BILL ANALYSIS AB 177 Page 1 ASSEMBLY THIRD READING AB 177 (Ruskin) As Amended January 4, 2010 Majority ECONOMIC DEVELOPMENT 6-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|V. Manuel Perez, Logue, |Ayes:|De Leon, Conway, Ammiano, | | |Beall, | |Bradford, Charles | | |Bill Berryhill, Block, | |Calderon, Coto, Davis, | | |Salas | |Fuentes, Hall, Harkey, | | | | |Miller, Nielsen, John A. | | | | |Perez, Skinner, Solorio, | | | | |Audra Strickland, | | | | |Torlakson | ----------------------------------------------------------------- SUMMARY : Increases and conforms penalties for persons who falsely engage in activities relating to the Small Business Procurement and Contract Act (Small Business Act), including small businesses, microbusinesses, and disabled veteran-owned business enterprises (DVBE). Specifically, this bill : 1)Extends revocation of small business certification and prohibition on further state business for certain specified fraudulent activities. 2)Adds a new penalty for making false statements on DVBE participation in contracts. 3)Extends revocation of DVBE certification and prohibition on further state business for certain specified fraudulent activities. 4)Terminates other state contracts for certain specified fraudulent activities related to small business, including microbusiness, and DVBE procurement. 5)Authorizes the Department of General Services (DGS) and the awarding department to recover costs incurred during their investigation into specified violations under the Small Business Act. AB 177 Page 2 EXISTING LAW : 1)Requires each state agency to annually meet a 3% DVBE procurement goal and a 25% small business goal, based on the aggregate amount of contracts let over the year. 2)Establishes a 5% preference for bids made by a certified small business, as defined. Non-small businesses that subcontract at least 25% of their contracts with small businesses may also qualify for the small business bidder's preference. 3)Establishes 5% preference for bids made a certified DVBE. 4)Defines a small business as a business that is independently owned, not dominant in its field of operation, domiciled in California, employing 100 or fewer employees, and earning $10 million or less in average annual gross revenues for the three previous years. 5)Defines a DVBE as a business entity that is at least 51% owned or controlled by one or more disabled veterans, as specified. FISCAL EFFECT : According to the Assembly Appropriation Committee, the costs associated with this legislation should be minor and absorbable within existing resources. COMMENTS : 1)The purpose of this bill is to address fraudulent behavior by individuals and businesses who seek to improperly obtain or retain small business and DVBE certification, bidding preferences or participation in state contracts. Testimony in legislative hearings by DGS, small business groups and DVBE advocates has reported that some current and prospective state contractors have fraudulently represented that they are a certified small business, DVBE, or that they will be utilizing the services of a certified small business or DVBE subcontractor. In other reported cases, individuals and businesses have made false statements in order to assist an ineligible business to become certified or to help them retain their improperly obtained certification once the business is being investigated AB 177 Page 3 by state officials. Still other individuals and businesses have fraudulently submitted bid packages that commit to using a certified DVBE or small business, but in actuality the subcontract is never let or the contracted work is inconsequential and only included in order to obtain a bid preference. Existing law contains penalties for contractors which fraudulently bid; however, examples of contractor abuses in the small business and DVBE programs are increasing. This bill would substantially increase penalties for a variety of fraudulent behaviors, including extending the term of revocations of certification and suspensions from applying for or participating in state contracts. 2)These provisions were originally included in SB 1942 (Ruskin) from the 2007-08 Session, which was vetoed. According to the Governor's message, "The historic delay in passing the 2008-2009 State Budget has forced me to prioritize the bills sent to my desk at the end of the year's legislative session. Given the delay, I am only signing bills that are the highest priority for California. This bill does not meet that standard and I cannot sign it at this time." Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090 FN: 0003602