How to Meet California's 3% DVBE Goal

The Disabled Veteran Business Enterprise (DVBE) program is California's state contracting program for businesses owned and run by veterans with service-connected disabilities. Created in 1989, it is administered by the Department of General Services (DGS) Office of Small Business and DVBE Services (OSDS), which certifies firms and sets the rules agencies follow.

If you manage or bid on state contracts, including civil, surveying, and stormwater work, you will see its requirements in nearly every solicitation. Here is how it works in 2026.

What is California's 3% DVBE goal?

State law requires each awarding department to set an annual goal of awarding at least 3 percent of its contract value to certified DVBEs, under:

• Military and Veterans Code Section 999 et seq.
• Public Contract Code Section 10115 et seq.
• Title 2 of the California Code of Regulations, Section 1896.60 et seq.

It is separate from the state's 25 percent small business goal, and it binds state entities. Cities and counties run their own programs, though some local agencies and utilities accept state DVBE certification as "reciprocity partners."

How is the state doing? In December 2025 the Legislative Analyst's Office (LAO) reported that the state as a whole met the goal in nine of ten years through 2023-24.

That year DVBEs received $743 million across 20,838 contracts, 4.6 percent of $16 billion reported. But only 85 of 150 mandatory reporting entities (57 percent) met it on their own.

Who qualifies as a DVBE?

Only firms certified by OSDS count toward the goal. Under the Military and Veterans Code and DGS eligibility rules:

• The disabled veterans who own and manage the firm must each have a service-connected disability of at least 10 percent, declared by the U.S. Department of Veterans Affairs or Department of Defense, and be domiciled in California.
• The business must be at least 51 percent owned by one or more disabled veterans. DGS requires an LLC to be wholly owned by disabled veterans.
• One or more disabled veterans must manage and control daily operations. They do not have to be the same people as the owners.
• The home office must be in the United States, and the firm cannot be a branch or subsidiary of a foreign business.

DVBE certification has been issued for two years. DGS regulations that would extend it to 36 months went to the Office of Administrative Law (OAL) for final review in 2026, and DGS says certifications active when the change takes effect will be extended.

How do prime contractors meet the participation requirement?

Under the State Contracting Manual, unless a contract is statutorily exempt, the DVBE participation requirement applies whatever the solicitation format or dollar value. The minimum is 3 percent unless the solicitation states otherwise. There are two ways to comply:

• A DVBE bidder commits to perform the required percentage with its own forces, or together with other DVBEs.
• A non-DVBE bidder commits to use certified DVBE subcontractors or suppliers for at least the required percentage.

What the bid must include

Either way, the bid must document it. DGS's standard DVBE Program Requirements call for:

• The Bidder Declaration (GSPD 05-105), listing each DVBE and its share.
• A DVBE Declarations form (DGS PD 843) for each DVBE.
• A signed confirmation letter from each DVBE subcontractor covering scope, schedule, and payment.
• A certification, under penalty of perjury, that each DVBE performs a commercially useful function.

Commercially useful function

Under Military and Veterans Code Section 999, a DVBE performs a "commercially useful function" only if it:

• Is responsible for a distinct element of the work.
• Actually performs, manages, or supervises that work.
• Does work normal for its business.
• Handles price, quality, quantity, ordering, installation, and payment for any products, materials, and supplies the contract requires.
• Does not subcontract more than is normal in the industry.

A pass-through arrangement does not count.

What happens after the contract is awarded?

Three rules matter most after award:

1. No unapproved substitutions. A prime must use the DVBEs listed in its bid. A replacement needs written approval from the awarding department and DGS before it starts work. Under DGS rules, it must be another certified DVBE doing the same work at no less than the committed participation level (Military and Veterans Code Section 999.5(g); 2 CCR § 1896.73).
2. Close-out certification. At completion, the prime certifies what it committed to each DVBE subcontractor and what it paid, on the Prime Contractor's Certification – DVBE Subcontractor Report (STD 817, formerly DGS PD 810P).
3. Withholding. On contracts entered into on or after January 1, 2021, the agency withholds $10,000 from the final payment (or the full final payment, if smaller) until that certification arrives. The prime gets a cure period of 15 to 30 calendar days after notice; after that, the withhold becomes permanent (Section 999.7).

These rules are enforced. The LAO counted 230 OSDS investigations from January 2021 to April 2025. Of 67 alleged program-abuse cases, 34 involved underutilization: a prime not giving the DVBE the work it committed. About a third of closed cases ended in sanctions, from warning letters to decertification and suspension.

A DVBE commitment, from bid to final payment

Illustrative diagram — not to scale

1. 1Bid: the Bidder Declaration (GSPD 05-105) lists each DVBE and its share.
2. 2Award: a DVBE not certified at the time of award does not count toward the goal.
3. 3After award: a replacement DVBE needs written approval from the awarding department and DGS before it starts work.
4. 4Close-out: at completion, the prime certifies what it committed to each DVBE subcontractor and what it paid, on the STD 817.
5. 5Final payment: on contracts entered into on or after January 1, 2021, the agency withholds $10,000 from the final payment (or the full final payment, if smaller) until that certification arrives.

How does the DVBE incentive work?

The incentive applies to every competitive solicitation that includes the DVBE Program Requirements. It affects only how bids rank, not the contract price.

• Low-price awards: each qualifying bid is reduced, for evaluation only, by 1 to 5 percent of the lowest responsive net bid price. DGS's standard table gives 3 percent for 3 to 3.99 percent confirmed DVBE participation, 4 percent for 4 to 4.99 percent, and 5 percent for 5 percent or more. Agencies may substitute their own table within that range.
• Caps: under DGS's standard requirements, the incentive cannot exceed 5 percent or $100,000, whichever is less, of the top-ranked net bid price. Combined with preferences such as the small business preference, the total adjustment cannot exceed $100,000.
• Best-value awards: the incentive is 1 to 5 percent of the available points.

One limit trips people up: on a low-price award, a non-small-business bidder's DVBE incentive cannot displace a top-ranked certified small business.

What is the SB/DVBE Option?

The SB/DVBE Option (Government Code Sections 14838.5 and 14838.7) lets a state agency contract directly with a certified small business or DVBE after getting price quotes (for public works, written bids) from at least two certified small businesses or two certified DVBEs.

It covers goods, services, and IT from $5,000.01 to $249,999.99. For public works, the ceiling rose from $461,000 to $484,000 under Department of Finance Budget Letter 26-02, issued March 18, 2026.

SB 1044, a 2026 bill, would have raised the ceiling to $350,000 for services and IT, leaving goods at $250,000. It was held in the Assembly Appropriations Committee on August 13, 2026, so the current limits stand.

What changed in 2025 and 2026?

• Remedial actions for agencies. On September 8, 2026, DGS announced (Bulletin P-05-26) remedial actions for state entities that miss the small business or DVBE goal in three of five fiscal years, counting from 2022-23. The four levels range from added reporting and outreach to executive-level engagement and limits on purchasing authority.
• An independent review. The LAO's December 2025 review, required by SB 588 (2020), found the substitution process working but said data problems made the $10,000 withholding rule hard to judge.
• New SB/DVBE regulations. DGS's rulemaking implementing AB 2019 and AB 2974 (36-month certification, higher gross-receipts limits, the 25 percent small business goal) completed public comment in August 2026 and went to OAL for final review.

How is DVBE different from the federal SDVOSB and DBE programs?

They are separate programs with separate certifications. The federal Service-Disabled Veteran-Owned Small Business (SDVOSB) program has a government-wide goal of at least 5 percent of federal contract dollars, and SBA certification (VetCert, in place since January 1, 2023) is required for SDVOSB set-aside and sole-source awards.

Federally assisted transportation contracts use the federal Disadvantaged Business Enterprise (DBE) program under 49 CFR Part 26, which USDOT overhauled with an interim final rule on October 3, 2025.

Caltrans has since re-evaluated its DBE firms and proposed a lower goal for FHWA-funded work in federal fiscal years 2027-2028: 11.80 percent, down from 21.35 percent. When funding is mixed, check which program each solicitation invokes.

What this means for your project

For agency project managers, plan DVBE participation during scoping, before the solicitation goes out. Search Cal eProcure's certified firm database by keyword or UNSPSC code, and consider the SB/DVBE Option for smaller, well-defined scopes.

For prime contractors, find distinct, measurable scopes early.

• Search Cal eProcure for certified DVBEs.
• Confirm each firm's certification before you bid.
• Get signed confirmation letters.
• Plan for the STD 817 at close-out.

On public land-development work, survey, civil, and stormwater tasks are usually separate deliverables: topographic surveys for design, construction staking during the build, street, storm drain, and sewer improvement plans, and SWPPP inspections through the rainy season. To talk through how a scope breaks into deliverables, contact our team.