BILL NUMBER: AB 669 CHAPTERED
BILL TEXT
CHAPTER 623
FILED WITH SECRETARY OF STATE SEPTEMBER 30, 2003
APPROVED BY GOVERNOR SEPTEMBER 30, 2003
PASSED THE SENATE SEPTEMBER 2, 2003
PASSED THE ASSEMBLY MAY 15, 2003
AMENDED IN ASSEMBLY APRIL 24, 2003
AMENDED IN ASSEMBLY APRIL 1, 2003
INTRODUCED BY Assembly Member Cohn
FEBRUARY 19, 2003
An act to amend Sections 14837, 14839, 14842, and 14842.5 of, and
to repeal Section 14838.6 of, the Government Code, and to amend
Sections 999, 999.6, and 999.9 of the Military and Veterans Code,
relating to public contracts.
LEGISLATIVE COUNSEL'S DIGEST
AB 669, Cohn. Public contracts: disabled veteran business
enterprises.
Existing law provides that in state contracts for construction,
the procurement of goods, information technology, or the delivery of
services, small businesses, as defined, shall receive a 5% bid
preference. Existing law also requires state agencies and all other
state entities contracting for materials, supplies, equipment,
alteration, repair, or improvement to have at least 3% participation
goals for disabled veteran business enterprises.
This bill would require small businesses and disabled veteran
business enterprises, as defined, to perform commercially useful
functions, as defined, in relation to any contract those businesses
are awarded under those provisions. This bill would also revise the
definition of disabled veteran to require that the veteran have at
least a 10% service-connected disability and be domiciled in
California.
Existing law subjects to certain penalties a business that
obtained classification as a small business or microbusiness by
reason of having furnished incorrect supporting information or
withholding relevant information. Existing law also imposes civil
penalties upon a person who, among other activities, fraudulently
attempts to become certified as a disabled veteran business
enterprise or as a small business or microbusiness.
This bill would impose civil penalties against any person that
knowingly and fraudulently represents that a commercially useful
function is being performed by a disabled veteran business
enterprise, a small business, or a microbusiness in order to obtain
or retain a state contract. This bill would also impose civil
penalties on any person that knowingly and fraudulently represents
the participation of disabled veteran business enterprises, certified
small businesses, or microbusinesses, in order to obtain or retain a
state contract. In addition, this bill would create new penalties
that would apply to the existing offenses and to these new offenses.
Existing law establishes within the Department of General Services
the Office of Small Business Certification and Resources, which is
responsible for assisting small businesses and microbusinesses in
obtaining state contracts, as provided.
This bill would rename that office as the Office of Small Business
and Disabled Veteran Business Enterprise Services, which would be
responsible for assisting small businesses, microbusinesses, and
certified disabled veteran business enterprises in obtaining state
contracts. This bill would also make related conforming changes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 14837 of the Government Code is amended to
read:
14837. As used in this chapter:
(a) "Department" means the Department of General Services.
(b) "Director" means the Director of General Services.
(c) "Manufacturer" means a business that is both of the following:
(1) Primarily engaged in the chemical or mechanical transformation
of raw materials or processed substances into new products.
(2) Classified between Codes 2000 to 3999, inclusive, of the
Standard Industrial Classification (SIC) Manual published by the
United States Office of Management and Budget, 1987 edition.
(d) (1) "Small business" means an independently owned and operated
business that is not dominant in its field of operation, the
principal office of which is located in California, the officers of
which are domiciled in California, and that, together with
affiliates, has 100 or fewer employees, and average annual gross
receipts of ten million dollars ($10,000,000) or less over the
previous three years, or is a manufacturer, as defined in subdivision
(c), with 100 or fewer employees.
(2) "Microbusiness" is a small business that, together with
affiliates, has average annual gross receipts of two million five
hundred thousand dollars ($2,500,000) or less over the previous three
years, or is a manufacturer, as defined in subdivision (c), with 25
or fewer employees.
(3) The director shall conduct a biennial review of the average
annual gross receipt levels specified in this subdivision and may
adjust that level to reflect changes in the California Consumer Price
Index for all items. To reflect unique variations or
characteristics of different industries, the director may establish,
to the extent necessary, either higher or lower qualifying standards
than those specified in this subdivision, or alternative standards
based on other applicable criteria.
(4) Standards applied under this subdivision shall be established
by regulation, in accordance with Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2, and shall preclude
the qualification of businesses that are dominant in their industry.
In addition, the standards shall provide that the certified small
business or microbusiness shall provide goods or services that
contribute to the fulfillment of the contract requirements by
performing a commercially useful function, as defined below:
(A) A certified small business or microbusiness is deemed to
perform a commercially useful function if the business does all of
the following:
(i) (I) Is responsible for the execution of a distinct element of
the work of the contract.
(II) Carries out its obligation by actually performing, managing,
or supervising the work involved.
(III) Performs work that is normal for its business services and
functions.
(ii) Is not further subcontracting a portion of the work that is
greater than that expected to be subcontracted by normal industry
practices.
(B) A contractor, subcontractor, or supplier will not be
considered to perform a commercially useful function if the
contractor's, subcontractor's, or supplier's role is limited to that
of an extra participant in a transaction, contract, or project
through which funds are passed in order to obtain the appearance of
small business or microbusiness participation.
(e) "Disabled veteran business enterprise" means an enterprise
that has been certified as meeting the qualifications established by
subdivision (g) of Section 999 of the Military and Veterans Code.
SEC. 2. Section 14838.6 of the Government Code is repealed.
SEC. 3. Section 14839 of the Government Code is amended to read:
14839. There is hereby established within the department the
Office of Small Business and Disabled Veteran Business Enterprise
Services. The duties of the office shall include:
(a) Compiling and maintaining a comprehensive bidders list of
qualified small businesses and disabled veteran business enterprises,
and noting which small businesses also qualify as microbusinesses.
(b) Coordinating with the Federal Small Business Administration,
the Minority Business Development Agency, and the Office of Small
Business Development of the Department of Economic and Business
Development.
(c) Providing technical and managerial aids to small businesses,
microbusinesses, and disabled veteran business enterprises, by
conducting workshops on matters in connection with government
procurement and contracting.
(d) Assisting small businesses, microbusinesses, and disabled
veteran business enterprises, in complying with the procedures for
bidding on state contracts.
(e) Working with appropriate state, federal, local, and private
organizations and business enterprises in disseminating information
on bidding procedures and opportunities available to small
businesses, microbusinesses, and disabled veteran business
enterprises.
(f) Making recommendations to the department and other state
agencies for simplification of specifications and terms in order to
increase the opportunities for small business, microbusiness, and
disabled veteran business enterprise participation.
(g) Develop, by regulation, other programs and practices that are
reasonably necessary to aid and protect the interest of small
businesses, microbusinesses, and disabled veteran business
enterprises in contracting with the state.
(h) The information furnished by each contractor requesting a
small business or microbusiness preference shall be under penalty of
perjury.
SEC. 4. Section 14842 of the Government Code is amended to read:
14842. (a) A business that has obtained classification as a small
business or microbusiness by reason of having furnished incorrect
supporting information or by reason of having withheld information,
and that knew, or should have known, the information furnished was
incorrect or the information withheld was relevant to its request for
classification, and that by reason of that classification has been
awarded a contract to which it would not otherwise have been
entitled, shall do all of the following:
(1) Pay to the state any difference between the contract amount
and what the state's costs would have been if the contract had been
properly awarded.
(2) In addition to the amount described in subdivision (a), be
assessed a penalty in an amount of not more than 10 percent of the
amount of the contract involved.
(3) Be ineligible to transact any business with the state either
directly as a prime contractor or indirectly as a subcontractor, for
a period of not less than three months and not more than 24 months.
State agencies may reject the bid of a supplier offering goods,
information technology, or services manufactured or provided by a
subcontractor if that subcontractor has been declared ineligible to
transact any business with the state under this chapter, even though
the bidder is a business in good standing.
(b) All payments to the state pursuant to paragraph (1) of
subdivision (a) shall be deposited in the fund out of which the
contract involved was awarded.
(c) All payments to the state pursuant to paragraph (2) of
subdivision (a) shall be deposited in the state General Fund.
(d) The small business certification of a business found to have
violated the provisions of subdivision (a) shall be revoked for a
period of not less than one year. For an additional or subsequent
violation, the period of certification revocation or suspension shall
be extended for a period of up to three years. The revocation shall
apply to the principals of the business and any subsequent
businesses formed by those principals.
(e) Prior to the imposition of any sanctions under this article, a
business shall be entitled to a public hearing and to at least five
working days' notice of the time and place thereof. The notice shall
state the reasons for the hearing.
SEC. 5. Section 14842.5 of the Government Code is amended to read:
14842.5. (a) It shall be unlawful for a person to do any of the
following:
(1) Knowingly and with intent to defraud, fraudulently obtain,
retain, attempt to obtain or retain, or aid another in fraudulently
obtaining or retaining or attempting to obtain or retain,
certification as a small business or microbusiness enterprise for the
purposes of this chapter.
(2) Willfully and knowingly make a false statement with the intent
to defraud, whether by affidavit, report, or other representation,
to a state official or employee for the purpose of influencing the
certification or denial of certification of any entity as a small
business or microbusiness enterprise.
(3) Willfully and knowingly obstruct, impede, or attempt to
obstruct or impede, any state official or employee who is
investigating the qualifications of a business entity that has
requested certification as a small business or microbusiness
enterprise.
(4) Knowingly and with intent to defraud, fraudulently obtain,
attempt to obtain, or aid another person in fraudulently obtaining or
attempting to obtain, public moneys to which the person is not
entitled under this chapter.
(5) Knowingly and with intent to defraud, fraudulently represent
certified small business or microbusiness participation in order to
obtain or retain a bid preference or a state contract.
(6) Knowingly and with intent to defraud, fraudulently represent
that a commercially useful function is being performed by a certified
small business or microbusiness in order to obtain or retain a bid
preference or a state contract.
(b) Any person who is found by the department to have violated any
of the provisions of subdivision (a) is subject to a civil penalty
of not more than five thousand dollars ($5,000).
(c) Any person who violates subdivision (a) shall, if certified as
a small business or a microbusiness, have the business'
certification revoked for a period of not more than one year, and
shall, in addition to the penalties provided for in subdivision (b),
be suspended from bidding on, or participating as a contractor, a
subcontractor, or a supplier in, any state contract or project for a
period of not less than three months nor more than 24 months.
However, for an additional or subsequent violation, the period of
certification revocation or suspension shall be extended for a period
of up to three years. The certification revocation shall apply to
the principals of the business and any subsequent businesses formed
by those principals. Any business or person who fails to satisfy the
penalties imposed pursuant to subdivisions (b) and (c) shall be
prohibited from further contracting with the state until the
penalties are satisfied.
(d) If a contractor, subcontractor, supplier, subsidiary, or
affiliate thereof, has been found by the department to have violated
subdivision (a) and that violation occurred within three years of
another violation of subdivision (a) found by the department, the
department shall prohibit that contractor, subcontractor, supplier,
subsidiary, or affiliate thereof, from entering into a state project
or state contract and from further bidding to a state entity, and
from being a subcontractor to a contractor for a state entity and
from being a supplier to a state entity.
SEC. 6. Section 999 of the Military and Veterans Code is amended
to read:
999. As used in this article, the following definitions apply:
(a) "Administering agency" means the Treasurer in the case of
contracts for professional bond services, and the Department of
General Services' Office of Small Business and Disabled Veteran
Business Enterprise Services, in the case of contracts governed by
Section 999.2.
(b) "Awarding department" means any state agency, department,
governmental entity, or other officer or entity empowered by law to
issue bonds or enter into contracts on behalf of the State of
California.
(c) "Bonds" means bonds, notes, warrants, certificates of
participation, and other evidences of indebtedness issued by or on
behalf of the State of California.
(d) "Contract" includes any agreement or joint agreement to
provide professional bond services to the State of California or an
awarding department. "Contract" also includes any agreement or joint
development agreement to provide labor, services, material,
supplies, or equipment in the performance of a contract, franchise,
concession, or lease granted, let, or awarded for and on behalf of
the State of California.
(e) (1) "Contractor" means any person or persons, regardless of
race, color, creed, national origin, ancestry, sex, marital status,
disability, religious or political affiliation, or age, or any sole
proprietorship, firm, partnership, joint venture, corporation, or
combination thereof who submits a bid and enters into a contract with
a representative of a state agency, department, governmental entity,
or other officer empowered by law to enter into contracts on behalf
of the State of California. "Contractor" includes any provider of
professional bond services who enters into a contract with an
awarding department.
(2) "Disabled Veteran Business Enterprise contractor,
subcontractor, or supplier" means any person or entity that has been
certified by the administering agency pursuant to this article and
that performs a "commercially useful function," as defined below, in
providing services or goods that contribute to the fulfillment of the
contract requirements:
(A) A person or an entity is deemed to perform a "commercially
useful function" if a person or entity does all of the following:
(i) (I) Is responsible for the execution of a distinct element of
the work of the contract.
(II) Carries out the obligation by actually performing, managing,
or supervising the work involved.
(III) Performs work that is normal for its business services and
functions.
(ii) Is not further subcontracting a portion of the work that is
greater than that expected to be subcontracted by normal industry
practices.
(B) A contractor, subcontractor, or supplier will not be
considered to perform a commercially useful function if the
contractor's, subcontractor's, or supplier's role is limited to that
of an extra participant in a transaction, contract, or project
through which funds are passed in order to obtain the appearance of
disabled veteran business enterprise participation.
(f) "Disabled veteran" means a veteran of the military, naval, or
air service of the United States, including, but not limited to, the
Philippine Commonwealth Army, the Regular Scouts ("Old Scouts"), and
the Special Philippine Scouts ("New Scouts"), who has at least a 10
percent service-connected disability and who is domiciled in the
State of California.
(g) (1) "Disabled veteran business enterprise" means a business
certified by the administering agency as meeting all of the following
requirements:
(A) It is a sole proprietorship at least 51 percent owned by one
or more disabled veterans or, in the case of a publicly owned
business, at least 51 percent of its stock is owned by one or more
disabled veterans; a subsidiary which is wholly owned by a parent
corporation, but only if at least 51 percent of the voting stock of
the parent corporation is owned by one or more disabled veterans; or
a joint venture in which at least 51 percent of the joint venture's
management and control and earnings are held by one or more disabled
veterans.
(B) The management and control of the daily business operations
are by one or more disabled veterans. The disabled veterans who
exercise management and control are not required to be the same
disabled veterans as the owners of the business.
(C) It is a sole proprietorship, corporation, or partnership with
its home office located in the United States, which is not a branch
or subsidiary of a foreign corporation, foreign firm, or other
foreign-based business.
(2) Notwithstanding paragraph (1), after the death or the
certification of a permanent medical disability of a disabled veteran
who is a majority owner of a business that qualified as a disabled
veteran business enterprise prior to that death or certification of a
permanent medical disability, and solely for purposes of any
contract entered into before that death or certification, that
business shall be deemed to be a disabled veteran business enterprise
for a period not to exceed three years after the date of that death
or certification of a permanent medical disability, if the business
is inherited or controlled by the spouse or child of that majority
owner, or by both of those persons.
(h) "Foreign corporation," "foreign firm," and "foreign-based
business" means a business entity that is incorporated or has its
principal headquarters located outside the United States of America.
(i) "Goal" means a numerically expressed objective that awarding
departments and contractors are required to make efforts to achieve.
(j) "Management and control" means effective and demonstrable
management of the business entity.
(k) "Professional bond services" include services as financial
advisers, bond counsel, underwriters in negotiated transactions,
underwriter's counsel, financial printers, feasibility consultants,
and other professional services related to the issuance and sale of
bonds.
SEC. 7. Section 999.6 of the Military and Veterans Code is amended
to read:
999.6. In implementing this article, the awarding department
shall utilize existing resources such as the Office of Small Business
and Disabled Veteran Business Enterprise Services, the Department of
Veterans Affairs, the federal Department of Veterans Affairs, and
the Small Business Administration.
SEC. 8. Section 999.9 of the Military and Veterans Code is amended
to read:
999.9. (a) It shall be unlawful for a person to:
(1) Knowingly and with intent to defraud, fraudulently obtain,
retain, attempt to obtain or retain, or aid another in fraudulently
obtaining or retaining or attempting to obtain or retain,
certification as a disabled veteran business enterprise for the
purpose of this article.
(2) Willfully and knowingly make a false statement with the intent
to defraud, whether by affidavit, report, or other representation,
to a state official or employee for the purpose of influencing the
certification or denial of certification of any entity as a disabled
veteran business enterprise.
(3) Willfully and knowingly obstruct, impede, or attempt to
obstruct or impede, any state official or employee who is
investigating the qualifications of a business entity which has
requested certification as a disabled veteran business enterprise.
(4) Knowingly and with intent to defraud, fraudulently obtain,
attempt to obtain, or aid another person in fraudulently obtaining or
attempting to obtain, public moneys to which the person is not
entitled under this article.
(5) Knowingly and with intent to defraud, fraudulently represent
participation of a disabled veteran business enterprise in order to
obtain or retain a bid preference or a state contract.
(6) Knowingly and with intent to defraud, fraudulently represent
that a commercially useful function is being performed by a disabled
veteran business enterprise in order to obtain or retain a bid
preference or a state contract.
(b) Any person who violates any of the provisions of subdivision
(a) shall be liable for a civil penalty not to exceed five thousand
dollars ($5,000) for the first violation, and a civil penalty not to
exceed twenty thousand dollars ($20,000) for each additional or
subsequent violation.
(c) Any person who violates subdivision (a) shall, if certified as
a disabled veteran business enterprise, have the business'
certification revoked for a period of not more than one year, and
shall, in addition to the penalties provided for in subdivision (b),
be suspended from bidding on, or participating as a contractor, a
subcontractor, or a supplier in, any state contract or project for a
period of not less than three months nor more than 24 months.
However, for an additional or subsequent violation the period of
certification revocation or suspension shall be extended for a period
of up to three years. The certification revocation shall apply to
the principals of the business and any subsequent businesses formed
by those principals. Any business or person who fails to satisfy the
penalties imposed pursuant to subdivisions (b) and (c) shall be
prohibited from further contracting with the state until the
penalties are satisfied.
(d) The awarding department shall report all alleged violations of
this section to the Office of Small Business and Disabled Veteran
Business Enterprise Services. The office shall subsequently report
all alleged violations to the Attorney General who shall determine
whether to bring a civil action against any person or firm for
violation of this section.
(e) The office shall monitor the status of all reported violations
and shall maintain and make available to all state departments a
central listing of all firms and persons who have been determined to
have committed violations resulting in suspension.
(f) No awarding department shall enter into any contract with any
person suspended for violating this section during the period of the
person's suspension. No awarding department shall award a contract
to any contractor utilizing the services of any person as a
subcontractor suspended for violating this section during the period
of the person's suspension.
(g) The awarding department shall check the central listing
provided by the office to verify that the person or contractor to
whom the contract is being awarded, or any person being utilized as a
subcontractor or supplier by that person or contractor, is not under
suspension for violating this section.