BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 1650 (Feuer) Hearing Date: 8/2/2010 Amended: 8/2/2010 Consultant: Bob Franzoia Policy Vote: G O 7-0 _________________________________________________________________ ____ BILL SUMMARY: AB 1650 would prohibit a person that is engaged in investment activities in the energy sector in Iran from bidding on, entering into or renewing a contract with a state agency for goods or services or a contract with a local public entity for goods or services of $1 million or more. The bill would require a prospective bidder for those contracts, to certify, after exercising due diligence, that it is not engaged in investment activities in the energy sector in Iran and would impose penalties for a person that provides a false certification. This bill would require the awarding body to give reasonable notice, and hearing if requested before penalties are imposed. This bill would impose the penalties on a person that provides a false certification but exercised due diligence, unless the person ceases engagement. This bill would, for a pending bid or contract proposal, or for a contract for which no false certification was made, require the awarding body, if the awarding body determines that a person is a person that engages in investment activities in the energy sector in Iran, to provide 90 days notice of its intent not to enter into or renew a contract for goods or services with that person. This bill would provide a person that is alleged to be engaged in investment activities in the energy sector in Iran with an opportunity to demonstrate it is not engaged in those activities. This bill would become inoperative upon the date federal authorization in Public Law 111-195 ceases. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund New state contracting Unknown potential increased costs forGeneral/ requirements and restrictions state goods and servicesSpecial State contracts oversight Unknown costs ongoing to administer General/ a more complex contracting process, Special including costs to resolve protests, delays in contracting and rebidding contracts; unknown, if any, penalty revenue _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. It is unknown how many companies might be restricted from bidding on state contracts, whether any of those companies might be low bid awardees, and how companies and the state will respond to the provisions of the bill. Implementing a more complex bid process likely will result in new costs ongoing. The federal Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (Public Law 111-195), authorizes a state or local government to adopt and enforce measures meeting certain requirements, to divest the assets of the state or local Page 2 AB 1650 (Feuer) government from, or prohibit the investment of those assets in, any person determined to be engaged in investment activities in Iran. A person is engaged in investment activities in the energy sector in Iran if any of the following is true: - The person has an investment of $20 million or more in the energy sector in Iran. - The person provides oil or liquefied natural gas tankers, or products used to construct or maintain pipelines used to transport oil or liquefied natural gas, for the energy sector in Iran. - The person is a financial institution that 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 the energy sector in Iran. A person submitting a false certification would be subject to a civil penalty, termination of an existing contract with the awarding body at the option of the awarding body and ineligibility to bid on a contract for a period of three years. The bill provides for combinations of these penalties where a person submitted false certification but exercised due diligence. The awarding body shall report to the Attorney General the person determined to have submitted a false certification and the Attorney General shall determine whether to bring a civil action against the person to collect the specified penalty in an amount that is equal to the greater of $250,000 or twice the amount of the contract for which the false certification was made. Penalty revenue could be paid to the state or to local governments. Staff notes AB 498 (Hernandez) Chapter 272/2008 requires a company that bids or submits a proposal for a contract for goods and services with a state agency to self- certify that it is not a scrutinized company engaged in specified activities in Sudan. Also, AB 221 (Anderson) Chapter 671/2007 requires CalPERS and CalSTRS to sell or transfer any investments in a company with business operations in Iran.