BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1650
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          Date of Hearing:   May 5, 2010

                                Felipe Fuentes, Chair

                    AB 1650 (Feuer) - As Amended:  April 27, 2010

          Policy Committee:                              JudiciaryVote:   
                       Business and Professions               11-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              


          This bill prohibits persons or firms with certain business  
          activities with Iran from bidding on public contracts.   
          Specifically, this bill:

          1)Prohibits a person or firm engaged in investment activities in  
            Iran's energy sector, as specified, to bid on, submit a  
            proposal for, or enter into a contract with the state or with  
            local public entities.

          2)Requires the state and local public entities to require a  
            person or business seeking a public contract who has had  
            business activities or other operations outside the U.S.  
            within the previous three years to certify that they are not  
            engaged in such investment activities.

          3)Makes a false certification subject to all of the following  

             a)   A civil penalty of the greater of $250,000 or twice the  
               amount of the contract for which the false certification  
               was made.

             b)   Termination of the contract at the awarding public  
               entity's discretion.

             c)   Ineligibility to bid on a contract for three years.

          4)Requires the awarding body to report a false certification to  
            the Attorney General (AG) and requires the AG to determine  


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            whether to bring a civil action.  Also authorizes a local  
            public entity to report a false certification to a local  
            prosecutor, who may determine whether to bring a civil action.

          5)Requires a public entity-if it determines that a person or  
            firm either under contract or who has submitted a bid or  
            proposal is engaged in investment activities in Iran's energy  
            sector-to provide 90 days written notice of its intent not to  
            enter into or renew a contract.  The notice is to specify  
            that, if the person or firm ceases involvement in Iran's  
            energy sector, it may become eligible for a future contract.

          6)Stipulates that all of the above are operative only upon  
            enactment of authorizing federal legislation or January 1,  
            2011, whichever is later, and are inoperative when federal law  
            ceases such authorization.
          FISCAL EFFECT  

          1)The state would experience cost increases in several ways:

             a)   To the extent the new certification requirement leads to  
               fewer bidders on state contracts, the reduced competition  
               would likely result in increased costs on some contracts.   
               (The Department of General Services (DGS) indicates that it  
               has seen a drop in vendor participation since the  
               implementation of AB 498 in 2008, which prohibits companies  
               with business operations in Sudan from bidding on state  
               contracts for goods and services.)  Given the multi-billion  
               dollar volume of annual state contracts, this impact would  
               likely be at least in the millions of dollars.

             b)   One-time costs of around $100,000 for DGS to develop the  
               certification form.  The estimate is based on DGS's  
               experience in developing a certification form implementing  
               AB 498.  In addition, DGS indicates that 15 other state  
               contracting entities developed their own certification  
               forms for AB 498, thus these agencies may incur similar  
               costs for this bill.

             c)   The new certification requirement would create a new  
               basis for bid protests, which will increase contract  
               administration cost related to protest hearings, delays in  
               awarding contracts, and re-bidding of contracts.


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          2)Local agencies will experience costs similar to those  
            described above.  These costs are not state reimbursable.


           1)Background and Purpose  .  Pending federal legislation on Iran  
            sanctions was introduced in response to concern over Iran's  
            engagement in nuclear proliferation. There are four measures  
            pending, two in the House and two in the Senate, that seek to  
            strengthen existing federal sanctions and enable state and  
            local governments to divest from companies engaging in  
            business in Iran's energy sector. Most relevant to this bill  
            are H.R. 2194 (Berman) and S. 2199 (Dodd), which would enact  
            the Comprehensive Iran Sanctions, Accountability, and  
            Divestment Act of 2009.  Each measure expressly states it is  
            U.S. policy to support the decision of state and local  
            governments to prohibit the investment (which includes  
            contracting for goods or services) of assets that they control  
            in any person or company with substantial investments in  
            Iran's energy sector. 

            Specifically, the federal legislation authorizes a state or  
            local government to divest assets from, or prohibit the  
            investment in, any person or entity that (1) invests $20  
            million or more in Iran's energy sector, including in a firm  
            that provides oil or liquified natural gas tankers, or  
            products used to construct or maintain pipelines used to  
            transport oil or liquified natural gas, for the energy sector  
            in Iran, or (2) is a financial institutions which extends $20  
            million or more in credit to another person, for 45 days or  
            more, if that person will use the credit to invest in Iran's  
            energy sector. 

            Finally, the proposed federal legislation specifies that the  
            Act will cease 30 days after the president certifies to  
            congress that the government of Iran has ceased (1) providing  
            support for acts of international terrorism; and (2) the  
            pursuit, acquisition, and development of nuclear, biological,  
            and chemical weapons and ballistic missile technology.

           2)Opposition  includes the California Chamber of Commerce and  
            several associations representing specific industries.   
            Opponents argue that a scrutinized person should be subject to  
            sanctions only for knowingly submitting a false certification,  
            that the bill's provisions should only apply prospectively,  


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            and that the bill is premature given that the federal  
            legislation is still pending.

           3)Prior Legislation  .  AB 961 (Krekorian) of 2009, which  
            prohibited companies that were engaged in business with  
            perpetrators of specified genocides and that still held looted  
            or deposited assets of genocide victims or their heirs from  
            entering into state contracts, was held on this committee's  
            Suspense File. 

            AB 498 (Hernandez)/Chapter 272 of 2008, prohibited companies  
            with business operations in Sudan from bidding on state  
            contracts for goods and services. 

            AB 221 (Anderson)/Chapter 671 of 2007, prohibited CalPERS and  
            CalSTRS from investing public employee retirement funds in a  
            company with active business operations in Iran's defense or  
            nuclear sectors, petroleum or natural gas resource  
            development, or with companies that engage in business with an  
            Iranian organization labeled as a terrorist group by the U.S.  

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081