social benefits in the broader community. the level of accountability and transparency around as corporate purpose are pretty significant. you need to have annual reports that demonstrate what you are doing with regard to various standards and as we said before, there are a third party standards to assure these companies are doing something real as opposed to something for of brainwashing or marketing purposes. it's a valid question and one i know third-party validated are focused on because they are concerned about wanting to make sure the company classifies itself as a benefit corporation they are actually providing a benefit. >> -- supervisor avalos: that sounds interesting. i'm just wondering -- i don't

know much about the construction of corporations. is there a way for a corporation like chevron, having a subsidiary under chevron that could even be called chevron that is a public benefit corporation and is that something we can see or is it a structure that could exist that would benefit from this legislation? if that is the case, there's a flaw in the overall legislation. >> of the top of my head, i don't know the specific answer to your question. i suspect this has been contemplated before.

supervisor chu: i have one final comment. part of the amendment being proposed is to make sure there's a benefit corporation that would get discount it would not pump -- would not bump the other. the question of how we are accomplishing that. that is one way of addressing it, but i think there is another question i have which is being an additive discount is a significant one and i want to clarify what that means. if you are a be corp. and get a discount, you are a joint venture or whatever, the discount could go as high as 14% which is substantial.